RCI Hospitality Holdings, Inc.

Greetings and welcome to RCI Hospitality Holdings first quarter fiscal 2023 earnings call. 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. Please turn with me to slide two of our presentation. I'm Mark Moran, CEO of Equity Animals. I will be the host of our call today. I'm here in New York City with Eric Langen, President and CEO of RCI Hospitality, and Bradley Shade, CFO who is in Houston, home of one of my favorite clubs, Club Onyx, managed by Josh Brooks. 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's CEO and select the space titled Rick RCI Hospitality Holdings Inc. 1Q23 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 through traditional landline and webcast. With Twitter having glitches today, in the event of a crash, we'll restart the space, and if that fails, move to the dial-in. A question and answer session will follow, and this conference is being recorded. Please turn with me to slide four. I want to remind everyone of our safe harbor statement. 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. Please turn with me to slide five. I also direct you to the explanation of RICS non-GAAP measurements. I'd like to encourage everyone to retweet and share this space. Finally, I'd like to invite everyone listening in the New York City area to join me and Eric 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 Avenue and Broadway, a little in from Herald Square. If you haven't RSVP'd, ask for Eric or me at the door, where I will be deploying my own capital allocation strategy after 9 p.m. I'm pleased to introduce Eric Langen, President and CEO of RCI Hospitality. Eric, take it away. Thank you, Mark.

Thanks, everyone, for joining us today. Total revenue came in generally as expected, with nightclub segment having another great performance. This offset difficult bombshells comparisons. Gap EPS and net cash from operating activities and non-gap EPS and free cash flow were affected by repairs and maintenance capex that occurred in the first quarter. GAAP EPS also included 16 cents in non-cash intangible amortization and stock-based compensation compared to a year-ago quarter. Nonetheless, adjusted EBIT was up 13.9% year-over-year, and we ended the quarter with $34.1 million in cash. That was after making a number of club and restaurant and real estate acquisitions. Probably the most important thing that happened in the quarter is that we got off to a terrific start with our big three-year growth initiative. The goal is to continue our mission of growing free cash flow and EBITDA off a higher revenue base. We now have numerous acquisitions and projects in development. Highlights include our pending acquisition of a group of five Baby Dolls and Chica Locas clubs in Texas, the Rick's Cabaret Steakhouse Casino in Central City, Colorado, In addition, we have an even stronger lineup of new bombshells locations in three states in Alabama, Colorado, and Texas. I'll be back to tell you more and answer questions.

Now, here's Bradley to review financials. Thanks, Eric, and good afternoon, everybody. Looking at the sum of the major numbers for the quarter, total revenues were $70 million, up 13.2%. Gap EPS was $1.11, off less than 1%. Non-GAAP EPS was $1.19, up 8.2%. Net cash from operating activities was $14.9 million. That's off 8.4% from last year, mainly because we paid down more liabilities on our books in the first quarter compared to a year ago. Free cash flow was $13 million. That's off 14.6% because of the change in net cash from operating activities and about $1 million more maintenance capex that fell in the first quarter. Adjusted EBITDA was $20.5 million, up 13.9%. And weighted average shares outstanding declined 1.9% year-over-year due to repurchase over the last year. Please turn to page seven to review nightclub segment. Revenues totaled $56.3 million, up 20.4%. Gap and non-gap operating margin was 40.4%. That reflected increased operating leverage from higher sales In particular, higher margin service revenues, which increased 23.4%. This was partially offset by increased amortization of club licenses at leased locations. As a result, operating income increased 21.4%. Now, fiscal year 2022 and first quarter acquisitions added $15.3 million in sales. Same store sales were up 1.2%. This reflected strong contribution and growth from our white-collar clubs, mainly in New York, Illinois, and Florida, partially offset by some softness in our blue-collar clubs. In the second quarter, the 11 clubs we acquired in October 2021 will fall into same-store sales. Based on current trends, this should result in growth in same-store sales. Please turn to page 8 to review the bombshell segment with me. Revenues totaled $13.4 million compared to $14.8 million last year. Operating margin was 13.8%, primarily reflecting reduced operating leverage. Operating income was $1.8 million. Bombshells Arlington, which opened in December 2021, added $1.3 million in sales. Same-store sales were down compared to last year when the chain was experiencing very favorable local economic environment and a combination of government stimulus, people returning to work, and little competition. However, compared to pre-COVID first quarter of fiscal 20, Our December quarter same-source sales were up 3.6%. Please turn to page 9 to review our consolidated statement of operations with me. All comps as a percentage of revenue and compared to a year-ago quarter unless otherwise noted. Cost of goods sold continued at 12.9%. This reflected the increased higher margin service revenues in the sales mix. Salaries and wages were approximately level at 26.7%. Now, SGA was 32.5%. This reflected $900,000 of non-cash stock-based compensation and $400,000 of repairs. Now, if we exclude these two items, SGA would have been 29.5% compared to a year-ago quarter, which was 29.9%. Expenses associated with these newly acquired and reopened locations will subside as a percentage of revenues as they're self-built. The non-cash stock-based compensation is an ongoing item. While we have repair expenses every quarter, they're not typically as large as they were in this quarter. Depreciation amortizations were 4.7%. This reflected an increase in depreciable assets from newly acquired and constructed units. It also included increased non-cash amortization of licenses from the club's at-lease locations. Operating margins were 24.2% and 25.6% non-GAAP, the same as last year. Interest expense was 5.3% versus 4.2%. This reflected higher debt from our club and bombshell site acquisitions over the course of the year. Now please turn to page 10. We ended the quarter with cash and cash equivalent of $34.1 million. Free cash flow was 19% of revenues and adjusted EBITDA was 29%. That's a little below our targets of 20% and 30% respectively. Please turn to page 11 to review our debt metrics. Net of loan costs, that was $211.2 million at December 31st. That's an increase of $8.7 million from September 30th. This increase primarily reflected financing used in the acquisition of Heartbreakers Deal down in Dickinson, Texas, the Denver Food Hall, and the land in Lubbock, Texas for a bombshell location. Our weighted average interest rate continued at 6.35%. This compares to 6.6%. 6.26% a year ago and 6.73% five years ago. Our amortization continues to be within the $9 to $10 annual range, which is very manageable with our cash flow. Now please turn to page 12 to review some of our other debt-related metrics. The ratio of debt to adjusted EBITDA was 2.4 as of December 31st, well below our max comfort level of 3%. Occupancy costs were 7.8% of revenues, This continues to be well within the 6% to 9% range we've averaged when sales weren't dramatically affected by COVID. Please turn to page 13 to look at our December 31st debt pie chart. Our debt now consists of 61.9% secured by real estate, 25.2% secured by seller finance debt, secured by respective clubs to which the real estate data applies to, 4.9% of the debt is secured by other assets,

and 8% is unsecured debt.

Please turn to page 14. Now we continue to talk to new investors, so I'd like to take a moment 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 have been applying these strategies since fiscal 2016 with three different actions, subject to whether there is strategic rationale to do otherwise. The first one is M&A, specifically buying the right clubs in the right markets. We like to buy solid cash-flowing clubs at three to five times adjusted EBITDA, and we'll use seller financing and acquire the real estate at market value. Another strategy is growing organically, specifically expanding bombshells to develop critical mass, market awareness, and sell franchises. 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%. Now, let me turn the call over back to Eric to review our big three-year growth initiative.

Thank you, Bradley.

Please turn to slide 15. We currently have acquisitions and projects in development involving nine clubs. In October, we acquired Heartbreakers in the Galveston area. At the end of January, we reopened the day shift. We plan to finish the club's remodel in February, and that should help increase its contribution going forward. In late December, we reopened and reformatted a location in San Antonio as a Jaguars club. The first quarter provided little contribution, but we expect it will be a bigger contributor going forward. In mid-December, we announced definitive agreements to acquire a group of five baby dolls in Chico Lopez Clubs in Texas. We are awaiting transfer of liquor licenses. The clubs should contribute $11 million in EBITDA in year one, and once we complete our expansion plans, they should contribute $14 to $16 million in EBITDA. In December, we announced acquiring club assets in Fort Worth to create another PT show club. The remodeling is underway, and the reopening should occur in the second half of fiscal 23. Last year, we had to close our Jaguars Club in Lubbock, Texas because of an intimate domain issue. We acquired another location with the money the state paid us. It is currently under construction and opening is expected in the second half of fiscal 2023. Fiscal 23 will also benefit from a full year of the 15 club acquisitions and three club and club related restaurant openings we made last year. I'd like to highlight the value we added in our big October 2021 acquisition of the 11 clubs. Based on our management and optimization, we increased adjusted EBITDA 24%. That means we paid four times for the operating assets compared to our original estimate of five times their pre-COVID adjusted EBITDA. Please turn to slide 16. We have nine locations in the process of acquisition or development. In late December, we acquired the Denver area food hall. We are currently remodeling it and installing the bombshells kitchen. That is expected to be completed by the end of February and an increased contribution in March. Earlier this week, we bought out our San Antonio franchisee for $12 million cash and $2 million in debt. This is one of the best performing bombshells. Construction is continuing at our Stafford location in the greater Houston area. Building permits have been approved for our Rowlett location in the greater Dallas market. We are currently reviewing construction bids. In Lubbock, we are awaiting a building permit for our location. Our second location, Austin, Texas, is now pending site review. We have an LOI for a location in downtown Denver with an existing building that will work very well for bombshells. And we estimate it will take about a million dollars or less in work to get it open. Our Huntsville, Alabama franchisee is awaiting his building permits and annexation of his land into the city of Huntsville. Regarding our other Denver location in Aurora, our plans are in process with the city. If you'll turn to slide 17. In December, we announced acquiring a 30,000 square foot building in downtown Central City for only $2.4 million for our Ricks Cabaret Steakhouse and Casino. We have applied for our master casino license and are moving full steam ahead on this. Turning to slide 18. This slide compiles all of our capital allocation to date for this fiscal year, including some shares we repurchased in the first quarter and the major acquisition we have pending. Altogether, we are looking at allocating about $93.2 million so far this fiscal year And I estimate approximately $20 million in additional capital expenditures will be used to build the improvements for these properties that are still in development for last, and the properties still in development for last year. As I've said, our goal is to allocate about $200 million on average per year over the next three years. Please turn to slide 19 for an updated on our geographic focus. In the first quarter of 2023, our regional revenue breakdown was Texas, 38%, including bombshells. Florida, 25%. New York, 9%, a little higher than fourth quarter, 22. Illinois and Colorado, each at 7%, and the other eight states combined for 14% of revenue. This demonstrates our geographic diversity, our exposure to growth states like Texas, Florida, and Colorado, and how we develop business clusters in key areas. I want to say thank you to all of our loyal and dedicated teams for all their hard work and effort. We can't do it without you. Now here's Mark.

Thank you very much, Eric and Bradley. I want to encourage everyone to retweet and share this space. And I'd like to give a special shout out to Cynthia Daniels. I was very much enjoying your profile while Eric was speaking. 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 back to the audience to free up space. To start things off, we'd like to take questions from Rick's analysts and then some of its largest shareholders. Our five analysts are Scott Buck of HC Wainwright, Anthony of Sidoti, Lynn Collier of Watertower Research, Rob McGuire of Grant Research, and Joe Gomes of Noble Capital Markets. First up, we have Scott Buck. Scott, take it away.

All right, guys. Thank you for taking my questions. First one, Eric, could you talk a little bit about the trends you're seeing in the clubs in January and this first part of February? Still seeing some of those soft pockets in the blue-collar clubs, or has that kind of worked itself out?

Yeah, I mean, I still think there's a little weakness. I was going over everything, looking at a four-month trending trend. deal with October, November, December, January. This January total sales were a little over October and I mean, I'm sorry, a little over November and December's total revenues. So I think that's a promising deal. Typically, when we see these slowdowns, they affect us for about six months. I think the slowdown started in November based on what I'm seeing. So I'm hoping that it'll be a little shorter and that March, I think, is going to be the big turnaround. For us, of course, we have Super Bowl this week, so this week will be abnormally affected by a one-time event for this weekend, especially out in Phoenix Market, as well as the two great teams with the Eagles and Kansas City in the Super Bowl. I think that's going to help a lot with viewership. It's going to help the bombshells in Texas as well, I think.

Great, that's helpful. And my second question, Bradley, should we think about these higher than anticipated repair and maintenance costs as a pull forward from future quarters, or is this in addition to?

No, last year was the same thing. We had $4.5 million in maintenance CapEx. I wanted to clarify something. So last year we had that, and this year we had $6 million as our target. So $1.5 per quarter is what our maintenance CapEx should be. Now, that's an impact to free cash flow. However, what we're talking about is repairs and maintenance costs. those repairs were done in part of the winter storm and all that stuff and some plumbing. We don't anticipate higher than expected repairs and maintenance expense going forward.

Great. I appreciate the additional cover. Thank you very much.

Scott, next up, we're going to have Anthony. Anthony, take it away.

Good afternoon, and thank you for taking the questions. So as far as bombshells, the operating margins there were lower than what we had projected. Can you just talk about kind of what happened there and then how should we think about segments, the margins there going forward?

Yeah, I think we just, you know, we got a little surprised at some of the weakness in late October, I mean, late November and December. You know, the margins, I think we'll return to a more normal mean of 18 to 22% as we move forward. The Houston market was extremely weak. The Houston Texans did not contribute anything at all this year, which hurts a little bit in that marketplace. Overall, I think that Bombshells is going through a little bit of some growing pains in that in the previous years, we've had less competition in the marketplace because so many places were closed. We were some of the only places open after COVID. We were first open after COVID. And there was a lot of vacant buildings. And I think over the last year, especially in the Houston and Dallas market, those vacant buildings have been reopened. New businesses, new restaurants have moved in and come into the marketplace. And they're going through their honeymoon periods because they're new. And so everybody rushes to the new place for a while. But I think over the next few months, we're going to start seeing some of that return back to normal where the customers kind of float around a little more than they were as those places are no longer in their honeymoon periods. Excuse me. I'd also like to remind everybody that, you know, same store sales were still up 3.6% from our pre-COVID 2019 numbers. So overall, bombshells is still on course for stuff. We do have some, you know, some costs, you know, the Grange food hall is in the bombshell segment because it's a restaurant. So we put that in the restaurant segment. So there were some costs there in the first, you know, last 10 days of December that didn't really contribute revenue. And I think as the Grange, we're doing the remodel. The new TVs are in. The games are in. The actual Bombshells kitchen construction starts next Tuesday, should be finished by Friday or Saturday. And we hope to have that open by the 1st of March. And so we'll have a lot more contribution from the Grange this year and this quarter, as well as for March and then, of course, going forward. But we also have the, on February 1st, We took over operations from our franchisee as they lost their operating partner and the investment partners decided they wanted to sell the location. And rather than trying to go through the whole franchising process and finding somebody, we just discussed them selling us the location. We financed that location with $1.2 million cash down and a $2 million five-year seller note. So a very manageable note for us with that location averaging sales of about $120,000 a week. That's about a six-minute-a-year unit. So I don't think we could have even built the unit for that cost. So it's an upgrade for us. It's sad that we lose a franchisee. We're really hopeful on the franchisee model at some point in the future. Maybe our Huntsville will be the guy who's successful. But at the same time, we pick up a fantastic location for ourselves.

Okay. That's good to hear. And then given the choppiness and traffic in both of the blue collar locations and bombshells, are you guys maybe perhaps rethinking your promotional strategy to do maybe more specials as far as for food or drinks or like, how are you thinking about that?

Yeah, absolutely. I mean, we've been, we kind of switched modes, uh, in early December. We didn't want to get too crazy about it in December because we did have a lot of pre-planned parties and Christmas party and stuff. We did get affected a little bit. Pre-Christmas was pretty decent, then it slowed down. The week between Christmas and New Year's was a little off, but then New Year's weekend was fantastic for us. So it's been a strange, I will say it's been a little strange adjusting to it, right? Because I call this a psychological recession. in that there's plenty of jobs. People can go out and earn money and make money very easily right now. It's just, it's psychological. Everybody keeps saying, oh, things are going to get bad. Things are going to get bad. And people are seeing prices a little higher. And so I think there's still a little sticker shock on certain items and certain prices out there. But overall, I think that by March, I'm thinking by March, it's going to lean out. We've adjusted our plans. We're seeing, like I said, January was better than December and November in total revenues. You know, February is a short month. We only have 28 days, so we don't get those extra three days. So we'll see how February comes in. But I think on a per week basis or, you know, if you do an average daily sales, I think February is going to be up from January. And I expect March will put us back on the path and we'll have to see how it runs through the summer.

Got it.

Thank you very much and best of luck. Thank you very much, Anthony.

Next up, we are going to have Lynn Collier of Water Tower Research.

Thank you very much. Eric, I wanted to ask you, do you have any other color that you can provide on the casino in terms of the progress you're making?

Well, yes and no.

We're in some negotiations right now. We've tried to complete with a national partner that's not quite done yet, but we're working on that process. Hopefully by next week we'll get some color on that, which I think will be exciting for us. Overall, we've done our 3D scans. We're starting all of our layouts. We'll be up there Monday after Super Bowl. with some of our operational team. We're going to actually do floor layouts and flow patterns for the location to get to the architect. I suspect and hope that we'll have the roofing and HVAC systems repairs and replacements started in April and hopefully completed by the end of April. My personal goal is to have the casino turnkey ready to open by November 1st. A lot of that will depend on whether we can get our preliminary approval, uh, by June 1st, uh, which we should be able to do because that's about six months. Uh, and typically it only takes three or four. So we may have it much sooner. Uh, we've been in licensing, uh, I guess going on about, uh, see the December jam, about two and a half months. So hopefully, uh, based on what we've, what we've hear from historic, from other, uh, operators in the Colorado market is that, uh, between four and six months, you typically will get your preliminary approval so you can start your casino setup. So if everything goes right, we'll be turnkey ready by November 1st. And our total costs on that, we're buying most of our machines. We're not going to do a lot of leases or what they call participation machines. Should come in just under $10 million between the remodel the machines, the table games, everything else, the security systems, that type of stuff. So anything, including the land and building costs of 2.4 million. So basically I figure we're going to spend about another six and a half million on, on build out and, and gaming devices and leave us about a million dollar bank for, for startup.

That sounds great. Thank you so much. I just have another question. It was, Being in Dallas and the weather's been pretty unfavorable, I know we're only a few days into February, but can you comment at all on how the weather's impacted the last couple weeks or so in Texas?

Yeah, we had 10 locations that were closed for two days. Six of those locations were closed for a third day. We also had a tornado that hit our Fuquay location in South Houston. It was closed for a couple of days while we got some of the repairs done, and there was no electricity on that part of town down near Deer Park, Texas. You've seen it on the news. That's where the tornado actually hit. We just got the tail of it, I think, or the beginning of it. I'm not sure which. But it was a pretty bad tornado. It actually ripped the metal top off of our garbage dumpster, and it blew out the fence on the roof, like the AC units. HVAC system, or the VIN hood system was damaged, so we had to get that repaired. We have insurance, so we'll worry about the insurance part of it later. Right now, we're just getting everything fixed, got it back on, but this store closed for about two days. So there was some minor stuff, but most of that, I think there was two days in January and then February 1st, I think, if I remember correctly. It might have been all three days at the end of January. So our January numbers, which I said were better than November and December, we're affected by those 10 stores closings as well. So I think we would have been a little better off with those 10 stores if we got those three days from those 10 stores.

That's great, Culler. Thank you so much. I just have one final question, and that's about bombshells in Colorado. How many units or restaurants do you anticipate being able to build in the Denver area over the next couple of years?

We have about six site locations or area locations that we're looking into. Right now we have the one in Aurora. We have a downtown Denver location very close to the convention center that I think will be just an unbelievable location. And I won't call it a turnkey location, but it's pretty close. Everything we're going to do is cosmetic. The previous operator left everything in the building, so all the kitchen equipment's there. It was a large operation, great location, and hopefully we're in the contract negotiation to get that under contract and close. And I think that if we can get this done in the next week, that we could actually have that location open in time for the football season when the Denver Broncos have their first home game. That's going to be our goal is to get that one. So that one could be open very quickly and very inexpensive. total cost of probably less than a million dollars on the build out. And we have bank financing on the purchase. We're buying the property, so we'll have bank financing on the purchase. So it'll be a super fast cash on cash return as well for us. So I'm excited about that location.

That's great. Thanks so much. I think I'm good for now. Congratulations on another great quarter. And thanks again for taking my question.

Thank you. I appreciate it.

Thank you so much, Lynn. And Eric, I just wanted to give you a second to clarify something, because I believe that you might have said the San Antonio Bombshells franchise was acquired for $12 million versus the $1.2 million.

Well, $1.2 million in cash and a $2 million note is what I thought I said. So if I misspoke that, I'm sorry. That is the total purchase price was $3.2 million, which, like I said, is less than we could probably build that location for. And it's $1.2 million in cash, $2 million on a five-year promissory note.

Phenomenal. Thank you so much, Eric. And then thank you again, Lynn. Next up, we have Rob McGuire of Granite Research in the poll position. Rob, take it away.

Nice quarter, guys. Can you give us an update on perhaps when baby dolls could close and anything unusual going on with those alcohol licenses or any color around that?

Yeah, I really thought we closed by February 1st. That was my plan. We were prepared and ready to close by February 1st. We have the line of credit set up through our bank, ready to draw down on as soon as we need it to close the transaction. What's going on right now is they had a couple of outstanding issues And so the textile beverage Commission has put a administrative hold on the transfers So they can't turn their licenses in so ours can be issued and ours aren't ready yet due to a couple of other issues with With the cities, but all of our stuff is now in it's in processing with the textile beverage Commission we're You know as they say waiting on the government so hopefully I know the attorneys are working and Probably we'll have more color based on our discussions by February 20th. I would love to see us close by March 1st, but it could be March 15th. It could be March 31st. But I do think we will get it closed in this quarter. That's seven weeks. Surely they can resolve issues, you know, even dealing with, you know, state agencies. The problem is we have a sense of urgency, but they just don't have a sense of urgency. They want to get through the process at their speed and their time, and we'll just be standing here waiting to go. But everything on our end is ready to go. We're ready to close the transaction. Like I said, they have the money in the bank, the line of credit set up, and we're good to go. So our teams are ready. We've already preordered all the POS equipment so we can – excuse me. So we'll have the POS, you know, and immediately everything on our side to go. We're just waiting for those final approvals. So it could be, I guess it could be March 1st, could be March 15th, could be March 31st. But I think sometime in that time, they gave me a couple of time deadlines on typical time it takes to do these things. And I think one was March 20 or I mean, April 20 something, March 3rd date. And I remember seeing like a March 13th date or something. So, Sometime in that plan, we'll get it done. But basically, as soon as the licenses are approved, I think we'll probably try to close the next day or the day after.

Thank you. And then just turning to Denver, can you talk about, you're looking at six potential bombshell area locations. You've got two under your belt, and you've been able to acquire that land for less than what we've seen in Texas. Do you expect that trend to continue with the other four locations if you expand or continue to expand there?

I think so. I mean, we've looked at some properties that are more expensive than Texas in that market. But there's still a lot of vacant restaurant space out there. Unlike Texas, which opened pretty quickly, they were closed for a much prolonger period of time. So a lot of what I would call better operators still walk their locations out there. So there's still a lot of land, I think, tied up in courts and leases and stuff. uh, issues. So we're, we're sorting through all that, trying to find the right locations. Uh, obviously I have seven on my plate right now, so I'm not in a hurry. Uh, we are, we are lined up for 2024. Uh, I think one of the problems, I think what people don't realize for like 23 is the only growth we have to grow through acquisitions in this year, because we weren't doing any, you know, uh, we weren't lining up these things in 21 and 22, uh, like, or I'm sorry, 20 and 21, like we normally would have because of COVID. And so, you know, the bombshells has taken a pause here, but now that we're coming back online and I think some of that has, you know, not having new growth, you know, kind of dulls the excitement for the brand a little bit as well. So that could have some effect on us as we move forward. But I think as we start, as we get to the end of this year and we start opening up new locations again, and we energize our management teams with upward mobility, I think we're going to see some great things out of the Bombshells brand again. And, you know, provided we don't have, you know, another kind of COVID shutdown or anything like that ever again, I think that brand will do very, very well over the next three years as part of our plan to get us to that 30-plus units and get us to 50 million-plus even out of our restaurant division. So I don't think we'll have any problem getting there.

I appreciate that. And then shifting, uh, staying in Denver, but shifting to the nightclubs, um, you talked about the substantial improvement in operations from the 11 nightclub acquisition you made, but can you talk about potential for love for him to, uh, continue to improve here and just give us the backdrop on that?

Sure. So the plan is to convert that location into the, into Rick's cabaret, Denver. Uh, I know that the level him name has been there for a long time, but, uh, With the convention business there and the people that travel from out of the country, Chicago, New York, and Miami, other major markets where RCI operates, we think that the Ricks brand will do very, very well there. We've been waiting for approvals for permits and the outside remodel and sign permits and that, which are all starting to come in, and we hopefully will have that location converted by April.

Well, that's it for me. Thank you so much. Congratulations on the quarter.

Yep. Thank you, Rob. Hey, this is Brad. Just one clarifying point. The Bombshell San Antonio franchisee location, I know Eric said $1.2 million down, $2 million note, five-year am, but two-year balloon, 7%.

Just wanted to put that all out there. Thanks. Thanks so much, Bradley.

And good thing you are not referring to the spy balloon that was recently hovering over. Rob, thank you so much for the question. And I want to encourage everyone to also check out Rob's recent video on misconceptions of the adult entertainment industry. Now, before we move in to our open Q&A session, I'd like to encourage people to raise their hand, to be called up, to be able to ask questions. We're going to bring in Joe Gomes as our final equity research analyst up to ask questions. Joe, take it away.

Thanks, and congrats on the quarter. Just wanted to go back to bombshells for a second. I know we're kind of beating a dead horse here, but maybe, Eric, you give us a little more color and detail as to how the San Antonio operator kind of left, so to speak. And even though Bombshells is performing better than pre-COVID, it has been somewhat negative on the same store sales basis here the, I don't know, last four quarters or so. How is that impacting your efforts to attract additional franchisees?

Yeah, sure.

I mean, right now with the current economy, we're not getting a lot of franchise calls because it's a $6 million plus investment. And people are, I guess that's a psychological, I call it a psychological recession where people, nothing's really changed for them other than maybe their gas and food's up for, especially for your, you know, maybe your top 50% of the population, your bottom 20 are probably getting very squeezed by those things. But there's plenty of jobs for, especially in the, you know, even with the tech layoffs, you know, if you read the reports, most people that were laid off in the tech reports were back to work within one week. Unemployment claims didn't go up. When's the last time hundreds of thousands of people were laid off in a recession and unemployment claims went down? So there's plenty of jobs. And so when I say psychological, I mean people are expecting things to get worse, and so therefore they're changing habits. And those changing of habits are what we have to adjust our business model to. I think we're doing a fantastic job of that. As far as beating the bombshell horse, look, we've expected – We knew we were going to get very hard comps. We knew that as all these new restaurants and all these spaces were being leased and we saw the construction going up that we were going to be affected for a period of time at those locations. We're adjusting our model. We're doing the things we need to do to get bombshells back to their 18% to 22% margins. Excuse me. And I think it's just going to take time. We have to work through it. It's just like You know, when everything back in 2008, 2009, when we when we saw the, you know, our earnings dropped eight cents per share from from from the 20s. And that was the first time we experienced anything like that. And so we had to adjust our models. It took us a little longer. I think this time we've adjusted our models very quickly. Instead of globally, because of the information systems Bradley's put in place for us, we're able to do this on a regional and club by club basis. And that's why we know. That the recession – or I say recession, the slowdown, whatever this period of end, the consumer trying to decide whether they want to keep spending their money as freely as they have in the past or in case it slows down has been to the point where it's affected certain clubs and not other clubs. And so instead of switching the model at all of our clubs across the country, like we did in 2008, 2009, we're able to target specific locations and make those adjustments. And you'll see the clubs are still positive. Our clubs are still comping positive. You know, the bombshells is a little different market in that it's not as geographically diversified as the clubs are. It's all Texas-based, mainly Houston, where, you know, the majority of our locations are in Houston, Texas. And so, like I said, we're affected nationally. We're affected by sports because we're sports bar. So when the Texans are, you know, winning three games in a year and one of them was shouldn't have been one because they lost first round draft choice. You know, those are the kind of things that are affected the bombshells market a little bit. As we move into March, we're going to have March Madness, the Sweet 16s in Houston, Texas this year at NRG Stadium. That's going to be a huge event for us. First of April. So I think going forward, we're looking at easier comps because now we're comping against a period where we had a bunch of new locations for other businesses opening and honeymooning, going against very strong comps. And like I said, I'd just like to remind everybody that those bombshell segments, while our margins are a little off right now, we're making some adjustments to get those back in line. But our overall revenues are still up 3.6% on a same-store sales basis from 2019 pre-COVID. So, overall, the brand is still as solid today as it was in 2019, maybe not as strong as it is when you're the only one selling liquor in town, but still very strong overall. We've just got to get, like I said, some of the costs in line. It's very difficult. Your beef prices change daily. Your chicken prices change daily. Your labor costs have had a creep. That is loosening. You know, I think our like chicken has come way down in cost. But it may go back up with, you know, with all these egg shortages and whatnot. They end up having chicken shortages at some point. So we've got to watch those things. We got to adjust to them and keep our prices in line and keep things working in the right direction.

Thanks, Eric. One more for me here.

You didn't talk anything at all today about Admire Me. I was just wondering, maybe give us an update on where that program stands today. Thanks. Sure.

So as of January 1st, we have replaced our developers. It was a very tough decision. And our developer was a Ukraine-based company. You know, the Ukraine is in a war, as everyone knows. We tried to stick with that group, and they've just been unable to perform and meet the standards and the timelines that we wanted. The new company came in on January 1. They took about six weeks to basically learn all the code, get the code together. They're now making a lot of the what we call bug fixes and getting the bug fixes fixed so everything works correctly again. I would suspect that in about three months, time they will get us a viable product. That's our hope. I think the problem with all the bugs and things that just weren't working properly, we were just spending money trying to get, you know, we'd pay them to fix something, and while they fixed that, they'd break something else because they weren't a coherent team. The new group we have is a very coherent team. They're working very well together. We've seen some major improvements in, uh, the site, as far as the things that didn't work are all fixed. Uh, I would, like I said, I expect about three more months. We'll, we'll have, uh, maybe next quarterly call. We'll have some much better news on, on that front. But, uh, you know, that's the problem with technology. Uh, but at least we're not, you know, billions of dollars in like, uh, meta we're, we're, we're keeping our costs, uh, relatively inexpensive, uh, relatively low number, uh, for the company on that, on that transaction. Great. Thanks for the insight, Eric.

Congrats again on the quarter. Thank you. Thank you so much for the questions, Joe.

We actually just got interrupted by a few individuals who walked into the office. We have Lars, Tyler Morin, and Dave Portnoy of Barstool Sports. Thanks for coming, guys. Tyler, you look like you got a question to ask. You want to ask anything?

Yeah, I do. Congratulations on the quarter, Eric, your quarter. I want to talk a little bit about what you guys are doing out in Colorado. Seems like you're spending quite a bit to get into the gaming space. I just want to know a little bit more about that, about what the expansion plans are there.

Sure.

Thanks for the question. The main thing we're doing out there right now is creating an entertainment zone. If you're familiar, I know Barstool Sports and Penn Gaming have the Ameristar out there, great property, one of my favorites. But there's no entertainment. There's no nightclubs. There's no fun places, I would say, other than casinos. If you only want to gamble, you want to hit the tables, you want to hit the spots, that's great out there. If you want to go to the outdoors, it's great. But as far as nightlife and for younger people, you know, one of the big things when we first started looking up there, and I almost passed because I was like, well, I mean, Colorado, man, they've had casinos since the 1990s. Come on, this is nothing new. Why would I go to this market and try to do something that nobody's been able to work for 30 years? And so I started studying. I said, well, wait a minute. They had $5 bets, and they had $100 bets. Wait, now there's no limits. In the trailing 12 months through June 30th of 2022, $9 billion went into slot machines in Blackhawk Central City area. The average keep was 8%. It's huge. The amount of money was huge. And so we said, well, okay, how are we going to differentiate ourselves? I'm not going to come here and just be the same thing. And so we said, well, let's build a club. Let's build a Rick's Cabaret up here, and let's have nightlife entertainment. Let's turn the music up, and let's draw. the 30 year olds up here, because right now they rarely come up here. As we, as we were going to the clubs, I was talking to all the people in our clubs, especially all the entertainers, the wait staff, our marketers, you know, all this age group, that's that 20 to 35 year old crowd. I said, Hey, y'all want to go to central city? Y'all want to go up to Blackhawk with me tonight? Why? Why? There's no reason to go. Cause there's nothing to do. And so what we want to do is create, you know, take main street and then city of central and say, Hey, You know, let's do some music festivals. Let's do, you know, street festivals. They already have some, but, you know, what if we do all this stuff? And in the meantime, if we can control the nightlife. So on the street festivals, they got to close at 11 o'clock because it's a residential area. So all this stuff closes down at 11 o'clock. We pull everybody into the buildings. We build a couple of nightclubs or, you know, and turn the music up. And I think we can do some unbelievable business up there.

Phenomenal. Thanks so much for that question. Now, Next up, let's bring Adam Wyden up. Adam. And Adam, before you go, I'd just like to encourage everyone to raise their hands if you have a question so we can bring you up as a speaker.

Adam, I think you're on mute. Can you hear me?

Now we can hear you. Perfect. All right. Thank you, guys. You guys, this presentation had a lot of good disclosure that you didn't have in the past. So I just want to go through some sort of logistical questions, and then talk bigger picture. So on slide 15, you have a whole thing about club acquisition and development, and then slide 16, bombshells acquisition and development. And as you know, in restaurants and sort of club business, when you're doing a lot of remodels and you know, you're, you know, Bradley talked about, you know, maintenance capex and repair and maintenance, but I suspect, you know, a lot of the, you know, clubs that you had to shut down, clubs that you had to reformat, the Grange or the Beer Hall. I mean, you're running a lot, you were running a lot of stuff through the P&L that is going to be a cost center that will be a profit center as you roll in 23. I mean, and then on top of that, you know, you have all the legal and transaction work associated with, you know, baby dolls and and, you know, whatever you're doing on the casino front. And, you know, can you try and sort of give us a sense of sort of, you know, how much sort of, you know, I don't call it one time, but sort of how much sort of pre-opening or growth capex or sort of one-time stuff that sort of will be reversed in the coming periods is that, you know, we sort of have our arms around sort of two or three million of EBITDA. Is that sort of a good place to start in terms of sort of, you know, not recurring sort of inflation hit, but more just sort of one-time cost investment that will manifest itself in revenue in future periods. Yeah, so let me make it real simple, okay?

Other than the San Antonio franchisee location, every one of these properties involve real estate that we now own. And so we've purchased that real estate ahead of time. So there's carrying costs. Like you said, there's legal costs, survey costs, those types of things. Those are not capitalized. Those are expense for the most part. And so, yes, there's cost there. You also have interest-carrying expense, right? So now these things are carrying interest, and so we're having – it's not a lot of expense, but when you look at this many properties, it starts to add up, and it becomes a larger number. And what you're going to see as we move into the end of 23, the second half of 23, definitely I think in the fourth quarter of 23, you're going to see these – the early units of Heartbreakers, Jaguars, San Antonio, the acquisition for Baby Dolls, which I – Certainly hope we close by March 31st. I mean, I will be all over lawyers if we're not open, if we're not done with this by then, but they should be able to get this work done. Our side is done. Like I said, we're just waiting on the state of Texas and the seller to work out a couple of issues they have with each other. You know, the Jaguars Club in Lubbock, which is under construction, the PD Club, all those are taking cash out right now, but that's going to reverse as soon as they open. As soon as those locations open, And it's a double source. So let's say we've been spending half a million or a million dollars a year, and now all of a sudden you've got units that start making between half a million and $2 million each unit here. All of a sudden you're going to see those big swings, right? So if you were losing half a million, you make a million, it's a million and a half dollar swing in EBITDA. And so we're going to see those things come to fruition. I think in March you're going to see a couple of the locations really pick up. The Denver Food Hall definitely will have an unbelievable march. I know Heartbreakers is set up with the We ran the opening at the end of February to really lead us into March as well with the new day shift open and the construction. The VIP room construction upstairs is about 85% complete. I know they were doing sound and lights last week when I was down there. So that's all being done. That site should be done pretty quick. I was just at the Denver Food Hall on Monday. All the new TVs are in. We have a 220-inch screen up. A bunch of 90-inch televisions are all around the place. It looks unbelievable compared to what it was before. Everyone there is very excited. Business is up. January, I think January this year over January last year, sales were up about 42%. But that's still not, you know, not where it needs to be yet. And it's because, you know, we lost the largest sales. Over 30% of their sales were the single booth that moved out. where Bombshells is moving into. And so when that location reopens in March, that's going to be big for that. So you have a lot of income coming in. Stafford location right now is targeted for 24. They're a little ahead on construction, so hopefully maybe we get that one a little early, which will be nice for a change since Bombshells construction usually runs a month or two over. So I'll be excited if they get done early. We're very close on the Rolette. We finally worked everything out with the developer. Because our bids were extremely high because they had us doing a bunch of work that the developer had to put in, you know, the roads and stuff like that. They were not our – the city may have put them on the plans, and so everybody thought we had to build those, but that's the developer's part of that. So we finally got that worked out, so that construction should start soon. The club in Lubbock's construction has started. The club in Fort Worth's construction has started. We're waiting permits. So the Lubbock is probably a few months from starting construction, and Huntsville is only a few months from starting construction. So there's going to be a lot of stuff that's going out. But the main thing is we've spent all these friends, right? We've paid the architects. We've paid for the building permits. We've paid for a lot of this stuff is in our costs. So that will get much better as we move forward.

Okay, perfect. Moving to – I've got two more, and then I've got kind of a more qualitative one. on slide 18, you added this fiscal year, 23 capital allocation of $93 million. And that includes baby dolls and buyback and heartbreaker and this and that. And I know you're, you're going to put more money in the casino, but you know, you sort of committed to doing $200 million a year. Now, obviously if you invest another, I think you said another $20 million on top, you know, what you've already invested so far. I mean, do you still think you can fill out, you know, that $90 million? I mean, that, that could be, you know, that could be sort of two, you know, that could be, you know, sort of a few cheetahs or another big, you know, you know, a baby doll or Lowry. I mean, do you still think that you can get another sort of large size acquisition at least announced this year or even closed, you know, another big deal or another couple of mediums to kind of get you to 200 or several smaller units could still happen.

We've got about 90 million, right? We're at about 110, right? The 90 and the 20 to get you about 110. So you got about 90 million. So we want to get invested this year. We're talking with several operators. And yeah, I definitely think, you know, last year, you know, we closed, you know, the Cheetah Club in May. We closed another club in August with Playmates. So, I mean, yeah, we've got plenty of time. We're literally four months and nine days into the year, right? So barely over a third of the year is over and we've, you know, lined up 110 million investments so far. So to think that we can't line up another 90 million in the next eight months, I guess I could take a long vacation and miss, but I don't plan on doing that, so.

Yeah, actually, this is helpful. And then, you know, I'm going to have a share of my questions sort of out of order. But like, you know, I was talking about it with someone that works internally, you know, at the firm. And, you know, he isn't an analyst, isn't a stock person, which sometimes is helpful, you know, having sort of non-stock people. And they said, well, you know, and in the old days, you know, you got all these guys that are getting older and, you know, they weren't earning any money in the bank. and they just went through a global pandemic. Now you're giving them 6% seller finance, and there's actually a cost to their capital is sort of the point that we're making. I mean, you see this in the 80s. You see these periods where interest rates go up. Smaller guys sort of get squeezed out. There's a cost to their money, and you sort of see consolidation. I mean, do you think the higher interest rates and sort of just going through COVID actually brings some of these guys and say, look, I don't want to go through another downturn. Eric's going to give me you know, money for my club. He's going to pay me, you know, cash stock, you know, 6%, you know, six, 7% on a, on a mortgage. I mean, don't you think that like, you know, this environment where, you know, capital has a cost might actually bring some sort of, you know, older guys and saying, look, you know, I'm going to use this as an opportunity to sell, you know, cause interest rates could go back down in theory. I mean, do you think that this environment sort of lends itself to consolidation and people coming to you and say, I'm finally ready to sell?

I mean, I think we're getting those calls. We've been getting those calls. COVID kind of got some pretty major players interested in selling. As you know from the Denver acquisition, which has been fantastic for us, I think there's still room. We're still going to have growth. I mean, trailing 12 months, 24% increase over their 2019 numbers, and I think that we'll see uh you know more increases in trailing 12 months from today i think that number is going to be even better uh so as we move forward uh i certainly think there's plenty of there's plenty of opportunity out there for us uh i am being a little pickier uh because i've got so much on our plate right now and that's one of the things i wanted to lay out uh in this in this slides is just how much We've actually been working, right? Because you guys don't see this. Until we announce it and we open – when I buy a million-dollar piece of land or a million-and-a-half-dollar piece of land, it's not material. I don't put out press releases over these small things, but we have a lot on our plate right now. We're ready for more on the right of the right kind of deals. I mean I've been talking with a couple of owners, and I was like, look, they're like, I want four times or I want four-and-a-half times. And I'm like, well, you've got a three-times unit. I'm sorry. I can't pay you four and a half times for a three times unit. If you want to give me some better terms, you want to carry more paper. You want 65% cash down. That raises my cost, so I'm going to pay you less. One way or the other, it balances out. Now, if you want to take the finance portion of what I'm willing to pay for your free cash flow and carry the paper, sure, I'll be happy to give you that. You carry more paper. I'll give you another point of interest, but you don't take any of my cash from me. If I can go in there and generate the income from their particular location to pay for it, then yes, I'm willing to give them a little better multiple. But when they increase my risk factor or I'm in a market that I'm – it's not a major market or I'm not extremely comfortable with the market, I'm going to pay less for it. And we've been talking about this. You know, a guy said, well, you know, I don't want to sell my club to anybody else. I said, what you're really saying is nobody else wants to buy your club for this price. And I can't buy it for that price either. This is the price I will pay. Call me when you're ready. And I guarantee you one day we'll get that call. We're probably paying, you know, it's not that we're paying the top price because people offer them more money. What we are paying with is reputation. We're paying with history. We've never missed a payment. In 30 years, we made every payment to a seller we've ever promised to make. We made every payment through COVID to 90% of our seller finance notes. And the only ones we didn't pay were because they said, hey, don't pay me. I know you guys are suffering right now. Don't pay me. You guys have been good to me. Take three months of payments and just defer them. We'll work it out later. And so we were able to do those types of things. And so that's why we are the preferred buyer because they know they're going to get paid. People offer them more money, but they want less cash down. They want – they offer them higher interest rates, but they're never going to get their money. Plus, they also know that when we take over their club, we're not going to run their club into the ground. We're going to remodel. We're going to build it. If they ever did get it back from us, it would be in better shape than it was the day they gave it to us. Whereas if they sell to these other – if they sell to somebody else who's carrying so much paper and they're carrying – they may be struggling as they go, and they may not – not only are they not paying the payments, but they're going to run their clubs into the ground as well. And so that's what we're using as our past reputation and how we do business. And they can call any owner. If there's an owner out there looking to sell their club, you can call anybody we bought clubs from that no one that I know of will say a bad thing or has ever said a bad thing about us. on how we do business, on how we treat you, and how we work with you through anything that comes up.

Yeah, no, I definitely, and the other thing that we've sort of gotten in our research is like, you know, there's basically one large strategic who is not really active in consolidation anymore, Deja Vu, Harry, you know, and so like, there really isn't anyone who has the balance sheet to sort of facilitate transactions like Baby Dolls or VCGH or what have you. I mean, you're, you're really the only guy out there that can, you know, sort of, you know, do it right. That has the ability to close and get property level mortgages and fund the cash down payment. And I mean, I don't think a lot of people have $30 million of cash or $25 million in cash to buy a 10, $15 million EBITDA asset. So it's, I worry less about, you know, competing for the asset and more about sellers sort of wanting to sell to you and, and, and, you know, having a cost to their capital. But yeah, no, look, I think, you know, we've still got a long way to go on the M&A. And then the other part is back to the casino. You know, I think you've been a little bit cagey about this. And so, you know, again, and sort of true to Adam Wyden form, you know, we've done our own sort of diligence. And, you know, I know a guy that, you know, operates slot machines down here, operates Racino. And, you know, I sort of do the math on 30,000 square feet and the number of slots. And I can sort of back into it if you guys are going to spend $10 million and, most of that is, is sort of slot and gaming. You're not participating. I mean, you know that, you know, I, again, again, I don't know what you're doing with your online gaming and your sports betting, but I suspect that's part of the equation as well. I mean, you know, you know, there are scenarios where, you know, a 30,000 square foot casino, you know, could generate, you know, in the tens of millions of EBITDA. I mean, I, you know, I know it's sort of early in the evolution, but I think it would be helpful because I think, you know, again, I, I don't, I, I, Look, I'm annoyed that we spoke this much about bombshells. I mean, you know, Baby Dolls is double the EBIT that all bombshells is doing. I mean, one freaking transaction, you know, is 15 million of EBIT pro forma versus, you know, 8 million of EBIT out of bombshells. I mean, the fact that we spent the first hour on the call is just absolutely abhorrent. But separately, you know, if I say sort of separately, I sort of look at, you know, a lot of guys are like, well, he's doing this casino. It's out of his ballywick. And we don't think about it at all. We've seen the renderings and we say, look, this is a cabaret. You've got, you know, it's sort of like, you know, the old Western sort of cabaret burlesque, you know, casino. I think it's just so, so sort of on brand. But I think even more importantly, I think it's important for you to come out there, you know, and I know it's early. You're an entrepreneur and so am I. But I think, you know, when you're making an investment in a casino for 10 million of cash and again, in the grand scheme of your market cap and your balance of 35 million cash, I mean, it could go to zero. But, you know, when we do the math, we sort of seen the range of outcomes of like, you know, low end of the range, you're making like 10 million of EBITDA, like high end of the range, you could be making as much as 25 or 30. And I think it's super important that like, you know, you sort of, you know, and I'm not trying to put words in your mouth, but I think it's important for us and the investor community to understand that like, you're not, you're in the no brainer business. When you buy, you know, strip clubs with real estate at four times EBITDA, that's a no brainer. And that you're getting into this because, A, it's sort of like – it is a strip club itself. It's a strip club, steakhouse, casino. And, B, the returns are so good you can't not do it. So I just wanted to sort of lay that out and give you an opportunity to respond.

Well, I'll respond the easiest way without saying anything. I don't invest my money unless I think I can get a minimum of 25% to 33% return on an average risk investment. I would consider this a high risk investment, right? I'm going into a new market. I'm building something from scratch. And if I didn't think that I could get the returns in the 50 to 100% range, I wouldn't even be looking at this. Our preliminary numbers are very similar to the model you laid out. I don't know what I don't know. I know how many people are out there. I know there's 5,000-plus hotel rooms. I know on the weekends those rooms rent out for $300 a night. I know that based on my observations, 60% plus of the people out there are men, mostly 30 to 55 years of age in Blackhawk. Now, in Central City, it's a much older crowd, but I'm going to draw those younger guys to to Central City, which is basically, everybody says Central City Blackhawk, but it's really one area. It could be one town. It's so close together and so tight. You don't even know. If they didn't put a sign up, you wouldn't know you're leaving one town and entering the other. You would think you're in the downtown district, which is the old town, and you drive out and you're in the new part of town is basically how I see it when I'm out there. I don't think the road's a mile and a half long that connects the downtown, you know, the old town to the new town. It's a very, very short, very close-knit little area there. You know, people that work in Blackhawk live in Central City. People that live in Blackhawk may work in Central City. It's really just one area out there of Blackhawk Central City. And the difference, I think, is the betting laws changed in September of 21st. One of the things people say, well, Colorado's had casinos for 30 years, so you're not going to go out there and make any big changes or do anything that's going to – how are you going to do any different than all these other operators? And like I said, the difference is that the rules changed, and people have been slow to realize these rule changes. And also, I think I've been going to city council meetings in Central City since July 2020. And I think we've got a very progressive mayor and very progressive city council now that's becoming more business friendly. I think in the past, in the past, they've had a much more protectionist city council that was more concerned with, you know, keeping central city the way it is even to the detriment of, of economic growth. And I think that the, there's a balance. And I think this new city council and the, and the mayor have a, a great plan for balance to bring new business in at the same time, preserve what central city is. And it's a, it's a great town. I posted some videos on my Twitter. You can do it, or you can go to the city of central's website and look at the videos of the town. And it's a, it's a great old town. It's got the oldest opera in the country. Been there since the 1800s. It's just a, it's an amazing, amazing little area, but you know, one of the things is there's just no nightlife and no entertainment. So we're going to be the only thing to do after 11 o'clock at night. And I'm very excited about it. You know, you, you, you, you, you've run casino numbers. If I put 300 people in the building, you know, every day, 500 to 700, a thousand people on the weekend, you know what the numbers are going to be.

Yeah. I mean, look, you know, again, I, again, I don't know what you're doing as it relates to your online gaming or sports betting, but I suspect if you're working with a national partner, you're getting a deal that's sort of minimum guarantee in some capacity. And again, I don't know, but if you're getting a minimum guarantee on your sort of sports betting or online gambling, I suspect that that in some ways is probably covering a lot of your sort of upfront investment for the thing altogether. So again, I sort of like don't know the exact numbers, but I suspect that between your online gaming and sports betting, if you're working with a national partner, you'll have some sort of minimum guarantee and that will cover, you know, some part of your investment, hopefully all of it, you know? So again, I, I sort of look back and I say to myself, you know, I don't know why we spent two hours or an hour talking about bombshells when, you know, this casino nightclub strip club thing could be 25, 30 of EBITDA. I could be doing four times the amount of EBIT that all of bombshells is doing. So, you know, and, and not to mention, you know, baby dolls alone at, at, at maturity is 15 million of EBITDA. That's double that one acquisition is, is double the amount of bombshells. So, you know, look, I, I, uh, you know, I obviously hope that, you know, bombshells margins go up, but I, I think the major takeaway for us in all of this is that if you do the casino and it does well, it's, you know, triple the amount of EBIT as bombshells. If you do one more baby dolls, it's double the amount of EBIT as bombshells yet. Somehow the entire cell site analyst community spent the first hour talking about bombshells. So, um, you know, look, uh, you know, it's exciting. It's exciting. This casino and, uh, You know, obviously, you know, we'd love to see more baby dolls. And, you know, that's it for me.

Thank you. Thanks, Adam. Appreciate you.

Thanks so much for that question, Adam. Phenomenal. Actually, more than one question, plural. Next up, we're going to bring ticker history. Actually, let's bring up stock market news, Evan. Evan, please, the floor is yours.

Yeah, I appreciate you letting me get a question here. Fantastic quarter. I'm also a really big fan of the Rick's CEO account, the person hosting the space. So first of all, everyone down below, make sure you're following the account. And that's kind of where I want to dig into my question. We're doing this on Twitter spaces. You're very active on social media. I would love to hear a little bit more about how your use of social media has you know, helped the company, helped the stock, anything in general, but really how you've seen your use of social media, Twitter spaces kind of helping Ricks.

Sure.

I'll tell you what it's done. It's been amazing. We've been able to communicate directly with not only end users of our product, investors in our company, potential investors, critics. It's to me, It's so engaging. I just love the immediate feedback. I can post something. I can ask questions. I can do hypotheticals. I can just be goofy if I want to. It's just a great tool, I would say, with Twitter. One of the main things I would say that what has Twitter done for our shareholder base, we started out – I have to go back and pull the exact numbers. I don't know them, but between 6,000 and 7,000. shareholders on our name and finish over list, owner's list, and I think now we're getting close to 9,000. I'll get the new list on the 15th of February. We'll kind of see if that trend has continued. I saw institutional ownership drop from 54% to 42%, and yet our stock was hitting all-time highs.

This never happened before.

When you lose your institutional ownership, your stock crashes. But that didn't happen with RCI. And I can say the only thing I can contribute, the only thing we changed was we went on Twitter. We hired Equity Animal to get our story out to the people directly, right? And that's what's changed. And like I said, I can't be more excited about how it's going, how it's been going. I throw impromptu parties at the clubs, and it's funny because 20, 30 people show up sometimes. Sometimes four people show up. Sometimes one guy shows up. And me and that guy get to sit down and have a drink together and talk. And I get to hear, you know, one-on-one, you know, why did you come here? Why did you do that? You know, what do you like about us versus somebody, you know, other clubs you've been to? You know, I get to get just direct feedback. And to me, that's incredible. You know, my direct messages. You know, I follow people. You know, I don't care if your account has, a small amount of followers or a large amount of followers. If you tell me you're a shareholder and you engage with me, I'm going to follow you so you can direct message me. I get a lot of direct messages. We get to talk. Like I said, it's just direct feedback.

You can't get that anyplace else. Thanks so much for that question, Evan and Eric.

We appreciate the kind words. Hot Girl Capital, we're going to get to you next. Great profile picture, by the way. But first, let's bring up Orchid Wealth.

You're up. The floor is yours. Hey, guys. Great quarter. I just was going to second Adam's comments. Obviously, with the vast majority of the money constantly coming from the strip clubs, adult clubs, a lot of bombshells talk and focus. I feel like people or whoever is listening and wants to focus in on that does not understand the entire story. I'm completely behind this idea about this casino expansion. And like anything else, you know, I have faith in what you're doing, Eric. I really don't have any other things to add other than just to congratulate you. I'm happy that you're moving into this space. And, you know, from the looks of things and the way you've done things in the past, you have my confidence with my shares. So I'm going to just leave it at that. Thanks. Thank you. I really appreciate that.

You know, it means a lot. I mean, that's what I said. That there is why I'm on Twitter. it's why it's been so important. It's why I spend so much time. And I know I've been in Colorado for three days. I don't think I've made two posts in three days. I was looking at my engagement. I said, oh, man, I'm way down. But we've been out there. We've had nonstop meetings. To give credit to our vice president, Travis Reese, man, he is engaged in this casino stuff, in the laws, in every aspect of creating this new concept. It's one of the things he's good at. He helped the bombshells and helped create that concept and really got it started before we brought a restaurant expert in who basically fixed the concept, turned it into what it is today. And Travis has been great at that. Very happy we've been. I don't think in the last three years we've spent as much time together on a day-to-day basis that we have in the last six months. So it's nice to be able to spend time with him again. But his engagement in this deal in Colorado has been fantastic. So I want to throw that out there and say thanks to Charles for that, too.

Fantastic. Thank you so much for the question. Now, in that same vein, Eric, I'm going to ask you a question that was submitted to me anonymously. This individual is curious about the plans of the brewery, and is it similar to Robust in terms of vision? Robust, for those who don't know, is the energy drink. Also, actually, let's answer that one first, and then we'll move into the second question.

Yeah, no, the brewery is nothing like Robust. Robust is basically a generic product that has a flavor profile very similar to the leading brand, which Mark is drinking right now. That's a no-no in our CI world. Uh, no, just joking. Uh, but seriously, uh, you know, it, it, it saved us, uh, about $20 a case, uh, off of the major brand product. We were using, uh, about 25,000 cases a year, uh, at the time. I think now I don't even know what the numbers are. It's much higher than that today, uh, because we've grown so much. Uh, and so it was, it was more of a cost saving deal, uh, we just bought the product at first, but then they, they were trying to expand the brand. And so we bought into it, uh, probably shouldn't have done that. Probably wouldn't do it under a capital allocation strategy today. The numbers wouldn't make sense. And we probably wouldn't have moved in that direction. Uh, but we did, uh, and then we ended up loaning them money that they couldn't pay back. And so then we ended up basically buying the, uh, buying them out and taking over the brand. Uh, since then we've done very well with it. Uh, We've expanded some of our distributors, but the main thing is to supply our own clubs. And we're working with others to say, look, you're paying all this money. You could be saving, especially big operators in this energy-great market that sell, you know, that buy thousands of cases could save so much money with this product. And from a chemical standpoint, it's one molecule different. It's very, very, very different. Uh, you know, when it's mixed with any type of alcohol whatsoever, uh, you can't, you can't really tell the taste. I, I call it the Pepsi and Coke challenge. You know, if you remember the old days of the Pepsi and Coke challenges, it's exactly the same thing. I could pour in two different glasses. You can drink them. Tell me which one's which. It's very difficult to do. Uh, I will say that the hardcore drinkers can tell the difference, but the casual drinker, especially if you put vodka in it, you can't tell the difference. So, uh, that's kind of that, but with the, with the breweries more, uh, This was kind of a one-off thing where we were buying this building, and it was a great property. We were going to close it down, turn it into a bombshell. And as we did more site inspection, we started looking at how it operated, and we thought – and we looked at the money. They're actually making money, and not much, but they're – but it's profitable. I'm like, well, but when we started going through the financials, we asked for the financials, right? Well, wait a minute. Wait, we just keep this business open. Give us the financials. And we started looking through financially. We said, well, we can cut this. We can change that. And we can make this thing. This thing can actually have better margins than a bombshell because we get all the alcohol. But we don't have to have the food. We don't have to have the labor costs because all that's rented out. So we get basically paid for the space. And they provide all the food product, which is our lowest margin in a bombshell. But we get all the alcohol. We get all the sports stuff. And we can make our own beer, which costs us even less. So the kegs You know, instead of paying 120 bucks a keg, we can get kegs for, you know, 30 bucks or something, making them ourselves. And that's kind of how we got started in that. That is evolving. It remains to be seen. We may we may develop this into a concept that we may decide to build more of if the returns are right on it. Like I said, it's early and it's a way for us to get a bombshell into the Denver market right away so we can start training staff. We'll have our cooks ready. You know, we do our training at the at the food hall. when we get ready to open up the bombshells that we're building out there.

Fantastic, phenomenal answer. As a very hard consumer of energy drinks, I cannot tell the difference. Next up, we have Hot Girl Capital, and I would just take a moment to encourage everyone to raise your hand if you have a question, because we are starting to get towards the end of our Q&A segment. Hot Girl Capital, take it away.

Thanks, Mark, and congrats on a great quarter. I'm super curious if you guys are going to do any celebrity or brand collaborations.

Well, we're talking about that with the casino right now, for sure. Definitely with Admire Me, once we get a viable product, we will definitely be doing some stuff with some influencers in that regard, for sure. Mark and I have been brainstorming a few ideas, uh, around our, uh, a new merchandise store that we're getting ready to launch. Uh, so there, yeah, there's definitely going to be opportunities for that. And as we're getting, uh, yeah, I'm still, I'm still relatively a baby on Twitter. You know, I was, you know, my one year anniversary was the other day and I said, well, that was just the day I signed up. That wasn't really my one year. And my real one year anniversary is sometime in may after I, after I met Mark and, uh, you know, he said, why don't you try doing this and do some of this stuff? And then of course they wrote me a little thread and got me some stuff going. And, uh, you know, the more I started doing, so I think May, May is probably really my first one year anniversary. So hopefully we'll, we can, they keep telling me 10,000 is the magic number. I got to get that. You have to get to 10,000 followers. You have to get 10,000 followers. So hopefully, uh, by May we can, we will be there. Uh, I think definitely by November when we open the casino up, uh, we'll, we'll get there, but yes, definitely looking at, uh, some different ideas with influencers and doing some collabs on certain things to bring people, not only into our clubs or our restaurants, but also into the casinos as we move forward.

Fantastic. Great question and great answer, Eric.

Now, I'm going to ask the last question of today. Eric, the last earnings call, it ended with you talking about your vision for empire building. And I wanted to ask what your update is on that and what the vision is now moving forward.

I think we laid that out pretty well in slides 15 and 16 on what we've been doing, how we're doing it. So, you know, have you look at that? I think we have to continue to basically do what we do. And that is use fifth grade math to make sure that as we make these investments that we haven't expected cash on cash return. I know the construction stuff, you know, I'll be honest, I hate construction. I hate those new things. I'd rather just go out and buy, you know, nightclub after nightclub after nightclub. Unfortunately, it's just not that easy. You know, someone's saying to me, well, you should just have a whole stream, a whole line of Gloves lined up. I said, well, we kind of do, but you don't have sellers. So then they started doing comparisons to Carnation and Waste Management and AutoZone and all these roll-ups. And I said, yeah, I have 500, and I already own 50 of them, so there's about 450 targets. You're talking about acquisitions where they had 45,000 targets. Yeah, it's easy to line up two or three acquisitions a month or a quarter when you have 45,000 targets. When you have 450 targets, and of those 450 targets, there's multiple of multi-club operators. So you're really probably talking about less than 100 individuals that I have to do deals with. So it does take a considerable amount of time, and you've got to have people that are ready to sell. I know a lot of these guys are older, and they are thinking about it. The multiples, as we started paying four to five times multiples, Instead of just three, because we were at just three for a while, I said, well, you know, certain locations are probably worth more. And so we started offering that, and we started getting better acquisitions. I think we're going to continue to see that. It's just, it takes time. We're going to buy, and we'll buy a few every year. Some will be single clubs, some will be multi-clubs. But I'm very confident in our three-year plan here to really roll this up to the next level. and grow from, you know, 100 million in EBITDA to 250 million in EBITDA. You know, at a four times, 600 million at a four times would be 150 million additional EBITDA. So I think, you know, and I shoot that, you know, if somebody says, well, that's shooting for the moon. Okay, well, I'm shooting for the moon and I only get into the stratosphere. So I only get to 175 million or 200 million. That's still significantly over a three-year period exceeding our 10 to 15% growth target. And so as long as I can do that, I'm going to be very excited, very happy, and hopefully our shareholders will be. And I'll say it again. I say it every call. I say it on Twitter all the time. We're not for everyone. We're not looking for momentum investors. We're not looking for guys that care what we do next quarter or the quarter after. We're looking for long-term guys. They're going to be with us for three years. Let us execute our plan, and let's all get wealthy together.

Amazing. And with that, let's all get wealthy together. Thank you, Eric and Bradley. For those who joined us late, you can meet management tonight at seven 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 Fifth Ave and Broadway, a little in from Herald Square. If you haven't RSVP'd, ask for Eric Langen or me at the door. After 9 p.m., however, I will be busy implementing my own capital allocation strategy. On behalf of Eric, Bradley, the company, our subsidiaries, and my favorite Tootsies dancer, Fierce Aphrodite 7 on Instagram, thank you and good night. As always, please visit one of our clubs or restaurants and have fun.