Ark Restaurants Corp. (ARKR) Earnings Call Transcript & Summary

Greetings, and welcome to the Ark Restaurants Annual Shareholders Meeting. [Operator Instructions] And as a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Matthew Uretsky. Thank you, sir. You may begin.

Thank you. As we all know, we are living in a unique period with the challenges associated with the coronavirus, also known as COVID-19. Over the weekend, the U.S. Securities and Exchange Commission published guidance on the conduct of Annual Meetings of Shareholders. In accordance with state and local mandates and in compliance with such SEC guidance as well as the exercise of best practices to reduce the likelihood of additional spread of the virus, Ark Restaurants Corp. is pleased to conduct this Annual Meeting of Shareholders virtually rather than in person. The meeting will now come to order. I am Matt Uretsky, a partner at McCarter & English, LLP, outside counsel to Ark Restaurants Corp., and I welcome you to the company's Annual Meeting of Shareholders. Following the close of this annual meeting, Michael Weinstein, Chief Executive Officer of the company, will remark on the operations of the company, and you will have an opportunity to ask questions at that time. The Directors present virtually are Michael Weinstein, Bruce Lewin, Marcia Allen, Vincent Pascal, Steven Shulman, Stephen Novick, Anthony Sirica, Arthur Stainman, and Paul Gordon. The officers present virtually are Michael Weinstein, Chairman and Chief Executive Officer; Vincent Pascal, Chief Operating Officer and Senior Vice President; Anthony Sirica, Chief Financial Officer; and Paul Gordon, Senior Vice President. I will share the meeting, and I hereby appoint Sonal Shah, the company's General Counsel, to act as secretary of the meeting. Will the secretary of the meeting please produce the following documents for filing with the minutes of the meeting: copies of the printed Notice of Annual Meeting dated February 15, 2020, stating the time, place and person thereof and the affidavit certifying as to the delivery of the Notice of Meeting that was first forwarded on February 15, 2020, to each of the holders of common stock of the company of record as recorded on the shareholder list of the corporation as of February 12, 2020. I direct that such notice, affidavit shareholder list and accompanying documents be filed with the minutes of this meeting. American Election Services, LLC, the duly appointed Inspector of Elections, has subscribed to its oath of office. I direct that such oath be filed with the minutes of the meeting. Will the secretary please take a poll of the shareholders represented at the meeting in person or by proxy? All persons wishing to vote in person should give their names and e-mail addresses to the secretary, and she, in turn, will distribute ballots to you virtually. Does anyone need a ballot? Will the secretary please report as to whether a quorum is present?

Mr. Chairman, I have a written report of the inspector, which indicates that we have a quorum present at the meeting. I direct that the foregoing report of the inspector be annexed to the meetings -- to the minutes of meeting.

Based on such report, I declare that a quorum is present, and that the meeting is regularly and lawfully convened and ready to transact business. The next order of business before the meeting is the election of 9 directors to serve until the next Annual Meeting of Shareholders, unless any such Director shall resign, become disqualified, disabled or otherwise would be removed from office. Nominees receiving the highest number of affirmative votes will be elected. No other nominations have been submitted to the company's Nominating and Corporate Governance Committee. May I have the nominations?

On behalf of the Board of Directors, I hereby nominate Michael Weinstein, Vincent Pascal, Paul Gordon, Anthony Sirica, Marcia Allen, Bruce Lewin, Steven Shulman, Arthur Stainman, and Stephen Novick, each to serve as a member of the Board of Directors until the Annual Meeting of Shareholders in 2021.

Do I hear a second for the nominations and move that the nominations be closed?

I second the motion.

I will entertain a motion that the nominees be elected as Directors.

Mr. Chairman, I so move.

I second the motion.

I direct that a vote of the shareholders be taken on the nominations made. I direct that a ballot be given to each shareholder or proxy present at this meeting who desires to submit a written ballot for the purpose of voting on the foregoing nominations virtually. Any shareholder who previously has given a proxy need not vote on the foregoing nominations, unless he or she desires to revoke the proxy. Any shareholder who wants a ballot should please announce themselves. If you are voting by ballot, please note the number of shares which you held of record on February 12, 2020 under your signature, which may be electronic and/or conformed on the ballot, and vote your shares as you wish for the nominees. After you mark your ballot, please retain it to vote on the following matters as well. [Voting]

Has everyone had an opportunity to vote? If so, I declare the polls closed for the election of Directors. The next order of business before the meeting is to vote upon the ratification of appointment of CohnReznick LLP as independent auditors for the company's financial statements for the 2020 fiscal year.

On behalf of the Board of Directors, I hereby make the motion that the appointment be ratified.

I second the motion.

I direct that a vote of the shareholders be taken for or against the appointment of CohnReznick LLP to serve as independent auditors of the company for the company's financial statements for the 2020 fiscal year. The vote will be taken on the motion. [Voting]

Has everyone had an opportunity to vote? If so, I declare the polls closed on the motion. The next order of business before the meeting is to hold an advisory vote regarding compensation of the company's named executive officers.

On behalf of the Board of Directors, I hereby make the motion that the compensation of the company's named executive officers be approved on an advisory basis.

I second the motion.

I direct that an advisory vote of the shareholders be taken for or against the compensation of the company's named executive officers. The advisory vote will be taken on the motion. [Voting]

Has everyone had an opportunity to vote? So I declare the polls closed on the motion. Next order of business before the meeting is to hold an advisory vote regarding the frequency of the advisory vote on compensation of the company's named executive officers.

On behalf of the Board of Directors, I hereby make the motion that the company's recommendation that the company conduct its advisory vote on compensation of the company's named executive officers every 3 years, be approved on an advisory basis.

I second the motion.

I direct that an advisory vote of the shareholders be taken regarding whether to conduct the company's advisory vote on compensation of its named executive officers every 1 year, every 2 years, or every 3 years. The advisory vote will be taken on the motion. [Voting]

Has everyone had an opportunity to vote? If so, I declare the polls closed on the motion. The opportunity to vote on all questions before the meeting having been given, I declare the polls closed. Is there any other business to be brought before the meeting, or any questions or comments concerning the proposals submitted for action at this meeting? At the conclusion of this meeting, Michael Weinstein, the company's Chief Executive Officer, will update shareholders on Ark's business. I note that the inspector has completed her tabulations. Madam secretary, please report your results.

Mr. Chairman, I report that each of Michael Weinstein, Vincent Pascal, Paul Gordon, Anthony Sirica, Marcia Allen, Bruce Lewin, Steven Shulman, Arthur Stainman, and Stephen Novick have been elected as a Director of the company.

You have heard the results of the voting. I declare that Michael Weinstein, Vincent Pascal, Paul Gordon, Anthony Sirica, Marcia Allen, Bruce Lewin, Steven Shulman, Arthur Stainman, and Stephen Novick have each been elected as a director of the company.

Mr. Chairman, I report that 3,019,151 votes were cast for the ratification of the appointment of CohnReznick LLP as independent auditors for the 2020 fiscal year. 754 votes were cast against, and 11,630 votes abstained from the ratification of the appointment of CohnReznick LLP as independent auditors for the 2020 fiscal year.

You have heard the results of the voting. I declare that the appointment of CohnReznick as independent auditors for the 2020 fiscal year has been ratified.

Mr. Chairman, I report that 2,546,887 votes were cast for an advisory vote regarding the compensation of the company's named executive officers. 18,895 votes were cast against an advisory vote regarding the compensation of the company's named executive officers, and 7,840 votes abstained from the advisory vote regarding compensation of the company's named executive officers.

You have heard the results of the voting. I declare that the compensation of the company's named executive officers has been approved on an advisory basis.

Mr. Chairman, I report that 981,835 votes were cast for conducting an advisory vote regarding compensation of the company's named executive officers every 1 year. 195,929 votes were cast for conducting an advisory vote regarding compensation of the company's named executive officers every 2 years. 1,388,676 votes were cast for conducting an advisory vote regarding compensation of the company's named executive officers every 3 years. And 7,182 votes abstained from the advisory vote regarding the frequency of the advisory vote regarding compensation of the company's named executive officers.

You have heard the results of the voting. I declare that conducting the advisory vote regarding compensation of the company's named executive officers every 3 years has been approved on an advisory basis. I will now entertain a motion to adjourn the meeting, so Mr. Weinstein can report on the company's affairs.

I hereby move that the meeting be adjourned.

I second the motion to adjourn.

Those in favor of signify by saying aye; those opposed, nay.

Aye.

Aye.

Aye.

The motion is therefore approved, and I hereby declare the 2020 Annual Meeting of the Shareholders of Ark Restaurants Corp. to be adjourned. Thank you all for attending. I now invite Mr. Weinstein to report on the company's affairs.

Hello, everybody. This is a little awkward. I'm sorry, we will not be having this in person, but I'm glad for all of you who are attending virtually. The best I can say right now is that our operations mostly closed. We closed Las Vegas earlier this week. Restaurants in New York, we closed last week. We have 2 operations in Florida that is still proceeding with business on a very scaled down basis, so essentially very little revenue coming in. We have done everything to maintain a balance sheet that can take us through this period. And when I say maintain a balance sheet, we are not looking for any government assistance. We will be able to get through this with our balance sheet as it's presently comprised. We have spoken to our banks, who are waiving interest and principal payments during this period. So our balance sheet and the cash on our balance sheet will get us through this until we have the opportunity to reopen. And we are planning for months, not weeks, of no activity on the revenue side. So please be patient with us. I hope you trust that we're prudent and conservative. We have great assets here, and there'll be great assets again. And it's just a matter of time until we will reopen. I'm sure that it will take months after we reopen the business to start to build up, but we are prepared for that on a balance sheet basis. So I think we're in good shape to sustain this. This has been very hard on our employees. Obviously, management has been -- senior management has been so cooperative and generous in the salary cuts that they have taken. We have kept all our key people so that we'll be able to reopen quickly. It's a difficult time, but we will sustain through this. And with that, I would like to ask if anybody has questions, I'd be happy to answer you.

[Operator Instructions] Our first question comes from the line of Milan Mehta with Evaluate Research.

In the short term, when you close a restaurant temporarily, what percentage of your costs are fixed and variable? And the second part, how quickly can you reduce expenses at any particular restaurant?

So the first part is rent is fixed, and there are key people who are being retained. At most -- at the most, in any given restaurant, those would be 4 or 5 people. So for instance, at 1 operation at Bryant Park, we probably had 300 people working for us there, and probably have 5 people on payroll right now at very reduced rates. We have some fixed costs. We have rent, which will likely be waived at most of our locations. There will be some landlords who are reluctant to do that. We've identified in our 20-some-odd properties, 2 landlords that we'll probably have to continue to pay. But I think, in most cases, rent will be at least deferred and in some cases, waived. We have other fixed costs, obviously, insurance premiums, related to personal property and liability. We have talked to our insurance brokers who are talking to Chubb, who is our main carrier for all our insurance. And basically, we're paying premiums right now on the basis of sales that were projected back at the beginning of the year. And those sales projections, obviously, could be ripped up. And we're saying to Chubb, basically, relieve us from those projections, and let's go on the basis of new projections because liability insurance is based on sales. And certainly, workmen's compensation and some other insurance premiums are based upon payroll. So our payroll is down to nothing, our sales are down to nothing, relieve us some of those premiums. We're still waiting for an answer on that. But the main expenses are going to be rent, where we have to pay it. After that, there'll be key people who we're maintaining. There would be medical insurance premiums that we're paying for staff, at least, the April 1 ones, the premium that comes due to medical insurance. When you cut people, they can go on COBRA. But in many cases, they don't have a salary, and we don't know when unemployment insurance is going to kick in. And even if it does, I'm not so sure anybody can afford the premiums on their medical programs. So we're picking that up for some 200-some-odd people. So those are our fixed costs. But we -- everything else is gone. I mean, we have minor utility costs. We've actually returned product. The liquor inventories have been returned to the liquor companies for either credits or reimbursements. We're fortunate that our receivables are highly collectible. We don't expect any problems collecting any of our receivables. The people who have booked events with us that are -- that were to occur during this period, obviously, we're giving refunds if they cancel the event. But most of our -- most of those events have chosen to accept the credit for a later date. So what we've been doing here is trying to eliminate as much of the outflow as we can. And we looked at our balance sheet, and we said, look, we need 20 weeks here, 25 weeks. How much cash can we keep on our balance sheet? We have to pay purveyors who deliver those goods. We don't want them to be in trouble. There are a lot of things we probably won't have to pay that will be deferred or waived. What's our cash balance here? How much do we need? Or how long can we string that cash balance out? And basically, we're very comfortable saying 20 to 30 weeks. We don't need government assistance. If it lasts less than 20 to 30 weeks, we'll figure it out using our balance sheet as it is. We don't want to leverage our balance sheet with government assistance, unless they're outright grants. But we're not going to take loans. We'll make it through. So I hope that answers your question.

Yes. And for the second part, how quickly can you reduce expenses?

Well, we've reduced them all.

Okay. With the cash balance?

Yes, we have -- we've reduced everything we can reduce.

Our next question comes from the line of Justyn Putnam with Talanta Investment Group.

Michael, I guess, I just wanted to sum up what you said in response to the previous caller. What would you say your cash burn rate is, whether it be monthly, weekly, whatever?

It's roughly $200,000 a week. It might be a little bit less because when Vegas closed, we didn't know what our legal obligations were. So we do know it as of late last night. We have to obviously pay vacation pay that was earned. We couldn't delay that. The payroll in Vegas is $260,000 a week, just at New York-New York alone, and then we have Yolos as well. So there was a large amount going out. So the next payroll is going to be something like $530,000, which includes vacation pay and other things that we legally are obligated to pay in addition to the payroll. So that's a big hunk for us. And then we were questioning how many key people Paul Gordon could run with. Paul has done an extraordinary job. He -- we had some 600-plus employees there, we're only retaining 3. Paul has everybody on call. If we -- if and when we reopen, and we're going to reopen, obviously, at some point, to come in immediately. We have taken the view that the people that earn the most are the most likely to have resources in their own home to sustain themselves. So there's nobody in this company right now, of the key people we're keeping, probably 100 people, who is making anything more than $50,000. And that means people that were earning $200,000, $300,000 are down to $50,000. People who were making $800,000 are down to $50,000. So we think the burn rate, given what Paul has done in Vegas, maybe less than $200,000 a week. But that's basically where we are.

Okay. And the last question, at December 28, your balance sheet had about $7.2 million in cash. Has there been a material change in that to date?

No.

Our next question comes from the line of [ Paul Johnson ], a private investor.

Thank you for hanging in there, and it's nice to have senior management that's been around for a long time and knows how to deal with these kinds of crisis. Just I think investors are trying to understand what the potential downside is if the closures stay on longer than anybody expected. Can you tell us -- you said there was about $7 million in cash. But can you tell us about the debt service and what the terms of the debt are currently? And also, if we had to pull some additional levers, what would they be in terms of worst-case scenario, asset sales? I don't think we want to be selling to the -- I know we talked about the Meadowlands maybe selling to -- blanking on the name, but you had said that you thought they would take us out at some point. We also have other assets that could be sold in the worst-case scenario. Can you just talk about that?

Yes, sure. So first of all, nobody knows what these assets are worth anymore as closed assets. We own the property under the Rustic Inn. We own the property under our 2 restaurants in Alabama. We own the property at Shuckers. Those were -- those are highly valuable cash flow operations. We also have a 25-year lease at JB's on the Beach. Just to give you an idea, in season and going through the first couple of weeks in March, JB's was throwing off $80,000 a week in cash. So these are -- and it's a 25-year lease. It's basically 5% of sales. So one would think that they have value if you had to sell them. But the answer to this is we -- those are the things you don't want to sell. And the things you probably want to sell first probably have the least value in this kind of environment. So I don't see these assets, the valuable ones we would want to keep and the ones that are less valuable. And honestly, we only have one negative cash flow operation going into this thing. That was -- that we thought we can improve, but probably doesn't have any value right now. So I think the creative probability is if we really were desperate, we would sell pieces of those operations to outside investors. Our outside investors in Hollywood, Tampa and the Rio Grande, have been getting -- those are the 3 places where we took investors in for a variety of reasons many years ago. They've been experiencing 30% returns annually on their investment. The -- one would think that given an opportunity to come in as partners in something that has, in the past, proven to be high cash flow operations, that at some discount to that cash flow, we could get some money. But I don't think we're anywhere near that yet. Our bank has been very cooperative. They called us, we didn't have to call them. And they said, "Look, we're waiving principal payments." And then I called them and said, "what about interest payments?" and it took about half an hour for me to get a callback that they've agreed to waive interest payments during this time. We have Anthony Sirica, who's our CFO, could probably speak to this. But we have some $27 million in debt, basically secured by all the assets of the company. My guess is the properties under Alabama restaurants and Shuckers and Rustic, under normal times, would be pretty close to equivalent on a sale leaseback to that $27 million. Certainly, on a sales leaseback, we would be losing some EBITDA, but the debt is basically covered pretty close by those properties. So our balance sheet, as long as the bank is cooperative, and they will continue to be cooperative, and we went through this with them in 2007 and the 9/11. I must tell you in 9/11, the lending officer of the banks that we were doing business with now, who is the CEO of the bank, the lending officer then at Bank Leumi, is now the CEO of Bank Hapoalim, U.S.A., where we now bank. And on 9/11, we were only in New York, Washington and Las Vegas. We were getting killed. We were losing hundreds of thousands of dollars a week. And I called them up and I said, we can't make payroll. He said, "I can't lend you any more money, but overdraw your account as much as you want," and we paid back some $22 million in 2 years and didn't have any debt for the longest time until we started to buy the land underneath some of these operations. So he's used to us. He trusts us. He -- I think he thinks we're prudent and rational. And he's very comfortable and basically said, "Look, we'll review this in June again. And -- but no worries." We're hearing from landlords saying the same thing. So I think we're in really good shape to sustain this for many, many months. If it gets beyond that, yes, we will have to look to other resources. But I think between now and then, those resources will appear. New Jersey has, maybe yesterday or today, I'm not sure the timing of it -- is passing legislation, which basically says to insurance companies that they must pay out business interruption insurance. Well, that's a big deal for us, even in New Jersey, where we don't have that many operations. And if that continues to be the mantra in Jersey and it spreads to New York, then there's going to be a hunk of money available to us that we're not counting on. I think there'll be other resources of grants to the hospitality industry, which hopes -- hopefully gets down to our level. I mean, we're not Hilton and we're not Hyatt, but -- or Las Vegas casinos. But I think it may filter down to us, and we may get surprised and have money available to us as grants as opposed to taking on debt from government agencies. In -- on 9/11, which was not -- we only had a couple of restaurants downtown in the zone, which was crippled, we got $500,000 in grants. They weren't loans. I would expect that type of stuff to happen again. So what I'm saying to you is I don't think we're going to get to the point where we have to look at these assets to raise money.

Our next question comes from the line of Jeffrey Kaminsky with JJK Consulting.

I have a couple of questions for you, Mike. One is more granular and immediate, and one is more big picture. In the immediate sense, just from my personal experience of living in the burbs, there's a tremendous amount of the local restaurants who are pretty much closed for business but offering deliveries of sorts, or mostly pickups. I know that we had discussed long before this horrible event, the cloud kitchen concept. Obviously, you have a lot of resources in most of your markets. Have you considered expanding a pickup type thing? I have a friend of mine down in Florida who had told me that some of the restaurants are not only doing pickups, but in certain states, Florida, I think Chicago as well, you can actually -- if you order a meal, you can actually do a pickup of alcohol as well. I don't really understand how that works, but that's obviously a high-margin item. So that's my first question on a smaller level. And on a larger level, you had started the conversation by saying that you're not interested in the government loan, grant being different. But why wouldn't you entertain a -- almost no interest or low interest from the government as a bridge to get you to the other side? What would be wrong with that? Obviously, you don't want to give up any equity like in the auto bailout days of 2008, 2009. The government came in with money, but you had to give up a piece of your equity. Obviously, we don't want to do that. But why wouldn't you entertain a no-interest government loan?

So let me answer the second part first, okay? There is a discipline that we are following with our balance sheet. And that discipline is that our balance sheet, under its current -- in its current state, must carry us through this period. And I don't want to take on any money that will influence us to do anything differently than what we're doing now. So if you have extra money on your balance sheet, maybe you're going to loosen up a little bit. I don't even want to focus on that. We have a discipline. We have management and employees all aligned to that discipline. We know we have to sacrifice that taking that money would be an absolute last resort to us. And putting extra money on a balance sheet may cause people to think we don't have to follow the discipline we have in place right now. So that's my own philosophical address to the situation. As far as the first question goes, we had this discussion. As a matter of fact, Vinny and I were talking about it with one restaurant just before we came on to this call this morning. The -- we're not known for delivering in any of our restaurants. The amount of money we can make on delivery, if we could make any money, is so insignificant in relation to the whole picture. That it's not worth risking, bringing people in who have to work side by side and making, perhaps, them unsafe. It also means buying stuff on -- in small quantities from purveyors, creating additional bills. It also means perhaps having to turn on utilities -- it would mean having to turn on utilities and creating other expenses that -- it's starting up a business that we don't want to start up. At Bryant Park, the park asked us if we could do take out and delivery to the office buildings, the 6 million square feet facing us. They own a percentage of our sales. That's our lease deal. And it doesn't pay us to turn on the utilities. I mean, it's $10,000 a month to turn on the lights of Bryant Park. So the increment -- if you were successful...

What about the other markets now? What about Florida or Alabama or some of those markets where it's probably easier to turn the switch on and do a pickup type of service?

Our operations in Alabama are a 500-seat restaurant and a 350-seat restaurant. In Florida, it's -- at Rustic, it's a 600-seat restaurant. JB's, it's a 400-seat restaurant. It costs too much money to turn them on, and you're bringing people who should probably be distancing themselves from each other into an environment, which is an incubator, potentially. So the incremental success that you might have, and we're not known for delivery, we're not known for delivery, is -- the risk-reward ratio in terms of people's health and the money less the expenses, if we were successful, it's de minimis in relation to the whole thing.

Our next question comes from the line of [ Steve Olson ], a private investor.

I appreciate all the detailed discussion and the steps and sacrifices being made by everyone. A question, at the end of December, I think there was $6 million available on your line of credit to fund the cash burn and also the likely reversal of the negative working capital of the business, are you contemplating? Are you factoring in the drawdown on that amount? Or needing any additional debt from your existing bank?

All right. So the first thing we did when this started to become serious, or a few days before we thought it might become serious, we drew down our whole line. It was $3 million left on our line at that point. We do not do -- even though we were contemplating a record March quarter, going into March because January and February have been very strong, we started to say, "hey, you know when we look at the covenants at the end of March and without having a conversation with the bank, who we were certainly confident would be friendly, I said, "let's draw down all the money, so we have the money before we have the argument if we're breaking covenants." So we drew down the money, which was some $3 million. What happened in the first couple of weeks of March are cash built very quickly. Florida becomes in season during January and February. The first couple of weeks of March were off the sheets great in terms of cash flow. So we're sitting with somewhere between $7.5 million and $8 million right now but it includes $3 million that we drew down from the bank in probably the first week of March. And then we did have conversations with the bank. And as I said, they've been terrific. So we have no credit facility left on our present credit line.

Okay. Thank you very much, and it's nice to hear the actions that you've taken. And I know management owns a lot of stock, but it's nice to hear an alignment of interest with shareholders.

At this time, I'm not seeing any additional questions in queue. Mr. Weinstein, would you like to make any additional concluding comments?

The only thing I could tell you is if any of you have any questions, my personal e-mail, and I'm operating out of my house right now, is Michael, M-I-C-H-A-E-L, dot, W-E-I-N-S-T-E-I-N -- [email protected]. Feel free to e-mail me, I'll get back to you the same day. I'm sort of disciplined that way also. And certainly, if you call the office and you need to speak to us, we get those messages as well. I thank you for being present today, and stay healthy. And hopefully, this ends soon for all of us. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. Again, we thank you for your participation, and you may disconnect your lines at this time.