Greetings, and welcome to Ark Restaurants Second Quarter 2024 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. I'll now turn the conference over to your host, Christopher Love, 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 second quarter ended March 30, 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. With us is Sam Weinstein, our Co-COO. 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 Michael.

Hi everybody. This is a pretty bland quarter in terms of comparisons. It's really easy to outline the differences between this year and last year. Primarily, we did not do well in Florida for the quarter. Some of it was affected by weather changes, so that's always a bad excuse. Just headcounts were not where we would like them to be. Vegas did all right but again we're fighting higher rents with the new lease. New York was pretty good. Alabama was really good. And Washington, D.C. had a bad winter, in general. What we're fighting is obviously higher payrolls which has been the case for a while now, extremely high premiums on liability insurance and property insurance. The results are marred by the fact that we refused to raise prices to levels which we think are attainable. In the long run, we're interested in keeping customer counts, so our prices have to be friendly. Those price increases, which were modest that we did put through in restaurants, given the number of headcounts coming through, that revenue is not sufficient to make up for the higher cost of labor and to some extent food cost, and to a great extent rents and insurance premiums that have gone up. What we're seeing now is a little bit more favorable in the last month or so. The results in Florida are starting to comp better compared to last year. Vegas is steadily over $1 million a week. The goal for us to make up the difference in rent is probably $1.1 million to $1.15 million. We've seen some of those weeks, not consistently, but the product there is really good. The efficiency has improved dramatically on the payroll costs. We have a new food purchasing department that seems to be doing a better job of food costs. So we expect that we'll achieve close to the same cash flow that we had prior to the rent increases during the course of this year. We'll get there. New York is benefiting from events. The a la carte business is okay, but the event business is really strong. Alabama remains strong. The food costs in Florida are very strong. We just think we're seeing a tick up in demand and we'll see if that continues. From my point of view, everything seems to be in line in terms of service and quality of the product. So if you have any questions, I'd be happy to answer them.

Thank you. At this time, we'll be conducting a question-and-answer session. Our first question comes from the line of Peter Katz with Herold & Lantern Investments.

Any updates on Bryant Park?

The process has taken longer than expected and has been disappointing regarding how the needs of bidders are addressed. We were informed that we are finalists, though we don't know how many others share that status; we suspect it's two or three. Back in October, we were told that leases would soon be available for review. We finally received them two weeks ago, which stipulated that responses were due by this Friday. After waiting five months to see the lease terms, we were given only seven or eight days to respond. We have submitted our response, but we're unclear on the timeline for decisions—they haven't indicated when they expect to make a choice, whether by the end of May or June. Therefore, our understanding of where the process stands is limited to our lease submission and our comments. I've been puzzled by the process since April and wish I could provide more clarity.

Does that affect your ability to plan events prospectively?

We've already stopped taking events for 2025 after May 1 of 2025; that's when our lease ends. So if people call, we'll encourage conversations to keep going, but we're not signing any contracts. We have to inform them that we don't know that we're going to be in possession of their property. I don't think there's too much of that now. But certainly, weddings have to be planned well in advance of 12 months. So that's probably what will first be affected.

Different question. Based on your debt and amortization schedules, do you have an expectation of what your year-end debt balance might be?

Anthony can answer that question. Right now, it's about $6 million.

The year-end balance will be $5.3 million. Just as a reminder, all of the loans have a June 1, '25 balloon payment. So next quarter, everything moves to current.

And the long-term debt changes from $6 million to $6 million in the current category, right?

Correct. Yes, as of June 1, everything is due by June 1, '25.

And would you consider refinancing that; is that your plan?

Yes. I mean, we'll start the process of entering into a new credit agreement probably sometime after the calendar year and roll it into a new deal.

But if I can interrupt Anthony for a moment, we currently have about $14 million in the bank. Some of that includes deposits for future parties, while the rest is just available cash. We're approaching our busy season; the June quarter and the second quarter tend to be our strongest periods. We expect to generate significant cash flow during these times.

We usually build cash.

We build cash. We have some expenditures to make in Vegas on refurbishing the food court. There are no current projects or purchases that require any capital. So our decisions will be made based upon where the cash stands, as well as what future commitments we have. But we're in very strong shape from a cash point of view going into our best seasons.

And again, as you said, your cash cycle is such that you expect to harvest cash in the second and third quarter as opposed to the first and fourth quarter where you are paying out bonuses and whatever other adjustments have to be done?

Correct.

Is there anything else to report in terms of new business development or…?

We look at things. Sam, would you like to discuss the new pay?

We're in the process of building out a new concept in Las Vegas. It's an Asian fast food concept, a lot of rice bowls and bao buns. We've been putting the brand together for about eight months now. We think that it has potential to roll out a few concepts. So we're sort of piloting in New York-New York Hotel and Las Vegas. That's the only real new concept we have on deck, but we're excited about it. It's set up to be rolled out more as a brand rather than one-off. So we should be opening that in the next month or so, and we'll see how it goes. If that's successful, we're definitely looking for new locations to place that in.

We have a letter of intent for the purchase of the restaurant, but there are complications with the one-offs where we're attempting to buy the land or cash flow. We were fortunate with the first five or six transactions we completed, as management remained in place, sales continued to be strong, and profitability improved in most instances. Recently, however, with the last three or four deals we've pursued, primarily in Florida and one in Wisconsin, the sellers are trying to sell us businesses at four times cash flow, but they are facing the same cash flow issues that we have. Their cash flow is declining compared to last year’s figures, which complicates renegotiation, as sellers expect cash flow to improve and hope to return to us later. We are considering options, but there always seems to be an obstacle, either with the seller’s cash flow performance or landlords being resistant to necessary changes in lease clauses for us as a public company. It's not due to a lack of effort to seek expansion opportunities, but we don't control the landlords or the cash flow of the restaurants we are evaluating. I would say that we are as focused on building our brand, which we can control to increase the company's cash flow, as we are on acquiring cash flow.

I think I was just curious, you mentioned having spent a lot of money in the Gallagher's renovation. Has that brought a more upscale traffic? Has there been any sort of conversations with the landlord about that process?

We're now comparing our results to last year when Gallagher's was fully operational. It's early to determine if the business has grown enough to justify the money spent, but we had no choice in committing just under $2 million for the lease. The real cost stemmed not from the renovation expenses but from the 12 to 13 weeks of lost cash flow due to the restaurant being closed. The new lease is considerably more expensive. We anticipated that our relationship with MGM would mean relying on their marketing team, which believed our prices were too low compared to other steakhouses, prompting them to suggest a price increase. The product is excellent, as evidenced by numerous five-star Yelp reviews, although we encountered initial issues with the kitchen layout and chef selection when we reopened. Those have been addressed, and our food quality is now strong. The challenge we face is understanding why our sales haven’t surged by a larger margin, especially with new competition and the active T-Mobile Arena nearby. New York-New York attracts a middle-income crowd, which is evident in our overall performance. Our fast food courts in Hollywood, Tampa, and New York-New York are thriving, showing significant growth compared to last year, while sales at our moderately priced Burger Bar have declined. There seems to be a trend shifting patronage from high-end restaurants toward our fast food courts. When we redeveloped Hollywood and Tampa, we opted for fast food that meets restaurant quality standards, and customers are pleased with the food. The increasing prices at full-service restaurants are not appealing. My main concern is how these factors affect Gallagher's ability to compare favorably against prior performance post-renovations. We have competition, and while the T-Mobile Arena is hosting more events, we also now have a nearby show enhancing our visibility. However, the price points and customer demographics remain challenging, and while the feedback from patrons is positive, the dynamics are complex and somewhat puzzling.

Our next question comes from the line of Roger Lipton with Lipton Financial.

Could you provide more details about the new prototype you're developing in New York-New York? Could Sam elaborate on that for us?

It's sort of a quick service Chipotle style setup. It's an Asian concept; it's rice bowls, it's bao buns. We're starting small. It's just three different ingredients. We have beef, a pork and a chicken option, and a vegetarian option. It's essentially rice bowls, bao buns, and boba tea. Boba tea has become very popular. We've been seeing a lot of success in other spots in Las Vegas and other areas that we've been looking at. We're trying to build this little concept that puts both of them together, and we're also making our own freshly baked mochi donuts. That's pretty much the gist of it.

Is it going to be in a food court?

Yes. It's going to be in the New York-New York Hotel food court.

And when do you think you'll be getting that started?

End of June, it's looking like. We're about to start construction now.

And Michael, is there anything at all new in terms of the casino, downstate casino discussions? I mean, I see periodic reports in the press, but you're probably watching it a little more closely than we are. Any movement at all in terms of that?

My partners in the deal, who have significantly more equity than we do, believe that New Jersey cannot proceed with a referendum until downstate casinos are established. This requires licenses, and the process in New York has been slow. There is substantial activity surrounding the various proposals, but it seems the state needs more time. Until those licenses are granted, it’s widely accepted that Yonkers and Aqueduct will likely be two of the three license recipients. The advantage of Aqueduct and Yonkers is that if they receive a license, they could begin operations within 60 days. This situation might push New Jersey to start drafting a resolution or referendum that requires a public vote. However, many investors are asking what New Jersey is waiting for. The Meadowlands LLC, which operates the Meadowlands Racetrack, has pledged a guarantee of $500 million a year to the state. So, what are they waiting for? The reality is they are still waiting.

So it's really a matter of waiting, especially since there's been no new feedback from New York on whether they will effectively address this issue in the near future.

We read the same articles in the newspapers that you read.

So you might be paying a little closer attention than I can, but whatever, do the best you can. You can't control it. Obviously, it's just a question of what you're observing. Well, all right. Thanks very much. Look forward to seeing you guys soon.

Our next question comes from the line of Alan Goldberg, Private Investor.

And I was calling to see if there was any update on the Meadowlands. But since that's already been asked, I wanted to tell you that I think you are maneuvering very well through this tough time. I know this is not what you want to hear, but in Chicago, I went to Maggiano's last night for dinner. They had 19 patrons while I was having my dinner. That sort of shocked me. I asked them how things are going. They said their price point seems to be very, very good. I think most of our price points are very, very competitive. Everybody wants results yesterday. You and I met over five years ago; we were a little younger. I’m very pleased with what you're doing. I think you're moving in the right direction. Now you may say under your breath or in silence, 'my god, he's crazy.' But I'm not crazy. People are eating out more and more and more. The problem that's hurting, if McDonald's is telling you they're slowing down because people are concerned about money, I agree. I think it hurts all restaurants. But I also noticed nobody seems to care. They give the credit card, and they just don't care. Again, I'm not teaching you your business. I know absolutely nothing about it, except I enjoy your restaurants. I think we should continue doing what you've been doing. Look, as you said, look for places that are reasonable to us. This whole industry is going to change. The world is changing. We've got a major election coming. I'm not teaching you economics; that's my field. But I'm very pleased with the way you're running it and the people on your team that I don't know. It's a pleasure hearing your voice. Thank you for taking my call. If you ever have any questions for me, I'm always there for you. Thank you so much. Thank you for the meetings. Good luck to all of us, and thank you.

Thank you, Alan.

Thank you. If there are no other questions at this time, Mr. Weinstein, I'll turn the floor back to you for any final comments.

All right. Well, thank you all for joining us. And we'll speak to you at the end of next quarter.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.