Q4 2023 Ark Restaurants Corp Earnings Call

Presentation

Operator

Greetings and welcome to Ark Restaurants fourth quarter and fiscal year ended results. (Operator Instructions)
As a reminder, this conference is being recorded. It is now my pleasure to introduce Christopher Love, Secretary for Ark Restaurants. Thank you. You may begin.

Thank you, operator. Good morning and thank you for joining us on our conference call for the fourth quarter and fiscal year ended September 30, 2023.
Sorry, my name is Christopher Love and I'm the Secretary of Ark Restaurants. With me on the call today is Michael Weinstein, our Chairman and CEO; Anthony Sirica, our President and Chief Financial Officer.
For those of you who have not yet obtained a copy of our press release, it was issued over the Newswires yesterday and is available on our website. To review the full text of that press release, along with the associated financial tables, please go to our homepage at www.arkrestaurants.com. Before we begin, however, I'd like to read the safe harbor statement.
I need to remind everyone that part of our discussion this morning will include forward-looking statements and that these statements are not guarantees of future performance, and therefore, undue reliance should not be placed on them. We refer everyone to our filings with the Securities and Exchange Commission for a more detailed discussion of the risks that may have a direct bearing on our operating results, performance and financial condition.
I'll now turn the call over to Mike.

And before I start, I want to bring in Anthony, our CFO and President to talk about our balance sheet and the write-off of the goodwill charge to give you a better explanation.

Good morning, everyone, our balance sheet at year end continues to be strong. Our cash position was about $13.5 million. Currently, it's probably tracking a little higher than that. Our debt is $7.2 million compared to $20 some odd million last year -- $24 million last year. As you might be aware, we paid off about $16 million of our notes on late March, early April with our new credit agreement.
The only other significant change, as you read in the release, was a goodwill impairment of $10 million as we got into the quarter close, we realized that there was a triggering event related to our goodwill assessment due to the decline in the stock price and the upcoming expiration of the Bryant Park leases and the related RFPs that were issued for the spaces.
So as a result, we performed a quantitative assessment based on the income approach, utilizing a discounted cash flow analysis. The analysis took into account the estimating future after-tax cash flows, discounting them back to present value and the possibility that the leases may not be renewed. So given all that we also consulted with third-party experts. The impairment came up to about $10 million. And that's really on the highlights of the balance sheet on the P&L. Michael's going to talk about?

Yeah. So the EBITDA for the year -- I'm going to get to them the larger of elephants in the room and a few seconds. But the P&L for the year or the EBITDA for the year was about $9.6 million on costs, I would say that you're pretty much on the conservative side of the redo of Cal Gallagher's in addition to the capital and improvement it cost us some $2 million.
Probably cost us some $1.6 million, $1.7 million in cash flow. The reason for that is that our deal going in when we redid the leases at New York, New York is we agreed that even during the refurbishing periods, we would continue to pay rent and in addition to pay rent, we were paying for payrolls, insurance premiums, everything related to the cost of operating a restaurant with the exception of the purchase of food and beverages.
So food and beverage costs at Gallagher's run about 30%, 32% between the closing and the slow real or the slow uptake on revenue. When we reopened on there was about $2.2 million, $2.3 million missing sales. Gallagher's is actually now presently at least this month performing better than it ever performed. So we think the refurbishing is working in our favor in terms of revenue.
But during that period of time, I would put a number here, one five, one six, one seven, something in that area of lost have lost cash flow. So the $9.6 million in EBITDA, if we had not closed Gallagher's, conceivably could have been $11 million plus. We suffered dramatically of the last four months and continue to suffer with sales at our full-service restaurants in southern Florida.
That means JB's gloom shutters and up until recently Rustic, which is now revenues are on pace with some with the prior year. But in the other three, we were down 10%, 15% on a weekly basis. And it continues our Hollywood property which is a fast food facility within the Hard Rock Casinos has been doing well and comping well on.
It just got a bump up because we now have some table games which were approved by the state for that casino. And we're seeing a pretty early on is we don't know how whether it's just a honeymoon period, but we're seeing a bump in sales in Hollywood and a slight bump in Tampa where we're gaming has been expanded to table games.
Our properties in Alabama continue to perform well, our Las Vegas at sales of very strong. The efficiency in Vegas is up dramatically. We were forced to when we replaced management after Paul Gordon retired. We found that we were not strong enough in certain positions.
We also had some poaching going on by other casinos down this year from came after some of our people in this particular week in the Vegas market payrolls are way up because competition for too few good workers is very keen. So we're having payroll problems there.
New York, our business was very good, continues to be driven in large part by events where there doesn't seem to be price sensitivity, Washington, D.C. We're doing good, but not great on that facility continues to underperform our expectations.
We keep working on it. So all in all, my job is to China with SaaS on how we're performing at the restaurant levels. I think our product is good. Our services are good I think the people we have running these restaurants are doing an excellent job. I don't see any shortfall in that at all on.
If you look at the last couple of weeks, which did not make a year. Obviously, we're seeing record sales in New York at Robert and Bryant Park, and we've seen record sales in Las Vegas. So a lot of properties are really performing very, very well.
On the revenue side. The crimp in all of this is, my reluctance to raise prices as much as everybody else is and my feeling that customers will have a negative reaction is no ridiculous prices from my point of view. So we raised prices modestly and we're facing increased payroll costs continue to increase payroll costs everywhere, increased premiums on insurance utilities.
It's just been a tough, a tough period of time to keep margins anywhere near where they used to be. But in all I think we're performing very well on. I'm sure you are all going to have questions about prime part data as it was disclosed in our 10K somewhere in late spring, we were informed that the parts department was going to issue RFPs as per their policy for the Bryant Park operations.
I've had some leases coming due sometime in May 2025 of the RFPs came out. They were a bit vague on. We got some better color on what they were looking for in terms of RFP response, we responded on late October, November 1, October 26 to 28 reliability?
Yes, it was due on November first. And we all we all we know so far is that we're a finalist in the process, and I really don't have very much to say about it. I've been I'm not excited not on excited. I think we made a great presentation. We've done a great job for the park.
That restaurant is one of the highest grossing restaurants in the United States. Considering that it's not allowed to do late-night service, we close for reservations on most nights at nine o'clock because Park closes at 10.
And there is a requirement that noise levels because residential around it be kept to a minimum. So there's no such thing as portion or bottle service. And in the RK., it mentioned that the restaurant was one of the largest grossing restaurants in the United States.
So I have no indication where we stand on that. And we're a finalist in the process. I went out to everybody, and it's been whittled down to a few metal lands. We continue to.
Yes, we'll be hopeful that there will be a casino license issued at some point. But the but the plan is for New Jersey is that we don't think they're going to make a move. But until New York issue sustained state liquor licenses, we can figure out what the legislature is doing.
But we're and we're in the best position to get a casino license if the state moves to have a casino in the north. And I hope that gives you a little idea of them how this business is performing. And I'm open for questions thank you.

Question and Answer Session

Operator

(Operator Instructions)
Jeffrey Kaminsky, JJK consultants.

Good morning, everyone and Michael, just the order moving there, please. We are reviewing the goodwill impairment test as possible, and Anthony mentioned it again a few minutes ago and there was a triggering events, singular triggering events, and it follows it says due to the volatility of the Company's stock price.
I've been doing this a while and from top to bottom obviously the stock price and the low trading volumes, maybe high 70s, low 80s to high 40s, low 50s. We also talked about maybe 20% movement in the stock. I wouldn't I wouldn't consider it little. You were doing events.
So I'd like some color on that consecutively. You include as part of the triggering event, and I know you guys make it sound event as if it's a singular event, but you also include are that the upcoming expiration of the Bryant Park properties and who leads the related proposals.
So what was the trigger is the triggers of the volatility in the price or was the trigger Bryant Park situation and the BioPak situation has not yet been reached. So should it resolve favorably are you then going to reverse the $10 million goodwill impairment, could you clarify that would make sense?

Yes, sure. Well, okay. So the way the assessment works is the first test is you compare the value of your shares, the equity value to the book value of the company. So what you do is you take your shares outstanding at the end of the quarter at a point in time test multiplied by the publicly trading price.
For all prior quarters, up until the fourth quarter, our stock was trading above $17, $15, $18 and we were covered our fair value of the shares was higher than the book value of the equity. When the at the end of the quarter, the stock was around 15, 15 and a quarter, which was still that up until yesterday around that around that price.
And when you did the test, there was a significant shortfall. It was it was below the book value by about I forget what the number was $6 million, $7 million. So now you have to go to the second step of the goodwill impairment. The second step is you have to look at discounted cash flows and you have to model it out.
And when you start looking at that, you have to take into multiple take into consideration multiple scenarios. You couldn't just project out that you got to keep Bryant Park for the next 10 years. You have to factor in a scenario awaited scenario that you could lose it and therefore lose the cash flows associated with that. And that's what we did. And that's how we came up with the impairment.

You also so happens, it's hard to reverse on that had the stock price held, then you wouldn't have to consider the Bryant Park lease expiration. That was the it was the triggering event was the was the stock price vis a vis the book value?

Yes.

So the answer to that, Jeffrey is twofold. Number one is the stock price it held. We once we've gone through this process and then the outside consultants and our own them case count who are our auditors wo Okay. n�t have had to go further and say what if and what if I'm right on, I don't want anybody to think that US, considering Brian parks lease and in this scenario of refigure in taking the write off of goodwill, has anything to do with characterizing our chances of renewing the lease.
This is strictly a mathematical computation. It doesn't take into account at all on any our feelings about where we stand in the process of renewing that lease on it. Just says basically the lease comes due in May of 2025. And what happens if we don't get it and this would be the result and it's all triggered by the stock price falling below a certain point where this whole process began. But you are right, it has nothing to do with our feelings about whether or not we're going to renew that.

Okay. So should that or should we should you get the response and would probably bounce, are you then going to have to reconsider the goodwill situation again because now you're going to have a lease through another 20 or 30 --?

Are there no kind of stock as accounting purposes under the accounting standards once you once you write off the goodwill, it's gone. You don't put it back on the books, the stock to go to 50. You don't put it back on the books. That's the that's the accounting standards. I mean that's not --

Okay. While drawing on lessons at this point and hindsight's 2020, no, there have been people on this call that I've mentioned yield perhaps having some sort of buyback in place system stabilizing a mechanism in a very, very illiquid stock, which has been and we're paying interest on a $7 million alone.
For the moment, we don't need and again, hindsight is 2020, but profit have been proven to have a small buyback in place. And I might add this exercise the necessary has really taken much to keep $17, $18, $19 now.

So that's a good point. The other the best way for me to answer this is this is certain there are certain moving parts, Uhm-hmm in a way this occurred or even with the stock at $15, $16 ARM, we have we continue to have an eye on making some acquisitions. So we like the fact that we have this $14million, $15 million
Yes, balance of the to make acquisitions, and we're constantly looking at it. And I rather have I rather be buying what I consider some reliable cash flow than buy back my stock and have to borrow money to make acquisitions. So that's part of this on the second, the second part, hum, honestly, is his stock is very, very thin on it's very hard to buy at Hyatt.
I assume that at some point the stock price will rationalize itself if we perform well, I'm not interested in being a support for the stock unless I had a hoard of money that I didn't see anything, , any targets out there to use the money for. So if we if we were in that position.
Yes. Would I buy back the stock?
Yes, but how much am I going to be of the buyback? It's not going to be meaningful. What's more meaningful is having the money available to make, quote a meaningful acquisition that gives us a long-term cash flow on so that that's been my position on what we do know on a transaction to check trying to take the company private well that , that presents problems also because certainly certain shareholders who get screwed by that some others would do well.
But the big problem would be how do you evaluate the value of our deal at the Meadowlands And if that were to become a casino, everybody that was bought out with fuel that we and we knew something and took advantage of some information that wasn't available to them, which is not the case, but we still view that way. So I'm comfortable at the moment in terms of the Company's cash balances to leave those in place and trying to find something that it enhances the Company's cash flow long term.

Okay. Well, thank you, Anthony, thank you, Michael. I must say I know that.

Thanks, Jeff.

Operator

Peter Jackson, private investor.

Yes, good morning. Couple of questions. First of all, do you have any sense of timing on when the Bryant Park decision would be made?

We are told sometime in spring of this year this coming year.

Okay. And how does it work in terms of the way they view, if any, other restaurant group that's larger and well-financed better financed arguably, comes along, does this tie go to the runner. Does the fact that you've been in there and performed well, do you we have sort of the lead position there? Or is it completely starting from scratch and they'll look at anybody equally.

I have no idea what they're trying to do in terms of their goals or on. I think this is a requirement of the parks department on at the end of the lease. And um, and we submitted our proposal. , we know other people submitted their proposals, as I said, were finalists. We do not know what their goals are or know other than you put out an RFP?

Yes, in terms of equity (multiple speakers) --

And by the way, we've disciplined ourselves here not to drive ourselves crazy by speculating.

Okay. You mentioned you want to you're always taking a hard look at acquisitions. And certainly the prices you've paid in the past have been fantastic on, but given I guess I wanted to just understand about the price increases. So totally understand that you don't want to raise prices or you want to keep them down as low as possible.
On the other hand, you have increased payroll costs, insurance utilities, which presumably all your competitors face as well in varying degrees. At what point. I mean the problem is that that's not doing a lot for margins when you're not raising prices and you have these increased costs. So what gives there and why are we in a different position for many other restaurants.

So good question, and thank you on. So I will mention something that's in our response to the RFP. and Bryant Park, a post pandemic post pandemic. We raised our prices 7%. So you're talking to a couple of years here that see the average price increase on our revenues this year -- excuse me, our revenues post pandemic are up 12%, which means we're adding headcounts.
And I would tell you the same thing is true in Vegas now, Vegas, it's not necessarily upsetting the headcount in Vegas is exploding, but we're adding headcounts in Vegas. We're at where we're very, very sensitive to headcounts as opposed to revenues and we have long term leases where we're Rustic is a great example. We were forced to raise prices in Rustic by more than 7% because the price of scraps went from $23 a pound of $54 a pound.
Yes, at one point, we were charging -- and we put �2 on a plate. So we're at $135 right now for something at one point which was costing us $108 to put on the plate. But, I have a blue-collar a large segment of my customer base at Rustic is blue-collar.
And they use that restaurant for celebrations and anniversaries birthday parties. Some people don't care as the very wealthy and they that they want great meal with crabs and they come to Rustic. But in all of our restaurants, we have, a pretty broad spectrum of people on where they stand on the economic ladder on I don't want to get a reputation that were too expensive.
So and that's the way we ran this company from day one. We've always had sort of an umbrella safety as opposed to the quality of our product and services and our architecture in the core as compared to other restaurants in cities in which we were competing.
And so it may be stubbornness but I think in the long run is, , in the past, it served us very, very well on right now what we're seeing is stability in food prices, stability and alcohol prices. In some cases, certain prices are coming down, crab legs coming down and all of a sudden we don't have a 70% costing king crab legs.
We have probably a 50% cost of was on the management on the plate. This will swing back in our favor. I mean payrolls aren't going to come down, but they're going to stabilize you out of insurance premiums are the worst they've been they're going to come down. So it requires a little bit of patience to get your margins back. But in the in the meantime, you're not changing the reputation of the company is being good quality food at fair prices, and that's what we're trying to do.
Yes, the reciprocal of that is we don't discount. You're never going to see us with a coupon books after there or what deals. Because , our statement to the world is listen, you're getting good quality, good service and a nice atmosphere. And the prices are fair, we don't need to count to get more people into the place, and that's the reciprocal of it. So I think we're being consistent, and that's the way we want to run a business.

Okay. That makes sense. Going back to Bryant Park on, did you I don't think you disclosed or maybe it was in the 10K, but have you disclosed what the revenue is there and what would be lost if for some reason we didn't get it.

So we don't disclose revenues for any individual restaurant, no profits, right. In this case, the landlord knows what the revenues are because we're we have a percentage lease there, but we've never allowed individual restaurants to promulgate through us or what their revenues are. We think that's a disadvantage to landlord negotiations.

Okay, great. Going back to Meadowlands, I certainly as a long-term investor, I appreciate your point about, , not wanted to take the company private because you potentially deprive, I'm shareholders of the upside from the Meadowlands.
But with that said, obviously that's something that it may not happen or may not happen for a long time. And obviously, it's hard to make a plan when it involves governments and legislation. And it's hard to really and handicap when that's going to happen, if it happens, would it ever make sense?
You said in prior calls that bank back maybe hard rock Hard Rock would be the natural people too bias out of our interest there, presumably basically the value there. They're not going to pay as much today as they would if it were a sure thing right?
And if it was a sure thing it wouldn't make sense to do anything now, but is there a way to sort of bake into some kind of price with Hard Rock where are they where they give us some value. That reflects the potential while also on their side, reflecting the fact that may not happen. I'm not really saying that the proper way, but what I'm getting.

Yeah, so first of all, Hard Rock is the 20% owner of the limited partnership on that. That's the partnership in the metal as well. Both since when we made those statements on general like three, four quarters ago and before that they would be a natural buyer.
Hardrock is now part of bidding process with Steve Kong to put a casino on in Yemen in Queens by say, stating harm. So, if that were to go through, we're not so sure Hardrock, we continue with us as an operator, they certainly would continue as an investor, unless, we bought them out or some other operator put them out.
So that conversation with Hardrock, yes, it doesn't make sense at this point and it would make sense perhaps if they are on the operator and there seem to be some movement favorably toward getting a casino license in the north on the so that's not a conversation you can have right now by the way is conversation. I don't think I want to have because we still are of the opinion that the likelihood of us getting a casino license there is a pretty strong. It's just it's just a matter of.
So when does the ledge in New York and New Jersey's legislature react to downstate casino licenses in New York, which have not been issued yet. And we don't think they're going to be issued for another year to 18 months.
In terms of trying to your question, sort of begs an answer to I'm taking this thing private, um, , I go back to my statement. I rather buy recurring cash flow for our shareholders and then two to get our shareholders out of the way and trying to take advantage of, , some approach. But I have a Board of Directors. And that's that that in large part becomes their decision and it's a discussion that does come up on.
So I'm just as one member of the Board, I'm giving you my opinion come would have had a look at the same hub. And, look, I've been at this for a long time other than from my Foundation, I've never sold a share of stock. I'm never bought a share of stock.
I may be solid dumb, in terms of field units saying I myself, the stock price will be rationalized at some point, as investors see value, obviously this quarter, investors are looking at the headline, which is right or if $10 million is the non-cash write-off does not affect the operations of the Company at all. And if you add back Gallagher's in Las Vegas, you still have $1 million plus EBITDA with Southern Florida performing terribly that will change.
The product that we have, the sites are just too good, and we perform well down there. So that will change. Also Vegas will get better on it and it's already Great. I'm just going to get better still, and our New York restaurants two very strong. Our Alabama restaurants perform well. We will find things to enhance cash flow here through acquisition. So somewhere along the line that will be recognized on our balance sheet is good for a company. Our size on that and so that's the way we look at this.

Thank you. That's very helpful.

Operator

There are no further questions in the queue. I would like to hand the call back to management for closing remarks.

Thank you, some good questions. I appreciate the time you're spending with us, and we look forward to our next call with you have a happy holiday season, everybody.

Operator

Ladies and gentlemen, this does conclude today's call. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.