Q4 2024 RCI Hospitality Holdings Inc Earnings Call
a little bit longer for some more people to join, and we will be beginning momentarily.
Speaker Change: Greetings and welcome to RCI Hospitality Holdings' fourth quarter 2024 earnings conference call. You can find the company's presentation on RCI's website. Go to the investor relations section. All the links are at the top of the page.
Please turn with me to slide 2 of our presentation.
Speaker Change: I'm Mark Moran, CEO of Equity Animal. I'll be the host of our call today. I'm coming to you from New York City. Eric Langan, President and CEO of RCI Hospitality and CFO Bradley Chhay are in Houston today.
Please turn with me to slide 3.
Speaker Change: RCI is making this call exclusively on xSpaces. To ask a question, you'll need to join the space with a mobile device.
Speaker Change: To listen only, you can join the space on a personal computer. At this time, all participants are in a listen-only mode. A question-and-answer session will follow, and this conference is being recorded.
Please turn with me to slide 4.
Speaker Change: I want to remind everybody of our Safe Harbor Statement. You may hear or see forward-looking statements that involve risks and uncertainties.
Speaker Change: 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 may occur afterwards.
Please turn with me to slide five.
Speaker Change: I also direct you to the explanation of RIC's non-GAAP financial measures. Now I'm pleased to introduce Eric Langan, President and CEO of RCI Hospitality. Eric, take it away.
Thank you, Mark. And thanks for joining us today, everyone.
Speaker Change: All comparisons are year-over-year unless otherwise noted. Please turn to slide 6.
Thank you.
Fourth quarter nightclub sales
Speaker Change: Sales increased for the second quarter in a row. This was the first time since the first half of fiscal 2023. A total company sales declined due to a hurricane and a fire resulting in lower EPS.
Speaker Change: However, non-GAAP EPS net cash provided by operating activities and free cash flow all increased.
Speaker Change: We ended fiscal year 24 with 8.955 million shares outstanding, a reduction of 4.7% year-over-year.
Turning to the capital allocation.
Speaker Change: We have officially launched our Back to the Basics five-year plan. We have already made some considerable progress in implementing this plan. That includes continuing to buy back more shares in the current fiscal quarter, first quarter of 2025. We also divested
Speaker Change: Soar underperforming bombshells location, close the Denver Food Hall, reduce bombshells related debt, and discontinue franchising.
Please turn to slide 7.
Speaker Change: RCI has grown significantly since we initiated our capital allocation strategy at the end of fiscal year 2015.
Speaker Change: Revenue has more than doubled from $135 million to $296 million, a CAGR rate of 9 percent.
Speaker Change: More importantly, free cash flow has more than tripled, from $15 million to $48 million, a CAGR of 14%, while our share count fell by 13%.
Speaker Change: We are proud of this achievement. Thanks to all of our employees, entertainers, and partners who have made this possible. Looking ahead, we plan to build on this progress through our Back to the Basics strategy.
Please turn to slide 8.
Speaker Change: Operationally, this means focusing on our core nightclub businesses and making new acquisitions.
Speaker Change: For bombshells, this means improving performance of existing locations and finishing the last three units under construction.
Speaker Change: Looking at capital allocation, we expect to generate more than $250 million of free cash flow over the next five years.
Speaker Change: Under our plan, we will allocate 50% of that to club acquisition, which includes the repayment of debt, since most of our debt is acquisition related, and we will allocate 50% to share buybacks and dividends.
Speaker Change: Our fiscal 2029 targets call for hitting $400 million in revenue, $75 million in free cash flow, and reducing our share count to $7.5 million or less. This would result in a doubling of free cash flow per share from where it is today.
Please turn to slide 9 for more details.
Speaker Change: Nightclubs are a core business. For anyone new to RCI in this call, we love this business because it generates an estimated 35% plus in operating margins.
Speaker Change: There are high barriers to entry and clouds produce steady and significant cash flow.
Speaker Change: Currently, we are evaluating every club in our portfolio and we will rebrand, reformat, or divest underperforming locations.
Speaker Change: As for bombshells, our target for this segment is 15% operating margins with a return of $1.5 million.
It's a same-store sales growth.
Speaker Change: Regarding club acquisitions, our goal is to acquire six million dollars of adjusted EBITDA a year, focusing on the best clubs, buying for base hits, and maybe an occasional run.
Speaker Change: Our target metrics remain the same, three to five times adjusted EBITDA for club, business, and farm market value for the real estate. We will continue to finance our deals with a combination of cash on hand, bank financing, and seller notes. We will also consider using stock if and when our valuation improves.
Speaker Change: We will continue to target 100% cash on cash returns within a three to five year period.
Speaker Change: For the final part of our plan, as opposed to periodically buying shares, we anticipate implementing a program of regular buybacks and flexing up the stock and buyback if the stock is particularly cheap.
Speaker Change: We expect to buy a significant amount of stock if the price is right. Given where our stock is trading and our view of what the business can do over time, we believe this is a great use of capital. We are also planning small dividend increases annually.
Please turn to slide 10.
Speaker Change: Based on our track record, we believe our five-player plan is very achievable. Since fiscal 2017, we have completed $267 million of club and related real estate acquisitions.
We have to stay disciplined on price.
Speaker Change: We have improved operations and financial performance consistent with our goals, and we have been able to deploy larger amounts of capital as we've grown. We think there is a lot more runway for club acquisitions, as illustrated in the pie chart.
Speaker Change: Although we can't predict the size or timing, we think our goal of acquiring six million dollars of EBITDA per year is very achievable on a five-year average basis.
Please turn to slide 11.
Speaker Change: Here, you can see that the anticipated growth rates of some of our key financial targets are somewhat conservative based on past performance. We also do not anticipate increasing leverage to achieve our goals.
Please turn to slide 12.
Speaker Change: We have already made considerable progress on our plan. In our nightclub business, we have generated two quarters of positive same-store sales growth. We are working on three potential acquisitions. In our bombshells business, as I mentioned earlier, we have divested underperforming units.
Speaker Change: We closed the Denver Food Hall in early December and are marketing that real estate for sale, and we also discontinued franchising. In addition, during the fourth quarter, we increased our share buyback program.
Speaker Change: We increased our cash dividend by 16.7% and we are continuing to reduce our share count.
Thank you very much.
Speaker Change: Please turn to slide 13 for a first look of our updated capital allocation strategy.
Speaker Change: This is the path we will take to grow the company to $400 million of revenue, $75 million of free cash flow, and continue to reduce our share count. Now I'd like to turn the presentation over to Bradley to review performance for the fourth quarter.
Thank you.
Thank you, Eric. Please turn to slide 15.
Thank you.
Speaker Change: All comparisons are year-over-year unless otherwise noted. Fourth quarter sales declined two million dollars.
Speaker Change: This was largely due to hurricane-related closures and the sale of bombshell San Antonio in early September. Net income attributable to RCIHH common shareholders declined a similar amount with EPS at $0.03.
Looking at some of our other key metrics.
Non-GAAP EPS increased by $1.63
Speaker Change: Net cash provided from operating activities increased $3.5 million and free cash flow increased $2 million.
while adjusted EBITDA declined 2.3 million dollars.
Thank you.
Please turn to slide 16.
Speaker Change: Nightclub revenues declined $307,000. This primarily reflected a 2.2 same store sales growth, 10 closure days at Houston area clubs due to Hurricane Barrel in July, and some other changes that we're going through to improve our club lineup.
Speaker Change: Alcoholic beverage sales increased 0.3%, food, merchandise, and other increased 0.9%, and service declined 1.7%.
Speaker Change: The differing growth rates primarily reflected higher alcohol and food and lower service revenues.
Impairment and other charges were lowered by $2 million.
Speaker Change: As a result, operating income was $1 million higher while non-GAAP was $1.1 million lower.
Thank you.
Please turn to slide 17.
Speaker Change: Bombshells revenues declined 1.643 million dollars. This primarily reflected a 16.2 same-source sales decline which was negatively affected by 26 closure days at Houston area locations due to Hurricane Beryl in July.
Speaker Change: Impairments and other charges were $3 million higher. This primarily reflected impairments partially offset by gain from reducing San Antonio related debt. As a result, there was an operating loss of $2.5 million compared to an income of $1.2 million.
Speaker Change: On a non-GAAP basis, however, operating income was $701,000 compared to $1.4 million.
Speaker Change: These bombshells impairments included locations that were divested and the Denver Food Hall, even though these events occurred in the first quarter of 2025.
Speaker Change: These divestitures and closings are anticipated to improve the segment's performance.
Speaker Change: Collectively, these five locations accounted for $14.6 million in sales in fiscal 2024. Excluding $10.3 million in impairment and $2.9 million in gain on the sale, they lost a collective $1.1 million.
Thank you.
Speaker Change: Corporate expenses increased modestly by $284,000 and a little less on a non-gap basis.
Thank you.
Please turn to slide 19.
Speaker Change: We have a couple slides coming up that will discuss free cash flow and adjusted EBITDA, which are non-GAAP. In advance of that, we wanted to present the closest GAAP equivalents on this slide, which are operating income and net cash provided by operations and net income.
Bye.
Please turn to slide 20.
Speaker Change: We ended the fourth quarter with cash and cash equivalents of $32.4 million.
Speaker Change: During the quarter, we used $7.8 million to buy back shares. As a percentage of revenues, free cash flow was 18%, and adjusted EBITDA was 24%.
Please turn to slide 21.
Speaker Change: Debt at September 30th declined 7.2 million dollars from June 30th. This reflected eliminations of bombshell San Antonio debt, early pay down of 1.5 million dollars as a playmate note, and other scheduled amortized paydowns.
Speaker Change: The weighted average interest rate was 6.67%, only three basis points higher than a year ago. Total occupancy cost was 8% and decline is at 8% and declined from 8.1% year-over-year.
Speaker Change: Debt to traveling 12-month adjusted EBITDA was 3.28 times, similar to the third quarter.
Speaker Change: This should now further decline in fiscal year 2025 as sales grow from locations that have come online and more recently.
and from those anticipated to open it throughout the year.
that maturities continue to remain reasonable and manageable.
Now here's Eric.
Thank you, Bradley. Please turn to slide 22.
We have seven remaining developments.
Speaker Change: Bombshell, Denver is awaiting final inspections. We are targeting a late January opening in time for professional football championship.
Speaker Change: Chico Locos El Paso is finished and reopening is planned for March 1st.
Speaker Change: We are waiting for new electrical plan sign-offs at the Ricks Cabaret in Central City. Then we have about six more weeks of construction. We are targeting April opening to avoid risk of bad weather.
Speaker Change: Interior construction at Bombshells Blvd. is well underway and we are targeting an April opening.
Speaker Change: The framing and stucco work is underway at Bombshells and Rowlett, and we are targeting a May opening there. I'd like to note that both Lubbock and Rowlett construction are being financed through current bank loans, construction loans, rather than through free cash flow.
Speaker Change: We are still awaiting construction permits for the Baby Dolls West Fort Worth, and we are awaiting engineering review of our plans for the Baby Dolls Fort Worth to rebuild our club that burnt down.
Speaker Change: I'd like to say thank you to all of our loyal and dedicated teams for all their hard work and effort, and to all of our shareholders who believe and make our success possible.
Now open to Mark for questions.
Mark Moran: Thank you very much, Eric. Before I continue, I'd like to call Scott Buck, if you could please request to speak if you're on here.
Mark Moran: If you would like to ask a question, please raise your hand in the X space. When you finish, mute your microphone to eliminate any background noise. We have a limited number of speaker spaces, so after your question, we may move you to the back of the audience to free up space.
Mark Moran: To start things off, we'd like to take questions from Scott Buck, if he is available, as well as Rick's largest shareholders. So if you're out there, please request to speak and we will add you to the docket.
Mark Moran: It's not looking like we have Scott in the audience, so I would like to open this up to anyone with questions. Please raise your hand and we will bring you up to the front to be a speaker.
Mark Moran: This limited time offer. There we go. We have D&D Realty. D&D Realty, please take it away.
You have to unmute yourself to speak.
Speaker Change: Oh, hi, can you hear me? Yeah, now I got you. Sorry. So you guys have about six to seven properties that are currently under construction or in development. After you work through that pipeline, how do you think about development or opening new clubs organically versus purchasing them non-organically? Thanks.
Speaker Change: Probably with very high thoughts of suicide. No, I do not want to do anything else for a long time. We're going to get these open because we've, you know, this was our way of growth outside of acquisition. I think we're going to focus strictly our growth on acquisition.
Speaker Change: and try not to build anything else anytime soon. I definitely don't see us building anything else in 25, and if we don't start to look for stuff in 25, we probably won't build anything in 26.
Speaker Change: So it'll be a few years before we decide to build anything else, I believe. We're going to strictly look at acquisitions for growth from this point on.
Speaker Change: Thank you very much D&D Realty. Next up we have Antonio, my man, how you doing? Please take it away.
Doing great man, how are you?
We are great. Good to see you. My question...
Speaker Change: With all the challenges that you've overcome through 2024 being an interesting year and coming out on top, what's got you excited about the future of the business model with the brand new five-year plan?
Thank you.
Speaker Change: I think that, you know, just getting back to our basic core business, really being focused on the clubs again, been digging through financials, looking at some of the performances of some of our operations.
Speaker Change: trying to figure out, you know, should we rebrand, should we eliminate some of the locations?
Speaker Change: really going through real estate offerings and saying you know what's the real estate worth as another use and are we generating enough cash flow out of that unit to justify continuing to operate it as a club or should we sell the real estate and take the money and do something else with it. That was really a big part of our 2017
Speaker Change: as we really got into the Capital Allocation Strategy originally, and it's just nice getting back to visiting those thoughts again, and just kind of seeing where we've come and looking at how much our real estate value has actually increased.
Speaker Change: It's kind of crazy looking at some of the properties where you know you bought properties 15 years ago and
Speaker Change: You know, we've used them in loans back in 21, but here we are even, you know, just a mere four years later and seeing the value increase, I guess, a lot due to inflation, a lot just due to, you know, some of our high freeway Class A locations.
Some of our properties are on.
All right, and one last question.
Speaker Change: I know that some of your locations are taking Bitcoin payments, with Bitcoin hitting 106,000 a day. Like, I mean, how is that looking? Is that something that's...
Speaker Change: Is that an interesting perspective of the business model because you've been taking it for a while now? You know, I'll have to actually go and look At the mining in New York clubs and see how much is processing I don't actually see the Bitcoin because we actually convert to US dollars at at point of transaction So I don't really see so I have to actually
Like go look at a special
Speaker Change: a special program, basically, to see how much we're taking in in Bitcoin. But I will do that then and let everyone know. I'll see what I can find out and post on Twitter how that's going for us. I know that Bitcoin has been very integral, especially in Miami, and I think we've started in New York and Chicago as well.
Speaker Change: I suspect that these high prices we are probably getting more of it.
Speaker Change: Thank you. Yep, thanks. And if anyone's not following Antonio, he's got a great show on stocks and investing. Might wanna throw them a follow.
See a show on Monday.
Speaker Change: And I second that. Yes, Bradley. Yes. Scott Buck is actually on. Will you pull him up as a speaker? Yes.
Speaker Change: Yeah, he's not showing up on my request, but I'm going to bring up Jacob first, and I will try adding Scott while Jacob is speaking, so Jacob, please take it away.
Jacob: Hello, do you guys hear me? Yep, got you loud and clear. Great, well perhaps you mentioned this, but could you give some more color on the M&A environment? Is things heating up?
Jacob: the interesting objects and I remember from a couple of quarters ago that you guys mentioned that you had put out some LOIs.
Speaker Change: But no deals have, you know, yet been occurred. So, you know, just kind of wondering what what's happened there and like about the climate. Well, we have three that we're working on right now. We're waiting for they're all in different various phases of licensing approvals. And so if we get those licensing approvals, then.
Speaker Change: We'll get those deals closed and announced. We're also talking with other operators out there right now. Our core focus for growth is strictly going to be from this point forward is acquisitions.
Speaker Change: We'll be kicking a lot more tires and looking a lot harder.
at DEALS, but we will stay within our parameters.
Speaker Change: and not stretch to get deals done. So, I assume that as we move forward,
Speaker Change: We have been looking for the larger ones over the past few years, you know, with the $88 million acquisition in 21 and the $66.5 million acquisition in 23, and so now we're starting to look at some much smaller ones.
Speaker Change: Acquisitions in size, a lot of acquisitions that we're looking at right now are probably between $5 million and $15 million.
Speaker Change: purchase price. So they will be a little bit smaller, but we hope to do enough accumulation, you know, to hit our target goal of six million dollars.
Bradley Chhay, Eric Langan
Speaker Change: Yes, so and those clubs that you're currently evaluating, are those still in the same areas that you're currently operating? Some are in different areas, some are in the same, I mean, you know, same states.
Speaker Change: Obviously the same states make it easier for us. We're licensed in those states.
Everything's a little bit quicker in those states.
Thank you. Thank you.
Speaker Change: But we are looking at a couple of new states, which is probably the reason it's taking a little more time.
Speaker Change: on a couple of the ones we're working on right now. So, but hopefully we'll get through those hurdles.
Speaker Change: round traveling quickly after the first of the year and and get a deal close
Okay, nice. Thank you. Yeah, thank you
i
Speaker Change: While we're waiting for this to be unmuted, there we go. Take it away, please. Yes, Jan Lesner, shareholder from Germany. So many of your locations are located in the region where hurricanes really hit your operations. Isn't there any insurance which compensates you for those locations hit by an hurricane or fire?
Speaker Change: If there's a large enough destruction or we're closed for a long enough period of time, yes.
Speaker Change: I believe we have a claim in Onberry for a few of the locations.
Eric Langan, Bradley Chhay, Eric Langan
Speaker Change: Thanks a lot. Yeah. And we do carry insurance on, you know, on our properties in all those markets, so.
Speaker Change: Fantastic and great question. I'd like to take this moment to encourage anyone with any questions to please raise your hand and request to speak and we will bring you up to be a speaker.
Scott, we are currently trying to coordinate. There we go.
Speaker Change: You just sent some questions. So since we cannot bring Scott Wright, Scott Buck, excuse me, of HC, Wayne Wright, he has messaged me his questions. And the first one is, Eric, under the Back to Basics plan, would the company consider increasing the dividend?
Eric Langan: You know, the dividend is not really a tax-efficient use of capital.
Eric Langan: However, I do like to give it in and many of our shareholders do like getting the
the evidence, especially
Eric Langan: A lot of them are starting to do the DRIP programs, I think, with them.
Eric Langan: to buy the stock when they get their dividends. We will continue to slowly and gradually raise that on an annual basis so that we continue to have dividend growth and continue to pay our dividend. I think we're nine years of constant dividend payments and constant dividend growth on an annualized basis. I see us continuing that at least.
Eric Langan: you know, for the next five years, along with the majority of our capital return being done through buyback.
Speaker Change: Fantastic. And so Scott has an additional question, which is what was the purchased real estate value of the closed bombshells in Denver Food Hall for him to understand potential sale values?
Speaker Change: 5.2 million for the Denver Food Hall. All of the bombshells that we divested were leased locations, and most on their third rent increases, which is why we just decided it wasn't.
Speaker Change: They just weren't economically viable to continue to try to operate those.
Speaker Change: As Bradley pointed out, for fiscal 24, those units lost $1.1 million combined. So, you know...
Speaker Change: We just decided to move forward, get rid of those locations, focus on the core locations that we own the property on. Uh, we have 1 location left that we own the property on. Uh, that, uh.
Speaker Change: Numbers are increasing because we closed a unit that was close to it, close to it. So we are seeing a little bit of increase on that and if that unit
starts meeting the
Speaker Change: Marginal requirements that we're going to set on it, then we'll keep it open. And if it does not, then we may divest that unit at some point and sell that property off as well. I'd have to go look. That was part of an 11.5 acre development. We actually don't have any money.
Speaker Change: And it because we sold all the additional real estate around it other than the 2.3 acres our property setting on for way more money than we paid to
Speaker Change: Buy the land and build the building that we built on there. So we are already plus on that property. So we'll just have to to see if we can get that turned around or not here probably in the next 3 to 6 months. We'll make a decision on that as well.
Speaker Change: Fantastic, thanks so much for that and before I bring up Camel Way, Eric we have a question submitted to me from one of our larger shareholders and he is asking about the impairments and what those specifically are if you could speak to that.
Speaker Change: Bradley, you want to handle that? It's kind of your expertise.
Bradley Chhay: The impairments are basically accelerated write-offs of various sets of assets, either intangible assets such as SOB license, goodwill, or FF&E.
Bradley Chhay: They stem from basically doing an analysis of the future discounted cash flows against the book value of the assets.
So, in this current quarter, we had $12.5 million, and
For fiscal year, we had $38.5 million.
Thank you.
Speaker Change: Fantastic. Mark, I'd like to comment. And from my understanding, and Bradley, correct me, a lot of this is because of interest rates increasing, and so the discounted free cash flow rates are increasing, thus driving down the value of that
Speaker Change: free cash flow and resulting in these impairments. So they're all non-cash and the reality of it is they don't really affect the operations at all or the free cash flow at all.
Eric Langan: Yeah, they don't affect the precast law at all. That's correct, Eric.
Speaker Change: Fantastic guys, very much appreciate that. Now before I bring up Camel Way, I would just like to encourage anyone who has a question to please request to be a speaker. Camel Way, please take it away.
Camel Way: Thanks a lot. I really like your work. Any plans of opening restaurants in Yuma area, Yuma County and Yuma? There's a lot of traffic. It's a 3.5 billion agriculture industry and there's a lot of traffic going on. There's a lot of activity going on. Any plans of expanding?
Beyond Feelings. Thank you.
Speaker Change: I mean, we'll buy existing nightclub operations if we can find them in any market right now in the U.S.
Speaker Change: But as far as opening any new restaurants, no, we have no
Speaker Change: Thanks so much, Eric. I would like to encourage anyone with any questions to please request to be a speaker, and I'll give it a few more seconds before we close out this earnings call.
Speaker Change: unless Eric or Bradley there's anything else that you'd like to opine on or promulgate about?
We have one request now.
Adam Wyden, please take it away.
Speaker Change: Hey, this is Adam Wyden. Did you guys open it up? You guys can hear me?
Yep.
Speaker Change: I'm sorry I missed the first part of this call. I was on another call. I've got a few questions. Have you guys talked about the non-income producing real estate that you're planning on selling and sort of what you think the value is in terms of cash on the balance sheet and how much the EBITDA is being dragged down from the property taxes and the operating expenses? Did you guys go into that at all? And you know the assets you're planning on selling and monetizing sort of the framework for how much it's you know value that's not on the balance sheet and how much EBITDA you could save by monetizing those pieces of real estate?
Speaker Change: I didn't go into it in this call really but you know top my head you know we probably have about
Speaker Change: Well, now that we've put the grains up for sale, the food haul in Denver up for sale, we have the 14, or 19 acres in.
Fairland plus the additional
Speaker Change: build site next to the Bombshells in Pearland. We have one of the Central City Casino properties that we've been meeting with some people to try to sell, probably in the neighborhood of $20 to $25 million.
Speaker Change: in value. We bought most of that real estate at very good prices.
Speaker Change: So we don't have anywhere near that in it, but as far as carrying costs, I don't know off the top of my head, but it's in the hundreds of thousands of dollars, property taxes, insurance, and whatnot. And we are actively pursuing moving a considerable amount of that real estate in 2025.
Got it.
Speaker Change: Did you talk about, I don't know if I missed this, but did you guys talk about sort of where you expect bombshells margins to get in 2025 now that you've...
Speaker Change: closed down the the three bad ones and you're opening up the good ones sort of has your Expectations around margin generation for bombshells changed in in in 25 and beyond. I know you're not building anymore, but like
Speaker Change: Do you sort of have a sense of where you think bombshells and origins are going to settle out now that you've gotten rid of the three bad ones and got the three new ones open? Yeah, without the new ones actually open and seeing their progress, I don't have an exact number, but we are targeting 15%.
Speaker Change: on the bombshells margins. And if we, you know, we can't get there, we will start looking at what else we can do with those units. But the real core right now is returning to same-store sales growth. I think we're going to be very close in this quarter.
Speaker Change: If not positive in the December quarter, at least down single digits, not the 15-16% we've been doing. We've made some changes at units. We've also eliminated
Speaker Change: You know the stores that were the biggest drags because of the high rents and and whatnot and really focused on
Speaker Change: what we need to do in those locations that we have left, strengthen our management teams, we're able to
you know.
Speaker Change: sort through all those management teams. They'll build strong teams out of the people that
Speaker Change: that we kept as we closed units, and I'm optimistic. We're definitely moving in the right direction.
Speaker Change: But the space is a difficult space right now. If you read the papers, the news, there's new restaurants.
going bankrupt every single day.
you know everybody's complaining about sales and margins.
Speaker Change: out there except for, you know, a few that are just very, very strong and hopefully we can find that.
Speaker Change: That magic formula that we had for about the first 10 years we operated these things and get up get it back
Speaker Change: We're very focused on our late night. We're very focused on our
Speaker Change: You know, making it fun, making a party again, and increasing our alcohol sales as a percentage of total sales at each location as well. So, I think we're well on our way, and over the next six months we'll get a very good idea of
Speaker Change: if our progress and what we've done is working well for us or not, but 15% targets are what we're shooting for right now.
Speaker Change: Yeah, so again, I'm just looking at the deck that you guys put together, which is pretty straightforward. I mean, you guys have a thing, 40% buybacks, 50% acquisitions, dividends less than 10%. So, you know, that's pretty straightforward.
Speaker Change: Is there, do you guys have, I mean, I know obviously the comps have been lumpy, there have been periods of time when they're high, periods of time when they're low, you guys seem to be rebounding pretty nicely on the strip clubs. I mean, once, you know, obviously bombshells is going to be smaller, it used to be...
Speaker Change: 14 locations, you closed 3, then you got the grain so that gets you down to 10, you got the 3 new ones. And we sold San Antonio.
Speaker Change: as well. Yeah, I know. But it was 14 with the Grange and then you went down to 10 and then you got the three new ones opening. So you'll be back to 13, but the composition will be different. 13 or 12. I'm not sure. I think it's 12. I don't...
Speaker Change: But, but, but, but, you know, you have sort of a point, you know, as a percentage of sales, you're not going to have, you know, your, your bombshell is still not going to be a huge percentage of the business and with the nightclub, you know,
Compensatively, this is
Speaker Change: And as you do more M&A, nightclubs will be a larger percentage of the business.
Speaker Change: Do you think you can get back to doing 3-5% comps in the business? I mean, you're sort of there now, and I can sort of back into it, you know, you're sort of there on nightclubs.
Speaker Change: Bombshells is going to be flat, hopefully, or close to it this year. You'll have the new ones open. You'll, you know, hopefully that those can comp, you know, whatever, you know, a few percent. I mean, if the tax is on tips and sort of what Trump is doing for small, medium sized business, maybe we get a resurgence. And, you know, as you said, you know, there are a lot of, you know, restaurants that are suffering, you know, maybe you get a resurgence there, you know, we get a little bit of a lift at.
Speaker Change: at Bombshells, just from the macro. I mean, do you think it's unrealistic to think you guys can get, like, on a total company basis, back to three to five percent comps for the long term? Is that impossible? I mean, it's not impossible. I mean, I'm shooting for a minimum two percent overall growth rate right now over this five-year plan, for our five-year plan.
I would like to see it.
Speaker Change: much higher, and I think if the economy does well, we will do well as well. I just think there's a lot of work on the government side, and depending on...
Speaker Change: where the, where the, you know, the government spending cuts are, if they're U.S. based, it's going to affect things in the U.S. a little more drastically. If they're, you know, more foreign based and they spend more money in the U.S., then of course we would see the opposite here, I think. So, I think we're just going to have to wait and see.
Speaker Change: You know how all that plays out. I'm playing with the cards I'm dealt right now and dealing with dealing with those cards, staying focused on a much more short term window and watching our trends and adjusting.
Speaker Change: very rapidly if we need to adjust whether it's pricing, whether it's labor, whether it's security costs.
just really
Speaker Change: You know very focused on our especially our core business and and and the bombshells margins
Speaker Change: and watching those things, like I said, we've been going through.
Speaker Change: financials every every month very very very hard and and finding places to
Speaker Change: make cuts or to make improvements. There's some places we've, you know, we found as we look at things where, you know, maybe we were leaving some money on the table and we've been able to make some adjustments there and increase revenues.
Speaker Change: and in those markets, we've got, you know, if you look at everything right now with our, I call it my 2017 eyes, where we're, you know, everything's on the chopping block, and we lay it all out and say, okay, what's the best use of
Speaker Change: capital, how much capital we have tied up in this asset, what's the asset ROI, return on equity, and are we
Speaker Change: You know, can we sell that asset and get higher return on equity by putting the money someplace else or not? We've got about four clubs that we're looking very hard at maybe maybe a fifth one and one bombshells left
Speaker Change: So we've got, you know, five or four, five, maybe six locations.
Speaker Change: lists those properties for sale, or you may see us surprisingly sell those locations.
as we were talking with...
Speaker Change: other private buyers right now on on a few smaller, they're very small locations for us.
Speaker Change: And that's another thing that I'm very focused on. Is it worth our time, effort, and energy?
Speaker Change: to put, you know, basically I call it the machine, to put our machine behind a club that's...
Speaker Change: You know, generating a million dollars in sales and making $300,000, is that still the best use of our resources from our people side of the business? And is our return on that high enough, or could we make more money if we put those resources into a larger location?
So there's a lot of things that were really...
Speaker Change: talking about on a, you know, basically pretty much a weekly basis in trying to get to
get to everything.
Thank you.
Speaker Change: Did you guys talk about, did you guys talk about your main, the CapEx and how you like, is your, is your, you've been spending a lot on CapEx for the bombshells and the casinos and the renovations. I mean you would expect in 2025 your maintenance CapEx to go back to your normal level, right? Like you guys are close to it, no? We hit about 7.5 or 7.8 million last year.
Speaker Change: We did the roof at Tootsie's, which was of considerable expense, and we did multiple entirely new AC packages.
Speaker Change: plus four remodels. So maintenance capex was a lot higher last year. I think we'll get back to, I think we're forecast at 6 million.
Speaker Change: for 2025, and I think we'll come in pretty close to there, maybe even a little under.
Speaker Change: Right, and if most of the money has been spent on bombshells, if I'm just backing into it, the only deviation from $6 million of maintenance capital would probably be M&A, right? If I think about CapEx, right? Yeah, that's total CapEx, not maintenance CapEx.
So.
Speaker Change: Well, that's what I'm saying. I'm saying, like, if you look at the last few years, you've been spending, you bought the casino real estate, you did this, you did that, you built bombshells, like...
Speaker Change: Rowlett has mostly been spent. Lubbock, I mean, do you have a lot more capital going out the door for the bombshells or no?
Speaker Change: They've probably mostly been spent, no? No, as I said on the call earlier, both bombshells. Denver's done. We're getting final inspections, I think.
Speaker Change: I believe we had inspections all this week. We have two more inspections on Thursday, and then I believe the final is scheduled for Friday of this week. Then we have the liquor inspection the following week.
Speaker Change: Hopefully, and that store will be done. So there's not much more money to spend other than startup costs, right? I mean, we always have startups, but the startup costs will be offset by immediate sales in January.
Speaker Change: Yeah, so most of the startup costs will start January 6th, and with any luck, we'll be able to open that store somewhere around the 21st or 22nd of January, so most of those costs will be offset in that quarter, which will be the second quarter of Fiscal 25. The construction for the other two locations are all bank finance now. So there's no actual...
cash from the company going out on those locations.
Speaker Change: Right, but my point is that this will be a pretty big step down for CapEx, so you're going to have cash flow next year. If no M&A shows up, I don't know if you talked about M&A, but if no M&A shows up, you're going to have a lot of cash to buy back stock at these levels. You bought back in 24, but you also had to do the projects. If you have $25 million of real estate going out the door and the CapEx going down, you guys are going to have a pretty big war chest to buy back stock if there's no M&A, right? I mean, if the stock stays here, you're going to be pretty active on the buyback, I would think, no? We are active every single day.
Speaker Change: We don't have a set cap at the moment that we're going to stop buying back stock. We did get a considerable amount of extra cash.
Speaker Change: And we paid about $2 million worth of additional debt off, including a big portion of some 12% debt that we have.
So, we have...
Speaker Change: We have been working on not only buying back our stock on a very regular basis, but also bringing our debt down. I want to get our debt to EBITDA under three times, under 3x. That's always.
Speaker Change: We know we can go to four without stretching too far, but because most of it is real estate related, but we like to keep our total debt load at three times.
Speaker Change: on a three times basis, so You should you're under three times on next year. I mean again, I don't have yeah I think so too, but we look at a trailing which was 3.28 times
Speaker Change: at the end of September 30th, so we are definitely working on that.
working on.
Speaker Change: Yeah, I mean, I don't have the September balance sheet in front of me, but as of June you had $244 of debt, not including leases and $34 of cash. $238. We paid back $7.2 million debt in the quarter.
Speaker Change: and any of 34 of any of 30 how much cash you have like 35 32 and change at the end of the quarter but yeah we're probably pretty close to 35
5 right now.
Speaker Change: So, you got $206 million, right? If I'm doing my math, if you guys have all these assets coming online, you know, the Bloomberg consensus estimate for EBITDA is 83, but I suspect you're going to do a lot more than that. But even just on the consensus number, if I were to take 206 divided by...
Speaker Change: What did we say to your 238 less 32 is 206
Speaker Change: So, if I were to take 206 divided by 83, this is the Bloomberg number, that's two and a half times 2025.
Speaker Change: I think that if you get these other assets up and running and you know you're doing some of the things you're doing in terms of cost cuts and
Speaker Change: You know, again, if you can comp positively on the nightclubs, if you do a...
Speaker Change: 4%, 5% comp on nightclubs on 250 million in sales. I mean, that's almost all EBITDA, right? I mean, you could, you know, your EBITDA could be, you know, probably, I mean, there's, it's, there's, it's not unrealistic to think that you could be a hundred million dollars of EBITDA next year. It's not impossible.
Speaker Change: I mean, in that scenario, you'd be two times, but even if you just did the 83 that the consensus number is, you'd be at two and a half times. I mean...
Speaker Change: Yeah, I mean, I don't know. I think it's hard for me to look at the debt in the context of, you know, $25 or $30 million of real estate, you got these non-income producing assets, and sort of like,
Speaker Change: I don't know, I think it's unfair to look at your leverage, you know, because if you sell real estate, then that's not making any EBITDA, your leverage is going down. And if you're not selling the real estate, you would make the assumption that the EBITDA is going to go up.
Speaker Change: It's all sort of dynamic, right? If you've got real estate for the casino, for example, the one in Central City, let's say that makes $3 million of EBITDA, you've got all the debt on the balance sheet from the casino but none of the EBITDA, right? Or whatever, it's not a casino now, now it's a nightclub. But you get what I'm saying. Of course. I mean, as we open these locations...
Speaker Change: on the bank loans for the two bombshells to draw out, so that go up a little bit more. But yes, all the real estate's already owned, all the property tax are being paid annually, you know, the insurances, all those types of things. So all that revenue is going to.
Speaker Change: and all the EVA that drops in is definitely going to help drop that from 3.28 to below three times. So I'm not concerned with the debt. I didn't want to... That's not what I'm trying to say. I'm saying is I still like to be within our norms because if a major acquisition comes up and I want to push it...
Speaker Change: So, you know, hire, I want to have that room to do so.
Speaker Change: And if I'm already at a high, then I'm going to have to go, okay, well, maybe we can't.
Speaker Change: And we can't make this acquisition because I don't want to push us to, you know, very close to four times. But if I go to 3.2, 3.3, 3.5, because I'm making a major acquisition, as we did in March of 23 with the, with the acquisition, I'm not, I'm not really concerned.
Speaker Change: Fantastic. Thanks so much, Eric, and thank you for the questions, Adam. We will circle back if you have any furthers. Next question comes from another one of our larger shareholders who is asking for an update on Favoritly, Eric.
Speaker Change: We are adding girls. I think we have, we're still in beta. I believe the last time I talked to everybody about 10 days ago, we had five clubs.
that we're now being
Speaker Change: So I'm hoping we continue to see that increase as we add additional locations and we get ready to do a full-out launch.
of the site.
Speaker Change: Wonderful. Now, last question that I have from another shareholder who submitted this was just to give any color on the current business trends that you're seeing.
Thank you.
Speaker Change: I mean, November was fantastic. Obviously, we had five weekends. Every weekend was strong.
Speaker Change: I was strong around the holidays, which, you know, was surprising. We had two big fights with the Tyson-Jake Paul fight on Friday, and then the big UFC fight on Saturday. So that was a great, great weekend, that third weekend of November.
December started off a little slow.
Speaker Change: with the, uh, you know, December 1st being a Sunday. However, the first weekend was was was very strong. We did decent through the through the second week, uh, with this past weekend being just a little bit, uh,
Speaker Change: A little bit off, not much, a few percentage points from
what I guess I would consider, you know,
The number I'm looking for, I should say, not...
Speaker Change: Not necessarily what trends have been, but as trends have been up through October, November, December, I think we're seeing some pretty decent sales. So hopefully that will continue, and we'll get through the end of December.
For more information, visit www.fema.gov
Speaker Change: I think, you know, we have a couple of weeks, last two weeks of January are kind of a week phase for us, and then we go into February, March. March Madness is going to be the big kickoff. So hopefully we have a really big March Madness, and of course we'll have five weekends with five Saturdays and five Sundays in March again.
So, it will be interesting.
as we move, as we continue to move forward.
Fantastic. Thank you so much for that, Eric.
Speaker Change: We appreciate everyone joining this call. On behalf of Eric, Bradley, the company, and our subsidiaries, thank you and have a good night. Please visit one of our clubs or restaurants to celebrate Christmas, Hanukkah, Kwanzaa, the New Year's, or just to have fun. Take care and have a great time.