Q3 2022 RCI Hospitality Holdings Inc Earnings Call

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Greetings and welcome to RCI Hospitality Holdings third quarter earnings call you can find <unk> presentation on the company website click company and Investor information under the RCI logo that will take you to the company Investor Info page scroll down and you'll find all the necessary links.

Please turn with me to slide two of our presentation.

Im Mark Moran CEO of equity animal and I'll be the host of our call today I'm here with Eric Langan, President and CEO of RCI hospitality and Bradley Shea CFO of the company.

Please turn with me to slide three.

If you weren't doing so already it's easy to participate in the call in Twitter spaces on Twitter go to Rick CEO and select the space titled Dollar sign R. I C. K three <unk> 22 earnings call.

As a reminder, if you want to ask question youll be needing to joined Twitter spaces on a mobile device. If you just want to listen you can join the Twitter space on a personal computer.

RCI is also making this call available to listeners through a traditional landline and webcasting.

At this time all participants are in a listen only mode. A Q&A session will follow.

This conference is being recorded.

Now turn with me to slide four.

I want to remind everybody of our safe Harbor statement. 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.

We disclaim any obligation to update information disclosed in this call as a result of developments that occur afterwards.

Now please turn with me to slide five.

I direct you to the explanation of non-GAAP measurements that we use I'd also like to invite everyone listening in the New York City area to join Eric Bradley and myself Tonight at seven o'clock to meet management at Rick's cabaret one of RCI top revenue generating clubs Rick's is located at <unk>.

<unk> West 30, <unk> Street between fifth and Broadway.

A little in from Herald Square, if you Havent RSVP, Ed ask for Eric or me at the door.

Now I'm pleased to introduce Eric Langan, President and CEO of RCI hospitality.

Thank you Mark.

Thanks for joining us today, the third quarter benefited from higher sales continued rebound in nightclubs service revenues and sequential improvements in bombshells.

Year over year, nearly all our key metrics continued to increase on a double digit basis for both third quarter and the first nine months. This resulted in particularly strong free cash flow and adjusted EBITDA in the third quarter.

Net cash from operating activities and free cash flow were further enhanced by our receipt of a tax refund I have mentioned on previous calls.

We continue.

To execute on our growth plan and capital allocation strategies.

During the third quarter, we continued to buy back shares.

We acquired the Planet club in South Florida.

We also purchased for the 13th company purchased property for the 13th company owned Bombshells.

And fourth quarter of 2022, we bought a club in Odessa, Texas that we have rebranded it and plan to reopen on August 18th as well as opening the rebranded Scarlett cabaret in San Antonio, Texas that will also open August 18th.

We also bought the well known Cheetahs club in South, Florida, and we continue to take advantage of market conditions to buy back shares now here's Bradley for a review of our financials.

Thanks, Eric and good afternoon to all those listening all of our comparisons in this call will be to a year ago third quarter unless otherwise noted.

It is important to note that this was the first period since the first quarter of fiscal 2020 that was not affected by Covid restrictions.

<unk> was $18 $9 million, an increase of 26, 2%.

Free cash flow totaled $18 million, which is up 39, 1%.

Net income attributable to RCI common stockholders was $13 $9 million up 13%.

And adjusted EBITDA totaled $24 6 million, which was up 26%.

Please turn to page seven.

Our nightclub segment had an excellent third quarter revenues totaled $54 7 million an increase of 33, 3%.

Operating margin was 41, 1% and 42, 7% non-GAAP .

Operating income was $22 $5 million gap and $23 $3 million non-GAAP .

Highlights included $11 $8 million in cells from fiscal 2022 acquisitions, and 58% increase in our higher margin service revenues.

On a sequential quarter basis revenues increased 13, 5%.

non-GAAP operating margin expanded 321 basis points and non-GAAP operating margin increased 22, 7%.

Yeah.

Please turn to page eight.

We created this slide to show the strong progress we've made in the nightclubs segment pre Covid first quarter of 2020.

At 77, 3% nightclub revenues as a percentage of consolidated revenues have returned to just under where they work.

At 36% service revenues as a percentage of consolidated revenues.

Have now slightly exceeded the pre COVID-19 level.

As you can see nightclub revenues are closely linked to service revenues.

Both of these trends reflect the combination of the rebalanced and growth of existing clubs.

And the addition of club acquisition against the growth of Bombshells revenue.

Please turn to page nine.

Bombshells also had a great third quarter as we mentioned on our third quarter sales call revenues declined one 8%.

That was due to a tough year over year comparison against an unusually strong third quarter in fiscal 2021, which by the way with a record highest revenue quarter for bombshells ever.

That's one bombshell cells and margins experienced the huge benefit from being one of the few bars and restaurants open in Texas due to the state of Covid at that time.

Otherwise bombshells experienced typical seasonal trends in the third quarter of this year and results were inline with expectations.

I would like to point out that operating margin came in at 19, 4% GAAP and 23, 6% non-GAAP .

On a sequential quarter basis revenue increased 3%.

GAAP operating margin expanded 94 basis points.

non-GAAP operating income increased seven 2%.

Overall, we think that we're doing great.

Of of managing food and labor inflation.

Now please.

Page 10 to review our consolidate.

Quarter.

Unless otherwise noted.

Cost of goods sold improved 13% as compared to 15, 3%.

This improvement reflects the increase of sales mix of high margin service revenues in the nightclub segment.

Salaries and wages were slightly higher at 24, 6%.

This reflected the addition of employees at acquired units, along with new mandates, which increased minimum wage and some of the states in which we operate.

SG&A.

Totaled two 1% as compared to a small gain.

This year's third quarter was like that.

32% with non-GAAP operating.

Partially offset by higher sales and lower weighted average interest rates.

Please turn to page 11.

Cash and cash equivalents were $37.5 million on June 30.

I'd like to point out that this was after utilizing more than $12 million for share buybacks during the nine months.

S portion of the <unk> acquisition.

And the downpayment for our bombshells location, a rollout Texas.

Free cash flow for the third quarter totaled $18 million or 25, 5% of consolidated revenues.

This included a $2 $2 million tax refunds, Eric mentioned.

However, excluding that free cash flow was 22, 4% of consolidated revenues.

Okay.

That compares favorably to the 668% a year ago and 7.37% five years ago.

Refinancings enables us to smooth out our debt maturity schedule, our amortization continues in the $7 million to $8 million annual range for the next four years, which is very manageable with our cash flow.

You can pay off our balloons periodic refinancings enables us to convert higher rate seller financing.

And other unsecured financing into lower rate commercial real estate bank debt.

We currently have multiple unencumbered properties in our portfolio.

Should we need additional capital we can borrow against them.

Occupancy costs were six 7% of revenues.

This continued to be well within the 6% to 9% range that we average when cells were dramatically impacted by Covid.

Please turn to page 13 to look at our June 30 debt Pie chart.

Our debt now consists of 63% secured by real estate.

23, 7% of seller financing debts. This is secured by the respective club to widget applies.

4.1% of debt secured by other assets and nine 2% of unsecured debt.

Now, let me turn the call over back to Erik and thank you.

Yeah.

Thank you Bradley.

We continue to talk to new investors, So I'd like to review our capital allocation strategy.

Our goal is to drive shareholder value by increasing free cash flow per share, 10% to 15% on a compound annual basis.

Our strategy is similar to those of all outlined in the book the outsiders by William Thorndike.

He studied companies that focus on generating cash per share.

Our getting that cash effectively to generate more cash.

We have been applying these strategies since fiscal 2016 with three different actions subject of course to whether there is strategic rationale to do otherwise.

One is mergers and acquisitions, specifically buying the right clubs in the right markets.

We believe we like to buy solid cash flowing clubs at three to five times adjusted EBITDA using.

Using seller financing and acquire real estate at market value. So far this fiscal year, we have deployed $141 $8 million in capital.

$45 $8 million, which was cash.

$66 million, which was debt and $30 million, which was equity to acquire 15 clubs and new and existing markets.

Another strategy is growing organically, specifically expanding bombshells to develop critical mass market awareness and sell franchise.

To date this fiscal year, we deployed $6 $8 million in capital to.

$2 million in cash $4 $8 million in new debt to.

To open our 11th location by property for two more locations. The third is under contract. In addition, our first franchisee opened in San Antonio and we signed our second one for the state of Alabama.

Our goal in both M&A and organic growth is to generate annual cash on cash returns of at least 25% to 33%.

Sorry, the third accident buying back shares when the yield on free cash flow per share is more than 10%.

As of last Friday, we deployed $14 $3 million in cash to buy back 255962 shares this fiscal year at an average of $55.91.

Excuse me.

Please turn to page 15 to.

To review our growth initiatives.

We've accomplished so much already.

So I'm going to focus on only the new developments since our second quarter call.

And our nightclub segment, we acquired a club and its assets and Odessa, Texas in July we've ran Reformatted into beauty show club and open it up on August 18th.

We think <unk> will fit well with our other two clubs in that part of Texas.

We also plan to reopen our Reformatted club in San Antonio on August 18th.

Also in July we acquired the Cheetah club and Hollander L Beach in South, Florida, Cheetah is a well known with a very strong following we believe it fits well with our three other clubs in North Miami Dade, South Broward County area, which includes <unk> cabaret.

These acquisitions are all part of our efforts add $20 million of adjusted EBITDA in fiscal 2023.

We have a number of meetings lined up with club owners to talk about acquisitions at our exotic dancer excellent conference next week in Las Vegas.

And our Bombshells segment during the third quarter, we acquired property in Raleigh taxes for our 13th location.

We continue to look for more locations in Dallas, Austin, Florida, and Phoenix, Our first franchisee open in San Antonio and continuing to do very well.

Second franchisee are close to finalizing its first site in Huntsville, Alabama, and we continue to be in serious talks with other potential franchise groups.

Regarding capital management in the fourth quarter, we sold an access parcel in Philadelphia for $6 million in cash after paying down related debt and expenses, we received approximately $3 5 million bargain net proceeds.

We still have two more pieces of real estate under contract for a combined sales price of approximately $3 $5 million.

Turning to page 16.

With our new acquisitions, we wanted to give you a better picture of the geographic focus.

In third quarter 2022, our regional revenue breakdown was Texas, 41%, including Bombshells.

Florida 22, 7%.

New York eight 6%.

Illinois six 8%.

<unk> six 6% and the other eight states combined for 14, 2%.

Turning to page 17.

I'd like to update you on how we are hunting new technology to drive club traffic and in particular attract the next generation of customers.

Our guest benefits program, our guests benefit NFC program is.

As in presale mode payable with a credit card online now.

We currently plan to men at.

At the end of the month this will be the Ultimate party pack with an annual event expertise access to other private parties VIP experiences a wide range of other benefits.

Sponsor has been very good.

In Miami, our new social media platform. We currently plan to fully launch sometime at the end of August or beginning of September similar to only bands and enabled entertainers to post content receive payment from admirers. This will enable entertainers to build an internet business as well as our club business with us.

This ends the formal presentation, a big thanks to all of our teams nightclubs and bombshells and especially our corporate team for all their hard work and dedication and with that Mark let's start taking questions.

Thank you very much Eric and Bradley.

Like to take a moment to encourage everyone to read tweak. This space. So we can really get the party go in with this Q&A session.

If you'd like to ask a question. Please raise your hand in the Twitter space when Youre done asking your question. Please then mute your microphone to eliminate any background noise or we will do it for you.

We have a limited number of speaker spaces. So after you ask your question. We may move you back to the audience to free up space.

To start things off we'd like to take questions from Rick's equity research analyst and then some of its larger shareholders.

Our three analysts that are on the call are Rob of granite research Anthony <unk> of Sidoti and then Josh Schwartz from Joe Gomes of noble.

Let's start off with Rob of granite research.

Hey, congratulations about the quarter.

Okay. Thank you.

Can you discuss the planned for Fort worth when you think that might be closed and then estimates for opening and youre going to look to take out and then rebranding.

The facility.

Okay.

Sure, we definitely going to be remodeling rebranding facility, we're waiting on the plant it's at the county level.

Unfortunately, there's not much we can do to speed the process up however, we have.

Talk with the owners, they've given us keys or we have the architects and we're starting to to drop remodel plans and get that ready.

I suspect.

We'll probably open within three months.

Of.

Actually a closing on the property.

I believe the liquor licenses in place the adult entertainment license are already in place. So basically it's just a matter of a remodel rebranding them.

And of course getting us.

Platinum so that they can get at the title command from the title policy.

Yes.

Okay.

Thank you and then just shifting gears can you talk about real estate pricing in this environment has backed off at all is it helping you in terms of bombshells locations.

I don't know that it's back up a lot.

We did.

Recently make an offer on a property in Austin, Texas for our Bombshells that was accepted.

Yesterday.

So we will that we had been looking at for some time, but the price was just.

What's crazy and they finally came down too.

The price that we had offered in contact and that's how we're going to do that we may end up with a partner or a franchisee at that particular location.

I'm not sure how that's how it's going to go just yet it's very early so we just got it under under contract yesterday.

We are also looking at.

Multiple other.

At this time.

Okay great.

Great and then I'll ask one last question and then I'll circle back into queue, but can you just discuss the.

General contractor pricing trends, you're seeing has it had any impact in terms of building out bombshells locations.

Or is it just in general what Youre seeing there sure I have definitely slowed down while we had the original bids that came in on Stafford location.

We have done the Jamul there we have started no construction I am making a two different gcs rebid.

Right now Steve.

Steel prices come down lower prices come down, but the biggest problem that we're having are the subs have have had so much work and shop.

Demand that Theyre, just demanding crazy prices.

And I've said look were just what will set will wait.

We're not going to overspend is to build and try to meet some.

If the ROI is not there we will take our time will build slowly we'll wait till <unk>.

Certain things, maybe the roofing roofing will come down and we'll find the right route for Hill ROM you were building at a price.

We are happy with.

And with all the roofline like we did with the the tear out we actually ended up with a company that.

They came in well under the other bids.

Because they had some they had an open space in.

One of the work so we'll wait till they want the work and then build it that will be.

Due in piecemeal it together.

Are very minor.

On these properties.

Okay.

Okay.

And not over not over.

Some time.

In mid.

Mid September or early October on that location.

The Lubbock location, where we have the final zoning hearings I believe in.

In early September I can't remember the exact date, the first 15 days of September .

We have worked forward on the plan and so we should be able to apply for building permits as soon as the zoning.

Oh issues are all resolved and hopefully we'll get that one started under construction sometime in December early January that's first the comp plan.

Thanks, so much Rob through the questions now.

All I will deal with those then and so.

So far the concert event, but we did have acquisition costs.

And here in this quarter.

In fact can probably raised the overall G&A a little bit as well so.

We may or may not see in a more of that can we actually close on a couple more acquisitions in this quarter and.

What time see how that goes as we progress through time.

Got you okay.

In terms of the acquisitions. So since you closed the quarter.

You announced the.

Sure So the Gentleman's club and as well as the Odessa Club just can you help us.

Perhaps should think about those as to how we should think about the revenue and EBITDA run rates are contributions from those cherokees was about $10 million.

We expected EBITDA around $4 million.

We could see some slight improvement on that we're just going to have to make up like always a let's get a few quarters and to figure out where rapid I think thats a.

Kind of where we're at right now are the Odessa club I I'm going to guess.

Similar to the rig type location, probably a $1 8 million of revenue.

Which would put us probably around 600000.

Our year end and EBITA on that one.

Got you, Okay, and then so just to circle back as far as the you mentioned the Erika you think they are the worst of the cost pressures is over so now that that's kind of behind you. So as far as your operating margins kind of going forward.

Would it be reasonable to assume sequential improvement in your segment operating margins I know the business is seasonal but if you could just kind of speak to that that'd be great.

I'd say not in the next quarter for sure I think you know our goal is 30% EBITDA and 20% free cash flow.

On revenues.

That's kind of where would miss our targets.

I think we can do a little better sometimes we may do a little under sometimes.

But overall I think will and I'll, maybe take aroma.

A one year period, I think we're going to be very close to those numbers. So.

This season, our this quarter July August .

September is always are.

Seasonal quarter were returned to a more normality is what I'm, saying now that no.

All of the code restrictions are gone people are traveling for holidays. So we're seeing our typical summer slowdown versus our prime season October to May.

Which to me is very exciting because that tells me if people are going back to a more normal lifestyle, we're going to see nice jumps from October November December .

And basically running through May.

I think this year.

Our first quarter of fiscal 'twenty, three is going to be a record quarter for us.

New York City goes from 45% office occupancy.

And people working.

Office to 85%.

In October November as I believe that the trends ive been reading about and hearing.

And they are expected.

Which will help our service revenues in New York City, even more.

I think we ought to see that in other markets as well.

As people like I said, just return to normal life and normal normal patterns again.

I'm very very excited about how that's going to play out for us.

During our prime season of fiscal 2023.

That's great to hear Oh, Thank you and best of luck.

Okay.

Thanks, so much for the questions. Anthony next up we have Josh of noble capital markets, Josh take it away.

Hey, good afternoon, everybody. Thanks for taking my questions.

Yes.

So I just kind of want to start off with with Bombshells I know that you are talking to a few just franchisee groups can.

Can you talk about just kind of how the talks are progressing as one group kind of further along than others.

Yes, it's definitely all in different stages.

The farthest along group has three sites picked out for us.

On the way back from Vegas, I'm going to stop and with David Symonds, or we're going to buy back the base together.

Shop in and they've got three sites picked out we're going to look at those locations and give them approvals.

Or or declines on our opinions on those three locations.

If we approve a location we will probably get into a you'll get the contract. The franchisee contract done all franchise contracts had to be tied to a specific location.

On the first one before we can create the franchise agreement. So hopefully we find one of the relocations will we'll be able to we'll be able to approve and and get them signed up what should give us our third franchise.

At this time I know that San Antonio Group is looking for their second location right now as well so.

Hope, we will have some more information.

As we progressed through the quarter.

On on franchisees for Bombshells I would like to say we have a few others. We're talking some are betting process.

Basically trying to figure out where they want to locate at an end to get us locations for approval. So we'll just have to see.

How that plays out over the next couple of months I know that.

Recessionary fears how some people.

Spoke a little bit I know that.

Interest rate increases, we're going to be a time of concern is if interest rates continue to climb so where it is.

Take it day by day and and.

And just keep working every day towards our goal.

Okay can you kind of kind of led me to my next question, obviously got Neil recessionary fears or out there amongst some people is the general public and tenants that leads me to a question of like are you seeing a drop in visits to your clubs is due to the economic environment. We're in.

I mean, absolutely act typical summer slowdown I wouldn't call it drops and visit right I don't think the customer spend has changed hugely at this point.

As you can see from the last quarter you know.

Through June 30th at least.

Our VIP spend has been fantastic.

I've talked about two different club managers and in our upper management guys.

They say the VIP spend is still fairly strong.

The biggest thing we are hearing.

Is that you know people are obligations.

And so that's interfering with the normal.

Clothes schedules to the clubs and whatnot, but but not not in a huge way and.

We're just going to have to I don't think were going to really know if a recession is going to cause any problems. So October November December and I think any.

Recession hit will be offset or more than offset by.

People's returning to work in terms of the offices. So pick up are happy hours will pick up our daytime lunchtime business and.

And I think business as people return to the office I think business travel.

Will increase again, so we have certain locations that.

We'll benefit from that and I. So I think overall, we'll be in great shape and the rest will make up with acquisitions. So I don't.

I don't think we'll see.

Much slippage at all.

If we do you know I'm watching Mondays and Wednesdays like I say, all the time watching them very closely.

You know I see a week Monday, one week and then a strong the next or I, you know I see a very strong Wednesday, but then it's weakened AXT.

And vice versa. The Monday, so I'm watching the weekends have been strong.

And so.

Right now I don't have I don't have an answer as to.

Now, what we're going to see or if we're going to see or when we're going to see a recessionary effect, but as of right now I'm very happy with.

Or I know that.

You've been on Twitter, a lot and I have seen some entertainers complaint.

Complaining about customer spend on the entertainers.

We're not seeing that in our dance dollar sales at.

At our clubs.

However.

I don't know about the.

The overall spend on the answers or can save is paid in cash. So maybe some of their cash customers are have all slowed down a little bit in <unk> and we don't know about it.

But the growth that I talked to have been very happy.

Theyre, making money and where we can remember and were printing money as you can see from our from our financials.

Yeah, that's fantastic and I just have one last one before I go back in the queue.

I kind of want it gives us just a update on admire me a L. M. Odyssey into you guys Robyn talked with a soft launch last quarter and that's why I wanted here versus anything just related to the traffic on it.

Been going as you guys expected or it's been disturb passing you guys expectation.

Right now, it's where we're not really focused on we're trying to get it working correctly.

And getting get getting we've got a couple of bug fixes that are going out right now in the next update.

We are finally getting the referral program put together.

We thought we could do a battery Bro program, but we've now realized and the more we the more we learn more we do the more we learn.

The beta was good because it helps us get.

Like the operational bugs worked out.

But as we talk to Influencers as we talk to.

Some of the larger.

<unk>.

People are only bands or.

Entertainers and workers on only bands.

We realize some of the things we must have and how we have to.

Certain things up dose dose those are almost all programmed in and should be completed by the end of August and then well then we'll start our launch because we'll have all the tools in place to do it right.

It's like a nightclub on the Internet, it's a chicken and egg.

I can't get the girls if I don't have the guys I can't get the guys, who I don't have the girls and so on the light nightclub business, we have to get everyone. There at the same time.

So we've decided the soft launch where it was precisely up and operating but theres been no marketing no push because a soft launch will not.

We don't believe in that space like a nightclub will not create the.

The traffic, we need on either side for the permit.

For the entertainers or for corporate admire the content providers or the admirers.

To to make it work so.

That's why we're going to do a much.

Harder push.

Sometime.

Probably the first couple of weeks of September .

Josh Thanks, so much for the question.

So I know, we're all looking forward to seeing the launch of admire meager from soft to hard very soon.

Next up we have Adam Wyden of 80.

Your capital.

Okay.

Yeah, guys look of been set.

S. G. This like you know.

You know I think.

In the past Eric.

You know you never really had the balance sheet to support you know $15 million to $20 million EBITDA transactions and I think you know.

A combination of bombshells low re you taking the time and in building this kind of free cash flow machine.

We've got now the better.

No no a year of free cash you know you can buy you know a couple you know.

If you wanted to you could buy you know a few hours a year.

<unk>.

You're obviously slowing down bombshells growth because the rois are not there I don't like that I love that I mean, its so perfect right. It shows the flexibility of mine.

Reality is materials costs are up inflation is up labor is up like.

Why not be a buyer of these clubs at lower multiples you own the real estate. In fact these are the best inflation adjusted assets and you're the only the owners of them I mean, I would be I think it's amazing that you've transitioned to focusing on clubs again. It shows a flexible mine I mean do you think that we can take this from <unk>.

Hundred too.

A couple of hundred over the next couple of years, because the math I'm doing is you guys could support about $50 million of EBITDA Act.

Acquisitions through through cash flow and balance sheet.

Will you really start hitting walls and so you'll obviously with the stock you can do more but I mean, you know.

What's stopping you from ramping things up right now like and I'm not just talking about 20, a year I'm talking about 50 a year.

Yeah, I mean I'm not I'm.

Nothing stopping us other than we have to find the acquisitions do the deals through the legal work.

The due diligence.

Hum.

With lots of owners were going to the Expo. This year, we're going to put it out there everywhere you know our goal is to I think we can add about $200 million in purchases a year right now for the next three years straight.

And still stay under using about 65% of our free cash flow and and still keeping our debt to EBITDA.

EBITDA ratio under three times, so I'm very excited about that if we need to know if the right deal comes along and we can step it up a little bit and push little faster, we're going to continue to do that you're absolutely right and that our focus is about.

About 95% on clubs and about 5% on bombshells right now.

I do think in the next three months that.

There's going to be some great opportunities for us on the club side, but based on some of my conversations with guys right now.

With our higher guidance.

We paid three times forever or lasts for a long time many years, we're starting to pay four to five times right now for the big guys for the limited clubs for the right licenses.

In the right markets and buying that market share up and it has got a lot of guys talking to us right now.

I think we will.

And bring some of those guys D&O onto our side of the equation soon.

Rolling up additional dollar amount of EBITDA.

I know, we've been saying 20 million increase for 2023.

If the talks go well and everything goes well by our next by the end of the by the end of the quarter by December when we do the K.

We may have a much higher larger target based on deals on the pipeline.

And I'll, let everyone know at that time, where I think we're actually going to be at and how that how that 2020 are you going to go I would tell you I pushed my personal goal I know there were 10% to 15% we've been doing about 20%.

Think 2022 will end at over 30%.

Free cash flow growth and I think that right now 2023 is headed to be another 30% of questions as well.

So it's very exciting.

It should it should be higher than that right I mean, if you're if you're not going to get before I mean, if you can just do the math right like if you. If you right now you're run rating about 100, Youll, probably I don't know the exact math youll, probably clear 85 of EBITDA for the full year I don't know what the free cash flow will be but if you.

Exit the year at 105 and Dubai.

Call. It you know if you buy third year at $1 35, I mean, youre going to be compounding EBITDA, obviously at a much higher rate than 30 in 2023, and presumably you know free cash flow.

You know faster because of <unk>.

How it is financed in and all the rest and leveraging what you've got in so.

Again, leveraging corporate overhead what have you and so like.

I mean again like you know, 30% free cash flow growth wood wood would imply a much slower EBITDA growth I mean again.

I feel like we have the same conversation every conference call, but it's like you know you put up these great numbers you destroy margins you generate cash and we trade at the same multiple I mean, how do you guys think about you know getting the multiple to a point where you can add.

Actually.

Gross.

<unk> more right like you said you made a call me like well $200 million a year, but one of $500 million I mean, the only thing is the equity right. So.

How do you think about kind of getting to a point, where you can get this thing properly valued.

I don't think I can take advantage of the tools. The market gives me and so it's up to you guys on this call.

You guys have to decide if.

If it's worth giving us those tools.

Paying the price for the stock and for the current cash flow and the future generation of cash flow I think.

I think one of the biggest problems with Rick, especially.

Through Covid and so is nobody wants to value us on a go forward basis, everybody wants to buy us on a path run basis.

And give us no value for the growth as you always say they give us no value for the real estate or very little value for the real estate whenever a huge advantage for us.

If you look at typical restaurant restaurants docs out there paying 8% to 14% occupancy cost in other words, the cost or the use of their real estate to generate their cash flow, they're paying 8% to 14%, where we are now at 6.7% one of our all time lows. So you know those are the things that.

Our capital allocation strategy has done for US we are so focused on our cash on cash returns on creating the value for our shareholders and and really keeping all of our costs in line of Covid taught us.

So much the systems that Bradley put in place at the corporate office for our accounting systems give us information and tools and seconds instead of hours or days.

And so we're able to just monitor these things watch these banks and continuously work to do to increase that and I do believe that the market at some point is going to recognize they are going to.

Pay pay a premium for that future growth.

Instead of just the past growth.

And if not then we'll just continue the beauty is we can do this either way one way, we're going to do it a lot quicker.

And one way is just going to take longer so I guess, it's just in our court.

We're all here for the ride and hopefully we can right.

Right now I think were driving like a Toyota Camry and I'd love to be in a Ferrari a memo and.

You don't really drive this thing at a much faster pace or whereas as I know your favorite cars or forces will even take a porsche.

Look at it it's sort of unfathomable I mean, when you think about the spaces, we did with Edwin and we go back and we looked at looked at the stock as effectively with the exception of <unk>.

2007, and eight where the stock went up ahead of Vegas.

Use the equity intelligently, but then went and bought back stock whatever I mean, there is effectively been.

With a few select moments in time, the stock is effectively traded five or six times EBITDA for basically the whole time. The company has been public and so like you've been able to add I mean look maybe you can comment a little bit about lowery, but like you know you've been able to buy businesses at five or six times right and drive it down to four two.

And so like in the absence of the currency you have been able to use the cash on the balance sheet and your operating abilities to basically make deals work, but its just incredible where you would be if you know hey, the stock was trading at 10 times, what you bought a business with some percentage of stock and you bought it at five and took it to three.

This business would be $500 million of EBITDA in a heartbeat and so like it's just.

You know look I, obviously, you know in the absence of multiple expansion right. You can look at the returns and you can say, okay. You know I'm buying this thing with I don't know 105, EBITDA you know, maybe that's nine or $9 a share of free cash flow, but whatever it is you're buying this thing at nearly a 20% or for whatever 60 Bucks I guess it'll be a.

15, 15, 16 separate cash flow yield and if you can grow.

30% of free cash flow.

We're still getting us a 45% total return without multiple expansion, but I mean, if you can get multiple expansion I mean, the whole the whole machine like you said, it's just it's a porsche not I mean this is an impediment Toyota Camry is pinto.

Adam let me be honest.

I'll be completely honest, we didn't deserve it before 2016.

We were we were young.

I was learning I'd never ran a public company I was an operator of adult Mike clubs.

Damn good one I think.

But as we move as we grew into 2016.

Things change for US, we we figured out cap Hawkeye strategy, we figured out the compounding we figured out rois you figured out cash on cash returns and we became a financial machine.

It wasn't as frequent business anymore. We're in the free cash flow business, when I say that a lot out what I would say to the market is if you want to keep punishing us for pre 2000.

The team then you have that right, but I would ask you to forgive our pass and look at 2016 on.

Can't control, what Covid did and slowed us down a little bit, but if you look 16, 17 18 19.

Two.

Go from 2016 forward and start bearing them and take us and compare us to other companies with that type of brokered from 2016 on and say are we being fairly value compared to those companies and I think youll find we're not being fairly valued as you continuously.

Calgary body.

But like I said I think that the part of that is we have to get everybody.

To understand that there will be a transformation of this company.

After 2016 are starting in 2016 and.

I've been in some some debates on Twitter with with various.

You know people and and tried to explain that.

When you look at a 30 year, Ron or 20 year run.

I am not the Guy was in 2012 2013 1999, when I took over the company.

Uh huh.

We've grown we have learned and I think we have executed two a T or even better and we said we would execute.

From 2016 on <unk>.

And I would just ask the market to you to take a look at that.

And and value the company based on those things and imagine it began where we're going to take this company over the next three years. The next five years. The next 10 years and be a part of it. We're looking for long term shareholders were looking for guys that want to partner with us over the next decade, and and make lots of money.

And wealth and create lots of wealth.

In our <unk>.

Interest are aligned with shareholders you know Mike the majority of my wealth is answers and my rig stock.

It took me a long time to learn that the investment bankers that were leading man and my younger days.

We're basically taking advantage of us they were having as we use our equity at Super high cost of capital.

With the with the premise that a lot of companies use while at least not to pay that back it's not that well guess, what you're always paying it back because you are paying it back with a reduction in free cash flow and you're diluting your existing shareholder base.

And I was a big source, yes. So.

Yes.

I think we're ready to go.

Yeah, No I mean look at I think your comment around 2016 is a good one I mean again I don't have my numbers in front of me, but as I recall the business was probably on the measure of 12 or 13 of EBITDA and I think we're we're certainly in excess of 100 now and so if you think about that you know talking about seven.

18, 1922 to one <unk> and six.

Six in six years you've.

More than eight X the business on an EBITDA basis or more importantly, as you said on a free cash flow per share basis, it's it's meaningfully meaningfully more and so yeah look I don't think that those types of companies trade at trade at whatever five or six times free cash flow.

<unk> percent yield growing 30 doesn't deserve a doesn't deserve the thing I mean look to be perfectly honest business growing free cash flow 30, or 30% a year should trade at 30 times free cash flow not at six times free cash flow. So you know look I I.

I would encourage you to.

In order to continue to find creative ways as you have done in the past whether its feels like Lowry, where you buy them at five or six and find creative ways to get them down to three but I mean look you know look it's <unk>.

You've definitely been guilty until proven innocent.

I personally know a lot about that so look you've got to keep putting them in the face of eventually they're going to bleed right.

Well, we're going to keep doing what we do keep punching them in the place eventually they're going to get a bloody nose, that's what I say.

Exactly. Thank you so much Adam for the question next we're going to have terrible, but I just wanted to throw this out there for anyone in the New York City area to stop by meet management at Ricks. After I don't want to expand a special invitation to Tara Tara takeaway.

Hey, guys I have really hope I don't get disconnected my phone and dying rapidly.

But I just wanted to say, thank you and number one for doing this.

You know Twitter spaces as your platform for your earnings I think that.

Is it really good marketing decision.

As you know we can interact with you Eric I'm, the CEO of <unk>, which I think is is just a really good marketing strategy.

And yes, I'm I'm wrong on Iraq, and I'm excited for.

The future of the company in the things that you guys have touched on here I am.

I was wondering if you could elaborate a little bit on your.

Future.

Hi, I guess endeavors as far as competing with only fans.

Sure.

Now for as much.

Excuse me the original idea was never to compete with only bands it was more to create.

A web based business for our entertainers.

So that they can draw customers into our brick and mortar.

Which would.

The customers meet new girls, which would hopefully they would follow on admire me, which would bring them into our brick and mortar business right. So we get a <unk>.

Mercury where feed there.

Our business.

However, I've had a lot of.

I would call Influencers only band.

I don't know that I don't know what I don't know if the word is for the for the I call them whales in the casino business.

So like the whales have only band.

We've had a lot of unfair hey, look we would like to be.

On our site, we would likely talk to you about.

Having meet and greets.

For our for our followers at some of your clubs.

And do those types of things, where we'd have a safe environment, where we'd have security and we'd be protected basically if we wanted to do those types of things and so we're talking with some of those those girls now are I say I say growth I should say you ladies are women I think.

They're all over 18 and.

Where we're very interested and very curious as to can we create is can we make this work, especially in markets like New York Miami.

Denver Chicago.

Where where a lot of these big Influencers shame to live in.

I've reached out to us from.

We got to get the site up and running I think we're.

Do some very creative stuff.

As we move forward.

And pornstars in the industry.

With some.

Combination of brick and mortar.

Performances at some of our nightclubs around the country.

As well as through admire me.

And in different social media deal.

As well so it's going to be a lot of fun I think I'm very excited about it it was kind of a letdown because when the Ukrainian war broke out and put us months behind on this I really thought we'd have this thing going.

At a much better pace right now, but in all of our programs were in the Ukraine.

And finally, they finally got situated in places where they could get back to work and get this project done and so we're very.

Happy for them in that regard and that they're safe by much.

So we're ready to build this thing.

We just can we just it's got to be right. We got to be able to have one of the biggest things that we had we were having issues with the.

The private sale through and through the private messaging.

That is all fixed and up and operating now.

Which we were told is a very huge part of their revenue is selling private video and private photos and those types of things.

Through <unk>, so we're happy to get all that done.

You can answer anything Patrick let me know that is perfect. Thank you so much Eric for answering and answering so clear and concise concisely and yeah. Like I said I think you know in doing what you guys are doing.

Mark any and yourself and coming to Twitter, where you can interact with shareholders and have this open dialogue.

In regard to the future of the company is.

Not only very transparent by also.

I think it's just extremely bullish because you're just opening yourselves up to that many more.

Potential investors, so I again I really appreciate it I appreciate your time.

And letting me to ask a question.

Youre welcome and thanks, Adam highlighted because it puts me in a position where I feel like I'm operating the nightclubs again.

One of the things I loved about the nightclub business was I threw the party everyday.

Talking to people every single day, and as I moved into the corporate World.

I kind of lost that and so Twitter for me, especially in the last three or four months and recently, it's gotten so bon it's so exciting.

I get to interact with end users I get to interact with investors.

As you've seen on some of my Twitter feed.

Haynesville go I'm going to the club Tonight come see me and it's great. Because you know $17 15 people show up we have some drinks will talk and I get direct feedback of exactly where we're at what we're doing right what we're doing wrong.

To get to get the idea is the reason we always I think one of the things that made us.

Our company so great as we were able to talk upper management is involved in the club operations. They still are.

My level its been harder and Twitters given that back to me so I'm very excited about that.

Thanks, Jeff.

Thank you so much for the questions are are we appreciate it.

Next up we're going to bring Eric erode away to speak Eric take it away.

Hey, Thanks, Mark and thanks, Eric for taking my questions today.

Just wanted to get some clarity on the the Chita acquisition. So we're going to kind of understand exactly how these acquisitions valued.

I know in the press release, you said that you expected $4 million of adjusted EBITDA for the club with 25 million of total purchase price for both the club and the real estate.

A bit over a six X multiple I don't know if the club is being valued at three to five and there's some rent paid to the building or theres something else going on there or maybe it's 4 million now, but do you expect a higher run rate, but just helping understand the underwriting of that acquisition will be really helpful.

Sure. So let me give you the basic what I looked at it because we think we have a 10 year six months.

Promissory note at $15 million.

If you take that and divide it out you get the payments the others.

It's basically a couple of them.

Or basically our cash on cash return is going to be about 33%, maybe it's a little more maybe it's a little less.

Depending on how much savings, we get I know, we're going to save on their insurance or insurance costs were much higher than ours.

We look at a couple of other things.

Things, where you say we can are we.

I think we can shave a few points off of cost of goods and this and that.

So hopefully overall.

And maybe that 4 million becomes a five 4.8, something like that you pay out the two southern basically we need to make a little over a little over $3 3 million a year to get that 33% return I think we'll do that and the rest is just basically.

The rent I always call. It managed all right, we're going to take owner financing, we're going to pay the owner.

60% of its free cash flow were 40% of free cash flow and then we're going to take the rest give them cash for and then earn that cash back in and basically less than three years. So that we come up with 33 and in a worst case scenario. It takes us for years and it's a 25% return.

And I'll do deals like that all day long.

The six times the real estate was a very big portion of those I don't know if you're familiar with the property. It's 2.2 acres on holiday Beach Boulevard right off of 95 unbelievable access.

To the beach and the freeway.

You can't beat it we bought to give you an idea we bought with Kratos property across the Street I think Scarlet is only one nine acres and we paid $7 million for that property.

So we didn't really value. These things separate we did it as a global package because the financing that the owner offered Westwood was so great for us that we really weren't overly concerned with getting to a multiple but more of a cash on cash return. So that's how this won't take long was low with was valued at not it's rare because we don't normally and allow the owner.

I don't want, though don't want to carry that much paper or or not but.

So it's fantastic and in a green NEA.

If 82 or 83 years I cant morale, Joe as it is <unk>, but for him he's got a big monthly payment come in every single month guaranteed for the next 10 years, a knows our reputation he trusts our management team and he knows at Ana car very very well added him.

<unk> talked many times over the last five years and Uh huh.

Good personal relationship and we're able to harness that that trust in that.

What we've done in the industry and use that to.

To a great deal for us Ana integrate deal for Joe. So I just think it was a win win transaction all the way around.

Okay. Thanks, I appreciate that that's very helpful and then.

One more question kind of following up a little bit of Ams comments, but maybe five years ago. On these earnings calls you would talk about how.

Thanks, Rick wasn't at the top.

Ain't where banks would finance it.

Cost of capital was so much higher obviously, you just said the cost of occupancy is as low as it's ever been so.

RCI eventually got to the point, where banks would finance lowering our cost of capital and obviously, making everything that much better are there any other you over the next five years as you try and you'll get a larger shareholder base are there other tangible benefits like that that you see.

The company continues to grow and mature.

I mean I think the next is our equity our equity becomes our cheapest cost of capital.

Venice able we're able to grow at a much higher rate we keep these hot hot.

These top rois.

That we're doing at 20% 30%.

Cash on cash the differences that they will go up even higher because we won't be having those huge interest expense payments.

If we're if we're able to use the equity.

Obviously, we're going to be very cautious we're not going to we don't want to go out and do.

Dilute our shareholders anytime we're not going to take undue risk just because our capital is cheaper we're going to treat it just like cash we're gonna treated just like right now, it's just going to be we would use equity because back the cheapest cost of capital to the company.

If you look we use debt.

More than more than cash because that typically has been very cheap for us on a relative basis after taxes and so we're we just use the equation is all fifth grade simple math.

My book.

As you know.

Adam Adam is really pushing hard on on if you had equity how much faster could you grow and we've started doing thanks, if our cost of capital right now which is between.

6% and 12% dropped to 4% or 5%.

So as we traded at a 20 or 25 multiple.

How how great would that would that look and how would the ROI on that become.

Over time, especially as your compound year after year.

With that type of a capital cost.

Okay. Thanks appreciate the answers.

Yeah.

Eric Credit clarify one thing permanent you said, 6% to 12% equity cost of capital, but but.

I don't if you're if your shares at $60 and Youre doing $9 a share of free cash flow that your equity cost of capital would be more like 16% now.

Uh huh.

I agree with you like in General if you if you think about how Warren Buffett value Securities right. He basically value securities is so what is the in place free cash flow yield and what is and what is the what is the organic earnings growth right and so.

In this specific case, you have a 16% free cash flow yield your earnings growth is probably at least in the for now at least 15% right because youre going to grow volumes in the gold price maybe builds of bombshells.

And so in that specific.

Thing.

At the very least right you should be trading at a at a 16 multiple or 15 multiple of what your in place free cash flow. It right that your your multiple is equal to your organic free cash flow growth and giving you're giving yourself zero credit for M&A or capital allocation. So if you look at these can be for example, Warren buffet bought it.

He said, okay does the appraisal casio once Google organically, that's going to be my Richard I mean, so I mean, even in a world where you have zero M&A or zero thoughtful capital allocation like at the very least and should approximate what your organic free cash flow growth is right and we know that you can grow 30 to 40 with M&A. So like you know I don't know I agree with you like.

A 4% free cash flow yield would be.

We'd be at 25 X multiple of free cash flow and that would be a substantial spread to what youre buying right. If you're buying assets at five times EBITDA and you know whatever call. It you know.

After you get past advantages whatever maybe it's a 16 or 17% of free cash flow yield when you factor in the depreciation what have you, but I mean, you're I am curious how youre getting the six to 12 or as is my analysis, making sense.

I mean, youre always like 15 steps ahead of me I have to sit down and write it down to do the math and get back to you as we were talking to every day and I told you that all my stomach napkin math.

Yeah, I mean, it makes sense and yes, I understand that.

I agree with you that I think are trading much lower but I think the market is going to have a set.

I'd call. It the reward system ranked the market rewards us for performance.

I don't know what the market wants reward us with on what kind of multiple basis.

<unk>.

Everybody Thats in discount and the reality is we should get us in bonus.

Our businesses are moated.

Our cash flow is solid year after year after year.

It's like we own the only bubblegum machine in town that you can get.

Paul a bubble gum problem so.

We can want to charter quarter, we turned to corner, we went to our 35 since we start 35 bed.

We just can't Sarcomas that nobody wants to have bubblegum.

And so.

I think at some point.

That market is going to realize that as we've talked in the past.

We can be fit because we can be 100 coffee 200 clubs at some point like waste management.

And unlike other roll up story, we're going to get a premium I don't know when that will be I hope sooner rather than later because as I've said it makes everything faster.

And it seems to me like the.

The market.

The industry.

Is ready to be rolled out more now after COVID-19 than ever before history I've been doing this.

Since 1989.

Rolling the thing <unk> 99.

And I just think that.

The market's more readiness ever band to the industry's more ratings ever been and we just need the tools and that's what we're asking both on these calls that's why we switched to Twitter spaces.

We've as institutional investors Jeremy talk about ESG.

Don't need institutional investors, I need a million or $2 million.

Retail investors to go buy 10 shares of stock go by 20 shares of stock 50 shared a sock help us create the momentum we need to give us the tools and and and we'll build this thing and we will grow with it and you can become part of our community you're buyer in FTE, you can come into our clubs coming.

The discourse.

Management's made herself think trustful I've made myself accessible youre never going to gas you're always going to know exactly where we're at what we're doing and as I say many times. What you see is what you get and you.

When things are bad I, you know I I'll tell you things that I can answer that this quarter has been a little slower.

<unk> time, but thats a return to normal.

That's how we're going to continue to do things.

Forever and like I said I think at some point, we'll reach the right people, we're not for everyone not everybody should own our stock, but hoping you can find the right people that can and will and will create long term holders.

That will build this into a corporation and real company.

As you always breach.

Thanks, So much for the question Adam next up we're going to be bringing the blonde that broker to the stage Erin take it away.

Hi, guys. Yeah, I just had a quick question I noticed you mentioned you're going to a conviction.

I think that.

Mark will do what Mark always does and capture the essence of our Expo.

And.

One of the things, we're really going to work on our out there is we're going to have about 300 plus of RCI employees out there.

And so we're going to be doing some interviews. So I think youll see some as we move forward you're going to see that.

And animal quit.

Some of those <unk>.

Interviews on spaces, and let you get to know some.

Of our top executives around the country I think one of the things that.

That's missed in RCI story is that are you know.

Everybody thinks it's a one man show or you know it's a couple of guys that are that I'll Miss him, where a company with 3000 plus employees, we have 20000 plus independent contractors.

We're actually in a very large company.

And growing at a very rapid rate.

And I want to I want to get that message out there and I want.

More people behind the scenes exposed.

To to look to the marketplace. So that can be realized just how big and how important and how dedicated our employees are.

The likelihood that the number of employees that we have that I've been with this company for 20 years the number of companies.

15 years 10 years, and it's just an amazing number of Evo and.

Hi, I want I want it upheld mark until now one of App.

How many more years, you think youre going to be with this company. What plans do you have to leave it or what other things do you want to do and I think everyone's going to be surprised at how much people love the company they work for.

And our see our strong is actually.

It's real.

It's ingrained in all of Us and.

Youre going to Youre going to get the C part of that and I think that some of the stuff was missing I think that the empowerment of women that are industry gives work.

To highlight.

Several of our key female employees.

Around the country from from host to club management to our.

Corporate office staff, and we're gonna gets us their stories out there and let you hear from their own words.

Without without any guidance as you know mark if all raw with Marquis is going to go and he is going to ask you crazy stuff, you're going to get stock and.

There's going to be a lot of fun and a lot of jokes in it but at the same time youre going to get.

Sirius information on the company and that's what I, that's what I hope to get an Expo this year.

Awesome.

Great you guys since you're out there you got to come visit with us though.

Definitely please come to Vegas with US we're looking forward to it.

Now next question is going to be coming from Howard W. Penney Howard of hedge I take it away.

Hey, Thanks, very much first time ive listened to a golf thank you for doing it.

How big is the opportunity for you a meeting like how many clubs are out there that you could roll up over time.

Well Theres about 2200 clubs in the U S.

Based on past magazine article in Barrons, and Fortune and whatnot.

I think 500 are key.

Cause for US right now we have about 50, so were about 10% I'd like to get us there.

200 clubs or about a 40% market share of the clubs what I call our.

Clubs the ones, we're very interested in.

At that point.

We'd be basically four times the size we are today.

Based on our current market cap, we have a mark cap somewhere between two and $3 billion.

Our free cash flow range of $400 million to $500 million.

And if our free cash flow.

They've got a margin rate of 20%.

You know we'd be somewhere between.

But.

$800 million of free cash flows, though I mean that would be very very exciting for us.

How many clubs you have to look at to get I'm, sorry, I'm, sorry, inaccurate $400 million of free cash flow.

I tried to give too much money.

I don't think you can never have too much anyway, how many nevertheless.

How many clubs do you look at for you like is it 'twenty you look at 'twenty to get one or is it tend to get one like how often what's the.

I don't know alumni he said Saturday, because I don't know exact I'm trying to think of how long. We've had so many calls lately I've got close we haven't been able to look at yet.

But we're looking at numbers, we're pulling numbers basically we can we try to get financials first we look at financials before even look at property at the financials aren't there for us.

I'm not I'm not looking for clubs, but I have to go upgrade and fix or are they I want to buy cash flow I'm in the free cash flow business I want to buy a free cash flow I want.

A track record of 510 years, plus I want to see.

Solid cash flow.

The trailing two years.

And I just wanted to acquire it bring it in and put it under the umbrella.

But our synergies and with cost controls and pass the securities.

The things we do.

Brand it.

Or or keep the brand depending on how.

How good their current brand is and and then move onto the next one I would say, we probably look at.

We are for a week at this point right now.

Various in various ways.

And.

We do pass on a lot of the smaller ones.

We pass on clubs that we just.

Our are confident.

In the market or in the competitive level of certain markets.

But overall, we were pushing very hard we are building our our I call. We're building our in our or down line up so we have a.

Well lined up over the next period.

Period of years.

We're going to be meeting with owners and Vegas.

Some guys aren't ready to get out yet, but there they talk about well probably in a year or two you know I'm 67 about how long does that mean I wanted to ask Rob maybe three I don't want to get it remember 65 or something like that so we're talking with those we're getting that number.

And putting the.

Just putting putting putting some offers out there. We've got some offers out there right now that haven't been accepted yet, but the guys are loving that I'm sure, they're shopping and trying to find other buyers will pay them more.

Alright, not but eventually they are going to come back to realize that a buyer that'll pay them more is going to give them a whole lot less cash down they're going to want more financing.

There are risks is going to be higher they may get more pay them. They may get more money, but they never collect the money.

But they are guaranteed to get their money we've been doing this for a long time, we've got our unbelievable track record.

Our track record is in <unk>.

Filled with the Securities and Exchange Commission for $19 95, So you can see our track record and what we've done as far as main all our bank payments, we never defaulted loans.

Loans, we've made everybody. So I think that gives us a lot of credibility and guys get there and it takes time because they got you know it's like letting go your baby a lot of these guys have been doing this for 30 years and they've been that same club they've got employees that they care about their like their family.

And so they don't just want to sell to somebody who is going to come in a buyer. Other employees. So it takes time for them to get comfortable that we're not going to come in and just buyer everybody. We backward buying your cash level, we want the same people to operate it because.

That they are the ones that are built that gaslog brand. So it just takes time to get to that point.

But I can tell you I think it's accelerated as we're getting more calls than ever and the pipeline is is great right now.

I don't know even more after I get back from Vegas.

In the weeks following Vegas is weak.

B plant the seeds of of.

Hey, this is what we can do or this is something we're paying a higher multiple now and guy start doing the math they start coming back with numbers.

A they start realizing well Gee I can live in Florida, or I can retire to the islands are.

You can go to a ranch in Montana, and those types of things and that's why we.

I think that's what really gets.

I guess the the.

The train rolling with with certain owners.

I appreciate your time thank you.

Thank you.

Thanks, So much for the question Howard and just noting Eric's doing all of this without M&A bankers because no one knows the business better than this management Jen <unk>.

Next up we're going to have an international caller Matthias from Germany. Please take it away.

Thanks very much.

It just takes a might have to apologize maybe for my silly question because it fulfills the call of you I'm I'm I'm hearing, but maybe I may ask a first I just don't understand what's the difference between a nightclub and bumped shell.

Simply Kimberly kind.

Kind of brand for a special type of nightclub OIBDA restaurants.

Only a restaurant and bar I Couldnt understand Vance.

First question second question is.

You mentioned that you are able to buy new clubs edge three to five times EBITDA.

Why is someone selling at very low price doesn't really make sense in my eyes. So what's the main reason muscle.

For sellers to sell and why do you already mentioned that a little bit in the last answer Baidu Bay, especially sell to you or not.

Mega kind of auction if someone pays more inverse.

And as you also mentioned to eventual buying a really lot of new clubs, what about management resources is there a natural limit of.

Of clubs that is that you are able to manage let's say 500000 or something like that.

Is there are limits of as you think.

Would not be a clever true to go over towards still keep the margins.

Thanks.

Sure I'll start at the top so wasn't there between bombshells macros bombshells are a typical restaurant sports bar.

There there.

There is no lapdancing theres no.

Really fraternizing.

With independent contractors.

It's more of a waitress typical in a waitress more like a.

There's or twin peaks.

And more like a at the same time.

More like a yard house dark from product called yard House are.

Dinner.

Traditional lunch crowd in the daytime traditional dinner crowd and <unk>.

Yeah.

The guys are hanging out the bar watch TV split with the girls in the afternoon and then late night, we convert into bringing lie bj's, we can crank up the music that gets loud and we become more of a.

A meet and greet place for 20 to 35 year olds to come on their way out to the nightclubs to have a little cheaper drink maybe grab some food.

Get into the <unk> get into the mood.

And the nice thing is they in a group of girls Com group guys Com all of a sudden that are.

They are flirting with each other and talking to each other and the next thing that they never made it to my cloud based and all night.

And I'm sorry of the bombshells.

Which gives us great margins.

Now the nightclub business, where a typical.

Strip club gentlemen club whatever whatever term I don't I don't know what the term is in Germany.

But basically are you.

We have nudity topless dancing are full new dancing Lapdancing VIP room.

Champaign rooms that type of stuff.

Why do you guys sell for three to five times EBITDA because private equity.

And banks.

Do not lend money for the acquisition of adult related businesses.

Our very few in the United States other operators do not have access to capital and the capital structure that RCI has.

We because of our large real estate holdings were able to borrow money from banks against our real estate pullout equity use that equity to buy and pay cash down in large sums.

We're from.

$10 million this last transaction.

Paid out 5 million of transaction up to $35 million ish, and then Larry transaction and were able to use 30 million of equity in that transaction as well.

Uh huh.

And you say why offer that that's the same answer.

We have the ability we have the capital we have the track record.

And what's our limited managing clubs.

Right now our internal goal I want to get to 200 clubs.

I'd like to do in three years, if it takes five it takes five.

And I would take the longer takes the longer I think at that point will and our systems are in place were completely scalable the.

The amount of management talent.

We bring a lot of our count up from our.

And existing operations bring guys up.

A lot of times, we buy the talent when we buy the club.

It's already well managed as already has great cash flows why are we going to change anything we're going to leave that current management in place.

When we bought Scarless the same general manager had been there for 15 years. He's been there since I think 2017 for us.

He has no desire to retire.

Retire he's doing a great job.

Our cash so a lot of times, we don't we don't make hardly any management changes and we just actually grow our team that way with regard organically.

Our <unk>.

Through the through bringing people up in our clubs or we do it through acquisitions.

Where we we not only get the club and the and the land the property, but we get great in employees that have.

Work in that location for years and years.

So I don't I don't know that Theres a limit at this point.

I'm sure it.

Some point, we might reach that limit, but I think.

ISO operators of Burger Kings at one 1100 of them. So if you put the formulas and you put the systems in place there is no limit I don't think.

Thank you.

Our company is similar to a two week for.

For example, non listed companies.

The trial may be much bigger.

You know, it's hard to tell the private company, there's two major private companies I would say in.

In the U S. There's lots of mid sized.

As revenue size of rigs I don't know, Dave I don't know deja blue numbers, but deja blue is a very large chain.

And and spirit Rhino is another.

Fairly large change with their more west coast and International then.

And in the markets that we operate in at this time.

Uh huh.

But I don't you know I don't know their capital structures I don't know their access to capital, but I can tell you that both of those companies. When I started in 1999 were much much larger than us and we have if we havent passed them, we definitely closed in probably deja vu as it has the most locations if theres one that revenue wise as large as us back.

It would be them I don't think experiment right not anywhere near our our revenue size.

Okay. One last question if you allow me.

And what about the modes also signal.

A restaurant a single night club isn't it quite easy to get a new competition competitor just a downer Roche.

How stable is the restaurant or a nightclub business on the long term for our Coca Cola consortium, a single restaurant or single nightclubs because in a S. I S.

For impression in Germany, our restaurants come and go and also clubs come and go Boston, maybe if before SD told the general manager is it's going to another club.

The the business sometimes collapses.

That a real risk concern in a single club or don't you'll see that.

And the nightclub on our nightclubs side were adult nightclubs. So we have nudity, which requires special license with adult entertainment license spectrum business licensing whatever the local government has put in place are safe to put in place. Those licenses are mainly grandfather that were made major main many court cases throughout.

The last 25 years, the existing locations or basically the only locations that can operate now in those markets.

If anybody else trying to open their basically not allowed in what I call economically viable locations or they have operating restrictions that are.

Much much different they can't operate at the same level or same manner that we do.

And so that gives us a huge moat in the nightclub business. That's why we own our property. The property is tired of the license are tied to specific property address our zoning.

And so that.

It's why we buy a property in the nightclubs as far as the bombshells sure other people can and opened bombshells.

There's been a lot of there's a lot of other types of sports bars restaurants nightclubs that.

That do similar things to bombshells, but.

Bombshells, we buy a property for the most part we're super high traffic high flow areas.

And.

The population growth in our areas are all strong where we're at right now it's.

It's very expensive to build a bomb shell that's not a typical small hole in the wall.

That is easily to open and compete at the same level.

And I think that.

We have certain operational advantages.

With our history of being in the business for so many years.

That.

We've been we've been fortunate and very strong that all of our locations are profitable, they're all continued to be profitable.

And we haven't had any real competition that comes in and effects.

Our revenues our oldest locations has been there for over 10 years most of our locations are going on four to seven years old right now and we're just starting to expand over the next three years hopefully another 18 locations.

Uh huh.

If you ask me the biggest risks bombshells would probably be what I consider the.

Higher risk than the nightclubs, but I still think it's relatively pretty well and anybody can go knockoff chili's or olive garden or any other major Texas roadhouse any other major Ruth's, Chris Steakhouse, yet they all seem to have their brand their branding they're concepts and they have their followers that like that brand.

Our patrons of that brand and support that brand and I think bombshells.

Has done and created the grade the same type of.

Of atmosphere, and we and we've proven the concept works for over 10 years now.

Thanks, and a ratio.

Wish you luck in the next quarters, we will be happy to follow him following earning calls thank you.

Thanks, So much we appreciate it now Eric one question that was submitted to me by a Hot Girl capital is do you plan to open a Nashville location, maybe a naughty aki tolerance in the future.

Well Nashville is a very tough market, we actually were working on a partnership club up there.

And sorry, we had an echo there.

And so we've kind of stayed out of that market.

The liquor loss combined with the adult entertainment laws are very different in Nashville.

They want to be the.

Bachelorette capital of the World and I.

I don't think they really want all the guys. There are some but I don't know.

It seems like there theyre not very favorable to our industry in that market.

I would never say never Guy. So we're always looking we're always try and hone.

Hopefully someday, we find something that makes sense.

Fantastic now we just hit 90 minutes, so would love to encourage everyone to re tweet and share that.

Some more people in here for our next question, we're going to be going to Cesar.

Cesar.

Yeah. Thank you Mark I have a question Eric.

Okay.

You're telling us that you would think that the expansion will be three to five years, but thats U S. Based so when will be the time that you think the management thinks that you can go with demand and with rich.

<unk> hospitality abroad, you know I'm talking Europe , Amsterdam, Paris Milano.

Mexico, Latin American country.

Los Cabos Cancun, Monterrey, Mexico City, when will be the time for rig hospitality to go abroad.

To expand a bit me that brought yes sure Thats easy.

When we run out of opportunity in the U S.

One of the biggest things that we have to learn those markets, we have to learn the legalities of loss.

We have defined legal counsel, we have to Theres, a lot of homework and a lot of legwork to expanding internationally.

Right now we've done some early work in Canada, we've done some of that labor in Mexico in the past.

So it's not more and of course, Argentina.

Of the five even if its been a while.

Since then we've decided to stay focused in the U S.

When we like I said, we run out of growth here in runoff expansion plans here.

I'm not against international travel.

In international markets, I think it would be great to create a conglomerate of that size.

Basically our.

Our branding.

On that that would exceed continents.

Actually it's just going to take time right now I think we've got enough bikes over the next three to five years I think we're pretty wrapped up here in the U S. As we continue to roll up this industry and complete here then.

But if you look in another markets, our bombshells may expand in some of those markets through franchising much faster.

It's just early in the stage of bombshells, but.

We'll see as the as our expansion gross three franchise.

Okay. Thank you. Thank you for your answer.

Great. Thank you so much for the question just want to take a moment to encourage everyone to follow Eric equity animal and most importantly Bradley.

On Twitter and we want to get his follow or down into the four digits or else is not going to be allowed home once he returns to Houston.

Next up let's bring ice for the floor ice Europe .

Alright, and thank you for having me I'll try to make some pretty quick. So my question is kind of about bombshells.

So you've been pretty methodical about growing bombshells I'm pretty sure you have like 11 locations over the last 10 years, but right now you really seem to want to be ramping that up with both kind of have your franchisees and company owned locations.

I know you have to slow down now due to inflation concerns, but I guess, what about the concept now.

Makes you really positive about bombshells is it just.

The sizable location the patio spacing.

Newer locations seem to be performing a lot stronger than your older locations. So I guess, if you could just kind of touch on that that'd be great. Thank you.

Sure.

It took us time to learn.

Our first few years, where massive learning experiences for us.

We didn't understand the demographics of our customer base, we didn't.

I understand a lot of things a restaurant it was new to US we knew the nightclub business with now the liquor business very very well.

But the lunch crowd that dinner crowd the the different day parts of the business. So we brought in an expert.

The Big thing is just growing the team.

The support staff.

We've grown that show so much now we opened six clubs are six locations in 18 months.

In the past.

And from four to 10 locations.

The growth was very rapid we stretch management very ban.

And we realized we needed to take some time and buildup as right as we were.

We're getting to the end of that Covid hit US right ready to go Alright lets go do six more locations and then Covid hit so we had to take some break or Matt.

We are working on fixed locations. So we have we have two bought one under contract or actually two under contract. We ended the other contract yesterday that it's still very early on that Theres a lot of due diligence to do it.

We have time on that one to figure out just in case something doesn't work, but right now they have the architects engineers are working full time to get that location up.

Uh huh.

We were we're not too far often Stafford, we're starting construction construction alico we've got the.

The demo is all done we are going to start putting a restaurant back together to start doing some of the work, but we're waiting for certain things like concrete cost.

Steel has come down so we're probably getting the steel order here very soon the roofing costs are coming down we found a roofer who's looking for some work you know the.

The biggest part is like I said the subs just.

They have so much work that there you know, it's like Oh, Yeah, I'll do it for you, but you know the 100000 dollar jobs can be 180.

Well when you have 20.

20 contractors or subs, telling you had 80000 more dollars you spent another $1 $6 million of that location and I'm just not prepared to do that so we'll wait we'll take our time, we'll wait till the subs need to work, we will negotiate down and will.

We'll build them at the cost are supposed to cost and maybe pay a little bit more here and there but.

Not not not to but not to the tune of additional basically 70% of cost of what we built for Arlington, we paint and build the Arlington store.

Well like I said those costs are coming down we're getting more in line we were.

Kind of.

I would say <unk>, we're doing some of the sub search ourselves in.

Same thing for Raul at Texas, a were waiting for building permits there the bid sets, we'll get those bids out it's a new construction project.

Now typically.

Our new construction project will have a.

Easier job for the GEC, because youll end up going with them they'll go with a group that will be 90% of the build out of the building land concrete all that stuff themselves. So.

They tend to if they're going to bid it they're going to tend to give us.

Barely market rate bid versus.

I'll I'll do this job if I get paid a lot of money so I.

I think I think we're on the course of that we will see over the next few months go by I think September October November .

We're going to watch inflation and watch.

<unk> costs, and Oh, well have to see where it goes.

At some point it doesn't look like I said, we're spending on the land we bought the land finance most of it at $4, 99% of 5.25% five 4% something like that so we can set on it way pay a little interest.

It's a lot cheaper to pay them a little more interest costs on an extra 1.6 hours per bill so.

And so that's kind of where we're at.

Alright, perfect. Thank you so much thank you.

Thanks.

Thanks for the question is next up last spring, Johnny Shen to the floor Johnny here.

Hey, guys. Thanks for taking it it does a good job on the.

Quarter and all that.

Yes, I kind of wanted to go back to the.

The cheetahs deal just because it's new it's interesting.

Its size.

Is it would you say it sounds like you didn't you didn't quite Davis, Eric but it sounded like you were kind of saying this was a unique deal that just wasn't exactly that we wouldn't it wouldn't be appropriate but would it be inappropriate to sort of try to model future M&A off too closely office deal is that a fair interpretation.

Very fair.

It is definitely a very unique situation I'm, not saying, we will get more unique situations, but.

The BCG deal or a robbery dealers as most people call. It for the Denver clubs 11 club acquisition.

<unk> Playmates acquisition, if you look at the Playmates acquisition of Mei.

Go back.

A few years and look at Scarlets acquisition.

Those are more typical.

Acquisitions for us.

Basically it will be about four times EBITDA for the for the business plus the real estate, which typically will make the deal up overall five times deal.

And then we typically will go in.

And improve everything by about 20%, which.

Turned around and makes it makes me a three X.

For the club and the one times EBITDA. So we end up taking it from a five times EBITDA deal down below four times and.

Youll see us put about anywhere from 30% to 40% cash down.

And finance the rest or maybe some of them are all cash deals what we use a third party financing group.

We get 30% to 40% of our company cash and then we.

Finance or.

Even on Scarlet for example, we brought 100% of the month. So the whole entire downpayment was bought from a third party.

Or a group of <unk> a group of people for a third party basically and so.

So it's almost infinite cash on cash returns because anything we made over the interest expense.

On that transaction once all additional free cash flow for our shareholders.

And it just depends on our leverage at the time I'm comfortable to three times leverage the highest leverage ratio I think we've ever been at was 3.14 times trailing 12 month EBITDA.

<unk> to debt ratio.

Currently we have $188 million of debt.

We're probably.

At most two times, probably under two times debt.

Debt to EBIT margins right now are our ratios right now so we've got a lot of room to.

To grow through that we've got 37 5 million in cash were generating a million plus of weekend cash I think right now so we've got plenty of plenty of them.

Capital available and then and then it looks like plenty of runway out there with the acquisitions that we're working on.

Obviously, the more the more cash we have to put down.

The better the bigger the deals we can do because.

If you are making are you, making a $14 million in cash and I offer you a $20 million down payment or you can wait 16 months you make the same $20 million you really got to want to be a seller, but when I can walk in and offer you $40 million cash down. So now you've got almost three years of cash in advance and then youre getting big monthly payments every month.

The guys are more inclined to do the larger deals and sell me 14 million plus in EBITDA at a single time so.

Those are kind of things were running up against.

Thanks.

And she is the only other thing.

Our current bank.

Bank after all the interest rate raises.

<unk>, 6.39%.

And on a five year interest rate adjustments and we locked in 10 years at 6% for the entire length of the node on sheet itself I guess.

The very favorable financing deal for us.

And then just sort of just an overall great deal.

For us as Youll see on the cash on cash returns of <unk>.

As those numbers come in over the next three years.

Yes.

It seems like we are on that sort of note I guess, maybe if you don't want to talk specifically about this is I'm really curious more generally when we look at seller notes.

I'm guessing.

I'm guessing the company doesn't have.

Tend to prepay these does it.

Prepayments.

That usually something that.

That's completely off limits based on the structure of the notes is there anything that can accelerate payments like so for example, if this is like when you have like retirement seller notes.

So in a safe situation.

Okay, and what sort of like the model framework.

No prepayment penalties.

No acceleration in any of our seller notes.

But the capitalist obviously have I can say four point sure I'm going to go to the bank.

Borrow the money and say four points of interest on a $15 million note.

Sellers are realizing that and we're seeing as youre seeing in our deal 6%, 6% note, 7% notes because they don't want those brands paid off the sellers really want to create an annuity for their family.

They're older and they want that they want that monthly cash flows that they know.

That.

We're going to take care of their family is going to be taken care of or whatever.

That money comes in every single month.

Over over the period of the note.

Okay, that's cool.

Yes that makes sense.

Now you mentioned, having a couple of offers out obviously.

So what to expect there.

Got it thanks shopped around you tend to get a good amount of visibility or Intel on when deals don't happen, obviously with deals don't ask you end up finding out no matter what.

Usually.

The buyer is.

I mean.

This doesn't feel like youre, mostly dealing any situations where.

With.

One offs or or do you kind of see the same names pop up.

Typically if we don't typically we don't buy in of itself. That's what we find it's like you know I need more money than that and youre not going to pay me more money and no. One else can it's going to pay me more money. So.

<unk>.

Have you listened to other industry buyers are out on the street Youll hear them complain RCI pays too much.

RCI pace too much now RCI makes fair and good deals and a lot of in the past, especially in our industry. It's all been about.

Only buying people when they're in forms of desperation, and so you've seen super low prices and Thats, what guys are used to but when you have a retiring seller who understand the value of his business suit.

No.

You have to give them a fair price or why would they sell.

As the callers that earlier why would somebody sell at three to five times EBITDA.

Oh, there's multiple reasons.

Typically in a one five times is a very.

Very high offer in our industry right now.

It's a very fair offer.

Due to the risks and uncertainties of our of our industry.

Name of our entry in the fact that there's just no one else that at this point can deliver.

And every says why can't why doesn't anybody you know make people buy restaurants, all the time they buy nightclubs all the time why don't they buy the adult entertainment is a very.

Specific and unique management capability that you have to have.

There's there's regulations that people aren't used to.

Theirs.

All types of situations.

That you have to deal with or you'd be aware of or our block you have.

Cash handling that Theres, just a lot of a lot of complexity.

To the overall industry.

And.

We have the issues ourselves where people won't do business with us and they won't lease to us or they want they don't want to sell a property to us because we're in the adult entertainment business. So you've got to be willing to deal with those things as well maybe you are.

If you're if you're fairly well they come up with kind of money into the deals we're doing you're talking about fairly well be equal.

Maybe they are big in their community they are big in their church.

Uh huh.

They are big in their country clubs and they don't want that stigma of adult entertainment, whereas something like RCI as not only we just embraced and move forward.

We are where we are and we know where we are but we're trying to change the perception of what the industry as a whole.

The biggest problem with the with our industry as you know.

As I've learned through most 25 to 35 year old as we've moved into Twitter as we moved into the NFC space there.

Their concept of a of an adult nightclub is.

<unk>.

I know you watch the Ozark split.

They see the dengue stripped.

People are all bugs.

Again, our drug dealers in that you know.

You know Rick says the exact polar opposite Nevada is very corporate America very structured.

You know very well oriented or Barry you know, our cash handling systems are comparable or equal to the casinos.

And that's.

Just a different business model.

That age group.

Isn't binded the clubs that hasn't seen firsthand in.

In our industry doesn't know any better and so that's why we embrace Twitter and that's why.

Our NRT project, it's about building the future and building that.

20% to 35 year old customer base.

And bringing them into the into our businesses and.

Given that that life experience.

The fun and excitement of.

Of our industry.

Great and then sorry, just one more and it is back to cheetos.

And it just kind of I, just kind of popped into my head when I was talking about earlier.

Because.

I remember the press release say $4 million kind of an expected EBITDA and then it sounded like kind of when you were free Wheeling, we're starting to use them like synergy add on so is that 4 million EBIT figure in the press release is that a sort of pre synergy pre operational improvement number or is that like where is that coming from.

Based on the existing business as it is at the time, we hope so.

So for this like are you.

As Florida are you are you just looking at like last year are you still doing like kind of a pre COVID-19 interrelation, there we kind of do a.

Current year past year, and 2019 still right now okay.

Okay, and you're still kind of what is kind of what we look at yeah, we want to see where they were in 2019 versus where they are.

You know in the last few years, because I mean for Florida, it could be that it could be that this is actually a banner year for that right, yes, its this quarter or yes.

Which is why we have it they may they made more money in 2021, and then theyre going to when they're going to make in 2021 was demanding you'll remember that.

The last checks went out in March of 'twenty recipe stimulus checks went out in March 'twenty, one and a rock through.

Six months, they've asked about six months everything was kind of blown up so that's what we're really excited originally your comps get harder gather comps the comps are probably harder for July August September this year, because nobody traveled last year. They had the stimulus money not a lot of it was left with some of it was left but nobody traveled nobody.

Nobody went to Europe , Nobody went to Mexico this year Euro.

Europe's complaint everybody's complaining all the airlines are complaining about all the people fine you know you go to Florida look at the tourist market in Florida, right now I mean, it's insane, where like I said last year I don't I think I went too.

I just remembered.

Gulf shores, Alabama, because it was the only thing Alban you couldn't even ran R. V. R. B O last year.

And in Florida, So we ended up in the Gulf shores, Alabama.

Which is actually very nice great white sand beaches are highly recommended especially for families that vacation you can't you can't beat the lower cost and it is actually really nicely.

Got it.

In the middle of our Florida and Texas.

Yes, Thanks, I'll tell my wife.

All to figure out where to take around the kids verification.

Yeah.

And I just wanted to Sanmina.

Nothing, but you mentioned that kind of how much stimulus would've been left I mean, I think people are under county stimulus because there's a lot of things that were officially stimulus.

Like the student loan repayment, Paul because essentially for a lot of high earners like if you're a doctor with student loans.

It's not materially different but I'm, just giving you expect $2000 a month.

Third right now.

However, as long as that goes but but thank you so much for the sort of the answers really helps kind of.

Firm up.

And we're thinking about it.

Perfect. Thank you.

Thanks, So much Johnny we're going to take questions from two more individuals, but just happened to know I'm, taking my ex-wife the Gulf shores, Alabama for our next vacation.

Next up we are going to have hot girl Cappel of BTG long short equity partners Hot Girl Euro.

Hey, Thank you so much.

<unk> has been great I was just curious does RCI hospitality or any of the specific cloud pause merchandise for sale.

Okay.

Yes, we do especially Turkey has bigger it's different it's different from market to market, but.

Turkey is probably our biggest marketing club.

I think diamond Denver.

Have some stuff, but basically our stop everywhere.

When we probably really need is a strong online presence is something we never developed we've always been kind of small, but that's one of the things we should probably look into.

As we move forward.

Lastly for the Bombshells brand bombshells have tons of merchandise every store has a big merchandise display case in the front.

Now there are some things you can buy online.

Right now like Rick's, Rick hatching different different products.

Through some of our web site, but.

Expanding that.

And trying to you know.

I always start we need to be like you know the hard rock Cafe and planet Hollywood.

A lot of cool little neat things that people can collect and go to all the different clubs in.

And try to collect all of the different shot glasses are a key chains.

Stuff like that so.

Uh huh.

As you bring that up is something I'm going to put on the.

On the vice President for calendar to start start putting together and so you see what it looks like.

Okay great.

Much.

It looks like we'll be adding that euro tango tango to do list cockerel capital. If there is hard hitting questions that we really appreciate over here. So thank you for that last but certainly not least we have times square Holdings times square Euro.

Hey, Thanks, Mark and thanks to everyone else for.

Hosting this sorry, congrats on the quarter and all of that.

I was talking about Brenda full of analysts and we were wondering maybe why or why not.

It would be a good idea for you guys to do sale leasebacks when you are.

Doing well.

Acquisitions.

We've looked at sale leasebacks and that's the reality.

I pay higher interest rates why resolve the amortization depreciation just to report higher EPS would have lower free cash flow per share.

It to us it just you know that.

We're not worried about EPS.

We're worried about free cash flow per share.

And as our overall free cash flow and so that's the reason we kind of we also looked at our REIT in the past.

Real estate investment trust the problem of our licenses are tied to the real estate and at any point, we lose control of the real estate we have.

Basically.

And uninvited partner because every time a lease runs out the rents go up and they go up more and more based on how much money, we make so the better we do our job the more they try to take from us.

And so.

<unk>.

Learn that for our after many many years in this industry.

In fact, we just pass on a really nice acquisition I would have loved to have because the owner won't sell as the property has no I want to keep the property.

Well you know we told them through a 10 31 tax free exchange, we tell them every day, but.

The reality is he wants to be our landlord. So that 10 years from now his family can raise the rent honest again in 20 years or 10 years emphatic raise it again.

We're just not.

This is not what we do we own our real estate.

Basically for the control of the licensing.

Alright, great. Thanks.

Fantastic question Times Square holdings to finish this up I want to thank everyone for tuning in and encourage everyone to follow Eric Bradley Zero Tango Tango and equity animal on this.

For those who joined US late I want to say that you can meet up with management and myself Tonight at seven o'clock at Rick's cabaret, one of <unk> top revenue generating clubs.

<unk> is located at 50 West 30, <unk> Street between fifth App and Broadway a little IND from Herald Square, if you have an RSVP yet asked for Eric Langan or me at the door on behalf of Eric Bradley, who will be offering free complementary firewall shop, the company and our subsidiaries. Thank you and.

Good night as always please visit one of our clubs or restaurants.

Sure.

And actually we are going to take one more question.

Brad.

New.

And as a speaker alright.

This will be our last one.

And once we connect.

It will go from here.

Thanks, Nick.

Robert If you can hear she can go ahead and start with your question.

For a second.

Okay, given given that just wanted to thank everyone again encourage everyone to come out to Rick's 50, West 30, <unk> Street Tonight will beta we're heading there.