Greetings, and welcome to Ark Restaurants Fourth Quarter and Year-end Results Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris Lowe, Secretary for Ark Restaurants. Thank you. You may begin.

Thank you, operator. Good morning, and thank you for joining us on our conference call for the fourth quarter and fiscal year ended October 2, 2021. My name is Christopher Love, and I'm the Secretary of Ark Restaurants. With me on the call today is Michael Weinstein, our Chairman and CEO; and Anthony Sirica, our Chief Financial Officer. For those of you who have not 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 Michael.

Hello everyone. Thank you for being here today, and happy holidays to all. This quarter has been quite encouraging. I want to share a few comments about it, starting with Las Vegas, which performed exceptionally well compared to 2019, showing an increase. However, we are facing two main challenges: pricing disruptions due to wholesale inflation and difficulties in staffing all our restaurants. Despite rising costs, we've managed to adjust some of our menus, and the price increases we imposed on customers, apart from shellfish, have been relatively mild. In Las Vegas, we believed we were slightly underpriced. At New York, New York Hotel & Casino, a mid-range casino hotel, we were cautious in our pricing strategy due to our target demographics, but we found it easy to implement price hikes there. Thus, the growth compared to 2019 results not only from increased headcounts but also from these price hikes. Although payroll per employee is up, we consistently run about 50 positions short out of 600, leading our total payroll costs to remain stable or even decline compared to 2019. This has made our payroll more efficient, although we wish to hire more staff to enhance service levels. Overall, this has offset some of the increased wholesale expenses. The same positive results are seen in Florida, where payroll productivity has been outstanding, despite a slight increase in costs, especially regarding shellfish. Take Rustic, for example, where about one in four customers opts for king crabs. Prices for this item have skyrocketed recently. Six to seven months ago, we paid $23 per pound, but it spiked to $53 per pound. Now, we are holding about $2.3 million in inventory for various shellfish, mainly king crabs, alongside dungeness and snow crabs. While we want to serve these popular items, our food costs at Rustic have risen dramatically from 43% to 57% of sales, yet we remain profitable. Our pricing strategy for king crabs has moved from $75 to $125 over the past seven months, although our costs have risen to $109 per plate. While we're focused on maintaining revenue and customer relationships, profits from this product have been significantly impacted. The rest of Florida continues to perform well, though we’ve also faced challenges with conch prices, which recently surged. Fortunately, we believe that prices for shellfish have peaked and are starting to decline, which bodes well for the upcoming quarters. Our strong December quarter can largely be credited to remarkable performances in Las Vegas and Florida, as well as good results in Washington, D.C. However, in New York, we still face challenges due to low office occupancy and fewer events, which have impacted our revenue streams. Over the past week and a half, New York has shown improvement, but recently, many events have not filled their expected numbers. We aren't certain what the future holds for March, but December has been robust. At Meadowlands, we've captured a significant share of sports betting in New Jersey, accounting for 50% of all on-premise betting and 40% online. We have exceeded half a billion dollars in betting, with better-than-expected hold rates. By December, Meadowlands is projected to achieve a positive EBITDA of $15 million. This is significant not only for distributions, which we expect to receive for the first time, but also because it indicates we won't face any capital calls. We're optimistic about Meadowlands' current operations and its potential future as a casino. However, considerations regarding casino licenses in the northern part of the state hinge on developments in New York City, scheduled for late 2023. I hope this gives you a clearer picture of our current status, and I'm open to any questions you may have.

Our first question comes from Roger Lipton with Lipton Financial Services.

What can you tell us about the Las Vegas lease negotiations?

They're going very well. We're a little bit behind schedule in terms of when we thought we would get leases in hand, the documents. But as far as we're concerned here, all the economic issues have been agreed upon. So we think we're just fairly far down the road in terms of keeping the present operations going for an extended period of time, but we haven't received documentation yet. And I would be pretty confident that it's coming, but we just haven't received anything yet. So we've had nothing to review as to whether or not our thoughts about the economic issues and other issues are confirmed by a document.

And you mentioned, of course, the Omicron effect that you're in New York. Have you felt anything at all yet in Las Vegas or Florida or Alabama, as far as Omicron, the latest…

It's not just us. We're focused on our own business without inquiring about how others are handling similar challenges. Since March 2020, we've consistently dealt with cases in our restaurants. Some have had to close for up to 10 days until we could assemble a crew free of positive tests. It's been tough. Currently, we have cases in Florida and New York, and there are always cases in Las Vegas. We have 600 employees in a facility of 2,500. It's a challenge and we have recent cases. We’re unsure if these tests are indicating Omicron or Delta variants. However, we've managed to isolate individuals effectively; we’re staying proactive. I would estimate that 95% of those infected feel sick at home, avoid coming to work, and get tested to protect their colleagues and customers while keeping our restaurants operational. The situation with Omicron in New York City is particularly bad right now. Revenue in December should be robust due to events at Bryant Park, and Robert's event proceeded at full price. An organizer expecting 350 attendees paid us accordingly, but often only about 50% show up. In terms of profitability and meeting our revenue projections, we’re doing well. Nevertheless, there has undeniably been a decline in the number of customers visiting our restaurants lately.

Everywhere. Including Florida and Alabama and Vegas?

Well, no, not Florida, not Alabama, not Las Vegas, not yet. But in Washington, D.C., it's quite without a question. In New York without a question. I mean, our biggest problem right now in New York and Washington, D.C., although I haven't checked with Washington lately, we had very robust reservations for New Year's Eve and the number of cancellations coming across is significant, really significant.

For our financials, in the Northeast, this is typically a slow time as we enter our slow season. With the expansion of Omicron in the Tri-State area, we see a natural slowdown in January and February. Therefore, this occurrence is not particularly detrimental for us.

Yes, we're all watching the same news and maybe this thing will burn itself out quickly, if we're lucky. Great job under the circumstances and happy new year.

Thank you, Roger. You as well.

Our next question comes from the line of Jason Walters, a private investor.

Michael, question about the company’s current cash position and your thoughts on capital allocation going forward?

Yes. So Anthony can answer that in more detail. So Anthony, why don’t you talk about the balance sheet? And I’ll talk about capital allocation.

Currently, we have approximately $24 million in cash before float, which is typically around $3 million to $4 million. Our current debt to the bank stands at $25.8 million, down from $27 million at the year-end, following principal payments made on November 1. As mentioned in the press release, we have $0.4 million of the $50 million in PPP loans forgiven, and we expect an additional $3 million to be forgiven, leaving an outstanding loan balance of about $1.7 million, which we anticipate will be paid off over the next 10 months. The reason we couldn't have all of that money forgiven is that we were unable to spend the funds during the 24-week covered period due to the New York restaurants not being open last summer; they only opened at the end of June while we received the funds in early May. I've noticed a bill introduced by Barry Nadler that aims to extend the covered period for loan forgiveness, and I'm not sure if it applies to public companies or just specific businesses, but we will monitor that closely. Overall, our balance sheet remains very strong in terms of capital allocation.

I want to note that we currently have a receivable from the government amounting to about $3 million from the IRS. When you factor in that cash and receivable, it slightly surpasses our long-term cash. In terms of capital allocation, if the Vegas leases are finalized, we will need to invest some funds in Vegas over the next 12 to 18 months. I estimate that this will require around $5 million to $7 million, potentially a bit more. This expenditure is something we would have incurred regardless, as it is not a direct requirement of the leases. We would have still made these investments even if our existing leases had longer terms. The delay in spending is simply due to our desire to allocate funds only if we were staying longer. We have various upgrades and maintenance to address, including new kitchen equipment. For our other restaurants, maintaining operations will cost another $1.5 million to $2 million. Overall, we anticipate commitments between $7 million and $9 million over the next year and a half to keep our facilities updated. Currently, we do not see any attractive acquisition opportunities. We had looked at options in Florida because of a trusted broker there, who understands our needs. However, the market is very competitive, and we are not interested in acquiring at current prices. That may change, but for now, we are not keen on new builds unless the opportunity is compelling, especially as there is significant pending upgrade investment needed. There are two exceptions we are exploring. One involves a space in New York; we have Robert on the 9th floor, and although we have a smaller 1,400 square feet area used by the museum and ourselves, it's not ideal. The new Executive Director has invited us to propose a trade of this space for a 3,300 square feet area on the 10th floor, which would better suit larger events and integrate with our restaurant. This project is in early design stages, pending museum approval. Pre-COVID, demand for this space was high, and it has great potential due to its view of Central Park. The other project involves JB's on the Beach, which generates $12 million in revenue. We propose to build an outdoor bar lounge deck above the restaurant. Our proposal has received initial approval from the Deerfield City Council, and while they will provide input as we advance the design, they have indicated that our plans are viable. Each of these two projects might cost $2 million to $3 million, and they align with existing demand. Additionally, there is a smaller project at Blue Moon Fish Company, which aims to expand a deck into the waterway to add more seating. We are currently awaiting City Council approval, but have secured necessary approvals from engineers. We are actively pursuing these opportunities to expand where demand exists and where we can boost our revenue potential. We expect to complete these projects within the next 18 to 24 months, and we are diligently working on them. I hope this information provides clarity.

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

You all have done an outstanding job since the pandemic, and I also appreciate your honesty about the challenging situations out there. I wanted to understand your intentions moving forward, as it seems you won't want to be in this position indefinitely. We've talked about strategic alternatives before, and it's challenging given the diverse landscape of your restaurant locations. It appears you're focusing more on Florida lately, although New York might recover, and Vegas is improving. My question is whether there’s a way to monetize the Meadowlands asset, or do you think it's too early to make decisions there until the casino situation progresses? In a broader sense, does it make sense to explore potential buyers for the company or are you already doing that informally while staying attuned to the market?

Let me address the last part first. We are not looking to sell the company at all. On a personal note, we believe we are undervalued and dislike that situation. As a majority shareholder, my family and I see significant potential for growth in EBITDA over the coming years, despite the stagnation caused by COVID and previous attempts to find a better direction. We believe we’ve identified a path forward by purchasing the land under our restaurants. To illustrate, we acquired the Rustic for $7.5 million when it was generating $1.5 million in earnings, which included the land that was appraised at about $4 million. Prior to COVID, our earnings were $3.5 million. If we engaged in a sale leaseback, assigning $1 million for rent based on current interest rates — which may change — we estimate we could realize around $12 million from such a deal while still making a profit of $2.5 million. This opportunity exists across all four of our locations where we own the land, especially the two in Alabama and our properties, Shuckers and Rustic, suggesting there’s substantial untapped value, potentially $30 to $40 million based on how we manage rent relative to our EBITDA and operating profits. Regarding the Meadowlands, if a casino license is granted, we have the first right of refusal for all restaurants in the area. The cost to develop could be unclear, based on prior agreements that reference the favorable terms we have in Las Vegas, which involved considerable tenant improvements and low rents. If development proceeds, we expect to negotiate those terms. We also hold a 7% stake in New Meadowlands LLC, which will manage the casino alongside Hard Rock, who owns 20% and is expected to operate the facility. If a casino license is approved, I anticipate Hard Rock would quickly inquire about our stake. However, it seems premature to discuss the Meadowlands further, and it's unclear who would be interested in acquiring a minority stake. While we acknowledge the odds of the area becoming a casino are improving, it's challenging to put a value on our 7% stake and the exclusive first right of refusal for Meadowlands restaurants. If someone approached us with an unreasonable offer, we would consider it, as our Board is committed to maximizing shareholder value, but we have yet to receive such an offer.

That totally makes sense. And it's better to be patient with the Meadowlands. So given that, going back to the general management of the company, are you grooming people to eventually take over your job? Is there a young management coming in?

We have some very capable people here who could continue in leadership roles. Anthony, who is with me, is more than just a CFO; he has skills that go beyond that. There are a few others who could join him in maintaining our current direction. Over the years, I've always believed in our team's strength and experience, including hiring and integrating talented individuals into our organization. What we do is quite different from most public restaurant companies, primarily because we don't operate under a single brand. In fact, I believe we excel at handling large-scale operations. For example, we've managed days where we served 25,000 people in New York. At Bryant Park, I often take pride in how efficiently we manage our guests; on a busy spring day, we fill all 1,100 seats and ensure everyone is out by 7:15 to accommodate the next wave of patrons. We excel at high volume and maintain a quality and price point comparable to the best in our industry, all without a brand identity. While I sometimes wonder if having a brand would have benefitted us, I made strategic choices early on that shaped our business model. The challenge lies in bringing someone on board who understands our unique culture and knows how to identify and pursue the right opportunities—such as focusing on larger venues instead of small ones. Although we haven't advertised for such a position, we are fortunate to have people within our company who fit that profile. I'm confident we will continue to thrive, and at this point, I'm not looking to retire just yet.

That's actually great news. And we appreciate your long-term thinking and management. And so I totally understand, but it's good to know that you have a game plan in place as well.

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

Congratulations on a fantastic quarter despite a tough environment. Many of my questions were answered earlier, but I would like to follow up regarding the government PPP loan program. As I understand it, some of the funds are forgiven as a grant, while others are due for repayment. Has that amount been determined yet? Additionally, does the performance of the properties play a role in deciding what is forgiven and what needs to be repaid?

No, the number is fixed. We received $15.1 million in PPP loans that were required to be spent within 24 weeks of receiving the funds. For most properties outside of New York, we were able to use the funds within that timeframe, and those loans have been forgiven. There are about 6 or 7 smaller loans currently awaiting forgiveness at the SBA, which seems to be experiencing delays, likely due to the surge in second draw loan forgiveness applications. Out of the $15.1 million, based on the applications I submitted, we have received $1.7 million that will not be forgiven. For example, Bryant Park reopened at the end of June last summer, starting with outdoor service only, and then allowed 25% indoor service after Labor Day. The funds needed to be spent by October 15, and the amount we received was based on our 2019 payroll, calculated as 2.5 times our monthly payroll. However, our payroll during the summer of 2020 through October, starting at the end of June, was significantly lower. Additionally, we are limited to using 60% of the funds for payroll. Therefore, the amount of payroll spent divided by 0.6 caps our forgiveness for that operation. This issue also occurred at Robert and a few other locations, which is why we have the $1.7 million that won't be forgiven. It is not related to the profitability of the operations or any issues with the applications we submitted; rather, the 24-week covered period was not considered adequately for markets like New York, where closures lasted longer.

Yes. We also had the situation at Robert, where the museum was closed; we were on the 9th floor. The museum didn't open until October. We got our money in May or April, and we never were able to spend any of it. So all of that money is going back to the SBA, it's a loan. The other thing I want to point out is that we only got the first tranche of PPP enough money. Private companies got 2 shots of PPP money, but public companies were restricted because of the abuse of some public companies. In the second tranche, they eliminated the ability of public companies to get a second round. So we didn't get the advantage of that. We did get some employee retention money at a couple of the restaurants, but that was not significant in relation to the $15 million.

Right. Okay. And just a follow-up to capital. Michael, you had mentioned that the opportunity at the moment, certainly in Florida and some of the Southern states to acquire another property, given the robust level of business, it just isn't there yet. But if that property should come along, be it Florida, Alabama, or somewhere else, do you feel like you're in a position right now from a capital point of view that you'd be able to focus for this?

Yes. First of all, we have a positive cash balance and receivables from the IRS in relation to our long-term debt; our working capital ratio is excellent compared to typical restaurant operations. We're in a strong position with all our financial ratios. Our banks have indicated that they would be willing to provide us with additional funds if needed. However, we currently have sufficient cash to pursue a couple of good acquisitions based on the types of properties we typically target. I'm not concerned about capital; it's the operations that we will focus on. Interestingly, it seems like a stroke of luck rather than strategy that has worked in our favor with Rustic, Shuckers, the two Alabama properties, JB's on the Beach, and Blue Moon Fish Company. We're discussing six acquisitions where management has remained and performed exceptionally well for us. We've seen no departures of key personnel; in fact, the opposite is true. They indicate they are happier working with us than they were previously. The reason for this is that those properties were not part of a corporate structure. We are extracting all the cash flow from their operations, and these managers were often receiving pressure from suppliers about payment timelines.

They couldn't make significant repairs.

They did not perform repairs, and there were issues, such as refrigerators that were 18 years old being held together with tape. We come in and essentially make the facilities new in terms of equipment and repairs, and they never receive calls from suppliers because we settle every invoice within 10 to 14 days. This practice has always been our approach when we have the financial ability to do so. We do not want our suppliers to be hesitant about our products. We have always been prompt payers to ensure our suppliers understand that we contribute positively to their cash flow. If they mistreat us and lose our business, they risk losing a key client. I often recount the situation during 9/11 in New York. A few weeks after the event, our suppliers would deliver products in the morning and collect checks in our office by afternoon because they feared their customers could not provide cash flow for their deliveries, and many were in significant financial distress. We were there to support them during this difficult time.

We went through a very similar process.

So yes, we're in great financial shape, just great financial shape.

And again, congratulations on a solid quarter and happy and healthy holidays and New Year to everybody.

There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.

All right. So thank you. Happy holidays, everybody. We'll see what Omicron does to our business in the March quarter; I think you'll be very pleased with the December quarter. I know you'll be pleased with the December quarter. But the March quarter could get kind of crazy again, but we're here. We're not in the office frequently. Today, we happen to be for the call. But if anyone has any questions, my cell phone number is 646-322-9197. So 646-322-9197. I'm usually pretty responsive and can answer a call the same day I get it. Again, happy holidays. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.