RCI Hospitality Holdings, Inc.

We've just surpassed 100 listeners, so we're going to go ahead and kick this off. Greetings and welcome to RCI Hospitality Holdings third quarter earnings call. You can find RCI's presentation on the company website. Click company and investor information under the RCI logo. That will take you to the company investor info page. Scroll down and you'll find all the necessary links. Please turn with me to slide two of our presentation. I'm Mark Moran, CEO of Equity Animal, and I'll be the host of our call today. I'm here with Eric Langan, President and CEO of RCI Hospitality, and Bradley Shea, CFO of the company. Please turn with me to slide three. If you aren't doing so already, it's easy to participate in the call on Twitter Spaces. On Twitter, go to RickCEO and select the space titled $RICKCEO. 3Q22 earnings call. As a reminder, if you want to ask a question, you'll be needing to join Twitter Spaces on a mobile device. If you just want to listen, you can join the Twitter Space on a personal computer. RCI is also making this call available to listeners through a traditional landline and webcasting. At this time, all participants are in a listen-only mode. A Q&A session will follow. This conference is being recorded. Now turn with me to slide four. I want to remind everybody of our safe harbor statement. It reminds you that you may hear or see forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those currently anticipated. We disclaim any obligation to update information disclosed in this call as a result of developments that occur afterwards. Now please turn with me to slide five. I direct you to the explanation of non-gap measurements that we use. I'd also like to invite everyone listening in the New York City area to join Eric, Bradley, and myself tonight at 7 o'clock to meet management at Rick's Cabaret, one of RCI's top revenue-generating clubs. Rick's is located at 50 West 33rd Street between 5th Ave and Broadway, a little in from Herald Square. If you haven't RSVP'd, ask for Eric or me at the door. Now I'm pleased to introduce Eric Langan, President and CEO of RCI Hospitality. Thank you, Mark.

Thanks for joining us today. The third quarter benefited from higher sales, continued rebound in nightclub service revenues, and sequential improvements in bombshells. Year over year, nearly all our key metrics continue to increase on a double-digit basis for both the third quarter and the first nine months. This resulted in particularly strong free cash flow and adjusted EBITDA in the third quarter. Net cash from operating activities and free cash flow were further enhanced by receipt of a tax refund I've mentioned on previous calls. We continued to execute on our growth plan and cap allocation strategies. During the third quarter, we continued to buy back shares. We acquired the Playmates Club in South Florida. We also purchased for the 13th company on bombshells. To date, in fourth quarter of 2022, we bought a club in Odessa, Texas that we have rebranded it and plan to reopen on August 18th, as well as opening the rebranded Scarlet's Cabaret in San Antonio, Texas that will also open August 18th. We also bought the well-known Cheetah's Club in South Florida, and we continue to take advantage of market conditions to buy back shares. Now, here's Bradley for a review of our financials.

Thanks, Eric, and good afternoon to all those listening. All of our comparisons in this call will be to a year-goal third quarter unless otherwise noted. It is important to note that this was the first period since the first quarter of fiscal 2020 that was not affected by COVID restrictions. Looking at the numbers, we generated a record total revenues of $70.7 million, up 22.2%. EPS increased 8% to $1.48. Non-GAAP EPS increased 18% to $1.60. Net cash from operating activities was $18.9 million, an increase of 26.2%. Free cash flow totaled $18 million, which is up 39.1%. Net income attributable to RCI common stockholders was $13.9 million, up 13%. and adjusted EBITDA totaled $24.6 million, which is up 20.6%. Please turn to page seven. Our nightclub segment had an excellent third quarter. Revenues totaled $54.7 million, an increase of 33.3%. Operating margin was 41.1% and 42.7% non-GAAP. Operating income was $22.5 million GAAP and $23.3 million non-GAAP. Highlights included $11.8 million in sales from fiscal 2022 acquisition and 50.8% increase in our higher margin service revenues. On a sequential quarter basis, revenues increased 13.5%, non-GAAP operating margin expanded 321 basis points, and non-GAAP operating margin increased 22.7%. Please turn to page eight. We created this slide to show the strong progress we've made in the nightclub segment since pre-COVID first quarter of 2020. At 77.3%, nightclub revenues as a percentage of consolidated revenues have returned to just under where they were. At 36%, service revenues as a percentage of consolidated revenues have now slightly exceeded the pre-COVID level. As you can see, nightclub revenues are closely linked to service revenues. Both of these trends reflect the combination of the rebound and growth of existing clubs and the addition of club acquisitions against the growth of bombshells revenue. Please turn to page nine. Bombshells also had a great third quarter. As we mentioned in our third quarter sales call, revenues declined 1.8%. That was due to a tough year-over-year comparison against an unusually strong third quarter in fiscal 2021. which, by the way, was our record highest revenue quarter for bombshells ever. That's when bombshell sales and margins experienced a huge benefit from being one of the few bars and restaurants open in Texas due to the state of COVID at that time. Otherwise, bombshells experienced typical seasonal trends in the third quarter of this year, and results were in line with expectations. I'd like to point out that operating margin came in at 19.4% gap and 23.6% non-gap. On a sequential quarter basis, revenue increased 3%, gap operating margin expanded 94 basis points, and non-gap operating income increased 7.2%.