Greetings. Welcome to Ark Restaurants’ Second Quarter 2022 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to Chris Lowe, Secretary for Ark Restaurants. Thank you, you may begin.

Operator, good morning and thank you for joining us on our conference call for the second quarter ended April 2nd 2022. My name is Christopher Lowe and I’m the Secretary of Ark Restaurants. With me on the call today is Michael Weinstein, our Chairman and CEO; Anthony Sirica, our President and Chief Financial Officer; and Vinny Pascal, our Chief Operating Officer. 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 home page 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.

Hi, everybody. Before I review the business, I think it's a good idea for Anthony to review our balance sheet.

Thanks, Michael. Yes, we had a great quarter as everyone saw in the press release, better than we expected. Our balance sheet at the end of the second quarter remains really strong. We have close to $19 million of cash. We've collected since the end of the quarter our carryback claims on our accounts receivable, on our tax carry back, so that was $2.1 million collected subsequent to the end of the quarter. All of our long-life and intangible assets have been reviewed for impairment. We don't have any indicators of impairment. Our debt is down to $28.5 million from $32.6 million at year-end. We had $1.1 million of forgiveness of PPP loans in the quarter, as seen in the P&L. Of the $28.5 million of debt, $2.6 million are remaining PPP loans, of which we expect $1.7 million to be forgiven and approximately $900,000 to be repaid when we get the final forgiveness decisions based on the paperwork that we've submitted. Other than that, there are not a lot of changes on the balance sheet; it remains strong. Other than the fact that we did really well, it's been a pretty uneventful quarter regarding unusual transactions. I'll turn it over to Michael.

Thanks, Anthony. If Anthony provided the $19 million cash figure, which was at the end of the quarter, presently we have approximately $28 million cash on our balance sheet. And that is before float.

Before float, that’s right.

So, our net debt is pretty much zero at this point. Business in general during the quarter was surprisingly strong in Las Vegas and Florida more than we had projected. What you should know about this quarter, which I think is interesting, is that New York City and Sequoia in Washington, D.C. lost a combined $1.4 million during the quarter. So the fact that we were profitable, despite the poor performance of the two Northeast locations, New York City and Sequoia just shows you the inherent strength that we witnessed in Las Vegas, Alabama, and Florida. The main points that I think we want to talk about is the dividend calculation. We resumed our dividend, which you saw in the announcement. Basically, we extended a projection to the end of fiscal 2023, which is September 2023. If things go according to our projections, this is the amount of cash that we will have on our balance sheet after paying debt, after an acquisition that we may do, after payment of debt, payment of taxes, and payment of interest. Conservatively, we decided to resume our dividend payments and still not encroach on any of our plans for expanding the business. The Meadowlands, with what New York City is doing in terms of downstate casinos, we have become increasingly confident that within the next two to three years we will have a casino license at the Meadowlands. There are conversations ongoing that make us feel that we're on the right path toward that, so we're looking forward to that possibility. Leases at New York-New York Hotel & Casino, which come due at the end of this year, we have signed three major leases between the hotel and us. We have executed one of those leases, and New York-New York is executing that one. We have signed the second lease and are awaiting for New York-New York to execute, all of these leases require reach to sign off on it. So there's some period of time from the time we executed until we get all the proper parties to sign on the lease. That's what's happening with the America lease, but we’ve signed it and expect to get that back in executed form by New York-New York in the next couple of days. Last night, we just received the third lease to review, which we haven't had time to review yet, but we expect all of these leases, including the executed lease, to mirror our term sheets. So I think we’re just fine with all three of those leases. By area, just to reiterate, Vegas is extremely strong. We're seeing results there. I've been watching carefully conferences by retailers in general about what's happening to their business, and despite interest rates going up, recession predicted, and inflation on the consumer's balance sheet, especially grocery prices and gas prices, we're not seeing that at our locations in Vegas. We’re certainly not seeing it in New York either. Last week may have been one of the best weeks this company has ever had in terms of sales. We are beginning to see a seasonal fall-off in Florida at our full-service locations, but we are not seeing that at the two Hard Rock locations where we do fast food. We've seen a dramatic pickup in New York and Washington D.C., largely driven by a very strong event calendar, especially in May and June. For instance, Bryant Park, which was struggling throughout the early part of this year due to reduced foot traffic, had 200,000 to 300,000 visits per week in recent weeks, driven by events, with significant attendance in our facilities. Sequoia is experiencing the same trends with numerous events on their calendar. We expect the momentum of cash flow and earnings to continue through the June quarter, and we should have an extremely strong June quarter. So, with that, I hope I’ve covered the high points, and if you would like to ask any questions, please proceed.

Thank you. Our first question is from Sandy Mehta with Evaluate Research. Please go ahead.

Yes. So good morning and congratulations on a strong revenue quarter. You talked a little bit about a possible acquisition now that your balance sheet has strengthened considerably. Are you still able to see deals at 3 times or 4 times cash flow? And what size acquisition may you contemplate? Thank you.

Sandy, thank you. So the balance sheet is strong enough to do anything that we think we could absorb. We are seeing deals, although they don't come across the desk every week, maybe every three or four months, we see something that's worthwhile looking at. The minimum threshold is we don't want to do anything where the cash flow generated by operations is less than a million dollars. They have to be well-established restaurants. We've been very fortunate here; our acquisitions of Rustic, Sequoia, JB's, Blue Moon, and the two Oyster Houses in Alabama have worked out well. We are looking at deals where we can expect a similar result where key management will stay. We're seriously looking at one possibility and yes, it will come at 3 times, 4 times operating profit. There are others that we look at that are a little bit more expensive than that, but I don't think we want to reach beyond 3 times or 4 times. And I believe they are available. We are unique in that regard, but if you're a seller with a good property and you go locally, you're likely to find a buyer who will put down a third and give you notes over eight years; that's always the format that restaurants are sold under. If you're an independent, the big brands with much better balance sheets than ours are less likely to be interested in you, unless they feel your brand is worth multiplying. We're there with the balance sheet; we’ll pay all cash and are primarily focused on your cash flow and making your operations more efficient after acquisition.

Great, thank you so much.

Our next question is from Jeffrey Kaminski with JJK Consulting. Please proceed.

Good morning, Michael and team, congratulations on another strong quarter. Mike, on last quarter and some conversations we've had, you discussed the pressures in terms of cost of food and inflation. We all see the headlines and that prices are still going up, so I'm sure that continues to impact performance and pricing to the restaurants. Can you discuss that a little bit? Additionally, can you comment on the labor situation? I know that you folks and the hospitality industry are facing labor shortages and difficulty finding servers and bus staff. Can you talk about that as well? Thanks.

Yes, sometimes the results are good, but I feel that the business is managing us rather than us managing the business. We are dealing with chaos all the time; it's unpredictable in terms of food costs and other services that we buy. We've had discussions regarding King Crab Legs for Rustic Inn. We made purchases expecting prices to stabilize, but they more than doubled over the year and took an unpredictable turn. It's just unpredictable—there's no stability in these markets with prices. Our cost of goods is definitely up. For most restaurants, if you look at Mother's Day, prices spike right before the holiday. My managers are doing the best they can to purchase wisely; it's just a little difficult to predict costs. Regarding labor, we continue to pay a significant amount of overtime because everyone is working double shifts. We still have difficulties opening one of our restaurants seven days a week. The situation is challenging but manageable because our employees are loyal and working hard. To offset wild fluctuations in commodities and labor costs, we have raised menu prices. I've discussed our approach with investors who have invested in places like Cheesecake Factory and other large chains. Unlike them, we don't raise prices uniformly across our locations based on a company-wide percentage increase. We analyze each market individually. We believe certain concepts can handle price increases, while others may not, and we make adjustments accordingly. We're flexible enough to analyze every single item on every menu per restaurant and make adjustments accordingly. Our goal is to ensure that our product appears valuable to the customers. We’re finessing these price adjustments as best we can to maintain revenues that can support the unpredictability of food and labor costs.

Thank you.

Our next question is from Jason Walters, a Private Investor. Please proceed.

Good morning, guys. Great quarter. I have a question about the Meadowlands. Michael, I know you touched upon this in the past to some degree, but could you provide some color on what the financial impact of a casino license at the Meadowlands might look like in relation to the Company's business? Additionally, are there any tentative plans in motion about getting a referendum ready to go in New Jersey?

Let me address that as best I can without getting everyone too excited. The last referendum, which took place three to four years ago, was designed to facilitate discussions about a potential casino at the Meadowlands. The legislative body in New Jersey was accommodating the promise to explore this possibility, but the wording was vague, lacking specifics on location, financing, or tax rates. At the time, we were prepared to initiate a marketing campaign to educate the public on why this was important for the State. Last month, we handled 65% of the sports betting that took place in the State, either in-person at the Meadowlands or online. Interestingly, we were the only profitable entity managing sports betting in the State, making about $4 million last month. FanDuel remains a partner in this venture. Governor Murphy has had conversations with Jeff Gural and others who are in favor of a casino at the Meadowlands. The Meadowlands offers a lot of space, with no nearby residential community. Much like what has historically happened with casinos, licenses have generally been awarded to locations with existing betting. We have an existing facility and plans for expansion. Hard Rock is our partner in this project and has demonstrated success in casino and hotel operations. Our proposal would not only include a casino but also a new 1,000-room hotel and convention center. We anticipate that discussions about a referendum will progress quickly. It's worth noting that our approach would be to conduct polling to determine how best to position this initiative in the market. My confidence has consistently increased, primarily because Atlantic City is losing appeal. A new casino could be a welcomed addition in the Meadowlands, and I believe that we'll get the license.

Could you comment on what the financial impact would be? I know we're discussing rough numbers.

I can tell you from prior conversations that MGM projected that a casino of a certain size could generate about $500 million a year in cash flow prior to taxes. That number would represent a significant change to our projected EBITDA. However, I expect the cash flow may not fully materialize in the way we might prefer as we would be minority partners and would need to negotiate our interest and any future operations would likely go through Hard Rock, which appears willing to buy out minority partners down the road.

Thank you.

Our next question is from Robert Punt, a Private Investor. Please proceed.

Hey, guys. Congratulations on the quarter. Is it safe to assume that moving forward, generally speaking, you will be moving capital out of the Northeast down to the Gulf Coast area?

I want to clarify: we’re not moving capital out of the Northeast; we simply are not looking to invest more capital there. We're not going to sell any of our established restaurants in New York. Those investments have been strong and continue to produce cash flow. What we've learned in the past is how to manage restaurants at a distance. We have robust management controls allowing us to manage properties without being close to them. We visit these properties periodically to ensure operations are running well. Florida is easier to manage as we can be down there frequently, while Las Vegas is managed by an experienced team. If we don’t hear from them, we know everything is going well. We focus on the economics of any deal, and we prefer acquiring operating restaurants that own their land. Regarding New York, we're operating under a very progressive legislature that poses challenges for profitability in the restaurant business. We won't consider anything in New York unless there is a dramatic shift in how they approach restaurant operations.

Is there any news on the renewal of the Las Vegas leases?

Yes, we’ve executed two leases. We received one back from New York-New York fully executed, and we expect to receive the executed copies for the second lease by the end of this week. Last night, we also received a draft of the third lease, which mirrors the terms of our initial agreements. So, we feel confident about all three leases.

Congratulations on that. For your inventory of shellfish like lobsters and crabs, do you carry any of that as live inventory, or is it all frozen?

It's all frozen. We have freezer lockers rented in the South, specifically in Florida, and ensure the product accordingly.

Thank you, and congrats again on the great results and the resumption of the dividend; that means a lot to our shareholders. Thank you.

Thank you very much.

Our next question is from RMR Capital Partners. Please proceed.

Yes, Hi, congratulations on a great quarter. I'm happy to finally be a shareholder here. I had two questions that were sort of intertwined. The first is related to the Vegas lease renewals. Are there stipulations regarding renovations that need to occur? If you have a rough ballpark figure for those costs? And secondarily, on a previous call you mentioned something about a sale-leaseback, suggesting you could unlock about $20 million or $25 million worth of value. Given the current situation with the Fed and rising rates, is this something you're considering to unlock that value before a potential recession?

To your second question, we're not considering a sale-leaseback right now. Our balance sheet is strong, and we expect it to remain strong, which will provide the capital needed for future operations. Regarding your first question, we have projected roughly $7 million in improvements that need to be made in Vegas. Some of those improvements were postponed but are necessary to meet the terms set by MGM. This figure encompasses renovations that will likely occur over a 24-month period.

Got it. Thank you.

Our next question is from Roger Lipton with Lipton Financial Services. Please proceed.

Yes, hi, Michael. My concerns have been adequately discussed already, so I'll talk to you soon. Thank you very much.

Thank you, Roger.

And our next question is from Peter Katz with WIS Direct. Please proceed.

Hi, Michael. Congratulations again. Given your comments on the New York environment, are you looking to renew or continue your stay at Bryant Park? How is it going at the Robert?

The Bryant Park lease renewals will come up probably in the middle of next year. It's too early to discuss them now, but we want to retain that location since it has been profitable for us. We expect to absorb increased labor costs, whatever they may be. The Robert lease has approximately 20 more years left, so that won't be addressed for a while. However, Robert has faced challenges recently due to occupancy rates remaining low. In the weeks leading up to today, Robert has started to see more events, allowing us to consistently meet or exceed breakeven revenue figures.

Aspirationally, are there other markets you'd like to enter outside of the Northeast?

We don't focus on markets; we focus on deals. We don't mind where a deal is located, as long as it meets our parameters. We prefer acquiring operating restaurants that own land, with a strong management presence and good cash flow. Our recent acquisitions, particularly in Southern Florida and Alabama, have proven successful since all six of those restaurants now yield better cash flow than when we purchased them, indicating a successful operational strategy. One of the key aspects of our approach is maintaining management stability, allowing us to maximize revenues while minimizing daily managerial conflict. We aim to enhance the quality of operations while ensuring we can scale effectively, as demonstrated by the consistent performance of our facilities.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing comments.

We're six weeks into a 13-week quarter, and we’ve witnessed extremely strong results across our restaurants. I expect the June quarter to exceed our own projections and expectations. Thank you all for joining this call. If you think of any questions afterward, feel free to reach out to me on my cellphone at 646-322-9197. Have a good day and speak to you all in a few weeks.

Thank you. This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.