Greetings, and welcome to Ark Restaurants Second Quarter 2023 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. 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 April 1, 2023. 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 President and Chief Financial 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 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. Thank you.

Hi, everybody. Before I get into this, Anthony, I would like to discuss our situation with cash and where we stand, especially in relation to the fact that we increased the dividend from $0.50 annualized to $0.75 annualized. So please give...

Our balance sheet remains strong. The significant items that took place this quarter was on March 30, right before quarter end. We amended our banking arrangements with our lender. The primary purpose was to move from LIBOR to SOFR. But in connection with that, we paid down a $6.7 million loan, and we implemented a $10 million credit facility, revolving credit facility. Subsequent to the quarter end, we paid down additional two loans, a total amount of $6.1 million. So in total, we paid down $12.8 million of debt between March 30 and April 5, say. We made the decision because we had a very strong cash position. The rates were over 8%. So, this will generate at least $1 million of cash savings over the next year. Also, subsequent to quarter end, you probably saw in the press release, we raised the dividend from $0.125 to $0.1875 per quarter. And our latest cash balance as of today is about $15 million in the bank, and our current debt position is $7.3 million. So, I think that's pretty much.

Yes. Thank you, Anthony. So I'd like to go over venue by venue, what we saw happening in the last quarter, but more importantly, what we see going forward, we're just halfway through the June quarter. So, the -- as the press release indicated, we had very strong sales generated by our events department and catering departments, especially in New York and Washington, D.C. that listed the overall comp sales for the Company by about 8%. That, of course, is -- was calculated eliminating Gallagher's in Las Vegas, where the comps were inappropriate because we had closed Gallagher's sometime in early February, and it remained close to the end of April, while we did a renovation that was required by our new lease with MGM. Those missing sales were substantial and certainly had a big impact on our EBITDA and net income. But in general, New York was very strong. Alabama and New York remains strong. Alabama was in line with our projections and through the early part of this June quarter, again, remains in line with our projections. Washington, D.C. is the same. It's doing well. Florida had a good quarter. But in the last few weeks, we've started to see a declination in customer counts in the Florida restaurants -- in the full service restaurants. We've also seen a seasonal adjustment in Las Vegas. It's hard for us to tell whether or not we're comping favorably to last year because Gallagher's has just reopened and that's a big driver of sales for us in -- at New York, New York. But I would say to you that it feels a little bit softer than it has been. So if you take a look at our customer counts, in New York, we're doing well in comparison. We have indicators…

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 James Stevens, a Private Investor. Please go ahead.

So just talking about the balance sheet for a second. If I understand correctly, as of today, cash is roughly $15 million and debt is roughly $7 million. So we have net cash of roughly $8 million. Is that correct?

Correct. That's before float, but yes.

Yes. Okay. So obviously, cash is way down from the end of last year, almost down $10 million, but in a good way. So as the debt -- the debt is actually a lot -- down almost $14 million. So, it's a much better position.

Exactly.

And what is the interest on that $7 million of debt?

Yes, it's about $8, $8 and change, $8.1 million, $8.2 million. The SOFR is -- approximates LIBOR. They just -- it's a slightly different spread. If the LIBOR spread was 3.5 and SOFR is 3.65.

So, it's still pretty expensive debt. Is there a hope to pay that down further? Depending how this year shapes up, we would consider that, but we're also looking at a couple of deals out there. So we have to manage that. That's why we didn't pay down the more.

Got it. And then in terms of renovations, you talked about Gallagher's, it looks like in the release that there's another $4 million that has to be spent on America and I think another $3.5 million on Broadway Burger. So it's like $7.5 million between the two of them. Is that right?

So, let me interject. Broadway Burger is part of -- even though it's not under the same percentage lease as the fast casual food within the Village Streets, which is our fast food court essentially. We don't think the renovation of that is going to be more than $2 million. Sam is here. Is that right?

Yes.

We think it's $2 million.

We have specific language in the lease extension that says once the plans are approved by the landlord, the concept, whatever we're doing, if it comes in below what the lease extension said, then that's going to be the number. So...

When we negotiate this lease, we didn't know to what extent they wanted these concepts to either change. We knew they didn't want Gallagher's change. We knew they did not want the fast food court to change. They may want America to change in terms of concept, and we would still be running it, obviously. The present management has been very flexible with us. I mean Gallagher's was a breeze. We showed them the plans. Sam is here, who oversaw that. Basically, they were very flexible with us. They weren't demanding. They made some suggestions. We tried to accommodate those suggestions. But the suggestions they made would not heavily priced. The -- so we spent a little under $2 million in Gallagher's. I can't imagine the food court being more than $2 million. The -- based upon what they want us to do in America which will be a decision next year or the year after, they're not in a hurry to change it. And one of the reasons not in a hurry keeps doing better every single year. I think we were up 11% in sales last year in America from the year before. So it's even questionable whether they want to change the concept of just want to spruce. So it's sort of not something we have to worry about in terms of spending a lot of cash today, if that's the question.

Got it. And you mentioned that there's a little concern out there for going into a recession, a little concerned about the bottom run customer. What's interesting is Tilman Fertitta was on the other day, and obviously, they have restaurants all over and spanning the range from inexpensive to luxury. And his point was that it was the higher end customer that seems to be impacted. I wonder, if that's what you're seeing?

So, I speak to his cousins or people who are very heavily involved in Red Rocks. They're starting to see the hiring customers spend a little bit less. That's what I'm told. But basically, our check averages are holding up, maybe with one exception, which is Rust again. But I don't see any problem with our hiring customers and what they're spending. He has a broad range of concepts. But in general, with the exception of the higher-end the crab and shellfish at Rustic, the menu is not that expensive below those expensive items. Gallagher's is certainly expensive, but it's cheaper than any of the steakhouse in Las Vegas, but we're also in a venue that doesn't attract high rollers and the room rates are substantially less than Bellagio or Win, et cetera. The rest of our restaurants are $40 check averages a dinner or $50 check average is at dinner. And you can eat at price points below that. What Rustic has seen is because we not only count customers counts, but we look at -- the number of entrées sold. They're seeing their customers start to share entrées. So people come and have two appetizers and an entrée instead of two appeitizers and two entrées. But the rest of it, I think our high end customer is okay. I think it's the customer that's renting an apartment are has to pay more for groceries and is just sort of behind the curve here with what's going on with the necessities that they have to pay for and what disposable income they have at the end of the week to go out and eat. I think that's -- for us, that's the customer that we're seeing disappear.

I think our high end is different than his high end.

Yes.

You got mass grows. I mean, he's got these places astronomical per person checks. So I think his high end, maybe that section of it is probably suffering out.

And I mean this is not necessarily pertinent to a conference call, but I was out in legacy of a couple of weeks ago to sit in Gallagher's for a little while. And we have a Tony Hawk steak there that's 40 ounces served with bone marrow at $129 -- $140, I apologize. And then I said, who's going to pay this because I'm old, and I still remember a hamburger at $495. And Sam took me around to Aria to a restaurant, and they were $350, so $325 for the same thing. And we're lower than anybody else on the strip. It's still expensive, but we're lower. And I would think most of our menus come off that way. We've certainly gone through price increases. We're not hammering our customers. We've frozen price increases for the last six months or seven months. We're worried that at some point, customers are going to revote and say, hey, why am I paying if you walk around New York City, the $28 hamburger is not unusual. We're at $17, $18 at Bryant Park for a hamburger.

Yes. No, that's all really helpful. And I just have one more question and then I'll let someone else jump in there. So just in terms of the operating income or EBITDA because I know you prefer to look at that. It's a little disappointing to see an 8% rise in sales and actually would have been better with Gallagher's and really see on the bottom line or with EBITDA that it's down, and I know there are some factors in there. But are we ever going to get back to these years of $14 million, $15 million worth of EBITDA? Or is that obviously, in a worsening economy, it's going to be difficult to achieve that, but all things being equal, especially with the interest savings on paying off some of that debt? Are we going to be able to get back there? Are you still there?

Their line is still connected.

Can you hear me?

Gentlemen, are you there?

Yes, I'm here. Can you hear me?

We can hear you, Mr. Stevens, I'm trying to see their line is connected, but they're not answering.

Okay. I'll stand by.

Okay, there are we connected?

Okay, did you want to receive this connection, Michael?

No, I think we were talking about pricing and we don't think we're out of line pricing. We think a lot of restaurants are out of line going into what might be a recession and where people are being more careful. But despite that, and we're still seeing a slight deterioration.

Okay. And I had one more question. I'm not sure if you heard me when the line cut out. Did you about...

We didn't hear it.

We didn't hear it.

Okay. Did or did not?

Did not.

Did not. Please repeat it.

Okay. So all I was saying was that, I mean, you guys are doing a good job in a tough market. It's a little discouraging to see an 8% rise in revenue and actually would have been better with Gallagher's. And so on the top line, it's good to see that, but it's tough to see on an operating income basis or EBITDA. I know you prefer to look at that the number is lower. And so I guess I'm just wondering, we can't control the economy and the consumer, but all things being equal, is it going to be possible, especially with the interest savings to get back to that $13 million, $14 million worth of annual EBITDA.

I see no reason not to. I see no reason that we shouldn't be better than that. I'm not talking about the results for the year ending -- or fiscal year ending September. I'm talking about the rate of EBITDA as we turn the corner on the economy. Look, we made a decision here. We're interested in two things. And it goes back to I guess, 2008, 2009 when everything was bad. And we made a decision at that point, we weren't going to lay off anybody. And if people are going to spend money in restaurants, they wanted to see they wanted to get the experience that they're expecting for those dollars, which were difficult dollars for them to spend in 2008, 2009, they didn't want to walk into a restaurant, which had sort of attenuated its full service approach to save payroll. We're not saving on payroll if anything. Our payrolls are building up a lot of it because of legislation with minimum wage. We're going through several bumps in payroll, legislative minimum wage payroll increases in Nevada, in New York, Florida. So, our payrolls are going up, not down. And we're not letting go of anybody, even if sales get crimped a little bit. We're not raising menu prices. We see stability in food prices. Crab prices are coming down a little bit. But for the most part, everything is remaining stable. We're not seeing things heading down in terms of the products we buy and the cost. Insurance premiums are going up. It's scary. What the insurance companies are asking and we're trying to figure out ways, especially in liability circumstances to get better rates. But where utility prices are going up, I mean we're just seeing everything being increased. And yet, we're going to -- the mantra here is keep your customer and customers can't see on the plate that the gas prices are going up or electricity costs are going up or the insurance premiums going up. What they know is what they're paying for a piece of chicken in the supermarket and then they can relate to what they're seeing in a restaurant. So, the mantra here is keep your customer, do everything to keep you customer. And if we do a little bit worse, but we have a loyal customer base going forward, our business will flourish as we come out of this. And as we see what happens to commodity prices, we're even prepared to lower prices to get those customers to think to getting a quality product at a fair price. And that's where we've been. The whole history of the Company has been, take care of your employees, make sure your customers come back. That's the only song we want to sing. So, we might have a little bit of an interruption in EBITDA here. But so what, in the end, we'll be right. That's the dealing.

Our next question comes from the line of Alan Goldberg with a Private Investor. Please proceed with your question.

Michael, you probably don't remember me, but we had dinner down in Florida, and we are both the same age. So I, too, remember, $4.95 and $3.95 hamburger. So we are the same age, and I don't know whether that's good or bad. As everybody is aware, Florida is growing unless something goes on politically down there, but Florida is growing substantially. They estimate 365,000 new residents a year, almost $4 million over the next 10 years. The areas that we are involved in are in the key areas. Have we given any thought to do things, I hate to use the word less popular, but no less populated parts of the state. People that are coming down from New York, Cleveland, Chicago, Pittsburgh, as you know, the places they're shocked at our prices in the upscale areas, shocked. And so I'm wondering, have we look into how we can take advantage of that with restaurants in areas that are not so well known. That's my first question.

One moment, it looks like we lost them again.

Oh, boy. Okay. I'll stay on the line if that's okay.

So, we're back on. Okay. They're reconnected now.

Okay. So Alan?

Yes, Michael.

Yes. So you were making the point of the increase in Florida residents.

Correct. And we're finding, I am finding, I lived down there fulltime and I am finding that people aren't going to be absolutely moving to the neighborhood where the house prices started $9 million. They can't -- the people that are retiring from the North and the Northwest are moving into less popular areas nevertheless, the same weather. So, what I'm asking is, are we looking -- have we looked to do anything in lesser affluent areas?

So, what drives our decision to make acquisitions is the price we're paying for cash flow and whether we think that cash flow is sustainable. We don't care where we go. As long as we know we can manage it. And the restaurants we have either bought or secured long-term leases on in conjunction with the purchase of the operation are all institutions. They come with great management, all management say with us, Blue Moon, JVs, Rustic, Shuckers, they've all stayed with us and those are the situations we're looking for. We've looked in different parts of Florida include as far north as Jacksonville.

And we look near Disney.

And we look near Disney and we're -- we may be a little too conservative in what we want to pay, but we certainly want that margin of safety. There have been deals that where we've had an asset purchase agreement with a willing seller, and we're willing buyer and the landlord got in the way, and we couldn't get the kind of lease that we wanted, but where we can get a good long-term lease like Blue Moon, we're JB's, we're ready to go. We've looked at a lot of deals in Florida. We're very, very picky, and we have the multiple that we're prepared to pay, and we're really strict on ourselves not to go beyond that multiple.

Okay. And please continue to be picky, but the reason I even brought it up is I was driving from Sarasota across to where I live in the Palm Beaches. And as I got towards the middle of the state, which was farmland and it looked like nowhere. There was a great big sign tall homes breaking ground, 1st of January 2024, starting at $950,000.

Yes. But Alan, not to interrupt. We're looking -- we're not looking to circulate and build restaurants. We're looking to buy cash flow.

I understand.

So, the idea is if there's somebody in the middle of the Everglades doing $10 million and throwing off $2 million and prepared to sell the restaurants growth...

You're ready to go there.

We're ready to go there. But we're not leaning to build there. I understand. I understand that. So you are -- we are looking mostly to lease rather than own property underneath.

Our primary focus is to own the land under an operation that we can buy at a multiple so that we have predictable cash flow forever.

That's wonderful. I'm very pleased. I hope we get a little lucky in the Meadowlands. That would certainly be a little more icing on top of the cake, and that would be wonderful. But the main thing, as you say, is to stay alive and keep in business and do what you've been doing for years. I'm very pleased.

Gentlemen, there are no further questions in the queue. I'd like to hand it back to management for closing remarks.

All right. Speak to you next quarter. Stay well, everybody. We'll see what happens. 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.