Greetings and welcome to Ark Restaurants Fourth Quarter 2019 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, Sonal Shah. Thank you. You may begin.

Thank you, operator. Good morning and thank you for joining us on our conference call for the fourth fiscal quarter ended September 28, 2019. 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, I'd like to read the Safe Harbor statement. I would 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 over the call to Michael.

Hi, everybody. Thank you for joining us today. First I'd like to just go over generally how we're doing in all the venues where we have operations. Las Vegas is doing very well. We're comping decently and I think profitability was up a little bit from the same period last year. Alabama, we're doing extremely well. Sales continue to improve. We're comping more than nicely there. Florida, same situation, I'll get to what's going on with food courts in a few seconds and with the acquisition and JVs on the bit. But Shuckers and Rustic continued to perform better than our expectations. Sales are up both profitability is strong. [indiscernible] as I said with the food court in a second and JVs. Washington D.C., Sequoia is improving, still not living up to our expectations. The event business is picking up, which has had lagged badly. A la carte business seems to be up slightly, but we do see continued improvement and profitability this coming year should be stronger than last year, significantly stronger. New York, we're doing well. We've been hurt by minimum wage increases for tip employees. As I've said before, in the last three years, the wages to -- the minimum wage to tip employees has gone up nearly 100%. So that's squeezed margins. For the first time, we think we have a little bit of price elasticity, not in relation to how the economy's doing, but in relation to what other restaurants are charging menu prices in New York are just in their own bubble. We don't think we're there, but we do have room to go up and we've done so on a couple of our menus. So, hopefully, those price increases are met favorably by customers, and we will get a little relief from these…

Sure. If you saw the press release in the current quarter in the year, we had losses attributable both for the non-controlling interests. We have six entities that we do not own 100% of so on doing the accounting, we have to allocate losses to those entities, included in there is Clyde's which as you see in the press release we took a significant write-down on the long-lived assets on this as well as the Florida food court partnerships, which we do have income from for the entire year. There are a couple of smaller partnerships in there, but nothing of significance.

Yes. When Anthony says, all the entities and he said we took a significant write-down our Clyde's and then he said as well as Florida entities, he didn't mean we took the -off on the Florida entity. They're included -- he means, they're included in that grouping. Clyde's, we don't want to get into fights with our owners. They thought the asset was impaired. It is by strict accounting rules. So if we wrote-off long life assets, the leasing Clyde's had significant value in it, which does not offset the requirements for impairment. We're working on Clyde's. Our Clyde's used to be profitable after three increases to again minimum wage tipped employees. It has significantly impacted the profitability Clyde's. I still believe it could be a profitable situation, but we will wait and see and give it a little time; and if it doesn't work out, we will see -- what values we can extract from the lease. Meadowlands, there is nothing new to report in terms of getting a casino license. We still maintain in our own minds at least that when New York starts to issue licenses for downstate casinos that New Jersey will have to react. We think that Atlantic City is still struggling, that’s actual. We think once the downstate casinos come in place in New York, those Atlantic City casinos will suffer. There is new casino being built in Philadelphia. We think that also impacts Atlantic City. Meadowlands is ideally positioned and it's proving itself with sports betting. FanDuel are partner. We're doing onsite at the casino at the Meadows Racetrack hopefully casino. We're doing onsite about $10 million a week in gaming and betting. As a whole on that is better than we expected. So the nine months, the Meadowlands showed a $6 million…

150 excluding the legal fees.

Yes, so, 150 excluding the legal fees. So, it did nothing in terms of impacting our EBITDA for last year, but it should have meaningful results in next year. All-in-all, I'm going to go out and let me give you some guidance. We were up 20% plus on last year on EBITDA. I think we will be up another 20% this year, the way things are looking. So, hold me to it. Any other questions please come forward. Oh, excuse me, before questions. Capital expenditures, Rustic Inn, there was an old barge as part of the seating at Rustic Inn. We have spent somewhere near $1 million to build a new barge. The new barge is sort of expands seating a little bit, but it adds an outdoor bar, rooftop bar on top of the barge, which overlooks the sort of working canal, recreational canal, that we abut to. So, we'll see if that further increases revenue. I'm amazed that the demand for that product. The product is great. There are two hour waits when there are supposed to be to two hour waits. I think will pull extra revenue out of it, but it was $1 million capital expenditure. Obviously, as we go forward with Ohio, the tenant allowances are very strong, but we will probably have restaurants somewhere between $750 million and $1 million restaurant. So, by the end of summer, we will spend some of that money for the December open. So, our cash flow will be strong enough and sufficient to handle that. Unless we make an acquisition, I don't see any more borrowings this year. We're constantly looking to find more deals like Rustic and Shuckers and the Alabama deals, where we have owners who are getting along in age and don't want to own the restaurants anymore and we can buy not only the restaurant but the property. But unless we find one of those, I think our capital expenditures will be confined to what's ever left on the build out of the barge which is not very much and the Ohio projects. So, free cash flow should be pretty good this year. Now, please questions, if anybody has any questions.

This time we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Bruce Geller with DGHM. Please proceed with your question.

I have a few questions. I'll start with the guidance you gave. I'm assuming that plus 20% is against the adjusted EBITDA number for the year, not the number that includes the impairment charge?

Right, exactly.

Okay, great. Then moving on to Clyde, you mentioned the lease and the value of the lease --you've struggled there almost since day one. At what point, do you move onto just trying to monetize the value of that lease and move away from operating a restaurant that's just taking up a lot of time and attention but not really generating any earnings?

I think we got to make a decision within the next 12 months. We're trying some stuff there. The problem -- again, where we were modestly profitable not a great deal of operating profits, but modestly profitable until we got hit with these minimum wage increases. But yes, also the construction of Hudson Yards really blocked 10th Avenue. So if you were coming from the South North even walking, it was problematic. You had to go from one side of the street to the other back and forth, around the construction. The whole of 10th Avenue was tied up dramatically of traffic. So, with Hudson Yards being open, we expected to see a benefit. For a while, we had a little bit of a benefit, but now we think Hudson Yards is competing directly with us for demand in the area. But they're -- when Hudson Yards is fully occupied, we think that there should be further demand beyond the number of restaurants in Hudson Yards. And as Hudson Yards moves further north, because construction continues. We think those customers will come closer to Clyde's. But we're not going to sit with it forever just to prove the point. That lease is roughly 60% below market we have -- it goes into I think 2032 or something like that. So, we have 13 years left on the lease, that 60% below markets, it's 10,000 square feet. We think market is north of $100 a foot, we not only think, we can validate it with the leases being signed. Near us, we're at $40 a foot. So, we have $600,000 of value discount from market times 13 years. So, give me a discount number, the lease is worth something, in the millions, so we'll find that. That lease and the underlying property on the restaurants we own, Shuckers, Rustic, the two Alabama properties, [Indiscernible] Alabama don't show up on a balance sheet in an appropriate manner. We think those assets all in the worth more than what they are on our balance sheet for us. So, we'll have to figure out at what time to try to monetize that lease.

Yes, I mean, it sounds pretty valuable would be great to monetize that, take the cash and, go find another JB's.

Absolutely.

Okay, great. Moving on, I wanted to ask you about Ohio. It sounds like you're investing some capital there, which sounds like it might be a little bit of a departure from what you've discussed in the past where you will not be putting up much of the capital. Has the ownership profile of the restaurant changed? It sounded originally like it was more almost more of like a consulting arrangement, but now it sounds more like you're making direct investment and will be directly running the restaurants?

Some of them we will, we're hoping to be a coordinator for other restaurateurs who have interesting concepts that can up the game at Easton. There are 52 food service providers at Easton with 30 million people come in a year right now, so the retail and the restaurants. As we said, the restaurants are dull and pretty much uninteresting. So, the Easton owners are trying to up the game. We don't think we can do that on our own, but we need to seed it with better architecture and design and better quality products and concepts. So, these first three are really to do that to show other restaurateurs that they could be highly successful in that environment and take advantage of our management team to help them open up restaurants and provide them with HR purchasing and other aspects of restaurant operations that they might not be capable of doing in Easton because they're used to being in their own environment and never traveled with their restaurants before. So, yes, it's both. We've always maintained it's both, but if there are 20 restaurants out there I don't expect that we will own more than five or six, and the rest point ventures or licensing deals or who have something other than us having direct ownership. The capital we're spending is not significant in relation to what Easton is providing. I think at any given time for any one of the restaurants that we have ownership in, we're only going to have about 30% of the capital commitment required to open the restaurant. So Easton's being very generous.

Great, well, it sounds like you're in an excellent position there. Just one last question on the minimum wage, is there another step up in the current -- in the coming year and to what extent do you expect that to impact your operations specifically with respect to the EBITDA generation of the New York restaurants?

So you know there is no legislated step-up coming. The real question now is whether a liberal democratic control legislature New York State decides to get rid of the tip credit. Now, right now the minimum wage in New York City is $15 for all workers, but we're allowed to use $5 of the tip credits of the tip that our tip employees receive $5 an hour towards the minimum wage. So, essentially, you're paying roughly $10. If they eliminate tip credit and say, hey, you know, these people that are making $40 to $50 an hour shouldn't have to contribute some that $40 to $50 an hour toward their own minimum wage, that would be impactful in New York probably cost us in excess of a million dollars. Not to put somewhere around a $1 million or $1.5 million. Whether you can recover that with price increases I want that you could. Again, pricing in New York is in a bubble, I go to restaurants other than our own, I am amazed at what people are charging and those restaurants if the concepts are right you still get the same call it answer when you go for a reservation. We have time at 5:30 and time at 10:30, it's crazy. And Bruce is a New Yorker, I think you know that. We have an umbrella of safety in terms of we think we're more efficient than most restaurants and are buying. We have 40 years of experience. We have managers who've been with us 30 years. They watch every dime. We're conscious of how to be efficient. So we always have been kind of feeling good about our pricing. We recently tested some price increases in Bryant Park where I just said screw it, I’m going up a little…

Our next question comes from Robert Nyder a Private Investor. Please proceed with your question.

Hello, you had mentioned that at least as a general comment that Atlantic City might be suffering from some new competition. How does that impact our presence in Atlantic City?

Good question. So, we have in the Tropicana a burger bar that is suffering a little bit as Tropicana suffers. We're still profitable. We have still significant term on that lease. We've not gone back to try to renegotiate that lease because I think everybody, all the restaurants are suffering and I think as other restaurants start to talk to ownership maybe we will have an opportunity, maybe we will have an opportunity to talk to ownership. But it is not and has never been a significant contributor EBITDA for us. So, we continue to operate there and make a few hundred thousand dollars a year, but it has never been a significant contributor. I might point out that when we took that lease, the tenant improvement allowance from Tropicana was significant, and we don't have a lot of capital tied up in that. Resorts, we operate Gallagher's steakhouse, that lease terminates in February.

March 31.

March 31st. Thank you Anthony. We have signed an extension for one year of that lease at a very favorable rent. We will be profitable. Again, it's not significant impact on EBITDA. It hasn't been for a while. It used to be, but resorts are very committed to keeping Gallagher's there, and the burger bar that accompanies it. So we're in good shape there. I don't think there's any reduction in the EBITDA contribution that those two properties inside resorts will have at current EBITDA profile that we have mapped out. So, we're doing fine, but in both cases, especially in resorts it's a renegotiated lease for a one-year extension. And in Tropicana, we're going to suffer a little bit, but not significantly.

[Operator Instructions] Our next question comes from Jeffrey Kaminsky with JJK consultants. Please proceed with your question.

Hi, Michael, thanks for taking my call. Congratulations on another strong quarter. A couple of questions I had are already been asked and answered. One was on Ohio. The other one was on Clyde's. But a few other things, I'd like to get some information on. You seemed a bit frustrated in your commentary today on Meadowlands. One, the comment you made was about not getting a distribution you would hope to get. And obviously, legislation in terms of gambling is a long process, but probably longer than we will be hoping. We hope that this resolved by now. Where do you stand in terms of that? And then secondly an unrelated question, I will ask about the same time. You just mentioned in your commentary something about the delivery services are starting to impact restaurant performance around the country. If I'm not mistaken, you're now considering sticking a toe in the water in terms of deliveries, perhaps utilizing excess capacity. If so, I was wondering how that's coming along?

So, let me answer the second question first. I'm more concerned about delivery, not in terms of customer counts for our restaurants. Our locations in New York, Bryant Park, Robert especially our unique location, the density around Bryant Park provides more demand than any restaurant deserves to have. So, delivery services at Bryant Park, impacting Bryant Park is not even on our mind. What's on our mind with delivery services, the pricing that restaurants that do delivery what the customers getting at what price point and how does that impacts elasticity, in our own menu pricing. So that was that comment. Robert again, that's a unique stage to those of you who haven't been to Robert, it sits on top of the museum of art and design on the ninth floor with amazing picturesque views of Central Park and you know the upper portion of Manhattan. So, we don't think we do delivery services. Clyde's, we do some delivery for some reason. It just doesn't take off. Rio Grande, which we do some delivery we do pretty well at Rio Grande with delivery. But again, the margins for restaurants on delivery are not that great. And when you talk about excess capacity, we have no excess capacity at least in Robert and Bryant Park. Much of the time we don't have that excess capacity in Rio Grande. So, the idea of delivery services is take excess capacity and say, hey, you have a labor force there any way you need a chef whether it cooks one hamburger or four. Use that guy more productively let us deliver for you. But delivery services charge 23% now, on average, I think that's the number unless you make a universal deal, like Dunkin Donuts or something. But if you're an individual restaurant, and…

Yes.

Yes. Look, we think the odds of this happening are very, very good. We thought that when we made the investment some four or five years ago, we thought the timeline at that time would be five, six years we were surprised, when a referendum was introduced in the Jersey Legislature, the second year of our having this investment that referendum failed. As you know, that has to be referendum passed by the legislature and then voted on by the public to change the New Jersey constitution to allow the gaming in the north. I think the telling sign year is that the Meadowlands is become I think the largest sports betting venue in the United States. Not that every state has sports betting but right now we're doing $10 million a week. It's more than all the casinos in Atlantic City put together. And yes, and Anthony makes a great point. The online that goes through the Meadowlands website is far greater than what we're doing on site. So we're well above a $1 billion in sports betting attributed to the meant the online site of the Meadowlands and the onsite betting at the Meadowlands. So, I think that's a good indicator where we can see how it should land in New Jersey. The other thing about the Meadowlands that's a great advantage is that the building exists. It was built to hold the first phase of the casino operation. Hard Rock is our partner. They have a license to do gaming in Atlantic City. So, they're not going to have any resistance to a license in the Meadowlands, if it's permitted as a casino license. We don't -- every other site will be a site where there has to be engineering done and an environmental studies will have to go through townships or cities approvals there're sure to be advocacy groups against it. The Meadowlands is this huge area that doesn't have any residential around it. So, the ease of getting into operation should be very attractive to a state that's in dire need of additional funding. The studies that have been done by MGM and Hard Rock indicate that this could be one of the busiest casinos in the world if it's allowed to happen. You could be giving New Jersey more tax dollars based upon projections than the seven casinos in Atlantic City put together. So, yes, I think this is the place we will see, but I don't think anything is going to happen until downstate casinos come to New York.

There are no further questions. At this time, I'd like to turn the call back over to Michael Weinstein for closing comments.

Yes. So, I think this December quarter will start to be telling, the March quarter should be really telling us how we're doing here. But we're very optimistic and excited about our current business and what we see going forward especially in Ohio and JB's and the improvement in Sequoia. I think we're on a good path here. So, thank you. We look forward to speaking to you after we report the December numbers. Have a good holiday everybody.

This concludes today's conference. You may disconnect your lines at this time and we thank you for your participation.