Greetings. Welcome to Ark Restaurants’ Third 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. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, our Secretary, Chris Lowe. You may begin.

Thank you, operator. Good morning and thank you for joining us on our conference call for the third quarter ended July 2, 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. First, I like to get Anthony involved to explain the quarter from a financial point of view and our balance sheet. So, Anthony, please.

Yes, we had a – you saw the release, we had a very strong quarter. I want to run through the balance sheet real quick as you saw on the release, our cash was 26.6 million. As of today, it's probably up a million from that. Other significant changes on the balance sheet, we did collect our carry back claims during the quarter of $2 million. So that process took about a year, but we finally got the refunds from the CARES Act, which enabled us to carry back losses five years instead of three. We have a significant increase in our operating right of use assets from the Las Vegas lease extensions of about $24 million with a corresponding increase in the liability. And our debt is $25 million, which is made up of $23.5 million to the bank, $700,000 seller note from the Blue Moon purchase, and 800,000 of PPP loans, we said there were two loans remaining outstanding, which we are still working on getting them forgiven. We had a couple of questions from the SBA. As far as the quarter goes, a couple of items of note that in the current quarter, there are one-time adjustments for compensation accruals of about $0.5 million, as well as there are accruals for the Vegas lease extensions of approximately $300,000.

So, essentially, the accrual for compensation was a one-time accrual for future payment of compensation. The accrual for the Vegas leases occurred because when we started negotiations with MGM for the extension of our leases, the extensions were going to be as of January 1, 2022. The leases were not signed until the middle of this year. We were not able to accrue because we didn't have signed pieces earlier, our accountants said that would be inappropriate. So, once the leases were signed, we had to go back and accrue for those extra rents, which were paid recently.

Yes. Just on that note, if you recall from the last conference call, one of the leases was signed, but now all three of the extensions have been signed, the third one was signed subsequent to the quarter on July 7 or 8. And that's the one that caused this accrual because we had to accrue back to January 1.

Right. So, basically this [800 and some odd thousand dollars] [ph] of accruals that were really either one-time in the case of the compensation accrual, and in terms of the Vegas leases didn't really belong in this period. So, the quarter was stronger than the EBITDA at years, the $6.2 million in EBITDA, if you just broke out the quarter by yourself. Anthony, anything else that you want to…?

I think that's the significant item.

I think so too. So, we come into the fourth quarter of our fiscal year with a strong balance sheet. to review and go forward with what we think is going on. The quarter was specifically strong with events in Bryant Park, Sequoia. It was very strong with revenues in Las Vegas, Alabama. Florida starts to dip, sort of in May, so we saw some bad comps in relation to the winter period in the Florida full service properties. The fast food and hard rocks in Tampa and Hollywood held up very well. What we saw is the equation if you want of menu price increases still were not able to keep up with the 2021 period with revenues. That means essentially that even though we increased menu prices, our headcounts were dropping. The worst of that was probably in late June and July of the current quarter. What we have seen now in August is that gap is closing and we are much closer and in some cases revenues are ahead of the similar periods last year. So, we don't think we're seeing the impact of quota recession or the results, headcounts, disruption because of gas prices, especially in Florida because gas prices would have an impact if you buy into the fact that our customers are heavily impacted. One of the anomalies here for us is Blue Moon Fish Company, which is our highest priced restaurant where you have a very well deal customer. Those headcounts were down substantially in late June and July. They, sort of come back and was, sort of revenue even with the comparable period last year. JB’s on the other hand, which has a lower check average, has been running ahead of last year. Now, this is not in headcounts, this is in…

Was even more of it in Florida.

Yes, more so in Florida. Sequoia in Washington had a great event quarter in the June quarter, August and September had slowed down, it will continue to slow down until mid-September, but we have very strong event calendar for Sequoia in Washington for October, November, December. Bryant Park, a huge event success in the June quarter. Again, slows down right now in August and September, but we're fully booked with events in the December quarter. The one restaurant that we're probably having problems with although events are starting to come in as [Robert] [ph] at the Museum of Art and Design. The Museum of Art and Design is having its own problems. They have new director attendance. It's not being good. Publishing office buildings. Publishing industry has a lot of office buildings right around there. Those buildings are still way off in terms of occupancy. The publishing industry was a big customer at [lunch] [ph]. Robert is the only disappointment in terms of strength of revenues, compared to prior quarters. But again, the event calendar starts to fill-up in September. So, we're very happy with these businesses right now. The efficiency is not there because we're not efficient with menu prices this cost and that's going to continue for a little while. Labor costs, we are paying a ton of over time because we can't fill our schedules with new workers. That seems to be changing a little bit in New York. I'm here. I see people walking into our restaurants, looking for jobs, which was not the case two, three months ago. Vegas is still having a lot of problems finding employees Alabama a little bit. We're paying over time, a lot in Alabama. Florida seems to be getting people now. Washington D.C. we seem to be alright, but…

[Operator Instructions] And our first question comes from the line of Sandy Mehta with Evaluate Research. Please proceed with your question.

Yes. Good morning, Michael and Anthony. Congratulations on a very strong set of results across the board.

Thank you.

Do you feel like you are benefiting from market share gains or that in some of your locations competitors have been weakened by the pandemic for the last couple of years? And relatedly, are you seeing – what are you seeing in terms of acquisition opportunities? I know you guys are preferred buyers of properties based on how you operate. Are you seeing interest there or pricing that's reasonable for potential deals? Thank you.

All right. On the first question, Sandy, I hope you're well, by the way. We don't pay attention to competition. We're not that empirical. There are 25,000 restaurants in New York or used to be. I don't know where we stand vis à vis all of them. So I'm not, and I would say that I have the same attitude in every venue we're present. So, I have no clue whether we're picking up market share or not. The second question, I can answer. We were looking at deals that we broke off negotiations when we felt that the May numbers and June numbers of that property weaken substantially and we were concerned, so we broke off negotiations. We had another deal we're actively working on. We think the pricing would be fair. The problem with most deals that we look at is, we have to have landlords adjust the leases. The tenants who own the restaurant, if they are leasing a restaurant, generally don't have leases which are totally acceptable to us. If they own the properties and there's not like Rustic or Shuckers or the two in Alabama, we were buying land, as well as the operation. It's not a problem. We haven't seen one of those in a year or so that would be interesting to us, but we're now looking at a property with a long-term lease and they're meeting today with the landlord as a matter of fact to see if they could get the adjustments and lease that we need to go forward. So, we are seeing stuff with [picky] [ph]. We're very conservative leases have to meet our criteria, but we are seeing occasionally good acquisition possibilities at fair prices. So that's the answer I would give you.

Great. Thank you so much.

Our next question comes from the line of Paul Johnson, a Private Investor. Please proceed with your question.

Yes, good morning and congratulations. As long-term investors, it's pretty amazing to see how far you've come since the dark days of COVID. So, just in terms of the – first of all, I just want to ask you've had a recent appointment to the Board of Jessica Kates and you've had some insider, fairly substantial [insider buying from] [ph] Thomas Satterfield, I'm wondering if you can comment on either of those?

Jessica, [indiscernible] retired from the Board. Jessica came to us vis-a-via our outside auditors and they recommended her. I did and had conversations with people she had worked with and they were stunningly good recommendations. She brings investment banking talent in the food industry. She’s also run private equity. Her partner sits on the Board of Cheesecake. She's extremely bright, very personable, and we've only had one board meeting with her. So, she was not very talkative. For the first time, she was a good listener, but I think she brings a lot of value to the company. In terms of Thomas Satterfield, all I can say is, he's been a gentleman throughout. He has never pushed us in terms of giving him any information, which is not public information. He is an ideal partner. He owns some 500 and some odd thousand shares right now. I'm delighted to have somebody take an interest in the company the way he has. And we don't have that many conversations with him, but we're just delighted that he's a shareholder.

For sure. And those are great additions. I just was curious if there was any, kind of strategic change as a result of either these people becoming more involved, let's say?

Look, the strategy of this company is, we got lucky or we were in the business at the right time in the right areas. I mean, if I look at the history of the company, it started on the upper west side in the 70s, which was dramatically [under restaurants] [ph] with great gentrification taking place around our restaurants. I think we were good restaurant tours, but I don't think you had to be very good to be successful. I mean, the supply demand situation was favorable. We moved out of the city and found we could run restaurants outside the city, first one in Boston, we got lucky with Bryant Park, which nobody else wanted. We got lucky with Vegas, which even my Board disagreed initially with why are we going Vegas. We honed our skills being able to run big operations away from New York. Vegas, there have been days where we serve 25,000 people. Bryant Park, we served on really good days, 3,000 to 4,000 people. Sequoia is 1,100 seats; Rustic Inn, constantly serving a thousand people a day plus. So, we've developed this skill of building, designing, and operating large scale restaurants, which we leased. Then six years ago, somebody came to us with a deal, a broker to the Rustic Inn. Again, a 600 seat restaurant where we could buy the land and be our own landlord. And a [light bulb] [ph] went off and I had – it took a long, long time. But [light bulb] [ph] went off and said, why are we leasing stuff and why are we building stuff when we could buy cash flow at 3x to 4x EBITDA. The risk reward ratio of building is not as good as being able to buy these things. So, our plan going forward is essentially to buy cash flow. I don't think you can show me anything in terms of leasing and designing and building a new restaurant that would be as attractive as waiting patiently to see these softballs that we're getting, lot of cash flow for very reasonable prices and that can be as a better business. So that's the way we're proceeding.

No, for sure. And obviously having the [buying the land] [ph] underneath provides an underpinning and safety element for the long-term versus being subject to inflationary increases from a landlord. Along those lines, do you feel like you had the geographic diversification? Obviously, we've got, sort of from in the winter months, you've got Florida, the rest of the year, you've got New York and Washington and Vegas. Is there an argument for, I don't know, Texas or the Southwest or the Midwest for that matter, providing a little bit more geographic diversification or would you rather stay narrower and deeper in let's say, Florida and Alabama?

So, the answer to that question is, first of all, when you talk about the winter months in Florida, is it better? But I don't want for one second for anybody to think that these restaurants don't make money in Florida in the middle of August. They do. So, their cash flow positive all year round. If we are in Southern Florida, Davie, Broward County, if we wanted to buy a restaurant in Sarasota, that restaurant is hard or easy for me to run as a restaurant in Austin, Texas. It just takes a little longer to get to Austin. So, diversity is not our goal. Our goal is to find the product that we could buy at a fair price that has a history of good management that we not only keep that management, which is extremely important to us, but we have visibility with that restaurant either through a long-term lease or through ownership. One of the things we've been very fortunate about is that if you look at Rustic, Shuckers, JB’s, Blue Moon, the two restaurants in Alabama, all of those acquisitions. The management has stayed with us. The chefs have stayed with us. Great majority of the staff has stayed with us. I would like to think we're a better employer than the people that sold us. Those properties or at least is good because a couple of them were really good as employers, but a couple of them were really bad, and I think people like working for us. So, the key is, I don't want to buy something that's good and find that all the key people are saying goodbye because that's where the knowledge and talent is. So, that's a major criteria for us, but I don't care where the property is.

But there's no argument for, I mean, obviously Florida is hot right now and there's all kinds of where it goes about people moving down there. And so, maybe it's part of a [indiscernible]?

There's no argument to that.

Well, no. I was just going to say, obviously there may be a longer-term secular shift in being even deeper in Florida as an argument, I'm just asking whether other markets would provide…go ahead.

I'm not smart enough to know that.

Right. I'm just asking whether having restaurants in the Midwest.

Yes. You're asking a question that's not important to me. What is important to me that I buy good cash flow for a reasonable price with good management and I really don't care where that property is.

Fair enough. Thank you.

You're welcome.

Our next question comes from the line of Jason Walters, a Private Investor. Please proceed with your question.

Sure. Thanks everybody. Just a quick question, Michael. And I think you've – I think it's probably implied from what you were just saying, but obviously the company is building a large [pile of cash here] [ph], you're knocking on the door of $30 million. I assume the primary claim with that money is to look for these acquisitions that you've described the criteria for going forward, or do you have any other thoughts for the use of that cash?

One of the thoughts is, maybe pay down some debt, because we don't get very much of that money by investing in treasury use of CDs. So, we could conceivably pay down some debt. I don't think we're at the point yet where we want to increase the dividend. We would only pay down the debt if the banks were willing to extend us establish a new revolver, for which we would pay some small fee. But yes, it's a good question. The acquisitions we have been making in the past did not require, I mean, I think the most expensive one was $10 million in Alabama. So, they don't require us to have, I mean, with [float] [ph] right now, we have some $30 million in the bank. We haven't been active enough to say that we're going to use that $30 million within a 12-month period for instance or a good part of it. We do have obligations in conjunction with the Vegas leases. Right now, this year we're going to spend the $1.5 million to redo the kitchen to Gallagher's. We have obligations to, sort of dust off the food court, village streets. We have a longer-term obligation two to three years out of spending maybe $4 million or $5 million for to spruce up America, conceivably maybe change the concept. We have some opportunities to increase and change the units in the village streets of New York, New York. So, I would say to you there is $7 million to $8 million, $9 million over the next couple of years that we're going to be spending just in Vegas now. The argument could be made well. Vegas alone throws off that kind of cash flow and therefore $30 million is going to be untouched. And that's the right argument by the way. But we know we're sitting on too much cash, and if we, you know, we should probably be paying down debt. I hope that answers the questions.

Yes. Thank you.

And our next question comes from the line of Jeffrey Kaminski with JJK Consulting. Please proceed with your question.

Good morning, Michael and team, again congratulations on another strong showing. Mike, you touched briefly on mentioning the dividend in conjunction with the excess cash that you have, what is the reluctancy to bring the level of dividend back to where it was pre-pandemic? And then I have a second question after that.

All right. So, the first answer is, our Board wants us to move slowly. I should have mentioned also when I'm talking about the $7 million, $8 million we're going to spend in Vegas. The closer we get to and the reason we want a new revolver, the more optimistic we get about the Meadowlands, we have an exclusive on all food service and food and beverage service in the Meadowlands if it becomes a casino. That's going to be an expensive proposition, even though our agreement, which is in place requires a substantial tenant improvement from the landlord. We could still spend many millions of dollars building seven, eight restaurants and bars. And so – and then there’s the question of dilution. We're looking at a project that's $1 billion in construction. We own slightly less than 8% fully diluted right now, obviously, depending upon the equity to debt ratio for the Meadowlands when they go into construction. The question will become with our stock do we want to sell equity, how much cash do we have on hand, how much do we want to be diluted or are we going to raise money not to be diluted at all. So, we have a use for that. That money will go very quickly if the Meadowlands becomes a casino. So that, sort of plays into this whole thing. The other argument has been for me, I don't even think we get there. I think if there's a casino license and Hard Rock is the operator, I don't know that they really want us to be involved, you know, and you know, may want to buy out [indiscernible]. So, there's a lot of questions regarding our balance sheet with relation to the future of the Meadowlands. There's a reluctance on the Board to move too quickly with increasing the dividend. I think it’s important that we look at a new revolver and pay down some debt right now. And that's, sort of the answer. I'm sorry it's a little vague, but you're not going to see a dividend increase beyond what we've done for the next couple of quarters.

Yes, I just think from a Board perspective, although this quarter was very strong and subsequent to the quarter, the numbers look good, obviously, we're cautiously optimistic, but you watch [CNBC] [ph], I mean, there's a lot of negative sentiment out there about what's coming. So, we want to take measured steps with the dividend.

Understand. So, my second question, I'm glad you brought up the Meadowlands, Michael, because that's where I was going.

Yes. And Sam, who's here, just whispered in my ear what you should really, you know as opposed to paying more of dividend, if we have the opportunity to buy more cash flow, the cash to be going to that.

Understand. So, my follow-up then is in the direction of the Meadowlands, which you had mentioned. So, twofold. I agree there's been significant push in terms of gambling in downstate New York. I know the ownership of the New York Meds has been pretty aggressive in priority filing papers and getting lobbyists trying to get something at the City Field location. Given your involvement at the Meadowlands, are you privy to any information that you could share that that has actually become a catalyst and that in the New Jersey legislature or politicians and lobbyists are actually now gotten, kind of a kick in the rear end and they have to move this into gear or is it still all talk?

Jeff, so I treat anything I hear coming out of the New Jersey legislature body as rumor. I don't pay attention to it. You know, it's, you know, it's not even that it's going to become an emotional roller coaster, I'm not that way. I mean, what happens will happen. We'll be prepared for it, whichever way it goes.

All right. And then the last point on the Meadowlands, Michael, you've said before and you've been very consistent that you see a likely – should there be gambling there that you see the likely outcome is that they don't necessarily want you around as a partner and you'll negotiate a favorable term, take the money and run, so to speak. Do you see that negotiations would include that you would have the equity interest bought out, but you would maintain running the restaurants at the facility or basically it would be a buyout and you would basically exit the whole property?

So, my preference would be, my preference. This is all in my mind. I have not had any discussions with Jim Allen, who's the CEO of the Hard Rock, with regard to this, it's just [guessing] [ph] on my part from the way they behaved in the past with the development in Hollywood where they bought out the minority interest. We're restaurant tourers. We're in the restaurant business. Obviously, our preference would be to continue running the restaurants. There is a carve-out on exclusivity for Hard Rock Cafe, so that's not an impediment to them. They can still have a Hard Rock Cafe. We would like the opportunity to be restaurant tourers wherever we see dynamics that would be favorable to us. And I would think that that would be very favorable. That's the only comment.

Okay. Thank you guys again.

Thank you, Jeff.

And it looks like we have reached the end of the question-and-answer session. And I'll now turn the call back over to Michael Weinstein for closing remarks.

Yes. Thank you for the questions. I appreciate the interest. We'll be back on fiscal year-end speaking with you and we look forward to continue good results. Have a nice day.

And this concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.

Thank you.

Thank you.