RCI Hospitality Holdings, Inc.

Greetings and welcome to RCI Hospitality Holdings fourth quarter and fiscal 2022 earnings talk. You can find RCI's presentation on the company's website. Click company and investor information under the RCI logo. That will take you to the company and investor information page. Scroll down and you'll find all the necessary links. Additionally, it will be available in the tweet that will be pinned to the top of this space. Please turn with me to slide two of our presentation. I'm Mark Moran, CEO of Equity Animal. I'll be the host of our call today. I'm here with Eric Langen, president and CEO of RCI Hospitality, as well as 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 at Rick CEO handle, and select the space titled $RICK FY22 Earnings Call. To ask a question, you will need to join the Twitter space with a mobile device. To listen only, you can join the Twitter space on a personal computer. RCI is also making this call available for listen only for traditional landline and webcasting. At this time, all participants are in a listen only mode. A question and answer session will follow. This conference is being recorded. Now please turn with me to slide four. I want to remind everyone their 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 development that occur afterwards. Now, please turn with me to slide five. I direct you to the explanation of non-GAAP measurements that we use. I'd also like to invite everyone listening in the tri-state greater New York City area to join Eric, Bradley, and me tonight at 7 o'clock to meet management at Rick's Cabaret, New York, 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 have an RSVP, ask for Eric, me, or bullish intern at the door. Now I'm pleased to introduce Eric Langen, president and CEO of RCI Hospitality. Eric, take it away.

All right. Thank you, Mark. Thanks for joining us today. Please turn to page six on the slides for today's news. We had a great fiscal 2020, actually, we got a great fiscal 22. and look forward to a strong fiscal 23. A big thanks goes out to our team members for making this possible. We couldn't have done it without you. Year over year for the fourth quarter and fiscal 22, our key metrics continue to increase on a double-digit percentage basis. This resulted in strong growth of free cash flow, adjusted EBITDA. This is helping drive future growth. We are a much larger company now, so we have been working on much larger agenda of growth initiatives. In fiscal 23, our nightclub business should see a benefit, full-year benefit of the 15 clubs acquired and the two reopenings from fiscal 22. The addition of this year's Heartbreaker acquisition, the pending acquisition of Baby Dolls and Chica Locust Chains, and other possible acquisitions under consideration. We'll also be developing our exciting new Ricks Cabaret State Casino in Colorado. As for bombshells, we have six company-owned or franchise locations in development, These should start coming online over the course of fiscal 2024. I'll be back to tell you more and answer questions later. And for now, here's Bradley to review the financials.

Thanks, Eric, and good afternoon, everybody. There's a lot of numbers on this slide, so I'm going to focus on a few big ones. Total revenues were $71.4 million for the quarter, up 29.9%. For the year, revenues were $267.6 million, up 37.1%. Free cash flow was $14.5 million for the quarter, up 71.6%. For the year, free cash flow was $58.9 million, up 63.3%. Adjusted EBITDA was $24.2 million for the quarter, up 37.8%. For the year, it was $86.7 million, up 44%. Non-GAAP EPS for the quarter was $1.45. That's down 8.2% year-over-year, primarily due to the fact that our effective tax rate was 23.4% this year versus 11.7% last year, and also because we had 2.8% more weighted average shares outstanding due to the Lowry acquisition. For the year, non-GAAP EPS was $5.38, up nearly 32%. Please turn to page seven. With our fiscal 22 performance, we continued our strong track record since implementing our capital allocation strategy to the benefit of our long-term shareholders. We thank you again. We initiated the strategy at the end of our fiscal 2015. Free cash flow has grown at a CAGR rate of 22%, while we reduced weighted average shares outstanding 1.5% on a compound annual basis. Our free cash flow conversion rate increased from 11% to 22% of revenues since 2015. We also survived our toughest challenge yet, COVID, in fiscal years 20 and 21. Please turn to page eight to review our fourth quarter in more detail. The nightclub segment had another excellent quarter. Revenues totaled $56.6 million. This was our second sequential quarter not affected by COVID. Operating margin was 39.7%. 41.6% non-GAAP. Operating income was $22.5 million GAAP and $23.6 million non-GAAP. Our new acquisitions added $14.9 million in sales. Same-source sales were up, reflecting strong growth in New York, Illinois, and Florida, and high-margin service revenues increased 53.6%. Please turn to page 9. The bombshell segment also held its own during the fourth quarter. Revenues totaled $14 million. Operating margin was 15.5%. Operating income was $2.2 million. Same-store sales were down for the quarter, but total sales improved sequentially through the period and were up 7.4% year-over-year in September. Bombshells Arlington, which opened in December of 2021, added $1.4 million in sales. The San Antonio franchise added more than $100,000 in royalties since its opening on June 27th. It also incurred $300,000 in startup expenses as part of our franchising agreement. Now, excluding those expenses, operating margin would have been about 18%, which is in line with our target range, and operating profit would have been about $2.5 million. Please turn to page 10 to review our consolidated statement of operations. All comps are as a percentage of revenues and compared to a year ago fourth quarter, unless otherwise noted. Cost of goods sold declined to 12.9%. This reflected the increased mix of higher margin service revenues of 36.5%. Our salaries and wages were approximately level at 25.3%. Now SG&A was 31.3%. This reflected newly acquired and reopened locations and around $2.4 million of non-cash stock-based compensation. This relates to previously announced $100 per share options granted to a limited number of top executives and management team members. Excluding those stock-based compensation, SG&A would have been approximately 28%, about the same as a year-ago quarter. Depreciation and amortization were 6.7%, reflecting non-cash amortization of intangible assets on newly acquired lease locations. Other charges reflected $1.7 million gain on the sale of businesses and assets in the nightclub segment compared to $11.9 million impairment in the segment last year. Operating margin was 25.2%, 30% non-GAAP. Interest expense was 4.8% versus 5.3%. This was a function of higher sales in the fourth quarter, partially offset by higher debt from club and bombshell site acquisitions over the course of the fiscal year. Please turn to page 11. We ended the year with cash and cash equivalents of $36 million, a little higher than a year ago. Free cash flow was 20% of revenues for the fourth quarter and 22% of revenues for the year. Adjusted EBITDA was 34% of revenues for the quarter and 32% for the year. Both of these metrics exceed our target performance of 20% of revenues for free cash flow and 30% for adjusted EBITDA. Now, if you will, please turn to page 12 to review our debt and related metrics. Net of loan costs, debt was approximately $202.5 million at year end. That's an increase of $14.5 million from June 30th. The increase primarily reflected seller financing used in the July 2022 Cheetos acquisition. Our weighted average interest rate for the fourth quarter was 6.35%. This compares to 5.64% a year ago and 6.73% five years ago. Our amortization continues in the $9 to $10 million annual range, which is very manageable with our cash flow. Now to pay off our balloons, our periodic refinancing enables us to convert higher rate seller financing and other unsecured financing into lower rate commercial real estate bank debt. We continue to have multiple unencumbered properties in our portfolio that we can borrow again if need be. and occupancy costs were 7.3% of revenues. This continued to be well within our 6% to 9% range we've averaged when sales weren't dramatically affected by COVID. Please turn to page 13 to look at our September 30th debt pie chart. Our debt now consists of 59.8% secured by real estate, 26.7% secured by seller finance debt secured by the respective clubs, and or real estate to which it applies to, 5.1% of our debt is secured by other assets, and 8.4% is unsecured debt. Please turn to page 14. We continue to talk to new investors, so I'd like to take time 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 Thorndyke. We have been applying these strategies since fiscal 2016 with three different actions subject to whether there's other strategic rationale to do otherwise. One is M&A, specifically buying the right clubs in the right market. We like to buy solid cash-flowing nightclubs at three to five times adjusted EBITDA, use seller financing, and acquire the real estate at market value. In fiscal year 2022, we deployed $141.8 million in capital 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 franchises. In fiscal 2022, we deployed $10 million in capital to open up our 11th location and buy property at five more locations. We also signed a second franchisee. Our goal in both M&A and organic growth is to generate cash on cash annual returns of at least 25 to 33%. Now, the third action is buying back shares when the yield on our free cash flow per share is more than 10%. In fiscal year 2022, we deployed $15.1 million in cash to buy back 268,185 shares. Now, let me turn the call over back to Eric to review our growth plan.

Thank you, Bradley.

Yesterday, we announced the signing of definitive agreements to acquire two Baby Dolls in three Chico's locations, adult nightclubs, and their real estate in the Dallas-Fort Worth and Houston markets. Closing is expected in January. This will be our second largest acquisition after the 11 clubs we bought in October of 2021. The price, $66.5 million, consisting of $25 million in cash, $25.5 million in 10-year, 7% seller financing, and 200,000 restricted shares of common stock valued upon closing at $80 per share. We expect to generate $11 million of EBITDA in the first year. Four locations are open, with a fifth being remodeled, and RCI anticipates expanding operations of two of the locations. 103 Mileage and Expansions are complete, even as expected, to grow to $14 to $16 million annually. This is a group of well-established, well-run, classic Texas gentlemen's clubs that are proven cash generators. We look forward to bringing them as part of our family and our portfolio and welcoming their management teams to the RCI family. They are some of the best in the industry and will enable us to continue to grow at an increased rate in 2023 and beyond. Please turn to 16. During fiscal 23, we'll be working on the Rick's Cabaret Steakhouse and Casino. This is a great opportunity and a great market. We bought a four-story, 30,000-square-foot building in downtown Central City for $2.4 million in available cash. Central City is one of the only three Colorado towns with legalized gambling. Last year, $1 billion was wagered in slot machines in Central City, generating more than $80 million in adjusted gross proceeds. We see this RICS as a club with a casino component. Our plan is to feature classics, RICS Cabaret entertainment, fine dining, as well as casino and sports betting. We've applied for a license to operate 175 slot machines and seven tables. We already have approved gaming license for machines and clubs in Illinois and Louisiana. Please turn to 17. Fiscal 23 will also benefit from the 15 club acquisitions and three clubs and club-related restaurant openings we made last year and the first quarter acquisition of Heartbreakers. We are also reformatting a club in San Antonio that should be opening December 28th, and we are continuing to look at other potential acquisitions.

Please turn to 18.

We received a building permit for our Stafford location and construction has started. Stafford is in the greater Houston market. We own land for three other locations in Texas, one in Rowlett, Texas, Lubbock, Texas, and Austin. We're in the process of getting building permits and expect to start construction soon. Bombshell is also coming to Colorado. We have purchased land in Aurora, Colorado, which is in the greater Denver market. We will begin the permitting process in January. We are also targeting three more locations in the Denver after the first of the year. We want to continue to expand the brand in that market. Nearly a quarter of Denver's population are millennials, making it one of the best cities for this demographic in the country. And it's also become another tech hub with a new nickname of Silicon Mountain. We expect our franchise in Huntsville, Alabama to receive their building permits very soon. All these locations should be ready to open starting 9 to 12 months from now.

Please turn to slide 19.

In the fourth quarter of 2022, our regional revenue breakdown was Texas 38%, including bombshells, Florida 25%, New York 8%, and Illinois and Colorado each at 7% each, with the other eight states combined for 14%. This demonstrates our geographic diversification, our exposure to growth states like Texas, Florida, and Colorado, and how we develop business clusters in key areas. For example, with our five clubs in Denver, our Bombshells Aurora, and our Rick's Cabaret Steakhouse Casino in Central City, the greater Denver area will become a major and new cluster for the company.

Thanks. And now here's Mark.

Thank you very much, Eric and Bradley. I'd like to take a moment to encourage everyone to retweet this space before we get into our most anticipated section, the Q&A section. If you would like to ask a question, please raise your hand in the Twitter space. When you're done asking your question, please mute your microphone to eliminate any background noise. We have a limited number of speaker spaces. After your question, we may move you to the back of the audience to free up space. To start things off, we'd like to take questions from Rick's analysts, and then we're going to move into some of our larger shareholders and hopefully be able to answer all questions from everyone in the audience. We have Scott from HC Wainwright. Lynn from Water Tower Research, Rob of Granite Research, and Anthony of Sudoti. First off, let's bring Scott up to the mic.

Hi, good afternoon, guys. Thank you for taking my question. Eric, first, can you remind us where your comfort level is around leverage? I'm trying to judge what the capacity is for additional transactions in calendar 2023 beyond yesterday's announcement.

Yeah, typically, three times even is my comfort zone. Some analysis shows that because so much of our real estate is owned, we could actually push closer to four times. But I've historically kept us around three. I think the highest we've ever been is about 3.14 times EBITDA. So we're right now, I would guess, in the two and a quarter range. So we should be in pretty good shape at this point.

That's helpful. And then what's the timeline on Rick's Steakhouse? casino opening, and what's the scope of kind of renovation required there, and then the obvious timeline on regulatory approval?

Yeah, sure. So the total investment will include probably around $1.5 to $2 million worth of remodeling and updating, like security systems and stuff like that. An additional about $3 $5 million for the actual slot machines. We'll probably own the majority of our machines instead of doing profit sharing or leases as well as the table games. And then I figure maybe another million or so. So about 10 million total overall type investment is what I think we'll be at at some point. The licensing process in Colorado can take between nine and 18 months typically. Right now, we believe they're running about 12 months. So we're hoping to be open by this time next year. Uh, and we'll start, uh, we'll start doing some of that, uh, build out and remodeling as soon as, uh, the, the, the state, uh, the first step in it is the background checks. Uh, those are supposed to take about 90 days. Uh, so we turned our license in on November 28th. I'm guessing with holidays, we may lose a week or two. So hopefully sometime in April, uh, especially if the weather starts warming back up out there, cause it gets very cold at, uh, you know, in the mountain area out there at about 8,900 feet of altitude. So most of our construction and setup, I think, will start in April, May, June quarter, and then hopefully finish everything out, get it all pre-set up by the end of September once we can get a temporary license that allows us to buy the game, put it in, set everything up, get the inspections done, and then all we wait for is the final license to be approved to basically flip on the switch and be open.

Mark Warren, Fantastic next up we're going to be bringing the star of the. Mark Warren, gentlemen club owners Expo rob mcguire of grant research you're up. Rob McGuire, Thank you mark.

Rob McGuire, Eric can you just central city in terms of do you have goals in terms of revenue and even how long that might take to ramp from day one, after you open the facility.

Yeah, I mean, I think we're going to open – I think it's going to be more like a typical bombshell-type opening where we do very, very well in the first three to six months, and then we'll kind of settle into a little groove-type deal, settle down a little bit as we're not the new kid on the block anymore, and then we'll re-ramp back up. That's how I see it happening. To give you an idea, the average slot machine in Central City – is doing about approximately $150 in revenue. So you have 1,700 machines that took in, you know, a little over a billion dollars. If you take that and say we're 10% of that, you know, I think we can come up with, say we do $100 million with seven, well, I'm sorry, we have 175 machines. Yeah, so basically 10% of a billion would be about $100 million in total wagers. And you take 8% of that, which puts about $8 million in slot revenue. add in the table game revenue, and then, of course, the nightclub and bar and the steakhouse. I mean, I think we could start out somewhere in the range of $10 million to $14 million in revenue to start. Hopefully the margins are typically 30% to 40%. And the reality is if we can do some of the casinos in Blackhawk, which is, you know, basically the town right next door. They're really kind of connected, and one's like the old downtown and one's like the new area. You know, some of the casinos over there are reporting as high as $400 per machine daily in wagers. So, you know, I figure somewhere in between there. So we could do anywhere from $12 to $14 to maybe as high as $35 to $45 million in total revenue. You just don't have enough. You know, it's too new. We're going to have to get in there and see how it goes, see if we can keep the people in there. during the late hours right now there's almost no entertainment in that market so we're going to be like some of the first entertainment in that market which I think is going to be a fantastic advantage for us we've got a great location right as you come up the casino parkway you're coming down the hill you're looking right at our building just an unbelievable location so I think that those kind of the ranges we just won't know until we get in there and get going So very little risk to us, you know, with a total investment of about $10 million. You know, if we only do $10 million and we do, you know, 30% margin, we're still looking at $3 million in EBITDA a year, which, you know, puts us well within our hurdle range. And it could really exceed all of our expectations as well.

Thank you. I've got one more question, and then I'll circle back into the queue with more. But what do you think the extent of entertainment will be in Central City? Well, we're going to start out.

The adult entertainment license is not passed by City Council yet. We did get it through the Planning Commission or the Zoning Commission, whatever they call it. It was approved through them at a 4-1 vote. It has not gone through City Council. So I don't know if we'll have topless entertainment there or not. But if not, we'll do more like Circa in Las Vegas where You know, the entertainers will dance in bikinis or latex wear, stuff like that. The main thing I think is just having entertainment period in a city that basically has almost no entertainment. It's hard to find a place to eat after 11 o'clock at night out there. On the weekends, maybe you can keep some of the snack bars open until 1 o'clock. The weekends, Thursday, Friday, Saturday, Sunday are very, very busy out there. Sunday, Monday, Tuesday are much slower. uh, in that market, you can get hotel rooms very, very cheap, uh, during the week and they get very expensive on the weekends. So I think it'll be more weekend driven, uh, business, especially in the beginning. But I think it's over time, uh, as we become known, uh, we'll get, uh, more business. We'll also cater to the other casino employees. Uh, when they get off work, they have to wait for buses and stuff to get home. So maybe we can get them to come over for, you know, a little while and hang out and, uh, and eat and drink in our place because we're going to stay open late, probably 24 hours a day with everything.

So that's our current plan. Thanks so much, Rob.

And before I bring up Anthony of Sudoti & Co., I'd like to encourage Lynn of Water Tower Research to accept the request to come up as a speaker to be able to ask any questions that you may have. Next up, Anthony, please take it away.

Yes, good afternoon, and thank you for taking the question. So, Eric, I would love to get your take as to what you're seeing thus far in this current quarter, given that you're only a couple of weeks away from closing the first quarter. Can you just give us an update as to what you're seeing in terms of traffic or seems for sales both for the clubs and bombshells?

Yeah, I mean, it's definitely a tough market right now. What we're seeing is a kind of a Small drop-off of what I would call the blue-collar customer, basically our lower-margin customers. But most of that is being made up by our high-margin customers and VIP spend at this time. So the numbers have been very steady as far as revenue-wise with the previous quarter. I was kind of hoping we'd get an increase. We'll kind of see how the next couple weeks go. We've got a lot of Christmas parties that happen between now and the 24th. for 23rd, really. So we'll see how those Christmas parties go, how much business they bring in, and what that looks like. But so far, I think we're going to be pretty close on revenue-wise with analyst expectations. And I think that because of the higher end spend, hopefully our margins will stay steady as well.

Okay. Yeah. Thanks for that. And then the In terms of bombshells operating margins, you know, even excluding some of those non-recurring items, I mean, they were in the mid-teens, I would say. I think in the past you've talked about the operating margins for bombshells. You wanted them to be in the 20% range. So how should we think about segment profitability going forward for bombshells?

Yeah, sure. I mean, I've always said 18 to 22% was our target. Uh, and I think that's what they'll, you know, basically come in and when, as they mature, uh, we'll be in that 18 to 22%. We're kind of on the bottom end of it, but this is our worst quarter. You know, that quarter, fourth quarter is always our weakest quarter. Uh, if you look historically, uh, and so we'll see how they, we'll see how they look in this, uh, you know, October, November, December quarter, we have been talking, we are working on some changes, uh, doing some, uh, during more drink specials, um, you know, some higher margin appetizer specials where we can discount stuff without, uh, without hitting the margins or profitability as much. Uh, and so that is starting, we're starting to do some of that in some of our blue collar, uh, clubs around the country as well, where we're going to, you know, start driving more traffic. Uh, you know, the one thing about bombshell is we, we really don't spend any money on marketing. Uh, it's basically social media marketing, stuff like that. So, We are looking at some possible marketing partnerships and some other things with bombshells that would help drive traffic as well. And I think, like I said, we're going into a little bit of a different, you know, economy than we've had in the past. And so, you know, we're going to have to be creative and do the things we do. But I think, you know, even our worst case, we're going to stay in this 18% to 22% range. It's nice when we can have some big months and big events that drive that up into the 20%, 24%, 25%, 26%. But I do think overall that the average is going to be in the 18% to 22% range.

All right. That's very helpful color. And then I guess my last question before I jump back in the queue is, So you will be spending certainly money on the central city and some other initiatives. Can you give us a sense as to how much you're looking to spend for CapEx? And if you have a maintenance CapEx number for fiscal 23, that would be very helpful.

I don't really have a CapEx number. I know that we want to invest 200 million a year for the next three years. So our goal will be to try to get close to that 200 million. I think last year was 141 point something, 0.8, I think, that we got invested. CapEx is around 6 million, 5, 6 million a year, I think. Maintenance CapEx. I'm sorry, maintenance CapEx, yeah. I don't think that's going to change a whole lot for this year over last year. Should be around the same.

Got it. Thanks, and best of luck.

All right. Thank you. Thanks so much for the question. Next up, we are going to bring Lynn from Water Tower Research. Lynn, please take it away.

Thank you. I just have a question about casino opportunities in Colorado. Are there any additional opportunities?

I mean, there's other stuff we've looked at. Obviously, we're not a casino company, so we'd have to have some type of entertainment, restaurant-type component that would be the driving force for the business, and the gaming would be just something to create extra revenue off of. We'd want to have a business that's standalone that has gaming added to it versus just a straight-out casino. But, yeah, we're definitely looking at other things out there. I think that, you know, what people don't realize, I think, in Colorado is they used to have $5 limits. Those limits were removed in September of 2021. And, you know, because of COVID, I think that, you know, some of your casino operators have just been behind the ball on that. I know Tillman Fertitta of Golden Nugget just recently bought a casino in Cripple Creek, which is one of the other three towns out there that has some great opportunities for about $43 million for the casino he just purchased out there. And I'm sure based on the license of applications, there's several other applications, mainly smaller casinos. uh, in central city or applications are being applied for. So I think it's, it's coming. I think we're just, we're, we got kind of got lucky and got ahead of the curve, uh, with, with the changes and just happened to be out there because of the, uh, you know, the acquisition we did, uh, the five clubs in Denver, it really gave us the opportunity to, to get out there early and get ahead of things. So yeah, we're, we're looking at other, we're looking at other opportunities out there to, uh, to bring more entertainment to that market and hopefully make central city, the entertainment capital, uh, along with the gaming and then let the main gaming casinos where the big boys are at over in Blackhawk, let them bring the people out and then we'll entertain them and send them back to Blackhawk. That's kind of the thought process right now.

That sounds great. I have just one more question about bombshells in Colorado. Will you have to change the prototype, you know, left patio? Are there any adjustments to be made for bombshells when you go into a colder weather market?

Oh, absolutely. What we'll do with the patio, we'll still have the patio, but it will be more covered. You know, right now we only cover about 60%. We'll cover a hundred percent of the patio and we'll put in basically their glass folding walls. I don't know if you've kind of seen some of the, excuse me, the big stadiums like in Minnesota where they have the walls, the whole wall just folds up and you got, you know, 40 foot of wall that basically folds up into about a two and a half foot column. We'll be using stuff like that, that type of design of glasswork. It raises the cost about $300,000, but still well within the ROI that we need to build the location.

I just have one more question. Can you talk about the demographic draw of the two new nightclubs that you just bought?

The two brands?

Yeah, the demographics. Baby Dolls and Chica.

Obviously, Chica Locos is very Hispanic-based. It's Crazy Girls is the translation. It's very Hispanic-based. Those three clubs are in really nice markets for that. The Baby Dolls is very traditional. It's hard to explain without you actually seeing it. I call it the If anything, it would be a middle-class strip club. That's how I – or, you know, gentleman's club. And very Texas-based, so there's country music. There's a lot of, you know, more classical rock, 90s, 80s, 90s, early 2000s music played there. And it's very – you know, I think the Baby Dolls in Dallas is a very large building, super high ceilings, and just a great, fun atmosphere. That's the easiest way to explain it.

Thank you, Eric. I think I'm good. Thank you.

Fantastic. Thank you so much, Lynn. And Eric, as you were saying, I'm a big fan of baby dolls, so I was very happy to see that acquisition. Now, I want to take a moment to do two things. First off, I would like to encourage everyone to retweet this space for us to be able to get as many people here as possible and to follow the example of 90s random consultant who had a nice retweet of this space recently. I would now like to open the floor to everyone who would like to ask a question, and we would encourage you to do so by raising your hand so that we can be made aware, and we'll bring you up. First off, we're going to bring the largest shareholder of RCI, Adam Wyden from ADW Capital.

Adam, take it away. Hey, Adam, you're on mute. Can you hear me now? We can hear you now.

Okay, great. Um, wow. It's, uh, it's been a harrowing three years. Uh, I remember, uh, I remember in March of 2020 driving by Tootsies and, uh, seeing the lines out the door and, uh, my, my bonehead analyst telling me that the company was going to go bankrupt and I should sell the stock. Well, uh, I'm, uh, I'm happy. It doesn't work with me anymore and I'm still a shareholder. So, uh, You know, look, it's been an amazing run. And you guys have continued to sort of raise the bar. You know, I thought, you know, Lowry was sort of special. And now you've got Babydoll and, you know, you did Cheetos and Playmates. And, you know, look, you know, anyone who knows me knows that I'm also trying to raise the bar. So, you know, I sort of point the question back, which is, you know, you sort of you sort of. you know, had this sort of saga with Lowry. You know, you wanted the business a long time ago. He took a private, you sort of got that. It's integrated. Lowry's making money. Now you got this other guy. I mean, what's the next thing? I mean, I know you got the casino, but like, are there groups that are doing 30, 40, 50 of EBITDA? You know, we know about, you know, Harry money with, you know, very, very big business. You know, what's the sort of the next thing? I mean, you, You obviously have invested so much time and energy to build this platform and get this scale. Now you're sort of getting affirmation by the marketplace. The sellers are taking paper. You've now got this cash flow to make down payments on businesses. You used to save three years and ham and egg all this unsecured money, and now with $120 of EBITDA and $9, $10 a share, $9, $10, whatever dollars a share for cash flow, you can fund the cash component of these MNAs from internally generated free cash flow. I mean, you know, where are we in terms of sort of getting to that next level of club group size and sort of building that sort of corporation?

Oh, I mean, there's lots of acquisitions out there. We're talking with lots of owners. Some are small, some are large. You know, it's really about the seller being ready to sell. You know, I've been doing this for a long time. I meet with a lot of owners. Some say they want to sell, but after meeting with them for a while, I can tell that they're just not ready to let go. Some of these guys have been running these clubs for 30 years, and they're their babies. So it's difficult for them to make that final decision to go ahead and sell. But they're coming around. And part of it is it's more convincing that you're joining the RCI family versus selling your club and retiring, though some of them are. But, you know, of course, they're concerned with the people that have worked with them and been with them for 20 or 30 years. They want to make sure they have opportunities. And I think it's convincing as they see, you know, the deal we did with Lowry and now this new deal and some of the other deals that we've done in the past where they see, you know, the employees and the staff have done very well with RCI and moved up and moved up in our ranks and become, you know, better for themselves, been better for those people. The opportunities are there for them. I think that's starting to have some effect. It definitely did in the baby dolls. You know, I know they're very worried about their management team because they have a great management team there. And, you know, we don't, you know, we want to bring that management team in. We don't want to lose that management team. We want that management team to stay with us because we need those types of people to continue to grow, especially as we've accelerated our growth rate. You know, typically our goal is 10 to 15%. but we're actually pushing to grow at 30 plus percent for at least a three year period here. And then we'll revamp and see where we're at. I think 23's growth is pretty much in the bag. We've been working very hard on 24 with new stuff, with the new bombshells, with the new Rick's Cabaret Steakhouse Casino. But we're also still lining up acquisitions. We're talking with the operators and uh, of all sizes from, you know, million dollar, million dollar EBITDA deals to, you know, $30 million EBITDA deals, uh, that we're talking with guys on right now. And, you know, there's a lot of guys in between, uh, a lot of, you know, smaller three, five, six, eight, 10, $12 million guys that, uh, that are out there. And, and, you know, so we're trying to reach out to some of them, some of them reaching out to us and we'll find the right deals as, as we need them and, uh, and continue to grow.

So. Yeah, I mean, look, on our model, you know, absent any incremental M&A from here, I mean, you guys will be compounding cash earnings per share at about 40%. I mean, I don't know very many companies that are trading over a 10% free cash flow yield growing 40%. So, you know, it sort of brings me to my next question, which is, you know, I know you're not buying back stock because the returns are very good. I don't think people really understand how good they are. You know, obviously buying this business at four times EBITDA, you know, is incredible and the way you finance it. But I mean, we've sort of done some of our back of the envelope math on the casino. And, you know, based on sort of participation rates and size and stuff, I mean, you know, you're talking about a $10 million, I think you said roughly $10 million of investment. You know, there's online concessions in some states. you know, if you guys, you know, if you think about a casino, you know, you don't just have slot machines, you have table games, you have liquor. I mean, you know, our back to the envelope math is, you know, this thing could be as much as 20, 30 million and, you know, probably on the low end, probably high single digits. I mean, can you sort of, you know, sharpen your pencil a little bit on it? I know you're new to the casino industry, so you don't want to sort of create high expectations for folks, but I mean, you know, the returns, if you guys, you know, have some success here, the returns can be really, really meaningful. I mean, can you give people a little bit, you know, more color around what the casino could look like and the range of outcomes? I know you're new and it's early, but I mean, can you give us a little bit more color on this casino?

Yeah, I mean, as I was telling Scott, you know, we've kind of got the range, you know, of 10 million, you know, if we, you know, 10 to 14 million in revenue up to as much as 40 million in revenue. And it really depends on what our average slot, slot play is. That's going to really adjust that to most.

That's just gaming. That's not liquor. That's not liquor and the other stuff. That's just the gaming element to it, right?

Well, that's just the slot element.

Yeah.

Slots. And the rest of it's just impossible for me to really, you know, to really see it this time as I just don't have enough. I mean, the club side, I think, The reality is for the club side, the liquor will be cheaper because there's gaming. Uh, you know, we're not going to give away free liquor, but we will, you know, we'll have discounted liquor so that the liquor prices will be cheaper than a typical, uh, club would be. Uh, cause really we're trying to not only entice you to come in and see the girls, but come in and gamble as well. So there, there'll be components of that, that, uh, that we've got to get, you know, I got to feel out and learn and, uh, and figure out, uh, but, uh, we'll be spending some time on that. We're bringing in some casino experts. We've got a great firm that we're in negotiations with. They've consulted with us on not only the casino setup, but all of our system setups and those types of things. But the beauty is it's not a, it's not a new industry, right? There's plenty of experts and plenty of people out there that know how to do it very, very well. And, uh, you know, we'll put together a team and, uh, that, that will, that will do it well and do it our way. And, uh, complement our business model. There's a lot of excitement around it right now with what we have planned out there. And I think there's other opportunities at some point out there as well. So I don't know where that's going to go. It's a small part. It's a small investment for us. $10 billion is not a huge investment anymore. And the risk well outweighs the potential rewards. And so I think we... we have to, I've always said, look, acquisitions are difficult because you don't know, we can't time them, right? It's hard to time them. And so we're always looking for opportunities to expand and grow in areas where we can time the closing. So if we can't get an acquisition done, we know, well, we can open this business and we can open this business. And therefore we can keep our growth consistent and never let our growth dip below our 10 to 15%, you know, planned rates. And then if we are successful and we can land acquisitions like Baby Dolls, like Lowry's acquisition, you know, now we can see 40% growth. We can see 30% growth or maybe even higher depending on, you know, size and frequency of the acquisitions combined with the openings. I mean, I'm very excited about 2024. Basically, we have our growth built in with new, you know, six new bombshells, you know, the Steakhouse Casino. Our growth is kind of built in. So any acquisition we do is really going to boost growth in 2024. I think 2023, we've got some great growth factors in that the 15 locations that we bought, especially the 11 that we bought from Lowry, had just come out of COVID openings. I mean, some of them didn't even open until September of 21. They'd only been open less than two months when we bought them. And so we had a huge step up in revenues, and we're seeing that. In the first five months, we had a very difficult time because you had the job market, you had – you know, COVID stuff still hitting and bothering, you know, different markets. And so it was very difficult for those first five or six months. We actually picked up in March and then we had the unbelievable month with Lowry's clubs in May. So we've got some pretty easy comps on, on those clubs as they move into same store sales in January, February, March. And I think we're going to see, you know, really nice growth year over year growth with those 15 locations as well as, you know, now the new acquisition coming in. So, Basically, our 23 growth is there. Our 24 growth could just be off the charts, depending on how acquisitions go, in 24. And I think by the end of 23, we'll be focusing on 25 growth. So that's what I said. I think we've got three years here of really solid growth. We can take on probably another $100 million-plus of debt. We've got about $5 million in debt that's going to be – they'll probably be paid off in the next quarter or two as we sell some – we've got some raw land assets that we're selling and – an airplane that we'll be selling in the next quarter that we'll get rid of some debt there. So our debt level is probably about $5 million less. We'll drop about $5 million just from that, not counting the normal amortization. So our debt is still very manageable. I know you try to say $120 million EBITDA, but I'm saying even if we're only at $100 million in run rate EBITDA right now, we're at $200 million in debt. So that's only 2x EBITDA debt ratio. So we've got at least another $100 million in debt we can take on. We're generating well over a million a week in cash flow right now. So we take that and put that back to work. And then, you know, any equity component of these big acquisitions just give us even more buying power for these deals. Though, of course, you know, now I don't, you know, once we do this deal at 80, I don't think I would do another deal at 80 because With all the new EBITDA coming online, I think the stock's going to be worth more than that. And so we probably wouldn't use it in an immediate, you know, another deal at that price. But, you know, maybe the next deal's at 90. Maybe the next deal's at 100, 110, 120. I guess, you know, that's up to the market to price that in for us. And if they give us a, you know, we get to the multiples we need and we can buy the deals at the right price, we could use an equity component of them as well. But if we just have to use debt and cash, as I just showed you, there's plenty of runway at least for the next, you know, you know, year to two years to use this debt and cash that we're generating to make plenty of acquisitions with.

I mean, you mentioned something about, you know, that you were, I mean, part of what attracted us to this investment early on is that you were spending a lot of time with, you know, getting the SEC reporting right and sort of getting the IT and Bradley and the infrastructure. I mean, you know, most of the sort of the public company costs and IT stuff is behind you. So your legacy free cash flow growth rate of 10% to 15% was really also concurrent with the fact that you were also boosting your sort of corporate G&A function and IT and that. I mean, so for all intents and purposes, you know, for the same amount of revenue, right, you know, you're going to have really high disproportionate margin growth because you're not adding those incremental costs to the same degree, right? So, you know, part of the increase in free cash flow, you know, I think, you know, this year and I guess last year was, you know, you were adding revenue without, you know, the concurrent sort of corporate non-revenue generating GNA. I mean, so, I mean, look, we're super excited about it. And, you know, look, the casino to us is very interesting only because, you know, it provides another avenue for you to monetize your brand. And, you know, you had Scarlett's in Florida, you know, you were able to bring Scarlett's to Colorado. And, you know, to the extent that you can sort of monetize Rick's you know, as a casino and, and continue to sort of monetize your brand, you know, at high returns and invested capital, you know, that's super interesting. And, and, you know, you know, obviously any opportunity.

Thanks so much for that, Adam. Yep.

Thanks so much for that, Adam.

And next we're going to bring up hammer cap to ask a question. Hammer Cat, please take it away.

Hi, thank you so much for giving me the floor. Is my sound coming through okay? You're sounding great. Great. So I noticed just from some searching on Twitter that there's some dancers that you find who are saying that they noticed that the recession is here from the sharp reduction in in customer spend, they're seeing in the clubs that they work at. Obviously, it's very kind of anecdotal and, you know, it's only based on a few examples, but I did find a few people saying that. Maybe these are people, girls working in clubs in locations that you would avoid as part of your screening process, but could you speak a little bit to what extent that matches with anything you're seeing at any of your locations and if there are any patterns, and kind of how, I don't know, your behavior might change if such evidence became gradually more pronounced, how it would influence your decisions on capital allocation. I have one follow-up if you have time, but I'm also happy to pass on.

No, let me answer that one for you. So basically, I have been watching. Our blue collar, some of the blue collar... clubs have had some, some, some minor issues. Uh, and it's, but it's very sporadic. It's, it's, it's two weeks here. Then we have two good weeks and then we have a, you know, an off week and then two good weeks. Uh, our VIP clubs are higher end clubs have been doing very, very well. Uh, New York, for example, Chicago, Tootsie's in Miami. Uh, you know, their, their, their sales are, are still growing, uh, and doing very well. Uh, I ran a three month, uh, deal on basically credit card dances, right? I can see what the credit card spend is, uh, on the money that goes to entertainers. And, uh, you know, I did that. Uh, and then we compared that to the prior three months and we're seeing increases. So I, you know, I, I feel for the girls that, uh, that are out there that are having, they're struggling here and there. Uh, I would say, you know, maybe you need to try some other clubs, uh, you know, maybe, uh, I don't know the region you're in, the regions these girls are in or where they are. I mean, certain regions are definitely being affected different than other regions. I think a lot of them are in California. I think California's had some – talking to some girls that have come from Las Vegas and come from California to some of our clubs, they have complained a little bit that this customer spend in those markets isn't what it used to be. And it makes sense that Vegas on the weekends especially – is very, you know, California driven. And so maybe there's some, you know, issues in those markets from what I'm hearing. And like I said, in our markets, I'm seeing some off spend, you know, or slow down and spend and basically customer visits in the higher end. Somebody got me an echo there. Sorry.

uh and so that's that's basically uh what i've seen so far you got another question you said yeah yeah thank thank you so much eric um and uh so i guess um my other question is around some of your new new projects um the i gather that i i'm sure they're not like moving the needle um uh and to be focused on too much yet but i gather you have an an NFT project and another project called admire me, which I, I believe is trying to create a sort of full circle between being able to interact with some of the entertainers, both in real life and kind of through social media. Do you think that either of those projects could introduce kind of elements of risk that could, could, damage a reputation. For example, in the case of the NFT thing, if there was some kind of hack or security problem, and in the case of Admire Me, I guess it occurred to me that it could potentially threaten an entertainer's safety if it was making them more easily contactable by customers.

I mean basically the entertainers are pretty – oh, there we go. Okay, sorry. Sorry, that echo was just too much.

But basically it's not any more risk than any other business or any other deal out there. The entertainers are basically – other than telling them what club they work at, their information is still private. They're not getting private information. Uh, as far as the, you know, hacking, I mean, we, we have that, we have that risk on credit cards. We have that risk on, you know, employee data. We have that risk, uh, you know, you carry insurance for it and, and, uh, and you, you know, you follow the guidelines and you do everything you can do to, you know, to keep, to keep the information safe. Uh, but I don't think there's any other risk on those products than any other product that we have. Uh, there's very small investments, uh, not, not a lot of money invested in those, either of those projects. Uh, we did have some issues with, uh, of course our, you know, the Ukraine war with our programmers being based in Ukraine became an issue. Uh, we have switched to a different group, uh, and hopefully we'll get the, uh, the final bugs and everything worked out. Uh, it's actually, the site is functioning. Uh, you can actually use the site. It's just, uh, it's not to the point we're ready to market and, and really push and, uh, and spend the marketing dollars we're going to need to spend to, uh, to get the site till we get everything working exactly the way we want it and have, uh, the page layouts and features on the site that we want to add. But, you know, to answer your question, I mean, I don't think there's any liability there that isn't anyplace else.

Thanks. That's really helpful. I'm sorry to ask two kind of negative questions, but it's just interesting to focus on some of the things that could be risk factors. But generally, I think Congratulations on all your achievements. It seems to be going great, and I wish you the best of luck.

Thanks so much, Hammercap. We appreciate the questions. I want to give a special shout out to Dr. Parikh Patel, who is in the audience. We have no idea what that doctorate is in, but we love it. I'd like to encourage everyone to retweet this space. And additionally, I wanted to mention one thing. for Dr. Parikh Patel. We're going to be sending you a custom Rick hoodie that was designed by Bradley Shea, who took a few years of graphic design lessons. And we're going to be giving some of these limited edition items out at the reception tonight as well. Next up, we have Johnny Shen. Johnny, please take it away.

Hey, thanks, Mike.

How you guys doing? Can you hear me? Am I coming in okay?

Loud and clear.

Beautiful, beautiful. All right. um so nice to congrats awesome quarter again uh nice to you guys kind of talk about this one more time i'm gonna ask a couple questions if i can about about the big deal the baby dolls chicken locos um just i i know you have one location under uh it's currently being remodeled i believe um and then you've got two expansion plans can you give me an idea just very roughly however rough you want to be about it just kind of what are we looking at like how many square foot are you Are you looking to add kind of roughly what kind of capex budget are we looking at kind of roughly? Is this like an end of 2023 thing? And that's the 2024 thing. Like, when do you expect that to all kind of be as you as you envision it?

I'm sorry, I forgot to unmute.

Basically, the club is actually open. It's being remodeled. It just isn't really contributing to EBITDA at this time. But it is ready to – the remodel is done. They're going to basically reopen in a full capacity. They're opening in a very limited capacity at the moment. So open in full capacity probably right after closing. As far as the – so there will be very little CapEx or no CapEx on that location. The two expansions are to expand – they actually – had the extra space open at one of the clubs pre-COVID and did not reopen the extra space post-COVID because it needs to be remodeled. They did a partial club remodel, but not the entire building. We're gonna finish that remodel. And then the other club would be actually adding, they have some empty warehouse space that we would basically expand and do a new concept. So we'd have two concepts in the same building. And so that space would be the more expensive. I think total CapEx expenditure to do all this is probably between $2 and $3 million max. Not a lot. I think that between the two, we would add probably $4 million in EBITDA. You get the club that's limited capacity open, get it back up to a run rate of about $2 million. Add that to the 11, you're at $13 million. and I say four, maybe it's three. So I gave myself a million dollars when I say 14 to $60 million range, I gave myself a million dollar range. I mean, so I think, you know, 14 to 16 is pretty, uh, pretty easy to do. And I think we can do all of it within the first 12 months of, uh, of, of operations. Uh, probably the, the remodel on the one side, on the one club that's pretty much existing, uh, I would guess that's a 90 day to 120 day remodel. And the actual bill, that's probably a, you know, almost, you know, nine months, 12 months, uh, to build out. So I hope that answers your question.

Yeah, that's, that's beautiful. And I can see why you didn't go in depth on it. I mean, those are very small items compared to the acquisition. So that's cool. The 66 five, is that including land or is that kind of exclusive of the lands? Like should I think of land as a separate deal?

No, that includes everything that includes the land. That's the land, the clubs, the ATM, the ATMs are separate companies, the ATM company, and it's all the intellectual property.

Fantastic. Thanks so much for that question.

And in the same vein of real estate, we're going to bring up Jesse Escola next. And Jesse writes the number one REIT newsletter on Seeking Alpha with 56,000 followers. We encourage you to check out his profile. He's got some great threads on RIC. So Jesse, take it away.

Thank you very much, Mark. I appreciate it. Congrats on the great quarter. Johnny asked a question that I had in mind, but I'll ask about the buybacks instead. Eric, you've previously talked about this $65 figure as a threshold for your buybacks, but your cash flow has grown quite considerably since then. Have you thought of updating it?

You know, I haven't. We haven't because right now we have such great opportunities, as you can see. of buying and building things well above the 10% free cash flow yield. It is something we're going to have to look at again soon, probably wait till after the 15th of January or so. Let's get this acquisition closed, kind of get a feel for where we're at. Let's see if this recession is going to get any deeper, if we're just a slowdown. And I don't even know what it is. I don't like to call it a recession because I'm not really seeing a recession. I'm seeing some, a certain, you know, demographic, uh, you know, economic demographic, uh, affected by high gas prices and food inflations and those types of things, and maybe getting a little more, uh, you know, less frivolous with their, with their, with their cash or their disposal income. Uh, and so they're tightening a little bit, maybe we're getting a little less quest club visit or a little less spend when they're in, uh, at the blue collar level. But, uh, I just don't know what to, I don't know what to, I don't know what it is yet. And then it could, you know, could end tomorrow. Maybe they're just, maybe, you know, school started and Christmas is coming up. And so that's many, but maybe by, you know, February, March, you know, things go back to normal. I just, or maybe they get worse. You know, we just don't know. I think it's the problem with that demographic and the current economy and situation. You know, the Fed raised 0.5 today, which was, was expected. You know, they, So obviously they believe the economy is slowed down a little bit. Uh, hopefully inflation, uh, you know, peaked and then we'll see the inflation numbers come back down a little bit and we can get back to a more normalized, uh, economy where we don't have free money, but it doesn't get so expensive that people can't, uh, can't do anything either. Uh, and I think that's, you know, remains to be seen, but like I said, I, it's not affecting our high end customer at all at this point, uh, our high end spend at least, uh, and our high end clubs. So, uh, We just have to kind of watch. We'll make some shifts and maybe discount, maybe bring those people, give them a reason to come back in and make it a little less expensive for them to visit, but keep our revenues and margins in line at the same time. That's the plan.

Got it. Thank you. On the club acquisition front, Would you say that all this uncertainty, the talks of a recession, the high inflation, the rising interest rates, could it be that this is one of the driving forces why you have so many club acquisition opportunities right now? Do you think that it's pushing a lot of the owners to try to sell right now before perhaps we go into a recession and their clubs suffer some declining growth from that?

I'm sure it is. I mean, that's what I would do if I was them and I was in that situation. I think the risk is higher when you have small operations versus a large company like ours and the geographic diversity that we have. But we've also, as you'll see, we're moving these things to about a four times multiple. So we're giving ourselves basically a 20% cushion anyway. So it's working out well for us. And I think that as we continue to push through this and figure these things out, at the end, it doesn't really matter because we're a long-term company. I think in the next three years, we're going to have tremendous growth. And then as the economic cycle turns, then we'll just re-read those words even better in the future. We're doing things with taking as minimal risk as we can. We've gotten, I think, very good at that part of the acquisitions through seller financing, through, you know, using cash and now equity in these last two deals, which has, I think, been fantastic for the company and will be great for our ROI.

Sounds good. That's all I had.

Thank you very much. Fantastic. Thank you so much, Jesse. And as we head into our 69th minute of this call, I'm going to bring up Hunter SBX Thompson of BTT Long Short Capital Advisors. Hunter, please take it away.

Hey, thanks, Mark. Hey, Eric. Congrats on the quarter. Lovely to hear that you're not seeing much regarding a recession and really appreciate those specific call-outs within your customer demographics. That said, kind of wondering if we can hear any more color around your view on the strength of the consumer. Do you see any qualitative shifts in spending habits in your clubs? And then just a quick follow-up on that. Regarding linearity in the quarter, do you see this trend degrading through 4K? Thanks.

What we are seeing right now, like I said, is a little bit of slowdown. And it's inconsistent. It's not a consistent slowdown. I mean, one week we'll be off a little bit, 10%, and the next week we'll be up 4%. So it's kind of a mixed bag of nuts right now. And in the high-end customer base, we're not seeing much slowdown at all, if any. you know, people are still partying. There's certain demographics, certain groups are not changing their habits at all. Others have changed a little bit. But like I said, with our geographic diversity, it's a non-issue for us. What I look at right now, I think is most important is not the year over year numbers because there was so much free money last year. There were so many factors that affected things last year. And so I'm more of a sequential guy. You know, what are we doing on a weekly basis? Sequentially from, you know, like the last, six months last last last 26 weeks you know however our numbers are our numbers declining on a sequential basis uh and we're not seeing that uh like i said we're seeing in certain markets for a while and then maybe you know it changes uh but we're adjusting our teams are adjusting uh you know we see we see the numbers slipping we step up marketing we step up uh social media presences we do the things we need to do to to bring the business into our our businesses uh and so that's why You know, when the guy earlier saying there's certain, you know, entertainers are saying they're not making as much money and stuff. So, I mean, I'm aware of those things. I'm watching those things closely to see if they will affect us. But I think right now we just continue to figure out how to get our share of the market, you know, better our share of the market if we're seeing any declines. And so that's how we've covered that. And I'm sorry, what was your second question? I should have wrote it down.

Oh, I was just asking about linearity in the quarter.

Uh, so did you see things? I don't, uh, in fact, uh, December is actually, uh, increasing over November right now. And I expect the big parties that we have, uh, really starting yesterday, uh, through yesterday, starting yesterday and through, uh, through the 23rd, we'll have to see how these parties, uh, there's a lot of, uh, parties. And I think there's a lot of, uh, you know, Christmas shoppers that go out and shop for a little while and then come by the club for a few drinks and stuff like that. So I think we're seeing a lot of that and we'll see how that goes over the next, you know, eight days, nine days. Hopefully we'll have a really big week this next week. This week has been great. I think the only day this week that's been off so far was Saturday and it was off very minute, very, very new. And when we were up so much on Friday that, you know, for the week we didn't, we're not even going to notice it.

Appreciate you taking the question. That's it for me. Thank you.

Thanks so much, Hunter. We appreciate the questions. Next up, we're going to bring Orchard Well, the deep value provocateur.

You're up. You have to unmute. There we go.

Hey, guys. I just want to get a couple things out of the way just to kind of understand things. There's about 22,200 clubs, 500 of which you guys think are candidates that you would be looking at. Can you ever see yourself thinking about actually opening a new club from the ground up, or that's just pretty much the world or the universe that you live in?

I mean, there's areas we might be able to do that. It's not really our forte right now, right? I mean, our forte is buying existing cash flow making that cash flow stronger through our unit economics, through our best practices, through our national buying power. And that model works very, very well for us right now. We do have the bombshells for ground-up builds. I'm not saying we wouldn't, but it's not something that we're definitely looking at. I mean, we are doing a ground-up build in Lubbock, Texas, where our property was taken by the state of Texas. to expand the highways and we bought you know five acres on another you know down down the highway or across town or whatever i'm not exactly sure how far away it is but from our old club but it's very close uh and we're building the ground up building there but i don't really consider that new we were able to you know do a licensing deal move the license or type deal because it's because of the intimate domain uh gave us some opportunity to do things that we normally probably couldn't do uh But as far as ground-up bills, it's just not something I'm really into on the club side at this time. But, you know, like I say, I'm a never-say-never guy. We'll see what it develops over time. And, you know, if somebody was to present us with a great location that we thought was very economically viable and, you know, the risk was minimal to us, I think we might take that chance. But it just doesn't really fit our business model at the current time to build new clubs. Okay.

So I'm assuming, you know, at this point I'm saying your buyback price is going to be $80. Cause that's what you did in the current deal. And anything below that would basically, you know, make the overall rate of return cheaper. I'm looking forward to your update come February. The other thing is, what do you think is your new cash comfort level given the, you know, increased cash that you guys are going to be bringing in?

I mean, we've been keeping our cash under 40 million. We've been trying to put it to work. We'll get closer to 40. You know, I think we, I think we peaked at 42 or 44 and we bought a couple of properties and, uh i think our minimum on the minimum side would probably want uh between 15 and 20 million uh obviously we're going to put 25 million out on this deal i think i'd have to check i think we're around 40. we've got some other stuff we're looking at right now we've got some cap expense but we know we're taking in a little over a million a week so it builds it builds really fast right uh and uh you know what we may look at the bank you know we used to have a line of credit uh five million dollar line of credit we may try to bring that five million dollar line of credit back after the first of the year uh with this 25 million going out uh so we don't have to borrow any money uh to do the deal uh you know the only debt we want on as we do these new deals is we're trying to do all solar finance debt no uh no unsecured high interest debt you know staying away from the 12 money we've had to borrow in the past even though it's not so bad with the bank rates at eight percent uh 12 money doesn't look so bad today as it did you know we brought it when bank rates were four percent but uh It's expensive money. Not really expensive for us because our returns are 33% or so, 25% on a worst case. We're still making double the money on the spread. I just think that from a market standpoint, we're trying to keep our debt manageable and keep our interest rates as low as possible. Once we pay off that 12% debt, I think our weighted average will probably be back under 6%. So we're not in a hurry to pay it back, but we could.

Yeah, and just one other thing. Give me an idea of this five-club deal that you just did. How long ago did the process really seriously begin?

Typically six months is what it's taken on these things. From the time we start talking to the time we work things out amongst the principals and then get the lawyers involved and get the legal stuff done. Uh, then you've got permitting. So right now we're at the permitting process was about 30 days. Uh, so we signed the deal on the 12th, which, you know, 30 days from there, uh, would put us somewhere around, you know, January 12th, January 16th, something like that. Uh, I think that, you know, probably the most likely closing dates at this point.

Okay. But I meant like the other seller basically was saying, look, you know, sometime around May or June, Hey, I'd like to sell my club. Let's make this happen.

I mean, yeah, you know, it's just like I said, it really varies. I mean, if you look at, you know, the BCG deal, for example, I mean, we tried to buy them in 2010. We tried to buy them in 2015, you know, and then finally, you know, got the deal done the third time's a charm. That deal, I would say from the time he called to the time we got seriously done was less than 90 days. And then the rest was just, I mean, 11 states, lots of licensing. The other three months was, I mean, look, if you've got a willing seller, we can do a deal. Like, for example, the Heartbreakers transaction. That entire negotiation, the entire thing was less than 45 days. From the time we first met to the time we owned the club was probably 45 days. So, I mean, it just really varies. Okay.

and the complexity of the deal the you know the dollar amounts those types of things well i mean my general consensus is with the way things are going right now even if you have some sort of slowdown at all in same source sales it doesn't mean anything because you guys just keep buying and adding new clubs that would completely offset anything that any recession that happens and at the same time you guys are able to just buy clubs cheaper so yeah i think you know i look at this downside risk right if you buy my stock today

What's your downside risk, right? That's always been kind of my thought process. And if I was an investor – well, I am an investor in other companies and other stocks. And my thesis is always what's my downside risk, right? And if my downside risk outweighs my upside risk, then I'm not interested. But I think you have very limited downside risk with RCI right now. You've got us buying back stock. The stock hits certain levels. You've got – unbelievable. Like you said, even if we have 10% turn down in same store sales, which would be very high for us, especially at the club level, the EBITDA drop would not be much more than that. We would find ways to control costs, which we did during COVID. We know how to keep our costs in line, keep our margins up. We would do all those things, but we're going to grow right through it. We're going to still grow faster. The odds of us earning less free cash flow six months from now than we did a year ago, that same period is pretty slim. I don't see that happening.

You're on the advanced part of the F-curve right now with the growth. Thank you. Fantastic. Thanks for the question. Next up, we're going to bring Cladison to Gladys, you're up. Thanks for the opportunity, Mark.

Eric, team, congrats on the great quarter and also the recent club acquisitions. I mean, I looked through it and chatted with you guys over Adam Wyden's post yesterday. I think the deal makes a lot of sense to lay out some equity there. Looks like returns will be great. I have a question going back to the Lowry's acquisitions. It's been maybe about a year, a little over a year since that deal closed. Obviously, it takes some time to get the management teams integrated and just training for the rest of the staff there. Do you guys see room for more efficiencies in the Lowry's clubs or revenue growth there or how are the Lowry's clubs operating today?

Yeah, I mean, give me a kind of a statistic that I looked at. You know, November was the first month that we had a full month of operations previous year and this year. So basically, we're going into our 14th month of operations with December. Typically, I think the worst location year over year was about a 2.89% increase. And the best location, there was two locations that were over 60% year over year growth with the Lowry clubs. And I think the rest were all in the mid-20s to mid-20s. So very good growth year over year, what we've done. I think we're continuing to see certain of those clubs are still growing as we move forward. So we'll get some nice growth out of that. And you'll see that the $88 million price seemed at the top end of our scale when we made the acquisitions. But I think you're going to see it's more right in line. As we see the EBITDA from those clubs this year, I think you're going to see it's more right in line with our four, four and a half times, including real estate that we normally come in on these deals. So it's going to be a very nice acquisition for us over the long haul.

Yeah, great. I love how you buy things at five times and Aaron Brockett, Get the efficiencies in the business sense of being you know, four times so that's great thanks for the color on my reach and then just one more question I guess on on the central city opportunity. Aaron Brockett, Obviously early to tell and probably about a year 18 months out like you said before you're fully operational there with licensing and everything. Aaron Brockett, Do you guys see that as a space, you guys can expand into I know mainly capital allocations going into buybacks. buying up clubs and the bombshells organic growth. But is that something you guys think you'd have an appetite if the results are good?

If the results are good, absolutely. Right. I mean, at the end of the day, I've said this, I don't know, for several years now, I'm not in the strip club business. I'm not in the real estate business. I'm not in the restaurant business. I'm in the free cash flow business. And if I can create free cash flow or buy free cash flow in that market, And we have, it's within our wheelhouse of operations. You know, I don't think, you know, slot machines are pretty easy to operate, right? You plug them in, they work. If they break, you call somebody, they fix them, and you plug them back in again. The thing's pretty simple. You know, the trick is getting people in there to play them. One thing we're very good at is through our entertainment and our marketing and our clubs, we're very good at getting large amounts of people into our buildings. So I think it's pretty, you know, Brighten Our Wheelhouse is very similar to the bombshells where, you know, we have the, you know, the waitresses are part of the entertainment of the business. And then you add good food and drinks and good music and DJs and we create a fun atmosphere where people want to come and hang out and drink and, you know, eat and have a good time. I think the casino business is, the way we're going to do it is very similar to in that regard is it's just you know we're going to take our entertainment factor and we're just adding another component to it so i think we'll do very well then i think we'll definitely look to expand that if we find success i mean if we can find success with it do it right uh you know there's i don't know what 38 states with some form of gaming now uh so you know there's small states uh with small casinos all over the place uh that you know we can go in and transform from a you know These traditional, you know, there's a big market with everybody's doing exactly the same thing. We can come in and do something just a little bit different than everybody else and do very well with it. I think we definitely would look at that as going on a go-forward basis, provided we can, you know, be successful in Central City.

That's great. Yeah, it sounds like a great opportunity. I know some people at first were a little critical of you guys trying to get in an area that you don't have experience in yet, but I love it. Like your free cash flow business quote, maybe we need to get that quote on a hoodie for next time. Not able to make it to New York today, so I'm missing out on that, but hey, when you guys grand open in Central City, I'll come out and see you. Congrats again on the results and thanks for the chance to ask a question.

That's right, thank you. We'll make sure to bring a sweatshirt for you when we see you then. Now, before we bring up our next two and final question askers, I want to shout out VCs congratulating themselves. Who's out in the audience. I think someone needs to make a deep value investors congratulating themselves account too, for those invested in Rick and speaking of investors in Rick, let's bring up Adam Wyden for a followup question.

Hey, I, it just occurred to me, you know, I was texting with somebody while, while the call was going on and they said, you know, Rick is really interesting. Eric is such a talented capital allocator. He's really been at it a long time. It trades at a good yield, but you know, he's in his early fifties. It's taken him 20 years to get from a hundred, you know, a million of EBITDA to a hundred. You obviously have done, you know, whatever 120, whatever the number is, you know you know, I sort of, in my head sort of had you at like 60 pre COVID. So, you know, you can sort of say, you know, over three years, you've sort of doubled the, you know, annualized earnings power from sort of like 60 to 120. You know, how should we, you know, I think it would be helpful for investors, you know, as it relates to sort of establishing what your cost of capital is, because, you know, you sort of said, well, you know, what should we trade at? And you sort of put on Twitter. And I think it might be helpful in terms of sort of you know, the more you grow, the sort of the higher the multiple the company sort of trades at based on sort of the expectation of growth and sort of what you plan on doing. Maybe it would just be helpful for you to sort of explain to people that, you know, you obviously, you know, your minimum is 10 to 15. But I mean, maybe talk about sort of the scope and the quantum of what you're building here. And, you know, if the next 10 years, you know, does that look like 120 to a billion? Does that look like 120 to 600 million? Like, How big are you trying to make this thing? And, you know, I think, you know, obviously I have a front row seat to it, but it might be helpful for all the other investors to really, you know, understand what you're going for here. And, you know, the 20 years is really backlogged for the next, you know, call it five to 10.

Well, I mean, you know, you talk about the first 20 years, I had no experience. I was a strip club operator, like literally running the clubs. I was bartending. I was, you know, the security. I was the bartender. I was the front door person. I was the valet driver sometimes. And I had to evolve into a public company. I went public in 97. Didn't like it. Merged with Rick's in 98, thinking, all right, I'm back to running clubs. I went back to running clubs. I moved to Minnesota. I lived in a club for three months. turned that club from a $70,000 a month loss to a $40,000 gain the first 30 days I was there. When I left, I think we were making about $60,000 a month after three months of me being there. Everything was great. The founder had gone on vacation to France. He comes back. My team took over the Houston clubs. His original team sent them to New Orleans. They turned the New Orleans club, did a great job there. Houston was making money. When he left, we were Basically, we had seven clubs that were net losing about $15,000 a month. And when he came back, we had clubs that were making over $300,000 a month. And his first thing when he comes to the club is the door girl tries to charge him cover charge. He says, no, I'm the owner. She says, yeah, we're a public company. Everybody's an owner. It's still going to cost you $15 to get in the door. And she says, no, I'm really the owner. I'm Robert. She goes, okay, well, hold on. Let me call somebody. She calls the manager up. Mayor says, you know, how can I help you? And he says, well, you know, I'm Robert. I'm the owner. And he says, okay, well, let me call Eric. And, of course, that, I think, was a little bit of ego bruise. So he decided to fire me, and that didn't work out for him because while he was gone, we had bought a bunch of stock in the company. The stock went from $5.30. And so we basically worked out and ended up buying him out and taking over a public company. And now here I was back to running a public company in 1999. Worked through that, got through that. We had no capital. Banks wouldn't loan us money. Banks wouldn't even talk to us. So we could barely get checking accounts at banks, right? We got through all that process. We grew. We grew the NASDAQ company. We kept growing, kept growing. A few years in 2017, 2015, we did a capital case strategy. 2017, we got our first big bank loan, a $90 million real estate consolidation loan, which really solidified financing for us. Then we've got – now we've got capital. We've learned capital, so we couldn't use our stock for any deals because there's no way we're paying 20% capital like we were doing in 2008 using equity when the cap rate on our existing cash flow was 20%. So we got past that. We got everything going. We built to where we are today. And you say, what can we do? I mean, look what we've done in the last five years with – actually, since 2017, since we got bank financing. Now the market is rewarding us. The market is giving us a multiple on our stock that we can turn around and buy cheaper in the private market and bring it into the public company, get that arbitrage, and we're able to buy great quality assets, great quality clubs, licenses and properties that we couldn't have even thought about buying before. And more of those opportunities, the more the stock has moved up, the more of those opportunities are coming up on line for us. you know, if you look at the acquisitions we're making in Dallas, those are, that's a great club. You can go to the texas.gov beverage commission and see that baby dolls is the number one, you know, adult club in the state of Texas has been 18 years old.

Sorry to interrupt you, but I think Mark's, Mark's getting tired. I think, I think you guys need to get to Rick's to do your meet and greet. I think what I'm getting at here is it took you 20 years to get from a million to a hundred. Some of it was capital allocation. Some of it was operational, but like, Given the machine that you and Bradley and Dean and Ed and Josh and all these great – Darcy, I don't – but all these guys, you built a machine now, and you've got a machine, and you're feeding the machine. I'm really hungry. I've lost 50 pounds. I'm really hungry. I know you're hungry too because you've spent 20 years building the machine. How much food can we put in the machine over the next five to seven years? How big – how much bigger can we sort of make this machine now, like order of magnitude? Yeah.

I don't know what the total size is. My goal is world domination. Isn't that everybody's goal in business? What we've done is we've gone from a linear growth and we're entering our exponential growth stages because of our capital allocation strategy. If you look over the last five years, it's been a steady growth, but you're starting to see that curve up. It's because we're able to make these big acquisitions. We couldn't even dream of doing an $88 million acquisition in 2016, 2017. But, you know, last year we did an $88 million acquisition. We're doing a $66.5 million acquisition. At the same time we're doing those acquisitions, we're also – we bought six pieces of property to build bombshells on. We bought a piece of property to build a steakhouse and casino in. And we're looking at multiple other locations. We bought – we did a $9 million acquisition recently. you know, with a $5 million down payment. And by the time we started, right, 45 days from start to finish, the $5 million payment was generated in that 45 days. So the day we started, we said, oh, we're going to have this much cash. So that'll drop our cash over to this. But by the time we closed the acquisition 45 days later, we actually had more cash on our balance sheet than we started 45 days earlier with after we spent $5 million in acquisition. That's the kind of power that we have today that we just didn't have in the past and we're putting that to use and the beauty is we have the formula and we have the knowledge of our capital allocation strategies do the fifth grade math to make sure we make the right deals so how fast can we grow as fast as we can find the deals close deals and manage them you know if you ask anything if you ask me what our weakest link would be and I think it's our strongest strongest part of our company right now is our management teams our people stronger than it's ever been but that's still at the end of the day going to be money money and capital used to be our weakest link and now that you know our strongest part of our company is probably still our weakest link because you still have to manage these things as you buy them and those takes time we got to put systems in do those things but we're getting really good at it it's happening really fast we've got a lot of guys that have now been involved in in acquisitions and takeovers versus you know i started out with me and and ed and a couple other guys were starting and now you know, we buy a club and we can send a regional manager. We don't even, myself and Ed don't even have to go to the club. We have a regional manager that now knows, okay, I know how to put the POS system in. I know how to, oh, we got to get our security system. Oh, we got to get at least, you know, this is how we're going to operate it. This is how, no, this is the way that the bar needs to be set up. This is the way, you know, these things have to go. So we're getting much faster at Adam, for sure. And I think we can see that exponential growth over the next three years. I mean, I told you a year ago, that I wanted to put $600 million to work over the next three years. And, and, you know, we're, we're well into that process. Now maybe it took us 14 months to put the first 200 million to work. But you know, hopefully we can put the next 200 to work in 12 in the next 12 months and see how that goes. Keep the growth going.

There are a lot of companies that I'm sure people on this conference call have followed, whether it's Wattsco or pool corp or, you know, many, many great companies, you know, that have basically offered a very simple capital allocation strategy and M&A and organic growth and sort of simple and mundane companies. So, you know, if you can sort of join that group, you'll be in high esteem and high company. Thank you again. All right.

Thank you so much, Adam, for that phenomenal question. Adam's hungry. He's down 50 pounds. He's looking great. And we're all ready to eat. Eric, Bradley, Ed, Dean, Josh, David, and the rest of the phenomenal Rick's team are leading the charge for world domination. And speaking of world domination, it starts tonight. For those of you who joined us late, you can meet management tonight at 7 o'clock at Rick's Cabaret, New York, one of RCI's top revenue-generating clubs. Rick's is located at 50 West 33rd Street between 5th Avenue and Broadway, a little in from Herald Square. If you haven't RSVP'd, ask for Eric Langen or me at the door. I will be busy using my own capital allocation strategy after 9 p.m. On behalf of Eric, Bradley, and the company, as well as our subsidiaries, thank you and good night. As always, please visit one of our clubs or bombshells restaurants to have fun.