Christopher Love; Secretary; Ark Restaurants Corp.
Anthony J. Sirica; President, CFO & Treasurer; Ark Restaurants Corp.
Michael Weinstein; Chairman & CEO; Ark Restaurants Corp.
Greetings, and welcome to the Ark Restaurants fourth-quarter and year-end 2024 results conference call at this time. (Operator Instructions) 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.
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 of cash and $5.2 million of debt. Our debt, we have one more set of principal payments 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 will -- we're in current 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 3 to 5 and renew the capacity of our existing credit line.
With respect to the rest of the balance sheet, there really are not 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 of cash 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 things of the like that was $876,000.
We had the impairment loss on the Sequoia right of use and long live 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 as you've read in the press release, we engaged outside third parties to prepare a discounted cash flow based on a series of projections we had given them doing a probability weighted analysis. And at the end of the day, we felt 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 come to us couple of months ago wanting to take it back. They want to put a high stakes slot room where the food court is. We've been negotiations with them, and we feel we made actually 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.
There's really a couple of small costs involved, some legal fees and severance, but they're going to 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, possibly. So, we're now in the process of taking any equipment that we want to the locations. So, other than that, I think that's all I have. I'll turn it over to Michael.
Michael Weinstein
Hi, everybody. So, the theme here is reduce sales, just challenging revenue environment and expenses that have not abated. In certain cases, like insurance premium spoke to before. Increasing labor costs are not increasing unless at this point, unless it's legislation which Las Vegas put through some increases -- minimum wage increases enacted.
But pretty much labored for the first time in a couple of years, it seems to have stabilized. We're finding good people at price points that are significantly compatible with what we would expect in each of the markets. We got for the year and the quarter, we still see challenging revenue environments in Florida and in Washington DC. Alabama is good. That's probably our most consistently good performing venue.
Las Vegas, the revenues are okay, but again, the expenses from inactive payroll increases have eaten into our margins. New York, our business is decent. Not very much to say in the way of new business that we're trying to put on our books. We've been looking at a few things, we've had some negotiations, nothing fruitful has happened. We continue to look.
Meadowlands remains the same story until New York pulls the trigger on their downtown casino licenses. I don't think we'll see any activity from New Jersey. So that remains a question as to the timing, I think our ability to get a casino license or probability in our venue at the racetrack in Northern New Jersey is probably improving all the time from the point of view of the legislature. Seeing that is the easiest solution and best possible location. But again, the legislation is not going to move until something happen.
So that's my story. Take questions at this point.
Operator
(Operator Instructions)
Thank you. It appears we have no further questions at this time.
[Martin Gilar, MH Gilar Consulting].
Hi, Michael, how are you? 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 was worth it. They're doing well.
I just wanted to check in with you on what the developments were with this. We're trying to understand what it means. Wall Street Journal article recently about SL Green success in New York City in terms of turning around the office situation and that they are almost like it was going to happen for sure. They are going to open a casino in one of their buildings. Is that accurate? And is that the driver that you speak of that will make things happen for the Meadowlands.
Michael Weinstein
So, there are three downtown licenses available. There are several bidders to get those licenses. Two of the downstate, I'm sorry, downtown state licenses, meaning Queens, Manhattan, Bronx, Staten Island. So, there are three available, two of them are pretty much spoken for. One will go to Aqueduct, which has gaming right now in the form of slot machines, and Yonkers Raceway, which also has gaming in the former slot machines.
So, you have SL Green trying for one, you have Hudson Yards trying for one, you have Steve Cone out at Chase Stadium trying for one. Bally's is out in the in Bronx at the old Trump property trying for one. The question that everybody shakes their head about is, well, each of these license is going to cost a half a billion dollars to acquire and the amount of tax revenue on a consistent basis are going to the state would be considerable. So, what are they waiting for? Why don't they pull the trigger?
I think one of the reasons is the bidders have had try 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 that you see Bergen County and the Northern counties leaving New Jersey to come to New York and bring their gaming money there, New Jersey is going to find out how much tax revenue they've lost gaming revenue.
Atlantic City has been in declination 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 disappears once a casino is approved in Manhattan or the Bronx or Queens. That'll disappear.
The interesting thing about our Meadowlands location, if you're in Manhattan, it's easier to get to the Meadowlands than it is to get to Aqueduct or Yonkers. So, we think a location in Meadowlands is not only keeps New Jersey patrons in place, but it also brings traffic from Manhattan, which New Jersey does not anticipate, but I think will be a reality.
And who advocates for us on that point with the partner there is who, sorry, I just don't remember.
Michael Weinstein
So, we have, you know, we're of the four partners with where we own the leased equity. On a fully diluted basis, we own 7% of the equity of the Meadowlands Racetrack LLC. But we do have an exclusive on all the food and beverage in the casino if it happens with a carve out for a Hard Rock Cafe. Our original partner in this and who owns 20% of an entity that owns on a fully diluted basis would be about 10% is Hard Rock Cafe. Hard Rock, which is Seminole Indian tribe.
So, what happened is that was a very favorable agreement for us. In that Hard Rock also operates in Atlantic City. And the initial legislation when there was an attempt to get a casino in the north five years ago was that whoever had the rights to a casino license in the north would have to have an Atlantic City partner, meaning somebody licensed in Atlantic City.
So Hard Rock was a good fit for us because they were licensed and that's how they became a partner. Hard Rock is now aligned with Steve Cone at Chase Stadium. So, the -- we don't know that Cone's going to get it, if they do get it, we don't know what our relationship with Hard Rock would wind up to be.
At various points, there's been conversations that if Hard Rock goes to Cone, that there would be some sort of compensation to the Meadowlands because of Hard Rock's interest in the other casino in New York. It's really up in the air, but we don't even know if the legislation -- when new legislation comes forth in New Jersey where it's going to require an Atlantic City partner. So, there's a lot of stuff that's unanswered.
Fair enough. I just wanted to understand who would be advocating for the site to get that. When in fact, New York moves 40 guys in the legislature who are all from northern New Jersey, who are all ready to go with whoever it is that's the leader of the group in the Meadowlands is kind of where I was going.
Michael Weinstein
Yeah. Well, believe me, we have lobbyists and we're in touch with the governor, we're in touch with the President of the Senate in Jersey. I mean, there are conversations taking place to try to educate everybody why our site is the best site.
Got it. Okay. And just another piece on the financial end. What is the -- it's actually a two part, what is the sum of the non-cash write downs that we've taken in the last two years? And am I right to say $15 million and these are non-cash write downs, right. This is associated with the capital of the company market cap being less than the book value or something like that.
Michael Weinstein
Correct. It's all has to do with our stock price. A lot of it has to do with our stock price. They've been all non-cash write downs.
Am I right in the ballpark of $15 million?
Anthony J. Sirica
The goodwill was $14 million, and the Sequoia assets were $2.5 million so $16.5 million.
And Sequoia continues to operate, but you've just written down whatever the asset value is because it's got poor results.
Anthony J. Sirica
Yeah, we had to take an impairment on the fixed assets in the third quarter because of the results. The fourth quarter, the results were what we expected maybe a little better. So, we did not -- we revisited that analysis. We did not have to take additional write downs. We will continue to monitor it every quarter and as well as the auditors are looking at it every.
Michael Weinstein
And Sequoia is cash flow positive. I don't want you to think that we're bleeding money there. Okay.
Okay. So, and then that was the last question was so what do we lose? So, we're getting $4.5 million for Tampa. They're $4.5 million, $5million, I can't remember the number you say, minus minus minus the $900,000. What do we lose on the EBITDA basis, on an annual basis that we were getting from that location? Roughly.
Michael Weinstein
We're getting $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 few dollars. You know, we had, we had a little-
Anthony J. Sirica
Over four years left.
Michael Weinstein
Maybe four years, two months left on the lease at this point. So we did well, but on the other hand, we had to buy out some partners to who were more aggressive about what they thought they should be getting. But we'll net out between $3.5 million and $4 million out of it. So that'll be added to the cash on the balance sheet.
Right. Yes. So, it's an impressive and again, I don't know what the solution is to drive more volume in Florida. But all the customers seemed happy, reasonably busy and superb service and good quality. I mean, certainly, I had never been to one of our restaurants before. I happened to be over there for other reasons, business wise and I thought, that outstanding experience and maybe it's just a question of making sure that more people know how good it is.
Michael Weinstein
So just to follow up on that comment, we are really aggressive about being in our restaurants and management at the corporate level about being in our restaurants and making sure quality and service are at our level of expectation. And I would tell you that without exception, I think we are delivering on product and service and value.
One of the problems we have with margins is our reluctance to raise prices and we don't want to raise prices when demand is soft, and demand remains soft so we're sort of stuck right now.
Although in some cases, we're finding places, individual restaurants to re-engineer payroll. And we've started that program, maybe a month and a half, two months ago so we think there'll be some payroll savings. But in general, we're pretty efficient with payroll. So, not a lot, but we're doing everything we can until we have the comfort that we can raise prices or food costs go down.
And (inaudible) and I had this conversation this morning. We're known for our king crabs. Pre-pandemic we were charging $75 for a 2-pound order. Now, for a 2-pound order, we're charging $135, but the prices of king crabs keep going up every single month. So, it's like a race. How much can you charge? And at what point the customers get leery about spending money and I think we can't go higher even though our cost are going higher.
Well, I'd never tell you one way or the other. I'm nothing more than a customer and an investor. So, I don't know the details, but I will say there didn't seem to be anybody unhappy and I'm always amazed that. I guess that's the challenge of being in the crab business. It's kind of like being planters, peanuts. You're tied to a commodity, that one product commodity, there is really a dominant factor.
But at the other restaurants, I'm amazed at the consumer, especially living in Naples. The consumer's ability to accept price increases. I mean, our stuff here is up 50% probably from where it was pre-COVID. I'm talking about the general line. I mean, everything from a fillet to a piece of grouper. You're talking 50% at least up from COVID.
Michael Weinstein
Yeah, I agree.
Thank you for the further insights and appreciate again what you're doing. Just the New York situation, I don't even want to get into asking questions about that.
Good luck with the resource. I think you're -- I think that's the route you got to go. I mean, these people are mistreating you, mistreating a good organization, which is unfortunate.
Michael Weinstein
Thank you.
Thank you.
Operator
(Operator Instructions)
Jeffrey Kaminsky with JJK Consultants.
Jeffrey Kaminsky
Hi, good morning, gentlemen. With respect to the lease termination in Hollywood, Tampa. You kind of walk us through it to Anthony a bit in terms of what the payout will be to on. And in the press release, there was also a reference to Hollywood Tampa Investment LLC, which will distribute approximately 35% of the proceeds. Can you tell us who is that 35%? I didn't realize that Ark have outside investors and individual properties.
Michael Weinstein
Jeffrey, good morning. What happened is when we did this deal 20 years ago, some 20 years ago, our stock price, not that it's improved. Our investment was going to be $5 million, and we had a projection that if we were right, we would make a million bucks and the -- in Tampa, right. And we're looking at our EBITDA and the multiple of stock trades to EBITDA and we wanted to do the deal because it was an in with Hard Rock and that helped us doing both Hollywood and Hard Rock turned out to be a great deal for us.
But, again, we're saying we're putting $5 million in, we're going to get a 20% return and therefore, the stock won't move. We're trading cash and the stock will -- won't do anything straight in five times EBITDA.
So, the way to do the deal was to bring in investors, give the investors a prep, take a management fee and then split cash flow 50-50 at the time with them. And they put in the whole $5 million so we had overcome the bad equation we have in terms of our multiple. And so the investors did very well, they've been enjoying a 30% return essentially and we did well because we had no capital expense.
Anthony J. Sirica
And just to further that, when Ark first did this deal, these entities were not consolidated, it was a management deal. And the rule in if you recall, and I don't know, probably 10 years ago, the variable interest entity rules changed. And with those new rules, it was determined that Ark had the controlling financial interest and started consolidating the food courts in Florida.
And then at some point, a couple of years after that, we bought out a few of the shareholders and that's how Ark's ownership got up to 65%. It was initially 50-50, now it's 65%. So that that entity that you see in the press release, that is the holding company so the underneath that is Ark Tampa LLC which runs the Tampa Food Court and Ark Hollywood that runs the Hollywood Food Court. So, you know, the 5,000,005 will come into Tampa, get upstream to the investment company and then after expenses, 35% will get distributed to the limited partners of Investment LLC.
Jeffrey Kaminsky
Okay, I understand. And just are there any other similar relationships within the organization where Ark has taken an outside investors on individual properties or this was-
Michael Weinstein
Yeah, Hollywood and El Rio Grande.
Anthony J. Sirica
El Rio Grande was 40 years ago.
Michael Weinstein
We did El Rio Grande in '84.
Jeffrey Kaminsky
Okay. Alright, fair enough. And then second question with respect to, like you had mentioned that twice in this call, the stock price. Going back to when you negotiated the Tampa deal and with respect to these write offs, these impairment charges again tied into the stock price. You know, labor costs are what they are, they may have stabilized, but I don't see them and you may agree or disagree. I don't see them going down considerably. Insurance costs may stabilize. Maybe they won't. But again, I don't see them coming down.
So, some of these heads are going to exist in the future regardless, food prices will be volatile, cost of crab, again, volatile. Question I have asked recurring here on these calls, as a shareholder, the share price, it's hard to benchmark our restaurants against other stocks, but there is a restaurant ETF, there are restaurant and leisure indexes.
If you will, by any benchmark, our stock is dramatically underperformed years. So, you talked about trying to acquire other properties right now that doesn't seem to be happening. There was introduced to us probably six months ago, a new concept of Asian concept that you're working on three months ago. You gave us a progress report I asked them if it's successful, what do you expect in terms of revenues and how you can scale it up. Just looking for some tidbits here as to, as a shareholder, what's going to drive the stock higher? What are we waiting for? I mean, are we waiting for another acquisition, are we waiting for the Asian concept to keep up or do we think we're going to wake up one day and all of a sudden labor costs are going to be down, and insurance is going to be down. Just give us a little color and guidance as to what we can expect for shareholders.
Michael Weinstein
So, two things. First of all, and you're right. We are looking at various concepts that are not one-offs. And Lucky Pig is one of them and we think we're doing decent business, not great, but good business given the location in New York, New York. The management of MGM is very happy. We're adding some new product on top of what we have, which was always the idea.
So, I think we have a good concept there that is expandable. We're just playing with it a little bit now. But it'll be fully excuse me, I'm missing a word. But the concept will be fully done in the next couple of weeks. We're adding a dumpling category and then we're going to see what the returns are on our capital, and I think it's an expandable concept. We're looking at a couple of things.
Is it operational?
Michael Weinstein
Yeah, it's been operational for about three to four weeks now.
I was out there for the opening, people are curious about it, our signage was not complete when we opened, it's now complete. It's a good product. It's something that you now look for other locations to try to see how it does, and you know, other venues.
It's very hard to translate, what we're doing -- you can't take the results in New York, New York, which is a casino and say, okay, this thing will do well on the street in Chicago, that's the next move here. We got to put it some place in New York, we got to put it some place in Philadelphia perhaps. We got to find locations and see how it does and what the response would be. So that's the next step with that.
We're looking at other things that, hopefully, we can figure that would be expandable concepts. We're not giving up on buying one-offs if the EBITDA and cash flows are strong enough and could be meaningful to the company. And then, the other thing coloring is all is what the situation is with Brian Park. You know, it doesn't paralyze us or stop us from doing other things. But that's a decent amount of EBITDA that we don't want to lose, that we're fighting for. So, that's what we're doing now.
Anthony J. Sirica
Well, and a couple of things that we are doing as well. We're looking at our existing businesses, improving them, being more efficient, looking at the payrolls, working on our social media and our marketing to get more people through the doors to improve the existing business that we have. As we look at a couple of other concepts that have come across our desks in the last month or two, things are more in the line of a Lucky Pig, you know, fast casual that are replicable as opposed to full-service restaurants that cost $2- $3- $4- $5 million to build.
Jeffrey Kaminsky
Okay. Thank you, gentlemen.
Anthony J. Sirica
Alright. Thank you, Jeff.
Operator
Thank you. Mr. Weinstein, we have no further questions at this time. I would like to turn the floor back over to you for closing comments.
Michael Weinstein
Have a happy holiday, everybody. Thank you.
Anthony J. Sirica
Thank you.
Operator
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.
