Greetings, and welcome to the Ark Restaurant's First Quarter 2023 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to 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 2023 first quarter ended December 31, 2022. 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; 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 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. Happy Valentine's Day. First, I want to have Anthony explain where we stand in terms of our balance sheet and the comparison with December of 2021, that quarter, compared to the current December 2022 quarter. Anthony, could you do the honors..

Good morning, everyone. Our balance sheet remains strong. Our cash and CDs is $24.5 million, which the CD is now cash. It matured on January 8. Our total debt at the end of the quarter was $21.6 million. Total equity was $61.1 million.

Significant changes were -- we had a $4 million decrease in accruals that related to the utilization of catering deposits from the year-end amount because of all the parties held in December and the payment of bonuses and the payment of the FICA taxes that were deferred because of the CARES Act.

So there was a number of accruals that were paid for in the quarter. So that came down along with the cash balance from the end of the year. On the P&L, a couple of things I wanted to point out on the food and beverage sales, as a percentage of sales, we came down from the prior year quarter.

We're now in line with just about where we were pre-pandemic. We've done a good job of targeting price increases as well as buying smartly. Payroll, obviously, you see a big increase there in payroll. You see the news record unemployment, it's still a challenge. We feel like we're getting it under control.

But again, as a percentage of sales, it is spot on with the last quarter prior to the pandemic quarter ended December 31, '19. It was the same percentage, 34.8% sales. On the occupancy expenses, we're up about $900,000 from the same quarter last year. That's the result of primarily of three factors.

Last year, we recorded a COVID abatement deals for Bryant Park. Obviously, the rent expense was artificially low last year. So that was about $300,000 of the increase this year. The Las Vegas rents went up on 1/1/22. So that's about another $300,000 of increased rent this year over last year, and about 220 of it is insurance premiums which increased.

Other operating costs and expenses that's really just inflation related across the board. That's really it on the P&L. So other than that, it was a strong quarter. I'll turn over to Michael..

Thank you, Anthony. So I just want to emphasize that the way we -- of when about signing these Las Vegas leases, we could not -- the rents would -- the new minimum rents took effect in January of 2022. However, we could not book those new minimum rents until we had signed leases. So we didn't accrue for them.

Our accountants were adamant that we should accrue until we had signed deals. So the minimum rents were pushed forward. And in the December quarter, we expensed more in minimum rents than the actual minimum rents would be for that quarter because we had this delay until we could book them.

So if I were looking at the quarter, and roughly $4 million last year, $600,000 of that -- and $3 million this year, $600,000 of that decrease, $300,000 was because of the accounting for the rent that we did not have to pay, the reduced rent on our deal with Bryant Park. And so we had a decrease in the rent in the December 2021 period.

And there was an increase of about $300,000 due to the Las Vegas deals in the 2022 period. I think Anthony probably explained it better than I did, but I have to explain. All in all, our business for the quarter was very strong in Vegas, Alabama and New York.

New York benefited dramatically from events that we're missing and much of certainly last year and end of December 2021 quarter. We also benefited somewhat from weather. There's been no snow in New York.

The temperatures have been, with the exception of Christmas Day and a couple of days on either side of that, the temperatures have been unusually favorable for us. We did have the split in Florida. So we're doing well with events in New York and Washington, D.C., the Vegas numbers were very strong, sales were very strong.

Alabama did what we would expect. But Florida and the -- starting after Thanksgiving through the end of the quarter, weekend, part of that is, again, this problem with Rustic that we've been having because our costs went up, our menu prices went up, we were still running 50% costs, trying to hold on to customer counts.

So we were not really aggressive in pushing menu prices in Rustic or anywhere else to that matter but customer counts in Rustic dropped dramatically and revenues were down probably 17%, 18% in the quarter in Rustic. And the other restaurants were off 7%, 8%, 9%, 10%. It was also....

Sorry, it was very, very cold in Florida from the 23rd to the 29th. It was like 30 degrees down there..

Yes. So that doesn't help. But in January, we've seen a significant reversal of that. And our restaurants are significantly ahead in January in Florida than we were in the same January period last year. So I don't know what that blip was, but we're very confident that our offices in Florida are very, very strong.

And restaurants like Shuckers somewhat because of menu increases, but also increased headcounts of running 20% ahead of last year in January. Blue Moon is running ahead. We've added about 50 seats at Blue Moon as we got permission from the Army Core of Engineers in the city to extend the dock that goes into the intercoastal waterway.

So we added about 50 seats there, and we're in season and they're being utilized. JVs is doing very well. We had a record week last week at the Hard Rock where we do fast food. Our normal week there is maybe 175,000, 180,000. We've hit 200,000 a couple of times. Last week, we did 220,000. So campus seems to be strong.

Everything I hear about the demographics attempt is favoring us. New York, because the weather has been mild, January, we had a great business in New York and Washington, D.C. The big problem for us in this March quarter is not revenue. We're closing Gallagher's at New York, New York for renovation, which is part of our lease negotiations.

So we expect that renovation to take about two weeks. We started this past Monday -- last Monday, I think, the 6 or whenever that was. It will last until the end of March. We're trying to hasten that. We were able to add some 300 seats to cordon off of 60 seats in a private dining room that's still serving Gallagher's menu.

But Gallagher's is a restaurant that can do $350,000, $400,000 in a week especially when there are conventions in town. So my expectation is that we'll be missing some $2 million in sales in the March quarter in Gallagher's.

We've always had this policy when we close something for renovation, it's not the employees' fault, it's management fault from making that deal, in this case, with MGM. And so we are paying salaries, a certain percentage of salaries so that our employees are not harmed. So this is going to be a hit to our income for March.

What we are building in terms of the renovation, I think is a far more attractive restaurant is a restaurant that's very much in demand. It has become more so with the activity in MGM's Park and the T-Mobile arena with the Black Knight's hockey team and concerts just being outside our door.

MGM is also in New York, New York put in the new Circus Soleil show, which is doing well and it's well reviewed. And I think we're benefiting from that throughout all our restaurants and fast food operations in New York, New York. But Gallagher's is at the front door of the theater, and we should benefit from that.

So this renovation, I think, is going to be significant for us in revenue improvement. Other than that, our business, quite honestly, is pretty strong across the board. Our numbers are somewhat with sort based upon what happens with food prices, but that seems to be stabilizing. We have hired the right people in the right positions.

We're paying a little bit more, but I don't think we're suffering in terms of finding the right people. Most of our positions are filled. Labor is going to be a -- the cost of labor is going to continually be a problem, but not finding the right people is, which was difficult for us for a couple of years, seems to ease dramatically.

So I think that should give you a flavor for what's going on. I'd like to address the Meadowlands, which is pretty much the same quarter-to-quarter. We think we have a very good chance of getting a casino license for the Meadowlands.

We think the catalyst for that is the downtown or downstate casino licenses that are going to be issued by the state of New York for areas in and around Manhattan.

The Meadowlands is 6 minutes from Manhattan on a good traffic day, 20 minutes, 30 minutes by business or train and I don't think Jersey will respond anything but favorably to having a casino license in the North once the state starts to move forward with issuing these licenses.

Atlantic City, which has been killed anyway over the years will be further hurt. The city is going to -- the state of New Jersey will be missing a lot of revenue. I don't think they want their citizens going across into Manhattan to gamble. I think that's the key transition point for us when there'll be serious discussions about having to license.

Meadowlands is all -- it's an area that has no residential. It's environmentally approved for casino already. We don't think there'll be any lawsuits. The racetrack is already built to hold the first phase of the casino. So I think we can expect that this will be very favorably looked upon. And with that, any questions, I'm happy to answer them..

Thank you [Operator Instructions] Our first questions come from the line of Roger Lipton with Lipton Financial Services. Please proceed with your question..

Hi good morning, Michael. Good summary as usual. Just one quick question, I was a little confused on whether the rent situation, which you talked about catching up in Vegas and - what else was it I forgotten it - whether it was 300 or 600 in total.

The 300 million in Las Vegas and the other - and they're just confusing, whether it was three plus three or six plus three?.

No, it's three plus three. The three in the December '21 quarter was a reduction of rent because we signed or finalized an agreement and signed an agreement with the Bryant Park landlord, which we always knew we had that department of rent that became just a forgiveness of rent. And that was signed in that December 2021 quarter.

So the 300,000 became a deduction from our regular rent payments. So sort of skew the December 2021 quarter by $300,000 of increased income..

Well okay that's fine, thanks very much..

Yes, I'd like to point out that - the Vegas leases, the minimum rent that we're paying now. We pay percentage rent. So once we get to a revenue level where the base rent is a certain percentage of revenue, then we start to pay percentage rent. It's a breakpoint and a natural breakpoint. So the minimum rent becomes a moot point.

We're basically on a percentage rent at that point and the annual rent will be based upon what the percentage is. And our percentage rent is slightly higher than it was in the old lease what we pay in America and Gonzalez, it's 1%. At [Praburger], it's actually reduced a little bit. So we think we're a percentage around the payer.

We don't think the basic minimum rent will affect our profitability at all in Vegas. I hope that helps..

[Operator Instructions] Our next questions come from the line of Paul Johnson. Please proceed with your question..

Yes, good morning. Just on the Meadowlands, can you give just your best guess, it can be a wild guess in terms of the possible timing? I realize its forces beyond our control, including government officials and all that.

But what would be your best guess if you had to make money?.

I think you got - I differ a little bit from my partners. We're the third largest shareholder. A developer [Jeff Coral] in New York is the largest shareholder and then Hard Rock is a 20% shareholder. And I guess, on a fully diluted basis, we're at 7.8% of the casino.

I want to remind everybody that we have exclusivity on all the food and beverage - if the casino is built with the exception of a carve-out for a Hard Rock cafe.

So - my partners strongly believe that it's not the issuance of downstate licenses that will be the tipping point to get New Jersey moving, but really to have casinos open in New York and it ensure we'll see what that's doing to Atlantic City. I take the attitude that once the - this whole thing will go into motion once they start to issue licenses.

And if they issue a license in Manhattan, and there are several groups we later being one of them. And Hard Rock being another one, by the way, interested in casino licenses within the Manhattan area, not in Queens and not in Long Island. I would think that would be enough to get New Jersey moving. So, I think we're a year away from that.

And then - there has to be a referendum to change state constitution to allow for a casino outside of Atlantic City. So I think we're two years away, that's what I think..

That's helpful, thank you.

And are there - what is like the governor's position or the senator's position? Has there been any conversation among the higher level politicians?.

Murphy has always been in favor of it from what I'm told. I think he's had some direct conversations where he had said that.

The legislature I think is more inclined positively than they have been in the past, because the new legislative body from the last election, I think is better for us, if I look at the key people who would move the legislation forward. So, I think the situation has improved, but it's still very speculative so..

Understood, thank you.

And then - can you give us an update on any possible acquisitions? And are we correct in sort of thinking that the acquisitions that you'd like to make are going to be more and more in the Southeast and the Gulf states or is that just been the recent trend?.

I'd like to say one more thing about the Meadowlands just so you get an idea of why we think we're in such a strong position. The Meadowlands does more sports betting than all the Atlantic City casinos put together. And I think it's either the first or second best sports betting site in the country.

So there would be an inclination, I think, given that traffic and the amount of betting that's already taking place the Meadowlands that, that would be the favorite site for casino in the North. So in answer to your other question, we're constantly looking. We happen to have two very smart business brokers in Florida who show us deals.

Recently, we've been looking at four deals. We sort of discarded - and we look and we go, this is it, and we kicked the tires and we have our criteria. And two of those deals are very much - we're very much focused on. No documentation has been signed for either one.

I would expect we would do one of them in the next two or three months, maybe both of them. But I have high hope and feeling that, that we'll get to terms - fair terms for us and the seller on one of these deals. We're always looking. The Southeast is very attractive to us for a series of reasons. Number one, it's business friendly.

New York is not business friendly. I would never build another restaurant in New York. The amount of business we can do in Florida equals anything that we can do up here given the size of the sites and where they're located. And the rents are substantially less.

The legislators are more favorably inclined than New York is to pass business laws that don't add additional expenses to operators. So yes, we're focused more on Florida and the Southeast than the Northeast..

Thank you. I guess part of - as long-term investors, I mean, you guys have done a great job certainly and the acquisitions you've done have been at super multiple, super low.

The challenge with having sort of a decentralized restaurant base that doesn't have a sort of a common brand is that as you noted in your 10-K, I think your terminology is something like fixed costs don't decrease proportionately with sales? So the hard thing is how do you ever get to much higher levels of EBITDA leaving aside the Meadowlands opportunity unless you just have a lot more restaurants to spread over that fixed cost base?.

So it's certainly a fair question. And if you just look at the stock price over time, it hasn't moved very much, but we have been a dividend payer and we paid a couple of special dividends along the way. We're very aware of your comment.

And I guess, if I go way back, and I'm going 25 years back, when we did the Las Vegas deal, all of a sudden, we were doing in those dollars, $35 million, $40 million in one location. And we said that's the model we want to replicate.

We want to find those locations where we could put in a lot of different concepts and have the economics of one general manager, one executive chef over seven, eight, 10 operations in one site. That never worked for us. We were never able to find the site. We came close twice. We were very close pre-pandemic and then pandemic shutdown that idea.

We were looking at a site in the Midwest and the developer and us, just decided during the pandemic not to go forward. So that was always the idea. Then what happened is when we bought Rustic, Rustic was doing $1.5 million and for $7.5 million, we bought the $1.5 million, but we also bought the land underneath it.

And we thought it was a mispriced restaurant back then, and we thought we could improve the $1.5 million. And the economics of doing a sales leaseback were hugely favorable. I mean if somebody - it didn't make a difference to the capital, I'll use.

If we were going to pay somebody $1 million for - on a sale leaseback, if we're going to pay $1 million in rent, we thought we can get $12 million for something that we paid $7.5 million for and still have an operation doing $500,000.

And by the way, that operation grew from doing $1.5 million cash flow pre-pandemic to $3.4 million so, and every restaurant that we acquired in Florida where - we had the land or in Alabama, those dynamics were working. Now they're working less with a 6% interest rate today than they were when interest rates were 2% or less, I guess.

But we were looking to build, at that point, our eyes opened up, and we said, hi, let's try to buy the real estate and you can't do that in New York, but you certainly can do it in the locations we were looking at in Florida and Alabama. So, those are the primary situations we look at.

Now in Blue Moon, we couldn't buy the real estate, but we've bought an operation that was making $1 million a year to $2.7 million, and we negotiated a 26-year lease, a new 26-year lease with landlord. So 26 years, it's not quite the same as owning it, but it's, pretty close. So those are the situations we're looking at. They're one-offs.

We're not going to look at anything that earns less than $1 million. So that's sort of the jumping off point. But we've seen a few things that do much better than that. Haven't been successful coming to the economic terms that we want to dictate to ourselves, but they're out there. And I think that's the way we're going to grow.

Obviously, we have great hopes for to the Meadowlands and that would sort of follow this idea of what we did at New York, New York, if the Meadowlands became casino, I'm sure there are eight to 10 restaurants in there, a few bars and that could be a $50 million, $60 million business for us.

We have a balance sheet that's - from my point of view, on deleveraged and we also have credit lines beyond that. So we're prepared to do a bigger deal if one came along. We just haven't found one with the right economics. So we're sort of growing marginally with one-offs.

But that should be the expectation, honestly, until we show you that we could do something bigger than that..

I appreciate that, thank you for that color..

Thank you. Our next questions come from the line of [Mo Salto] with RMR Capital Partners. Please proceed with your question..

Hi Michael, great call as usual. All of my - most of my questions were answered thoroughly. I just had a question about the operating lease liabilities. I just want some color.

In terms of leases that you guys have signed, are there any corporate guarantees associated with them? Like what portion do you expect that you would own if you had to shut down a restaurant or is that unique to each - location?.

We don't cross guarantee anything here. There are no corporate guarantees on anything we do here..

Excellent, that was even easy, thanks..

There might be one or two out there, Michael..

Like what, Anthony, I don't remember - recall any..

Isn't Robert guaranteed by Ark?.

No..

I think there's one or two, but I'm not sure which ones. I mean, we can follow-up with off-line, Mo..

Yes, I don't recall anything..

I trust Michael's memory better than my own so, but I'll check it for you..

Thanks so much guys and great call..

Our next questions come from the line of [Jeffrey Kaminsky] with JJK Consulting. Please proceed with your question..

Good morning guys, good morning Michael another greater quarter. Just a follow-up to comment you made regarding share price and dividend. I think you said in the financial weekend earlier that numbers are back to pre-pandemic 2019 quarter.

Obviously, the dividend was eliminated during the pandemic for obvious reasons and stock prices, is relatively flat now some of the volatility during the pandemic.

Obviously there were some [displaced] that said, given the current state of finances and I assume - the interest rate environment being what it is, are shareholders we kind of screwed even if the stock didn't do anything we got paid the way by it.

What was a better dividend that we're getting now? Is there any discussion in consideration as I think the dividend back to pre-pandemic levels or perhaps some sort of special dividend as shareholders remain patient, waiting for the next move? Thank you..

Jeff, how are you? Jeff, every Board meeting, we discuss the dividend. And as our balance sheet has been bolstered by two things - the business is doing better, obviously. And we're not finding ways to spend our capital or our cash on the balance sheet fast enough. We discussed it.

Look, my interest here honestly and - unfortunate my family has assets away - significant assets away from this business. My goal has always been to protect my shareholders. And maybe I've been a little bit too conservative along the way. Maybe there were deals we should have done, where we sort of been more aggressive about bidding for them.

Maybe leases that we should have signed that required a guarantee that I didn't want to put the company on the line for, but the goal here has been to protect the shareholders. And we never had a lot of debt. We've never been in a position where we can service the debt that we did have.

And so that conservative nature is sort of shared by most of my Board members. We have a couple of Board members that would be more aggressive than with the dividend than the majority right now. But it is up for discussion. And every quarter, we discuss it.

And I think as we get further away from the pandemic, the likelihood is that we will revisit the dividend and there may be an increase. But right now - we like the cash position we're in, and we like our balance sheet..

Thank you, guys..

You're welcome..

Thank you. Our next questions come from the line of Roger Lipton with Lipton Financial Services. Please proceed with your question..

Yes Mike yes, Mike I have to follow that - with capital allocation.

I was going to ask, and I will ask what would be the timing of your CapEx in Las Vegas? How much will you spend and when?.

So this year, our obligation to MGM, we have essentially three leases out there, all of which - there are three leases and there are also letter agreements. So letter agreements sort of cover the banquet business, the room service, pool service, the employee dining room, none of those things need renovations.

The three main leases are for the Village Streets, which is sort of like a fast food area America, which is their 24-hour restaurants that we have and Gallagher's.

The obligation this year for Gallagher's is certainly under $2 million, probably $1.5 million, but we're just in the process, and we don't know if there's going to be cost overruns, but we think Sam and Jennifer, who are the key players along with the local people in Vegas, but the key players here have really gone over those numbers with Linda Clous, who is our facilities manager and overseas construction as well that likelihood is $1.5 million in CapEx.

But please remember beyond that, we're paying people who work for us there, 70% of their salaries, even though they're not working, which we're utilizing them for other things where we can, but there's a staff there that's being paid. So if you included that, I guess that number goes to $2 million with the payroll.

We don't have any obligation for the rest of this year other than to give them a plan for the Village Streets and I don't think the Village Streets will be very expensive, maybe $2 million. There are, I think, eight outlets in the Village streets and we're considering building one more.

So maybe a couple of million dollars, would that be closed, Sam?.

Yes..

Sam is shaking his head, yes. And he's smarter about this than I am. So figure $2 million. And then America comes up in 2025. And America is doing great. I mean we've had 11% compounded growth there last year from the previous year and we're running ahead this year. And I don't know that we'll ever have to do America.

It's basically New York and MGM's call. But they've taken a wait and see attitude because the restaurant is doing really, really well. So it's - certainly, the CapEx in Vegas is not a factor when you - I think you're trying to look toward the dividend and see if that would be impactful on the dividend.

We're not concerned about that when we make a decision in that the dividend..

Mike, just real quick that sounds like $4 million combined maybe including the payroll, is that lower than the numbers you had thrown out previously, if I recall?.

Yes well, the total obligation was $7.5 million, but the majority of that was going to be spent in America..

Okay. Okay well, that's good news. Okay, thanks very much..

You're welcome..

Thank you. There are no further questions at this time. I would now like to hand the call back over to Michael Weinstein for any closing comments..

Right, I hope I was clear. It's Valentine's Day. Happy Valentine's everybody, and we'll see you at the next quarter's call. Take care..

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day..