Greetings and welcome to Ark Restaurants Second Quarter 2017 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. I would now like to turn the conference over to your host, Mr. Bob Stewart. Thank you. Please go ahead.

Thank you, operator. Good morning, and thank you for joining us on our conference call for our second fiscal quarter ended April 1, 2017. With me on the call today is Michael Weinstein, our Chairman and CEO; 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 newswire Friday 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 afternoon will include forward-looking statements and that these statements are not guarantees of the 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 the direct bearing on our operating results, performance and financial condition. I will now turn the call over to Michael.

Hi, everybody. I’d like to go through some bullet points of what occurred during this last quarter, and then sort of project what’s going to go on in the third quarter, the June quarter, and the fourth quarter, September quarter for you also with bullet points. This quarter was decent, but it was not as good as it could have been. We had terrible weather in March, which undid the potential for a much better quarter. Also in the March quarter, Bryant Park had a significant fall off in event sales. Event sales at Bryant Park are the most profitable in terms of gross margins, and we just did an anomaly there where usually we have growing event sales year after year after year. And we just hit a bump. So those were the two decidedly influencing factors why the quarter was not better even though we showed better comparisons with last year. It could have been much, much better. And the March weather was a significant impact. Also during the quarter, Sequoia was closed for its renovation for the full length of the quarter. We continued to show good progress in revenue from Vegas. We had strong sales at Shuckers. We had good performance at Rustic Inn, in Fort Lauderdale despite the fact that there was a detour; sales were down, but they’re still very robust. And we’re looking forward to that detour being removed. And Gulf Shores, which are our latest acquisitions from November 2016, performed pretty much as we expected. So that’s the March quarter. We have a lot going on. So the June quarter, Sequoia will be opened for a portion of the June quarter. We are late. We had hoped we would be open by May 1. We have had difficulty in terms of getting…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Bruce Geller of DGHM.

Hey, good morning, guys. So it sounds like the third quarter, or which is the current quarter, has a lot of moving pieces. But that the stars may be lining up for strength in the fourth quarter and beyond. Is that kind of a good summary?

Yes, it’s hard to figure out how this is going to come out, the June quarter. It’s our first really strong quarter for the Alabama properties. They are in season right now; they just went into season. So our expectation is, if we have this figured out right, that cash flow could overcome the negative impact of not having Sequoia open on time. But we’re very, very confident here. I can’t begin to tell you how comfortable we are. We are aggravated at the process that the city of Washington has put us through in order to get this thing built. But everything else here is really, really strong. And if we could get some cooperation from the weather - I’ve said this before. We have 13 Thursdays in the June quarter before everybody goes on vacation on weekends and leaves the city. We have not had one good day yet on a Thursday. And most of the April and May have been completely shot with rain and cold weather. We can get some lunch business outside if the sun is shining, but it hasn’t - it hasn’t reached 70 - I think one day we had over 70 degree weather. So in order to get business at night, we have to be in the 70s. [Do you understand it?] [ph] So we have some 700, 800 seats in New York alone outside that aren’t been utilized. So that’s another negative. So it’s hard to figure out how it’s going to come, come in terms of numbers for June. But we’re very, very comfortable that we have very strong businesses that are really going to perform well. And we see that if the weather is half way decent, we’re having record days in these outdoor areas.

Right.

But we had two or three of them, not anymore.

Well, it looks like, hopefully, this week will be one of them.

I hope so.

The Sequoia project sounds pretty substantial once you get everything up and running. Can you give a sense of what the EBITDA uptick could - potential could be from - from all the work you have done on that restaurant?

Sure. So the irony of all of this today that we should be having the conference call is Sequoia was just voted by [one magazine] [ph] as the best-looking restaurant in Washington, but they were talking about the old one. We just spent a fortune to rip that apart and redo it. Why did we do it? Well, we did it for a couple of reasons. Number one, the landlord forced it. Our lease was up at the end of 2017. And the landlord came to us and said, look, we like you; you’re a great operator; you’re doing well; we are a new landlord; we’re trying to reposition the whole project to Washington Harbor; and we’ll give you a new lease at a very appropriate rent; which was the same rent actually that we were paying before this landlord took over; but we need you to redo the property. That sort of matched with what we were thinking, Bruce, because the way we originally designed it some 20-years ago, it did not allow us the flexibility in terms of the events that we thought, as we went along were available to us. We think we could be far more - we thought we could be far more productive with events if we created some additional areas, where we could have two or three events going on at the same time, and there is demand for that. So we basically decided to move the bar from the mezzanine level down to the main level. We brought in a lot of very strong contemporary artists to help us design the space. What we have opening up in a week or so, we think is quite extraordinary. The reaction of the people who have seen it has just been very, very complimentary to say the least, to be conservative. I think a lot of people will look at this thing and go, this is a big wow. So we should be more prepared to do more events, and we think, we will have something that’s far more attractive. So the EBITDA, if we look at our other big restaurants, Sequoia has underperformed in terms of EBITDA for the size of the space. And we were doing close to $2 million in operating profits at Sequoia. We think we can double that in very quick order, if the public sees it the same way we see it. These things, somewhat, are art forms, they’re not brands. Sequoia has a strong local brand. People are very happy with the food, the outdoor space is stunning. There are 600 seats on the outdoor space. So we did this with the hope of doubling EBITDA, if that gives you an answer. There is no guarantee, obviously.

Sure.

That’s our hope.

Yes. That’s helpful. It’s just along the lines of trying to understand the earnings power of the company here. I know that you’ve lost a bunch of EBITDA with all the construction at Rustic. But with that coming back online, hopefully, end of August, and with some expansion there, how much incremental EBITDA do you think you might see from that next year as well?

Before we lost the bridge connecting the main road to Sequoia, we were doing about $3.3 million, $3.4 million in operating profit - at Rustic. Coming to the detour, that’s been down by $700,000.

It’s about $700,000.

Yes. We’ll probably do - we’re going at a $2.7 million run rate. So we see no reason why we don’t go right back up. And with the addition of another 50 spaces for parking, we think that - that’s also helpful. People are parking blocks away. So we just think that that in itself will help us dramatically. Again, not so much this year, but going into the next fiscal year. Sometime in the spring, early summer of next year, we’ll have this new barge there. Rustic in Fort Lauderdale was built in - from 1950s, going forward, it was built in stages, and the interior was very inefficient for service and the kitchen. It has its charm. There was no place for people to wait. They stood outside, waiting to be called. We’re also adding a bar where people can wait. That’s in addition to the barge, which we think lot of private business on that barge and a lot of liquor business on that barge. We’re building a better bar area in conjunction with Rustic. So we think there is plenty of room to recover that, not only that $700,000 that we’ve lost since the detour, but to take advantage of demand that we’re not fulfilling, because of the awkwardness of the parking as well as we’re not selling anything to people who are waiting. And people are wasting an hour, an hour-and-a-half. So we think we have the possibility of doing more there. And the same with Shuckers, in Jensen beach. If we could get these 40 or 50 additional outside seats, they will be filled all the time. We have that kind of demand there. And we’re just unable to take advantage of that. We’re sort of - we’re locked into the seating we have right now. So...

Why is that? Is there a permitting issue?

No, it’s not a parking issue.

Permitting?

It’s a permitting issue, because we were about to be approved at the state level at Tallahassee. We were told, we were going to get the go-ahead. And then, they had this storm where we lost 40 feet of beachfront. And they put that on hold until - the expansion on hold until the reclamation could take place, and we think that will be done sometime early next year and it’s not much work for us to extend the 40, 50 seats once we get the permit. So - and we think nothing has changed with that. We’re told that we’ll be getting the permit. So we think there is a lot of forward moment in terms of EBITDA with Sequoia, with the expansion of Rustic, with the expansion of Shuckers.

Yes, it sounds exciting. Can you give an update on Vegas? I know, it was tough for a while, sounded like it was getting better.

It’s getting better. Vegas is - we’re seeing good comps in Vegas for the last two or three quarters. This past quarter, we were up 6.8% in revenue. So - and that seems to be continuing through this quarter. I follow room rental rates and other things in Vegas with the indicators of demand. I even follow a company that does distribute the gaming and what their results are, and they all think the economy in Vegas has improved dramatically. Vegas had lost lot of jobs during the recession. People are moving back into Vegas at a good rate. Again, housing prices are up. Employment, which was once - unemployment was once 13%, is in line with the national unemployment rate now. So I think conditions in Vegas just in general are improving. And visitorship to Vegas seems to increase. So we’re comfortable.

Great. And then one last question. You guys have done a nice job on some of your recent acquisitions. I’m curious, if you’ve got some other things on your near-term target list at this point?

We want to be a buyer of properties as opposed to a lessee. Obviously, we’re not going to turn our backs on a strong - on a strong lease or opportunity or - we won’t turn our backs on buying a lease as opposed to the property, if the returns were there. Our most recent lease, which is now two years ago, was Southwest Porch, where we’ve just hit a home run with that. So it’s not something we’re not interested in doing, but our primary focus is to try to buy properties, own the land, own the buildings that have an operating restaurant in it. We haven’t - we have seen one deal, it’s sort of something we would do, but it’s on the backburner right now, because it’s subject to the tenant getting a new lease - so that’s a leasing deal. We had not seen anything worthwhile to buy yet, but we’re looking. We’re very sensitive to our balance sheet, Bruce. For years we went [ph] without having any real debt. The acquisition of Alabama, Shuckers, and the redo of Sequoia have been expensive. We have a bank line now. Part of this is ingrained conservatism. We’re not going to do anything to jeopardize our balance sheet and leverage it more, unless we’re very, very secure that the returns are going to be there, and it’s something that we can operate. We found that in Alabama. We found a business that’s been around for a long time with very, very strong management. It’s not easy for us to find these things, and it makes it more difficult, because we always look at our balance sheet, and say, hey do we really want to extend ourselves to do this deal. So it’s got to be pretty persuasive for us to go out and borrow money, which we would have to do right now. Our cash flow should be very, very strong once we get everything in place, our debt should be reduced dramatically in the next 18 months. So it’s not like we can’t look at things, but if you show me something right now, and it was not overwhelmingly persuasive, we would not do it.

Got you. Thanks a lot. Good luck.

Thank you. You’re welcome.

Next question comes from [Robert Needer] [ph], a private investor. Please proceed with your question.

Hello. If I understood you correctly, you said you were closing the Rustic Jupiter property. And my question is, what is the cost of closing that? Is that a leased property? Is it something you own?

It’s a leased property. What happened in Jupiter was we had a right of first refusal if the property was sold by the - then landlord. The landlord did not market the property well, did not understand the dynamics of the area. We knew who the natural buyers would have been if the landlord had gone to them, he would’ve done much better. But right of first refusal, we exercised at $5.2 million, and almost within days, had it sold for $8.2 million. And, so this was a property that was not - that was moving in the right direction, but to turn down a $3 million differential made no sense at all, so we sold it. We entered into a temporary lease with the new landlord. We have the right on five days’ notice to close the property. It does not cost us anything. We will be carrying some - the salaries with some key people but that’s de minimis. On an annualized basis, it would probably be less than $100,000. But we suspect, we’ll get those key people to work in productive areas almost immediately. So it’s not going to cost us anything.

Great. Thank you.

You’re very welcome. Thank you. Good question.

There are no further questions. I’d like to turn the floor back over to Mr. Michael Weinstein for closing remarks.

All right. Thank you. Again, we’re very confident here. There’s a lot of moving parts, but everything seems to be working in place for us. It will be interesting to see how Sequoia does when it opens. I thank you for your participation in the call. And we’ll see you again in about three months.

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.