管理層發言
Greetings, and welcome to the Ark Restaurants Fourth Quarter and Year-End 2024 Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Christopher Love, Secretary. Thank you, sir. You may begin.
Thank you, operator. Good morning, and thank you for joining us on our conference call for the fourth quarter and year ended September 28, 2024. My name is Christopher Love, and I am the Secretary of Ark Restaurants. With me on the call today is Michael Weinstein, our Chairman and CEO; and Anthony Sirica, our CFO. 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 Anthony, our CFO.
Good morning, everyone. You all saw the release. I want to go over a few things on the balance sheet and touch a couple of highlights on the P&L and then I'll turn it over to Michael. We ended the year with $10.3 million in cash and $5.2 million in debt. Our debt has one more set of principal payments due on February 1. We just made payments on December 1, and the balance of the debt matures on June 1, which is about $4.4 million. We're currently in discussions with the bank to extend our credit agreement and term out the rest of that debt over a number of years, whether it be three to five, and renew the capacity of our existing credit line. With respect to the rest of the balance sheet, there really aren't a lot of changes other than the normal amortization of our operating lease right-of-use assets, as well as an additional impairment of our goodwill, which I'll talk about in a minute.
Other than that, our balance sheet remains stable. Currently, we have approximately the same amount of cash, $10.5 million to $11 million as of the current date. On our P&L, we have a few items in there that are unusual, one-time items. We had the loss on the closure of El Rio Grande, which is discussed in the press release. We made a decision based on the operating results for the last couple of years to close the property where we tried to negotiate with the landlord for a better lease, but those negotiations have stalled. So that loss includes the write-off of a security deposit, six months of rent that we would owe, some severance, and other associated costs totaling $876,000. We had an impairment loss on the Sequoia right-of-use and long-lived assets that was from the third quarter. That was based on projections. We looked at the numbers again at year-end. The numbers improved, so we did not take any additional write-downs on Sequoia in the fourth quarter.
We are monitoring it on a quarter-by-quarter basis. We also had an additional goodwill impairment of $4 million. If you recall, we had a $10 million impairment last year. As the Bryant Park situation continues to unfold, we engaged outside third parties to prepare a discounted cash flow based on a series of projections we had provided, conducting a probability weighted analysis. At the end of the day, we felt that another impairment of $4 million was necessary. One other item that's going on that’s not reflected in the financials is that our food court in Tampa, the landlord had approached us a couple of months ago wanting to take it back, as they want to put a high-stakes slot room where the food court is. We've been in negotiations with them and feel we made a very good deal. We have approximately 4.5 years left on the lease and they're going to pay us $5.5 million to vacate the space.
They will demolish it and broom clean it, so we would be out of there probably by the end of the year. I think it closed recently over the weekend possibly. So we're now in the process of taking any equipment that we want to the locations. Other than that, I think that’s all I have. I'll turn it over to Michael.
Hi, everybody. So the theme here is reduced sales, just a challenging revenue environment and expenses that have not abated in certain cases, like insurance premiums, which we spoke about before. Increasing labor costs are not decreasing at this point unless it’s due to legislation, such as the minimum wage increases enacted in Las Vegas. But labor seems to have stabilized for the first time in a couple of years. We're finding good people at price points that are significantly compatible with what we would expect in each of the markets. We concluded the year and the quarter with challenging revenue environments in Florida and Washington D.C. Alabama is performing well, that's probably our most consistently good venue. Las Vegas revenues are okay, but again, inactive payroll expenses have eaten into our margins. New York has decent business, but not much in the way of new business we’re trying to put on our books.
We've been looking at a few things and have had some negotiations, but nothing fruitful has happened. Meadowlands remains the same story. Until New York advances their downtown casino licenses, I don't think we’ll see any activity from New Jersey. So that remains a question as to timing. I think our probability of obtaining a casino license at our venue at the Racetrack in Northern New Jersey is probably improving as the legislature sees it as the easiest solution and best possible location. However, the legislature is not going to move until something happens in New Jersey. So that’s my story. I’ll take questions at this point.
分析師問答
Thank you. We will now begin the question-and-answer session. It seems we have no further questions at this time. However, we did receive a question from Martin Gilvarg with Mh Gilvarg Consulting. Please go ahead with your question.
Hi, Michael, how are you? I went over to the other side of Florida and enjoyed two of your restaurants when I was over in Aventura. And a nice little ride to each of them, but it was worth it. They're doing well. I just wanted to check in with you on what the developments were with this or to understand what it means regarding the Wall Street Journal article discussing SL Green's success in New York City in terms of turning around the office situation, and that they are almost certain to open a casino in one of their buildings? Is that accurate? And is that what drives you to speak about the Meadowlands?
So there are three downtown licenses available, and there are several bidders trying to acquire those licenses. Two of them are for downtown state, I'm sorry. Downtown state licenses, meaning Queens, Manhattan, Bronx, Staten Island. So there are three available, with two pretty much spoken for. One will go to Aqueduct, which has gaming in the form of slot machines, and Yonkers Raceway, which also has gaming in the form of slot machines. So you have SL Green trying for one, you have Hudson Yards trying for one, and you have Steve Cohen out at Shea Stadium trying for one. Bally's is out in the Bronx at the old Trump property trying for one. The question that everybody shakes their head about is why are they waiting? Each of these licenses is going to cost about $0.5 billion to acquire, and the amount of tax revenue generated for the state would be considerable. I think one of the reasons is the bidders have tried to make their proposals more attractive as they went along, but they’re at the point now where they should decide, and it will be the catalyst for Jersey to move.
The minute you see Bergen County and Northern Counties leaving New Jersey to come to New York and bring their gaming money there, New Jersey will realize how much tax revenue they've lost. Atlantic City has been in decline for decades. What's stopping the State right now from approving a casino in the North, hopefully our location, is a strong lobby in Atlantic City. But that lobby will disappear once a casino is approved in Manhattan or the Bronx or Queens. The interesting aspect about our Meadowlands location is that it’s easier to get to the Meadowlands from Manhattan than it is to get to Aqueduct or Yonkers. We believe, yes, we think a casino in the Meadowlands not only retains New Jersey patrons but also attracts traffic from Manhattan, which New Jersey does not anticipate but we think will be a reality.
And who advocates for us on that point? Who is the partner there? Sorry, I just don't remember.
So we have four partners. We own the least equity, as we own 7% of the shareholder equity of the Meadowlands Racetrack LLC. However, we do have exclusivity on all food and beverage in the casino, should it materialize, with a carve-out for a Hard Rock Cafe. Our original partner in this arrangement, who owns 20% of an entity that, on a fully diluted basis, would equate to about 10%, is Hard Rock Cafe, Hard Rock, which is a Seminole Indian Tribe. This arrangement was favorable for us since Hard Rock also operates in Atlantic City, and the initial legislation mandated that whoever obtained the rights to a casino license in the North would need to have an Atlantic City partner. Hard Rock was a perfect fit for us due to their licensing and that’s how they became our partner. Hard Rock is now aligned with Steve Cohen at Shea Stadium. We don’t know if Cohen will be granted the license, and if so, we don’t know what our relationship with Hard Rock will evolve into. At various points, there have been discussions that if Hard Rock partners with Cohen, there could be compensation for Meadowlands due to Hard Rock’s interests elsewhere. There’s much uncertainty here, but we’re also uncertain as to whether new legislation in New Jersey will require an Atlantic City partner.
No, fair enough. I just wanted to understand who would advocate for the site to gain that when New York moves forward and 40 legislators from Northern New Jersey ready to push whoever the leader of the Meadowlands is, that was kind of where I was going?
Yes, believe me, we have lobbyists and we’re in touch with the governor. We’re in communication with the President of the Senate in New Jersey. There are ongoing discussions to educate everyone on why our site is the best choice.
Got it. Okay. Just one final piece on the financial end. What is the total sum of the non-cash write-downs we've taken in the last two years? Am I right to say $15 million? And these are non-cash write-downs, correct? This is associated with the capital company's market cap being less than the book value, or something like that?
Correct. It all has to do with our stock price. Much of it is tied to our stock price. They have all been non-cash write-downs.
Yes, the goodwill was $14 million.
Am I in the ballpark with $15 million?
The goodwill was $14 million and the Sequoia assets were $2.5 million, totaling $16.5 million.
Sequoia continues to operate, but you've just written down whatever the asset value is because it's yielding poor results?
Yes, we had to take an impairment on the fixed assets in the third quarter due to the results. In the fourth quarter, the results were as expected, maybe a little better, so we did not revisit that analysis, and we did not have to take any additional write-downs. We will continue to monitor it each quarter, and the auditors are reviewing it every quarter.
And Sequoia is cash flow positive. I don’t want you to think we're losing money there.
Okay. Would you tell me what we lose? So we're getting $4.5 million for Tampa. There’s that $4.5 million, $5 million. I don’t remember the number you said. Minus the $900,000. What do we lose? Well, on an EBITDA basis on an annual basis, what were we generating from that location approximately?
We're receiving $5.5 million, but some of that belongs to investors, so our net will be probably $3.5 million to $4 million for us. The property was cash flowing $700,000 plus a small margin. We had about four years, two months left on the lease at this point. So we did well, but we also had to buy out some partners who were more aggressive about their expectations, yet we’ll net between $3.5 million and $4 million, which will be added to our cash on the balance sheet.
Again, I don’t know what the solution is to drive more volume in Florida, but all the customers seemed happy, there was reasonable busyness, superb service, and good quality. I had never been to one of your restaurants before. I was over there for other reasons, and I thought it was an outstanding experience. Perhaps it’s just a matter of ensuring more people know how good it is.
To follow up on that comment, we are really proactive about management in our restaurants at the corporate level, ensuring that quality and service meet our standards. Without exception, I think we are delivering on product, service, and value. One of the challenges we have with margins is our reluctance to raise prices. We don’t want to increase prices when demand is soft, and demand has remained soft. Consequently, we seem to be stuck right now, although in some cases, we’re finding ways to optimize restaurants and to refine payroll. We started that program about a month and a half ago, and we anticipate some payroll savings, but overall, we’re efficient with payroll, so the savings won’t be significant. Nonetheless, we’re doing everything we can until we have the confidence to raise prices or see a reduction in food costs. At Rustic Inn, I had this conversation this morning; we’re known for our king crabs. Pre-pandemic, we charged $75 for a two-pound order. Now, we’re charging $135, but king crab prices keep increasing every month. It’s like a race — how much can you charge before customers hesitate to spend money? It seems we can't go higher despite rising costs.
I wouldn't advocate one way or the other; I’m just a customer and an investor. However, I will say I've noticed no unhappiness among our customers. I find it surprising how consumers, particularly in Naples, accept price increases. Our offerings are up around 50% from pre-COVID levels, which is significant.
Yes, I agree.
Thank you for your insights and again, appreciate what you’re doing. I just, the New York situation, I won’t delve into questions about it. Good luck with that endeavor. I think that’s the route you need to pursue; it's unfortunate that the organization is being mistreated.
Thank you very much.
Thank you.
Thank you.
Our next question comes from Jeffrey Kaminski with JJK Consultants. Please proceed with your question.
Good morning, gentlemen. Regarding the lease termination in Hollywood, Tampa, you outlined it a bit, Anthony, in terms of what the payout will be to Ark? The press release also referenced Hollywood Tampa Investment LLC, which will distribute approximately 35% of the proceeds? Can you tell us who that 35% involves? I didn't realize Ark had outside investors in individual profits?
So Jeffrey, good morning. When we executed this deal 20 years ago, at that time, our stock price was not beneficial. Our investment was $5 million, and we projected that if we were correct, we’d make $1 million. So we structured the deal favorably, as the partnership with Hard Rock was advantageous. The key was to bring in investors; they provided the entire $5 million while we managed the investment, thereby overcoming our poor EBITDA valuation. The investors have greatly benefited, enjoying a 30% return, while we benefited from no capital expenditures.
To expand on that, when Ark first engaged in this deal, these entities were not consolidated. Initially, it was a management deal. Several years back, variable interest entity rules shifted, determining that Ark has managing financial interest in the partnership, leading us to consolidate the food courts in Florida. Subsequently, we bought out a few shareholders, raising Ark's stake to 65%. That holding company mentioned in the press release represents Ark Tampa LLC, managing the Tampa Food Court and Ark Hollywood, which governs the Hollywood Food Court. So the $5 million will be allocated to Tampa, subsequently flowing to the investment company, with 35% going to the limited partners of that LLC after expenses.
I understand. Are there any other comparable relationships within the organization where Ark has brought in outside investors for individual properties? Or is this a one-off?
Yes, this is similar to the situations we encountered with Hollywood and El Rio Grande.
El Rio Grande was established 40 years ago.
Understood. All right, fair enough. And then, Mike, you've referenced the stock price related to the Tampa deal negotiations. In connection to these write-offs and impairment charges, again, connected to the stock price. Labor costs are what they are; they may have stabilized, but it looks as if they won't decrease significantly. Insurance costs might stabilize as well, but again, they may not drop. So these headwinds are likely to persist. The share price has significantly underperformed in recent years, as a shareholder, it's challenging to benchmark Ark Restaurants against other stocks. Is there a timeline? Are we waiting for another acquisition, or are we looking for the Asian concept to scale? Is there a belief we might wake up one day to see labor costs and insurance costs decline? Any insights for shareholders would be appreciated?
First, you're correct. We're exploring various concepts that aren't standalones. Lucky Pig is one of them, and we think we're performing decently — not great, but well given our New York location. MGM’s management is pleased with our direction. We're adding new products to what we already have, which was always the goal. I think we have a good concept there that can be expanded. We will finalize this completely in the next couple of weeks as we roll out a dumpling category. After that, we’ll evaluate our capital returns, with a view to expansion in additional locations. We are also open to one-off acquisitions if the EBITDA and cash flows are significant enough for the company. Also, the situation with Bryant Park is challenging us. While it doesn't completely paralyze us, we’re fighting to protect a fair amount of EBITDA that we don't want to lose.
Apart from that, we're finding ways to enhance our existing businesses, optimizing operations, reviewing payrolls, and boosting our social media and marketing to bring more foot traffic and improve our current enterprises while assessing some new concepts that align with the ethos of Lucky Pig, which would be more fast-casual and easier to replicate, in contrast to full-service restaurants that involve heavy capital overhead.
Thank you, gentlemen.
Have a happy holiday, everyone. Thank you.
Thank you.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.