Greetings, and welcome to Ark Restaurants' First Quarter 2021 Results Conference Call. [Operator Instructions] As a reminder this conference is being recorded. It is now my pleasure to introduce your host Sonal Shah, General Counsel. Thank you. You may begin..

Thank you, operator. Good morning, and thank you for joining us on our conference call for the first fiscal quarter ended January 2, 2021. My name is Sonal Shah, and I'm General Counsel of Ark Restaurants.

With me on the call today is Michael Weinstein, our Chairman and CEO; Vinny Pascal, our Chief Operating Officer; and Anthony Sirica, our 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 might have a direct bearing on our operating results, performance and financial condition. I'll now turn the call over to Michael..

Hi, everybody. Thank you for joining us.

I think the first thing we should do is turn to Anthony and ask him to just give you an overview of our balance sheet and when we expect to turn cash flow positive based upon projections, so Anthony, why don't you please do that for everybody?.

Sure. Thanks, Michael. Good morning, everyone. We feel good about where we ended the quarter with our balance sheet. We're cautiously optimistic going forward of how things are going to play out. At the end of the quarter we had $10.8 million of cash that was down approximately $6 million from year-end.

That was primarily the result of our negative EBITDA, the cash portion of the Blue Moon acquisition of $1.9 million, and our debt service of approximately $1 million. We expect to end the current quarter with approximately $8 million to $8.5 million of cash based on the current projections.

And we believe we will turn cash flow positive sometime early to mid-third quarter. Obviously, this is all depending on the increases in the capacity restrictions in Washington D.C., in New York, and in Vegas, as well as the weather, which is usually plays a role in our results in the Northeast in particular.

And obviously the efficacy of the vaccine efforts that's taking place across the country. Some other items, though we completed the acquisition of Blue Moon Fish Company as I stated before on December 1 for approximately $2.8 million. That was $1.8 billion in cash and $1 million note to the seller payable over four years.

In late December, there was a favorable IRS - I'm sorry, Congress passed an action that overrode the IRSs position about the deductibility of the PPP loan expenses, so which they are going to be fully deductible and the forgiveness does not have to be recognized as income.

So pursuing to that, we immediately prepared our tax returns for the year ended 2020 and filed the carryback claims and the amount of $2.2 million.

Once those received, there'll be additional carryback claims of $1.4 million as a result of the deductibility of those expenses and changes in the tax law relating to carrying losses back five years instead of three years, two years when the rates were much higher. So that is recorded on our balance sheet as a receivable.

In addition, we closed Gallagher's in Atlantic City. At the end of the year, our lease was up, we were on a month-to-month there. I'm sure Michael will speak about that and Thunder Grill in DC is not going to reopen its current form.

Our PPP loans are the same as they were, we were not eligible for any second draw loans, because we're a public company and they were excluded. We've applied for approximately $4.1 million of forgiveness to date. Those were sent to the [SPA] year back.

We expect to apply for the balance of the forgiveness between now and I would say mid-May, and approximately $7 million to $9 million of additional forgiveness.

The difference between the loans and the amount being forgiven is the result of our inability to actually spend the money in the required period, because our restaurants were closed or operating at a very limited capacities. We have a great relationship with our bank.

I think you saw in the release, we extended the maturity date of our revolver, in which point we will enter discussions with them about terming it out over an extended period. And our corporate office we continue to work at average salaries of 65% except our CEO who's at 50%. Those are the highlights. Back to you, Michael..

Thanks Anthony. I think that's pretty good. I'm sure we'll have some questions after I'm done. So what is interesting is the flow of what's happened to our revenues and the different venues in which we operate. Florida continues to be very strong for us.

And what I mean is that, with cash flow positive in Florida in all our locations at the moment, we have, with the exception of JB's being cash flow positive, since the beginning of when we reopen those properties, which were - I think roughly around May of last year. JB's is now profitable.

One of the things that hampers us a little bit is we operate legally. So what we're faced within some of our properties in Florida, we're not operating our bars. People are not allowed to enter our bars by virtue Broward County and Palm Beach County regulations. But independent's away from us are operating their bars and taking the fines.

So to a certain extent, some of the business that we would have had, if we had bars is flowing to people who are neighboring us, especially with JB's with their restaurant right next door to us and on the other side of the street. People want us to be at the bar we're not offering that.

But we have had very good results in Tampa, at the Hard Rock and Hollywood at the Hard Rock. JB's is now doing well. Shuckers' is doing well. Rustic is doing phenomenally well. A good indication of how valuable these properties are and how strong their individual brands are is on special occasions.

So Valentine's Day, we were just packed and on a waiting list on all our restaurants in Florida. We acquired a Blue Moon Fish Company. We thought that could be profitable almost immediately and it's turned out to be the case. The cash flows out of Blue Moon are very strong. And but please recognize Florida right now is in season.

So we're gratified with the results, but they sort of were expected. In Alabama, those restaurants continue to do very well. Alabama during season, was throwing off the two restaurants about 90,000 a week. It's now out of season.

They are marginally profitable, very strong results in relation to what the situation is we're again on reduced seating there. So our capacity is not what it is when we're fully opened. But we're very satisfied with the results there. We were very satisfied with Vegas until they cut back from 50% and 25%.

And that slipped us from being cash flow positive to being cash flow negative. They have just reevaluated and increased backup to 35%. So our guess is that we will be cash flow positive there again or breakeven at least. Our big problems obviously during the winter had been Washington D.C.

and New York without any indoor capacity in New York and only outdoor seating varied dependent upon whether people do not want to sit outside in the cold. So, we've been taking a beating especially at Bryant Park, where businesses is maybe 5% of what it used to be 5% to 10% in terms of revenues. So we stay open.

We have an obligation under our lease to stay open, but it's been brutal for us there. We're a couple of months away from spring. We were as of the 12th of February, New York City restaurants were allowed to have 25% socially distance seating in their restaurants.

We've done that what was gratifying on Valentine's Day and over the weekend, actually was how much business flow back to ROBERT and Bryant Park and our other restaurants. Those restaurants again losing cash flow it's impossible to make money with 25% seating, but we had waitlist for Valentine's Day.

So it just sort of encourages - encourages us on how strong these brands are, and how quick business will flow as capacity increases.

So it's sort of back to in my own mind to a statement I made after 9/11, where we're getting killed, our restaurants were, doing a meager amount of business in Washington, New York and Las Vegas because what happened on 9/11, and I said to people, these are strong restaurants, strong brands, they're great assets as business returns, we will do extremely well and that happened and I think it's going to happen again.

At least in the Northeast, once we get into the spring, whether this capacity increases for indoor dining or not, we will do well where we have outdoor seat and that's especially true of Sequoia. Sequoia during the summer and early fall, despite capacity limitations indoors, because the 600 seats outside did well.

We were able to be cash flow positive so on the whole I'm very content of where we are right now. I don't think we could be doing any better. We're very grateful to everybody who works to this company, because they're making do with less income, especially the corporate office.

Some of the restaurants which are not cash flow positive, everybody's on reduced income levels as well. Some of our landlords have been very cooperative. But I would think sometime in the June quarter, we turned positive cash flow again.

So with that, if that's a satisfactory explanation, I like to talk about - I guess Anthony mentioned Thunder Grill at Union Station, our lease was up. Union Station is a problem right now. The landlord and I are very close. They want us to reopen in that spot or perhaps with a different concept. But right now it doesn't pay to talk about it.

Union Station is a homeless encampment. And a restaurant would not do being open would not do well right there right now, especially with reduced capacity. So we'll probably start a negotiation to see if we can come to some lease term in March or April there.

We've closed down Atlantic City because our leases were up and we consider Atlantic City marginal at best. We did well, but with new leases we don't think there's any advantage and the restaurants require a lot of money to be put into them because we - sort of for went maintenance in them.

Meadowlands, we're absolutely convinced at some point, there'll be a casino there. We think the state's budget and the deficits are going to help us with the state making a decision to move to establish casino properties and in the Northern part of the state. We just don't think there's a better site than the Meadowlands Racetrack for that.

We think that as New York approves downstate casinos, which we also think is going to happen very soon. It will lot of light fire under New Jersey to start to move legislation to permit it. Right now, Meadowlands is cash flow positive because of sports betting.

I think we're the largest sports betting venue in the United States right now in terms of revenue. So hopefully that keeps up.

Once sports betting comes to New York, which they're talking about, probably that reduces, you know, the capacity for us in terms of revenue, but we also think that that will be another reason for New Jersey to establish casino in the north. So all things considered, we feel pretty comfortable.

We'd like to be cash flow positive now, but it's impossible but I think that's coming very soon. I'll take questions now..

Michael, you wanted to - JB's or transaction what's going on with that?.

Yes, that's a good point. So when we purchased JB's, we had a right-of-first refusal, if the landlord who owned the parking lot across the street with JB's users and has exclusive use of and a parcel under the restaurant, we had a right-of-first refusal on a sale. The landlord was originally asking $18 million for those two properties.

And that wasn't going to happen. And little by little he started to reduce the price. And he found the buyer at $11 million. We exercised our right-of-first refusal, because we think it's a great development sites, but on an economic basis, our rent is $600,000 a year.

So if it was appropriate for Ark to put in a $11 million to own those parcels, and find a developer to work with us or we would have done so. Honestly, the 600,000 in rent would have been enough to cover interest and some minor amount of principal on a $11 million loan.

So it seems like that would have been our worst option, most positive option would have been to sit there and own it and find a developer and make a development deal with somebody who knows how to develop. We do not knowhow. What we decided that - we knew some developers and it was inappropriate for Ark to put up that money.

So we arranged with people we're friendly with who are developers and to develop six hotels in South Beach in Broward County to partner with us.

And essentially, they put up all the money and we have a carried interest in the development of when the property should develop? It's anticipated right now that JB's will stay in place and the development will go under the parking outside, which is a West of A1A JB's is on the beach, which is East of A1A, which is the coastal highway.

So we think we will be able to derive some extra cash flow from that development in addition to benefiting from more density, which will help JB's revenue side. So that's the footnote, that's in our queue, so that just was filed. Again, I hope that explains it and please ask questions..

[Operator Instructions] Our first question comes from the line of Steve Olson, a Private Investor. Please proceed with your question..

Good morning. Thanks for taking my call.

Regarding JB's, you financed 100% of the purchase price of the restaurant and on a short-term basis had some pretty - and I guess the plan would be and confirm this - under normal circumstances you would expect the cash flow from the operation to pay off the debt service over the next five years and I hate to say six year of Blue Moon payment due at the end of the five years? The volume of the unit, I thought the parking lot was critical to maintain, you know, this $10 million plus business volume.

How are you thinking about the impact on the unit volume with the potential loss of parking or is this a longer-term development if you can just kind of comment in order to help me understand that?.

Yes, a good question. And I should have addressed it, I apologize. So, when we - you're right, the parking lot is 121 spaces. Spaces in that area are very difficult to come by - parking is - without that parking lot we would suffer on a revenue basis.

So when we bought the restaurant essentially, we created an easement on the parking lot there, whoever owned the parking lot, the owner of the restaurant owns the parking lot, there were two separate parcels. Parcel A being the land on the JB's, parcel B being the parking lot.

So these gave us an easement on the parking lots for the 25-year term, where he had to provide 121 spaces, or if the subsequent buyer purchased it, they would have to provide 121 spaces. And if it was a development, they would have to find 121 spaces that were convenient. And we were the sole arbitrator, what was convenient.

So now we did this deal with a friend, and obviously, if they develop those parking spaces is going to disappear for a period of time. And so there is an equation based upon our EBITDA that the development will have to reimburse us for any lost EBITDA during the time that the parking lot is closed.

There is a minimum that they have to give us under any circumstances regardless of EBITDA. If EBITDA went down to zero, the year before the development, they still have to pay us a minimum. But they have to pay us what the EBITDA is up to a maximum.

So for instance if in the year that data model starts to build on the parking lot space if our EBITDA is a $1.5 million and that goes down in the year in which they do it, they have to replace the name the 1.5 million. So we protected on that and then yes, it is a long-term deal where we own a pieces of development.

There are other opportunities that we think we can add additional revenue by operating some of the functions in the hotel. Because part of this is going to be a 101 room key hotel we believe.

This is early in the game, it will take us eight months to really figure out what the development consists of, but it will consist of a hotel, it will consist of some condominiums, it will consist of some retail space, and we have as of right zoning, we would like to expand on that as the right zoning, we're meeting with the city shortly to show them a plan and see what we can maneuver to get.

So we're eight months away from probably knowing what we're building. But yes, we are protected with our EBITDA..

Okay. Thank you.

And can you comment on any trends in event bookings at your locations that typically in normal years host many events?.

Any trends I am sorry..

Booking of events? Or is it too early, are you getting more calls about hosting events in any of your locations?.

Yes, I can take you through the flow of this. One of the things we were concerned about, in terms of cash flow or balance sheet is, we usually have $4 million or $5 million in deposits, for events that are going to take place at Sequoia, Bryant Park or ROBERT, those are our three big venues for events.

And we were concerned that everybody was going to ask for their deposits back. And we were not playing hardball with anybody, we were saying look, if you want your deposit back, you can have it back, but we will not guarantee pricing going forward. We don't know how long the pandemic is going to last.

And we don't know where pricing will be a year from now. So if you want to maintain your deposit, we'll guarantee pricing will stay the same. If you take your deposit back, we're starting all over with a price point of when and if you want to hear back. We had very few cancellations.

Anthony, am I right about $1 million went back?.

Yes, we've done amazing job of pushing - a lot of the events at Bryant Park and Sequoia are corporate events. So they will push off our - people worked with the customers to push them off for a year. Weddings were the issue that were scheduled those - a lot of refunds were related to weddings.

And from what I understand now we are getting a lot of inquiries on weddings and smaller events in New York and D.C., - Michael sorry..

How can I trust that is because it's pretty well because my daughter is one of our event planners? So I hear that every day how she is doing, and we're booking an awful lot of weddings in Sequoia, which is a big wedding venue both maybe more than we've ever had.

In terms of corporate events in New York, we're getting calls, we have - we're signing contracts, everything is constantly being pushed forward. There are events where middle of last year, they pushed them to the end of last year, then they pushed them to the spring and now they're pushing them to the fall.

But our event business when we open and when we're allowed to have events, I think it's going to be robust, not because of pent-up demand I think it's just people do get married, people do have [barmiest], social events will occur regardless. Right now, we've made arrangements with other venues.

Gotham for instance, in New York is the place where if you have an event at 200 people, you can do social distancing. We can do an event for 200 people at ROBERT and have social distancing. So we're working with a couple of other venues to move events in the event, we can do them because of, capacity requirements.

Right now in New York State, we're allowed to do events for 150 people, but it's ridiculous.

So I don't know anybody who wants to do an event for 150 people, given the requirements that everybody has to have a COVID test within, I think 48 hours before the event and there has to be a monitor at the event to make sure that the certificates are presented, and then is social distancing, you can't have an orchestra because dancing isn't allowed or maybe you can have an orchestra, but you're not allowed dancing, it's ridiculous.

So we're three, four or five months away, I would take a guess, again, as we get closer to herd immunity or enough people vaccinated where states feel comfortable opening this thing up completely. But we will be busy, we will be busy. I hope that answered your question..

Yes, no good to hear.

And the final question, any update on the thought - on thoughts on Clyde's - the future of that operation?.

So honestly, we have been talking to people, we have a spectacular lease at Clyde's and we have a really a very cooperative landlord. We're not paying any rent there right now minimum rent. We pay a percentage of our sales and sales have been weak. We were closed until recently because we don't do outdoor seating at Clyde's, didn't make sense.

And so now we're at 25% capacity. We have an interesting conversation going about reconceptualizing it. I'll have more to say about it in maybe a month, but right now it's Clyde's it's operating as Clyde's. It's a restaurant that should have worked, but didn't work.

One of the hard things about being in a business where you have a lot of individual brands and they're like art forms. We've been very successful guessing what the public wants and building something that the public likes over the years. I just never understood why Clyde's didn't work.

I mean, there are times we've built restaurants and you do understand why they're not working and you correct them and/or not, but at least you understand why they're not working. We really don't - never had a strong understanding of why Clyde's didn't work. And we've tried stuff to make it work, but it really needs to be re-conceptualized.

The leases are very strong lease. The infrastructure is in great shape. We should be able to do something to piggyback that lease and infrastructure, and build something that becomes cash flow positive..

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

Thanks, everybody for being on the call and we'll speak to you at the end of the next quarter. Last quarter, I did this and I'll do it again. If anybody has any follow-up questions my cell number is 646-322-9197. I'm generally available for your calls so, I'm happy to hear from you. Thanks very much..

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..

Thanks, everyone..