Q2 2025 RCI Hospitality Holdings Inc Earnings Call
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Speaker Change: Greetings and welcome to RCI Hospitality Holdings second quarter 'twenty 25 earnings Conference call you can find the Companys press.
Speaker Change: <unk> on our sea ice website go to the Investor Relations section and all the links are at the top of the page.
Please turn with me to slide two of our presentation I'm, Mark Moran of equity animal and I'll be hosting our call today I'm coming to you from Washington D C. Eric Langan, President and CEO of RCI hospitality and CFO Bradley Shay are in Houston today.
Speaker Change: Please turn with me to slide three.
Speaker Change: RCI is making this call exclusively on X spaces 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.
Speaker Change: At this time all participants are in a listen only mode.
Speaker Change: A question and answer session will follow this conference call is being recorded.
Speaker Change: Please turn with me to slide four.
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 occur afterwards.
Speaker Change: Please turn with me to slide five.
Speaker Change: I also direct you to the explanation of Ricks non-GAAP financial measures now.
Speaker Change: I'm pleased to introduce Eric Langan, President and CEO of RCI hospitality, Eric taken away.
Thank you Mark please turn to slide six.
Speaker Change: Thanks for joining us today.
Speaker Change: Let me run through some key takeaways all comparisons are year over year, unless otherwise noted.
Speaker Change: As we previously announced revenues reflect the sale divesture of five underperforming bombshells segment locations and the effects of severe weather on company same store sales in January and February.
Speaker Change: This was offset by improving trends in March and contributions from new and rebranded locations.
Speaker Change: Profitability reflects the lower.
Speaker Change: Okay.
Speaker Change: <unk>.
Speaker Change: The lower same store sales.
Speaker Change: Okay.
Speaker Change: Offset by lower costs sell our bombshells related units and lower.
Speaker Change: Okay.
Speaker Change: In addition.
Speaker Change: Asian during the subsequent.
Speaker Change: During and subsequent to the second quarter, we continued to make progress with our back to basics five year cap allocation plan.
Speaker Change: We acquired two upscale adult nightclubs flight club in Detroit and platinum West in South Carolina.
Speaker Change: Price multiples were in line with our capital allocation strategy. We are also working on another acquisition.
Speaker Change: We opened our bombshells in Denver and rebranded our Reformatted, the Chico's logos in El Paso.
Speaker Change: This reduced our list of development projects.
Speaker Change: And we repurchased 56875 common shares for $2 $9 million ending the quarter with approximately 8.8 million shares outstanding are here's Bradley to review our performance in more detail.
Bradley: Thank you Eric Please turn to slide seven.
Bradley: All comparisons are year over year for the quarter unless otherwise noted.
Bradley: Total revenues were $65 $9 million compared to $72 $3 million, a difference of $6 $4 million, primarily due to closures or divestitures of nonperforming bombshells and the effect of bad weather as Eric mentioned.
Bradley: 18 club in Bombshells locations had to close one or two days each.
Bradley: And even if clubs and bombshells were able to open.
Bradley: Experienced slower business, particularly on weekends when temperatures were below zero or had heavy snow and ice for example in Dallas and Houston.
Bradley: But with warmer temperatures in March sales began to improve.
Bradley: Impairments and other charges were $2 $1 million compared to $8 $2 million or.
Bradley: A difference of $6 $1 million.
Bradley: That was due to lower impairment and nightclubs.
Bradley: As a result, net income attributable to RCI H H common shareholders was $3 $2 million compared to zero point $8 million, a difference of two and a half million dollars.
Bradley: GAAP EPS was <unk> 36 per share compared to eight cents per share.
Bradley: Okay.
Bradley: Net cash provided from operating activities was $8 $5 million compared to $10 8 million or.
Bradley: Difference of $2 $3 million that was primarily due to our reduced operating margins due to lower sales.
Bradley: As a result free cash flow was $6 $9 million compared to $8 $8 million adjusted.
Bradley: EBITDA was $14 2 million compared to $17 $2 million.
Bradley: And non-GAAP EPS was <unk> 65 cents compared to 90%.
Bradley: Now please turn to slide eight.
Bradley: Nightclub revenues totaled $57 $5 million, a difference of $1 $8 million or negative three 1% year over year.
Bradley: Key factors included a $3 five 8% decline in same store sales and absence of baby Dallas Fort worth due to Avaya.
Bradley: This was partially offset by a $1 million from flight club acquisition and four rebranded clubs not in same store sales.
Bradley: Alcoholic beverage sales declined five 3% servers declined two 9% our food merchandise and other increased two 4%.
Bradley: Impairment and other charges totaled 2.0 man dollars with impairment spread across four clubs.
Bradley: This compares to impairment and other charges of $8 $2 million and a year ago quarter.
Bradley: Operating income was $14 $6 million compared to $11 million.
Bradley: Margin was 25, 4% of revenues versus 18, 6%.
Bradley: Results, primarily reflected the impairment decline offset by sales decline.
Bradley: non-GAAP operating income was $71 million compared to $19 $8 million.
Bradley: Margin was 29, 8% of segment revenues versus 33, 4%.
Bradley: non-GAAP results, primarily reflected the sales decline.
Bradley: Now please turn to slide nine.
Bradley: Bombshells revenue totaled $8 $2 million, a difference of four and a half million dollars or 35, 6% year over year.
Bradley: The key factors here included shell and divestiture of five underperforming locations in the fourth quarter of 24 in the first quarter of 2025, which impacted revenues by $3 $7 million.
Bradley: 13.4% decline in same store sales and bad weather.
Bradley: This was offset by two locations not in same store sales consisting of a full quarter of Stafford, Texas location and a partial quarter of the new Denver location.
Bradley: Operating results were a loss of $227000 versus an income of $699000.
Bradley: Margin was negative two 8% of segment revenues versus a positive five 5% in the year ago quarter.
Bradley: On a non-GAAP basis, the segment was virtually breakeven with a loss of $67000 versus income of 750, downloaders or negative 0.8% of segment revenues versus positive five 9%.
Bradley: These results primarily reflect the sales decline from open locations and bombshells, Denver pre opening costs muscle, which were offset by the sound divestiture of nonperforming locations.
Bradley: Please turn to slide 10.
Bradley: GAAP expenses totaled $5 $5 million, a decline of $1 $3 million.
Bradley: non-GAAP expenses totaled $5 4 million a decline of about zero point $9 million.
Bradley: Expense margin was eight 4% of revenues versus nine 4% GAAP and eight 2% versus eight 8% non-GAAP.
Bradley: This decline primarily reflects lower overhead from fewer locations.
Bradley: Please turn to slide 11.
Bradley: We have slides in the upcoming deck that discuss free cash flow and adjusted EBITDA, which are non-GAAP and a basket that we wanted to present the closest GAAP equivalents, which are operating income.
Bradley: Net cash provided by operations and income.
Bradley: Please turn to slide 12.
Bradley: Okay.
Bradley: We ended the first quarter with cash and cash equivalents of $32 $7 million during the quarter, we used $6 million as part of the flight club acquisition and two point $900 to buy back shares.
Bradley: As a percentage of revenues or free cash flow was 11% and adjusted EBITDA was 22%, both primarily reflected lower margins.
Bradley: Please turn to slide 13.
Bradley: Our debt at March 31 increased $5 $9 million from December 31 to <unk>.
Bradley: Kris primarily reflects financing related to the flight club acquisition and the construction of Bombshells Rolette and Lubbock.
Bradley: Offset by scheduled Paydowns.
Bradley: The weighted average interest rate was six 7% compared to six 6% and a year ago quarter.
Bradley: Total occupancy costs was eight 5% of revenue compared to 8% a year ago.
Bradley: Reflecting lower second quarter revenues not higher cost.
Bradley: Debt to trailing 12 month, adjusted EBITDA was $3 five six times compared to $3 three two times in the preceding quarter, reflecting the higher debt at March 31, and lower second quarter EBITDA.
Bradley: Debt to trailing 12 months adjusted EBITDA should decline ourselves rebound with warmer weather and growth from locations that have come online more recently and from those anticipated to open.
Bradley: Debt maturities continue to remain reasonable and manageable now here is Eric.
Bradley: Yeah.
Eric Langan: Thank you Bradley please turn to slide 14 to review our capital allocation strategy.
Eric Langan: Our plan calls for allocating our free cash flow in the following manner.
Eric Langan: 40% to capital allocation her to club acquisitions, and 60% share buybacks debt reduction and dividends.
Eric Langan: With the goal of growing free cash flow per share at 10% to 15% annually.
Eric Langan: Please turn to slide 15.
Operationally, we are focused on our core nightclub business.
Eric Langan: Reviewing every club to increase same store sales on a regular basis.
Eric Langan: We will rebrand reformat or divest or underperforms.
Eric Langan: Our nightclubs plan also involves acquisitions our goals to acquire an average of $6 million of adjusted EBITDA per year focused on the best clubs buying basis with an occasional homerun.
Eric Langan: Our target matrix remain the same three to five times adjusted EBITDA for the club 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 or seller notes. We would also consider using stock of our valuation improves.
Eric Langan: Our bombshells were working to improve existing locations targeting 15% operating margins and return to same store sales growth.
Eric Langan: We also plan to complete two new locations in development.
Eric Langan: Final part of our plan as regulatory buying back our stock flexing up if we consider the price will be particularly undervalued.
Eric Langan: We also anticipate modest annual dividend increases.
Eric Langan: Over the five years, we aim to generate more than $250 million of free cash flow and repurchased a significant amount of shares by fiscal 'twenty nine our targets our $400 million in revenue $75 million in free cash flow seven 5 million shares outstanding and the end result would be doubling free cash.
Eric Langan: Oh per share to approximately $10 from last year's.
Eric Langan: Okay.
Eric Langan: Please turn to slide 16.
Eric Langan: To give you an idea of the progress we've made on the share buyback 10 years ago. We had about 10.3 million shares outstanding as of last Friday, we had about $8 8 million shares.
Eric Langan: Which is about a 15% drop.
Eric Langan: Please turn to slide 17.
Eric Langan: With Bombshells Denver in Chico's logos now open we have five remaining developments three are very close to completion, we are targeting bombshells Lubbock for the opening later this month or early June and.
Eric Langan: And Rick's cabaret Central city for early next month as well.
Eric Langan: And bombshells rollout sometime this summer.
Eric Langan: We are still awaiting construction permits for baby to ask West Fort worth and we are waiting engineering review and zoning plans or our bombshells are for the baby Dallas Fort worth.
Eric Langan: Was burns from the buyer.
Eric Langan: We have also sold our Aurora, Colorado property, which we were going to use for bombshells enlisted the other properties for sale in Austin and Huntsville.
Eric Langan: As we've continued to make progress with favorite Lee Dot com.
Eric Langan: Our social media fan site.
Eric Langan: Adult nightclub entertainers and staff we are out of beta now can we have added a few more clubs and entertainers as our news release last month.
Mark: I'd like to thank all of our loyal and dedicated team members for all their hard work and efforts in all of our shareholders, who believe in make our success possible now here's mark.
Speaker Change: Thank you very much Eric and Bradley if you'd 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 speakers spaces. Today. So after your question. We may move you to the back of the audience to free up space.
Speaker Change: Now first we have orchid wealth, please take it away.
Speaker Change: Hey, orchid wealth, you're still on mute.
Orchid Wealth: Hey, guys.
Orchid Wealth: Just a couple quick questions about financing you know, obviously with the market being where it is today, you'll probably encounter a lot of possible sellers. If you guys could use seller financing what do you feel like is the average rate of return that youre going to have to pay the sellers and if you have to resort to using bank financing whats there.
Orchid Wealth: Right.
Orchid Wealth: No they're both pretty close the same about six 7% right now in the current market. Okay. So you guys are essentially paying what people pay on a 30 year fixed mortgage.
Orchid Wealth: Kind of Crazy that she said that should go on right now.
Orchid Wealth: That's fantastic the other part being is any <unk>.
Obviously from a year or two years ago, when you guys Werent, making acquisitions.
Orchid Wealth: Have you noticed any difference in the people that you are speaking to about making deals or you're negotiating with are talking with about how they're approaching it differently from a few years ago or a year ago. While in a few years ago, everybody was trying to use 2022 numbers, which were just astronomically high.
Orchid Wealth: And in our 24 has been a really bad year for the industry.
Orchid Wealth: Paper or weekend bye.
Orchid Wealth: I mean, we're down but I mean, I've talked to other people who have seen other numbers for.
Orchid Wealth: Higher percentages on us.
Orchid Wealth: Even.
Orchid Wealth: So there's you've got to ask so now they're trying to do some type of <unk>.
Orchid Wealth: Average a combination because we don't want to use the low numbers from 'twenty four but when we're coming up with solutions to some of these.
Orchid Wealth: Deals as you've seen with ours, our South Carolina acquisition, we've gotten finished and we got to Detroit acquisition completed.
Orchid Wealth: And we've got several more we're working on right now, it's just a matter of coming to terms that make sense for us.
Orchid Wealth: We're not in a hurry to get anything done and less the terms are right. Then well then we will move very rapidly.
Orchid Wealth: As a as a side note what what do you think the average range is of the owners that are out there I mean are we dealing with people and they're 50 60 70 as you know people that are close.
Orchid Wealth: I'm trying to get an idea of like you know what when you're looking at the clubs that are out there.
Orchid Wealth: You know, obviously, if they're talking to you about selling their their children or their relatives don't want to take over the business. So is there an age group you're typically dealing with.
Orchid Wealth: I mean, the majority of the guys from their sent in their late Sixty's to eighties to lot to low eighty's that.
Orchid Wealth: We've been talking with them so far.
Orchid Wealth: You know, there's there's some guys in their forty's, we're talking to you right now as well.
Orchid Wealth: They're trying to decide if they want to stay in this business or they wanted to go do something else.
Orchid Wealth: Now, which we've had a few buyouts of guys like that in the past.
Orchid Wealth: Now they get married they have kids, they decided that they adult entertainment businesses.
Orchid Wealth: This is not something they want to stay and so we see that sometimes but.
Orchid Wealth: But I would say the majority are between the ages of probably 65 and 80.
Orchid Wealth: Okay Alright.
Orchid Wealth: Alright, Thank you guys.
Orchid Wealth: Thank you.
Aaron: Thanks, So much next up we have Aaron Aaron please take it away.
Speaker Change: It looks like you're still on mute.
Speaker Change: Joe.
Speaker Change: Next up we'll bring Adam Wyden of Adam once you're connected please take it away.
Speaker Change: And you're still on mute Adam.
Speaker Change: Yes.
Speaker Change: Hey, Adam is still on us on mute.
Speaker Change: Our techs here right now.
Speaker Change: While we're waiting for Adam to on mute I will pull up Jason.
Speaker Change: So Jason once you're connected then.
You were good to go.
Speaker Change: Yes.
Speaker Change: Adam your own muted if you want to proceed.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: Mr. Sean muted on my end.
With him and Jason is still muted.
Speaker Change: Jason or Adam whoever on mute first you have the next question.
Meredith: I'm on a Meredith and thank you Mario.
Meredith: Mark I just wanted to ask Eric about the new acquisition in Detroit with the New flight club and what a rebranding of new improvements you have made to the flight club and how the Detroit market is treating you guys.
Speaker Change: Been great Orissa, we really are we're really like a market up there.
Speaker Change: You know, we got we got our typical wealth on where everybody told every entertainer and customer.
Speaker Change: All the crazy things that we were going to do which we have never done before.
Speaker Change: We had a little rough start at the beginning because a lot of the entertainers wearer.
Speaker Change: Afraid to come to work because I thought I mean, some of them some of the stories. They come over this time were really good but.
Speaker Change: But that lasts about two weeks and we get the word gets out.
Speaker Change: We get our customers and especially as we start seeing some or via P. Gas from other states come to town and know that the SNR Sky Club and a man. So we got we got over that pretty quickly of course, we have some great ice storms and some weather that.
Speaker Change: It was very Unwelcoming now in Detroit as well during the during the first takeover, but it's gone very very well now we've done some minor upgrades. The club is in really good shape. So be upgraded the Pos systems, we changed some of their systems and how they are they are.
Speaker Change: <unk> treated and find entertainers how they are.
Speaker Change: Did some decent stuff that you.
Speaker Change: And we just don't we don't we don't operate that way. So we we had to fix those things.
Speaker Change: And get that are in the play.
Speaker Change: Since Dennis hub in very very good for us.
Speaker Change: But we're right on course with good numbers, we predicted.
Speaker Change: Good to hear good to hear what do you think was the biggest operational change that you guys had to do from the previous owners down there.
Speaker Change: Just trading the way they treat gas I mean, they wanted everyone to be a V I E.
Speaker Change: If you aren't spending two or 300 box when you walk in the door you arent you.
Speaker Change: You Werent cookie weren't treated very well I don't think that that's kind of our our take.
Speaker Change: Kind of it and so we wanted to make it a place where the average guy can come in and have a good time and if you Wanna be IV Ico, there's plenty of space in the club for Vips as well.
Speaker Change: And so we kind of created that are you know are all around encompassing club like we do at <unk> and the majority of our markets I think that was the biggest change we made.
Speaker Change: Okay Nice and then one last question with you know the adult entertainment business.
Speaker Change: Been very popular on the emphasis you know a mile Road are you guys looking at any other adult entertainment clubs on a mile or you guys just going to stay more in the suburbs of Metro Detroit.
Speaker Change: I mean, we've looked we've left in Detroit, we've looked at about four five clubs up there we were actually on a hot.
Speaker Change: Posted on my ex US pictures of some of the clubs and some of the flight now taken the fight up there and some of those things.
Speaker Change: We've talked with other owners, we haven't been able to come to terms.
Speaker Change: With any of them that we agreed to at this point, but we're always open I mean, we're always looking for sure.
Speaker Change: Okay. Thank you for your time, Eric and Mark Thank you guys.
Speaker Change: Thanks very much for your question, Jason next up we have Adam Wyden, Adam feel free.
Adam Wyden: Can you guys hear me.
Adam Wyden: We can perfect okay three questions.
Adam Wyden: First question is on the insurance accrual you guys created your captive and I know you have like a five and some million dollar charge in the quarter. The previous quarter can you sort of give us some clarity on how much you know sort of the insurance accrual you had in the quarter on your EBITDA that critical wouldn't have been cash that sort of burdening your EBITDA.
Adam Wyden: The accrual for this quarter was $1 3 million Adam we look at it on a annualized basis, our first quarter annualized run rate was about nine point X million dollars and given the actualization of run rates and whatnot, it's reduced to about $8 $8 million. So we won't know until any of these claims come in any invoices on things.
Adam Wyden: But it is a noncash you're correct. It is a noncash just a purely accrual charge, so about $1 $3 million.
Adam Wyden: Right, but you took a big charge in the first quarter. So we wouldn't expect we wouldnt expect basically huge accruals going forward is that right correct. I. Just told you I think the annualized is 8.8. So from that you guys can speculate what the next few quarters.
Adam Wyden: Could be based upon our current trends now if we have massive claims coming through or invoices or new lawsuits come in that can change it but it just depends on what it all is often what gets added by the Acura got it and.
Adam Wyden: And how much of it and we had a big charge in the first quarter Ray we look a five some odd million dollars insurers in the first quarter that's correct.
Adam Wyden: Got it okay that makes sense can you I know a lot of restaurants have been complaining about weather and you said well you know weather was bad we couldn't get in because of snow.
Adam Wyden: Is there any way to sort of quantify like how much EBITDA, we lost in the first quarter because of weather and like if you I mean, I know, it's hard but I'm, saying like do you have a sense of sort of like you know sort of what the burden was a little bit like based on if you like let's say you'd close little location instead of having the people open like do you sort of.
Have a sense of like what you think weather hurt you on comps or or EBITDA, a little bit yeah. I think it's about I mean I don't.
Adam Wyden: Theres no way to know for sure, but I can tell you that I believe that was over about an eight week period.
Adam Wyden: And it was about 700000 a week in.
Adam Wyden: Sales declines and I'll tell you, where I get that promise that we were doing 4.9 to five so the $5 $1 million. During those first eight weeks January and February when we're having whether in close downs and by March we were doing five seven to $5 $9 million per week. So if you figure two average should've been five seven to five.
Adam Wyden: Nine and it was 4.9 to $5 one by 700, a week over about an eight week period. So you have to do that so about $5 $6 million in sales and you take that our margin by 3 million probably in EBITDA.
Adam Wyden: And they probably maybe more probably more because we still had the costs right. We started the cost we didn't have any of the revenue we saw on the Corso.
Adam Wyden: It was considerable and I think we'll have a real good idea of it but you know as we come out of this quarter.
Adam Wyden: Because I don't suspect much weather in April may or June.
Adam Wyden: To affect as much at this point so.
Adam Wyden: The only thing this year is we have a.
Adam Wyden: Easter was in April this year instead of March and you know and as mother's day weekend was a was a little off for us, but not too bad.
Adam Wyden: When a little up and I think Paul I think we're going to come in pretty close to about $5 7 million a week average this year or this quarter is what I'm, what I'm Hilton unless we get some pick up at the at the end of May and in June So, we'll see how that goes.
Adam Wyden: Okay on the M and then I got two more questions on the M&A pipeline you talked about another club.
Adam Wyden: Your you know.
Adam Wyden: Can you talk a little bit about what what you think has contributed to EBITDA. So far between Detroit and then this other one in South Carolina and the other one the your growth that you're working on now and sort of what the pipeline is it looks like your <unk>.
Adam Wyden: Looking like you're averaging a good amount more than 6 million of EBITDA right now well I mean, you massage Carolina Didnt contribute anything we didn't close until April but it will contribute this quarter.
Adam Wyden: And Detroit didn't contribute much last quarter, because we closed in January by January and February had really bad weather.
Adam Wyden: We were still taken hours. So there were some there are some operating costs will increase as we first one up there before we got the revenues back up.
Adam Wyden: But it is doing very very well for us and it will contribute.
Adam Wyden: Probably on par with a with a $2 million run rate at AR that we estimated when we when we purchased it so it's going to be in good shape.
So I think this quarter April may June will be a much better quarter for us to gauge everything on a we also had just recently closed bombshells we fired.
David Simmons: David Simmons director of operation for the restaurant Division, we promoted someone else from it and.
David Simmons: They've they've really started working on changing those things and changing cost and we lowered cost considerably.
David Simmons: We're making some other cost changes.
The Denver location opened we've got Lubbock opening will hopefully on may 29th if not by June 1st I think it will be open for sure.
David Simmons: So bombshells is going to go through some significant changes in this quarter and I think we'll get a much better idea of bombshells as well plus bombshells was drastically affected by weather.
David Simmons: We had the Houston rockets in the playoffs. This year, so that helped a little bit so.
David Simmons: Hopefully NBA basketball continues to do well for us through the through the NBA playoffs, and and we've got a you know nationals baseball back up so I think we'll be in a much better idea to see.
David Simmons: We're bombshells gone by June 30, if that's kind of been and I think I kind of told you that once before in.
David Simmons: And our conversation, we had where I said you know it's going to take till the end of June for bombshells to really.
David Simmons: For me to figure out.
David Simmons: We've made if they're if they're effective if any if there if we're doing any good with them and to get these other two locations open so that so that any any and all dragging our bombshells is gone.
David Simmons: But we're not building outside of that like you said you sold the you.
David Simmons: He sold Aurora and he sold Huntsville, we have marketed and we have National Hospital, we sold Aurora, we have the Huntsville property listed we have the Austin property listed are.
David Simmons: Where we were going to bill bombshells locations, both us about those properties are.
David Simmons: Being listed for sale or lease right now.
David Simmons: So our grain network on all of that to.
David Simmons: Grainger is closed it's been for sale.
David Simmons: We've got people looking adequate.
David Simmons: This is her as a tough restaurant environment right now so I think it will take a little bit maybe by the end of the summer ice I suspect it oiler, we'll see some movement on those.
Speaker Change: Right, but you it sounds like you've gotten rid of all the bad bombshells by and large you've got the final two that you're open which you're opening because you sort of very far along and then I guess it sounds like your focus is trying to get it to comp positively.
And figuring out whether it makes sense to divest it or what to do with it right exactly I mean, if we can get a good offer for it we would divest it.
Speaker Change: I mean, we're not in a week the average when we put it up for sale. The first time, we got ridiculous Lee Crazy if he wanted us to give them $80 million of their assets for no money down and pay us $20 million for 50% of them in and out.
Speaker Change: Basically have no liability on their side keep all the liability on us.
Speaker Change: And but to give them, 100% operational control and we and we can't do that I mean, that's.
Speaker Change: That's now in fiduciary I mean at least if I did that I can even walk away right I'll be stuck with whenever they decided.
Speaker Change: At least this way, we can close and sell our properties. There's a lot we have a lot of options still.
Speaker Change: This is the first quarter we've ever had.
Really lost money at Bombshell since its inception.
Speaker Change: Over 14 years ago.
Speaker Change: And the majority of that loss was was basically the startup costs are opening Denver.
Speaker Change: So.
Speaker Change: Hum.
Speaker Change: I'm very optimistic on a go forward basis that we can get the bombshells to a point where.
Speaker Change: They level out.
Speaker Change: The hole in the industry.
Speaker Change: Now that side I think.
Speaker Change: I think human twin peaks reported negative same store sales for the first time.
Speaker Change: This last quarter. So it is it is a tougher market out there in the restaurant side of the business.
Speaker Change: And it's actually it's actually we're seeing a little bit on the club side as well.
Speaker Change: Where are some of the drinking is now number people or the number of people through the clubs have been pretty steady.
Speaker Change: Our head counts have been good just for the amount of spend has been down a little bit.
Speaker Change: Based on our regional managers and let him.
Speaker Change: And that's what I've been talking with.
Speaker Change: So I'm optimistic that as we get into the summer as you know these tariff wars settle down and things start turn to normal they get the new young Republicans passenger tax mill and get some certainty for the next three or four years, our three three and a half years I guess I think the economy could get into.
Speaker Change: Very well.
Speaker Change: That happens that'll be great for us I mean gas I would think gas prices and all the inflation things that theyre looking at like a <unk>.
Speaker Change: Like gas prices and milk prices and all this stuff I mean, I would think that all of those things should be a tailwind for you guys not to mention don't the comps get a lot easier for you guys over the next couple of quarters. I mean, you didn't start comping positively in nightclubs I think until.
Speaker Change: The calendar fourth quarter last year fourth quarter, and first quarter and then we were down again, so were flat for upstream or downstream or flat for six months basically.
Speaker Change: First for 'twenty one.
Speaker Change: But I think that was mainly weather related on the club side of some of his VIP spend as well, but we were making it up we were doing very well with putting in like I said, we're putting more people through the doors and that's working very well for US now as you see our food and merchandise sales are up but you know people just arent drink as Michelle just not spend as much and whether or not drinking is the highest the high dollar bottles haidar bottles.
Speaker Change: Sales of liquor sales.
Speaker Change: An hour, they're driven by the glass instead of a by the drink buying by the drink center by the bottle a bottle service down VIP spend is down as you've seen our service revenues town.
Speaker Change: Almost 30%.
Speaker Change: So I think that's really what we've got to watch them and focus on a we did have the knicks and the playoffs in New York is doing very very well, but has been doing great up therapy are really coming out there.
Speaker Change: I think they're sold out the Madison Square Garden for the watch parties, even when they were playing in Boston. So that was great for the clubs that were a block away from the from the garden. There. So that's been really good for us.
Speaker Change: Miami sent off a little bit so hopefully and out as we get into the summer months. So we can get a little stronger in Miami, We've actually had the head counts are good we just kind of get to standup.
Speaker Change: I think a lot of that is uncertainty right and again remember a very large portion of our customer base, especially the high dollar spend or small business entrepreneurs, who make considerable amounts of money.
Speaker Change: But if their money is uncertain man they won't spend as much as they as they normally would they will get.
A little more reserved in their spending.
Speaker Change: And so is the uncertainty goes away I believe that that will see our numbers come back up.
Speaker Change: Okay. Thank you.
Speaker Change: Okay.
Speaker Change: Okay.
Adam Wyden: Thanks, so much for the questions. Adam next step, we we have man hands nine please take it away.
Speaker Change: Thank you for taking my.
Adam Wyden: Question and I really appreciate this venue to talk with you.
Speaker Change: With the new administration.
Speaker Change: Making a lot of noise and headlines.
Speaker Change: As part of their projected 2025 pornography was listed as being.
Speaker Change: They had wanted to to say that it should be outlawed and I wondered if you have.
Speaker Change: Heard anything about this if there is anything that you'd want to add about that.
Speaker Change: Now by lifestyle, you haven't heard anything we haven't had any issues.
Speaker Change: I don't think we're technically in the lager from business we're not.
Speaker Change: Barely making videos and whatnot.
Speaker Change: Our biggest our biggest pro trackers are always human trafficking, and we are very avid anti human trafficking advocates are where.
Speaker Change: Any member of Coast club owners against sex traffic and we have done everything we can do.
Speaker Change: And continue to do everything we can do on our powers to to fight sex trafficking in human trafficking and off pumps.
Speaker Change: As well as our congressional our training programs that had received a contract congressional honor and we're going to continue to to work with that program.
Speaker Change: Thank you and look at any real studies that are less than 1% of all human trafficking is through adult nightclubs or even has any have any ties to any and all nightclubs.
Speaker Change: While our Heather and there are people out there that against our industry that would try to scale those facts I think those factors are pretty much given.
Speaker Change: When you are when you get into real studies are real scientific studies that have real Dana so I'm not too worried about.
Speaker Change: Or anything like that.
Speaker Change: Thanks for taking my question, yes. Thank you.
Speaker Change: Fantastic. Thank you very much for the question.
Speaker Change: And thank you, Eric and Bradley on behalf of the company and our subsidiaries. Thank you and good night. Please visit one of our clubs or restaurants to have a great time.
before we get this earnings call on the way.
Mark Moran: Greetings and welcome to RCI Hospitality Holdings second quarter 2025 earnings conference call. You can find the company's presentation on RCI's website. Go to the investor relations section and all the links are at the top of the page. please turn with me to slide two of our presentation.
Mark Moran: I'm Mark Moran of Equity Animal, and I'll be hosting our call today. I'm coming to you from Washington, D.C.
Mark Moran: Eric Langan, president and CEO of RCI Hospitality and CFO Bradley Chhay are in Houston today. please turn with me to slide three. RCI is making this call exclusively on X spaces. To ask a question, you'll 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.
Mark Moran: I want to remind everybody of our Safe Harbor Statement. You may hear or see forward-looking statements that involve risks and uncertainty. 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.
Mark Moran: I also direct you to the explanation of Rick's non-GAAP financial measures now.
Mark Moran: I'm pleased to introduce Eric Langan, President and CEO of RCI Hospitality. Eric, take it away. Thank you, Mark.
Eric Langan: Please turn to slide six. Thanks for joining us today. Let me run through some key takeaways. All comparisons are year over year, unless otherwise noted. As we previously announced, revenues reflect the sale, divestiture of five underperforming bombshell segment locations, and the effect of severe weather on company same store sales in January and February. This was offset by improving trends in March and contributions from new and rebranded locations. Probability reflects the lower The lower same store sales. offset by lower cost, bombshells related units, lower.
Eric Langan: In addition, during and subsequent to the second quarter, we continued to make progress with our Back to Basics five-year cap allocation plan. We acquired two upscale adult nightclubs, Flight Club in Detroit and Platinum West in South Carolina. Price multiples were in line with our cap allocation strategy. We are also working on another acquisition. We opened a bombshells in Denver and rebranded and reformatted the Chica's Locust in El Paso. This reduced our list of development projects.
Eric Langan: And we repurchased 56,875 common shares for $2.9 million, ending the quarter with approximately 8.8 million shares outstanding.
Bradley Chhay: Now here's Bradley to review our performance in more detail.
Bradley Chhay: Thank you, Eric. Please turn to slide seven. All comparisons are year over year for the quarter unless otherwise noted. Total revenues were $65.9 million compared to $72.3 million, a difference of $6.4 million, primarily due to closures or divestitures of non-performing bombshells and the effect of bad weather, as Eric mentioned. 18 club and bombshell locations had to close one or two days each. And even if clubs and bombshells were able to open, they experienced slower business, particularly on weekends when temperatures were below zero or had heavy snow and ice, for example, in Dallas and But with warmer temperatures in March, cells began to improve.
Bradley Chhay: Impairments and other charges were $2.1 million compared to $8.2 million, a difference of $6.1 million. That was due to lower impairments in nightclubs. As a result, net income attributable to RCIHH common shareholders was $3.2 million compared to $0.8 million, a difference of $2.5 million. GAP EPS was $0.36 per share compared to $0.08 per share. Net cash provided for operating activities was $8.5 million compared to $10.8 million, a difference of $2.3 million. That was primarily due to a reduced operating margins due to lower sales. As a result, free cash flow was $6.9 million compared to $8.8 million.
Bradley Chhay: Adjusted EBITDA was $14.2 million compared to $17.2 million and non-GAAP EPS was $0.65 compared to $0.99.
Bradley Chhay: Now, please turn to slide eight. nightclub revenues total $57.5 million, a difference of $1.8 million, or negative 3.1% year over year. Key factors included a 3.5% decline in same-store sales and the absence of Baby Dolls Fort Worth due to a fire. This was partially offset by $1 million from Flight Club acquisition. and four rebranded clubs not in service. Alcoholic beverage sales declined 5.3%, service declined 2.9%, however food, merchandise, and other increased 2.4%. Impairment and other charges total $2.0 million, with impairments spread across four clubs. This compares to impairments and other charges of $8.2 million in the year-ago quarter.
Bradley Chhay: Operating income was $14.6 million compared to $11 million. Margin was 25.4% of revenues versus 18.6%. Results primarily reflected the impairment decline offset by sales decline. Non-GAAP operating income was $17.1 million compared to $19.8 million. Margin was 29.8% of segment revenues versus 33.4%. Non-GAAP results primarily reflected the self-decline.
Bradley Chhay: Now, please turn to slide nine. Bombshell's revenue totaled $8.2 million, a difference of $4.5 million, or 35.6% year-over-year. The key factors here included sale and advestiture of five underperforming locations in the fourth quarter of 24 and the first quarter of 2025, which impacted revenues by $3.7 million. a 13.4% decline in same-source cells and bad weather. This was offset by two locations not in the same source cells consisting of a full quarter of Stafford, Texas location and a partial quarter of the New Denver location. Operating results were loss of $227,000 versus an income of $699,000. Margin was negative 2.8% of segment revenues versus a positive 5.5% in the year ago quarter.
Bradley Chhay: On a non-GAAP basis, the segment was virtually break even with a loss of $67,000 versus income of $750,000 or negative 0.8% of segment revenues versus positive 5.9%. These results primarily reflected the sales decline from open locations and bombshell Denver pre-opening costs, most of which were offset by the selling divestiture of non-performing locations.
Bradley Chhay: Please turn to slide 10. Gap expenses totaled $5.5 million, a decline of $1.3 million. Non-GAAP expenses totaled $5.4 million, a decline of about $0.9 million. Expense margin was 8.4% of revenues versus 9.4% gap and 8.2% versus 8.8% non-gap. This decline primarily reflects lower overhead from fewer locations.
Bradley Chhay: Please turn to slide 11. We have slides in the upcoming deck that discuss free cash flow and adjusted EBITDA, which are non-GAAP. In advance of that, we wanted to present the closest GAAP equivalents, which are operating income, non-net cash provided by operations. Adam Cump. turn to slide 12. We ended the first quarter with cash and cash equivalents of $32.7 million. During the quarter, we used $6 million as part of the flight club acquisition and $2.9 million to buy back shares. As a percentage of revenues, free cash flow was 11% and adjusted EBITDA was 22%. Both primarily reflected lower margins.
Bradley Chhay: please turn a slight. Our debt at March 31st increased $5.9 million from December 31st. The increase primarily reflects financing related to the flight club acquisition and the construction of bombshells, Rowlett and Lubbock offset by scheduled. The weighted average interest rate was 6.7% compared to 6.6% in a year ago quarter. Total occupancy cost was 8.5% of revenue compared to 8% a year ago, reflecting lower second quarter revenues, not higher costs. Debt to trailing 12-month adjusted EBITDA was 3.56 times compared to 3.32 times in the preceding quarter, reflecting the higher debt at March 31st and lower second quarter EBITDA.
Bradley Chhay: Debt to traveling 12-month adjusted EBITDA should decline as sales rebound with warmer weather and growth from locations that have come online more recently and from those anticipated to open. that maturities continue to remain reasonable and manageable.
Eric Langan: Now, here's Eric. Thank you, Bradley. Please turn to slide 14 to review our capital allocation strategy. Our plan calls for allocating our free cash flow in the following 40% to club acquisitions and 60% share buybacks, debt reduction, and dividends. with the goal of growing free cash flow per share at 10 to 15% annual.
Eric Langan: Please turn to slide 15. Operationally, we are focused on our core nightclub business. reviewing every club to increase same store sales on a regular basis. will rebrand, reformat, or divest our underperformed. Our nightclubs plan also involves acquisitions. Our goal is to acquire an average of $6 million of adjusted EBITDA per year focused on the best clubs buying base hits with an occasional home run. Our target matrix remain the same three to five times adjusted EBITDA for the club and fair market value for the real estate targeting 100% cash on cash returns in three to five purchases would be made with cash on hand, bank financing or seller notes.
Eric Langan: We would also consider using stock if our valuation improves. For Bombshells, we're working to improve existing locations, targeting 15% operating margins, and return to same-store sales growth. We also plan to complete two new locations in development. The final part of our plan is regularly buying back our stock, flexing up if we consider the price to be particularly undervalued. We also anticipate modest annual dividend increases. Over the five years, we aim to generate more than $250 million in free cash flow and repurchase a significant amount of shares. By fiscal 29, our targets are $400 million in revenue, $75 million in free cash flow, 7.5 million shares outstanding, and the end result would be doubling free cash flow per share to approximately $10 from last year.
Eric Langan: Please turn to slide 16. To give you an idea of the progress we've made on the share buyback, 10 years ago, we had about 10.3 million shares outstanding. As of last Friday, we had about 8.8 million shares. which is about a 15% drop.
Eric Langan: Please turn to slide 17. With Bombshells Denver and Chica's Locust now open, we have five remaining developments. Three are very close to completion. We are targeting Bombshells Lubbock for the opening later this month or early June. and Ricks Cabaret Central City for early next month as well. and Bombshells Roulette sometime this summer. We are still awaiting construction permits for Baby Dolls West Fort Worth, and we are awaiting engineering review and zoning plans for the Baby Dolls Fort Worth that was burnt in the fire. We have also sold our Aurora, Colorado property which we were going to use for bombshells and listed the other properties for sale in Austin and Hunts.
Eric Langan: As we continue to make progress with FavoriteLeague.com, our social media fan site for adult nightclub entertainers and staff, we are out of beta now and we have added a few more clubs and entertainers since our news release last month.
Eric Langan: I'd like to thank all of our loyal and dedicated team members for all their hard work and efforts and all of our shareholders who believe and make our success possible.
Mark Moran: Now here's Mark. Thank you very much, Eric and Bradley. If you'd like to ask a question, please raise your hand in the X space.
Mark Moran: When you finish, mute your microphone to eliminate any background noise. We have a limited number of speaker spaces today. So after your question, we may move you to the back of the audience to free up space.
Mark Moran: Now, first, we have Orchid Wealth. Please take it away. Hey, Orchid Wealth, you're still on mute.
Unknown Attendee: Unknown Speaker Hey guys, just a couple quick questions about financing. You know, obviously, with the market being where it is today, you'll probably encounter a lot of possible sellers. If you guys could use seller financing, what do you feel like is the average rate of return that you're going to have to pay these sellers? And if you have to resort to using bank financing, what's that rate? Unknown Attendee No, they're both pretty close to saying about six to 7% right now in the current market. Unknown Speaker Okay, so you guys are essentially paying what people pay on a 30 year fixed mortgage.
Unknown Attendee: That's kind of crazy. Unknown Attendee That's, that's going right. Unknown Speaker Yeah, no, no, that's fantastic.
Unknown Attendee: The other part being is, you know, any, you know, obviously, from a year or two years ago, when you guys weren't making acquisitions, you know, have you noticed any difference in the people that you're speaking to about, you know, how they're approaching it differently from a few years ago or a year ago? Unknown Speaker Well, you know, a few years ago, everybody was trying to use 2022 numbers, which were just astronomically high. And, you know, 24 has been a really bad year for the industry. People are, I mean, we're down, but I mean, I've talked to other people, we've seen other numbers are down higher percentages than us, even.
Unknown Attendee: So there's, you've got that. So now they're trying to do some type of, you know, average or combination, because they don't want to use the low numbers from 24. But we're coming up with solutions to some of these deals. As you've seen with our South Carolina acquisition, we've got finished and we've got the Detroit acquisition completed. And we've got several more we're working on right now. It's just a matter of coming to terms that make sense for us. We're not in a hurry to get anything done unless the terms are right, then we'll then we'll move very rapidly.
Unknown Attendee: You know, as a, as a side note, what, what do you think the average range is of the owners that are out there? I mean, are we dealing with people in their 50s, 60s, 70s, you know, people that are close, you know, I'm trying to get an idea of like, you know, when you're looking at the clubs that are out there, you know, obviously, if they're talking to you about selling their children or their relatives don't want to take over the business. So is there an age group you're typically dealing with? I mean, the majority of the guys in their in their late 60s to 80s to low 80s that we've been talking with so far.
Unknown Attendee: You know, there's there's some guys in their 40s we're talking to right now as well. They're trying to decide if they want to stay in this business or they want to go do something else. which we've had a few buyouts of guys like that in the past. You know, they get married, they have kids, they decide that they adult entertainment business. is not something they want to stay in. So we see that sometimes. But I would say the majority are, you know, between the ages of probably 65 and 80. Okay.
Unknown Attendee: All right.
Unknown Attendee: Thank you guys. Thanks so much.
Mark Moran: Next up, we have Aaron. Aaron, please take it away. Looks like you're still on mute.
Mark Moran: Okay.
Mark Moran: Next up, we'll bring Adam Wyden up. Adam, once you're connected, please take it away. and you're still on mute, Adam. Hey, Adam, you're still on on mute. And I will text you right now.
Mark Moran: While we're waiting for Adam to unmute, I will pull up Jason. So Jason, once you're connected, then. you're good to go. Adam, you're unmuted if you want to proceed. I still show them muted on my end. Both him and Jason are still muted. Jason or Adam, whoever unmutes first and have the next question. Unmuted. Thank you, Mark. There we go. Thank you, Mark.
Jason: I just want to ask Eric about the new acquisition in Detroit with the new flight club and what rebranding and new improvements you have made to the flight club and how the Detroit market is treating you guys. It's been great for us. We really, we really like the market up there.
Eric Langan: You know, we got we got our typical welcome where everybody told every entertainer and customer all the crazy things that we were going to do, which we have never done before. So we had a little rough start in the beginning because a lot of the entertainers were afraid to come to work because they thought I mean, some of the some of the stories that come over this time were really good. But that lasts about two weeks and we get the word gets out and you know, we get our customers in especially as we start seeing some of our VIP guests from other states come to town and know that it's an RCI club and come in.
Eric Langan: So we got we got over that pretty quickly. Of course, we had some great ice storms and some weather that was very unwelcoming in Detroit as well during the during the first takeover, but it's going very, very well now. We've done some minor upgrades, the club is in really good shape. So we upgraded the POS systems, we changed some of their systems and how they how they treat it and find entertainers how they did some did some stuff that, you know, we just don't we don't we don't operate that way. So we had to fix those things and get that into play.
Jason: Since then, it's been very, very good. We're right on course with the numbers we predicted. Good to hear good to hear.
Eric Langan: What do you think was the biggest operational change that you guys had to do from the previous owners down there? just treating the way they treat guests. I mean, they wanted everyone to be a VIP. You know, if you weren't spending two or 300 bucks, when you walk in the door, you weren't, you weren't, you weren't treated very well. I don't think that that's kind of our, our take of it. And so, you know, we wanted to make it a place where the average guy can come in and have a good time. And if you want to be a VIP, there's plenty of space in the club for VIPs as well.
Eric Langan: And so we kind of created that, you know, all around encompassing club like we do in the majority of our markets.
Jason: I think that was the biggest change. Okay, nice.
Jason: And then one last question with, you know, the adult entertainment business, you know, being very popular on the infamous, you know, eight mile road. Are you guys looking at any other adult entertainment clubs on eight mile? Or are you guys just going to stay more in the suburbs of Metro Detroit? I mean, we've looked, we've looked in Detroit, we've looked at about four or five clubs up there, we were actually on a hunt. I posted on my ex posted some pictures of some of the clubs and some of the flight, you know, taking the flight up there and some of those things.
Eric Langan: We've talked with other owners, we haven't been able to come to terms with any of them that we agree to at this point, but but we're always open. I mean, we're always looking for sure.
Jason: Okay, thank you for your time, Eric and Mark. Thank you guys. Thanks very much for your question, Jason.
Adam Wyden: Next up, we have Adam Wyden. Adam, feel free. Can you guys hear me? We can. Perfect. Okay, three questions. Um, first question is on the insurance accrual, you guys created your captive. And I know you had like a five and some million dollar charge in the quarter the previous quarter. Can you sort of give us some clarity on how much you know, sort of the insurance accrual you had in the quarter on your EBITDA that quote unquote, wouldn't have been cash that sort of burdening your EBITDA? You know, the accrual for this quarter is 1.3 million, Adam, but we look at it on annualized.
Bradley Chhay: Our first quarter annualized run rate was about 9.X million dollars. And given the actualization of run rates and whatnot, it's reduced to about 8.8 million dollars. So we won't know until any of these claims come in, any invoices and things like that. But it is a non-cash, you're correct. It is a non-cash, just a purely accrual charge. So about one point three million dollars. Right, but you took a big charge in the first quarter. So we wouldn't expect, we wouldn't expect basically huge accruals going forward. Is that right? Correct. I just told you, I think the annualized is 8.8.
Bradley Chhay: So from that, you guys can speculate what the next two quarters, you know, could be based upon recurrent trends. Now, if we have massive claims coming through or invoices or new lawsuits come in, that can change it. But it just depends on what falls off and what gets added by the actuaries. Got it. And how much is, and we had a big charge in the first quarter, right? We had like a five some odd million dollar charge in the first quarter. Got it. OK, that makes sense.
Adam Wyden: Can you I know a lot of restaurants have been complaining about weather and you said, well, you know, weather was bad and couldn't get in because of snow. I mean, is there any way to sort of quantify like how much EBITDA we lost in the first quarter because of weather? And like if you I mean, I know it's hard, but I'm saying like, do you have a sense of sort of like, you know, sort of what the burden was a little bit like based on if you like, let's say you'd close the location instead of having the people open?
Bradley Chhay: Like, do you sort of have a sense of like what you think, whether hurt you on comps or or EBITDA a little bit? Yeah, I think it's about I mean, I don't there's no way to know for sure. But I can tell you that I believe that it was over about an eight week period and it was about seven hundred thousand. and sales declines. And I'll tell you where I get that from is that we were doing $4.9 to $5.1 million during those first eight weeks, January and February, when we're having weather and close downs.
Bradley Chhay: And by March, we were doing $5.7 to $5.9 million per week. So if you figure our true average should have been $5.7 to $5.9, and it was $4.9 to $5.1, about $700 a week over about an eight-week period. So yeah, if you did that, it's about $5.6 million in sales. And you take that to a margin of about $3 million probably in EBITDA.
Antonio Ferlito: Unknown Attendee, Antonio Ferlito, RCI Hospitality Holdings Inc The only thing we have this year is we have, you know, Easter was in April this year instead of March. And, you know, this Mother's Day weekend was a little off for us, but not too bad. went a little off. But I think we'll, I think we're going to come in pretty close to about 5.7 million a week average this year, or this quarter. That's what I'm, that's what I'm hoping, unless we get some pickup at the, at the end of May and in June. So we'll see how that goes.
Adam Wyden: Okay, on the M, and then I got two more questions. On the M&A pipeline, you talked about another club. You're, you know, can you talk a little bit about what what you think has contributed to EBITDA so far between Detroit, and then this other one, South Carolina, and the other one that you're going that you're working on now and sort of what the pipeline is, because it looks like you're looking like you're averaging a good amount more than 6 million of EBITDA right now. Well, I mean, South Carolina didn't contribute anything. We didn't close until April, but it will contribute this quarter.
Eric Langan: And Detroit didn't contribute much last quarter because we closed in January, but January and February had really bad weather. We were still taking over. So there were some there were some operating costs that we increased as we first went up there before we got the revenues back up. But it is doing very, very well for us. And it will contribute probably on par with with the $2 million run rate that that we estimated when we when we purchased it. So it's going to be in good shape. So I think this quarter, April, May, June will be a much better quarter for us to gauge everything on.
Eric Langan: We also had just recently closed the bombshells. We fired David Simmons, the director of operations for the restaurant division, we promoted someone else from within. They've they've really started working on changing those things and changing costs. We've lowered costs considerably. We're making some other cost changes. We've got the Denver location open, we've got Lubbock opening, hopefully on May 29, if not by June 5, I think will be open for sure. So bombshells is going to go through some significant changes in this quarter. And I think we'll get a much better idea of bombshells as well.
Eric Langan: Plus bombshells was drastically affected by weather. You know, we had the Houston Rockets in the playoffs this year. So that helped a little bit. So hopefully NBA basketball continues to do well for us through the through the NBA playoffs. And, and we've got, you know, Astros baseball backup. So I think we'll be in a much better idea to see, you know, where bombshells gone by June 30. If that's kind of been, and I think I kind of told you that once before, in a conversation we had where I said, you know, it's going to take till the end of June for bombshells to really, you know, for me to figure out, you know, the change we've made, if they're, if they're effective, if they're, if they're, if we're doing any good with them, and to get these other two locations open, so that, so that any and all drag for bombshells is gone.
Eric Langan: Right, but we're not building outside of like you said, you sold the you sold Aurora and you sold Huntsville. No, we have not sold Huntsville. We sold Aurora. We have the Huntsville property listed. We have the Austin property listed, where we were going to build bombshells locations. Both those properties are being listed for sale or lease right now. So we're working on all that. The Grange is closed. It's been for sale. We've got people looking at it, but you know, this is a tough restaurant environment right now. So I think it will take a little bit, maybe by the end of the summer, I suspect that we'll see some movement on those.
Eric Langan: Right. But you it sounds like, you know, you've gotten rid of all the bad bombshells, by and large, you've got the final two that you're open, which you're opening, because you, you know, sort of very far along. And then I guess, it sounds like your focus is trying to get it to come positively. And, you know, figuring out whether it makes sense to divest it or what to do with it, right? Exactly. I mean, you know, if we can get a good offer for it, we would divest it. I mean, we're offers when we put it up for sale, the first time we got ridiculously crazy.
Eric Langan: Like people wanted us to give them $80 million, whatever assets for no money down and pay us $20 million for 50% of them. And, you know, basically have no liability on their side, keep all the liability on us. And but give them 100% operational control. And we can't do that. I mean, that's That's not a fiduciary. I mean, at least if I did that, I couldn't even walk away, right? I'd be stuck with whatever they decided. At least this way we can close and sell our properties. There's a lot we have a lot of options still.
Eric Langan: This is the first quarter we've ever really lost money at Bombshell since its inception. over 14 years ago. And the majority of that loss was was basically the startup costs for opening Denver. So I'm, I'm, I'm, I'm very optimistic on a go forward basis that we can get the bombshells to a point where they level out, you know, the, the whole industry and of that site, I think. I think even Twin Peaks reported negative same store sales for the first time this last quarter. So it is it is it's a tougher market out there in the restaurant side of the business.
Eric Langan: It's actually it's actually we're seeing a little bit in the club side as well, where some of the drinking is, you know, number people are the number of people to the clubs have been pretty steady. Our head counts have been good. Just the amount of spend has been down a little bit based on the on the regional managers and that I've been talking with. So I'm optimistic that as we get into the summer, as you know, these tariff wars.
Antonio Ferlito: Unknown Attendee, Antonio Ferlito, RCI Hospitality Holdings Inc Unknown Attendee, Antonio Ferlito, RCI Hospitality Holdings Inc The calendar fourth quarter last year, fourth quarter and first quarter, and then we were down again. So we're flat. We're up three and we're down three. So we're flat for six months, basically. for 2025. But I think that was mainly weather related on the club side. Some of us VIP spend as well, but we were making it up. We were doing very well. But putting, you know, like I said, we're putting more people through the doors and that's working very well for us now.
Eric Langan: As you see, our food and merchandise sales are up. But you know, people are just aren't drinking as much, they're just not spending as much. And what they're not drinking is the high dollar bottles, the high dollar bottle sales, the liquor sales. You know, they're drinking by the glass instead or buy the drink, buy and buy the drink instead of buy the bottle. So bottle service down, VIP spend is down as you've seen our service revenues down almost 3%. So I think that's really what we've got to watch and focus on. We do have the Knicks in the playoffs and New York is doing very, very well.
Eric Langan: Club's been doing great up there. People are really coming out there. You know, I think they're sold out the Madison Square Garden for the watch parties even when they were playing in Boston. So that was great for the clubs that were a block away from the garden there. So that's been really good for us. You know, Miami's done off a little bit. So hopefully, you know, as we get into the summer months, we can get a little stronger in Miami. Like I said, the headcounts are good. We just got to get the spend up. I think a lot of that is uncertainty, right?
Eric Langan: Again, remember, a very large portion of our customer base, especially the high dollar spend our small business entrepreneurs who make, you know, considerable amounts of money. But if money is uncertain, then they won't spend as much as they normally would. They'll get a little more reserved in their spending. And so as the uncertainty goes away, I believe that we'll see our numbers come back.
Unknown Attendee: Okay, thank you. Thanks so much for the questions, Adam.
Unknown Attendee: Next up, we have Manhands9. Please take it away. Thank you for taking my question and I really appreciate this venue to talk with you.
Unknown Attendee: With the new administration making a lot of noise and headlines, as part of their project 2025, pornography was listed as being They had wanted to say that it should be outlawed, and I wondered if you have heard anything about this, if there's anything that you'd want to add about that. Now, I know you haven't heard anything. We haven't had any issues. I don't think we're technically in the pornography business. We're not really making videos and whatnot. Our biggest protractors are always human trafficking, and we are very avid anti-human trafficking advocates. We're a founding member of COAST, Club Owners Against Sex Traffic, and we have done everything we can do and continue to do everything we can do in our powers to fight sex trafficking and human trafficking in all forms. As well as a congressional, our training program has received a congressional honor, and we're going to continue to work with that program.
Eric Langan: I think if you look at any real studies, less than 0.1% of all human trafficking is through adult nightclubs, or even has any ties to any adult nightclubs. While there are people out there that are against our industry that would try to skew those facts, I think those facts are pretty much given when you get into real studies, real scientific studies that have real data. I'm not too worried about anything like that. Thanks for taking my question. Yeah, thank you. Fantastic. Thank you very much for the question. And thank you, Eric and Bradley on behalf of the company and our subsidiaries.
Mark Moran: Thank you. And good night.
Mark Moran: Please visit one of our clubs or restaurants to have a great time.