Q3 2020 RCI Hospitality Holdings Inc Earnings Call
[music].
[music].
[music].
Greetings and welcome to RCR Hospitality Holdings conference call and webcast at this time all participants are in listen only mode. A question answer session will follow the formal presentation.
This conference is being recorded it is now my pleasure to introduce your host Gary Fishman, who handles investor relations for RCR.
Thank you Rob please everybody.
So apologies for the delay we use obviously using third party you can do to shut up.
And then we'll do our best to prevent us from other happening again.
Thank you for those of you listening to this call on the phone you can find a presentation on the RCR website.
Accompanying investor information just under the Rcs logo that will take you to the company and Investor interest page slow down a little debt.
All the necessary links for this call.
Turning to slide two and want to remind everybody up our safe Harbor statement. They sit at the beginning of our conference call presentation.
Hi, Andrew There you may hear we see forward looking statements involve risks and uncertainties I heard your read it.
Actual results may differ materially from those currently anticipated we disclaim any obligation uptake information disclosed on this call is a result of developments we put afterwards.
Please turn to slide three fourth of July future, the explanation and non-GAAP measurements that we use.
Keystone traditionally <unk>, president and CEO of RCR hospitality Eric.
[music]. Thank you for joining us today.
Here with our CFO, Bill Marshall and our controller Bradley shape.
I hope that everybody in their loved ones have been able to get through this pandemic, so far and that youre, calling all the safety recommendation.
After market closed today, we reported our third quarter results for the period ended June Thirtyth.
Total revenues were just under $15 million.
Keep in mind all of our locations remain closed in April and the beginning of May in a limited number we're able to stay open during the balance of the corridor.
We had a net loss of $5.5 million for 60 cents per share.
Looking at operating cash flow, we were slightly positive. We ended the third quarter 20, with almost $15 million in cash and $5.5 million and accounts receivable and couldn't large income tax receivable.
Operationally bombshells was the star.
The segment generated record revenue in May and June and quarterly operating margins that exceeded our original targets for all 10 locations.
Nine clubs that were open.
Performed well considering the environment.
Most of our nightclubs had to operate as restaurant with entertainment instead of our standard night club procedures, requiring all gas to enter to eat food in order to be able to partake in drinking or entertainment to give you an update on how we're doing in the fourth quarter, we generated $7.6 million of revenue in July.
We have 31 locations open today, our subsidiaries have been able to bring back about half of art their team members. After his extensive furloughs in March.
After more than five months, we have become more competent how to manage our business in finance is three to panda damage.
We have been agile innovative and acted quickly we believe we have made the company more resilient.
No cash flows are not as we anticipated at the start of the fiscal year. The near term outlook for our business remains strong we expect to generate adequate cash flow from operations over the next 12 months.
[music], please turn to slide five.
It's important to understand the progress we've made over the course of the quarter.
We have become very adept at.
It's very very adept at opening locations clothing that was necessary due to change the state local government regulations, and then re opening them, if we can well keeping cost as low as possible.
While the number of open locations fluctuated over the course of the quarter monthly sales went from virtually nothing in April to 5.7 million in May to 8.9 million in June.
We have achieved this performance, while falling all mandatory health and safety regulations, including math, social distancing occupancy an hourly restrictions.
And we have developed effective ways to serve our guests and our market our business in this new environment.
As a result, we've had no problems attracting customers lines are common to get into our locations.
We are expecting a steadier flow of business during operating hours compared to before the panda damage.
A couple of our club actually posted year over year sales increases during the months they were open.
I've heard of a slower July 4th weekend. These trends have generally continued into the fourth quarter.
Please turn to slide six.
The bombshells team has done a terrific job under extraordinary circumstances based underperforming starts starting in may.
We're operating in annual revenue run rate of $40 million to $50 million. That's in line with our goal we set out earlier this year for having all 10 locations open.
Hi, I'm, particularly pleased to point out that are operating margin get 22.3%.
It's exceeds our 18% to 22% target range I'd also like a note. This achievement was Reese, while incurring fixed cost relocations closed in April in early May.
[music], please turn to slide seven.
[laughter] during the quarter, we were able to work on some of our longer term strategies I'm talking about selling excess land at our own bombshell sites and using the proceeds to pay down debt and increase the potential return on capital invested.
We completed this during the quarter for Bombshells I 10, we sold off the second half two available parcels for about $1.5 million. This is after selling the first parcel for close to a million dollars. As a result, we reduced our bank debt on my 10, there we have and our total investment by more than a third.
Please turn to slide eight.
I would like to go over a few remaining items in our statement of operations.
Cost of goods as a percentage of sales were higher.
Due to a greater proportion of food.
Salaries wages and asking they dropped about 50% that's reflected cost cutting partially offset by month of no sales and added cost to protect customers and staff from covert at our subsidiaries and offices.
Other charges reflected $1 million of additional noncash cobot related impairment.
This indicates we got most of it right in the second quarter. It was particularly are probably partially offset by a gain on the sale of the bombshells I 10 parcel.
Bombshells had nearly 2 million a segment operating profit.
Nightclubs had a $3 million segment operating loss, what about two thirds of that noncash.
Interest expense was lower due to pay down debt pay downs prior and during the quarter.
There was a tax benefit versus expense last year.
The weighted average number of common shares outstanding declined 5% due to repurchase shares in the third quarter.
Please turn to slide nine.
As you can as you can imagine we're very focused on cash generation in use as I mentioned, we ended the quarter with $14.8 million a cash.
Excluding the S. The a long long term debt declined to $137 million. That's the lowest has been for some time.
Current liabilities at 33 million or in line with past performance.
Please turn to page 10 for that Pie chart.
The key point that I'd like to communicate is the 85% of our data secured by assets such as real estate three of our clubs and equipment.
Looking at the unsecured fortune, 4% of the total debt if the FDA alone.
This has the potential to be completely or partially forgiven and 2% is the Texas Comptroller settlement.
So less than 10% is unsecured and the traditional sense.
Please turn to page 11.
As we reported during the first half of the fiscal year, we moved or have converted about 11 million a near term non real people and <unk>.
The out years.
Or two amortizing loans to give us more flexibility.
We have continued this strategy in the third quarter, we were deferred approximately $2 million in bank debt servicing in July we deferred the payment of $2.1 million in debt due to the.
We do in the fourth quarter.
For additional flexibility under the bombshells build strategy, we have one more parcel under contract for sale.
Contract to sell and for parcels, Mississippi, So [noise].
Turning to page 12.
He's our capital allocation strategy slide.
Most of this is how we looked at the world pre Cobi.
We put this in here to show you that using excess cash to buy back shares. It's still part of our core strategy. We're currently looking to grow cash on hand to more than $15 million, then we'll be able to pick up with our capital allocation strategy as we have been doing for the past five years. This will continue to be our way of allocating all excess capital.
For the foreseeable future.
When more locations are allowed to open text or larger South, Florida, or New York City clubs, we believe our cost structure and marketing to generate greater free cash flow with even with potential covered restrictions.
Turning to slide 13 to recap we believe we have made the company and its operating subsidiaries more resilient over the last five months acting quickly and with agility, we have significantly reduced our cost structure and cash burn we have retain key personnel and rehired many fellow team members.
We have also a lot of comp gained a lot of competence and become a lot more comfortable managing our business in the age of Coke, we have learned how to safely open close and reopened businesses.
We have developed effective ways to serve guest and market our business in a cobot safe manner.
We have achieved important sales and margin milestones with Bombshells opened clubs also did well, giving all given all the challenges and we're continuing to pursue long term strategies.
And the final analysis, we ended the third quarter 20, with a small but positive operating cash flow and ample staying power in closing we would like to give a special thanks to all our team members I know I caught up bombshells earlier, but our nightclub teams have done a terrific job also everyone's efforts hard work long hours and dedication has been unbelievable you were arc.
It is greatest assets.
Operator, let's open the call it the question.
Thank you at this time will be conducting a question answer session. If you'd like to ask a question. Please press star one on your telephone keypad <unk>.
Confirmation tome indicate your line is in the question Q.
Hey, Prestart too if you like to remove your question from the Q.
Corporate expense he was a speaker equipment it may be necessary to pick up your handset before pressing the star keys, one moment. Please poll for questions.
Our first question comes from Greg Pendy, what's the Dodi. Please proceed with your question.
I know bombshells, you've been learning as the process. There's a lot can you kind of give us any insight into why you think the margins where even above your expectations. Maybe some initiatives that you had put in place in the past paying off a little bit more or you just a little bit of color on that.
Well, we always said once we opened all the locations and we didn't have all the preopening costs that are margins were going to be much better Oh, we never separated out preopening costs. The bombshell segment, because it was a small segment of the overall company.
So that's that's a part of it the other thing that we're seeing.
He is.
With so many other locations closed.
We're getting the business or and if we used to have peak times in peak hours and pretty much you know we've got a nice flow all day long now and still have our peak times that were seen.
More customers and they're staying longer or you know bombshells wasn't meeting greet play. So you come in in the evening and yet you know you have your food in your your appetizer and a couple of drinks and then you go someplace else finished your night drink well since the someplace else is an opening open anymore.
We're seeing those people stay a bombshells and spend even more money.
<unk> is actually becoming.
Even more popular because of it.
Right. That's helpful. And then I just one more thinking about you guys mentioned, but sort of a difference it behaviors of the 40 and Oh under 40 in over 40 crowd any changes going on on that.
I think what Matt I think people are our billing safe to come out again with everyone wearing masks I think we're seeing a a much broader.
Customer base, especially at the clubs or the clubs or are doing much better with Oh with an older. Clientele. Then they then they were pretty or you know everyone worrying mathematic mandate, especially in Texas.
Hey, that's been a big how force and of course, that's a majority of our business. They're open now in the state of Texas, Oh, We have Texas, Illinois, and a and Minnesota right now are basically only places where operating.
Okay, Great. That's helpful. I'll give some other people at another chance congratulations on the quarter that's alright. Thanks.
Our next question is from the Dean Perlman <unk>, a private investor. Please proceed with your question.
Hi, guys, great job managing through this very difficult.
Period, and I want to go back in time, so what I, what I think about your your 2015 2016 time period.
Which is when I think you a institute in starting to implement your capital allocation policy and got aggressive in your share buybacks. The company was very different you were doing something like 127 million shales EBITDA was 34, you're earning about a bucket share and bombshells was nascent it made one one.
$9 odd today very different much better business, although we have this temporary disruption. So obviously you know $200 million watch those targeted sales and free cash flow earnings power, probably four to five bucks.
So you know given given that set up and you know given where the stock trades.
30%, maybe even higher free cash flow yield is there anything you can do to take advantage of it you know while those are the facts on the ground well when the market doesn't give you the credit for what's obviously been very resilient and very healthy business.
Well I like I said, I think we get Florida in New York opened that's kind of drastically changed.
Or if we just get together some of the other cities that were open.
You know Charlotte Phoenix.
Are you know some other states.
Pittsburgh, Chicago, we get those locations open Oh, yeah, that'll that'll change our cash flow basically I think our run rate right now is probably cash flow neutral at about 1.8 million or so so 80 or I mean 90 to 100 million, it's kinda cash flow neutral as we get the 2 million plus range, we start having positive cash.
Hello, and we'll start increasing our cash on hand.
Per week doesn't for weeks that numbers I'm sorry.
And then so basically once we can grow our cash on hand or to 15 million plus a you know we're gonna be back to having Uh huh.
Excess capital and will be a applying it to our cap allocation strategy. If our stocks are trading at these prices that were that's all we putting that if the if the if the stock a recovers here and people start to understand that.
You know our businesses aren't going anywhere when we open we are immediately starting to see.
Our customers come back, we're seeing new customers come in.
We're starting to you now that I think a that's been on what goes on with the the unemployment situation I think we're going to see a more new hires a as we continue to grow when expand.
At our existing locations.
It's really going to depend on who's survives I think this is ER is definitely a survival story right now for a lot of these.
You know smaller operators out there a and if they for some reason don't survive restaurants, I mean, we've seen a lot of restaurant closings I'm, saying, they're never going to you know, they're not going to reopened a and so if we can be in a position to take advantage of that or maybe find you know properties, we can lease fan and re.
Retrofit cheaply because they were already full full service restaurants, we can expand bombshells that way. We can also look at a you know acquisitions from clubs that are that are coming online right. Now I think in October going out to the Gentlemen's club owners Expo I've got a lot of meetings set up with a lot of club owners to be.
Talk about their future of the industry the their future in the industry, a and and basically how they can monetize thereafter, they decide they don't want to be in the industry anymore.
So along those lines a lot of opportunity.
That's a that's super helpful and agreed at all on all fronts, along those lines quick follow up what how do you think about the hurdle rate for making investments like what you dispatching either buying distressed clubs or buying clubs.
Cheaply or you know investing in growth bombshells to retrofit Newbuilds, how do you think about that versus the opportunity cost of deploying capital. It through the stock at you know I returned a you know exactly what it is.
Yeah, well basically one at least the two times I think the parent high risk a you know I'd Wanna three times cash on cash so really going to depend on that's why the franchise model for bombshells. This whole appealing to US right now we are.
Talking with them different groups about franchising and different areas around the country right now I think as the numbers are coming out. So people are getting are going to get more excited about the bombshells opportunities or we've had I guess you know just people that have been into bombshells a in the last couple of months here in Houston.
From out of town or from wherever they call them said, Hey, I want to see about opening one of these and and my city and so we are getting those calls now and I think I said at the numbers become more public we're going to I think we're going to continue to get more color in that regard so that'll help with us, but I think we need a two to three times hurdle rate or we've always.
Two times, a if it's if it depend on the risk I mean, I'm going to assess the risk or.
Risk reinvestment in our own stock is is at those high returns that were getting right. Now you know we if we use the 30 million run rate, which I think it's probably low now once we if everything was open a based on what I'm seeing out there and based on some of the restaurants, but you know chains and stuff that aren't going to reopen that there's a lot less.
Competitive there's less competitive market in the overall entertainment market right.
Vance can't go to basketball games in football games in baseball games right now so all that disposal income that was being spent on those types of entertainment has not been spent on those types entertainment. So we're seeing those people who would go down the ask those games come to Bombshells and watch the Astros game a lot more I think we're gonna see more of those people visiting the that.
Clubs and hanging out you know hanging out of the clubs to maybe pick up the game and hang out.
I guess I'm get some food and drink and hang out with the girls or the clubs as well that's that's what kind of what we're seeing right now. So if that continues as we move forward for however, long you know there's less competition. There's no concerts, there's no. It's just amazing that all the all the entertainment choices that used to be out that earn out there right now I think that's kind of have.
A very positive effect on the company as we move forward and get open.
Thanks, a lot and had off to the team for their great job navigating this makes a lot.
Thank you.
Our next question comes from Douglas Weiss with DSW investments. Please proceed with your question.
But.
Can you talk a little bit about.
No I think as as I think you as was expected the surface roughness.
Pretty low right now you just talked about kind of what what has happened before.
Those are up and start to come back.
We have to get more locations open I mean, that's that's just the reality of it.
A lot of the clubs, where we're not really trying to cover charge were making you buy food instead.
So those so our food revenues are going to be up but our cover charge is gonna be down so our food rather be up a service revenues, we down a little bit.
Yeah, there just different it's just a different model right now in this cobot environment, So I'm not really concerned about as much where the revenues.
Our hitting as far as a category service food liquor whatever I'm really concerned that we just have the revenues.
Right now, we'll probably have to iron the rest of it out yeah as we move forward and we've got to get our big locations up we've got to get open in New York, We've got to get open in Florida, a Chicago Pittsburgh, Arizona. Those those are the those locations that are that are really the affecting that service revenue right now.
Okay.
And then on.
Well the impact on a sort of greater day, a week to week basis from.
<unk>.
Okay, and then obviously.
I guess would be the that market.
I'm very sorry.
Yes. It does it's like the first two weeks of July or we're very trying or you know again remember at one point in June we had 40 locations opened a week later, we had 29 I think we got down to low 23, or 24 locations and then ER as of today, we have 31 locations open so.
Yes, we are seeing that in fact, we voluntarily close if he locations.
We would have an employee.
That reported a positive task, we close the location for three to five days.
Get all of our employees tested we are paying for rapid testing. So that's some of our cost increase as we pay for rapid tapping. So we can have an instant past results for our employees.
If if no other employees test positive once we've you know once we're comfortable that we have enough you know negative tested employees to reopen we'll get that well get the location reopened well, it's come and gone with those types of things, but basically we've been very quick to react anytime.
We've had incidents isn't our actual businesses I think in last five weeks were down to zero instances in our in our established once I think the mask on both sides of really help I do believe the one sided math, we're an issue and only our our employees were warm asked from day, one, but we were not requiring of all of our customers.
Now that all of our open locations required of our customers I think we've we've kind of.
Put a public watch on on having a real issues at our locations now.
So I really it's about the fear right if they create a big for your Packer media creates a big fear.
And people start to stay home a little bit more it I'm seeing that on about a two week cycle news cycle right like a new cycle. The new cycle. He had been slows down a little bit new cycle gets old people come back.
And that that's really what we what we've experienced a three Jim a the first week of August has been one of the biggest weeks we've had other than the third week of June when we had 40 locations open.
So I'm very optimistic going forward right now provided that you know people follow the safety.
Recommendations, where their mass then and ER and stay away from large groups with where people aren't wearing masks and our aren't falling social listening thing and that that's a we can keep the new cases that a low and get everything back back open.
Right.
Okay and last question what.
What do you see happening with your competitors, Yeah, I'm sorry go the clubs are they kinda hanging in there or or other clubs trying to you know some some of your competitors talking I got on the clubs that.
I I think we're seeing a little bit about I think you're seeing some guys that are out there working hard hustling trying to get open I think you've got guys in certain states, where you know nothing that's open or they can't get open.
That are that are that are very they're struggling a and I think someone making some won't oh.
We're watching for that or you know, we're gonna we're gonna look for opportunities.
That we think you know play right into our long term for she strategy.
And ER and go from there I think October will be a real telltale sign for us as we.
Lots of conventional we see who's there and we see what they're saying I mean I talked to a lot of guys are around the country a pretty regularly like I said some are doing very well. So we're not a multi club operator today that I know very well that Oh, we have five locations of is 19 locations opened and Oh, he struggling to make ends.
Me, but but so far he's you know he's he's making it a I think that's in any business not just our business I think you're seeing it in the restaurants I think you're seeing in a gems I think you're seeing it.
In the hair and nail businesses, they've seen a lot of Ah Ah.
A lot of companies that were on the border that are just gonna give up I hope that a that you know most people can survive this and no, but we're going to be a we're gonna be ready to a you know do what's best for our shareholders and our company.
As opportunities present themselves to it.
Alright. Thanks.
Yep.
Our next question comes from Steven Martin with Slater. Please proceed with your question.
Yeah, I know I know it was impossible to calculate comps.
For the quarter.
When you look at it.
No on a weekly basis or a monthly basis.
For the units that have stayed open consistently how would you characterize your comps.
I would say most the bombshells are up 30% to 40% year over year.
But I can give you a particular club in Houston is up about 100% year over here.
Its amazing sell the clubs are down 20, 30% a bit but they haven't been consistently open now that's the real the real trouble as we've been very few locations have been consistently opened they've been open for three weeks closed for two weeks open for you know back open again, and we've had a consistent.
Yes.
We opened as clubs Oh, no. If you can't be a club okay. We got to close back down we close that down we study our licenses, we said Oh wait we have restaurant permits well what do we opened at a restaurant that has entertainment we start serving food we make every customer by food in order to be in the building you can't you can't stand at the bars you can't you know how can we become kobin comply.
Fine so to speak with their new regulations.
And that's really what we've done and that's I think that's what we've done a great job over getting 31 locations open is that we've looked at the rules and said okay. How can we follow these rules.
And can we follow these rules and be open end still and still make money and still make or at least make enough money to paper pay our fair employees and keep people working we really in the beginning started out just trying to get people working again I mean, we had 2100 people that we laid off.
Plus about 4000 entertainers that a contract with the company some got unemployment some didnt get unemployment or I mean, it was a math.
And so we try to do our best or to get people back to work first and then as we got people back to work. We said, okay. Now how do we make money because that's when the business worth to make money. So how can we how can we do both.
And that's really the those who are to a kind of marching orders get people back to work, Okay now, let's figure out to make money.
With what we have.
And I think you know as the quarter shows we did a very successful job with that if we can continue this through this quarter. This is gonna be a profitable quarter for us.
And I think as we move into October November December hopefully, we're open across the country and we're back to our normal deal typically when we Havent downhaul, we have two off quarters, and then we get back to normal and I'm, hoping that that's kind of what we see with this we have our off quarter and then you know maybe next quarter is off just a little bit and then hopefully by that first quarter of 21.
October November December because one of fiscal that.
That we can get back to more normalized.
Run rate.
So I'm focusing on bombshells for a second.
You said, a 40 to 50 million dollar run rate with comps it bombshells up as much as you said shouldn't that be the upper end of that range.
Oh, Yeah, I think right now we're probably.
Closer to 55 to 60 million a if we could get we can duplicate the last two months for 12 month period.
We included April in the run rate because April but April with close to what has your revenues.
Uh huh.
I think we're gonna get a really good idea of what bombshells can do if we can keep all the locations open for this 13 week period, a and that's really what we're trying to work for we do have one location. That's currently closed we haven't litigation going on.
With the a state of Texas on that location.
They're saying, we're BARDA, we can't operate as a restaurant a I think we have a hearing date coming up in about eight or 10 days. So hopefully we can be successful at that hearing to get that location back open here shortly and they'll have all 10 locations opened so right now we're operating on nine nine of the bombshells locations.
All right and with respect I know you you had put out that you want a court ruling on the Texas patron tax.
Where does that stand and what are the ramifications going forward.
Well right now that case is again.
Appeal if on appeal.
The court of course with cobot as extending a million months for everyone to answer a so that case going to be on appeal for quite some time. We're in the process right. Now we were not paying those fees may because we just didn't have the money.
And we didn't want to give up the money we have not paid several of our taxes were in the process right now negotiating that settlement for the two quarters that we didn't pay a will probably pay that tax on a go forward basis until such time as the Appeals court.
Moves forward. Originally you don't plan was to not not pay it because we thought we'd have an answer on the appeals court before collections would start that just didnt because of called me that just didnt happen that the courts are not moving in a normal timely manner.
So we had to rethink our strategy there.
So we're going to.
He paying that tack on a go forward basis until such times Appeals Court rules minimal obviously try to get our money back for pain under protest.
So we have a REIT to 100% refund a if were successful in the Appeals court and what what are the what are your estimated around what did what's the estimated amount you are going to pay or on an annual basis that you may not have to pay in the future.
Well.
Pretty cold weather it was about.
$2.6 million to $3 million annually.
But with cobot, it's been totally inconsistent right I mean clubs are open their clothes are opened their clothes or so I can't tell you I think.
This quarter patron tax $180000 or something wasn't much two quarters or about 600 somebody at the yeah. Yeah, well we were open most first quarter, so probably for something in the first quarter and 180 something in the second quarter.
Alright, Thanks, a lot.
Yes. Thank you.
Our next question comes from Adam Wyden with ADW capital. Please proceed with your question.
[noise], Hi, Eric a terrific quarter and.
Well this is or not not surprising you invested 20 plus years in your life to create a a flexible platform to basically a survive any environment, including a global pandemic. So Ah you should give yourself and your team of Pat on the back in terms of Ah the operating or.
Results in it it looks like.
It's up bumping away from here and what we're we're very happy to have been able to acquire almost 10% of the company in this downturn and we look forward to Ah what's to come we think that there's a.
Many multiples of our money here many years account planning ahead, but a couple couple housekeeping issues here. So just building on what Steve said you had this one bombshells close you're Comping 30 to 40, we're reading articles that there why they're out the door with 50% occupancy so when I parse the numbers you did about a 22%.
Operating margin with with nine clubs.
Start with nice Bombshells opened at the end with the entire month April or with the entire month of April being closed and then some off at all but you know opened in closing and you know kind of whack a mole now as it looks in Texas. The numbers are way down it looks like you'll get the 10th bombshells older than you know when I when I kinda.
On the math it kind of feels like with all 10 10 Bombshells opened you guys are running a maybe 60 million of revenue more but more importantly, the operating margins are looking closer to like 30% not 20% now you know who knows whether we can sustain 30, but I think it's fair to assume we could probably sustained 25 or given.
In kind of what we're seeing in the market for other types of.
Sports bar concepts I mean, you've got an acid in there that's doing 15 million to 80 million of EBIT and.
Well look at this will be a little bit like Forrest gump buying up you ever seen that movie workforce takes the boat out and you can't catch any shrimp and then all the all the bodes aircrafts in to the docs and it comes in if you kind of Dan and catches all the shrimp and Golden puts into a food company. I mean, you got 35% table service restaurants in small restaurants closing.
You've got the only game in town lots of other things aren't close I mean.
It's it's entirely consumable that you could have a 20 million EBIT asset.
Im show I mean, and then you know if you think about you know more capital than people to buy these things I mean that could easily be worth 200, a 400 million depending on how you think about you know multiples I mean, it's pretty incredible the stock is trading here, you've got all ties short interest in the company's history.
You know you have no corporate level debt number the absence of cross collateralize I mean [noise].
What do you think is going on I mean I. It it's like border line in the same you know the the short interest and the market valuation relative to just the sole value bombshells.
You know Adam I think the you know we've always been misunderstood as a company people just do not understand.
Our business they they say all your the strip club business, we understand strip club business, but they don't understand is we're in the real estate business. We're in the restaurant business. We're you know we have a lot of a lot of businesses that comprise that adult entertainment business and you know our real estate equity has been a huge source for us.
We now what too you know since 2017, a prior to 2017, we can tap that but now we're able to we're setting up our next three five we're going to take all of our non.
Basically bank finance properties, and and even some of our newer bombshells properties, we've sold off as additional properties.
And roll that into another refinance but on a new 20 or loan.
And and save US another 1.4 million, a hearing and and cash on data.
Let me separate question I mean, just looking or bombshells right. If you guys can do 25% margin 20, well, you're really probably didn't close to 30 or 60 million. That's before do you open up any more locations enough before you consider franchising. So you've got this mismatch between the value of the company right you've got you don't.
The value of equity in the real estate, you've got strip clubs, which are arguably worth a lot right. I mean look at took these man you opened it up I'm here in Florida now with my wife inside I mean, there was a wide around the block with people used to go to tootsie that nine PM and there was Danny.
I mean, you will be short sellers on Twitter, saying you know they had this book email short thesis there was this kid who worked itself.
He was buying <unk> put option contracts and saying Oh, my God knows ever going to go back to a strip club I mean, that's not that's worse, that's what's the newer read the minute you opened today there was a lot around the block right. So like it's ridiculous to say that need trip clubs don't have any value I mean should not see it used to be like a cosco or something I mean, nothing is probably what 30 40 50 million.
Just as real estate, you're not getting any value.
So my question do you is if I told you that you could you know so a small thinking in bombshells, who will walk into a franchise partners. They shouldnt, we're going to value. This a 200 million 300 million whatever it is and we're going to sell yard and 20% that can give you a ton of cash to don't buy.
You know a ton of shares in the strip club knowing that you can probably gain a strategic partner to help you roll out you know rollout Bombshells me think about it you know.
420, Hooters in United States right now right how many military bases do you think there are in United States. I mean, we could have a bombshells on every military base right and why not yet a strategic or financial partner to take bombshells nationwide well you know monetizing in allowing you to repurchase shares in the holding company mean, there's so much you know you know operate.
And flexibility that you're.
Right you have these knuckleheads on Twitter, saying, no number going to come back I mean people are coming back I mean, it's just a question no I mean, how do you think about doing some strategic with bombshells.
I mean, we you know we're we're always open to all options on Bombshell. That's always been yeah. We started at least we weren't really sure. We're gonna do with it when we're hoping to expand the multiple of the whole company ER and like you said I think we've created something that's worth the bombshells concept standalone is probably worth more than the market cap of the entire.
Company today, a and we said at some point, if we cannot recognize that value that we would find another way to monetize the value of bombshells or you know I don't know if that's right now, but I mean, we're always open we're going to listen if somebody had a proposal we would sit down and look at it we're not looking to sell it cheap we're not.
We're going to given away because you know it it's the Golden Goose right now and I think we're going to find out franchisees. Soon we've been we've been in negotiations before or in the past with smaller guys would now we're talking to what I think are what I call real operators restaurant operators restaurant franchisees.
ER that are not only how the capital but have a knowledge in the past we got guys with capital don't have a knowledge Weve got guys with the knowledge didn't have the capital a and I think for the first time.
We're actually talking to to both they have a capital and the and the knowledge a and were opened I mean, what do we take a partner to help us franchise and that has done it before of course, a weve, we'd love to sit down and talk with somebody who can present us with a plan that's win win for everyone.
Hey, you know what are the same time, if not we're going to figure it on our own like we always do.
They take us a little bit longer so we can speed the process. We're interested in that there's actually value for our shareholders and for the company.
If we can speed the process up little bit with right partners. So let me ask but something why okay. So like just looking at bombshell looking at Hooters right now.
We have three 400 bombshells now I'm, not saying you're gonna go build them yourself, but I'm, saying intuitively you've got tenant was running at like 30% margins right. Maybe twin peaks goes out of business, maybe little goes out of business. The concepts are kind of crap. Your food is good you got the like concept I mean, what you know every.
I think every number works better right. So I think in real life.
I think people got to realize a bombshells, there's not a hooters or twin peaks. We are a cross generational cross gendered like everyone comes there people bring their kids. There. We are a a you know female friendly I mean, our family friendly restaurant, Yeah, we have some girls, but our girls don't.
They don't want their stuff all day long, we might get a little risque. After 10 P.M. at night, but we're not quite so risque during the daytime or you know other than during themed weeks. We do have been weeks in the summer and whatnot, where we get a little more or risk and competitive and weekend, we cater, but basically our twin peaks hooters customers only 20 or 30.
The percent of our business.
The restaurant business.
<unk> customer base. So if you just in a vacuum assuming you had the right strategic or operating partner in the my balance sheet to execute against it.
Any reason in your mind why this couldn't be 300 units I mean is there any though I think 300 300 was our initial 300 was our initial target or we can do 300 300 bombshells units in the U.S. without much overlap.
Yeah.
Right I mean at this point, you've got proof of concept I mean, you can partner with the private equity firm or someone who's got insane ability and you. Just can you can is monetize the IP in the concert that you've built its absolutely incredible. The fact is missing trays weren't trains I mean, it's almost criminal I mean, I always gonna say myself.
Why wouldn't you sell 110 or 20% in you know a stake in bombshells the buy back half the company I mean, why do you have been local has on Twitter your short anything you'd like mine put option tweeting I mean, it's that's respectful I mean, even less than 25 years or what building this thing and and and the value of your real estate equity is worth more near term work.
<unk>.
I don't know the real said it was a habit is pretty close.
You know it's a it's it's just what happens I guess with a you know.
With this code thing people just Miss judge.
What our business model would be like after the fact and I think or you know hopefully they're gonna are going to start realizing Uh huh.
That that as our business model is still solid that people are going to come back of the clubs that they're not you know maybe where in a mass.
But you know as long as your eyes work I think you're still in pretty good shape coming to strip club.
Let me let me ask you something so you've seen Texas cases go down you've seen Arizona go to zero effectively right. You know what this two sided mass market place you get the two sided masco in your good no getting called <unk>. The two sided mask right and you got market for indoor Donnie has been open and people weren't that's that's working I mean de Blasio is now.
I'm going to be able to keep New York close Forever. I mean, you open up New York, There's 10 million EBITDA. There you open up Florida, there's cost almost 20 of EBITDA. I mean, these are no red states, where they're low unemployment I will certainly, Texas and Florida, but we've shown that we've been able to contain I mean, even florida sloping down.
I mean, it's I mean, you don't think I mean, you think that this is a 2020 event I mean, just working forward like so you get everything opened by the other 2020, right I mean, which I think is a reasonable expectation, yes, yes, yes. My September 30, hopefully that's you know that kind of in the internal goal. So you don't my everything open back a reverse.
You on most I think there's going to be zero cases by April 2021, if I, just wonder Masson Steve's running let's say silber six so let's say sales are 60 65 million in 2021, bombshells, assuming no new and your Bakken and your back in 200 right. You were doing 200, the and the first quarter you get the incremental.
Growth in Bombshells, I mean, I don't think we're looking at 60 million EBITDA business. We're looking at something closer to 80 right in a free cash flow was 40 on 60, we're looking out a business that could you know had a 55 to 60 million I, probably close to $60 million a pre cash on 80 million EBITDA I mean, those could be the numbers.
With everything opened in 2021, I mean, it's everything would have everything I have we absolutely perfect world for that we know there's no say the perfect world, but but I think you know somewhere in between where where our original projections were and what you're talking a is as probably more you know, it's probably a reality, where we're where we should where we should end up at in my opinion.
Oh look when things for sure we're doing better at the locator opened and they were doing pre cove. It and we can keep that type of momentum going forward or.
Everything is going to grow because as we all know and we've seen in the past when we do these big events, we do.
Really high quarter sales, our margins drastically increase because.
The fixed costs are already all paid so every time, we do those dollars that 60 70 cents from every one of those dollars rose all the way down to the bottom.
And that's what we need to you know that's why those those extra dollars are so important it's why we focus on you know each location maximizing the revenue because each month because that incremental revenue at the end of the month that gets us over our average is very very profitable revenue for us.
Right I mean, that's that's the math right I mean, just think about alike.
Think about it right, it's 35% of the tables are up to 35% table service restaurants are closing right and that manifests itself in a 10% comp just in the Justin just in the night clubs right. If you're a 40 million a bomb so that's pretty cold and 160 of sales in the night clubs and let's say you got a 10th.
Thanks Dot com over two years, so your 35% of the whole new you're calling what your competition closes you have a 10% stock comp right on this on a same store basis, you're talking about call. It at least you know 60 million in sales and like as you said because of the nice margins could you own the real estate and the variable margin.
You're talking about like you know 80 90, some flow through because it's all liquor, it's all liquor it and so I mean I was on first of all this is that what I, what I call. The clubs you know people would tell you know when used to charter 20 dollar caliber and now we're charging 50 to 100 or making a bottle service I mean, what business allows you to truck.
Well take the cover charge from 2200, well make the mandate.
Can't get in on 20, fives occupancy unless you pay $2000 service I mean, it's incredible that.
That that that top floor on incremental comp I mean, it all flows the bottom line I mean, it's the difference between this thing me 60, EBITDA of 100, and but that's incredible it is definitely a you know it's been definitely.
A way for us to you know.
All the number of people the door.
We still have line and then you can you know happened that kind of money. It's just we don't want to wait in line you have to spend that kind of money and there's people a little spend that kind of money not the wait in line.
And that's that's that's been a a big part of the success of the open locations.
On the club side for sure for certain.
But the bombshell, we haven't yeah, we haven't got any pricing your price increases or or anything a bombshells. They were just busy all day long.
Yeah, I mean look yeah, it's really incredible you know I'm I'm kind of stand that people put you know RC I in the same bucket as Dave and Busters or cruise ship I mean, this whole bogeyman thesis of like Oh.
Your customer your customer isn't kids and it's not senior citizens on Royal Caribbean, either you know well Caribbean, It's a walking petri dish.
Airplane Airlines are burning cash every single day, I mean, if I want to go into one of these things are more in a mass everyone's worrying about you know people up there. There's good social distance I mean look there's no difference between this and restaurant and the fact that they're they're comping into these restaurants of onerous operating leases and you own all your real estate and you've got this variable.
It's insane I mean, I I don't get it I don't think Theres, a single restaurant or tourism company that the generated positive operating cash flow in the quarter.
And now you guys are doing a tremendous job and I look forward to.
Staying down on a couple of conference calls and are seeing this thing is 56, you hundred Bucks I mean, it's just in saying that we're down here, but you know that's the opportunity to the market creates so congratulations again on a on a great job and I look forward to the right all right I got 9.9% of this thing so everybody all right I'll never with you.
I appreciate it thank you.
Welcome.
As a reminder, that you'd like to ask a question. Please press star one on your telephone keypad. One moment. Please why we poll for questions.
Our next question is from Max Ellis, a private Investor. Please proceed with your question.
[noise] Air Congrats on the great quarter, you know if you'd asked me two years ago or if you're told me two years ago that one day Bombshells would would save the nightclub segment. You know I would have I would have called you Crazy, but you know you really don't mean lots of people did don't worry or you know I mean, I always believed in the concept I mean I wanted to prove it.
Out to everybody, which is why we said look we're going to build these six locations. We bought those think about gates or an 18 month period. There was a lot of costs involved it really hurt the margins and you know I understand from the outside it look let's kind of crazy.
But in fact, we you know our team really believed in that concept.
And I mean look even were amazed at the numbers that were able to do it those locations right now.
The lines, we have sometimes at five o'clock in the afternoon 530 in the afternoon aligned start.
You know, it's it's a it's pretty amazing I went I went to eat there the other day and they said they only have they two sections open and I said look I'll just go set in the back up there I like Okay. You know go ahead, we're getting ready to open FX anyway, and I went up there and sat down and before I got my food. There was no seeding left in that section.
I like man, where all these people come from so it is it is remarkable or how well. The bombshells are doing we are having you know obviously when you when you when you get that busy that quit we have growing pains again.
Yeah. Some of our guys are lab White man I thought we had all this down but man we never envisioned. This many people. This fast you know every day all day long. So that team has been a really really are putting in a lot hours than a and we really appreciate.
All the efforts they've done and now they they definitely are they definitely build us a balanced out in this quarter.
Absolutely.
Ground on the shareholder I'm very happy.
Yeah My biggest concern.
During the Kogut pandemic is liquidity and you know I think everybody knows the story of the six foot tall man, who drowned in a river that would on average only by <unk>, which is it doesn't matter how Emily under price. The stock is right now if you can't if you get called out any of your debt holders. It doesn't matter if in five years, but it's worth it.
50, or $100 that matters can you maintain liquidity to just get through your and and as you. All know we you know our we have departments for three months.
For April May and until June our first payments became due at the end of June. So we started paying our payment on June Thirtyth was the first time, we started making bank no payments again, we've made our June thirtyth payments, we paid all of our July payment.
And we're paying all of our payments through August 15th our next last payment now our next plant become due after that on August Thirtyth, a we have asked for deferments from the bank, but have not a received deferment letters at this point.
But we are working on deferments starting for the end of October end of August or what I'll do August thirtyth.
September October and their next plant will become due November thirtyth.
With the bank, we are working on that which would free up between 1.8 million a $2.4 million depending up one bank are both banks to give us.
Give us a deferments.
And so we'll see how we'll see how that progresses over the next few weeks.
But even if they don't I think well managed to make the payments our cash could get really tight.
Depending on what locations are open or closed the different periods of time throughout the quarter, but we paid all of our payments I think what really important reveal understands we have paid all of our payments that had been required to be paid we paid our vendors where current with our vendors where current with our attorneys again, we finally caught up with all the through June thirtyth that were or back.
Within 30 to 60 day float with our with our with our legal seems Oh, you know basically everything back to normal as if there is a normal these days, but as far as our bill paying so we're all back to normal.
And so I don't see any any real issue. So we haven't missed the payment yet so before we'd have to worry about any type of.
I'll liens are foreclosures or issues like that we'd have to be laid on a payment for a while her side I mean, we don't even have late notices.
At this point.
So we're in good shape there.
We have plenty of cash.
We have some a big income tax refund coming back to us that'll probably hit a either late this quarter or sometime in the you know the December quarter, we should get that money back from the IRS.
From that from our 2019 tax returns.
That we finally got filed.
And I guess, then I think overall right now we're in a good position.
We did it on an August we did for the first week of August we did the around just over $2 million and sales, which I think puts us a cash flow positive for the first week of August.
And now I think July pretty much we were a little cash flow negative, but it wasn't a significant amount.
With a 7.6 million in sales in July so now what is going to move forward to get through September and I think like I said hopefully by October or school starts back up everything starts going hopefully, we get a get more more locations around the country open and ER and will be good to go yeah.
Absolutely.
I didn't mean to imply that things are running tight I. Just you know I think we all agree that no no I. Appreciate the question because I really wanted to make sure that not you, but everyone out there understands for the you know.
We're in a really good spot right now, we're we're very confident or in our ability and where we're at right now so.
And actually to that point have you looked into the main street loan program at all to essentially refi out some existing debt with even cheaper debt under the priority facility.
You know we've looked at almost up a lot of is very restricted for private companies and it's just not.
Not our capacity the PBP worked out for us for the bombshells in the and our shared services company animal and of course, the one night club that we that we own we did not take any people money on any of our thoughts entertainment clubs.
At all just because we didn't want the controversy of it.
And we'll well we got what we needed.
To to be where we are today, we were able to keep a lot of our employees.
Paid and with the BBP money on that and that and as you can see from the bombshells results. It's a it's paid huge dividends for us.
Absolutely well that's up on the questions I have I just want to say congrats on the great quarter for me I think it's a great quarter. It really is a testament so keep up the good work look forward to.
Continuing to follow the progress and really right for you on the shareholders. Thank you.
Alright, thanks, so much.
Our next question is from Adam Wyden with ADW capital. Please proceed with your question.
Hey, Yeah. This is a follow up.
I just wanted to point out and you know and I think you're building on the other guys question, but I mean look your business models incredibly unique in that you don't have a revolver you don't have any any liens against your business. I mean, you can basically decide whether you want to pay people are not like the debt that you have it isn't mortgage debt seller note finance and all.
All of your lenders are saying should pay me whenever you want it's no. They don't want to take real estate back. They don't want to take adult my calls back I mean, you don't have to pay people you don't want to have to pay them. I mean, the reality is that you could in theory take your cost of zero. So like the fact that people even asking about liquidity is borderline laughable right you have tons of cash you have re.
We'll see that you can sell that's not you know like bombshells real estate. The from the parcels you can sell around you could sell a stake in bombshells any people I mean, you got your here.
In your floating in cash right now you have many many option.
We have many many options available.
The bigger question is what lever what number are you going to pull you take the cash you know away from bomb and putting up the were under the short sellers I mean come on I mean, you can sell staking bombshells, a tiny thinking bombshells for 23 million Bucks and you can you I mean, you could squeeze these guys like it's going out of style I mean, it's it's the question shouldn't be a quick.
In my mind. The question shouldn't be you know, it's like an cousins one of the owners in your business. The like all your you're not going to make it.
Tens of millions and all the cash a day this isn't American Airlines, there's no capital.
On the real estate you can you can you can shuffle thing down and take cost is zero I mean, the better question, where are you going to find the cash you can tell these guys. I mean, it's just it's more a lot more <unk> was saying that you didn't have liquidity needs. It's a person joke. It's in July.
I don't think that's what he was saying he was just asking you know that that's the like you like you said that the concern out there a and like I said earlier when I was talking to you and its other but I think they just don't understand.
The overall company, it's it's more complicated than a typical restaurant company, whose leases all their property.
It doesn't own their real estate there that you're right. We just have because of how we've done things and how conservative we've been through all these years and and and the focus on owning all of our real estate. So that I rent goes down every month as I like to say as we pay off the principal or and then we're able to go borrow money against it.
Again, and that's one of the things I mean, we're looking at right now is this and this refinances how much cash can we pull out [noise].
Because as we move forward.
If the stock.
I'll stays in these ranges and stays below our capital allocation target price, we will be back in the markets buying back stock and that's that's what we're working for every day.
And to get back.
And I think well.
Well the center you know I think bombshells is the goal do spend I think there's ways to monetize it anixter I mean look there are plenty of Comping you look at GM medium sold a stake in in Incruse for use number another talking about maybe spending offer selling their autonomous driving division I mean, what the reality is bombs what was your brain.
And it took a lot of here for a lot of here, so I'm not asking to sell it on the cheap I'm, saying what your this weird kinda predicament, where you got a bunch enough pledged shorting your stock. They can't do algebra are counting doors, and what do you own and the only way.
They figure out what you always when when when you saw we give them on the bundled shine and the reality is that a lot of levers that you can pull whether its subsidiary finance that bombshells partnering with the JV, maybe doing a master franchisee and you Didnt franchise rights and you start selling franchise licenses I mean, why couldn't someone buys the mass.
It's from you and you just collect royalties and they give me your royalty in the 2030 $40 million up well I mean, there's you can skin. This cat 67 different ways from Sunday. The reality is that you built it you've got you've got the business. It's an incredible business no understands it and now we start counting our money because you've got you've got the cards.
I mean, the back to the Guy asked a question imports told me I still don't get it well that's fine I'm you know what I can tell her money I'm not worried about it or go to figure it out.
They're going to say, we're going to show.
Alright sounds good alright, alright appreciate it thanks Adam.
There are no further questions at this time I'd like to turn the call back over to Gary Fishman for closing comments.
Thank you everybody. Thank you Eric and thank you everybody for joining US again, we'd like to apologize for the delay that people had in signing on earlier on the call. It not happen again on behalf of Eric The company in our subsidiaries. Thank you and good night stay safe stays healthy and as always please visit one of our clubs or restaurant.
Thank you.
This concludes todays conference you may disconnect your lines at this time and we thank you for your participation.