Q1 2025 RCI Hospitality Holdings Inc Earnings Call
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Okay.
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Mark Moran: Greetings and welcome to RCI Hospitality Holdings first quarter 2025 earnings call. You can find the company's presentation on RCI's website. Go to the investor relations section and all the links will be at the top of the page.
Mark Moran: please turn with me to slide two of our presentation.
Mark Moran: I'm Mark Moran, CEO of Equity Animal. I'll be the host of our call today. I'm coming to you from Denver, Colorado.
Mark Moran: Eric Langan, President and CEO of RCI Hospitality, and CFO Bradley Chhay are in Houston. Please turn with me to slide three. RCI is making this call exclusively on Xspace. To ask a question, you will need to join the space with a mobile device. 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. This conference call is being recorded. Please turn with me to slide four. I want to remind everybody of our safe harbor statement, you may hear or see forward looking statements that involve risks and uncertainty.
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 everybody of our safe Harbor statement you.
You may hear or see forward looking statements that involve risks and uncertainties actual results may differ materially from those currently anticipated we disclaim any obligation to update information disclosed in this call as a result of developments that occur afterwards.
Mark Moran: Actual results may differ materially from those currently anticipated. We disclaim any obligation to update information disclosed in this call as a result of developments that occur afterward. please turn with me to slide five.
Please turn with me to slide five.
Mark Moran: I also direct you to the explanation of Rick's non-GAAP financial measure.
I also direct you to the explanation of rigs that non-GAAP financial measures.
Mark Moran: Now, I'm pleased to introduce Eric Langan, President and CEO of RCI Hospitality. Eric, take it away.
Now I am pleased to introduce Eric Langan, President and CEO of RCI hospitality, Eric take it away.
Eric Langan: Thanks, Mark.
Thanks, Mark if everyone would please turn to slide six.
Eric Langan: If everyone will please turn to slide six. Thank you for joining us today.
Thank you for joining us today, let me run through some key takeaways all comparisons are year over year, unless otherwise noted.
Eric Langan: Let me run through some key takeaways. All comparisons are year over year, unless otherwise noted. In our nightclub segment, we generated increase in total sales and same store sales, while gap and non-gap operating profits were approximately level with a year ago quarter. In our bombshell segment, total sales declined as expected with the sale closure of underperforming locations, but gap and non-gap operating profit and margins both improved.
And our nightclubs segment, we generated increase in total sales and same store sales.
GAAP and non-GAAP operating.
Profits were approximately level with a year ago quarter.
And our Bombshells segment total sales declined as expected with a sale closure of underperforming locations, but GAAP and non-GAAP operating profit and margins both improved.
Eric Langan: On a consolidated basis, net cash provided by operating activities and free cash flow nearly matched a year ago level. and we continue to make notable progress with our Back to the Basics five-year cap allocation plan. During the first quarter, we sold or closed four underperforming locations in the bombshell segment, for a total of five since September of 2024. We also repurchased 66,000 shares for $3.2 million. And as of 1231, we had 8,989,000 shares of common stock outstanding.
On a.
[noise] solidago basis, net cash provided by operating activities and free cash flow nearly matched year ago levels.
And we continue to make notable progress with our back to the basics five year capital allocation plan.
During the first quarter, we sold or closed four underperforming locations and the Bombshells segment for a total of five since September of 2024.
We also repurchased 66000 shares for $3 $2 million and as of 12 31, we had 8.989 million shares of common stock outstanding.
Eric Langan: In January, we acquired the Flight Club, a premier gentleman's club in the Detroit market. Purchase price was $8 million for the club and $3 million for the real estate. We estimate the club to generate about $2 million in annually adjusted EBITDA. We also opened the bombshells in Denver, and as part of the effort to improve bombshells, we have changed leadership and Raphael. Pedraza is now promoted to our Director of Operations from Assistant Director of Operations.
In January we acquired the flight club a premier Gentleman's club in the Detroit market.
Purchase price was $8 million for the club and $3 million for the real estate.
We estimate the clubs to generate about $2 million in annually adjusted EBITDA.
We also opened the bombshells in Denver.
And as part of the effort to improve bombshells, we've changed leadership and Raphael.
<unk> is now <unk>.
Promoted to our director of operations from assistant director of operations.
Bradley Chhay: Now here's Bradley to review our performance in more detail. Thank you, Eric. Please turn to slide 7. All comparisons are year-over-year, unless otherwise needed. Fourth quarter sales totaled $71.5 million. that largely reflects the sale and closure of the non-performing locations in the bombshell segment. partially offset by the increased sales in the nightclub segment. Other gains total $2.2 million. Net income attributed to RCIHH common shareholders was $9.0 million. EPS was a $1.01 gap and $0.80 non-gap.
Now here's Bradley to review our performance in more details.
Bradley: Thank you Eric.
Speaker Change: Please turn to slide seven.
Speaker Change: All comparisons are year over year, unless otherwise noted.
Speaker Change: Fourth quarter sales totaled $71.5 million.
Speaker Change: That's largely that largely reflects the sale and closure of the nonperforming locations and the bombshells segment, partially offset by the increased sales in our nightclub segment.
Speaker Change: Other gains totaled $2 $2 million.
Speaker Change: Net income attributed to RCI Hh common shareholders was 9.0 million owners.
EPS was $1 one sense gap at a descent non-GAAP.
Bradley Chhay: Net cash provided by operating activities was $13.3 million, free cash flow was $12.1 Please turn off the light.
Speaker Change: Net cash.
Speaker Change: Provided by operating activities was $13 $3 million free cash flow was $12 one.
Speaker Change: Please turn to Carolina.
Unknown Attendee: Bradley, we lost you there at... After the $12.1 million, I think. and adjusted EBITDA was $15.7 million.
Speaker Change: Rather we lost you there at <unk>.
After the 12 by Onemain artifact.
Speaker Change: Sorry.
Speaker Change: And adjusted EBITDA was $15 $7 million.
Bradley Chhay: Let me read that line over. Sorry for the cutoff. Net cash provided by operating activities was $13.3 million, free cash flow was $12.1 million, and adjusted EBITDA was $15.7 million.
Speaker Change: Let me read online over sorry for the cutoff.
Speaker Change: Net cash provided by operating activities was $13 $3 million free cash flow was $12 $1 million and adjusted EBITDA was $15 7 million honors.
Bradley Chhay: please turn to slide 8. Nightclub's revenues increased $0.7 million or 1.1%. The key factors driving the first quarter revenues included a 3.7% increase in same store sales and the addition of three new or reformatted clubs.
Speaker Change: Please turn to slide eight.
Speaker Change: Nightclubs revenues increased zero point $7 million or one 1%.
Speaker Change: The key factors driving the first quarter revenues included a three 7% increase in same store sales.
Speaker Change: And the addition of three new or Reformatted clubs.
Bradley Chhay: This was partially offset by the absence of Baby Dolls Fort Worth. Food, merchandise, and others increased 8.6%, alcoholic beverages 3%, while service declined 3.7%. Other net gains totaled $0.8 million versus virtually nil from a year-ago quarter. The first quarter 2025 amount included a $1 million in additional cash proceeds from Babydolls Fort Worth Insurance. Operating income was $20.9 million compared to $20.4 million. Margin was 33.8% of revenues versus 33.4%. Non-GAAP operating income was $20.6 million compared to $21 million.
Speaker Change: This was partially offset by the absence of baby Dallas Fort worth.
Speaker Change: Food merchandise and others increased eight 6% alcoholic beverages, 3% while service declined three 7%.
Speaker Change: Other net gains totaled zero point $8 million versus virtually nil from a year ago quarter.
Speaker Change: The first quarter 2025 amount included a $1 million in additional cash proceeds from a Dallas Fort worth insurance.
Speaker Change: Operating income was $29 million compared to $24 million.
Speaker Change: Margin was 33, 8% of revenues versus 33, 4%.
Speaker Change: non-GAAP operating income was $20 $6 million compared to $21 million.
Bradley Chhay: and Non-Gap Margin with 33.4% of segment revenues versus 34.3%.
Speaker Change: And non-GAAP margin was 33, 4% of segment revenues versus 34, 3%.
Speaker Change: Okay.
Bradley Chhay: Please turn the slide. Bombshell's revenues declined $3.1 million, or 24.7%, due to the sale and closure of five underperforming locations. and a 7.5% decline in same-source cells. This was partially offset by a full quarter of the Stafford, Texas location, which opened in mid-November 2023. Other net gains totaled $1.3 million versus virtually nil from a year ago quarter. The first quarter 2025 amount reflected a gain for the bombshells that were sold. Operating income increased $1.9 million with a margin of 20.6% of segment revenues versus 0.7%.
Speaker Change: Please turn to slide nine.
Speaker Change: Bombshells revenues declined $3 $1 million or 24, 7%.
Due to the sell in closure of five underperforming locations and.
Speaker Change: And a seven 5% decline in same store sales.
Speaker Change: This was partially offset by a full quarter of the Stafford, Texas location, which opened in mid November 2023.
Yes.
Speaker Change: Other net gains totaled $1 $3 million versus virtually versus virtually nil from a year ago quarter.
The first quarter 'twenty twenty-five amount reflected a gain for the bombshells that were sold.
Speaker Change: Operating income increased $1 $9 million with a margin of 26% of segment revenues versus 0.7% non-GAAP operating income increased.
Bradley Chhay: Non-GAAP Operating Income Increase. Half a million dollars with a margin of 6.7% of segment revenues versus 1.2%. During the first quarter, there were no weather-related closures for nightclubs and bomb shelters. To date, however, in the second quarter, we've had 14 days for nightclubs and 7 days for bomb shelters.
Speaker Change: Half a million dollars with a margin of six 7% of segment revenues versus one 2%.
Speaker Change: During the first quarter, there were no weather related closures for nightclubs and bombshells.
Speaker Change: To date, however in the second quarter, we've had 14 days for nightclubs and seven days for bombshells.
Bradley Chhay: Please turn to slide 10. Corporate expenses increased $1.7 million on a gap and non-gap basis. This was due to the establishment of insurance reserve.
Speaker Change: Please turn to slide 10.
Speaker Change: Corporate expenses increased $1 $7 million on a GAAP and non-GAAP basis.
Speaker Change: This was due to the establishment of insurance reserve.
Bradley Chhay: please turn to slide 11. We have some slides up in the upcoming that discuss the free cash flow and adjusted EBITDA, which are non-GAAP. In advance of that, we wanted to present the closest gap equivalents on this slide. which are operating income, net cash provided by operations, and net income.
Speaker Change: Please turn to slide 11.
Speaker Change: We have some slides up in the upcoming that discuss the free cash flow and adjusted EBITDA, which are non-GAAP.
Speaker Change: In advance of that we wanted to present their closest GAAP equivalents on this slide.
Speaker Change: Which our operating income.
Speaker Change: Net cash provided by operations and net income.
Bradley Chhay: Please return to slide 12. We ended the first quarter with cash-in-cash equivalents of $34.7 million. During the quarter, we used $3.2 million to buy back shares. As a percentage of revenues, free cash flow was 17% and adjusted EBITDA was 22%.
Speaker Change: Please turn to slide 12.
Speaker Change: We ended the first quarter with cash and cash equivalents of $34 $7 million.
Speaker Change: During the quarter, we used $3 $2 million to buy back shares.
Speaker Change: As a percentage of revenues free cash flow was 17% and adjusted EBITDA was 22%.
Bradley Chhay: Pre-cash flow was slightly lower than a year ago quarter because maintenance capex was almost 30% higher.
Speaker Change: Free cash flow was slightly lower than a year ago quarter, because maintenance capex was almost 30% higher.
Bradley Chhay: please turn to slide 13. Debt at December 31st declined $2.7 million for September 30th reflecting scheduled pay downs. The weighted average insurance rate was 6.65% compared to 6.61% in a year ago quarter. Total occupancy costs were 8% versus 8.2% a year ago. Debt to traveling 12-month adjusted EBITDA was 3.32 times compared to 3.28 times in the preceding quarter. This metric will decline as sales grow from locations that have come online more recently. and from those anticipated to open.
Speaker Change: Please turn to slide 13.
Speaker Change: Debt at December 31 declined $2 $7 million booked at September 30th reflecting scheduled pay downs.
Speaker Change: The weighted average interest rate was $6 six 5% compared to $6 six 1% in a year ago quarter.
Speaker Change: Total occupancy costs were 8% versus eight 2% a year ago.
Speaker Change: Debt to trailing 12 month, adjusted EBITDA was 332 times compared to 3.28 times in the preceding quarter.
Speaker Change: This metric will decline as sales girl from locations that have come online recently.
Speaker Change: And from those anticipated to open debt maturities also continue to remain reasonable and manageable now here is Eric.
Bradley Chhay: Debt maturities also continue to remain reasonable and manageable.
Eric Langan: Now, here's Eric. Thank you, Bradley, and please turn to slide 14. For those of you new to the company, let me review our capital allocation strategy. are under our plan, we will allocate 40% to club acquisition. We will allocate 60% to share buybacks, dividends, and debt repayments. The goal is to grow free cash flow per share by 10-15% on an average annual basis.
Speaker Change: Yeah.
Eric Langan: Thank you Barry and please turn to slide 14.
Eric Langan: For those of you new to the company that when we review our capital allocation strategy.
Eric Langan: Our under our plan, we will allocate 40% to club acquisitions.
Eric Langan: Allocates, 60%.
Eric Langan: To share buybacks dividends and debt repayment.
Eric Langan: The goal is to grow free cash flow per share by 10% to 15% on an average annual basis.
Eric Langan: please turn to slide 15. Operationally, this means focusing on our core nightclub business. Currently, we are evaluating every club in our portfolio. The goal is to increase same-store sales on a regular basis. Our nightclubs plan also involves acquisitions. Our goal is to acquire an average of six million dollars of adjusted EVA a year, focusing on the best clubs. buying base hits with occasional home run. Our target metrics remain the same, three to five times adjusted EBITDA for the club business and fair market value for the real estate, targeting 100% cash on cash returns in three to five years.
Eric Langan: Please turn to slide 15.
Eric Langan: <unk> this means focusing on our core nightclub business. Currently we are evaluating every club in our portfolio. The goal is to increase same store sales on a regular basis.
Eric Langan: Our nightclubs brand also involves acquisitions our goal is to acquire an average of $6 million of adjusted EBITDA a year focusing on the best clubs.
Eric Langan: Buying base hits with occasional homeruns.
Eric Langan: Our target metrics remain the same three to five times adjusted EBITDA for the club business and fair market value for the real estate targeting 100% cash on cash returns and three to five years.
Eric Langan: Purchases would be made with cash on hand, bank financing, and seller notes.
Eric Langan: It uses would be made with cash on hand bank financing and seller notes.
Eric Langan: For bombshells, our plan calls for improving the performance of existing locations. Our near-term target is 15 percent operating margins and return to same-source sales growth. Our plan also calls for finishing. Two other locations currently in development in Lubbock and Rowlett, Texas. For the final part of our plan, we anticipate continuing to implement a program for regular buybacks. We also anticipate small dividend increases annually. All together, we expect to generate more than $250 million in free cash over the next five years and buy back a significant amount of stock. given where our share prices are, given where our shares are trading, and our view of what the business can do, we believe this is a great use of our cap.
Eric Langan: For Bombshells, our plan calls for improving the performance of existing locations. Our near term target is 15% operating margins and return to same store sales growth. Our plan also calls for finishing.
Two other locations currently in development in Lubbock, and rollout, Texas for.
Eric Langan: For the final part of our plan, we anticipate continuing to implement a program for regular buybacks.
Eric Langan: Also anticipate small dividend increases annually.
Eric Langan: Altogether, we expect to generate more than $250 million in free cash over the next five years and buyback a significant amount of stock.
Eric Langan: Given where our share prices are given where our shares are trading and our view of what the business can do we believe this is a great use of our capital.
Eric Langan: Our fiscal 29 target. are calling for hitting $400 million in revenues, $75 million in free cash flow, and reducing share count to 7.5 million shares. This would result in a doubling of free cash flow from fiscal 24 to approximately $10 a share in 29.
Eric Langan: Our fiscal 'twenty nine targets.
Eric Langan: Ah, calling for hitting $400 million in revenue $75 million in free cash flow and reducing share count to seven 5 million shares as a result in a doubling of free cash flow from fiscal 'twenty four to approximately $10 a share and 29.
Eric Langan: Please turn to slide 16. With Bombshells Denver now open, we have six remaining developments. Chica Locos El Paso is finished and reopening as planned for March 1st. Interior construction at Bombshells Lubbock is underway and we are targeting a mid-March opening. Completing final finish outs at Ricks Cabaret Central City and we are targeting an April opening. Framing and Stucco are underway at Bombshells Rowlett, and we are target of May Oak. I would like to note that both Lubbock and Rowlett construction are being financed through bank loans. We are still awaiting construction permits for Baby Dolls Fort Worth West and we are awaiting engineering review of our plans for the original Baby Dolls to be rebuilt.
Eric Langan: Please turn to slide 16.
Eric Langan: With Bombshells Denver now open we have six remaining developments shaken Lucas El Paso is finished and reopening is planned for March 1st.
Eric Langan: Interior construction at Bombshells Lubbock is underway and we are targeting a mid March opening.
Eric Langan: Perfect.
Eric Langan: Completing final finish asset Ricks cabaret Central city, and we are targeting an April opening.
Eric Langan: Framing.
Eric Langan: And <unk> are underway of bombshells rollout and we are targeting a may open.
Eric Langan: I would like to note that both Lubbock Amarillo construction are being financed through bank loans.
Eric Langan: We are still awaiting construction permits for baby Das Fort worth West and we are waiting engineering view of our plans for <unk> for their original baby das to be rebuilt.
Eric Langan: Thanks to our, at this point, I'd like to thank all of our loyal and dedicated teams for all their hard work and effort, and for all our shareholders who believe and make our success profitable. Possibly.
Eric Langan: Thanks to our at this point I'd like to thank all of our loyal and dedicated teams for all their hard work and effort and for all our shareholders, who believe in make our success profitable.
Mark Moran: Here's Mark. Thank you very much, Eric and Bradley. 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.
Eric Langan: Possible.
Eric Langan: This march.
Eric Langan: Thank you very much Eric and Bradley.
Eric Langan: If you'd like to ask a question. Please raise your hand in the access 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 to.
Scott Buck: To start things off, we'd like to take questions from Rick's analyst, Scott Buck of H.C. Wainwright, and then some of our larger shareholders. Scott, please take it away.
Speaker Change: To start things off we'd like to take questions from Rick's analysts Scott Buck of H C. Wainwright and then some of our largest shareholders Scott Please take it away.
Bradley Chhay: Hey, good afternoon, guys. Thanks for taking my questions. Bradley, I want to ask about the $1.7 million to establish the self-insurance reserve. That is non-cash or is that a cash expense? And should we think of that as one time in nature? Yeah, I can answer that, Scott. It is, it is a one time, I think it's one time, it was kind of a catch up deal. Since we decided to self insure, starting in October, due to the outrageous costs of insurance. And until we get our captive setup, we're in the process of setting that up.
Scott Buck: Hey, good afternoon, guys. Thanks for taking my questions Bradley I want to ask about the $1 7 million to establish the self insurance reserve that is noncash or is that a cash expense.
Speaker Change: And should we think of that as onetime in nature.
Speaker Change: Yeah, I can address it as it.
Speaker Change: It is a one time I think it's a one time it was kind of a catch up deal.
Speaker Change: Once we decided to self insure.
Speaker Change: Starting October daily outrageous cost of of insurance.
Speaker Change: And until we get our captive set up or in the process of setting that up so.
Scott Buck: So once the captive setup, we will see how that all plays out. But right now we have to follow the GAAP rules on accounting for, for this insurance. Unknown Speaker Unfortunately, it's just going to non-cash, but it goes into a reserve account. And the balance just sits there. And then if we get claims or have to pay defense costs, it will be for this time period, it will come out of those reserves. Okay, and you guys did not add that back into your adjusted EBITDA number, right? So, you know, normalizing that adjusted EBITDA is a little north of $17 million.
Speaker Change: Uh huh.
Speaker Change: Once the captive setup, we will see how that all plays out but right now we have the following GAAP rules on accounting for for this insurance.
Speaker Change: And a potential liability.
Speaker Change: Marsh landscapes, and Cisco on a noncash flow goes into reserve account and.
Speaker Change: Boucher says there and then if we get claims.
Speaker Change: Or have to pay defense cost they will be for this time period, it will come out of those reserves.
Speaker Change: <unk> you guys did not add that back into your adjusted EBITDA number right. So I think that adjusted EBITDA is a little north of $17 million.
Bradley Chhay: Yes, we did not add that back in. The rules don't allow. Okay, no, I appreciate that.
Speaker Change: Yes, we did not add that back yes, okay. It says.
Speaker Change: The rules the rules don't allow for that.
Eric Langan: And Eric, the club you acquired in Detroit, can you talk about whether or not there's any opportunity there to maybe improve the EBITDA margins there? I know you said $2 million this year, but I'm curious if that could move a little higher over time. I mean, it could. It's too early to tell. I mean, we've only had it for a few weeks. I don't know if you're familiar with the Detroit weather and how it's been for the last few weeks, but we've got, you know, Old Man Winter has given us a very, very, you know, cold welcoming into Detroit with extremely cold temperatures and lots of snow.
Scott Buck: Okay, No I appreciate that and Eric The club you acquired in Detroit can you talk about whether or not there's any opportunity there to maybe improve the EBITDA margin.
Scott Buck: Margins there I know you said $2 million this year, but I'm curious if that could move a little higher over time.
Scott Buck: I mean, the credits to our it's too early to tell I mean, we've only had it for a few weeks.
Scott Buck: I don't know if you're familiar with the Detroit, whether and how it's been for the last few weeks, but.
Scott Buck: We've got Oh, you know old man winter has given us a very very cold.
Scott Buck: Cold welcoming into Detroit with extremely cold temperatures and lots of snow.
Eric Langan: So it's just, it's really hard to tell. But yeah, I mean, we believe that we will definitely Bill to do much better as we as we get rolling in that market and get out of this unseasonably cold weather. Great, I appreciate that.
So it's just it's really hard to tell but yeah. I mean, we believe that we will definitely.
Scott Buck: Bill to do much better as we are as we get.
Scott Buck: Rolling in that market in and get out of this unseasonably cold weather.
Eric Langan: And then On the bombshells that closed, are there any residual cash outlays that you guys are responsible for on those five locations that you shut down? Not at this point. We do have a landlord that's suing us, but we believe that our defenses will be fine. The parent company did not guarantee the lease in any form or fashion, and they're trying to tie the parent company in, but we don't believe that's going to be feasible for them to do under Texas law, contract law.
Scott Buck: Great I appreciate that and then.
Scott Buck: On the bombshells that closed are there any residual cash outlays that you guys are responsible for on those was at five locations that you shut down.
Scott Buck: Not at this point, we do have our landlord is showing us, but we believe that our defenses there'll be fine there.
Scott Buck: The company does not guarantee the leaf in any form or fashion and as theyre trying to tie the parent company and but we don't believe that's.
Scott Buck: We're going to be feasible for them to do under Texas law contract law.
Bradley Chhay: Also, I want to make sure you understand that the $1.7 million insurance reserve is... The access insurance that we put on corporate, we've added the corporate, we the actual number for reserve is $4.1 million. And it was basically divided by segment based on previous year's insurance. And, and a pro rated share of the of the access. The 1.7 is basically what we call a makeup. It's a kind of a makeup deal for how they do these actuarial tables. It's, it's insane math. I mean, I've, I've studied it, I kind of get it, but it's it's extremely complicated.
Scott Buck: Also I want to make sure you understand that the one 7 million in our insurance reserve.
Scott Buck: The access insurance that we put on corporate we've provided the corporate.
Scott Buck: The actual number for reserve is $4 $1 million and it was basically <unk>.
Scott Buck: Divided by segment based on previous year's insurance.
Scott Buck: And in our prorated share of the of the access.
Scott Buck: The 1.7 is basically what we call a makeup.
Scott Buck: Makeup is.
Scott Buck: It's a kind of a makeup deal for how they do these are actuarial tables, if it's if insane math I mean, I've I've studied it I kind of.
Scott Buck: Again, it but it's extremely complicated.
Bradley Chhay: I call it trigonometry. I mean, it's, it's, it was pretty insane. As we were trying to go through all this and figure out how to do it. Because we've never You know, we've never guessed our insurance costs in the past. We've always had it. But this is kind of a guess of, you know, if in a worst case scenario, what would our maximum liability for the quarter be, is how we had to kind of look at this. And we had to take all these historic deals and take like, you know, best quarters and worst quarters over a five-year period, combine it all in together, and really.
Scott Buck: I I call it trigonometry.
Scott Buck: And it was pretty insane.
Scott Buck: As we were trying to go through August in and figure out how to do it because we've never.
Scott Buck: You know, we never guests our insurance costs in the past, we've always had it but does this kind of a guess of a bump.
Scott Buck: In a worst case scenario, what would our national and liability for the quarter B.
Scott Buck: Is how we have today is how we had to kind of look at this and we have to take all these historic.
Scott Buck: Feels and take I can our best first quarters in worst quarters over a five year period combine it all in together and and really.
Bradley Chhay: Like I said, it became very complicated, but this is what the people that do these actuarials came up with, and so that's how we booked it.
Scott Buck: Actually I became very complicated, but this is what the.
Speaker Change: The people that do these actuarial came up with them. So that's how we that's how we bought I. Appreciate the clarification there and then last one for me if you could just kind of speak broadly to the operating environment.
Scott Buck: I appreciate the clarification there.
Eric Langan: And then last one for me, if you could just kind of speak broadly to the operating environment, especially on the club side, what you're seeing and what is kind of in store here for the first part of 2025. Sure. If you look at the December quarter, we saw our two largest contributors were actually down a little. And a lot of our mid sized clubs were up. So I think we'll, you know, I don't understand that. And other than that, we've really gotten very good at going from quantity or quality of customer to quantity of customers.
Speaker Change: Especially on the cloud side, what you're seeing in and what is kind of in store here.
Speaker Change: So first the first part of 'twenty 'twenty five.
Speaker Change: Sure.
Speaker Change: Yeah. If you look at the December quarter, we saw our two largest contributors were actually down a little.
Speaker Change: And a lot of our mid sized clubs for.
Speaker Change: So.
Speaker Change: I think well see at all.
Speaker Change: I don't understand that and other than that we've really gotten very good at going from.
Speaker Change: Quantity or quality of customer to quantity of customers, who are putting trying to we don't really push more people through the door.
Eric Langan: We're putting kind of, you know, really push more people through the door. Some of our VIP spend is back, but obviously self service revenues declined 3.7% on year over year. So it's not where we'd like it. But we were able to make some costs, you know, some pricing changes and make up some of that in food, merchandise and other revenue sources by increasing that to 8.6%. And erasing, you know, overall club nightclub revenues 3.7%. So I'm very confident that we have the pricing power that we need. If we need to, if we do need to increase prices to keep our margins in line, and keep, you know, our same store sales growth as close to 3% as possible, which is our goal, as part of our five year plan over the next five years, keep that same store sales growth as steady at 3% as we can, as well as, you know, increasing with new acquisitions, and this monitoring and controlling costs.
Speaker Change: Some of our VIP spend is back, but obviously SaaS service revenues declined three 7% on a year over year. So it's not.
Speaker Change: Where we'd like it but.
Speaker Change: They were able to make some costs in our some pricing changes and make up some of that in food merchandise and other revenue sources by increasing that to eight 6% and our raising overall clubs nightclub revenues three 7% so.
Speaker Change: I'm very confident that we have the pricing power that we need if we need to do and we do need to increase prices to keep our margins in line.
Speaker Change: And keep in our same store sales growth of close to 3% as possible, which is our goal as part of our five year plan over the next five years keep that same store sales growth at a steady at 3% as we can as well as.
Speaker Change: Increasing with the new acquisitions.
Speaker Change: And this monitoring and controlling costs.
Eric Langan: If you look right now, we have about somewhere between $23 and $28 million in non-income producing assets that we're going to start trying to lease or sale or, you know, somehow make those assets produce income for us or give us our cash back so that we can take it and put it in other places. So, that's going to be a big component of, I think, the next, you know, nine months, 12 months, trying to get those properties fixed as well. I think we're in early, if you go back and look at when we originally adopted the Cap Outcase Strategy in 2015, I think we're in early 2017 where we've divested some properties.
Speaker Change: If you look right now we have about somewhere between 23 and $28 million and non income producing assets.
Speaker Change: That we're going to start trying to lease or sale or somehow make those assets produce income for us or give us our cash back so that we can take it and put in other places.
Speaker Change: So that's going to be a big component of.
Speaker Change: I think the next.
Nine months 12 months trying to get at those properties are faced as well I think we are in early if you go back and look at our when we originally adopted the camera based strategy and 2015 I think we are in early 2017, where we've divested some properties we have a couple of clubs.
Eric Langan: We have a couple of clubs that we're looking to sell as part of that $23 to $28 million in assets, as well as other, you know, just plain raw properties that we've bought in the past. So, we'll keep pushing on that, working on that, and that will play into our factors of getting to our growth rates as we get into 2026. So.
Speaker Change: That we are looking to sell.
Speaker Change: As part of that $23 million to $28 million in assets as long as as well as other items.
Speaker Change: Claiming raw properties that we bought are bought in the past.
Speaker Change: So, we'll we'll keep pushing on that working on that and that will play into our factories of getting to our our growth rates are.
Scott Buck: Great. Well, I appreciate the time, guys. Thank you very much. Yeah. Thanks so much for the questions, Scott.
Speaker Change: As we get into 2026, great well I appreciate the time guys. Thank you very much.
Thank you.
Unknown Attendee: Next up we have Orchid Wealth.
Scott Buck: Thanks, So much for the question Scott next up we have orchid wealth. Please take it away hey, guys.
Unknown Attendee: Please take it away. Hey guys, I see that we have 56 clubs right now. Does Detroit make it 57? I believe so, but I don't know if we're counting El Paso in the 56 or not. And then, you know, so we might have 50, it might be 58 when El Paso opens on March 1st. Get a better understanding of that.
I see that we have 56 clubs right now there's Detroit make it 57.
Speaker Change: I believe so but I don't know for accounting El Paso, and the 56 are going on and then.
Speaker Change: So we might have 50, it might be 58, okay. When El Paso opens on March <unk>.
Eric Langan: The problem is you've got so many clubs I can't keep track of them, so I actually have to go to the, I have to actually go to the accounting office and say, okay, exactly how many clubs are open and made money this quarter, you know, generated revenue this quarter. So I think those are revenue generating. Okay. And then with El Paso reopening, Unknown Attendee, Antonio Ferlito, RCI Hospitality Holdings Inc What are you thinking that that total sales would be once all of those are incorporated onto the existing LPA? I don't know. We've reformatted El Paso.
Speaker Change: Get a better understanding of that is in primary you get somebody clubs I cant again, so I actually have to go to the App to actually go to the <unk>.
Speaker Change: So they cannot say exactly how many clubs are open and made money this generate.
Speaker Change: It generated revenue this winter. So I think those are revenue generating okay, and then with El Paso reopening.
Speaker Change:
Speaker Change: What are you what are you thinking about like sales from these locations <unk> got seven club four clubs in three bombshells or they're going to come on line nine and cloud, including Detroit.
Speaker Change: What are you thinking that that total sales would be once all of those are incorporated onto the existing fleet.
Speaker Change: E S. A and I don't know, we've reformatted El Paso, So I know the old El Paso club used to generate about 600000 in EBITDA.
Eric Langan: I know the old El Paso Club used to generate about $600,000 even though I'm hoping with the new format and upgrades in the liquor that we can actually generate more income than that, but I just don't know at this point. We don't have the liquor license there yet, do we? No, El Paso doesn't have liquor yet. I'm sorry. So we don't have liquor yet, but we're trying to get the liquor license there. So probably very similar numbers to what we're doing for around 600,000 EBITDA out of El Paso. We don't know.
Speaker Change: I am hoping with a with a with a new format and upgrades and the linker that we can do we can actually generate more income the map, but just don't know at this point.
Speaker Change: I, we don't have a liquor license area. There was no I'll pass it doesn't have letter yet I'm sorry, that's Arlington.
Speaker Change: So we don't have liquor, yet, but we're trying to get the liquor license there so probably very similar numbers.
Speaker Change: So what we're doing for around 600000, EBITDA out of El Paso.
Eric Langan: Obviously, we don't know anything about Central City because that's brand new. But yeah, that'll be brand new. But I mean, I think, you know, I'm hoping it's a million to two million EBITDA a year. Out there, I think that'll be a deal, you know, we'll, there's a lot of moving factors in that one. Let's get it open. And then baby, whether we open up, whether we open the whole club, whether we open, you know, four days a week, or seven days a week, there's, there's a lot of factors going on that one at this point till till summer, I'll have a really good idea.
Speaker Change: Obviously, we don't know anything about central city, because it's brand new but the anatomy brand, new but I mean, I think in answer I'm, hoping this 1 million to 2 million EBITDA layer out.
Out there I think that'll be a deal we will.
Speaker Change: There's a lot of moving factors on that one lets get it open the account and in baby, whether we open up while we are in the whole cloud whether reopens.
Four days, a week or seven days a week is there's a lot of factors going on that one at this point till till summer I have a really good idea.
Eric Langan: On August call, where that where that location and then the baby doll for work. We're shooting for October 1st to try to get our, you know, around the 1st of October to complete that construction and get open on the west side, and then we're shooting for January on the location where we had the fire at, but both of those are up in the air still, because we're still in permitting. And then, so I know once we get the permits, we can build them in about 6 months, but we've got to get the, we've got to get the permits in place and get everything rolling.
Speaker Change: On the August call, we're aware that pointed out okay, and then the baby doll Fort worth.
Speaker Change: Were shooting for October one.
Speaker Change: To try to get our around the first of October to.
Speaker Change: To complete that construction and get open on the West side and then we're shooting for January.
Speaker Change: On their location, where we had the fire at.
Speaker Change: But both of those are up in the air So because we're still in overhead and then sorry.
Speaker Change: Once we get the permits we can build them in about six months, but we've got to get them. We've got to get the permits in place and get everything rolling Okay and then.
Eric Langan: Okay, and then just to go back, because obviously the rebuild because of the fire, how much was that contributing before the fire? because obviously, if you get it back online, we had about 4 million in revenues and margins were probably about a million and a half would be my guess about 35% margins on 4 million for that location. Now, the good news is we didn't lose all of that because a lot of that customer base went to the club that we own across the street. We've kind of reformatted the club across the street. So we've been able to recoup.
And then just to go back is obviously the the rebuild because of the fire how much was that contributing before the fire.
Speaker Change: Because obviously you could get it back online.
Speaker Change: We had it at about 4 million of revenues and margins were probably about 1 million and a half for me my gas about 35% margins on for millions of at that location.
Speaker Change: Now the good news is we didn't lose all of that because a lot of that customer base went to the club that we own across the street, we've kind of Reformatted the club across the street.
Eric Langan: I haven't looked, but I'm going to guess we recouped about 40 percent of that. So we really only lost about a million, not a million and a half, say a third of it we recouped. So we're probably up about half a million at the other location. So we probably lost about a million at that location.
Speaker Change: So we weren't able to recoup from I havent looked but I'm going to guess, we recouped about 40% of that so we really only lost about 1 million nine 1 million in the assay 30 tanks that we have a third of it we recouped so.
Speaker Change: Up about half a million at the other locations.
Eric Langan: The big hit for us, of course, was the late night change in Dallas that made us reformat XTC Tabaret. That's that's been the biggest hit. If you look at if you look at all the numbers, if we still had XTC, we would be in way, way better. condition than we are right now or shape right now, you know, as far as even a free cash flow, everything would be up, you know, probably a between Unknown Attendee, Antonio Ferlito, RCI Hospitality Holdings Inc. Another 17. I'm trying to think how many more we'd have seven more. So, you know, 67 clubs.
Speaker Change: We probably lost about 1 million of allocation for big hit for US of course was the late night change in Dallas.
Speaker Change: That made us reformat FCC Cadbury that's that's been the biggest hit if you look at if you look at all the numbers. If we still had STC, we would be in a way way better.
Speaker Change: In addition, we are right now our shape right now you know as far as EBIT and free cash flow everything would be up.
Speaker Change: Probably.
Speaker Change: Between.
Speaker Change: 2 million, two 5 million on an EBITDA and a $1 million plus on free cash flow. So the way. It's looking right. Now is we've got about 60 locations right now and with all said and done a year from now we're looking at 70.
Speaker Change: Another 17.
Speaker Change: I'm trying to think how many marks and we'd have seven more stopes in a 67 clubs.
Eric Langan: Unknown Attendee Well, six, six more, six, six more in the work is Denver. Yeah, Denver plus six, Denver, Denver is open now. So Denver was not open in this quarter. But it is open, you know, it opened in January.
Speaker Change: Sexy traditionally.
Speaker Change: It's more of a second we have anybody in the world is Denver, Denver, plus six temporary Denver's open now so there was that opened in this quarter.
Eric Langan: So we open this Unknown Attendee Any news on any buys or things you're still working on? You know, we have we have a we have a clubs out there that we're looking at. Lots of opportunities. You'll see that we actually adjusted the capital allocation strategy from a 50-50 with debt and acquisitions on one side and stock buybacks and dividends on the other. We moved the debt to the stock buyback and dividend side and raised that to 60%, which basically works out about $13 million in stock buyback, $2.5 million in dividends, $14.5 million or $14.8 million in debt reduction or debt payoff, and leaving us close to $20 million in cash on the other side of that equation to go to the cash portion of acquisitions.
Speaker Change: It is open it up and down in January and February.
Any news on any buys or things you are still working on.
Speaker Change: Okay.
Speaker Change: You know we have we have a.
Speaker Change: We have.
Speaker Change: Okay.
Speaker Change: Clubs out there that we're looking at lots of opportunities.
Speaker Change: And you'll see that we actually adjusted the cap allocation strategy from a from a 50 50 with that debt and acquisitions on one side and stock buybacks and.
Speaker Change: And dividends on the other we move the debt to the stock buyback and dividends side erase Atlas to 60%.
Speaker Change: Which basically works out about 13 million and stock buyback, two and a half million.
Speaker Change: Uh huh.
Speaker Change: Dividends, $14 5 million or $14 8 million in debt.
Speaker Change: Debt reduction our debt payoff.
Speaker Change: And leaving us close to $25 million in cash on the other side of that and I'm, sorry $20 million in cash on the other side of that equation to go to the cash portion of our of acquisitions, but I'm, assuming if something comes along with better sort of make an exception.
Eric Langan: But I'm assuming if something comes along, it's better to make an exception. Oh, always. I mean, you know, we'll we'll always follow strategic rationale should there should one arise. But, you know, for the next five years, our plan will be think and any strategic rationale that I think we do, as far as I can see, in the foreseeable future, will relate directly to allocation of the capital per the capital allocation strategy. In other words, we would change percentages here, we buy less stock because we have better acquisition or the stock price gets really, really cheap.
Speaker Change: August I mean, you know well, we're always follow strategic rationale should there surely trade one arise.
Speaker Change: But for.
Speaker Change: For the next five years, our plan will be.
Speaker Change: Thing in any strategic rationale that I think we do.
Speaker Change: As far as I can see in the foreseeable future well relate directly to allocation of.
Speaker Change: The capital per the cap allocation strategy in other words, we would change percentages here, we buy our stock because we have better acquisition or.
Eric Langan: And we, you know, yeah, do less acquisition cash and, and much more stock buyback.
Speaker Change: The stock price gets really really cheap and we.
Speaker Change: Yeah.
Eric Langan: I think those are the, I think those are only two real factors that we're, we're going to be juggling any kind of money around, I don't have any intentions of building anything new. At this point, I'm not even looking, I have people call me all the time, no, we're not building anything. Would you be interested in this? Is it open? Is it ranking money? No, okay, no, I would probably not be interested. You know, I just don't think we're going to take any, we are, we are very risk off until all of this construction is done, all of our stuff is open.
Speaker Change: Less acquisition Kashagan and much more stock buyback I think those are the I think those the only two real factors that were.
We're gonna be juggling any kind of money around I don't have any intentions of building anything new.
At this point I'm not even look in the IR people call me all the time right now we're not building anything.
Speaker Change: Would you be interested in that as an open is it rank in money now okay, now I would probably not be okay.
I just don't think we're going to take any we are we are very risk off until all of this construction is done all of our stuff is open and we really tightened up.
Eric Langan: And we really tightened this are in our capital strategy, to the max, all of our expenses, all of our non income producing assets need to be You know, basically get all the ducks in a row before we. before we go out and say, OK, maybe we'll, you know, maybe we can risk building a club over here or, you know, buying this club and reconcepting it or something, if we think we have a really good concept that can go into, you know, a license that's not producing.
Speaker Change: Our in our capital strategy.
Speaker Change: The Max all of our expenses all of our non income producing assets.
Speaker Change: We need to be.
Speaker Change: You know basically get all the ducks in a row before we.
Speaker Change: Before we go out and say, Okay, maybe we'll.
Speaker Change: Maybe we can risk building a club over here or.
Speaker Change: Buying this club and re concept in it or something that we think we haven't really good concept that can go into.
Unknown Attendee: But until this time, I don't think we, you know, for at least the next Unknown Attendee, Scott Buck, Anthony Lebiedzinski, Eric Langan, Mark Moran, Bradley Chhay, Adam Wyden, Robert McGuire, Unknown Attendee, Antonio Ferlito, RCI Hospitality Holdings Inc. All right, absolutely. I'm just going to, I mean, obviously it'll become capital, it'll go into our cash, and then we'll allocate it accordingly. All right, great.
Speaker Change: Our license is not producing back until this time I don't think we'd prefer at least the next.
Speaker Change: Nine months the rest of this fiscal year 25, I think we stick correctly with the plan we have enough on our plate, we don't need to add anything else, what we need to do now is just.
Speaker Change: Buttoned up all the hatches in and make everything Alright, and then and then on the last point the idea being is over the course of the year, you got $23 million to $28 million worth of nonperforming assets that youll be repositioning that can be used for any of these other items we discussed.
Speaker Change: Absolutely I was just going to I mean, obviously it'll become capital or go into our cash and then well we'll allocate into according aren't great. Thanks, guys.
Unknown Attendee: Thanks, guys. Fantastic.
Unknown Attendee: Thank you so much for that.
Unknown Attendee: Next up, we have D&D Realty. Please take it away.
Speaker Change: Okay fantastic. Thank you so much for that next up we have D. M. D Realty please take it away.
Unknown Attendee: Hi, thank you for having me on and taking my question. So you just mentioned that you're looking at selling some clubs. How many of those clubs, I guess I have two questions. One is, how many clubs are you currently looking to divest? And then the second question is, you guys have, I guess, now 88 properties that you own. What is your feeling? Have you done an analysis on how much your real estate is actually worth? I know your property equipment, you carry it at about $280 million. But what do you think the fair market value is for all your real estate?
Speaker Change: Hi, Thank you for having me on and taking my question.
Speaker Change: So you just mentioned that Youre looking at selling some app. Some some clubs how many of those clubs I guess ive two questions. One is how many clubs are you looking are you currently working too.
Speaker Change: Diverse and then the second question is you guys have I guess now 88 properties that you own what is your feeling have you done an analysis on how much your real estate is actually worth I know your property equipment you carry it at about $280 million, but what do you think the fair market value is for all your real estate.
Eric Langan: Thanks. I think you're incurring property and equipment and the $280. Yeah, but I'm just wondering what. So there's a lot of that is a lot of that is equipment and. and and not not necessarily real estate. I think our real estate I just don't know really. I mean, appraised values are all been all over the place. We haven't really had appraisals. I think the last phrase that we got were in 2021 on a few properties that we put into the new refi. The original refi was done in 17 think so we haven't done any, you know, we haven't done any new appraisals on those properties.
Speaker Change: I think you are encouraging with property and equipment and the 280 odd but I'm just wondering so theres a lot of that is a lot of that is equipment and <unk>.
Speaker Change: And and not not necessarily real estate.
Speaker Change: I think our real estate I, just don't know really I mean, you appraise values are all been all over the place we haven't really had appraisals I think the last phrase we got one in 2021 on a few properties that we put into the the new refi. The original refi was done in 17.
Speaker Change: So we haven't done any reason you know we haven't done any new appraisals on those properties I via the gas real estate is probably.
Eric Langan: If I had to guess real estate is probably in the 250 to 280 million range, just just real estate without all the equipment and everything else. But it's just it's just hard to tell.
Speaker Change: And the $250 million to $280 million range, just just real estate without all the equipment and everything else.
Eric Langan: I just haven't laid it all out. And then how many, sorry, and then how many, how many clubs are you looking at I've asked also? just it's it's there's there are two clubs they're both in the various both in the same area. So it's just a market we want to get out of. And we've we've got with a broker who's got a who sells adult clubs, who's meeting with people and are keeping it pretty on the down low, as far as you know. that they're for sale. So it's kind of only, you know, we're not going to publicly advertise, all these clubs are for sale.
Tanner: Pernicious is just part of that and I can say excited tanner laid it all out.
Tanner: And then how many sorry, and then how many how many clubs youll hear that I must also.
Tanner: Just it's there's two.
Tanner: Two clubs are both in the US both in the same area. So it's just a market we want to get out of.
Tanner: And we've we've got it.
Tanner: With a broker who has got a.
Tanner: Who sells adult clubs, whose meeting with people and are keeping a pretty on the down-low.
Tanner: As far as you know.
Tanner: That they're for sale, so it's kind of omi.
Eric Langan: We will we will sell them through, through a broker who has a lot of contacts with people already in the adult entertainment business, who are who are looking at those three locations with us right now.
Tanner: We're not going to publicly advertise all of these clubs are for sale we.
Tanner: We will we will sell them through a third through a broker who has.
Tanner: A lot of contacts with people already N V. Adult entertainment business, who are who are looking at those two locations with us right now.
Unknown Attendee: So thanks. Yeah, fantastic. Thank you for that question.
Tanner: So thanks.
Tanner: Thanks.
Mark Moran: On behalf of Eric, Bradley and the company as well as our subsidiaries.
Speaker Change: Okay Fantastic. Thank you for that question on behalf of Eric Bradley and the company as well as our subsidiaries. Thank you and Goodnight. Please visit one of our clubs or restaurants to celebrate Valentine's day, St. Patrick's day, or just to have fine and have a great time take care and have a good one.
Mark Moran: Thank you and good night.
Mark Moran: Please visit one of our clubs or restaurants to celebrate Valentine's Day, St. Patrick's Day, or just to have fun and have a great time. Take care and have a good one.