Ruth’s Hospitality Group, Inc. (NASDAQ: RUTH) (the “Company”),
one of the largest upscale steakhouse companies in the world, today
announced that Jefferies LLC (“Jefferies”) has agreed to purchase
$43,500,000 of the Company’s common stock (the “Shares”), to be
reoffered by Jefferies at variable prices. In addition, the Company
has granted Jefferies an option, exercisable for up to 30 days, to
purchase up to an aggregate of an additional $6,525,000 of
Shares.
The Company intends to use the net proceeds from the sale of
Shares to repay borrowings under its existing credit agreement and
to strengthen its balance sheet, principally in response to the
impact of COVID-19 on its business, operations, results of
operations, financial condition, cash flows and liquidity, and to
otherwise use the net proceeds for general corporate purposes. The
Company retains broad discretion over the use of the net proceeds
from the sale of Shares.
This press release is for informational purposes only and is not
an offer to sell or the solicitation of an offer to buy any Shares
of the Company. There will be no sale of Shares in any jurisdiction
in which the offer, solicitation of an offer to buy or sale would
be unlawful.
The Shares are being offered pursuant to a shelf registration
statement on Form S-3 that the Company filed with the Securities
and Exchange Commission on May 8, 2020, which became effective on
May 18, 2020 (File No. 333-238138). A preliminary prospectus
supplement and the accompanying prospectus relating to this
offering are being filed with the SEC and will be available on the
SEC’s website located at www.sec.gov. Prospective investors should
read the prospectus, the preliminary prospectus supplement and
other documents the Company has filed with or submitted to the SEC
(some of which are incorporated by reference into the prospectus
and preliminary prospectus supplement) for more complete
information about the Company and the offering. When available,
copies of the preliminary prospectus supplement and the
accompanying prospectus relating to this offering may also be
obtained from Jefferies LLC, Attention: Equity Syndicate Prospectus
Department, 520 Madison Avenue, 2nd Floor, New York, NY 10022, or
by telephone at 877-547-6340 or by email at
Prospectus_Department@Jefferies.com.
UPDATE ON LIQUIDITY AND MANAGEMENT ACTIONS
COVID-19 Impact
In March 2020, the World Health Organization declared the novel
coronavirus (“COVID-19”) a pandemic and the United States declared
it a National Public Health Emergency, which has resulted in a
significant reduction in revenue at our restaurants due to
mandatory restaurant closures, capacity limitations, social
distancing guidelines or other restrictions mandated by governments
across the world, including federal, state and local governments in
the United States. As a result of these developments, we are
experiencing a significant negative impact on the Company’s
revenues, results of operations and cash flows.
In response to the business disruption caused by the COVID-19
outbreak, we have taken the following actions:
Operating Initiatives. Due to the government mandates
regarding limiting or prohibiting in-restaurant dining due to
COVID-19, we are leveraging our Ruth’s Anywhere program in markets
where take-out and delivery sales are sufficient to cover the costs
of management staffing those locations. During April, the dining
rooms in all of the Company-owned restaurants were closed. We are
operating take-out and delivery in 56 Company-owned restaurants
where it is permitted by local regulations and economically viable
and 30 Company-owned and -managed restaurants are closed. As of the
date of this release, our labor and supply chain have not been
disrupted. Many of the franchisee-owned locations are experiencing
similar disruptions to their business, and as a result, we have
waived franchise royalty requirements until their dining rooms
re-open. We recently began to open our dining rooms in selected
locations. See “—Reopening our Restaurants” below.
Capital and Expense Reductions. We have suspended all new
restaurant construction and non-essential capital expenditures. We
have also made significant reductions in ongoing operating
expenses, including curtailing operations in restaurants where
take-out and delivery is not viable and furloughing a significant
number of team members in the field and in the Company’s Home
Office. In addition, we have also implemented pay reductions for
all remaining Home Office and field employees. We have taken
measures to reduce payments to our landlords in April 2020 and are
in discussions with our landlords to reduce or defer our payments.
As of the date of this release, we are unable to predict the
outcome of these discussions and the extent to which we will be
able to negotiate to reduce or defer payments. With payments being
delayed, landlords may terminate our leases or could take other
actions that restrict our ability to access or reopen our
restaurants in a timely manner.
Dividends and Share Buybacks. We have suspended payments
of any quarterly cash dividend and there are no plans for share
buybacks in the foreseeable future.
Balance Sheet. In March 2020, we entered into a second
amendment to our credit agreement, dated as of February 2, 2017,
with certain of our direct and indirect subsidiaries as guarantors,
Wells Fargo Bank, National Association, as administrative agent,
and the lenders and other agents party thereto (as amended, the
“Credit Agreement”), which increased our borrowing capacity to
$150.0 million and relaxed the leverage covenant restrictions to
4.0 times Bank Adjusted EBITDA through the first quarter of 2021.
We borrowed the remaining available amount under our revolving
credit facility as a precautionary measure in order to increase our
cash position and preserve financial flexibility. On May 7, 2020,
we entered into a third amendment to our Credit Agreement, which
waived financial covenants until the first quarter of 2021, further
relaxed the leverage covenant restrictions through the fourth
quarter of 2021 and added a monthly liquidity covenant through
December 2020 that escalates if we or any of our subsidiaries issue
equity for cash, including in this offering. As discussed under
“Fourth Amendment to our Credit Agreement” below, on May 18, 2020,
we entered into a fourth amendment to our Credit Agreement which
limits the amount by which the monthly liquidity covenant escalates
from the net cash proceeds of an equity offering, including in this
offering.
Reopening our Restaurants
We have recently been able to open the dining rooms in 11 of our
Company-owned restaurants and hope to be able to open additional
dining rooms this summer, but we currently expect the majority of
our dining rooms to remain closed through most of the second fiscal
quarter of 2020. Our ability to open restaurants will depend on the
extent to which governmental stay-at-home restrictions are lifted
by each jurisdiction. Where we are reopening, we are doing so with
the safety and wellbeing of our guests and team members as the top
priority. As such, we have taken several steps to ensure we comply
with relevant requirements at state, city or local levels, which
are changing on a regular basis. These steps include:
- an overall enhancement to our already robust sanitation and
food safety standards;
- requiring all restaurant team members to wear masks and gloves
at all times, regularly wash their hands, and undergo health and
wellness screenings, including temperature checks;
- assigning a dedicated team member to clean our restaurants at
all times they are open; and
- reconfiguring our floor plans to accommodate social
distancing.
We have also taken measures to ensure our guests feel
comfortable during their dining experience. For example,
- our dinner and wine menus are available via a QR code for
access on personal devices;
- we are offering new personal side options in addition to our
shareables;
- we have created opportunities for private seating for small
groups to experience personal Taste Maker wine dinners; and
- for our guests who would prefer to have Ruth’s at home, our
online ordering, payment and curbside pickup, where available,
allows for a convenient and minimal contact experience.
These precautions and measures may change from time to time as
local conditions and applicable health mandates change, and it is
also possible that as local conditions and/or applicable health
mandates change, we may be required to re-close restaurants or
otherwise limit our operations.
Franchisee Restaurants
Our franchisees have reopened 31 dining rooms, 22 franchised
restaurants are operating takeout and delivery only and 19
franchised restaurants remain closed.
Fourth Amendment to our Credit Agreement
On May 18, 2020, we entered into a fourth amendment to our
Credit Agreement. As discussed above, the third amendment to the
Credit Agreement added a monthly liquidity covenant which required
us to maintain liquidity, defined as borrowing availability under
the revolving credit facility plus cash on hand, in excess of
specified amounts (“Minimum Scheduled Cash”) through December 2020
in an amount equal to (a) 50% of the net cash proceeds of any
equity issuances by us or any of our subsidiaries effected between
May 1, 2020 and December 31, 2020 (excluding certain amounts
required to be used to make prepayments on loans outstanding under
the Credit Agreement) plus (b) an applicable amount for each month.
The fourth amendment amended the definition of Minimum Scheduled
Cash so that the amount by which the monthly liquidity covenants
escalates from the net cash proceeds of equity issuances is capped
at $15 million. Assuming we receive net cash proceeds of $48
million in this offering, the Minimum Scheduled Cash under the
monthly liquidity covenant will increase by $15 million.
Liquidity Update
As discussed above, during April 2020, the dining rooms in all
of the Company-owned restaurants were closed, and although we
operated take-out and delivery in 56 Company-owned restaurants, we
experienced significant declines in comparable restaurant sales. We
did not fully pay our landlords in April 2020 as we began
discussions to reduce or defer our rent payments to them. If we had
fully paid our landlords in April 2020, our average weekly cash
burn rate for that month would have been approximately $2.4
million.
The following table sets forth the Minimum Scheduled Cash
amounts we would be required to maintain under the monthly
liquidity covenant in our Credit Agreement, pro forma for this
offering, assuming we receive $48 million in net proceeds in this
offering:
Month
Pro Forma Minimum Scheduled Cash
May 2020
$49,000,000
June 2020
$44,000,000
July 2020
$36,000,000
August 2020
$34,000,000
September 2020
$30,000,000
October 2020
$27,000,000
November 2020
$25,000,000
December 2020
$29,000,000
If we were to disregard our recent restaurant reopenings and
assume we are only able to offer takeout and delivery operations in
a manner consistent with our April operations, with no restaurants
open for dine-in operations for the rest of 2020, and assuming we
receive $48 million in net proceeds from this offering, with $9
million used to repay debt, and taking into account $59 million of
cash on our balance sheet as of May 18, 2020, we would not have
sufficient liquidity to meet the Minimum Scheduled Cash requirement
in December 2020. Therefore, under these assumptions, we would be
in breach of the monthly liquidity covenant as of that month.
However, we believe that, even if each of the assumptions described
above should occur, we will still have sufficient alternatives to
reduce our operating expenses, including by managing the timing of
payments to certain of our vendors and landlords, in order to
satisfy the liquidity covenant in December 2020. We will not be
required to satisfy the liquidity covenant in 2021 and beyond, and
instead will have to comply with covenants related to our leverage
ratio, our fixed charge coverage ratio and capital expenditures.
Further, our Credit Agreement is scheduled to mature in February
2022. If we are not successful in extending or refinancing our
Credit Agreement by February 2021, we may face the risk of a going
concern qualification in early 2021 with respect to our audit for
fiscal year 2020, which would be an event of default under our
Credit Agreement. If our business performance does not improve to
the point where we can comply with our leverage ratio, fixed charge
cover ratio and capital expenditure covenants in 2021, we may need
to seek an amendment to, or refinance, our Credit Agreement. If we
are able to successfully amend, extend or refinance our Credit
Agreement, we may also be required to agree to additional covenants
in connection with any future amendment, refinancing or an
extension of our Credit Agreement.
This pandemic is an unprecedented event in our history and it is
uncertain how the conditions surrounding COVID-19 will change,
including the timing of lifting any government-imposed restrictions
or closure requirements, when additional dining rooms will re-open,
and what level of customer demand we will experience as our dining
rooms re-open. In the event our revenue and cash requirements
differ from our expectations, we may fail to satisfy the covenants
under our Credit Agreement or may be unable to refinance or
otherwise make required payments on our outstanding debt. See “Risk
Factors—The terms of our senior credit agreement may restrict our
ability to operate our business and to pursue our business
strategies” and “Risk Factors—We depend on external sources of
capital, which may not be available in the future” in Item 1A. Risk
Factors of our Annual Report on Form 10-K for the fiscal year ended
December 29, 2019. Our operating results, financial position and
liquidity will depend upon a series of factors, including the
duration of restaurant shutdowns; the speed with which, and the
extent to which, customers return to dine at our restaurants once
the dining rooms re-open; and our success in obtaining rent and
other payment concessions from landlords and vendors.
About Ruth’s Hospitality Group, Inc.
Ruth's Hospitality Group, Inc., headquartered in Winter Park,
Florida, is the largest fine dining steakhouse company in the U.S.
as measured by the total number of Company-owned and
franchisee-owned restaurants, with over 150 Ruth’s Chris Steak
House locations worldwide specializing in USDA Prime grade steaks
served in Ruth’s Chris’ signature fashion – “sizzling.”
Cautionary Note Regarding Forward-Looking Statements
This press release contains “forward-looking statements” that
reflect, when made, the Company’s expectations or beliefs
concerning future events that involve risks and uncertainties.
Forward-looking statements frequently are identified by the words
“believe,” “anticipate,” “expect,” “estimate,” “intend,” “project,”
“targeting,” “will be,” “will continue,” “will likely result,” or
other similar words and phrases. Similarly, statements herein that
describe the Company’s objectives, plans or goals, including with
respect to new restaurant openings and acquisitions, capital
expenditures, strategy, financial outlook, cash burn rate, our
effective tax rate and the impact of healthcare inflation and
recent accounting pronouncements, also are forward-looking
statements. Actual results could differ materially from those
projected, implied or anticipated by the Company’s forward-looking
statements. Some of the factors that could cause actual results to
differ include: the negative impact the COVID-19 pandemic has had
and will continue to have on our business, financial condition and
results of operations reductions in the availability of, or
increases in the cost of, USDA Prime grade beef, fish and other
food items; changes in economic conditions and general trends; the
loss of key management personnel; the effect of market volatility
on the Company’s stock price; health concerns about beef or other
food products; the effect of competition in the restaurant
industry; changes in consumer preferences or discretionary
spending; labor shortages or increases in labor costs; the impact
of federal, state or local government regulations relating to
income taxes, unclaimed property, Company employees, the sale or
preparation of food, the sale of alcoholic beverages and the
opening of new restaurants; harmful actions taken by the Company’s
franchisees; the inability to successfully integrate franchisee
acquisitions into the Company’s business operations; economic,
regulatory and other limitations on the Company’s ability to pursue
new restaurant openings and other organic growth opportunities; a
material failure, interruption or security breach of the Company’s
information technology network; the Company’s indemnification
obligations in connection with its sale of the Mitchell’s
Restaurants; the Company’s ability to protect its name and logo and
other proprietary information; an impairment in the financial
statement carrying value of our goodwill, other intangible assets
or property; the impact of litigation; the restrictions imposed by
the Company’s credit agreement; changes in, or the suspension or
discontinuation of, the Company’s quarterly cash dividend payments
or share repurchase program; and the inability to secure additional
financing on terms acceptable to the Company.
For a discussion of these and other risks and uncertainties that
could cause actual results to differ from those contained in the
forward-looking statements, see “Risk Factors” in the Company’s
Annual Report on Form 10-K for the fiscal year ended December 29,
2019, “Risk Factors” in the Company’s Quarterly Report on Form 10-Q
for the quarter ended March 29, 2020, and the Company’s other
filings with the Securities and Exchange Commission (“SEC”). Such
filings are available on the SEC’s website at www.sec.gov. All
forward-looking statements are qualified in their entirety by this
cautionary statement, and the Company undertakes no obligation to
revise or update this press release to reflect events or
circumstances after the date hereof. You should not assume that
material events subsequent to the date of this press release have
not occurred.
Unless the context otherwise indicates, all references in this
report to the “Company,” “Ruth’s,” “we,” “us”, “our” or similar
words are to Ruth’s Hospitality Group, Inc. and its subsidiaries.
Ruth’s Hospitality Group, Inc. is a Delaware corporation formerly
known as Ruth’s Chris Steak House, Inc., and was founded in
1965.
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version on businesswire.com: https://www.businesswire.com/news/home/20200520005845/en/
Investor Relations Fitzhugh Taylor (203) 682-8261
ftaylor@icrinc.com
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