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%.

Overall, we think that we're doing a great job of managing food and labor inflation. Now, please. Page 10 to review our consolidation order, unless otherwise noted.

Cost of goods sold improved 13% as compared to 15.3%. Now, this improvement reflects the increase of sales mix of high-margin service revenues in the nightclub segment. Valaries and wages were slightly higher at 24.6%. This reflected the addition of employees at acquired units along with new mandates, which increased minimum wage in some of the states in which we operate.

SG&A totaled 2.1% as compared to a small gain. This year's third quarter reflected 32% with non-GAAP operating. partially offset by higher sales and lower weighted average interest rates. Please turn to page 11.

Cash and cash equivalents were $37.5 million on June 30th. I'd like to point out that this was after utilizing more than $12 million for share buybacks during the nine months, cash portion of the playmate's acquisition, and the down payment for a bombshell location in Rowlett, Texas. Free cash flow for the third quarter totaled $18 million, or 25.5% of consolidated revenues. This included a $2.2 million tax refund Eric mentioned. However, excluding that, free cash flow was 22.4% of consolidated revenues. That compares favorably to the 6.68% a year ago and 7.37% five years ago. Our refinancing enables us to smooth out our debt maturity schedule. Our amortization continues in the $7 to $8 million annual range for the next four years, which is very manageable with our cash flow. To pay off our balloons, periodic refinancing enables us to convert higher rate seller financing and other unsecured financing into lower rate commercial real estate bank debt. We currently have multiple unencumbered properties in our portfolio. Should we need additional capital, we can borrow against them. Our occupancy costs were 6.7% of revenues. This continues to be well within the 6% to 9% range that we averaged when sales were dramatically impacted by COVID. Please turn to page 13 to look at our June 30th debt pie chart. Our debt now consists of 63% secured by real estate, 23.7% of seller financing debts. This is secured by the respective club to which it applies. 4.1% of debt secured by other assets, and 9.2% of unsecured debt. Now, let me turn the call over back to Eric, and thank you. Thank you, Bradley.

We continue to talk to new investors, so I'd like to review our capital allocation strategy. Our goal is to drive shareholder value by increasing free cash flow per share 10 to 15% on a compound annual basis. Our strategy is similar to those outlined in the book, The Outsiders by William Thorndike. We study companies that focus on generating cash per share and allocating that cash effectively to generate more cash. We have been applying these strategies since fiscal 2016 with three different actions, subject of course to whether there is strategic rationale to do otherwise. One is mergers and acquisitions, specifically buying the right clubs in the right markets. We like to buy solid cash-flowing clubs at three to five times adjusted EBITDA using seller financing and acquire real estate at market value. So far this fiscal year, we have deployed $141.8 million in capital, $45.8 million, which was cash, $66 million, which was debt, and $30 million, which was equity, to acquire 15 clubs in new and existing markets. Another strategy is growing organically, specifically expanding bombshells to develop critical mass, market awareness, and sell franchise. To date, this fiscal year, we deployed $6.8 million in capital, $2 million in cash, $4.8 million in new debt. To open our 11th location, buy property for two more locations, The third is under contract. In addition, our first franchisee opened in San Antonio, and we signed our second one for the state of Alabama. Our goal in both M&A and organic growth is to generate annual cash on cash returns of at least 25% to 33%.

The third action is buying back shares when the yield on free cash flow per share is more than 10%.

As of last Friday, we deployed $14.3 million in cash to buy back 255,962 shares this fiscal year at an average of $55.91.

Please turn to page 15 to review our growth initiatives.

We've accomplished so much already, so I'm going to focus on only the new developments since our second quarter call. In our nightclub segment, we acquired a club and its assets in Odessa, Texas in July. We plan to reformat it into P.T.' 's Show Club and open it up on August 18th. We think P.T.' 's will fit well with our other two clubs in that part of Texas. We also plan to reopen a reformatted club in San Antonio on August 18th. Also in July, we acquired the Cheetah Club in Hollandale Beach in South Florida. Cheetah is well-known with a very strong following. We believe it fits well with our three other clubs in North Miami-Dade, South Broward County area, which includes Tootsie's Cabaret. These acquisitions are all part of our effort to add $20 million of adjusted EBITDA in fiscal 2023. We have a number of meetings lined up with club owners to talk about acquisitions at our Exotic Dancer Expo Conference next week in Las Vegas. In our bombshell segment, during the third quarter, we acquired property in Rawlett, Texas for our 13th location. We continue to look for more locations in Dallas, Austin, Florida, and Phoenix. Our first franchisee opened in San Antonio and is continuing to do very well. Our second franchisee is close to finalizing his first site in Huntsville, Alabama, and we continue to be in serious talks with other potential franchise groups. Regarding capital management, in the fourth quarter, we sold an access parcel in Philadelphia for $6 million in cash. After paying down related debt and expenses, we received approximately $3.5 million in net proceeds. We still have two more pieces of real estate under contract for a combined sales price of approximately $3.5 million. Turning to page 16. With our new acquisitions, we wanted to give you a better picture of the geographic focus. In third quarter 2022, our regional revenue breakdown was Texas 41%, including bombshells. Florida, 22.7%. New York, 8.6%. Illinois, 6.8%. Colorado, 6.6%. And the other eight states combined for 14.2%. Turning to page 17. I'd like to update you on how we are harnessing new technology to drive club traffic and, in particular, attract the next generation of customers. Our guest benefits NFT program is in pre-sale mode, payable with a credit card, online now. We currently plan to mint at the end of the month. This will be the ultimate party pass with an annual event at Tootsie's, access to other private parties, VIP experiences, a wide range of other benefits. Response has been very good. Admire Me, our new social media platform, we currently plan to fully launch sometime at the end of August or the beginning of September. Similar to OnlyFans, it enables entertainers to post content, receive payment from admirers. This will enable entertainers to build an internet business as well as their club business with us. This ends the formal presentation. A big thanks to all of our teams, nightclubs, bombshells, and especially our corporate team. for all their hard work and dedication. And with that, Mark, let's start taking questions.

Thank you very much, Eric and Bradley. I'd like to take a moment to encourage everyone to retweet this space so we can really get the party going with this Q&A session. If you'd like to ask a question, please raise your hand in the Twitter space. When you're done asking your question, please then mute your microphone to eliminate any background noise or we will do it for you. We have a limited number of speaker spaces, so after you ask your question, we may move you back to the audience to free up space. To start things off, we'd like to take questions from Rick's equity research analysts and then some of its larger shareholders. Our three analysts that are on the call are Rob of Granite Research, Anthony of Sidoti, And then Josh, who works for Joe Gomes of Noble. Let's start off with Rob of Granite Research.

Hey, congratulations about the quarter.

Thank you.

Can you discuss the plan for Fort Worth when you think that might be closed and then estimates for opening and if you're going to look and then rebranding the facilities?

Sure. We're definitely going to be remodeling, rebranding the facility. We're waiting on the plat at the county level. Unfortunately, there's not much we can do to speed the process up. However, we have talked with the owners. They've given us keys. We have the architects in. We're starting to draw up remodel plans and get that ready. I suspect we'll probably open within three months of actually closing on the property. I believe the liquor license is in place. The adult entertainment licenses are already in place. So basically, it's just a matter of remodeling, rebranding, and, of course, getting this plat done so that we can get a title come in from the title policy.

Thank you. And then just shifting gears, can you talk about real estate pricing in this environment? Has it backed off at all? Is it helping you in terms of bombshell locations?

You know, I don't know that it's backed off a lot. We did recently make an offer on a property in Austin, Texas for a bombshell that was accepted yesterday. So we will, that we had been looking at for some time, but the, you know, the price was just, was crazy. They finally, you know, came down to the price that we had offered and contacted us. So we're going to do that. We may end up with a partner. for a franchisee at that particular location. I'm not sure how that's going to go just yet. It's very early. Like I said, we just got it under contract yesterday. We are also looking at multiple other sites at this time.

Great. And then I'll ask one last question, and then I'll circle back in the queue. But can you just discuss the general contractor pricing trends you're seeing? Has it had any impact in terms of building out bombshell locations or just in general what you're seeing in there?

Sure. I've definitely slowed down. We had the original bids that came in on Stafford location. We have done the demo there. We have started no construction. I am making two different GCs rebuilt. right now uh steel prices come down lumber prices come down but the biggest problem that we're having are the subs have have had so much work and so demand that they're just demanding crazy prices uh and i've said look we're just we'll set we'll wait

Uh, we're not going to overspend just to build and try to, you know, meet some, uh, if the ROI is not there, we'll, we'll take our time.

Uh, we'll build slowly. We'll wait till, you know, certain things, maybe the roofing, you know, roofing will come down and we'll find the right roofer. He'll build it at a price that we are happy with. Uh, and we'll throw the roof on like we did with the, uh, you know, the tear out. We actually ended up with a company that, uh, that came in well under the other bids because they had an open space and wanted the work.

So we'll wait until they want the work and then build if that's what we do and piecemeal it together. are very minor on these properties but you know and and not over not over

Sometime in mid-September or early October on that location. The Lubbock location where we have the final zoning hearings, I believe, in early September. I can't remember the exact date, the first 15 days of September. We have worked forward on the plan, and so we should be able to apply for billing permits as soon as the zoning issues are all resolved. and hopefully we'll uh you know get that one started uh under construction sometime in december early january that's that's the current plan thanks so much rob for the questions

We'll deal with those then.

And, you know, so far, you know, the cost has been, but we did have acquisition costs in here in this quarter that affected and probably raised the overall GNA a little bit as well. So we may or may not see, you know, more of that because we actually closed on a couple more acquisitions in this quarter. And we'll just have to see how that goes as we progress through time.

Gotcha. Okay. And in terms of the acquisitions, so since you closed the quarter, you announced the Cheetah's Gentleman's Club as well as the Odessa Club. Just, you know, can you help us perhaps to think about those as to how we should think about the revenue and EBITDA run rates or contributions from those?

Sure. Cheetah's is about $10 million. We expect EBITDA around $4 million. We could see some slight improvements on that. We're just going to have to, like always, we'll have to get a few quarters in to figure out where we're at, but I think that's kind of where we're at right now. The Odessa Club, I'm going to guess, similar to the Ricks-type location, probably $1.8 million in revenue, which would put us probably at around $600,000 a year in EBIT on that one. That's okay.

And then, so just to circle back as far as the, you know, you mentioned, Eric, that you think the worst of the cost pressures is over. So now that's kind of behind you. So as far as your operating margins kind of going forward, would it be reasonable to assume sequential improvement in your segment operating margins? I know the business is seasonal, but if you could just kind of speak to that, that'd be great.

I would say not in the next quarter, for sure. I think, you know, our goal is 30%. EBITDA and 20% free cash flow, uh, on revenues. Uh, that that's kind of where we're, that's our targets. Uh, I think we can do a little better. Sometimes we may do a little under sometimes. Uh, but overall, I think we'll, you know, maybe take over, you know, a one year period. I think we're going to be very close to those numbers. So, uh, this season or this quarter, July, August, September is always our, uh, seasonal quarter where we turn to a more normality as what I'm seeing now that, uh, You know, all the COVID restrictions are gone. People are traveling for holidays. So we're seeing our typical summer slowdown versus our, you know, prime season October to May, which to me is very exciting because that tells me if people are going back to a more normal lifestyle, we're going to see, you know, nice jumps come October, November, December, and basically running through May. I think this year – Our first quarter of fiscal 23 is going to be a record quarter for us. As New York City goes from 45% office occupancy and people working in the office to 85% in October, November, is I believe the trends I've been reading about and hearing that they're expected, which will help our service revenues in New York City even more. I think we're going to see that in other markets as well. as people, like I said, just return to normal life and normal patterns again. So I'm very, very excited about how that's going to play out for us during our prime season of fiscal 2023.

That's great to hear. Well, thank you and best of luck.

Thank you. Thanks so much for the questions, Anthony. Next up, we have Josh of Noble Capital Market. Josh, take it away.

Hey, good afternoon, everybody. Thanks for taking my questions. Yes. So I just kind of want to start off with some bombshells. I know that you're talking to a few just franchising groups. Can you talk about just kind of how those talks are progressing? Is one group kind of further along than others?

Yeah, they're definitely all in different stages. The Farthest Along group has three sites picked out for us. On the way back from Vegas, I'm going to stop in with David Simmons. We're going to fly back from Vegas together and stop in. And they've got three sites picked out. We're going to look at those locations and give them approvals or declines on our opinions on those three locations. If we approve a location, we'll probably get into a, you know, get the contract, the franchisee contract done. All franchise contracts have to be tied to a specific location. on the first one before we can create the franchise agreement. So hopefully we find one of their three locations we'll be able to approve and get them signed up, which will give us our third franchise at this time. I know the San Antonio group is looking for their second location right now as well. So hopefully we'll have some more information as we progress through the quarter on franchisees for Bombshells. Like I said, we have a few others we're talking. Some are vetting process. Some are basically trying to figure out where they want to locate at and to get us locations for approval. We'll just have to see how that plays out over the next couple months. I know that recessionary fears have some people spooked a little bit. I know that interest rate increases are going to become a concern if interest rates continue to climb. We're just take it day by day and, uh, and just keep working every day towards our goal.

Perfect. And it kind of, kind of led me to my next question. Obviously you got, you know, recessionary fears are out there among some people, just the general public and kind of, that leads me to the question of like, are you seeing a drop in visits to your clubs just due to this economic environment we're in?

I mean, I've seen a typical summer slowdown. I wouldn't call it drops and visits. I, I don't think the customer spend has changed hugely at this point. As you can see from the last quarter, you know, through June 30th at least, our VIP spend has been fantastic. I've talked to the, you know, to different club managers and our upper management guys, and they say the VIP spend is still fairly strong. The biggest thing we're hearing, you know, is that, you know, people are on vacations. And so that's interfering with, you know, their normal, you know, close schedules to the clubs and whatnot, but, but not, not in a huge way. And we're just going to have to, I don't think we're going to really know if the recession is going to cause any problems till October, November, December. And I think any recession hit will be offset or more than offset by people's returning to work and turning to the offices. So pick up our happy hours. We'll pick up our daytime lunchtime business. And, uh, and, and, and, and I think business trash people return to the office. I think business travel, uh, will increase again. So we have certain locations that, uh, will, will benefit from that. And I, so I think overall we'll be in great shape and the rest will make up with, with acquisitions. So I, I don't, I don't think we'll see, you know, much slippage at all. Uh, if we do, you know, I'm watching Mondays and Wednesdays, like I say all the time, watching them very closely. Uh, you know, I see a week Monday, uh, one week and then it's strong the next or i you know i see a very strong wednesday but then it's week the next uh and vice versa on monday so i'm watching the weekends have been strong uh and so right now i i don't have i don't have an answer as to you know what what we're going to see or if we're going to see or when we're going to see uh a recessionary effect but as of right now i'm i'm very happy with uh i know that uh you know i've been on Twitter a lot and I have seen some entertainers, you know, complaining about customer spend on the entertainers. Uh, we're not seeing that in our dance dollar sales at our clubs. Uh, uh, however, you know, I, I don't know about the, uh, you know, the overall spend on dancers if it's, if it's paid in cash. So maybe some of their cash customers are, have slowed down a little bit and, uh, we don't know about it. Uh, but, uh, the girls that I talked to have been very happy, uh, they're making money and we're printing money, as you can see from our financials.

Yeah, that's fantastic. And I just have one last one before I go back in the queue. I kind of want to give just an update on Admire Me. Obviously, you guys were having talks at the soft launch last quarter. I just want to hear if there's anything just related to the traffic on it, if it's been going as you guys expected or it's been just surpassing your guys' expectations.

Right now, we're not really focused on it. We're trying to get it working correctly. We've got a couple of bug fixes that are going out right now in the next update. We're finally getting the referral program put together. We thought we could do without a referral program, but we've now realized the more we do, the more we learn. The beta was good because it helped us get the operational bugs worked out. But as we talk to influencers, as we talk to some of the larger people on OnlyFans or entertainers and workers on OnlyFans, we realize some of the things we must have and how we have to set certain things up. Those are almost all programmed in and should be completed by the end of August, and then we'll start our launch because we'll have all the tools in place to do it right. uh it's like a nightclub on the internet it's a chicken and egg i can't get the girls because if i don't have the guys i can't get the guys if i don't have the girls and so on the nightclub business we have to get everyone there at the same time uh so we've decided you know the soft launch we're decisive up and operating but there's been no marketing no push because uh a soft launch will not uh we don't believe in that space like a nightclub will not create the uh the traffic we need on either side for the entertainers or for the content providers or the admirers to make it work. So that's where we're going to do a much harder push sometime probably the first couple weeks of September.

Josh, thanks so much for the question. I know we're all looking forward to seeing the launch of Admire Amiga from soft to hard very soon. Next up, we have Adam Wyden of ADU Capital. Yeah, guys, look, you know, I've been saying,

like, you know, you know, I think, you know, in the past, Eric, you know, you never really had the balance sheet to support, you know, 15 and $20 million EBITDA transactions. And I think, you know, combination of bombshells, Lowry, you know, you taking the time and building this kind of free cashflow machine, you know, we've got now the better, you know, a year of free cash, you know, you can buy, you know, a couple, you know, if you wanted to, you could buy, you know, a few loweries a year. I mean, you know, you're obviously slowing down bombshells growth because the ROIs are not there. I don't like that. I love that. I mean, it's so perfect, right? It shows the flexibility of mind, you know, that the reality is materials costs are up, inflation is up, labor is up. Like, why not be a buyer of these clubs at lower multiples? You own the real estate. In fact, these are the best inflation-adjusted assets, and you're the only owners of them. I think it's amazing that you've transitioned to focusing on clubs again. It shows a flexible mind. Do you think that we can take this from 100 to a couple hundred over the next couple of years? Because The math I'm doing is you guys can support about $50 million of EBITDA acquisitions through cash flow and balance sheet until you really start hitting walls. And so obviously with the stock, you can do more. But I mean, what's stopping you from ramping things up right now? And I'm not just talking about 20 a year. I'm talking about 50 a year.

Yeah, I mean, nothing's stopping us other than we have to find the acquisitions, do the deals, do the legal work, the due diligence. uh i'm i'm talking with lots of owners we're going to expo this year we're going to put it out there everywhere you know our goal is to i think we can add about 200 million in purchases a year right now for the next three years straight uh and still stay under using about 65 of our free cash flow and uh and still keeping our debt to uh even a ratio under three times So I'm very excited about that. If the right deal comes along and we can step it up a little bit and push a little faster, we're going to continue to do that. You are absolutely right in that our focus is about 95% on clubs and about 5% on bombshells right now. Because I do think in the next three months that there's going to be some great opportunities for us on the club side based on some of my conversations with guys right now. With our higher, we pay three times forever or less for a long time, many years. We're starting to pay four to five times right now for the big guys, for the limited clubs, for the right licenses in the right markets and buying that market share up. And it has got a lot of guys talking to us right now. And I think we'll bring some of those guys onto our side of the equation soon. rolling up, you know, additional dollar amounts of EBITDA. I know we've been saying 20 million increase for 2023. If the talks go well and everything goes well by our next, by the end of the quarter, by December, when we do decay, we may have a much higher, larger target based on deals in the pipeline. And I'll let everyone know at that time, you know, where I think we're actually going to be at and how that, how that 2023 is going to go. I, I'll tell you, I pushed my personal goal. I know we're, we're 10 to 15%. We've been doing about 20%. I think 2022 will end at over 30% free cashflow growth. And I think that right now, 2023 is headed to be another 30% plus year as well. So it's very exciting.

It should, it should be higher than that, right? I mean, if you're, If you're not going to get the full – I mean if you can just do the math, right? Like if you – right now you're run rating about 100. You'll probably – I don't know the exact math. You'll probably clear 85 of EBITDA for the full year. I don't know what the free cash flow will be. But if you exit the year at 105 and you buy – call it – if you buy 30, you're at 135. I mean you're going to be compounding EBITDA. obviously at a much higher rate than 30 in 2023 and presumably, you know, free cashflow, you know, faster, you know, because of, you know, how it's financed and, and, and all the rest and leveraging what you've got. And so, you know, again, you know, leveraging corporate overhead and what have you. And so like, you know, it, I mean, again, like, you know, 30% free cashflow growth would, would, would imply a much slower EBITDA growth. I mean, Again, you know, I feel like we have the same conversation every conference call, but it's like, you know, you put up these great numbers, you destroy margins, you generate cash, and we trade at the same multiple. I mean, how do you guys think about, you know, getting the multiple to a point where you can, you know, actually grow, you know, more, right? Like you made a comment, you're like, well, $200 million a year, but why not 500 million? I mean, the only thing is the equity, right? So, you know, how do you think about kind of, getting to a point where, you know, you can get this thing properly valued?

Well, I think I can take advantage of the tools the market gives me. And so, you know, it's up to you guys on this call. You guys have to decide if it's worth giving us those tools, you know, paying the price for the stock, for the current cash flow, and the future generation of cash flow. I think one of the biggest problems with Ricks, especially you know, through COVID. And so is nobody wants to value us on a go forward basis. Everybody wants to value us on a pass run basis and give us no value for the growth. As you always say, they give us no value for the real estate or very little value for the real estate. When that's a huge advantage for us. You know, if you look at typical restaurant, restaurant stocks out there paying eight to 14% occupancy costs. In other words, the cost of use of their real estate to generate their cashflow They're paying 8% to 14% for it. We are now at 6.7%, one of our all-time lows. So those are the things that our cap allocation strategy has done for us. We are so focused on our cash-on-cash returns, on creating the value for our shareholders, and really keeping all of our costs in line. COVID taught us The systems that Bradley put in place at the corporate office for our accounting systems give us information and tools in seconds instead of hours or days. And so we're able to just monitor these things, watch these things, and continuously work to increase that. And I do believe that the market at some point is going to recognize, they're going to pay a premium for that future growth instead of just a past growth. And if not, then we'll just continue. The beauty is we can do this either way. One way we're going to do it a lot quicker, and one way it's just going to take longer. So I guess it's just, you know, we're all here for the ride, and hopefully we can, you know, right now I think we're driving like, you know, a Toyota Camry, and I'd love to be in a Ferrari or a Mambo and, you know, really drive this thing at a much faster pace. Or as I know your favorite cars are Porsches, we'll even take a Porsche.

Yeah, look, it's sort of unfathomable. I mean, you know, when you think about the spaces we did with Edwin and we go back and we look at, you know, look, the stock is effectively, with the exception of, you know, 2007 and 8 where the stock went up ahead of Vegas and, you know, you guys used the equity intelligently but then went and bought back stock, whatever. I mean, there's effectively been, you know, I mean, with a few select moments in time, the stock is effectively traded five or six times EBITDA for basically the whole time the company's been public. And so like you've been able to, and I mean, look, maybe you can comment a little bit about Lowry, but like, you know, you've been able to buy businesses at five or six times, right. And drive it down to four times. And so like in the absence of a currency, you've been able to use the cash on the balance sheet and your operating abilities to basically make deals work. But it's just incredible where you would be if, hey, the stock was trading at 10 times. You bought a business with some percentage of stock, and you bought it at five and took it to three. I mean, this business would be $500 million of EBITDA in a heartbeat. And so it's just, look, obviously, in the absence of multiple expansion, you can look at the returns and you can say, okay, I'm buying this thing with you know, I don't know, 105 EBITDA, you know, maybe that's nine or, you know, $9 a share of free cashflow, whatever it is, you know, you're, you're buying this thing at, you know, nearly a 20% or whatever, 60 bucks, I guess it'll be a 15, you know, 15, 16% free cashflow yield. And if you can grow, you know, 30% free cashflow, you know, you're still getting a, a 45% total return without multiple expansion. But I mean, if you can get multiple expansion, I mean, the whole, the whole machine, like you said, it's just, It's a Porsche. I mean, this isn't even a Toyota Camry. It's a Pinto. Well, Adam, let me be honest.

I'll be completely honest. We didn't deserve it before 2016. Okay? We were young. I was learning. I had never ran a public company. I was an operator of adult nightclubs. A damn good one, I think. But as we moved, as we grew into 2016, things changed for us. We... Figured out capital case strategy. We figured out the compounding. We figured out ROI. We figured out cash on cash returns. And we became a financial machine that wasn't in the strip club business anymore. We're in the free cash flow business. I'm going to say that a lot. Now, what I would say to the market is if you want to keep punishing us for pre-2015, then you have that right. But I would ask you to forgive our past sins. Look at 2016 on.

Can't control what COVID did and slowed us down a little bit. But if you look 16, 17, 18, 19. You know, to.

go from 2016 forward and start valuing this and take us and compare us to other companies with that type of growth period from 2016 on and say are we being fairly valued compared to those companies and i think you'll find we're not being fairly valued as you continuously you know tell everybody uh but like i said i think that uh the part of that is we have to get everybody to understand that there was a transformation of this company after 2016 or starting in 2016. And, you know, I've been in some debates on Twitter with various, you know, people and tried to explain that, you know, when you look at a 30-year run or 20-year run, I am not the guy I was in 2012, 2013, 2014. 1999, when I took over the company, we've grown, we have learned, and I think we have executed to a T, or even better than we said we would execute from 2016 on. And I would just ask the market to take a look at that and value the company based on those things and imagine, if you can, where we're going to take this company over the next three years, the next five years, the next 10 years, and be a part of it. We're looking for long-term shareholders. We're looking for guys that want to partner with us over the next decade and make lots of money and wealth and create lots of wealth. Our interests are aligned with shareholders. The majority of my wealth is in my RIC stock. It took me a long time to learn that the investment bankers that were leading me in my younger days were basically taking advantage of us. They were having us use our equity at super high cost of capital with the premise that a lot of companies use, well, at least we don't have to pay that back. It's not debt. Well, guess what? You're always paying it back because you're paying it back with a reduction in free cash flow, and you're diluting your existing shareholder base. And I was a big portion of that. So going forward, I think we're ready to go.

Yeah. No, I mean, look, I think your comment around 2016 is a good one. I mean, again, I don't have my numbers in front of me, but as I recall, the business was probably on the measure of 12 or 13 of EBITDA. I think we're certainly in excess of 100 now. And so if you think about that, it's talking about 17, 18, 19, 20, 21, 22. I mean, in six years, you've know more than you know 8x the business on an ebitda basis and more importantly as you said on a free cash flow per share basis it's it's meaningfully meaningfully more um and so yeah look i i don't think that those types of companies trade at you know trade at you know whatever five or six times free cash flow you know 15 yield growing 30 doesn't deserve a doesn't deserve the thing i mean look to be perfectly honest a business growing free cashflow 30, 30, 30% a year should trade at 30 times free cashflow, not at, you know, six times free cashflow. So, you know, look, I, I, uh, I would encourage you to, um, you know, to continue to find creative ways as you have done in the past, whether it's deals like Lowry, where you buy them, you know, at five or six and you find creative ways to get them down to three. But I mean, look, you know, look, it's, uh, you've definitely been guilty until proven innocent. And, you know, I personally know a lot about that. So, uh, you know, look, you got to keep punching them in the face and eventually they're going to bleed, right?

Well, you know, we're going to keep doing what we do.

Keep punching them in the face. Eventually they're going to get a bloody nose. That's what I say.

All right. Exactly. Thank you so much, Adam, for the question. Next, we're going to have terrible, but I just wanted to throw this out there for anyone in the New York City area to stop by meat management at Rick's after. And I want to spend a special invitation to Tara. Tara, take it away.

Hey, guys. I really hope I don't get disconnected. My phone is dying rapidly. But I just wanted to say thank you, number one, for doing this on Twitter Spaces as your platform for your earnings. I think that is a really good marketing decision. As you know, we can interact with you, Eric, the CEO of Rix, which I think is just a really good marketing strategy. And yeah, I'm, I'm long on Rick and I'm excited for, you know, the future of the company and the things that you guys have touched on here. I was wondering if you could elaborate a little bit on your future, I guess, endeavors as far as competing with only fans.

Sure. I don't know for as much. I mean, excuse me, the original idea was never to compete with OnlyFans. It was more to create a web-based business for our entertainers so that they could draw customers into our brick and mortar, which would let the customers meet new girls, which would hopefully they would follow on Admire Me, which would bring them into our brick and mortar business, right? So we get a circular feed there of business. However, I've had a lot of, I would call influencers, OnlyFans. I don't know what the word is for the, I call them whales in the casino business. So like the whales of OnlyFans, we've had a lot of them say, you know, hey, look, we would like to be on a site. We would like to talk to you about, you know, having meet and greets for our followers at some of your clubs. and do those types of things where we'd have a safe environment where we'd have security and we'd be, you know, protected basically if we wanted to do those types of things. And so we're talking with some of those girls now, or I say girls, I should say ladies or women, I think. They're all over 18. And, you know, we're very interested and very curious as to, you know, can we create this? Can we make this work? Especially in markets like New York, Miami, California, Denver, Chicago, where a lot of these big influencers seem to live and have reached out to us from. We've got to get the site up and running.

I think we're going to do some very creative stuff as we move forward.

And porn stars in the industry with some, you know, combination of brick and mortar uh performances at some of our nightclubs around the country uh as well as through admire me uh and and and different social media uh deals as well so it's gonna be a lot of fun i think uh i'm very excited about it it was kind of a letdown because you know when the ukrainian war broke out and put us months behind on this i really thought we'd have this thing going uh at a much better pace right now but you know all of our programmers were in the ukraine And, you know, we finally, you know, they finally got situated in places where they could get back to work and get this project done. And so we're very, you know, happy for them in that regard that they're safe. And so we're ready to build this thing. We just, we just, it's got to be right. We got to be able to, you know, one of the biggest things that we had, we were having issues with the, you know, the private sale through instant, you know, through the private messaging. That is all fixed and up and operating now. which we were told is a very huge part of, you know, their revenue is selling private videos and private photos and those types of things through DM. So we're happy to get all that done. If you can answer anything else, just let me know.

That is perfect. Thank you so much, Eric, for answering and answering so clear and concise, concisely. And yeah, like I said, I think, you know, doing what you guys are doing, Mark and yourself and coming to Twitter where you can interact with shareholders and have this open dialogue in regard to the future of the company is, you know, not only very transparent, but also I think it's just extremely bullish because you're just opening yourself up to that many more, you know, potential investors. So I, again, I really appreciate it. I appreciate your time and letting me up to ask a question. You're welcome.

And I love it because it puts me in a position where I feel like I'm operating the nightclubs again. One of the things I loved about the nightclub business was I threw the party every day. I was talking to people every single day. And as I moved into the corporate world, I kind of lost that. And so Twitter, for me, especially in the last three or four months, it's gotten so fun. It's so exciting. I get to interact with end users. I get to interact with investors. As you've seen on some of my Twitter feeds, I'll spontaneously go, I'm going to the club tonight. Come see me. And it's great because, you know, 7, 10, 15 people show up. We'll have some drinks. We'll talk. And I get direct feedback of exactly where we're at, what we're doing right, what we're doing wrong. I get to get the ideas. The reason we always, you know, I think one of the things that made us, you know, our company so great is we were able to talk, you know, upper management was involved in the club operations. They still are. At my level, it's been harder. And Twitter's given that back to me. So I'm very excited about that.

Amazing. Thank you.

Thank you so much for the question, Farah. We appreciate it. Next up, we're going to bring Eric Rodewig to speak. Eric, take it away.

Hey, thanks, Mark, and thanks, Eric, for taking my questions today. Just wanted to get some clarity on the Cheetah acquisition so we can kind of understand exactly how these acquisitions are valued. I know in the press release you said that you expected $4 million of adjusted EBITDA for the club. with $25 million of total purchase price for both the club and the real estate. So that's a bit over a 6x multiple. I don't know if the club is being valued at 3 to 5, and there's some rent paid to the building, or there's something else going on there, or maybe it's $4 million now, but you expect a higher run rate. But just helping understand the underwriting of that acquisition would be really helpful.

Sure. So let me give you the basics. What I look at is we have a 10-year 6%

promissory note at $15 million. If you take that and divide it out, you get the payments. So there's it's basically a couple or

basically our cash-on-cash return is going to be about 33%. Maybe it's a little more, maybe it's a little less, depending on how much savings we get. I know we're going to save on their insurance. Their insurance costs were much higher than ours. We look at a couple other things where we save. We think we can shave a few points off the cost of goods and this and that. So hopefully overall, maybe that $4 million becomes $5, $4.8, something like that. You pay out the two-something. Basically, we need to make a little over $3.3 million a year to get that 33% return. I think we'll do that. And the rest is just basically the rent. I always call it managed to own. We're going to take owner financing. We're going to pay the owner 60% of his free cash flow or 40% of his free cash flow. And then we're going to take the rest, give him cash for it. and then earn that cash back in basically less than three years so that we come up with 33. And in a worst case scenario, it takes us four years and it's a 25% return. And I'll do deals like that all day long. You know, the six times, the real estate was a very big portion of this. I don't know if you're familiar with the property. It's 2.2 acres on Hollandale Beach Boulevard, right off of 95. Unbelievable access, both to the beach and the freeway. you can't beat it. We bought, to give you an idea, we bought the Scarlet's property across the street. I think Scarlet's is only 1.9 acres and we paid $7 million for that property. So we didn't really value these things separate. We did it as a global package because the financing that the owner offered was so great for us that we really weren't overly concerned with getting to a multiple, but more of a cash on cash return. So that's how this one particular one was low, was, was valued. That's not, it's rare because we don't normally, you know, a lot of the owners don't want those, you know, don't want to carry that much paper or whatnot, but, uh, that was fantastic and, and agreeing. And he, you know, he's 82 or 83 years old. I can't remember how old Joe is. He's in his eighties, but you know, for him, he's got a big monthly payment coming every single month guaranteed for the next 10 years. He knows our reputation. He trusts our management team. He knows Ed Anikar very, very well. Ed and him have talked many times over the last five years and had a good personal relationship. And we're able to harness that trust and what we've done in the industry and use that to a great deal for us and a great deal for Joe. So I just think it was a win-win transaction all the way around.

Okay, thanks.

Appreciate that. That's very helpful. And then one more question, kind of following up a little bit on Adam's comments, but maybe five years ago on these earnings calls, you would talk about how banks, RIC wasn't at the point where banks would finance it. Cost of capital was so much higher. Obviously, you just said that the cost of occupancy is as low as it's ever been. So RCI eventually got to the point where banks would finance lowering that cost of capital and obviously making everything that much better. Are there any other, over the next five years, as you try and get a larger shareholder base, are there other tangible benefits like that that you see as the company continues to grow and mature?

I think the next is our equity. If our equity becomes our cheapest cost of capital, then we're able to grow at a much higher rate. We keep these top ROIs. uh, that we're doing a 25, 30%, uh, cash on cash. The difference is that it'll go up even higher because we won't be having those huge interest expense payments. Uh, if we're, if we're able to use the equity, uh, obviously we're going to be very cautious. We're not going to, you know, we don't want to go out and dilute our shareholders anytime. We're not going to take undue risk, uh, just because our, our, you know, our capital's cheaper. Uh, we're going to treat it just like cash. We're going to treat it just like bank. No, it's just going to be we would use equity because that's the cheapest cost of capital to the company. If you look, we use debt more than cash because debt typically has been very cheap for us on a relative basis after taxes. And so we just use the equation. It's all fifth grade simple math in my book. Adam has really pushed me hard on if you had equity, how much faster could you grow? And we've started doing If our cost of capital right now, which is between 6% and 12%, dropped to 4% or 5%, says we traded at a 20% or 25% multiple, I mean, how great would that look? And how would the ROI on that become over time, especially as you compound year after year with that type of capital cost?

Okay, thanks. Appreciate the answers.

Eric, can I just clarify one thing for a minute? You said 6% to 12% equity cost of capital, but if your shares are at $60 and you're doing $9 share-free cash flow, then your equity cost of capital would be more like 16%. Now, I agree with you. In general, if you think about how Warren Buffett values securities, Right. He basically values securities. So what is the in-place free cash flow yield and what is and what is the and what is the organic earnings growth? Right. And so, you know, in this specific case, you have a 16 percent free cash flow yield. Your earnings growth is probably at least in the you know, for now, at least 15 percent. Right. Because you're going to grow volumes, you're going to grow price, you know, maybe build some bombshells. And so in that specific thing, at the very least, you should be trading at a 16 multiple or 15 multiple of what your in-place free cash flow is, that your multiple is equal to your organic free cash flow growth and giving yourself zero credit for M&A or capital allocation. So if you look at See's Candy, for example, Warren Buffett bought it. He said, OK, this is the in-place free cash flow. What's going to grow organically? That's going to be my return. I mean, So, I mean, even in a world where you had zero M&A or zero thoughtful capital allocation, like, at the very least, it should approximate what your organic free cash flow growth is, right? And we know that you can grow 30 to 40 with M&A. So, like, you know, I don't know. I agree with you. Like, you know, a 4% free cash flow yield would be, you know, would be a 25x, you know, multiple of free cash flow. And you know, that would be a substantial spread to what you're buying, right? If you're buying assets at five times EBITDA, you know, whatever, call it, you know, after, you know, you get tax advantages, whatever, maybe it's a 16 or 17% free cash flow yield when you factor in the depreciation and what have you. But I mean, I'm curious how you're getting to six to 12 or is my analysis making sense?

I mean, you're always like 15 steps ahead of me. I have to sit down and write it down. Do the math. Get back to you. Guys, we were talking the other day, and I told you all my stuff is napkin math. Yeah, I mean, it makes sense, and, yes, I understand that, you know, I agree with you that I think we're trading much lower, but I think the market's going to have to set, you know, I call it the reward system, right? The market rewards us for performance. So I don't know what the market wants to, you know, reward us with on what kind of multiple basis. You know, everybody says send a discount, and the reality is we should get a SIM bonus. our businesses are moated uh our cash flow is solid year after year after year you know it's like we own the only bubble gum machine in town that you can get a you know a ball of bubble gum from so we can want to charge a quarter we charge a quarter we want to charge 35 cents we charge 35 cents uh we just can't charge so much that nobody wants to have bubble gum uh and so You know, I think at some point that market's going to realize that. You know, as we've talked in the past, you know, I said, you know, we could be 50 clubs. We could be 100 clubs. We could be 200 clubs. At some point, like waste management, you know, like other roll-up stories, we're going to get a premium. I don't know when that will be. I hope sooner rather than later because, as I've said, it makes everything faster. And it seems to me like the market and the industry – is ready to be rolled up more now after COVID than ever before in history. I've been doing this since 1989. I've been rolling these things up since, you know, 99. And I just think that the market's more ready than it's ever been, that the industry's more ready than it's ever been. And we just need the tools. And that's what we're asking for. On these calls, that's why we switched to Twitter spaces. You know, we've asked institutional investors. Everybody talks about ESG. I don't need institutional investors. I need a million or 2 million of, of, of, of retail investors to go buy 10 shares of stock, go buy 20 shares of stock, 50 shares of stock, help us create the momentum we need. Give us the tools and, and we'll build this thing and we'll grow with it. And you can become part of our community. You buy our NFT. You can, you know, come into our clubs, give me the discord, you know, Managers made themselves accessible. I've made myself accessible. You're never going to guess. You're always going to know exactly where we're at, what we're doing. And, you know, as I say many times, what you see is what you get. And, you know, when things are bad, I, you know, I'll tell you things are bad. I said this quarter's been a little slower. It's summertime. But that's, you know, a return to normal. And I think that's how we're going to continue to do things forever. And like I said, I think at some point we'll reach the right people. We're not for everyone. Not everybody should own our stock. But hopefully you can find the right people that can and will, and we'll create those long-term holders that will build this into a corporation and real company, as you always preach.

Thanks so much for the question, Adam. Next up, we're going to be bringing the blonde broker to the stage. Aaron, take it away.

Hi, guys. Yeah, I just had a quick question. I noticed you mentioned y'all were going to a convention.

I think that Mark will do what Mark always does, and uh capture the essence of uh of expo and uh you know one of the things we're really going to work on uh out there is we're going to have about 300 plus of rci employees out there uh and so you know we're going to be doing some interviews so i think you'll see some as we move forward you're going to see uh equity animal put uh some of those uh interviews on spaces uh and let you get to know some of our top executives around the country. I think one of the things that's missed in RCI's story is that everybody thinks it's a one-man show or it's a couple of guys that own this. We're a company with 3,000 plus employees. We have 20,000 plus independent contractors. We're actually a very large company and growing at a very rapid rate. I want to get that message out there and I want more people behind the scenes exposed to the marketplace so that people realize just how big and how important and how dedicated our employees are. The number of employees that we have that have been with this company for 20 years, the number of companies in 15 years, 10 years, it's just an amazing number of people. I've told Mark and told him, I want him to ask, you know, how many more years you think you're going to be with this company? What plans do you have to leave or what other things do you want to do? And I think everybody's going to be surprised at how much people love the company they work for. Uh, and RCR strong is actually, uh, you know, it's real. It's, it's ingrained in all of us. And, uh, you're going to, you're going to get to see part of that. Uh, and I think that's some of the stuff that's missing. I think that the empowerment of women that our industry gives, uh, we're going to highlight, uh, several of our key female employees around the country from host to club management to corporate office staff. And we're going to get their stories out there and let you hear it in their own words without any guidance. You know, Mark, it's all raw with Mark. He's going to go in. He's going to ask you crazy stuff. He's going to get you talking. And, you know, there's going to be a lot of fun and a lot of jokes in it. But at the same time, you're going to get serious information. And that's what I hope to get at Expo this year.

Awesome. I'm excited. Great. We've got to get you out there. You've got to come visit with us.

Definitely. Please come to Vegas with us. We're looking forward to it. Now, next question is going to be coming from Howard W. Penny. Howard of Hedgeye, take it away.

Hey, thanks very much. First time I've listened to your call. Thank you for doing it. How big is the opportunity for you a meeting like how many clubs are out there that you could roll up over time?

Well, there's about 2,200 clubs in the US based on you know past magazine articles and Barron's and fortune and whatnot I think 500 or key Clubs for us right now. We have about 50 so we're about 10% I'd like to get us to a you know 200 clubs or about a 40% market share and of the clubs, what I call our premium clubs, the ones we're very interested in. At that point, you know, we'd be basically four times the size we are today. Based on our current market cap, we have a market cap somewhere between $2 and $3 billion. You know, a free cash flow range of $400 to $500 million. And if our free cash flow is, you know, margin stays at 20%, you know, we'd be somewhere between $800 million in free cash flow. That would be very exciting for us.

How many clubs do you have to look at to get an equity?

$400 million in free cash flow. Oops, I tried to give too much money.

I don't think you can ever have too much. You never can. How many clubs do you look at for you? You look at 20 to get one. There's a 10 to get one. What's the I don't know if I'm making sense out of that question.

No, no, no, exactly. I'm trying to think about it. We've had so many calls lately. I've got clubs we haven't even been able to go look at yet. But we're looking at numbers. We're pulling numbers. Basically, what we do, we try to get financials first. We look at financials before we even look at properties. If the financials aren't there for us, I'm not looking for clubs that I have to go upgrade and fix. I want to buy cash flow. I'm in the free cash flow business. I want to buy free cash flow. I want a track record. five, ten years plus. I want to see solid cash flow for the trailing two years and I just want to acquire it, bring it in, put it under the umbrella, put our synergies in with cost controls and POS and securities. The things we do, brand it or keep the brand depending on how good their current brand is and then move on to the next one. I would say we probably look at three or four a week at this point right now in various ways. We do pass on a lot of the smaller ones. We pass on clubs that we just aren't confident in the market or in the competitive level of certain markets. Overall, we're pushing very hard. We're building our I call it, we're building our, you know, our, our downline up. So we have, uh, you know, several lined up over the next, uh, you know, period of years. Uh, we're going to be meeting with owners in Vegas. Uh, you know, some guys aren't ready to get out yet, but they're, you know, they talk about, well, probably in a year or two, you know, I'm 67 by the time I'm 70, I don't want to do this or I'm 63. I don't want to do this after 65 or, you know, stuff like that. So we're talking with those, we're getting the numbers in and, and putting the, you know, just putting, putting, putting some offers out there. We've got some offers out there right now that haven't been accepted yet, but the guys are looking and I'm sure they're shopping and trying to find other buyers. They'll pay them more or not, but eventually they're going to come back to realize that a buyer that'll pay them more is going to give them a whole lot less cash down. They're going to want more financing. Their risk is going to be higher. They may get more payments. They may get more money, but they never collect the money. But they are guaranteed, you know, to get their money. We've, been doing this for a long time. We've got an unbelievable track record. Our track record is filed with the Securities and Exchange Commission since 1995, so you can see our track record and what we've done as far as all our bank payments. We've never defaulted on loans. We've paid everybody. I think that gives us a lot of credibility. Guys get there. It takes time. It's like letting go of your baby. A lot of these guys have been doing this for 30 years And they've been in that same club. They've got employees that they care about. They're like their family. And so they don't just want to sell to somebody who is going to come in and fire all their employees. And so it takes time for them to get comfortable that we're not going to come in and just fire everybody. In fact, we're buying your cash flow. We want the same people to operate it because they're the ones that have built that cash flow business. And so it just takes time to get to that point. But like I said, I think it's accelerated. We're getting more calls than ever. and uh the pipeline is is great right now uh i i'll know even more after uh you know i get back from vegas and and the in the weeks following vegas as we you know i i you know plant the seeds of of hey this is what we could do or this is some you know we're paying a higher multiple now and guys start doing their math and they start coming back with numbers you know they they start realizing well gee i could live in florida or i could retire to the islands or You know, I can go to a ranch in Montana and those types of things. And that's what we I think that's what really gets, you know, gets the train rolling with certain owners.

Appreciate your time. Thank you. Thanks so much for the question, Howard. And just noting Eric's doing all this without M&A bankers, because no one knows the business better than this management team. Next up, we are going to have an international caller, Matthias from Germany. Please take it away.

Thanks very much. Justix, I have to apologize maybe for my silly questions because it's the first call of you I'm hearing, but maybe I may ask first. I just don't understand what's the difference between a nightclub and a bombshell. Is it simply... a kind of brand for a special type of nightclub or is it a restaurant only a restaurant and bar i couldn't understand that first question second question is you mentioned that you are able to buy new clubs at three to five times ebitda why is someone selling at that low price Doesn't really make sense in my eyes. So what's the main reason for sellers to sell? And why do they, you already mentioned that a little bit in your last answer, why do they especially sell to you and not make a kind of auction if someone pays more on that? And as you also mentioned that you're buying a really lot of new clubs, what about management resources? Is there a natural limit of clubs that you're able to manage, let's say 500, 1,000 or something like that? Is there a limit that you think would not be clever to go over to still keep the margins? Thanks.

Sure. Let's start at the top. So what's the difference between bombshells and icos? Bombshells are a typical restaurant sports bar. They are, you know, there's no lap dancing. There's no really fraternizing with independent contractors. It's more of a waitress, typical, you know, waitress, more like a... ...or Twin Peaks... And more like, at the same time, you know, more like a yard house, a darkroom product called yard house. Dinner, traditional lunch crowd in the daytime, traditional dinner crowd in the evening time. You know, the guys that hang out at the bar, watch TV, flirt with the girls in the afternoons. And then late night, we convert into We bring in live DJs. We can crank up the music. It gets loud and we become more of a meet and greet place for 20 to 35 year olds to come on their way out to the nightclubs to have a little cheaper drink, maybe grab some food, you know, get into the vibe, get into the mood. And the nice thing is they, you know, a group of girls come, a group of guys come, all of a sudden they're You know, they're flirting with each other, talking to each other, and the next thing you know, they never made it to the nightclub. They spend all night, you know, drinking and partying at bombshells, which gives us great margins. You know, the nightclub business, we're a typical, you know, strip club, gentleman's club, whatever term. I don't know what the term is in Germany. But basically, you know, we have, you know, nudity, topless dancing or full nude dancing, lap dancing, VIP room, champagne rooms, that type of stuff. Why do guys sell for three to five times EBITDA? Because private equity and banks do not lend money for the acquisition of adult-related businesses or very few in the United States. Other operators do not have access to capital and the capital structure that RCI has. Because of our large real estate holdings, we're able to borrow money from banks against our real estate. pull out equity, use that equity to buy and pay cash down in large sums, anywhere from $10 million in this last transaction. We paid out $5 million in a transaction, up to $30-some million in the Lowry transaction. And we're able to use $30 million of equity in that transaction as well. And you say, why us? That's the same answer. We have the ability, we have the capital, we have the track record. What's our limit of managing clubs? Right now, our internal goal, I want to get to 200 clubs. I'd like to do it in three years. If it takes five, it takes five. If it takes a little longer, it takes a little longer. I think at that point, our systems are in place. We're completely scalable. The amount of management talent, we bring a lot of our talent up from our existing operations, bring guys up. A lot of times, we buy the talent. When we buy the club, It's already well managed. It already has great cash flows. Why are we going to change anything? We're going to leave that current management place. You know, when we bought Scarlett, the same general manager had been there for 15 years. He's been there since, I think, 2017 for us. You know, he has no desire to retire. He's doing a great job, prints out cash. So a lot of times we don't make hardly any management changes, and we just actually grow our team that way. We grow it organically. uh or you know through through the through bringing people up in our clubs or we do it through acquisitions uh where we you know we not only get the club and the and the land the property but we get great in employees that uh have worked in that location for years and years so i don't i don't know that there's a limit at this point uh i'm sure you know some point we might reach that limit but i i think you know I know operators at Burkings that own 1,100 of them. So if you put the formulas and you put the systems in place, there is no limit, I don't think.

Thank you. Are there other companies similar to Rick, for example, non-listed companies which are maybe much bigger?

You know, it's hard to tell the private companies. There's two major private companies, I would say, In the U.S., there's lots of midsize. As revenue size of BRICS, I don't know. I don't know Deja Vu's numbers, but Deja Vu is a very large chain. And Spearmint Rhino is another fairly large chain. But they're more West Coast and international than in the markets that we operate in at this time. But I don't know their capital structures. I don't know their access to capital. But I can tell you that both of those companies, when I started in 1999, were much, much larger than us. And if we haven't passed them, we have definitely closed in. Probably Deja Vu has the most locations. If there's one that's revenue-wise as large as us, that would be them. I don't think Experiment Rhinos is anywhere near our revenue size.

Okay, one last question, if you allow me. What about the mode of a single restaurant, a single nightclub? Isn't it quite easy to get a new competitor just down the road? How stable is the restaurant or nightclub business on the long term concerning a single restaurant or a single nightclub? Because as I have an impression in Germany, restaurants come and go and also clubs come and go. Often maybe if, as you told, the general manager is going to another club, the business sometimes collapses. Is that a real risk concerning the single club or don't you see that?

In the nightclub, on our nightclub side, we're an adult nightclub, so we have nudity, which requires special licenses, adult entertainment license, special business license, whatever the local government has put in place or states have put in place. Those licenses are mainly grandfathered. There were many court cases throughout the last 25 years. The existing locations are basically the only locations that can operate now in those markets. If anybody else tries to open, they're basically not allowed in what I call economically viable locations, or they have operating restrictions that are much, much different. They can't operate at the same level or same manner that we do. And so that gives us a huge mode in the nightclub business. That's why we own our property. The license are tied to a specific property address or zoning. And so that's why we buy our property in the nightclubs. As far as the bombshells, sure. Other people can open bombshells. There's been a lot of, you know, there's a lot of other types of sports bars, restaurants, nightclubs that do similar things to bombshells. But bombshells, we buy our property for the most part. We're super high traffic, high flow areas. And the population growth in our areas are all strong where we're at right now. It's very expensive to build a bombshell. It's not a, you know, typical small hole in the wall place that is easily to open and compete at the same level. And I think that, you know, we have certain operational advantages with our history of being in the business for so many years that, you know, we've been fortunate and very strong that all of our locations are profitable. They all continue to be profitable. And we haven't had any real competition that comes in and affects our revenues. Our oldest location has been there for over 10 years. Most of our locations are going on, you know, four to seven years old right now. And we're just starting to, you know, expand over the next three years, hopefully another 18 locations. If you ask me the biggest risk, you know, bombshells would probably be what I consider the, you know, higher risk than the nightclubs. But I still think it's relatively pretty well. Anybody can go knock off Chili's or Olive Garden or, you know, any other major, Texas Roadhouse, any other major, Ruth Chris Steakhouse, yet they all seem to have their brand, their branding, their concept, and they have their followers that like that brand, you know, are patrons of that brand and support that brand. And I think Bombshells has done and created the same type of brand. of atmosphere, and we've proven the concept works for over 10 years now.

Thanks, and wish you luck in the next quarters. We will be happy to follow the course. Thank you.

Thanks so much. We appreciate it. Now, Eric, one question that was submitted to me by Hot Girl Capital is, do you plan to open a Nashville location, maybe a naughty honky-tonk in the future?

Well, you know, Nashville is a very tough market. We actually were working on a partnership club up there.

And, uh, sorry, we had an echo there. Uh, and so, uh, we, we, we've kind of stayed out of that market. Uh, the, the liquor laws combined with the adult entertainment laws are very different in Nashville. Uh, they want to be the, uh, bachelorette capital of the world. And, uh, I don't think they really want all the guys there or something. I don't know. It seems like they're not very favorable to our industry in that market. But, you know, I'm a never say never guy. So we're always looking. We're always trying. And, you know, hopefully someday we find something that makes sense.

Fantastic. Now, we just hit 90 minutes. So would love to encourage everyone to retweet and share this to get some more people in here. For our next question, we're going to be going to Cesar. Cesar.

Hi. Yeah. Thank you, Mark. I have a question, Eric. Okay. You're telling us that you think that the expansion will be three to five years, but that's U.S. based. So when will be the time that you think the management thinks that you can go with Frick's hospitality abroad? You know, I'm talking Europe, Amsterdam, Paris, Milano. Mexico, Latin American country, Los Cabos, Cancun, Monterrey, Mexico City, when will be the time for Ricks Hospitality to go, you know, abroad to expand the business abroad?

Yeah, sure, that's easy. When we run out of opportunity in the U.S., you know, one of the biggest things is we have to learn those markets. We have to learn the legalities, the laws. We have to find legal counsel. We have to There's a lot of homework and a lot of legwork to expanding internationally right now. We've done some of that legwork in Canada. We've done some of that legwork in Mexico in the past. So it's not – and, of course, Argentina – 2005 even.

It's been a while.

Since then, we've decided to stay focused in the U.S. When we, you know, like I said, we run out of growth here and run out of expansion plans here. You know, I'm not against international travel and international markets. I think it would be great to create a conglomerate of that size and basically a branding that would exceed continents. It's just going to take time. Right now, I think we've got enough. Like I said, the next three to five years, I think we're pretty wrapped up here in the U.S. As we continue to roll up this industry and complete here, then we'll have to keep looking at other markets. Now, bombshells may expand in some of those markets through franchising much faster. It's just early in the stage of bombshells, but we'll see as our expansion grows through franchise.

Okay. Thank you. Thank you for your answer.

Great. Thank you so much for the question. Just want to take a moment to encourage everyone to follow Eric, Equity Animal, and most importantly, Bradley on Twitter. We want to get his follower count into the four digits or else he's not going to be allowed home once he returns to Houston. Next up, let's bring Ice to the floor. Ice, you're up.

All right. Thank you for having me. I'll try to make this pretty quick. So my question is kind of about bombshells. So you've been pretty methodical about growing bombshells. I'm pretty sure you have like 11 locations over the last 10 years, but right now you really seem to want to be ramping that up with both kind of having franchisees and company owned locations. I know you have to slow down now due to inflation concerns, but I guess what about the concept now makes you really positive about bombshells? Is it just like, The size of the location, the patio spacing, your newer locations seem to be performing a lot stronger than your older locations. So I guess if you could just kind of touch on that, that'd be great. Thank you. Sure.

You know, it took us time to learn. You know, our first few years were massive learning experiences for us. We didn't understand the demographics of our customer base. We didn't understand a lot of things. Restaurant was new to us. We knew the nightclub business. We know the liquor business very, very well. But, you know, the lunch crowd, the dinner crowd, the different day parts of the business. So we brought in an expert. And the big thing is just growing the team and the support staff. We've grown that so, you know, so much now. We opened six clubs or six locations in 18 months in the past from four to 10 locations. Uh, the growth was very rapid. Uh, we stretched management very thin and we realized we needed to take some time and build up. And right as we were, you know, getting to the end of that COVID hit, we're right ready to go, you know, all right, let's go do six more locations and then COVID hit. So we had to take some, you know, break from that. Uh, we, we are working on six locations. Like I said, we have, we have two bought one under contract or actually two under contract. We entered the other contract yesterday. It's still very early on that. There's a lot of due diligence to do. It's, it's, uh, You know, we have time on that one to figure out just in case something doesn't work. But right now, the architects and engineers are working full time to get that location up. We're not too far off from Stafford. We're starting some construction. Like I said, we've got the demo is all done. We're going to start putting the restaurant back together, start doing some of the work. But we're waiting for certain things like concrete costs. You know, the steel has come down, so we're probably getting the steel ordered here very soon. Uh, the roofing costs are coming down. We, we found a roofer who's looking for some work. Uh, you know, the biggest part is, like I said, the subs just, uh, they have so much work that they're, you know, it's like, Oh yeah, I'll do it for you. But, uh, you know, the a hundred thousand dollar job is going to be 180. Well, when you have 20, 20 contractors or subs telling you it's 80,000 more dollars, you're spending another $1.6 million to build a location. And I'm just not prepared to do that. So we'll wait, we'll take our time. We'll wait till the subs need to work. We'll negotiate down and we'll, uh, we'll build them at the cost they're supposed to cost. And, uh, you know, maybe we pay a little bit more here and there, but, uh, not, not, not to the, not to the tune of, uh, you know, additional, basically 70% of costs of what we built for Arlington. We paid to build the Arlington store. Uh, like I said, those costs are coming down. We're getting more in line. We were, we're kind of, I would say GCN, but we're, we're doing some of the sub search ourselves and, Same thing for Rowlett, Texas. We're waiting for building permits there. The bid sets, we'll get those bids out. It's a new construction project. Typically, a new construction project will have an easier job for the GC because you'll end up going with – they'll go with a group that will do 90 percent of the build-out, the building land, the concrete, all that stuff themselves. they tend to, if they're going to bid it, they're going to tend to give us a barely, you know, market rate bid versus, you know, all I'll do this job if I get paid a lot of money. So, uh, I, I think, I think we're on the course of that. We just, we'll, we'll, we'll see as the next, you know, few months go by, uh, I think September, October, November, uh, you know, we're going to watch inflation and watch, uh, you know, commodity costs and, uh, we'll, we'll just, let's have to see where it goes. Uh, If at some point it doesn't, like I said, we're sitting on the land, we've got the land financed. Most of it is, you know, 4.99%, 5.25%, 5.4%, stuff like that. So we can sit on it and wait, pay a little interest. You know, it's a lot cheaper to pay the, you know, a little more interest cost than an extra $1.6 million per build.

So that's just kind of where we're at on it.

All right. Perfect. Thank you so much. Thank you. Thanks for the question, Ice. Next up, let's bring Johnny Shen to the floor. Johnny, you're up.

Hey, guys. Thanks for taking it. Good job on the quarter and all that. Yeah, I kind of wanted to go back to the cheetahs deal just because, you know, it's new. It's interesting. It's a decent size. Would you say it sounds like you didn't quite say this, Eric, but it sounds like you were kind of saying, this was a unique deal that this wasn't exactly that we wouldn't, it wouldn't be appropriate. Would it be inappropriate to sort of try to model future MNA off too closely off this deal? Is that a fair interpretation?

Very fair. It's definitely a very unique situation. I'm not saying we won't get more unique situations, but yeah, The BCG deal or Lowry deal, as most people call it, for the Denver Club's 11 Club acquisition. The Playmates acquisition, if you look at the Playmates acquisition in May, if you go back a few years and look at Scarlett's acquisition, those are more typical acquisitions for us, which basically be about four times EBITDA for the business plus the real estate, which typically will make the deal an overall five times deal. And then we typically will go in and improve everything by about 20%, which turns around and makes it basically a 3X for the club and the one times EBITDA. So we end up taking it from a five times EBITDA deal down to four times. And you'll see us put about anywhere from 30% to 40% cash down. and finance the rest, or maybe some of them are all cash deals, but we use a third party financing group. So we get 30 to 40% of our company cash. And then we, you know, finance or even on, on Scarlett, for example, we borrowed 100% of the money. So the whole entire down payment was borrowed from a third party or a group of third, you know, a group of people for a third party basically. And so the, you know, it's almost infinite cash on cash returns because, Anything we made over the interest expense on that transaction was all additional free cash flow for our shareholders. And it just depends on our leverage at the time. I'm comfortable to three times leverage. The highest leverage ratio I think we've ever been at was 3.14 times trailing 12-month EBITDA to debt ratio. Currently, we have $188 million in debt. We're probably... at most two times, probably under two times debt to EBITDA margins right now or ratios right now. So we've got a lot of room to grow through debt. We've got 37 and a half million in cash. We're generating a million plus a week in cash, I think right now. So we've got plenty of capital available and it looks like plenty of runway out there with the acquisitions that we're working on. Obviously, the more cash we have to put down, the the better and bigger the deals we can do because, you know, if you're making $14 million in cash and I offer you a $20 million down payment where you can wait 16 months, you make the same $20 million, you really got to want to be a seller. But when I can walk in and offer you $40 million cash down, so now you've got almost three years worth of cash in advance, and then you're getting big monthly payments every month, you know, the guys are more inclined to do the larger deals and sell me $14 million plus and even at a single time. So those are the kind of things we're running up against. on the cheetahs deal the other thing is you know our current bank uh the current bank after all the uh interest rate raises is quoting a 6.39 percent uh on you know on a five-year interest rate adjustment and we locked in 10 years at six percent for the entire length of the note on cheetahs so like i said it was a very favorable financing deal for us uh and it just just an overall great deal uh for us as you'll see on the cash on cash returns as those numbers come in over the next three years.

Yeah, that definitely seems likely. On that sort of note, I guess maybe if you don't want to talk specifically about this, because I'm really curious more generally, when we look at seller notes, I'm guessing the company doesn't tend to prepay these, does it? I mean, is prepayment, is that usually something that That's completely off limits based on the structure of the notes. Is there anything that can accelerate payments? Like, so, for example, if this is when you have, like, retirement seller notes, if it moves into an estate situation. Sort of the, again, what's sort of like the model framework?

No, there's no prepayment penalties.

There's no acceleration in any of our seller notes. off the capitalist.

Obviously, if I can save four points, sure, I'm going to go to the bank, borrow the money, and save four points of interest on a $15 million note. Sellers are realizing that, and we're seeing, as you're seeing in our deal, 6% notes, 7% notes, because they don't want those notes paid off. These sellers really want to create an annuity for their family. They're older, and they want that monthly cash flow so that they know

that uh you know that they're going to be taken care of their family's going to be taken care of or or whatever uh as that money comes in every single month over over the period of the note okay that's cool that kind of yeah that makes sense um now you mentioned having a couple offers out and you know obviously it's reasonable to expect you know they're kind of being shopped around you tend to get a good amount of visibility or Intel on, you know, when deals don't happen, obviously when deals don't happen, you end up finding out no matter what, um, usually who the buyer is. Uh, I mean, does it feel like you're mostly dealing in these situations with, with one offs or, or do you kind of see the same name pop up?

Typically if we don't, typically if we don't buy, it doesn't sell. That's what we find. It's like, Oh, you know, I need more money than that. And, you're not going to pay me more money and no one else is going to pay me more money. So I, you know, if you, if you listen to other industry buyers out on the street, you'll hear them complain. RCI pays too much. You know, RCI pays too much, you know, no RCI makes fair and good deals. And a lot of in the past, especially in our industry, it's all been about, you know, only buying people when they're in forms of desperation. And so you've seen super low prices and that's what guys are used to. But when you have a, retiring seller who understands the value of his business who you know you have to give them a fair price or why would they sell uh you know as the caller said earlier why would somebody sell it three to five times even uh well there's multiple reasons uh typically you know why five times is a very you know very high offer in our industry right now it's a it's i think it's a very fair offer uh due to the risk and uncertainties of our of our industry The stigma of our industry and the fact that there's just no one else that at this point can deliver. And everybody says, why doesn't anybody, you know, people buy restaurants all the time. They buy nightclubs all the time. Why don't they buy? The adult entertainment is a very specific and unique management capability that you have to have. There's regulations that people aren't used to. There's, you know, all types of situations. that you have to deal with or be aware of or block. You have, you know, cash handling. There's just a lot of, a lot of complexity to the overall industry. And, you know, we, we have the issues ourselves where, you know, people won't do business with us and they won't lease to us or they won't, they don't want to sell property to us because we're in the adult entertainment business. So you gotta be willing to deal with those things as well. Maybe you're, you know, If you're fairly wealthy, come up with the kind of money and do the deals we're doing. You're talking about fairly wealthy people. Maybe they're big in their community. They're big in their church. You know, they're big in their country clubs. And they don't want that stigma of adult entertainment where someone, you know, RCI is not only, you know, we just embraced and moved forward. And, you know, we are what we are. And we know what we are. But we're trying to change the perception of what the industry is as a whole. You know, the biggest problem with our industry is, you know, as I've learned through, you know, most 25 to 35-year-olds as we've moved into Twitter, as we've moved into the NFT space, their concept of an adult nightclub is Ozark. You know, I don't know if you've watched the Ozarks, but, you know, they see the dingy strip club where, you know, people are, you know, all thugs or, you know, gang or drug dealers and that, you know. And, you know, Ricks is the exact polar opposite of that. It's very, you know, corporate America, very structured, you know, very rule-oriented, very, you know, our cash handling systems are comparable or equal to casinos. And that's, you know, it's just a different business model. And, you know, that age group that hasn't been to the clubs, that hasn't seen firsthand, you know, our industry doesn't know any better. And so that's why we embrace Twitter, and that's why our NFT project is about building the future and building that 20- to 35-year-old customer base and bringing them into our businesses and giving that life experience of the fun and excitement of our industry.

Great. And sorry, just one more. It is back to Cheetos. And it just kind of popped into my head when I heard you talking about it earlier. Because, you know, I remember the press release saying 4 million, kind of an expected EBITDA. And then it sounded like kind of when you were freewheeling, you were starting to use some like synergy add-ons. So is that 4 million EBITDA figure in the press release? Is that a sort of pre-synergy, pre-operational improvement number? Is that like, where's that coming from?

Yeah, that's simply based on the existing business as it is at the time we purchased.

So for this, like, are you – since it's Florida, are you just looking at, like, the last year, or are you still doing, like, kind of a pre-COVID interpolation there?

We kind of do a current year, past year, and 2019 still right now. Okay. It's kind of what we look at. Yeah, we want to see where they were in 2019 versus where they are, you know, in the last two years.

Because, I mean, for Florida, it could be that this is actually a banner year for them, right? Yeah. Yeah, yeah. Exactly.

Which is why they made more money in 2021 than they're going to make in 2023. 21 was the bandage. You got to remember the last check went out in March of 20. The last big stimulus checks went out in March of 21. And they rocked through September, right? Six months. They lost about six months. Everything was kind of blown up. So that's why I'm really excited. You know, everybody says your comps get harder. Yeah, their comps are probably harder for July, August, September this year because nobody traveled last year. They had the stimulus money. Not a lot of it was left, but some of it was left. But nobody traveled. That's what you forget. Nobody went to Europe. Nobody went to Mexico. You know, this year, you know, Europe's complaining. Everybody's complaining. All the airlines are complaining about all the people flying. You know, you go to Florida, look at the tourist market in Florida right now. I mean, it's insane where, you know, like I said last year, I don't, I think I went to, I'll tell you what, I just remember. I went to Gulf Shores, Alabama because it was the only thing open. You couldn't even rent a BRBO last year in Florida. So we ended up in the Gulf Shores, Alabama. which is actually very nice, great white sand beaches. I highly recommend it, especially for a family-type vacation. You can't beat the lower cost, and it's actually really nice. And, you know, it's in the middle of Florida and Texas.

Yeah, thanks. I'll tell my wife I was on the recall to figure out where to take her and the kids for vacation. There you go. Okay, yeah, thanks. And I just want to say, I mean, not a pro or nothing, but you mentioned the kind of, how much stimulus would have been left. I mean, I think people are under counting stimulus because there's a lot of things that weren't officially stimulus that, that are like the student loan repayment. Paul is essentially for a lot of high earners. Like if you're a doctor with student loans, it's not, it's not materially different from just getting a check $2,000 a month from the feds right now for however long that goes. But, but thank you so much for the answers. That really helps kind of firm up how we're, how we're thinking about it. Thanks.

Okay, thank you.

Thanks so much, Johnny. We're going to take questions from two more individuals, but just happy to know I'm taking my ex-wife to Gulf Shores, Alabama for our next vacation. Next up, we are going to have Hot Girl Capital of BTT Long Short Equity Partners. Hot Girl, you're up.

Hey, thank you so much. This space has been great. I was just curious, does RCI Hospitality or any of the specific clubs have merchandise for sale?

Yes, we do. Especially Tootsie's has big, you know, it's just different. It's different from market to market, but yeah, Tootsie's is probably our biggest marketing club. I think Diamond Denver has some stuff, but basically we have stuff everywhere. What we probably really need is a strong online presence. It's something we've never developed. We've always been kind of small. But that's one of the things we should probably look into as we move forward, especially for the Bombshells brand. Bombshells has tons of merchandise. Every store has a big merchandise display case in the front, whatnot. There are some things you can buy online right now, like Rick's hats and different products through some of our websites. But expanding that, and trying to, you know, I always joke, we need to be like, you know, hard rock cafe and planet Hollywood and, you know, have a lot of cool little neat things that people could collect and go to all the different clubs and, and try to collect all the different shot glasses or key chains and, you know, stuff like that. So, uh, as you bring that up as something, uh, I'm going to put on the, uh, on the vice president's, uh, calendar to start, uh, start putting together and see, uh, see what it looks like.

Great. Thank you so much.

Looks like we'll be adding that to Zero Tango Tango's to-do list. Hot Girl Capital, it's those hard-hitting questions that we really appreciate over here, so thank you for that. Last but certainly not least, we have Dime Square Holdings. Dime Square, you're up. Hey, thanks, Mark, and thanks to everyone else for hosting this. Congrats on the quarter and all that. So I was talking to my friend, a solace analyst, and we were wondering maybe why or why not it would be a good idea for you guys to do uh sale lease back when you're uh doing acquisitions you know we've looked at sale lease backs in the front but the reality is

I pay higher interest rates. Why lose all the amortization depreciation, just to report higher EPS, but have lower free cash flow per share. It, to us, it just, you know, that we're not worried about EPS. We're, we're worried about free cash flow per share. And it's our overall free cash flow. And so that's the reason we've kind of, we also looked at a REIT in the past, the real estate investment trust. The problem is our licenses are tied to the real estate. And at any point, We lose control of the real estate. We have basically an uninvited partner because every time a lease runs out, the rents go up and they go up more and more based on how much money we make. So the better we do our job, the more they try to take from us. And so, you know, learn that for after many, many years in this industry. In fact, we just passed on a really nice acquisition I would love to have because the owner won't sell us the property. He goes, no, I want to keep the property. We told him to do a 1031 tax-free exchange. We told him everything. But the reality is he wants to be our landlord so that 10 years from now, his family can raise the rent on us again. And 10 years after that, he can raise it again. It's just not what we do. We own our real estate basically for the control of the licensing.

All right. Great. Thanks.

Fantastic question. Dimes Square Holdings to finish this up. I want to thank everyone for tuning in and encourage everyone to follow Eric Bradley, Zero Tango Tango and Equity Animal on this. For those who joined us late, I want to say that you can meet up with management and myself tonight at seven o'clock 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 yet, ask for Eric Langen or me at the door. On behalf of Eric, Bradley, who will be offering free complimentary fireball shots, the company, and our subsidiaries, thank you and good night. As always, please visit one of our clubs or restaurants.

And actually, we are going to take one more question. Let's bring you up. That is a speaker. All right. This will be our last one. And once we connect, we'll go from here. What's that? Thanks, Nick. Or if you can hear, she can go ahead and start with your question. For a second. Okay.

Given that, just want to thank everyone again, encourage everyone to come out to RICS 50 West 33rd Street tonight. We'll be there. We're heading there.