Q3 2022 RCI Hospitality Holdings Inc Corporate Sales Call

So you're still connecting.

Okay, Yeah, I, just put out a tweet about it but it can also ICU tweet it out or two.

I did.

I'm trying to get Bradley and.

Travis it's up here.

Yeah, I see broadly still connect there.

Mark you said slide eight is the one that you want.

Yes, the one would be charts.

For for sales.

Okay, Yeah, I'll grab that and open it for you.

Are we waiting on Gary.

I was waiting for Gary I'm trying to get a Bradley and Travis I know if you guys can hear us, but yes, Brennan Bradfield a invites and you guys. Arent can you guys hear me now Brabham visits right now we got a rebate.

Yeah I see.

Youre, saying your tango as well there we go we got them up here.

Shall we go ahead and kick it off and Eric.

Gary.

He wants to come up here.

As Gary the laughs I'm reading them.

Yeah, I guess invited them up but I don't know maybe it's I don't know if he is paying attention to or a freak out or not maybe one of you guys send them an invite and see if it works better shorthand a then whenever.

Whenever you guys are ready we can then we can get wrong.

Alright, let's take it away.

Greetings and welcome to RCI Hospitality Holdings third quarter sales Twitter spaces call. We have a short presentation that you can find on the RCI Twitter feed or the Companys web site on the website click the company and Investor Relations information tab under the RCI logo that'll take you to the comes.

Any investor Info page scroll down and you'll find the link.

Net turn with me please to slide two of our presentation.

Today's speakers from management are Eric Langan, President and CEO of RCI hospitality, Travis Reese Executive Vice President and Bradley Shea CFO .

Turn with me to slide three.

I'm Mark Moran head of business development and operations of liquidity of Wall Street Communications and media firm I'm co host of today's call along with liquidity and will financial.

Wolf is the number one Twitter spaces hosts for investors and provide daily live audio education to more than 75000 investors Wolf CEO Gab Blacksburg will moderate the Q&A GAAP hosted moderates more than 20, engaging finance focus Twitter spaces for free every week.

Now turn with me to slide four please we want to remind you that if you'd like to ask a question you will need to be joining the Twitter space with a mobile device. All participants are in listen only mode and after our presentation. We will go into the Q&A.

Turn with me to slide five.

I want to remind everyone of our safe Harbor statement. It is posted at the beginning of our conference call presentation. It reminds you that you may hear or see forward looking statements that involve risks and uncertainties actual results may differ materially from those currently anticipated and we disclaim any.

<unk> to update information disclosed in this call as a result of developments that occur afterwards.

Now turn with me to slide six please.

I'd like to also direct you to the explanation of non-GAAP measurements that we may use as a reminder, this conference call is being recorded.

Now it is my pleasure and privilege to introduce Eric Langan, President and CEO of RCI hospitality, Eric take it away.

Thank you Mark and thanks, everyone for joining us today.

What a quarter $70 $1 million in total sales.

From our nightclubs and bombshells.

I'll remind everybody that does not include other revenues and those will be updated and final numbers will be posted August 9th is our current plan.

This is our first quarter with no major disruptions in our business our employees.

And I think our customer base from Covid.

So its nice to kind of get back to a what I would consider a normal a normal run for the company and.

In normal operations.

Uh huh.

R.

Our first quarter.

21 club purchase.

Was fantastic operations for us this quarter as I had discussed a little bit in the last quarter March we we thought it would be made before those those clubs were major contributors, but we actually did very well in March.

And that continued to grow and do very well for us in April may and June as well.

And you'll see that in our nightclub revenues.

<unk> up 33, 8% year over year to $54 $3 million.

There were still COVID-19 effects and covered restrictions last year, so some of that Uh huh.

Increases from that as well and same store sales up four 8%.

And that is I think that that four 8% is kind of what youre seeing from the.

The operations are restrictions going away in the in the North mainly New York.

Chicago that type of those types of restrictions.

Both.

Having to get Covid cards, having everyone have to wear masks and some some very limited, but some hours of operations as well restrictions were still around last year.

Youll see our fiscal 'twenty, two acquisitions added $11 8 million in sales so very excited about that.

We've kind of continued rebound in our northern clubs, mainly are the New York market, where VIP spend is returning and it's continued to increase.

And we've benefited from traffic created from major sporting events.

You know being visited again and really conventions in key markets like Minneapolis.

New York Miami has been a great a great benefit for us in this quarter and helped us reset 70 million number.

Mike are minor by that.

When we we've been saying that we think are normalized run rate will be somewhere between 260 and $280 million to $70 1 million will put us at the high end of that.

Of that trend.

Bombshells $15 $8 million down about one 9%.

Bombshells with kind of the opposite of the clubs, where everything where all the bombshells were actually open our patios, where we're doing very very well last year due to COVID-19.

Delta Barrett was out.

And we were doing very well at bombshells in fact better than we've ever done.

Same store sales down 12, 3%, that's because all of our competitors are actually open this year.

Versus last year, a lot of those places where close a lot of places to drink period, and especially in the state of Texas were closed.

Or had very limited access last year or this year that was not the case, but I'll remind you that it's $15 8 million.

And revenues for the quarter, we had 11 stores.

Which puts our annualized.

If you annualize that divided by 11 annualize. It we're about 5.4 $75 million per unit, which is fantastic for us.

Very very.

Very excited about those run rate, that's about $1 million over our 2019 average unit volumes. So we're still doing very very well.

Paired to pre Covid.

Sure.

Bombshells also experiencing on basically our normal operating trends seasonal trends.

Where are we start slowing down in the summer in Texas gets very very hot in fact, we're going to keep way right now about 107 every day right now humidity is very high at Houston.

And so that's that slows our patio business down a little bit.

Arlington added $1 7 million in sales. So we're still doing very very well for us.

Like everybody to painting out like I said the key point here is that our run rate is at the higher end of our $260 million to $280 million run rate.

If you turn to slide eight.

This gives you the idea of what the growth looks like from 'twenty, one to 'twenty two.

And breaks down the clubs.

Clubs for Ya.

Turning to slide nine you will see that we ended the quarter with $37 5 million in cash. So we still have a considerable amount of cash.

Our high cash balances allowed us to take advantage of some opportunities. We made a club acquisition about $5 million in cash was used for that and we used $9 $2 million of our cash to repurchase shares.

For the quarter average price $54 81 a.

Very excited to get those shares bought back in fact, we've been buying about $100000 worth of stock a day as I've said multiple times.

I see us continuing to do that.

For the time being and we made a very we had a week, where we did a very large about three or four days of large purchases.

When the stock dipped down to about $47.

So that we like I said, if the stock goes under 50, we would get more aggressive.

It did that we got more aggressive so.

We'll watch where watches.

The market trades the stock and.

Act Accordingly based on our current cash positions.

You'll see that for the nine months, we bought back 213000 shares of about $12 1 million of our free cash. This year has been used to repurchase shares at.

At an average price of 50 642.

Which is about a 6%.

Discount from the stock we issued the 500000 shares we issued in November or October for the.

11 club acquisition, so we're already.

Retiring.

Basically not those exact shares but a similar amount of shares.

And with that I'll hand, it off the gas and.

We can now start the Q&A.

Thank you Eric This is Scott Blacksburg Aboul financial space is now opened for questions if you'd like to ask a question. Please raise your hand in the space. There is a request button on that bottom left that youll be able to hit.

Once you make your way up to the stage you'll use the Raytheon feature if you click on the heart emoji it'll be all the way on the right when Youre done asking your question. Please do meet your microphone to eliminate background noise. We have a limited number of speakers spaces. So as to your question you may be moved back to the audience in order to free up more spots to start things off we'd like to take questions from <unk> <unk>.

A list and then some of its larger holders.

Let's start things off with Rob Mcguire of granite research.

Well congratulations on the quarter guys.

Hey, Thanks, Rob can.

Can you kind of give us a breakdown of revenues by month and were there any unique events. This year that drove revenues that may not be there in future years.

I don't think so.

I don't know I don't know by month I know that.

<unk> was strong May was may was a it was a little stronger.

Then a upon of course June was probably the weakest month of the three which is very typical for our seasonality.

I can't think of I mean, yes, there were some in our key events there were some conventions, but we typically have those events.

Something similar to those in different markets every every quarter. So I don't think there's any one time events that that really affected this quarter.

I think this is pretty solid for a run rate for this quarter.

Uh huh.

Our are typically top season quarters, our October through March of six months.

And then this quarter weakens a little from those with a course of this year. It was up because we had COVID-19 effects in the last quarter.

And of course in the first quarter and the fourth quarter is typically our seasonally weakest quarter.

For revenues.

I appreciate the color and then can you talk about.

Bombshells Arlington.

Do you think the 12 month revenue run rate would be by September 30.

I think we're getting pretty close to it so it would be about.

So if you did $1 seven.

Times four you'd be at about $6 eight so I think the run rate is probably somewhere between $6 $5 7 million for.

For that location.

A little bit higher than our average of $4 four seven box.

I appreciate that I'll circle back around to ask more questions. Thank you.

Kim.

Thank you Rob let's go over to Anthony <unk> of Sidoti <unk> Company.

Yes. Good morning, Thank you for taking the questions and certainly nice quarter as well.

So.

The clubs that were acquired back in October .

Are they performing at pre COVID-19 levels or above I mean, when can you give us a sense of as to where those trends are please.

Sure combined they're running right at or a little over a week.

Have several clubs that are running.

Above their 2019 numbers and we have a couple of that are that are still.

Catching up with those 2019 numbers are the nice thing is as a management teams are in place.

As far as the top level management, we're now building their teams around.

The leaders that we put in and we're seeing very significant.

Growth.

Amongst the team and that's translating into a into revenue and market share as well. So it's been a it's been a process.

This is the one of the first the major acquisitions that we've done where we turned so much of the existing management and existing staff at the at the clubs typically when we buy we only turned about 20% and we turned much much higher level that top management levels.

Whereas Sydney.

<unk>.

On this acquisition so it's taken it's taken a little longer.

Basically to put all of our processes in place because in order to do that you have to have the right management teams.

And indeed have done an unbelievable job of making that happen and we're starting to see the results of that and I think we'll see continued increase.

From those locations, especially as we hit the prime season.

Running October through March.

Okay.

Yes, Anthony I went ahead and just just in between speakers I just tap that mute button for you. So you're interested on mute. If you want to ask any follow up questions. There are we just get a little feedback in the space.

Sorry about that I didn't realize I was put on mute again so.

Just.

Just a follow up in regards to Eric your comments in regards to the VIP.

The spend that you say was returning was that across the board or is that where you're referring more or less to the northern clubs just wanted to get a better sense as to.

Whether.

What youre seeing as far as the service revenue as a component of total revenue.

Yes, I mean, mainly we're seeing that in New York and Minneapolis as return.

We had normalized a little bit more on the southern markets all along.

For a while now so.

It's really I'm speaking of like New York and Minneapolis. Those are the two markets that were kind of lagging in that in that VIP spend.

New York is a huge VIP market for us enough in it and you were talking about percentage points and service revenues from the New York clubs alone.

Okay, and if I could just kind of squeeze in one more question.

So as.

As far as just just what's going on with inflation any sort of commentary that you could go.

Sure about segment operating margins for the quarter or no.

So as we've kind of fine tune our models just wanted to see if you guys could provide an update on that.

It's little early for that.

As you know we had the July 4th weekend in there and we lost the Monday.

Everybody came back to work that Tuesday on the fifth and we had a lot of closeouts to catch up just to get the revenue numbers out for today and I may have not even just starting closing so I don't have any.

Color at all on margins or income or any of the cash flow anything at this point, where it was just way too early on the closeout for us to have anything like that.

Sorry.

Okay understood. Okay, that's fine alright, thanks, and best of luck.

Thank you.

Thank you Anthony Okay, let's go over to Joe Gomes of noble capital markets.

Good morning, Thanks for taking the questions.

Eric I was wondering maybe you could kind of give us.

How the quarter kind of went maybe if you could take us through the quarter and maybe we could.

Get it somewhat of an answer to the previous question you know how strong was it.

April did you see any fall off as you went towards June more than normal seasonality would kind of you would kind of expect.

Any kind of insight you can give us there would be appreciated.

I would say no.

April may were unbelievable very very good quarter very good months June was a very strong month, but yes. We did see typical seasonal slowdowns I think when school got out end of May early June I expected to see a drop it was very minor it was almost a blip not even really a drop in.

How about the third week of June and I think that's one vacations really people started traveling abroad people started doing a lot more vacationing.

And whatnot.

And so we got a little bit weaker I think gas prices started going up a little bit so some of our blue collar clubs.

May have seen the spend down a little bit the visits are still there and so that's exciting for me as long as the visitors there.

I'm very happy and if all of our numbers of visits and club number of patrons starting to go down at the clubs are that'll be a little more concerning for me.

But we're.

We're not seeing that as of yet you know the first two weeks of July are always you know July forward Theres, probably the weakest.

The whole year on a normalized basis.

So we did see that you know that July 1st week of July slowdown and then now the second week, where we're seeing a little recovery from that and I think we're we'll continue to.

To return to basically a normal summer run which to me is very exciting and we can get back to normal normalized runs then we can make predictions and then we can say this is what we're going to do and be very certain are fairly certain that.

But that's our that's our run rate, but that's the cash flow and it's a lot easier for us to project and make acquisitions and invest our free cash.

Knowing exactly you know kind of where where the future is going for us.

This is very exciting for me because that means as it starts getting darker asking you will start anything back.

And the spend will return.

From you know people are on vacations and those types of things, we'll start seeing that come back into the into the clubs mid September .

Early October and then run basically through May again.

Okay. Thanks for that insight much appreciate it so well last time, we spoke you talked about you know on the acquisition pipeline you were getting handling a lot more inbound calls wondering if that was still what youre kind of seeing you had mentioned also that you had been in some discussions with.

The multi unit operator.

And I'm wondering if you could give us a little update on that.

Our multi unit operator, we're still discussing I think the earliest we would probably see anything.

That type of size would probably be the December between December and March.

Based on where we're at in the process right now if we could get anything done without without particular, operator, we're talking with lots of other people as well.

It will probably see.

Some acquisition news.

By mid August if not sooner.

We've got two under contract that as we've said in Fort worth in Odessa, Texas. Both of those were just waiting for licenses to close those transactions.

They won't be they won't be far away, we've got the two San Antonio class, which we've closed remodeled.

And we're in the process III concept in both of those clubs should reopen.

By the Middle of August if not if not by the end of July as well, where we're we're very close on both of those locations.

So that'll that'll add a little revenue backend that that's missing right now.

As well as.

Several other operators were talking to that we've got the Expo coming up.

August on August 14th we'll be out in Las Vegas, with the adult club owners Expo.

We'll be meeting with a lot of people out there I've set up a few meetings already I'm sure that I will have many many impromptu meetings.

We'll run into and we're going to put the word out there that were you know we really.

I need to spend between 80 and $100 million of acquisitions in 2023 by buying $20 million plus of EBITDA.

So we're going to get that with that out there and let people know that that we're looking at now is a very good time for them to talk to us.

Great and one more if I may.

You talked a little bit about the events.

They contributed in the quarter as you look out over the rest of the year any particularly big events that you see that would be particularly meaningful going forward for the rest of the year. Thanks for answering all the questions.

Yes sure Joe.

Football, we're ready for football so we've got a.

Football starts in August so we've got about another month of just baseball and football will start back up and you'll have the MBA start backup in football was pretty weak. The last couple of years. These are there are the politics of it I think the Super Bowl. This year. It was just a great Super Bowl out in Socal Stadium.

And I think that from talking to people out. There are you know NFL has gotten less political at the moment hopefully it stays that way.

<unk> has no place in sports and if they if that can impact and continue I do think that the football will be very very big for us this year.

There was some exciting trade there's some great talent.

It's come up to combine and I think that Oh, it will be good for us and the MBA is actually seem like it could be pretty interesting for us as well. So I'm looking for I'm very excited for both of those sporting events and games to be started back up.

I think it'll be great for bombshells, and it's always great for Rick's ER and some of the other clubs that are located close to the stadiums.

Rob Good question.

You mentioned higher gas prices are you seeing any slowing in the consumer demand either in blue or white collar and the nightclubs or the restaurants any evidence at all.

I mean.

Hard to tell because it's hitting right at our typical summer slowdown.

So it's really hard to tell as it is at the gas of the slowdowns.

Vacationing more.

It's very minor I would say maximum from our peaks from our peaks in April March April may.

Our numbers are off you know, maybe 8% to 10% at certain locations.

So it's nothing that's it's abnormal it so it's really nice like I said, it's nice to get back to somewhat normal type.

Lows.

It's just a con.

Contribution of everything I think it's a little bit yeah, it's a little bit food costs are inflationary costs as you would call it and I think it's a little bit of vacation.

And I think a lot of it is you know maybe some of it is even even even some fear out there in some deeper R. R.

Kind of waiting to see kind of wait and see type deal.

I personally haven't changed my habits, much and most of the people I talk to.

Even people when I talk to them at the clubs are all being in Miami. This Saturday night, so I'm going to get a minute.

Be throwing a party there are and I will we talked to a lot of guests.

We get a feel for how that market is I know in Texas, It's Ben.

Ben.

Much a non event for taxes as I can tell so far except for maybe like are very very like our college based clubs are lowering clubs with the colleges you don't have the kids are in.

In their towns right now so those college towns always slow down this time of year.

And so it's to me it's actually.

I can't I can't put a finger on any one particular cost I think it's just a combination of everything that.

Which is the return to normal right. That's that's this is typical typical June year over year were still strong and that's that's really what I'm kind of watching AR not not as much sequential and year over year.

But this June .

<unk> was basically better than last year, and I think on the club side and I think that in July we're going to see the same thing we're going to see a stronger stronger July were gonna see stronger August .

Regardless of.

What happens in the market.

And then with regards to San Antonio and the opening of Bombshells certainly it can't hurt to have a patriotic same restaurant opened on July 4th but can you talk about now how.

How that went and are there any differences in opening a franchise location relative to a company owned store.

While the opening is the same.

I will tell you they beat our record by mining.

I think.

$53000 or something that was the biggest opening week of our bombshells.

Sure.

I'm just beat Arlington Arlington was our old you know it was the old record the last one that open.

The team is fantastic.

We've actually had to bring in extra kitchen kitchen managers from some of our other clubs to help them because they went through 2000 pounds of wings in two and a half days.

So it was a it was a little Oh.

It was a little overwhelming to the team I've talked to them. They are still there are in fact, the franchisee has asked them to stay an extra week, we normally would do a two week deal, but because the numbers are just.

So hi, it's overwhelming they've asked they've asked the team to stay for another week. So the team is going to stay the opening teams and stay there another week.

And is this a very exciting location, it's a great location. There on 151 on the way to Seaworld are right by the Oh right by the base one of the big bases there.

The military has been a very supportive in San Antonio and we're just very excited to see our franchisee franchise that you're doing so well there are looking for a second store already.

And.

You know it's.

<unk> got our Huntsville.

Our franchisees are very excited he is monitored and watched how how San Antonio opening is gone he is.

Very excited and then really pushing to get his store under construction has started and.

Another franchisee that we've been negotiating with has now sent us some site selections and we're going to be going out there over the next week or two.

Their market and looking at those locations and hopefully we can.

Settle in on one of the locations that they have.

They've they've picked out and get them signed up so we may have our third franchisee here very soon as well.

Okay.

Hey can I ask a question.

I got out of the speaker.

Got it.

Okay very good. Thank you couple of questions here.

One is on the buyback.

You guys accelerated the buyback meaningfully and acquired approximately 2% of the company this quarter.

It seems to be at least based on the revenues 70 million ex you know X.

Ex the other maybe we're at 70 172, it seems like right on track to hit that $24 million to $25 million of EBITDA off your margins come in okay, I kind of work off of a $25 million EBITDA number.

Run rate, that's about $8 a share of free cash flow. So you know.

I kind of do the math I say $8 a share of free cash flow 9 million shares plus or minus about $72 million. So you're basically.

Acquired.

About a little less than half of your free cash flow in the buyback do you think that that's a sustainable rate of.

Repurchase I mean absent something changing with with M&A I mean, obviously, if you can buy a business at four times, EBITDA and 25% cash flow yield that might be better but you.

And the cash on cash probably even better with leverage but but my question is you know in the absence of sort of the M&A pipeline, just exploding and having to buy 40 million of EBITDA. Do you think you can continue to buy a couple of percent of the company or a quarter.

We've earmarked about $6 5 million of our cash for buyback for this quarter at this time.

We are working on the closing.

We have $37 5 million cash at the end of the quarter. We are currently working on closing.

Our property to close today actually in in Philadelphia, We finally sold that property to the Port authority up there or should be closing today, which will give us a you know.

Several million dollars in cash I think.

3.75 million in additional cash of $3 65 million additional gas, which puts us back over our $40 million.

So if you know if the stock.

It goes under 50 again, we could get we could we have the cash to be very aggressive again.

In this quarter, so, but right now we've earmarked about $6 $5 million of about 100000, a day for the 65 trading days basically.

Right Oh, okay. So so six 5 million, which is a little bit less than last quarter, but you know if free cash flow is sustainable at these levels that could increase as well.

Like I said, it's going to be on the market.

I said, if it goes as the stock goes under $50, we tend to get a little more aggressive.

I think the I think it was the third week of June the stock dropped down to 46, our 52 week low.

And that week is when we stepped up.

I want to say, we bought about $3 million worth of stock that particular week. So we're you know we're on 100000 hundred thousand hundred thousand and then when we saw that opportunity.

We knew we had the.

The Philly property under contract was going to close in July at some point and I said, well, we don't need to we don't need to end the quarter at $40 million. We can we can then just andre because we're going to have that cash come in right. After let's take that a $3 million buyback stock. This week. It's just the stocks was too cheap.

At.

$46 right. So if you can make basically what you're saying is if you can sustain around $40 million cash balance right that you know the any excess cash flow beyond that you could add towards incremental buyback in the absence of more accretive M&A.

Hello, and I've said that all along I look I'm, keeping 40 million because that is one of the incremental.

Yes, the M&A, so I don't need a we need we need maybe $20 million cash on hand, so I am keeping about $20 million for what I call opportunistic acquisitions.

We have one of those coming up very soon as I said earlier I am hoping we will get some type of announcement by mid August and get that deal get that deal in here.

We're very very close eye on working out the final details of that.

The acquisition and in licensing and due diligence and all that type of stuff, so providing no no issues with due diligence.

That's like that's our timeline right now.

Yeah, I mean, I think you know you know obviously you guys have been doing these spaces in calls and I think trying to.

Education investors on the on kind of the the nuances and perhaps the the less understood qualities of the businesses and you know obviously I think bombshells had a tough comp this quarter, but I mean in general the sports Bar business. You know we were shareholders of Buffalo Wild wings.

<unk> <unk> hundred seven OE context in the business actually performed very well and we saw that the you.

You know that people as they went to sporting events less you know perhaps traveled less they spent more money on alcohol and go into the barn getting drunk and so.

I sort of understand the resiliency around bombshells, you know obviously, the tough comp like I understand kind of the the business case of Bombshells, you know relative to Buffalo Wild wings in a downturn, but it might be helpful to talk about like your history of managing the nightclub business and talking about the variable cost structure your ability to draw.

<unk> traffic through cover versus table in.

How these businesses tend to perform through a downturn and while you are really confident that you can grow through a downturn.

Well I mean, we've you know we've done some of our best growth.

And when when the linear economy gets bad.

Or a radically kind of especially as we came out the other side of of 2000 19010, we made a major acquisition in 2012 of nightclubs and a single acquisition that.

That was our largest acquisition before the Lowry acquisition.

This past October .

October and November and I, just think that the.

The reality is we understand the bar business and what happens or I call. It I call. It trade down right. So New York is the best time of the highest numbers new Yorkers had ever done was during the worst part of 2009 and in early 2010, right there and that's because people traded down so all the all the guys that.

Used to go to Atlantic City, and below 10, $20000 on a weekend they.

They stayed in the city.

And they still need an escape so they come in incentive dropped 20000 or 10000 in Atlantic City, they dropped $3 to 5000 at risks.

As what we saw and I think we'll see that same type of trade offs, if there's a slowdown I I'm not 100% sure and Theres a slowdown yet.

I also believe that by September .

September October if there if there's a slowdown.

And we see what.

Trends were going to see everybody back in the office.

For us as a great, especially for Manhattan, and Minneapolis Chicago.

Where our clubs are in those downtown areas.

On the major major.

Work areas.

That's going to be fantastic for those for those northern locations and even some of our Dallas clubs and and.

In other clubs around the country, where we're were centered in that central business District.

People going back to work and I think New York estimates there are about 45 or 50% returned to office right now and the numbers. We're doing up there are fantastic I mean can you imagine if they return back to 95% or 85%.

People back on the office.

That's going to be huge that's going to be huge for us in two major clubs didn't reopened you know when we lost 20000 square feet of adult space in New York City.

With the the scores and executive clubs not reopening both 10000.

Foot location.

And that's going to be very promising for us in that New York market in specialty that yeah. I was going to ask you about that you know that obviously the scores I don't know who owns the real estate, but I mean, obviously in the context of vivid and hoops and Rick I mean, if those don't reopen as clubs I mean that should be massively transformational.

For your business I mean, because if you look at the productivity of.

New York pre pre Lehman brothers I mean, as you said there was a lot of VIP that started to come back, but it's still well below what it was before and then when you compound. The fact that like maybe these scores clubs you know because there are viable real estate of patents repurposed as condo buildings and stuff I mean, those those clubs.

Gone no more licenses are being given in New York, So like that's a permanent permanent beneficiary of that if those don't reopen correct.

I believe so yes, I mean, you could find locations, but I mean everything we've looked at has been.

What I call cost saving right, it's not the best use for the real estate right. I mean, you can build a 50 foot condominium project on the on the property operating in strip clubs, probably not the best use for that real estate.

Right.

It's interesting.

Yeah, No I mean look it.

You know I was reading in the New York post about the scores of people buying the real estate and there was all of that stuff with the owners and I said, well Hey, you know maybe there was an opportunity for for us to buy these things cheaply, but I didn't even really consider the fact that you know if if if we don't buy them right, you're or they're not bought or whatever and then and they do.

Get reopened at strip clubs like revenue has to go somewhere.

Yes, I am guessing that real estate scores property now 27 in 'twenty than it used to be little war ran down, but it's gotten archie over there a little bit they built some some some hi.

High rise projects over there I'm I'm betting that properties for $25 $35 million.

And maybe more I don't know I don't know that I don't just don't know that.

That's out of town very well, we don't have anything on the west side of town I know I know our area of Midtown in that but.

But like even our property if we had not sold our air rights.

Risks in what the what the cash flow what you're doing there would still be the best use for that particular property might have been worth building a high rise building, but.

Luckily our neighbor built into so so rick's.

It will be there for a long long time and that was that was kind of a plan. When we sold the air rights is look let's make this this property will always be a small will keep developers from chasing accurate and trying to to run the club out of there because we make so much money out of there as a club.

I'll leave you with this last question. So I mean look you know high level, you've navigated this business through 2000 2008, a bunch of downturns I mean.

What I'm hearing from you is that you know obviously there are still puts and takes some things in some markets that whether it's oil in Texas or scores closing in New York that you know even in the downturn, we might we might not see a you know we might not see the full brunt of it on an organic basis and then on compounding that you think you'll be able to grow through M&A. So you know the.

This is I think a lot of people that that that we talked to you on the stock, they're like Oh, well, we don't want to own.

You know the strip the strip club.

Our restaurant business is kind of tip of the spear and we don't want to own them into a consumer downturn, but the reality is is that you guys have some things unique to your markets that are probably going to be longer lasting and and you know you know how to balance that and you probably will do M&A on top of that I mean does that is that a fair fair characterization of the situation.

That's very fair and I'll, let that speak for itself if you look.

Took over this company and $19 99, a CEO and we grew revenue every single year, except 2017 2017 was only here that we had declining revenue and the reason we had declining revenue as we switched to our capital allocation strategy in 2016.

And I realize look we have all these what I call. It anchors we had all these locations that weren't performing.

Real estate were $3 million or $4 million that had a club in it that was making a $150000 a year so $150000 on a $4 million capital investment is not very good right. You would you would you would be kicking me right now by owned anything like that.

And I said you know as we said look we've got a diverse. So 2017 was our divestment year, we started getting rid of all the underperforming assets and taking and said, okay look a business worth $4 million, let's take that $4 million and.

And let's sell that asset whether for developers or to another club, operator, who cares get rid of it and bring our $4 million back in and redeploy that $4 million under our capital allocation strategy, where we're going to earn 25% to 30% or 33% plus cash on cash returns on that $4 million and then you started after we did that in 17, you start seeing it.

Flows were happening in 18, and then in 19 and you would've seen in 'twenty, but COVID-19 guys Nalco was gone and I think youre seeing that this year. You know 21 was better 'twenty twos better 23 is going to be one of our best years ever I think.

Uh huh.

Yes, I mean look I think one of the most misunder stood components of this business is I think people tend to think that it is more economically sensitive than it actually is and whether it's all our work on Buffalo Wild wings or regional gaming casinos outside of Vegas, we tend to find that these these kind of these.

These businesses provide a provide an escape whether the economy is good or bad and so I think one of the things I would encourage you to focus on is communicating to investors that this doesn't have the economic sensitivity that people perceive them too.

Yeah, and I think just go back and look at our 2008, we had two quarters, where our revenues and our earnings were hit and then right.

At one level, we dropped down for about two quarters and then we went back to that level and then we started seeing that level.

I think our worst cases is in and that was a big splash right I mean, you're talking about a financial meltdown.

In the country.

That base and we made money ball corners, right, we just dropped down to eight cents a quarter instead of where we're at right now.

The 22 cents or something and we dropped down to <unk> for two quarters and then we were right back into the 'twenty. So I don't think that.

If anything is going to happen like that again, I think that our I think our Max downturn right now, it's probably 8% to 10% if it's really bad maybe we might see a month or a quarter, a 15% drop but I just don't even see that happening right now the acquisitions are going to be come online, we've got a new stuff.

And the works and so I think.

In a worst case scenario for us we would see we would basically be flat or down very very very little because we will just grow through that with new new stuff and then as we come out the other side of that the existing stuff, where we turned back normal and all the new stuff will be added Ken we'll just see that double balance like we did in two.

10 and going into 2011.

Good alright, Eric Thank you for all your hard work I'll, let someone else ask question alright. Thanks, Adam.

Perfect. Thank you Adam Yeah, we've got a couple of people come up in the meantime, I also see David requesting David Please do hang on for another minute I'm, just making sure we have the sponsor everybody.

We can go.

I'll just check real quick we can go to Orchard, and then I'll check back on if any of the analysts have any other questions.

Hey, guys. How are you doing a quick question for you Eric.

After going through the entire Lowry thing from start to finish now that you're running let's just say where we are.

With the lights on so to speak and at full capacity what was the total timeframe for a deal like that.

Are you talking about from the time we.

Like you sit down one day and you go Hey guess, what you know what I want to sell my club to you you know not just going back and forth. Just you know you just say hey, Yeah, you know what let's do this well I'll do bulk so the first time, we ever talk about he was in too.

2007.

So we went through.

We tried to buy it buy clubs or merge the clubs are two different times in the past both times failed.

At this time I would say.

We talked for the first time from the time, we first sat down and said Hey look I think it's time to revisit this again to the time, we closed the transaction was about four and a half months would be my guess.

And then obviously integrating into our systems, which normally we would do in about 90 days. This time took about five months. So it took US a couple of you know about 68 60 days extra a lot of that was just management turn and of course I can remember at that time, you know the labor market was super tight.

It was very hard to get people to come to work at.

And want to work and so we you know we had some other obstacles at this time I typical acquisition from start to finish can be as little as 60 days typically is probably four to six months.

From the time, the first time, we talk say, Hey, I want a semi club to the time, we actually closed the transaction that that includes you got to remember we have to get licensing approval see our state approvals you have city approvals.

Sometimes county.

So we gotta go through those processes, but but typically I would say you know start to finish.

Uh huh.

Within six months.

Okay.

And then you know now that obviously interest rates have gone up you've got obviously people thinking about this recession idea do you feel like you're like from six months ago, we have better pricing power in terms of your negotiations with people now.

I think the price is pretty much the same.

Yeah.

I think we we pay three to five times and we base that based on you know the markets that you're in we will pay higher for markets that have limited competition.

We'll pay a higher the higher end of that range. If you've got a grandfathered license that court ordered in CT protected so I don't have to worry about politicians messing with the business at some point in the future that that adds value right. So it's taking all of these things that add value or subtract value. So say you started a par of four.

And I'd say the average places for that I would pay.

And then like I said theres, there as well.

How long have you been there how long the operated.

You know what type of liabilities and competitiveness are what's the political you know once the political.

Atmosphere at the time, how easy or the ease of the transaction and those types of things all weigh into into into basically pricing themselves. Okay. And then do you think on this earnings statement that you guys are going to give an update as to like what your buyback thresholds are going to be are you going to wait until the end of the year.

Yeah.

Yeah.

I mean right now I think we'll have a better idea in August .

Let's let's see.

That's fair.

So I don't know how the coffee through our habits have a block I think right now we are.

I'll probably.

Be ready to to know.

Worst case October when we do the October sales.

Right.

We'll know for sure by than where we're at.

Yeah, I mean, I'd just love your asset allocation chart, just throwing that out there.

Alright, well great.

It's clear.

I mean, thank you for clearing up the part about though that like what you think the sales numbers may or may not be off.

And any of these downturns because it seems like what essentially everything thats going on right. Now is this is a battle over sentiment.

And that has it has absolutely nothing to do with financials with what you guys are putting out right now.

And it's just that again that the battle of everybody thinks like this as Covid again, it's somehow everything is going to close down that has to do with the consumer which is completely false. So thank you for that and I look forward to hearing news.

And then after you guys come back from the.

Las Vegas as to hopefully you can find more people to scoop up and integrate into the company.

Yeah.

Okay perfect I appreciate the question, there or treat well really good stuff all.

All right, we're going to keep it rolling here and I see a hand up from David.

Yes, good afternoon going a bit on what orchard was going on.

And the economical situations and the potentials of global Recessions I was questioning my question was actually threefold. One what is your strategy towards short term debt obligations and long term debt obligations and a bit more elaboration onto your variable rates in the last two years and or if you have a formal ratio between years.

Variable rates and or long term debt allocations in terms just to give you. An example, as we know with wayfarer wafer has a $300 million debt recall because in the last five years they had.

The improperly calculated there are variable rates and they are now in the in terms of the largest interest rate hikes going to be getting recalls on their basis points right. So to give you. An example that you were paying 84 basis points for their reach and now theyre going to be paying roughly 884 basis points for they're seeing that and so in that.

Relation I would love to understand what your prospects between Bradley and Rick.

How youre strategizing, the global environment in that sense, and then essentially as well how would the potential opex towards your margins in the.

The increase in these payments can necessarily I.

I guess create within your actual model and then the actual effects of slowdowns of consumer spending realizing that within the last two years, we understand that a lot of consumers have utilized debt equity and in the negotiations with like the middle class and the basic consumer and I would assume the domestic comp.

Common retailer or consumer for your product wouldn't necessarily be utilizing these forms of stimulus checks and forms of other formal like payments and we know that the middle class can't even afford a thousand dollar like emergency payment fund and so in that relation how you would go about once enticing more consumers and a new.

Demographic of consumers to come into your business. Thank you very much for the opportunity.

Eric do you want to break that up into two fold he asked about the.

That scheduled maturities in our future payments and what our fixed rate loans are.

And then the second piece I think he asked about was in regards to how we sell.

Land to basically handle the recession as it relates to the middle class and the research spending.

Hope I'm trying to answer your question, but we don't see any type of Denver.

Debt maturities until fiscal year 2025 over the next over the next quarter in the next two years in fiscal year 2023, and 24 when off top of my head here I believe up interest payments of about 10, 10, and a half million in principal payments about $7 million to $8 million.

So in looking at fixed rate mortgages that are backed by real estate. So we're probably not going to refinance until much later, we did the big refinancing structured $90 million debt.

About what September 30th 2021, so we'll hold that for three years and fix it.

As I've said, we don't have a big maturity until fiscal year 2025.

I'm not sure of Aerie jumped off the call or not I think Kevin can connect divisions. Okay. So you're back Eric I believe the second part of that question. It was very well spoken but I just couldn't handle all do you want to relay that second piece of that question again.

Yes, so as to the consumer and the specific reality shows I would assume and through my analogy <unk>. Your domestic consumer group would be considered the middle class understanding that the middle class now has an inability to pay $1000 emergency payments and the actual conference.

Patients between the auto loan and the actual mortgage loans in the two years of variable rates I think that the interesting conversation is going to be had where he theres going to be a lot of reduction in the consumer spending, especially in this variation or I should say in this level of consumers right.

Perfect I think I know, what you are saying.

Yes.