Q3 2023 RCI Hospitality Holdings Inc Earnings Call
Good afternoon, everyone. We're going to go ahead and kick this off in a minute just get away for a few more people to join and then we will get started.
As we get ready to kick there.
So let me give a few special shout out to some great people in the crowd, we had jobs Brooks lifting in one of our favorite managers and Gary out there lending great to see you as always and a lot of new faces in the audience.
Scott Bok is out there looking forward to your questions Rob as well.
Now that it seems like we have a decent amount of people. Let's go ahead and kick this off.
Greetings and welcome to RCI Hospitality Holdings third quarter fiscal 2023 earnings call.
Find the company's presentation on the RCI 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.
Turn to slide two of our presentation on Mark Moran CEO of equity animal, albeit a host of our call today.
Here in New York, with Eric Langan, President and CEO of RCI hospitality.
So Bradley J participating from Houston.
Please turn with me to slide three.
If you weren't doing sell already it's easy to participate in the call on X, formerly known as Twitter spaces.
Two at Ricks, CEO and selective space titled Rick RCI Hospitality Holdings, Inc. <unk> 23 earnings call.
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At this time all participants are in a listen only mode. A question and answer session will follow this conference call is being recorded.
Please turn with me to slide four.
I want to remind everyone of our safe Harbor statements you may hear or see forward looking statements that involve risks and uncertainties actual results may differ materially from those currently anticipated we.
We disclaim any obligation to update information disclosed in this call as a result of developments that occur afterward.
Now please turn with me to slide five.
I also direct you to the explanation of <unk> non-GAAP financial measures.
Finally, I'd like to invite everyone listening in New York City area to join Eric and Me Tonight at seven O'clock management at Ricks Cabaret, New York, one of RCI top revenue generating clubs Rick's is located at 50 West 30, <unk> Street between fifth and Broadway a little in from Herald Square you have.
RSV paid ads for us or Martin squarely at the door now I am pleased to introduce Eric Langan, President and CEO of RCI hospitality.
Eric take it away.
Thank you for joining us today, Thanks, Mark Please turn to page six.
We thought we'd begin by summarizing our third quarter and nine month results in one place.
It should be noted the year ago quarter aided by the end of Covid restrictions had one of the highest levels of operating leverage that had been experienced in the last five years. This affects direct comparisons to the third quarter of this year.
Comparisons are also affected by the fact that a year ago.
Free cash flow included a benefit of $2 $2 million from a tax refund.
Otherwise the third quarter was similar to the second quarter with non-GAAP earnings per share of $1 30, and it was approximately 9% better than first quarter's non-GAAP EPS of $1 19.
Now, let's turn to the slide seven for the key takeaways.
Yeah.
We achieved record revenues of $77 $1 million in the third quarter up 9% year over year.
We generated $1 30 earnings per share non-GAAP .
Year to date free cash flow and adjusted EBIT margins are in line with our targets of 20 and 30% respectively.
The nightclub business continued to be solid after nine quarters of same store sales growth, we'd be the third quarter decline as a bump in the road that we experienced from time to time.
Bombshells continues to be profitable we view the decline in sales we've been seen as a return to the pre COVID-19 run rates of $5 million a aav's.
No doubt same store sales for both clubs and bombshells were held back in the third quarter by the uncertain economy, the huge amount of vacation travel and the extreme heat in Texas.
To date fourth quarter 'twenty, three we purchased 10440 common shares in an average.
$69.48 each week.
We still have $18 million remaining in our stock repurchase authorization.
And they've got a strong lineup of new clubs bombshells casinos getting ready for the fourth quarter and fiscal 2024, now here's Bradley to cover more financial details of our results.
Thanks, Eric.
Please turn to page eight to review the performance of the nightclubs segment.
Revenues increased 14, 2% year over year, primarily reflect an increase in newly acquired and remodeled clubs, partially offset by same store sales decline.
By type of revenue service increased four 8%.
Alcoholic beverages at 24, 1% and food at 17, 7% acreage.
The year over year changes reflect in part the lower proportion of service revenues from the newly acquired maybe Dallas Chico's local sales mix as compared to the nightclub averages.
GAAP results also included $2 $6 million and noncash impairment related to two clubs.
Operating income was $24 million versus $22 $5 million.
On a non-GAAP basis, it was relatively flat at $23 $6 million.
$23 $3 million.
Talk more about the margins in a couple of slides.
Please turn to page nine to review the performance of our Bombshells segment.
Revenues declined eight 8% year over year, primarily reflecting a decline in same store sales.
Partially offset by an increase in newly acquired and opened units.
Operating income was $1 $7 million.
$3 $1 million.
On a sequential quarter basis, however, revenues have now increased three quarters in a row.
We still have more work to do on the margins.
Yes.
Now please turn to slide 10 to review our consolidated operating margin.
As Eric noted the year ago quarter had one of the highest levels of operating leverage that we've ever experienced in the last five years.
We believe that this was due to the benefit of the end of Covid restrictions had on cells.
As a result, non-GAAP operating margin was 25, 3% compared to 31, 16% a year ago quarter.
However, looking at our performance.
This year the third quarter was generally in line with non-GAAP operating margin of 25, 6% in the first quarter and 26, 6% in the second quarter.
Okay.
Please turn to slide 11 to look at some of the are the key metrics, we ended the quarter with cash and cash equivalents of $23 $6 million up.
Up from $22 $8 million at March 31.
Free cash flow was $14 $3 million. This was in line with the level that we have been generating for the last three quarters.
Again, as Eric mentioned Yoga free cash flow included a $2 $2 million from our previously disclosed tax refund.
That boosted free cash flow.
Adjusted EBITDA was $22 $7 million. This was the highest quarterly amount to date this fiscal year.
Free cash flow margin was 18, 5% and 29, 4% for adjusted EBITDA.
Year to date, it was 19, 2% and 29, 7% respectively.
Okay.
Please turn to page 12 to review some of our debt metrics.
At June 30th declined $2 million from March 31st quarter way.
Weighted average interest rate on our debt was $6 five 2%.
In line with what we've been paying.
Total occupancy cost increased to 8%.
This increase relates to new debt that we've used to buy properties that we haven't opened our fully optimized yet.
8% is well within our range of 6% to 9%.
For similar reasons debt to trailing 12 month adjusted EBITDA stayed relatively flat at $2 seven June 30th versus March 31.
Debt maturities and our debt pie charts are similar to the second quarter.
In the interest of time, let me split skip slide 13, and turn the presentation back to Eric.
Okay.
Thanks Bradley.
Please turn to slide 14, everything we do is centered around our capital allocation strategy, which is similar to those outlined in the book the outsiders by William Thorndike.
First and foremost our goal is to drive shareholder value by increasing free cash flow per share at a 10% to 15% on a compound annual basis.
The effect of this strategy since implementation at the end of fiscal 2015 with three different actions subject to whether they're strategic rationale to do otherwise one mergers and acquisitions, specifically by the right clubs in the right markets, we'd like to buy solid cash flowing clubs at three to five times adjusted EBITDA using seller financing and acquired.
The real estate at market value.
Second is growing organically, specifically expanding bombshells to develop critical mass markers awareness our goal in both M&A and organic growth is to generate annual cash on cash returns of at least 25% to 33%.
And three is buying back our shares when our free cash flow yield on a per share basis is more than 10%.
Turning to slide 15.
In line with our capital allocation strategy, Here's an update on the new projects, we have in the works for the fourth quarter and fiscal 2024.
Fourth quarter nightclub sales should benefit from.
Late June completion of the newly remodeled and expanded baby Dallas Fort worth.
We're also looking at adjusting some nightclub personnel developing new drink promotions party packages and changing keyword searches in our social media marketing and.
In fiscal 'twenty for a new club and our Reformatted clubs opened in Fort worth and tie taxes. Both are currently being remodel. We also anticipate opening the replacement club in Lubbock, Texas.
Fourth quarter Bombshells sales should benefit from the opening of a new location in Houston suburb of Stafford construction has started on a rollout in Lubbock locations. Both in taxes remodeling should begin soon for our downtown Denver site.
All three of these new locations are expected to open in fiscal 2024.
Looking at our Central City, Colorado Casino projects. The liquor license process has begun and gaming license are continuing through the review process for Rick's cabaret Steakhouse casino and the Bombshells sports Casino. Both are planned to open in fiscal year 2020 for building permits have been submitted to the city or rigs location and remodeling is expected to begin soon.
Please turn to 16.
Before we go into Q&A I want to remind everyone, we'll be holding our 13th anniversary Gentleman's Club Expo Convention August 'twenty through 'twenty third at the Paris Hotel in Las Vegas judging.
Judging by our hotel block attendance looks great a room block is 100% full so numbers are fantastic.
I talked to and Anna <unk> President of management company and he told me that his team has completed the integration of baby Dolls Chico's.
This acquisition and is ready for more.
Looking forward Expo and meeting with owners, who are hopefully Willy.
Willing we'll be ready to sell.
Thanks to all of our local and dedicated teams for all their hard work and effort, we can't do it without them now here's mark.
Thank you very much Eric and Bradley before we get into the Q&A segment I'd like to encourage everyone to checkout you recently launched Rick store at shop Dot <unk> Dot com.
Now for the Q&A, if you would like to ask a question. Please raise your hand in the X space. When you finish. Please mute your microphone to eliminate background noise. We have a limited number of speakers spaces. After your question. We may move you to the back of the audience to free up space to start things off we'd like to take questions.
From Rick's analysts and then some of its larger shareholders first off we have Scott Buck of H C. Wainwright Scott Please take it away.
Good afternoon, guys. Thanks for taking my questions.
Eric first I am curious, whether it's the the two new clubs or the relaunch baby doll clubs typically whats the ramp period for those two.
Starting to see similar I guess revenue profile does the existing clubs.
Sorry about that I can get hit that mute button donuts.
Maybe that was taken off pretty quickly and is doing very well, but typically a new club.
Well take about six months to ramp up to where.
Where we like it and then it will continue to grow for about I've talked to about 18 months, where a level off and entering into a steady steady flows basically.
Great. That's helpful and I was curious could you remind us when the year over year comps start to get all of you on the bond sulfide.
During the quarter.
This quarter I would expect AR to be about the same as we've experienced over the last three quarters, I mean still a 100 plus degrees and taxes. It makes the patios impossible to use I mean.
You can't even you can't even hardly walk to your car, let alone set outside for 25 to 30 minutes to eat.
So our interiors are doing well, but we really need our patios back I suspect that that'll happen.
You know hopefully.
Mid September I think will the weather will break it could break a little earlier.
Who knows.
The comps get easier if you if you go back to first quarter of 2023, you'll see about mid October we started seeing a little little bit of slippage that ran into pretty strong stumpage in November and continued in December .
So that's the nice thing is we've got a lot of exciting things coming up as well as you know the.
David I'll Chico's Slub logos zoom.
You might get this acquisition will be about six months old at the beginning where we closed right at the end of March and if you look back historically when we take over.
Acquisition, especially on a multi club acquisition. It takes us about three to six months to get everything flowing properly and that the third quarter that we own. It you start seeing a lot of that new revenue increase and and flow through to the bottomline to EBIT.
I'm very excited about how the first quarter of 2024 looks like easier comps and a lot of exciting stuff that's kind of got them all peak at the same time.
So it put us into a really nice.
Both in run rate for 2024.
That's great and then last one for me you guys didn't buy back a little bit of stock or are we kind of sit in that that threshold level here at about $70, where that looks attractive from a capital allocation standpoint, yeah, I think so I mean.
Basically we were we've talked on the office side went below 70, we said well I guess, we should be buying and we started buying about 100000 a day.
And then the stock went up back above 70 for a few days and it's back below 70.
So we wanted to get the earnings out.
We havent bought anything this week, but.
Probably.
We'd look at as early as Friday, depending on what the what the stock price does over the next couple of days and.
Probably definitely be back out there next week, when we give the market time to.
Take all the new information, where we are pulling back in the market.
Great. That's helpful. I appreciate the time guys. Thank you. Thank you.
Okay.
Thanks, So much Scott next up we have Anthony of Sidoti and co Anthony take it away.
Good afternoon, and thank you for taking the questions. So.
Looking at your service revenue.
It did lag the growth of alcohol in food sales I know you said something about baby dolls.
Just wanted to get a little bit more insight into that as to are you seeing less traffic with.
The service component of your business or is it just lower average ticket.
Wanted to get a little bit more insight.
Hi, Mike.
High margin category for you.
Sure that's a that's a two part answer so Dallas.
Doesn't allow VIP rooms.
And so therefore, we lose a lot of that the private room revenue.
In Dallas in the Dallas market, so that will affect the service revenues.
As a percentage of total sales in those markets.
But the reality is also especially June .
We saw lower service revenue in the same store sales of about $2 million.
And we believe that the biggest portion of that is because our high end customers the guys that come in in.
In New York, and Miami and whatnot.
Our on European vacations or in the Caribbean or wherever their you know their with their families are doing vacationing.
And Theyre, just not out spending the big big tickets in the clubs.
I think that as we school starts back up in Texas and Florida.
Mid August to the end of August that we will start seeing those customers returning.
It also will have a pretty good idea of that.
When we announced the July August .
September numbers in early October we'll have a pretty good feel for where where that is headed and it gives us a really good idea.
How we can predict and project the first quarter 2024.
Got it okay. So as.
As far as the rest of your business I mean can you give us maybe just just an update as to what Youre seeing the first few weeks so far in the fourth quarter.
Well, we're only nine days in so.
Again, we have July that well with July and early August Yeah, I mean, we're seeing more of what we want.
Experienced in enable May and June that's why I expect this quarter to be.
Flat with with how we basically done these first three quarters, maybe a little bit better it really depends on.
How quickly that VIP spend comes back.
Kind of tapered in May went down in June kind of holding steady.
We have I know, we've got a couple of decent VIP. This weekend with was actually really good weekend, especially would be with the pipe.
So that helped a lot.
We need those vips back in back home and back into the clubs.
The problem. We have is we can put a lot of people through the door.
$800, but you guys have spent 100 bucks in the club.
And it takes a lot of them to make up a guy that drops 40 or 50 K.
And so that's kind of the process, we're going through right. Now we are seeing strong customer counts were happy with the customer counts.
We just want to see that VIP spend come back up in the next.
Three to six weeks.
Understood, Okay and then.
Just a quick other question as far as bombshells, so youre looking to expand that.
Admittedly you guys have struggled.
That segment is.
It's certainly a lower portion of your overall cash flow so.
Just how should we think about that as far as your willingness to continue to invest in that segment.
Given the recent performance.
I mean, we're working on the top line numbers were seeing those numbers start to grow a little bit.
Warner over quarter, and so we've just got to get to the point where now we're.
Focusing on that bottom line.
Getting our margins back to that 18% to 22%.
Right that are that we're shooting for.
I think we'll be there.
You know pretty quickly hopefully in the next few quarters.
We just.
Reviewed everything did some some more minor price increases due to get certain items.
In line with costs.
You know we have a couple of points of labor cost creep.
<unk> costs are now.
Back to.
To to pre Covid levels, where we where we'd like them to be so.
When you start because I've got a couple of other little items, we'd need to adjust there.
And then of course adjust the marketing and a few other items that are helping bring people in and get those cost back to a more normalized level.
So we can bring the <unk>.
Margins up to that 18% to 22%.
Okay, well it sounds good.
Yes, yes, if you could get those margins back to that 18% to 20% of the next couple of quarters that that would be wonderful. So alright, well. Thank you very much and best of luck going forward.
Okay. Thank you so much.
Thank you very much Anthony next up we're gonna have Lynn Collyer of water Tower research Lynn the floor is yours.
Thank you so much congratulations on a great quarter just have a couple of questions that are somewhat general and then one.
Perfect first of all I wanted to ask you about any trends that youre seeing geographically I know, Texas is slower than it had weather issues, but what are you seeing across the country any sort of trends geographically.
You're saying I mean overall, we're not I mean, we have a few locations that are that are still up.
Pretty strongly from <unk>.
2023, and I think that as you see Chicago, you'll see Denver is the very what I call. The late bloomers.
The cities that kept everybody locked down a little longer.
<unk> seen some nice boost in those markets, but generally across the country and the other markets.
We're seeing slight declines in same store sales.
<unk>.
But like I said the biggest part of that is.
Yeah.
The IP revenue.
And when we try to third parties, we're going through a VIP parties in our host will call Vips and I call them out of the country.
I can't make it thanks.
Thanks for the invite somebody that I see when I get back and so we know that a lot of our big spenders are on vacations.
You know not just articles in the Wall Street Journal that tell us that is actual talking to her.
So our to our guests and say you know when we tried to throw VIP parties. We're postponing VIP parties will I'll try to take a lot of those up in that October November December quarter. It would be welcome everyone back in.
We'll see.
A nice boost from that.
I say, we have easier comps, so we're going against so I.
I think it would be right now if you look historically whenever we see a downturn.
And our same store sales, which typically last two quarters and then it starts to.
Run back up for us on the nightclubs side now the bombshells has been a little different for us.
And a little tougher.
And comps and of course like I said, it's 100 degree heat is not helping that at all.
So hopefully that will end soon but I just looked at my 10 day forecast.
Or.
Allison it's like 107 every day in Houston is about 100 to everyday so.
For the next 10 days at least we know we're going to have some pretty tough weather in those markets. So.
You know, we're running out well like I said, we'll keep pushing endorsed.
We're starting to do some different social media marketing and some other.
Turning to some other new stuff was bringing some new faces into the.
And into the bombshells.
I think I guess once our patios come back I think that I mean, I know I'm dying to go sit back outside need I mean, sitting in new restaurants and doors.
Not.
Really when I spend a lot of time in Colorado were almost like probably 50% of our meals outdoors now.
Colorado, and I'd really like to cause 70 degrees up there.
So we'd love to see that back in Texas, I think you know I think our consumers will we'll be right back on our patios once the weather permits.
Thank you I just have one more question regarding taxes, which you spoke spoken a lot about and it's obviously very hot here being in Dallas I know for sure.
But are you seeing any trade down in terms of tickets in Texas or is it just you know it's.
So hot now we can go outside.
Are you observing anything else and taxes other than weather not really I mean, like I said, we're missing big tickets vendors that we're missing.
I think that Ah I predicted what happened last year.
Wealthy would run out of time.
One out of the United States and run to Europe .
We ended the Caribbean and go on all these.
Fancy vacations and the reality of it is I was I was off by a year.
It actually took another year before.
Everybody everybody went on time, if you look up European hotels in European flights.
Crazy if you can find them if you can even find anything available alright.
Screaming expensive.
And.
I think people just.
Didn't go last year at least till they all sort of book in this year and everybody ran maybe look if you look last year, we got the benefit of no one left the country and but they all ran to Miami.
They all ran to you now.
To the south where they are in every tourist place in the United States was was overbook last year, all the V. R. B O startup.
And this year you are you hearing about the <unk> being down.
A lot of them being empty, especially in tourist areas.
And so I think that's affecting Oh, that's affecting our sales in certain markets that were really really good last year that are being off a little this year and those are those were big tickets vendors I mean, those are on the smaller markets. Those of your 500 to 5000 of our guys in your bigger markets. There are now 10, 2030, 50000, Argos so with those guys out of town.
Uh huh.
It doesn't take a lot of them are you now.
For $2 million of revenue.
Thank you I just have one quick follow up on Bombshells your comment about pricing do you know approximately how much menu pricing of bombshells youre carrying this year versus last year, just a ballpark figure.
You know we tried to.
Just with inflation pretty much but we've also.
Made some adjustments.
Based on food costs coming down so some items we.
Maybe just held steady because the food costs actually came down so we'd already marked it up with food, possibly took the adjustment on that side. So we moved on the other side.
So your costs are up but we had to raise prices, but I'd say overall, we're trying to run at about a 6% to 8%.
An increase across the board.
As best we can.
That's great. Thanks, again, and congratulations again, thank you.
Thanks, So much Lynne next up we will have Rob Maguire of Greater research Rob Please take it away.
Good afternoon.
Hey, Eric you played out your vision for 2024 are you looking at anything in 2025 at this point.
Yeah, I'm really not at this point I mean, yes, we have enough things I think we have about 14.
And I think we're down 12 projects and I think we have about 12 projects are.
That are running right now if we get the two casinos open three bombshells and the three clubs.
Eight of them. So it was off about six items.
On the burner that we can that we can shape for 2024 or 2025 with <unk>.
And of course acquisitions I think.
The focus as we open these new things will we will only need to find one or two more.
Our new locations for bombshells into rest of already set.
And those will be toward.
At the end of 'twenty five there'll be target for the end of 'twenty five so we won't need to buy until the end of 'twenty four.
She is close to 14 to 16 months, where we really have to worry about that.
Uh huh.
I'm, hoping that the casinos.
We'll we'll be heavily quality <unk> close.
<unk> spending those between February and April hopefully for a late April or may openings.
Depending on licensing and of course, that's the big unknown.
But we have to get the heat and HVAC systems, there's very long lead times on those right now which puts us at the end of January early February where we can get those.
Units in and I, just don't want to spend any real money.
Without the heat in there and have a pipe freeze or something in the winter.
Or something.
Well not have fire protection on because we decided to do some work where we turned the water off I don't want to do any of the expensive stuff.
Until we have the heat heat and air conditioning systems.
In the buildings. So the one of the units are one of the buildings will have other units put in hopefully by the end of September .
We will begin the remodel on that but if it's lower cost remodel a small unit are smaller casino. So it will it will take a less expensive and be quicker. So.
Kind of where we're at right now.
Thank you for that.
We've been in a somewhat inflationary environment, but when I look back at the pre COVID-19 nightclub comps they've been somewhat flattish in 2019 through the present I was wondering if you could give us a feel for that.
I mean like I said, if you look at this quarter. It's the first two quarters. It was kind of a blue collar.
Blue collars kind of stabilize now we've kind of got that down weeks, where we're doing the right discounting the right marketing too.
So that that customer has kind of leveled off their spend is kind of levels and we're we're pretty solid there.
You can look at our <unk> can you just look at the political sales breakdown you will see the service revenue declined.
We had the biggest drop this year or this quarter.
And like I said it started about mid May.
It was pretty strong in April started dropping in mid May and June was.
It's pretty bad.
July was a little better I think in June , but but not a lot.
And I guess that I suspect over the next two weeks to start seeing that spend come back or is that a little bit of it. This weekend. So it may just be it on the weekends for right now.
But we'll also have to keep watching.
I just don't know what's going to come back I guess, when I said I think when school starts back up and everybody gets back from.
When their vacations and start settling back and going back to work.
We will see that you will see that spend come back.
When we emerge from an environment like Covid do you find that RCI tends to be the price leader raising prices coming out of <unk> into a stronger economy do tend to be a lagger.
I'd say, we'd be at where we lag.
What I would say I mean, we're not.
And we're making plenty of money and we're and we're doing very well with our customer counts.
And we see our competitors raising prices.
We will we will hold off.
And take some of that especially on the lower end on the Blue collar, we were able to do that very well.
As you've seen we've studied off rather quickly.
I guess that it tends to be a lot of six month trend for us.
We're now this quarter into it and like I said, we saw a little bit of a weakening.
Uh huh.
Oh.
With the Blue collar earlier on.
And now we're seeing that level off and actually saying a little building in some markets. So.
But we're just gonna have to watch a wash the white collar spin or the high end spec. That's that's the that's the key to success.
I believe on the nightclubs side on the Bombshells, obviously like I said, we need to get the patios open we did raise prices, but it was towards the end of June .
When we made a lot of those changes and adjustments as we got enough data from April and made a bigger out where we were headed and what we needed to do so.
So youre not seeing any of that results in this quarter, which is why the margins were.
I think 12 or 13% between 12 and 13% for Bombshells. This quarter I do suspect that are and I'm very hopeful that as we.
Get through July August September that we're going to be closer to the 18% to 22%. If we're not in the 18% to 22% and I definitely think in the first quarter of 2024, we will bring those margins back the new store will be open.
Thursday.
The other stores or construction or are moving along so starting to energize the team they're getting excited about the growth again.
Covid stopped all growth of bombshells and without growth of restaurant chains, and it's hard to keep some of your top people right because theres other change they can try to steal away and promise them.
News new positions in that so we wanted to make sure we can keep and attract the management team that we need to keep bombshells go on in that so I think part of it the growth as part of that that process.
Okay. Thank you and last question. The company has laid out a lot of cash for for a number of projects at this point at what point would you see bank financing or obtain bank financing for those projects.
Well when I need it I can go get money from the bank anytime.
We're still sitting on $25 million in cash or I don't see a reason to not just keep using our cash will tie in for time to cash out. The only thing we have to do is buy back stock with in stocks not anymore.
You know such a huge discount rate that I think oh lets borrow money to buy back stock and we'll just use normal cash flow by $100000 a day in stock like we've always done so we're not trying to affect the stock price, we're trying to get the best price for the stock we can get for our for our long term shareholders.
You know I I, just don't need the cash and we've got we put out about 29% to $30 million I think in the last nine months in cash. So we're not building up on the on the balance sheet, but it's being invested that is going to give us.
Fantastic returns when you think about how we've typically grown in the past we've added 20 $30 million in that we've had those debt carrying costs.
So when the new stuff opens.
Youre still.
Net interest expense, we're going to have very little interest expense with these new operations as they open which is going to increase the.
The flow through to the bottom line.
Stop the carrying cost drag.
What little there is.
From utilities and property taxes, and those things, which will be paid on it on operating revenue.
So I think it's gonna be X I think 'twenty 'twenty four is going to be a great year for us.
We had that momentum rolling as we ran into 2019 marks where COVID-19 hit US right I mean, we were.
Just hitting our stride.
Really taken off in that January February March quarter, even though we were closed for anywhere close for 15 days or you know, we still beat the previous year.
Without having 15 days so.
When you look at 19 over 18, and I think youre going to see 24, we're going to have another one of those those those types of jumps and that's all with no acquisition.
I do believe the teams ready like I said Ed.
Talking with ads in New York with me he'll be at the meet and greet Tonight. He his team's ready they've got the baby dolls.
Acquisition, all up and running they've got great management teams in place now our systems are in place.
We're starting to see the revenue growth that we that we expect to see as we enter that.
Three to six month period.
We're working early to get that flow to the bottom line.
It's making some pretty some pretty decent adjustments to.
Lower some of the costs that we have now we picked up with the acquisition.
I think everything kind of comes.
Two are great leading point, starting with the first quarter of 2024.
I'm excited very excited for 2024, I think thats.
It's gonna be be our best year ever.
Thanks, so much for the questions. Rob next up we will have Josh of noble Josh. Please take it away Hey, good afternoon guys. Thanks for.
Thanks for taking my questions.
Thanks, Josh.
So I know you guys got answered most of mine, but I just kind of want to see how just the overall environment is just looking like for any new potential <unk> acquisition tower owners being obviously in this kind of cautionary environment.
Yeah, I mean, we haven't pursued so I don't really know I told almost everyone that is called me in the last.
Two months that we've got to get this another acquisition under our belt, we're working on it.
Let's talk at Expo West Pocket Expo.
I'm, hoping I mean.
<unk>.
Seeing the hotel room, count who already means.
It means there's going to be lots of people there.
So I'm very optimistic that that's got some meetings set up.
Some people I'm going to I'm going to make sure we talk to.
While we are out there and people don't want to talk to us while we were out there so.
I think we will get out.
<unk> put together and we'll talk.
Multiples and.
Our locations and trying to figure out what what's the quickest and easiest for us.
And timing and what the best deal is.
Cherry pick the best clubs like we've been doing for the last 10 15 years.
But I suppose every year at Expo, we always we always meet someone and we always.
<unk> started the process so.
The reality is just how quickly we can do it we're ready now so we can close something pretty quick quickly.
I think we have if I'm correct.
Approximately 45 or $46 million worth of <unk>.
Unencumbered real estate or under under encumbered real estate, we can roll into alone.
And a 70% loan to value that pull about $28 million.
With the unencumbered parts, probably four 5 million, we'd have to pay off so we could easily pull $20 million down payment out from a bank right now we need it not.
Not counting our line of credit so we can get it we pay down our line of credit a little bit. So we could probably hit that line of credit again, if we needed to so we're in good shape and we still have 25 million cash on the books.
So we're in great shape to make an acquisition obviously, we're not using equity at these prices. So it would be a debt and cash.
Acquisition right now I don't.
Unless of course, the stock more accuracy and it runs back up over $80 over the next few weeks, which is.
The market, where it's at and some of the uncertainty out there I think that's probably unlikely I would love it if it did because it would give us even more ammunition.
As we go to Expo in a few weeks, but.
It stays under then we'll just continue to buy back a little bit every week.
With some of our cash and keep on our capital allocation strategy.
We've proven from 2015 on it it works and there's no.
There's no no floor on it so far at this point so.
And we'll just keep doing what we do.
Yeah perfect.
Yeah, and this is kind of I guess kind of leapfrogged into this question I know you guys talked about the 200 million dollar investment goal.
A couple of quarters I, just kind of want to see the status of that right. Now do you think the company can achieve.
[noise] achieve this goal this year.
Yes.
I think it's going to be very difficult by September 3200 in the first year and and I've said before you know.
The goal is 200 per year, we may not hit each year. However, I think we can get pretty damn close over a three year period of buying the the amount of EBITDA, we want absolutely to $66 $5 million acquisition.
Now a word about $29 9 million.
I think are between $29 million to $30 million. So you said that you were 90 90 $697 million.
We probably put another five.
<unk> out in.
July that I know so were at 100 plus million right now.
And there's only a couple of months left so probably not going to get $200 million, but we could I mean, we could find an acquisition.
In August we probably wouldn't close it but at least we.
We have that money lined up and we still have with everything going on we probably have about another $40 million to $50 million that we know we're going to invest over these these 12 projects that we have out there maybe a little bit more than that so it is lined up we basically allocated I probably.
Getting close to allocating 150 of the 200.
So we can go find another $50 million acquisition, then we'd at least allocated the 200.
For this year and then we'd have to it may not all get put out until the following year.
Sometime probably between.
I don't know November and in April would be my guess.
Okay, Perfect and then I guess the last one for me.
Is there any early update on admire me I know you guys mentioned in the first quarter and the new team how they are working on bug fixes and how.
It is up and running you can actually go on the site now.
So some new entertainers and feature stars on there, we're actually doing a live hard launch at Expo.
So we have a bunch of feature entertainers that are going to be.
Going on the site that week.
Coming to the site that week.
Start doing some push.
Some traffic we're going to start.
Flowing some traffic to it.
Let's see what happens when you get out there and do some do some marketing once we get the girls up.
On the call on ramping or what everyone's they get them on on the site and have them.
Posting and using the site regular then we'll start to direct more traffic to the site.
But should we should have an interesting next three months with the Miami, what we'll see how that goes.
I'm optimistic finally, I've I've been I've been pretty pessimistic on him online.
And it's very difficult, but you know.
I'm not a programmer in.
Understanding you know we had a team that worked on it for a year the Ukrainian war.
Kind of destroyed the team and the model there and are we finally had to make a switch.
To get it done and then of course now your new program, we have to learn everything and go back through and.
Recorded some things and because.
Because we had lost programmers.
Throughout that year, where it's you know.
Ukrainian company was there, but that's one program would be working on it and then another program will take over and so there was some some coding issues that had to be fixed and whatnot, but I believe that all of that is done we're actually adding new features.
I think almost on a weekly or biweekly basis right now whenever they upload from the.
The program environment to the act of environment, and it's actually starting to come along pretty good to talk to a couple of girls the posts on there.
Fairly regularly and they are really starting to like how the features are.
We brought in a group of feature entertainers.
Net or on other platforms that are going to come to our platform.
As well and they've given us a lot of feedback and what we need to do and how we need to do it they've been in the basically in the practice environment.
The program unit not alive environments, so they could.
No basically worked through and then we can have as they made the fixes are changes they were able to basically beta test and make sure. They are working properly and that environment seems to be going very well and like I said, we're starting to see the changes in a live environment on a weekly or biweekly basis. So very excited about what we will see how it goes over a over the next few months.
Yeah. Thank you guys. Thank you.
Thank you so much Josh into all of our research analysts, we're now going to open up the Q&A to the broader audience and would like to encourage everyone who has a question to please raise your hand, and we'll put you in the queue. I'd also like to encourage everyone to reach Wheaton share. This space first up we're gonna have orchid well.
<unk> the floor is yours.
Hey, or can I think you need you on mute.
There you go.
Hey.
Just a couple of quick things I think the main focus here should just be really talking about the the casino plans for next year, because the cash flow looks a lot bigger than what I originally thought it would be.
Uh huh.
<unk> got two locations now four different casinos in the market.
How many total slot machines do you guys think you might be coming to market with.
Well the current estimate is about 500.
Gaming gaming devices. This includes table games and and slots.
500, but you know me.
Less than 20 of those will be tables, so mainly it's going to be slots.
If you look at the average taken Central City right now the key is 100 about $139. A day. If you look at Black Hawk is about 330, something a day.
I hope to be somewhere in the middle to be honest with you. So each machine somewhere in the 200 range 180 to 220 range.
Per day 365 days a year.
Luiz <unk>.
19 days, a year because of weather up there. So you can do the math.
Use of 340 day year, instead of a 365 day year Youre going to.
I'll get you a pretty nice deal there and then you've got your gross revenue and then typically.
Because after all your casino costs and everything Youre running about 40% margins on that.
So if we can keep that that's how our budgets are being built as everything is being set up with our player.
Player rewards all those types of things.
All in that budget. So it should it should be pretty interesting and then you have the table games and the the nightclub revenues.
Oklahoma and foods sale revenues.
I think the casinos are a little bit we can do a little bit more money than we originally anticipated, but we're getting more a lot more machines.
And space in there than we originally anticipated as well so.
So and that does include the sports book, we're going to have a sports book as well so.
When.
As soon as we receive approval from the gaming license people is that then I'm, assuming you're already talking with people about the sports book.
Oh, yes, absolutely we've been talking with lots of people about sports book.
Well, we'll have our skin deal done.
Prior to that license would be an issue, but it wont be effective until the licenses issued.
Okay.
And.
Hopefully.
I'm, hoping originally we anticipated.
Giving a preliminary approval sometime between the end of August .
As of September .
However.
I'm talking with.
Colorado Department of gaming they are running behind.
They are being short staffed they are.
Working on staffing issues and hiring right now and hoping to speed the process up here.
From what we understand.
But it could be maybe.
Maybe as late as November December before we get our preliminary once you have a preliminary who will take us about 90 days to get everything.
Maybe maybe I'd say 98, it could be 120.
So that's why I'm, saying I'm predicting now April to May openings at the earliest.
That also has to do with how quickly you can get the AC in the construction. So it's kind of all.
If it's longer than I wanted but its all coming together at the same time, so it's actually working out.
Beneficial so.
Okay. So I'm, just kind of kind of the.
Town next few guys Black Hawk right.
They do $3 30 on their slot machine.
In calendar year, and I believe I don't think that's correct and I don't know how old that data is because I haven't ran it recently, but I can tell you you can just go to the Cal Colorado Department of gaming websites all of its public information right.
The city I won't tell you by casino won't tell you, but it will give you.
Every every slot machine they suddenly.
Central City all of their keep all of their their coin in for keeps all of those numbers are all available same with Blackhawk same with Cripple Creek. So you can actually look at Cripple Creek are down and.
South of.
Colorado Springs as well so you get all three cities and you can see how many machines are and what their average keepers and.
Your math of this Nathan they did $1 billion coin in makeup this amount of money and on a permanent basis. This is this is what it was then divided by 365 and Youre going to get there.
But just how we do the math as well.
You are talking about between seven and $10 million, but.
Just to work backward, though when you do a slot machine in Colorado, you got to pay 20% of the haircut off the top I mean.
From that number Youre left with about 40% after you pay all your bill.
Yes pretty much.
So you're looking at like something in the neighborhood of about $65 per machine per day.
It is in the town that you guys are in or the or the casinos opened 2047 or is it they're not no. That's why I think we will run higher.
They've most of them close by two o'clock calls at midnight something close by two a M.
Okay.
And.
It's just it's a different it's different than Blackrock Blackrock, yes.
Most everything in Black Hawk is open 24 hours a day.
You know you've got some these are the casino operators that have been there for years and years on their properties. They now one casino. If you look up century casinos, they're publicly traded as well. They are open 24 hours. So they are the only casino is open 24 hours a day in.
Central City.
Okay, I think the Zika casino might be as well, so I guess I should say no more.
Less than half the machines are open 24 hours a day.
To say that I always forget about Z I always forget about the Z casino cause it's downhill, it's not on main street, there, but okay.
Okay.
And that number if I go look it up I've got to assume you guys are going to be opened 24, 7% so to speak and half the people in the town when they come up with that 139 per slot machine I got a I got to do some sort of a factor okay, alright, exactly and why you're modeling I just want to understand why youre doing say.
Do you think you could do about 180 to $200, yeah, well harvest going to be the fact that we're open 24 hours and we're going to have entertainment and food.
That.
The other the other casinos don't have.
We're going to have.
I think we have a lot younger employees.
As we draw from R. R.
This of waitresses bar tenders and entertainers in Denver, Colorado 45 minutes away.
Where we can have a split split ship type deal where they work too.
Two days and up in the mountains, and then worked three days back home.
So it would be an interesting I think we'll have an interesting drawn on.
The the quality of customer service that we're going to be able to offer at our casinos versus black Hawk.
Black Hawk casinos.
Alright.
You look up the numbers.
Black Hawk running about 140% of their pre COVID-19 revenue with 65% for their employee staff.
That they had in 2019. So there is a there is definitely a shortage of employees out there. So if you can get the employees was we believe we can get and we've been talking with our staffing in talking with our people. They are very excited in the Denver market.
We'll get the new Bombshells opened prior to these casinos openings, we will have another.
Two or 300 employees with bombshells.
To draw from as well.
So we're very excited about the potential withdrawal of the younger people up there.
That the other casinos have not been able to do.
Okay Alright.
Alright. So are you going to go from 13 Bombshell to 17 in the next year. If we undertake youre going to go from 57 clubs with the reopening and so forth youre going to be at 60, not counting any acquisitions that you make and you're going to have two new casinos, alright, correct, yes, and we make no acquisitions right alright, perfect sounds great to me.
Thanks.
Yes.
Yeah.
Okay.
Thanks, So much for the question next up we're going to have at east of the para please take it away.
Yeah.
Eric Hey, Brad Congrats on the great quarter Fellows.
I really have two questions.
First one's around.
You mentioned.
The outsiders and one of the most.
Accretive assets you can have as your IP your brand.
I'm wondering.
Is there something on your roadmap, where you're trying to stop investing in your own organic IP around bombshells building that brand up and think about leveraging and buying something bigger.
More of a national presence.
You already answered that Bruce.
Yeah, I mean, obviously it would depend on the multiple we could buy it at versus the multiple we trade at all.
If we looked at other restaurant chains right now.
They would have to basically be willing to merge with us at a multiple rating similar to ours.
And then.
The multiple expansion up with us.
If someone was willing to do that I think we definitely look at that and the acquisition of that tight, especially if we could bring a strong management team and a growth management team.
Well I'd have to have the right concept.
It would have to have the right numbers to make sense to me what would be most important to me is.
That we're bringing the team on that's then going to take and run our true restaurant Division.
And not only build help us not only build the brand that we're buying but help us with our brand as well and expand and build our brand as well.
And then of course, we.
If that's successful we get that right team, we put that together then we can.
Basically wash rinse and repeat right, we do it we've been doing with surplus for.
30 years so.
Acquisitions are acquisitions, it's just it's just math right anybody can do the math and the rest is just.
Like I said, the right people, so portman and pretty good at putting the right people together in these situations the clubs built out our teams and now we just have to do the same.
Same for the restaurant and one of the process of doing it for the restaurants I mean, we we don't have to buy anybody can pick up a team. We're building our team just the building process is always slower than the acquisition process as well.
<unk> I'm glad you brought up people because that was kind of my second question well it's.
It's 23.
Ara charts, you could see NII I know you guys gone up.
With centralized but how do you guys think about automating, even basic workflows or team member interesting either on productivity changes.
Well I mean Bradley has been doing a great job of keeping our.
Office corporate office cost down using technology.
To keep costs lower.
Hi.
We have been.
Picking up and learning more of these.
FICA tip credits and all these other earn credits tax credits you can you can get for different employment of people different hiring different.
And in different markets different areas enterprise zones, all of these things.
We're actually working on one of the casinos was a historic buildings and historic zones. So we're gonna get historic tax credits for all of the improvement we were taking a building it hasn't been used in 15 years.
Going to make it usable so we're going to get the tax credits on that we believe.
So basically the programs can help us build build build half of one of our casinos I think is what kind of what it works out too.
Rather than make pipe.
You know better than me at this point, but.
Kind of where we're at.
Awesome awesome, well first congrats on the quarter once again a lot to celebrate.
So you guys Tonight at 33.
Finally reimbursement.
Fantastic. Thank you so much for that question now before we go onto a submitted question like to encourage anyone to raise their hand here for us to call on you to Eric We have a question that was submitted from a follower in the audience the.
Capital allocation structure has been proven to its performance since 2015 ratings downgrade increases risk of higher and longer interest rates by the fed. In addition to other macro factors does that change your calculus or are you comfortable with current debt levels.
I mean I'm correct.
Comfortable with our current debt levels at the moment.
Obviously I've said in the past we want to stay under three times.
We're at two seven times so.
But I think that number will drop down as our VIP spend comes back October November December as new stuff opens in 'twenty four.
Youre going to see a bunch of new revenue and EBITDA to come in and drop that back down probably in the $2 two range.
So that gives us plenty of room to take on additional debt of course, we buy.
Anything we pick up the EBITDA from any acquisition as well.
I'll keep that oh to keep at that level and check.
I'm not too worried about it I think.
You know I bought my first house and $19 93 in my interest rate was 7% and five eight so.
765% is not a horrendous I think rates are still below that so we're still not at 1993 level.
When I bought my first house, so I'm not too worried about it right now I think our weighted at 652, if we were to readjust right now and refinance 100% of all our data into one thing I would probably get around a seven 5% I think we just closed a loan at some point.
One 2%.
Do you think we get a seven 5% loan I mean that wouldn't be the end of the world raise our interest of point on $240 million in debt.
Which is a considerable amount of money, but but nothing thats going to.
Top line growth or stop us from.
From continuing to take on debt.
Fantastic.
Mystic. Thank you so much Eric and Bradley and to all who asked questions with that we will be concluding the Q&A segment of this earnings call.
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