RCI Hospitality Holdings, Inc.

Greetings and welcome to RCI Hospitality Holdings third quarter fiscal 2023 earnings call. You can find the company's presentation on RCI's website. Click company and investor information under the RCI logo that will take you to the company and investor info page. Scroll down and you'll find all the necessary links. Please turn 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 in New York with Eric Langen, President and CEO of RCI Hospitality. CFO Bradley Shea is participating from Houston. Please turn with me to slide three. If you aren't doing so already, it's easy to participate in the call on X, formerly known as Twitter, spaces. Go to at Rick's CEO and select the space titled Rick RCI Hospitality Holdings Inc. 3Q23 earnings call. To ask a question, you'll need to join the X space with a mobile device. To listen only, you can join the X space on a personal computer. RCI is also making this call available for listen only through traditional landline and webcast. At this time, all participants are in a listen only mode. A question and answer session will follow. This conference call is being recorded. Please turn with me to slide four. 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. Now please turn with me to slide five. I also direct you to the explanation of RICS non-GAAP financial measures. Finally, I'd like to invite everyone listening in the New York City area to join Eric and me tonight at seven o'clock to meet management at RICS Cabaret New York, one of RCI's top revenue generating clubs. RICS 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 us or Martin Shkreli at the door. Now I'm pleased to introduce Eric Langen, President and CEO of RCI Hospitality. Eric, take it away.

Thank you for joining us today. Thanks, Mark. Please turn to page six. We thought we'd begin by summarizing our third quarter and nine-month results in one place. It should be noted the year-ago quarter aided by the end of COVID restrictions had one of the highest levels of operating leverage that have been experienced in the last five years. This affects direct comparisons to the third quarter of this year. Comparisons are also affected by the fact that the year ago pre-cash flow included a benefit of $2.2 million from a tax refund. Otherwise, the third quarter was similar to the second quarter with non-GAAP earnings per share of $1.30, and it was approximately 9% better than first quarter's non-GAAP EPS of $1.19. Now let's turn to the slide seven for the key takeaways. We achieved record revenues of $77.1 million in the third quarter, up 9% year over year. We generated $1.30 earnings per share non-GAAP. Year to date, free cash flow and adjusted even margins are in line with our targets of 20% and 30% respectively. The nightclub business continued to be solid. After nine quarters of same-store sales growth, we view the third quarter decline as a bump in the road that we experienced from time to time. Bombshells continues to be profitable. We view the decline in sales we've been seeing as a return to the pre-COVID run rates of $5 million AUVs. No doubt, same-store sales for both clubs and bombshells were held back in the third quarter by the uncertain economy, the huge amount of vacation travel, and the extreme heat in Texas. To date, Fourth quarter 23, we purchased 10,440 common shares and an average $69.48 each. We still have $18 million remaining in our stock repurchase authorization. And we've got a strong lineup of new clubs, bombshells, casinos getting ready for the fourth quarter and fiscal 2024. Now, here's Bradley to go over more financial details of our results.

Thanks, Eric. Please turn to page 8 to review the performance of the nightclub segment. Revenues increased 14.2% year-over-year, primarily reflecting an increase in newly acquired and remodeled clubs partially offset by same-store sales decline. By type of revenue, service increased 4.8%, while alcoholic beverages at 24.1% and food at 17.7% increased. The year-over-year changes reflect in part the lower proportion of service revenues from the newly acquired Baby Dolls Chica's local sales mix as compared to the nightclub averages. GAAP results also included $2.6 million in non-cash impairment related to two clubs. Operating income was $20.4 million versus $22.5 million. On a non-GAAP basis, it was relatively flat at $23.6 million versus $23.3 million. I'll talk more about the margins in a couple of slides. Please turn to page nine to review the performance of our bombshell segment. Revenues declined 8.8% year over year, primarily reflecting a decline in same store sales, partially offset by an increase in newly acquired and open units. Operating income was $1.7 million versus $3.1 million. On a sequential quarter basis, however, revenues have now increased three quarters in a row. We still have more work to do on the margins. Now please turn to slide 10 to review our consolidated operating margin. As Eric noted, the year-ago quarter had one of the highest levels of operating leverage that we've ever experienced in the last five years. We believe that this was due to the benefit of the end of COVID restrictions had on sales. As a result, non-GAAP operating margin was 25.3% compared to 31.16% a year-ago quarter. However, looking at our performance This year, the third quarter was generally in line with non-GAAP operating margin of 25.6% in the first quarter and 26.6% in the second quarter. Please turn to slide 11 to look at some of our other key metrics. We ended the quarter with cash and cash equivalents of $23.6 million, up from $22.8 million at March 31st. Free cash flow was $14.3 million. This was in line with the level that we have been generating for the last three quarters. Again, as Eric mentioned, year-ago free cash flow included a $2.2 million from a previously disclosed tax refund that boosted free cash flow. Adjusted EBITDA was $22.7 million. This was the highest quarterly amount to date this fiscal year. Free cash flow margin was 18.5% and 29.4% for adjusted EBITDA. Here to date, it was 19.2% and 29.7% respectively. Please turn to page 12 to review some of our debt metrics. The debt at June 30th declined $2 million for March 31st quarter. Weighted average interest rate on our debt was 6.52%, in line with what we've been paying. Total occupancy costs increased to 8%. This increase relates to new debt that we've used to buy properties that we haven't opened or fully optimized yet. But 8% is well within our range of 6% to 9%. For similar reasons, debt to trailing 12-month adjusted EBITDA stayed relatively flat at 2.7, June 30th versus March 31st. Debt maturities and our debt pie charts are similar to the second quarter. Now, in the interest of time, let me skip slide 13 and turn the presentation back to Eric.