Greetings, and welcome to Ark Restaurants' Fourth Quarter and Year End 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]. As a reminder, this conference is being recorded. It is now my pleasure to introduce 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 fourth quarter and year ended October 1, 2022. 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; 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 Web site. 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 direct bearing on our operating results, performance and financial condition. I'll now turn the call over to Michael. Thank you.

Hi, everybody. Thank you for joining us today. The comparisons of the September quarter this year with the September quarter last year are affected by two segments of our expense side. One is a substantial increase in payrolls and the other is a substantial increase in occupancy costs. In order to try to get the flow of the business directly stated of where we are, I want to first have Anthony explain occupancy costs and how the September quarter this year compares to the September quarter last year, what were the big differences, because there were adjustments last year which sort of inflated EBITDA in the fourth quarter and there are adjustments this year which sort of deflate our EBITDA in the current September quarter. So, Anthony.

So last year, we had adjustments related to the finalization of some COVID abatement deals that were recorded in the fourth quarter. So what happened was, there were several landlords where we were negotiating, still negotiating COVID rent abatements in 2021. So we were still accruing the normal base rents the whole time, because even according to the accounting standards, we couldn't record any abatements until we had signed deals. Those deals were signed last year in the fourth quarter and they will recorded, which reduced occupancy last year by about $800 to $1 million. In the current year, we also had some adjustments to occupancy costs related to the Vegas leases finalized in July and August for percentage rents that need to be accrued back to the beginning of the year based on the final deals. So all-in-all, you're probably looking at $2 million swing between those two items. And that's why occupancy looks so odd.

So basically, last year we reversed an accrual of rents for the full year of our fiscal year 2021 in September, which created $1 million increase in EBITDA essentially based upon that accrual. This year, the opposite happened. Because we didn't have signed leases in Vegas, we weren't allowed to approve for the full year as the year was going on until the leases were signed and essentially those rents for the full year, because we had to go back to January 1 of 2022 where about $1 million that fell into the fourth quarter. So there's a $2 million swing here. I'd like to address payroll costs. That's the other big item. Payroll went up roughly $2.8 million compared to last year, September quarter. What's interesting is the payrolls now as a percentage of sales mirror what was our pre-pandemic percentages on sales in the same quarter before the pandemic and year end. So we're back to essentially full employment. I may have made a mistake. As laborers started to loosen up, my directive to all my managers was that because we couldn't find good people, we were having trouble finding good people for these restaurants. We were having a lot of turnover. We would hire people. They would leave after three, four or five weeks. It was a mess. And as the market opened up a little bit, especially in Vegas, and I want to talk about that a little bit more, the directive was just find the right people. And if we have to pay them more which we're going to have to pay them more, just get them on board. That stood us very well in 2008, 2009 when things got very rough for us. We said that our customers were going to have a tough…

Thank you. Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. [Operator Instructions]. Our first question comes from the line of Paul Johnson [ph], a private investor. Please proceed with your question.

Good morning and thank you for the explanation around those numbers. So I guess the tricky thing is to try to predict what is sort of a normal level of payroll and occupancy costs? And so I’m wondering, I know you don't give forward guidance, but all things being equal going forward for, let's say, the next fiscal year, do you think that we should be using this level of EBITDA, let's say, going forward, again, obviously not predicting what can happen to the economy and traffic and all that, but all things being equal, would you say that the payroll and occupancy costs incurred over the last fiscal year are what we should be modeling going forward?

It's a tough question. I can't -- I think there's one thing that we all have to be aware of. Our business in Vegas has been extremely well. We have new management in place in Vegas. They were not left -- the new management was not left with the best of circumstances. There were holes that we could not fill. Last year in Vegas two new hotels came on board. They required 8,000 people in the labor market. That was impossible to start out with. What covered up our struggles and helped us dramatically was this boom and acceptance of higher prices in Vegas when we did put through price increases. My one concern is, is that level of sales sustainable. There's a lot of reasons to think it is. Conventions are coming back. The T-Mobile Arena, which is right next to New York-New York where most of our sales in Vegas come from, is more active than ever between hockey games and concerts. There's a football team there now. There's NBA teams scheduled to come in. So we think the sales should continue with these levels. But I must say between price increases and EBIT, customer accounts, our Vegas business was up 15% from the year before. As long as that's sustainable, I think the level of earnings that we had for the year, this year, are probably sustainable. I honestly expect New York to continue to perform well. Sequoia in Washington should perform better. I don't see any reason for Florida to do anything but continue to do its current levels of volumes. And there's a big hole missing in Rustic’s EBITDA. That restaurant used to be $3.4 million in operating cash flow, it's down to $1.6 million annualized. So the $14 million number of EBITDA that we did this year, that's a big hole. $1.8 million is missing from Rustic Inn. So I think that should do hopefully better at some point, maybe not immediately. The Vegas numbers had a one-time $500,000 retirement payment for Paul Gordon who retired as General Manager. So there's some -- that's a true one-time expense item that Anthony could speak with. We're paying down the term loan with our bank. Maybe Anthony should speak to the balance sheet for a second. But we're paying down a term loan and exchanging that for a credit line for the same amount. That will save us $400,000 of interest charges. Right now, Anthony, if I'm correct, we have about $28 million, $29 million in cash in the bank. What's the debt?

23.

23 million in long-term debt, plus $5 million there. We're in a strong position to make acquisitions. I actually see the $14 million number as a base, if that's an answer as opposed to being at risk, I see that as the base and hopefully we can get beyond that.

No, that's really helpful. Thank you. Can you just give an update on the Meadowlands?

Yes, I’ll be happy to. It's a repeat of the last update. We definitely think the Meadowlands will be the site for a casino in northern New Jersey for a variety of reasons. Number one, the Racetrack already has betting going on, and that's an advantage. The sports betting at the Meadowlands I think has been the largest single U.S. site for sports betting. Although there's been an encroachment with online betting in New York, we’re still doing very well there. The drop off has not been as significantly affected as we would have thought. The whole thing is permitted for environmental and other sites would have to go through. We're not in a neighborhood that we would get residential lawsuits. So we think if New Jersey wants to start to get tax money from the operation of casino where we would literally be 90 days away if it was approved from having a casino operation literally. The Racetrack was designed with that in mind. The whole theory about getting this passed by the citizens of New Jersey, because they had to change the constitution essentially referendum would be to have New York casinos operating downstate, which means Yonkers, Long Island, and perhaps even Manhattan. There are two groups vying for one of the three licenses in Manhattan. If those licenses are issued or if they start building and operating, certainly Yonkers and Aqueduct could operate right away. And New Jersey recognizes that there is a flow from New Jersey to those New York casinos. We think that's the time ideally to get this referendum passed. So that's the plan. Murphy is very -- the governor in New Jersey is very favorable. He has said that to having a northern casino. The only thing we don't know is what that referendum would look like. Last time the referendum required that the casino be operated by some company that is already licensed in New Jersey, which will be one of the Atlantic City operators. At that time when the first referendum which was not going to pass, Hard Rock did not have a casino in New Jersey. They now do. They run the old Taj Mahal and there are our partners in this venture. So I think nothing negative has happened. And positive circumstances are that we still do a lot of sports betting onsite and the New York casinos are moving forward. So I think that all plays well into our hopes of getting a casino license.

Thank you. And just finally on that, I know you've mentioned in the past that the logical conclusion would be for someone like Hard Rock to buy us out. Some people have speculated that the value that they would -- at the price they'd have to pay is almost equal to the whole market cap of Ark. Is that within the realm of possibility from your point of view?

I won't accept a number equal to the capitalization. I think it's worth much more. Look, when we -- I'm not speaking out of school here. When we were looking for partners when it looked like the first referendum was going to come to fruition, which it did and it was voted down because it was badly written, it sounded like the state had to put up the money, which was not true. There was no mention in the referendum of where the tax money was going to be allocated to, whether nursing homes or education, it was just fluff. But we did have a conversation with MGM because even though Hard Rock was our 20% partner in the deal, we needed a licensed operator in Jersey to operate in the North. And MGM gave us projections that this thing would do $500 million a year after paying taxes and cash flow. So we own 7%, almost 8% of this thing fully diluted. There will be more dilution if we can come up with our percentage of equity. So even if we own 4%, that's $20 million of cash flow that you could attribute to Ark’s interest. We also have an exclusive on all the food and beverage with the exception of a carve out for a Hard Rock Cafe. That's probably a $50 million, $60 million business for us. So the potential economics are extraordinary. But first, get casino license. We don't have that. I don't know what that's worth. But certainly, I don't think it’s priced into the stock.

I appreciate that. Thank you.

[Operator Instructions]. Our next question comes from the line of Jason Walters [ph], a private investor. Please proceed with your question.

Thanks. Good morning, guys. A quick question on acquisitions and capital allocation. I know, Michael, you like to purchase companies for 3x to 5x EBITDA depending on whether you're getting the land included and Ark is trading at that level or below that level. Any thoughts on share repurchases, a? And then, b, what are you seeing in terms of opportunities from the acquisition side? Thank you.

Well, thank you. And I'm glad you got it right, the 3x to 5x depending upon whether land comes with it or not is absolutely correct. So we're constantly looking. We've seen a couple of interesting things. There are ongoing discussions, one of them further along than the other. The philosophy here would be we would rather acquire cash flow, which would be hopefully long-term consistent cash flow than reducing the number of shares. We think we're better off acquiring assets as opposed to share repurchase. And another influence, which we don't even think about but you should think about is already the liquidity built into our capitalization. We just don't have that many shares outstanding, floating around. I could tell you where 60% or 65% of the float is right now and it's not leaving those hands. So we just don't have enough shares outstanding. That's a bad thing because somebody that wants to buy it has to find moments like this when the stock is down and maybe there's a seller. But also it's a bad thing if you want to sell the stock. A block comes up, there's not necessarily a buyer available. So we just don't want to shrink the shares anymore. That all being said, we’re still much better off buying stuff at 3x to 5x with lease positions where we have 25 years left on a lease, if it's a lease; or if we own the land, it’s forever. We're confident enough that we know how to run these things. The cash flow from an acquisition should be long lasting. We've been very lucky in the past. And make no mistake, I think we made smart acquisitions, but the luck involved has been that every chef and every manager of every restaurant that we've acquired has stayed with us. It's extraordinary. I think we're a good company to work for. But to have nobody leave and have all that expertise, I'm not so sure we'll be as fortunate going forward. I hope so. But that's a big issue with us as well and slows us down in jumping into acquisitions. We got to make sure that we have management in place that we have a good chance of retaining. So I hope that answers your question.

Yes. Thank you.

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

Thank you. We're working hard here. We really are. Hopefully, things continue to improve for us. And we'll speak to you in the next quarter. And I appreciate your participation and the questions, very good today and gives me a chance to explain the business a little bit better. Have a good day. Happy holidays, everybody.

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.