Greetings, and welcome to the Ark Restaurants Third Quarter 2021 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Sonal Shah, General Counsel. Thank you. You may begin.

Thank you, operator. Good morning, and thank you for joining us on our conference call for the third quarter ended July 3, 2021. My name is Sonal Shah, and I'm General Counsel of Ark Restaurants. With me on the call today is Michael Weinstein, our Chairman and CEO; Anthony Sirica, our Chief Financial Officer; and Vinny Pascal, our Chief Operating Officer. For those 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 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 Michael.

Hi, everybody. Thank you for joining us. I think, first, I'd like to hand it over to Anthony to review our balance sheet, and then I'll make comments about cash flows and how we're doing in all our venues.

Thanks, Michael. I wanted to highlight a few key points regarding our balance sheet since last quarter. Our cash position stands at $18 million, and it's likely around $19 million currently, which reflects the strong quarter we had. At the end of the second quarter, our cash was about $12 million. We also had $3.2 million of PPP loans forgiven, bringing the total forgiven to $7.3 million out of $15 million, with applications pending for an additional $4.5 million that we hope will be forgiven this quarter. Additionally, we have receivables related to tax carry-back claims due to the recent changes allowing us to carry back losses for five years. This includes about $2.3 million in pending refunds and another $1.5 million to $2 million in refunds that we still need to apply for, following a specific order. Concerning the PPP loans, we anticipate that approximately $1.5 million to $1.9 million will not be forgiven due to our inability to spend the funds during the COVID period. Most of that amount will be converted to loans at a 1% interest rate, payable over 24 months. Another notable item on our balance sheet is the $9.7 million of revolver borrowings due in May. We collaborated with our bank to convert these into term loans, which will be repaid at $500,000 per quarter starting September 1, 2021, until June 2025, with a balloon payment at the end. All remaining items on the balance sheet align with the great quarter we experienced; receivables are up, inventories have slightly decreased, and payables are a bit higher, all reflecting our increase in sales. I'll now turn it over to Michael.

Hi. I would like to predict that when we receive the tax refunds and the additional funds are granted, our balance sheet at the end of September will likely show cash that is nearly equal to our total long-term debt, with only slight variations. This indicates that we are in a very strong position from a balance sheet perspective. In terms of cash flow, it's important to note that our performance this past quarter is comparable to the same quarter in 2019, two years before COVID. However, cash flow from our New York restaurants in that quarter was approximately $2.4 million, and for the latest quarter, it was only $400,000. This $2 million shortfall can be attributed to several factors. Specifically, our New York locations, particularly Robert and Bryant Park, heavily depend on office traffic for lunch and dinner, and there was a lack of significant events during this past quarter. The theater industry remains closed, affecting Bryant Park, which draws a lot of its business from the theater district, and tourism has not returned either. Given these challenges, it’s impressive that our New York restaurants managed to remain profitable. If we look back to the 2019 quarter and assume those key factors—tourism, theater performances, office workers, and events—return to normal, it could have been a fantastic quarter. The standout performance during this period came from our restaurants in the South, including Florida, Alabama, and Las Vegas, where we are experiencing remarkable attendance. In Las Vegas, we are achieving record weekly revenues compared to similar weeks in 2019, although without any convention business, we are relying entirely on tourism. Additionally, we face challenges from varying regulations, such as mask mandates. Some of our restaurants had to operate at only 50% capacity during the last quarter. Despite these complications, we adapted well, and our management teams handled the requirements effectively. We have not experienced significant COVID outbreaks among staff, though we often have team members out with mild cases. This situation demands more effort from the remaining staff, as we cannot easily replace those on leave due to the current limited labor pool. Overall, it has been a successful quarter. The current quarter began strong in July, similar to June, but we have noticed a slight downturn in August, likely due to the Delta variant. It is difficult to determine if this is solely due to the variant or if it is a seasonal trend; we suspect it could be a combination of both. Nevertheless, we anticipate a strong quarter ahead, with significant bookings for events this fall, despite concerns about the Delta variant. So far, we have not had any cancellations, though there seems to be a cautious approach regarding future bookings. We have implemented modest price increases on our menus without alarming our customers, but our profit margins are under pressure due to rising food costs. For instance, at Rustic in Fort Lauderdale, our food costs increased by 10%. One particular item, King Crab Legs, which used to be 50% of costs, has now risen to 88% due to disruptions and a decrease in supply as fishermen are less active. We have chosen to absorb these costs where they directly relate to our brand, particularly with products like King Crab Legs and Dungeness Crab, for which we serve around 200 orders each day. However, we don’t want to deter customers, so we are taking the hit. Our menus do not fully reflect the rising costs at Rustic Inn and other locations. We are likely to experience tighter margins but the strong foot traffic has kept our restaurants very profitable in terms of cash flow. I hope this gives you an idea of our current situation. Please feel free to ask any questions you may have.

Thank you. We will now be conducting a question-and-answer session. Our first questions come from the line of Roger Lipton with Lipton Financial Services. Please proceed with your questions.

Yes, hi Mike. It was an excellent quarter. I wanted to mention that just in the last few days J. Alexander's reported their results, and their comparison in terms of a thin stock has always been on the lower side. They are about to go private at approximately seven times their current EBITDA run rate. Your stock, as you know, is trading at about 2.5 times your run rate of EBITDA. It seems you should consider some sort of corporate action, whether that's a stock buyback, possibly reinstating the dividend, or even contemplating going private. Being a public company hasn't benefited you much in the last 30 years since you haven't sold any stock to the public. If I were in your position, you and your family could achieve significant liquidity as well as future equity participation. Current shareholders could also benefit significantly at a premium to the current price. Those are my thoughts at the moment.

All right. You want a response or you're just making a speech?

I'm making a speech, but I'd be interested in your thoughts in terms of a response that the stock is incredibly inexpensive.

So Roger, there are a few points I want to address. When it comes to dividends, I believe it's inappropriate to issue them right now, especially considering the uncertainties related to COVID and our current situation with loans from the SBA being converted into grants. It just doesn't feel right to me. Regarding the idea of buying back stock, we know that our stock likely doesn’t represent our current operating performance. There are two major considerations that would weigh on any such discussions, and frankly, we aren’t even considering them right now. The first is our leases in Las Vegas, which have 17 months left. MGM, which owns New York-New York, has recently undergone a significant management restructuring, and most of the partners we worked alongside have left. We have a meeting scheduled at the start of September to discuss our future relationship, which suggests some interest on their part to continue working with us, but it’s unclear how that will be structured. This carries a risk that our cash flow could diminish or disappear entirely. Therefore, I think it would be imprudent to buy back our own stock or take aggressive actions at this moment. The second point concerns the Meadowlands, which presents a much more positive outlook. We are likely the largest sports betting facility on the East Coast. Due to our minority stake, around 8%, we can't recognize income until distributions are made from our partner, Hard Rock, and Jeff Gural, a New York real estate figure. However, our initial investment from five years ago could become valuable for our shareholders, some of whom are aware of this potential. Sports betting at Meadowlands has been a solid cash generator, and for the first time this year, we expect distributions to be made. This will contribute significantly to our overall performance, and as New York State moves forward with downstate casino licenses—which have been on hold—we anticipate New Jersey will react favorably by allowing Meadowlands to operate as a casino. If this occurs, our gambling operations alone could greatly exceed our current EBITDA, along with an exclusive deal on food and beverage services. I believe our shareholders should benefit from this potential. Engaging in any private transactions now would be challenging to justify fairly to our shareholders, especially given that the Meadowlands may transition into a casino in just a couple of years. Any such transaction could lead to scrutiny regarding our knowledge at the time. If the Meadowlands does become a casino, initiating a transaction would seem unfair to any shareholders, whether they are long-term or just recently purchased stock with this future in mind. Therefore, I do not foresee any private transactions occurring at this time.

Thank you, Michael.

Thank you. Our next questions come from the line of Jeffrey Kaminsky with JJK Consulting. Please proceed with your questions.

Good morning, Mike, congratulations on a terrific quarter in a very challenging environment. I have a couple of questions about topics we've discussed previously. Firstly, I'm curious about your thoughts on the strong numbers you delivered last quarter. Do you view this as primarily driven by pent-up demand and people returning to normal activities, or do you see it as a sign of sustainable growth? Is there a way to gauge when things might stabilize? That's my first question, and then I have another one after you respond. Thank you.

Thank you, Jeffrey. I hope you're doing well. There's clearly a pent-up demand, but it varies by region. In New York, I don't believe we're seeing it. People are dining out again, but the requirement for a COVID passport to eat indoors creates a dampening effect. While Manhattan is one of the safest areas in terms of vaccination rates, many people still prefer not to eat indoors. Our restaurant, Robert, which lacks outdoor seating, has struggled as a result. Factors like events, tourism, theater attendance, and office occupancy have led to losses for Robert every week. So, pent-up demand hasn’t benefited us in New York, particularly since outdoor dining options in areas like Bryant Park can't operate on rainy days. The residential areas like the Upper East Side are doing well, but in the corporate Midtown area, where buildings are empty, our restaurants are not seeing any advantage. In Washington D.C., we see similar issues with Sequoia; while we have outdoor seating available, the lack of events has hindered business. Conditions should improve as COVID subsides. When it comes to Florida and Alabama, the situation is quite different. There seems to be pent-up demand due to fewer mask restrictions, and we are benefiting from that. Overall, we own prime locations and reputable brands. I recall after 9/11 when we lost significant cash daily, yet I assured banks that our properties would recover as soon as people returned to restaurants, which they did. The same principle applies now; pent-up demand and lack of alternative entertainment options have resulted in increased restaurant patronage, especially in Florida. In Alabama, we anticipate meeting our targets for the June and September quarters because it’s their peak season. I expected those properties to perform like Florida, but they are turning out more like the Jersey Shore. In Vegas, we see a lot of interest from travelers looking for vacation spots. Even though shows and conventions were limited for part of the quarter and occupancy was at only 50%, our performance has been impressive and we expect that to continue. During the June quarter, Vinny mentioned we also experienced 50% occupancy. However, the strong numbers for that quarter largely came from mid-May to the end of June. In general, our increases in sales are mainly seen in Florida, but there are factors causing underperformance elsewhere, like reduced conventions in Vegas. While Alabama is meeting expectations, New York is not benefiting from pent-up demand. Additionally, our increased menu prices have contributed to sales figures. In Rustic, for instance, despite seeing good numbers, our food costs have been high. Staffing levels have returned to where they were in 2019, which is interesting since Rustic, located near cruise ship docks, has seen reduced business due to the lack of sailing cruises. If we had those cruise ships back, Rustic could be performing significantly better. Nonetheless, I believe many of these sales are robust and will likely improve as we adapt to a more normal environment.

Yes. So your strategy in the last several years of making some acquisitions of family-run mom-and-pop type restaurants that have good reputations and good business models in their respective community has worked very well for Ark. Given a post-COVID world or the COVID world that we live in, I'm assuming that there are a number of operators that have either closed down or are limping through this and have not been in the fortunate position that Ark has been in. That said I'm assuming the broker, the business broker that shows you some of the properties that you've acquired over the years, must be showing you some either vacant properties available or people who just can't continue to hold on like this. Is Ark currently in the position to make another acquisition? I know that what you talked about the loans being forgiven from the government. I mean are you seeing a decent show of potential restaurants? And are you in the financial position to make a move if something attractive came along?

We have more liquidity on our balance sheet than ever before, which means we do not need to approach banks for acquisitions at this time. We are indeed in a strong position to pursue them. I've discussed this with a board member, and our acquisition criteria, particularly regarding cash flow multiples, have always been quite conservative. We aim to minimize risk as much as possible. For example, we likely paid around 2.5 to 3 times cash flow for Blue Moon and Rustic, mainly because of the land we acquired. If we consider the land separately in these transactions, our payment multiples are still around three times. Such deals are rare, but being an all-cash buyer makes us an appealing option for those looking to exit the business. Many local buyers typically offer 30% down and use notes that extend over eight years, which isn't attractive to older sellers who prefer straightforward sales. Our approach provides an appealing alternative for sellers. We acquired Blue Moon in October last year, just before market changes occurred. If the sellers had known about our sales performance and the efficiencies we've implemented, I believe they wouldn't be looking to sell now. Currently, it is challenging to find sellers in our target markets because many are thriving. If you've managed to survive until now, you should feel good about your position. The competition has diminished due to many restaurants closing, but we have not come across any prospective acquisitions that excite us right now. However, we are patient and confident that opportunities will arise. Our preference continues to be acquiring the land beneath our operations, and I am not worried—we will find suitable options.

All right. Thank you Michael.

You're welcome, Jeff.

Thank you. There are no further questions at this time. I'd like to hand the call back over to Michael Weinstein for any closing comments.

Thank you all for joining us. Roger and Jeffrey, I appreciate your questions. I'm curious to see how this all plays out for us in the September quarter with the Delta variant and its impact. However, I remain very optimistic about our business moving forward. I take great pride in our team and the efforts and sacrifices they've made to bring us back to a profitable position relative to our size. It was a challenging journey, and I'm thrilled with the cooperation we've received from everyone, including the team at Blue Moon, who adapted to new ownership and our standards as a public company amidst all these changes. Everyone has done an outstanding job for our shareholders, which is why our company is as strong as it is. Thank you, and I look forward to speaking with you in December as we wrap up the year.

The year-end. Yeah, the year-end.

Okay. Stay healthy everybody.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Have a great day.