Greetings and welcome to the Ark Restaurants First Quarter 2020 Results Conference Call. At this time, all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to your host, Sonal Shah, General Counsel.

Thank you, operator. Good morning, and thank you for joining us on our conference call for the first fiscal quarter ended December 28, 2019. My name is Sonal Shah, and I'm the 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 its 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 now turn the call over to Anthony Sirica, our Chief Financial Officer.

Hi, good morning. Before Michael starts his commentary, I just wanted to make everyone aware that we adopted new lease accounting standards in the first quarter. As a result, our Q1 balance sheets include operating leased assets of $60.7 million and lease liabilities of $62.5 million. The new standard did not materially impact our consolidated net income and had no impact on our cash flows. I'll turn it over to Michael.

Hi, everybody. This was a fairly decent quarter. We expect EBITDA increases to continue from here on in as well. What's really driving the better results are our properties in Florida, Alabama, a better result in terms of comp sales this quarter in Washington, D.C., stability in New York, and stability in Las Vegas. There's not much really to say. It was just a good quarter. I think we're operating well. We certainly have our challenges in terms of operating expenses. Insurance premiums continue to increase at highly inflationary rates. Our New York City restaurants seem to be impacted somewhat by food delivery. That is not as true in Washington, or in Florida, or in Las Vegas. But in New York City, it seems to have an impact. Minimum wage increases in New York City are done in terms of the three years of rolling legislative increases, so we now have some stability in payroll. We could probably do a little bit better job with certain of our contract expenses, monthly expenses in the restaurants, renegotiating them. We're going to take on that task soon. But overall, just a really solid quarter. Everything was open this quarter. We were down at the Hard Rocks and Camp in Hollywood during the summer of last year. Those reopened in time for the first quarter of our new fiscal year, so we had full operating results for now. I should mention that JB's on the Beach was profitable in line with our expectations, but they really don't get into season until late December. We expect much better results from them in the March and June quarters when the seasonality of the business picks up our sales and our operating profits. With that, if you have questions, I'll be happy to answer them. There's not much more I could say. We're just doing a good job at this point.

Thank you. At this time, we will be conducting a question-and-answer session. First question comes from the line of Bruce Geller of DGHM. Please proceed with your question.

Good morning, guys. Congrats on a nice quarter, and on a clean quarter for once. There didn't seem to be too much noise in there, so that was good. So with JB's, you mentioned that we should see a ramp-up in the current quarter. I think you've got about six weeks of the quarter under your belt. I'm just curious if it's operating according to your expectations. And then also, can you comment on the potential sale of the related land around JB's, which you guys do not own, and how that may impact you positively or negatively in coming periods? Thank you.

Sure, Bruce. It's nice to talk to you. January is aligning with our expectations. Sales are where we anticipated, and profitability is as expected as well. When we acquire these businesses, we typically allow them to operate independently for some time, relying on the general managers' expertise since they understand the markets better than we do. I should mention that when we took over Rustic and Shuckers, we believed their pricing was not reflective of their value. We see that JB's has some flexibility in pricing, and we're implementing new menu prices on the 19th of this month. That's the main adjustment we've made. It's uncertain how that will influence sales and our financial results moving forward, but this increase is more significant than our usual 2% to 3%; it's around 5% to 6%. Nevertheless, operations are performing exactly as we expected. Regarding the land and parking lot across the street, when we acquired the operation, we negotiated a 25-year lease with the previous owner, requiring them to maintain 121 parking spots to our satisfaction. The parking lot is a crucial revenue driver for the restaurant due to its location, making valet parking easy. However, I expect some revenue impact because of our lease agreements. The owner is attempting to sell the land and parking lot for a price we believe is much too high. We have a right of first refusal, but if he gets anywhere near that asking price, we would not exercise it. However, whoever purchases the property must provide us with those 121 parking spots, complicating the transaction unless they are willing to wait 24 years for the lease release. As of now, we are not worried about any potential revenue impact from a sale. If he sells it for a high price, that’s good for him, but we will still have those parking spaces secured for the remaining 24 years of our lease.

Okay, great. And then can you talk a little bit more about the metrics at Sequoia, how that's ramping up this year, considering you made a pretty substantial investment there? And I know it's been a struggle until now. I'd be interested to know how it's ramping up.

For the quarter, our comparable sales increased by 14%. However, this does not directly lead to higher operating profit at the restaurant. We aim to ensure excellent service, but we've encountered some minimum wage increases in Washington D.C., and insurance costs have also gone up. Overall, we are performing better and expect our operating profit for the year to surpass last year's figures. Catering is starting to gain traction, and we anticipate an additional $1 million in catering revenue for the fiscal year, which is highly profitable incremental income. While it is progressing, the ramp-up is not as quick as we had anticipated, and we are taking steps to accelerate it by engaging PR companies. We believe our food quality and facility maintenance are strong. We have seen improvements in private events and catering, which are advancing well, though we are still seeing slower progress in our a la carte business. It's challenging to gauge the extent of this slowdown since our busy season doesn’t begin until late April when we can utilize our 600 outdoor seats. During the winter, that location is less accessible, and it experiences a lull similar to other restaurants in the area. We will know better in the spring and summer if we have created something that attracts customers.

Great. And then just two more quick questions. On the last call, you mentioned that at this point, you might have a little more something to say regarding your lease negotiations in Vegas. So I'd be curious if there's anything further there. And then finally, if there's anything further of note at the Meadowlands.

Meadowlands is easy. Nothing going on at the Meadowlands, other than we're I think the busiest sports betting site, certainly in the state and maybe in the country. So that makes Meadowlands securely profitable. It also proves the demographics of the site. We spoke to online and sports betting as well as on-site sports betting. Our partners at FanDuel, they're doing a great job putting a lot of money into the facility. More betting machines, more T.V. sets. So that's all going well. To the extent that it proves that the demographics around the Meadowlands are ideal for a casino, that would probably have some weight going forward if legislation is passed to change the Constitution to allow for focusing our licenses outside of Atlantic City. But we don't think anything seriously will be considered by the New York, New Jersey State Legislature until New York has announced state betting, and that's probably going to come next year, and we'll see how New Jersey reacts. But until now, the Meadowlands is profitable. We're not putting any money into it without taking money out of it. That's the best answer I can give you. In terms of Vegas, we've made a proposal based upon a conversation we had with the upper tier management at MGM related to extending the lease another 15 years. We had some advantages in that negotiation. We're non-union; we're grandfathered as non-union, and we think that's a big deal. We provide New York, New York with a great deal of rental income. That first document, from my understanding, was received well. MGM keeps on changing personnel at the top. We're due for a meeting pretty soon. I am told by people who I rely on, on the MGM side, that it was received favorably, our proposal. I don't know exactly when we're having additional meetings. We're three years away from the lease terming out, so we have some time. But we're trying to get this done as early as possible. So that's where we are. I really have no definitive answers for you, other than we gave them the proposal, and I'm told it was received favorably.

Great, thanks a lot.

Pleasure.

Our next question comes from the line of Jeffrey Kaminsky of JJK Consulting. Please proceed with your question.

Hi, good morning guys. Congratulations on a nice quarter.

Thank you, Jeffrey.

Just one topic to touch base. Pretty much everything else has been discussed. You had gone into some detail on the last call about an endeavor out in Ohio, whether it be partnering in some restaurants or consulting on some restaurants. How's that going, and when do you expect to see any revenue out of the project?

Well, first of all, we don't have signed leases yet. But we are working on three restaurants within the complex, which is eastern Ohio. Just to repeat, eastern Ohio sees 30 million visitors a year. It's the most upscale shopping in the Midwest. It's a town with a lot of retail space, 52 restaurants right now, and expanding. So we have hired architects. We've hired branding people and designers. We've made a deal with construction VCs. So we're moving ahead, even though we don't have signed leases, because we're trying to get three restaurants open essentially right around the first quarter of our next fiscal year. So there's no impact this year, other than we're spending some cash on all these architects, brand people, and designers. We're confident we're going to sign three leases. We'll see how those restaurants open. We have the opportunity to do more. I think the leases are fair tenant-landlord leases. Operating costs in Columbus are lower than they are in New York City, and we think we can do the same buy-in that we would do in New York City at one-third of the rents and more favorable payroll numbers than we would have operating here. So what I'm basically saying is Columbus is to us somewhat similar to the operating advantages away from New York that we found in Florida, and Alabama, and in Las Vegas. So we start off with a more favorable equation. Obviously, that means nothing to most of the restaurants due to the revenue that we expect, but we sort of have a way based upon the other restaurants of similar size at what the capacity is for revenue for these new locations. So we're very comfortable moving forward, and we have a developer landlord with whom we have a very good relationship. So I think leases will start to be signed in the next couple of weeks. But as I said, we're moving forward with design to get these things open on the schedule.

Thank you.

You're welcome, Jeffrey.

We have reached the end of the question-and-answer session. I will now turn the call back over to Michael Weinstein for any closing remarks.

Well, thank you for being on the call today. As I said, I think the comparable results that you saw in the December quarter will continue into the March and June quarters. We should have a very good year. Look forward to the next phone call. Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.