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spk07: 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.
spk06: 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.
spk10: 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.
spk06: Thanks, Bradley. Please turn to slide 14. Everything we do is centered around our capital allocation strategy, which is similar to those outlined in the book The Outsiders by William Thorndike. First and foremost, our goal is to drive shareholder value by increasing free cash flow per share at a 10% to 15% on a compound annual basis. We've stuck to this strategy since the implementation at the end of fiscal 2015 with three different actions, subject to whether there's strategic rationale to do otherwise. One, mergers and acquisitions, specifically buy the right clubs in the right markets. We like to buy solid cash-flowing clubs at three to five times adjusted EBITDA using seller financing and acquire the real estate at market value. Second is growing organically, specifically expanding bombshells to develop critical mass marketer's awareness. Our goal in both M&A and organic growth is to generate annual cash on cash returns of at least 25 to 33%. And three is buying back our shares when our free cash flow yield on a per share basis is more than 10%. Turning to slide 15, in line with our capital allocation strategy, here's an update on the new projects we have in the works for the fourth quarter and fiscal 2024. Fourth quarter nightclub sales should benefit from Late June completion of the newly remodeled and expanded Baby Dolls Fort Worth. We are also looking at adjusting some nightclub personnel, developing new drink promotions, party packages, and changing keyword searches in our social media marketing. In fiscal 24, a new club and a reformatted club should open in Fort Worth and Ty, Texas. Both are currently being remodeled. We also anticipate opening the replacement club in Lubbock, Texas. Fourth quarter bombshell sales should benefit from the opening of a new location in the Houston suburb of Stafford. Construction has started on our Rowlett and Lubbock locations, both in Texas. Remodeling should begin soon for our downtown Denver site. All three of these new locations are expected to open in fiscal 2024. Looking at our Central City Colorado casino projects, the liquor license process has begun and gaming licenses are continuing through the review process for Riggs Cabaret Steakhouse and Casino and the Bombshell Sports Casino. Both are planned to open in fiscal year 2024. Building permits have been submitted to the city for Rick's location, and remodeling is expected to begin soon. Please turn to 16. Before we go into Q&A, I want to remind everyone we'll be holding our 30th anniversary Gentleman's Club Expo Convention August 20th through 23rd at the Paris Hotel in Las Vegas. Judging by our hotel block, attendance looks great. Our room block is 100% full, so numbers are fantastic. Recently, I talked to Ed Anikar, president of management company, and he told me that his team has completed the integration of baby dolls, chicas, locusts, acquisition, and is ready for more. I'm looking forward to Expo and meeting with owners who are hopefully willing, will be ready to sell. Thanks to all of our local and dedicated teams for all their hard work and effort. We can't do it without them. Now here's Mark.
spk07: Thank you very much, Eric and Bradley. Before we get into the Q&A segment, I'd like to encourage everyone to check out the recently launched Rix store at shop.rix.com. Now for the Q&A. If you would like to ask a question, please raise your hand in the X space. When you finish, please mute your microphone to eliminate 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 some of its larger shareholders. First off, we have Scott Buck of HC Wainwright. Scott, please take it away.
spk11: Hi, good afternoon, guys. Thanks for taking my questions. Eric, first, I'm curious whether it's the two new clubs or the relaunched baby dog clubs, typically what's the ramp period for those to start to see similar, you know, I guess, revenue profiles as the existing clubs.
spk06: Sorry about that. I've got to hit that mute button, don't I? Baby Dolls has taken off pretty quickly and is doing very well. But typically, a new club will take about six months to ramp up to where we'd like it, and then it'll continue to grow for up to about 18 months where it'll level off and turn into steady flows, basically.
spk11: Great. That's helpful. And I'm curious, could you remind us when the year-over-year comp starts to get a little easier on the bombshell side? Is it coming up here this quarter?
spk06: This quarter, I expect to be about the same as we've experienced over the last three quarters. I mean, it's still 100-plus degrees in Texas. It makes the patios impossible to use. I mean, you can't even hardly walk to your car, let alone sit outside for 25, 30 minutes to eat. So our interiors are doing well, but we really need our patios back. I suspect that that'll happen hopefully mid-September. I think the weather will break. It could break a little earlier. It's Texas. Who knows? But the comps get easier. If you go back to first quarter of 2023, you'll see about mid-October, we started seeing a little bit of slippage that ran into pretty strong slippage in November and continued in December. So that's the nice thing is we've got a lot of exciting things coming up. as well as, uh, you know, the, the, the, the baby dolls, chicas, locusts, soon I get this out, acquisition will be about six months old at the beginning of the quarter. We close right at the end of March. Uh, and if you look back, uh, historically, when we take over, uh, an acquisition, especially a multi-club acquisition, it takes us about three to six months to get everything flowing properly. And that, uh, that third quarter that we own it, you start seeing a lot of that, uh, new revenue increase and, uh, and flow through to the bottom line to either. So I'm very excited about how the first quarter of 2024 looks. Easier comps and a lot of exciting stuff that's kind of going to all peak at the same time and should put us into a really nice growth and run rate for 2024.
spk11: That's great. And then last one for me, you guys did buy back a little bit of stock. Are we kind of sitting at that threshold level here at about $70 where that looks attractive from a capital allocation standpoint?
spk06: Yeah, I think so. I mean, you know, basically we were, we talked in the office, the stock went below 70. We said, well, I guess we should be buying. And we started buying about a hundred thousand a day. Then, you know, stock went up back above 70 for a few days and it's back below 70. So we want to get the earnings out. Haven't bought anything this week, but you know, probably, would look at as early as Friday, depending on what the, what the stock price does over the next couple of days. And, and probably definitely be back out there next week when we get the market time to bring, you know, take all the new information before we pull it back in the market.
spk11: Great. That's helpful. I appreciate the time guys. Thank you. Thank you.
spk07: Thanks so much, Scott. Next up, we had Anthony of Sedoti and Co. Anthony, take it away.
spk04: Good afternoon and thank you for taking the question. So looking at your service revenue, it did lag the growth of alcohol and food sales. I know you said something about baby dolls, but I just wanted to get a little bit more insight into that as to are you seeing less traffic with the service component of your business or is it just lower average ticket? I mean, you just wanted to get a little bit more insight since that's a high, excuse me, a high margin category for you.
spk06: Sure. That's a, that's a two part answer. So Dallas doesn't allow VIP rooms. Uh, and so therefore we lose a lot of that, uh, private room revenue in Dallas and the Dallas market. So that will affect the service revenues, uh, as a percentage of total sales in those markets. But the reality is also, especially June, we saw lower service revenue and same store sales of about $2 million. And we believe that the biggest portion of that is because our high-end customers, the guys that come in to New York and Miami and whatnot, are on European vacations or in the Caribbean or wherever. They're with their families. They're doing vacationing. and they're just not out spending the big tickets in the clubs. I think that as school starts back up in Texas and Florida in mid-August to the end of August, that we'll start seeing those customers returning, and also we'll have a pretty good idea of that when we announce the July, August, September numbers in early October. We'll have a pretty good feel for where that is headed and give us a really good idea of how we can predict and project the first quarter of 2024.
spk04: Got it. Okay. So as far as the rest of your business, I mean, can you give us maybe just an update as to what you're seeing the first few weeks so far in the fourth quarter?
spk06: Well, we're only nine days in. And July, I guess. We have July, that's right. Well, July and early August, yeah. Yeah, I mean, we're seeing more of what we've seen. you know, experienced in, uh, enable me in June. Uh, that's why I said, I expect this quarter to be, you know, pretty flat with, with how we, you know, basically done these first three quarters, maybe a little bit better. It really depends on, uh, how quickly that VIP spin comes back. Uh, you know, it's kind of tapered in, in may went down in June. It's kind of holding steady. Uh, we have, I know we've got a couple of decent VIPs this weekend was, uh, was actually really good weekend, uh, especially with the, uh, with the fight. Uh, so, so that helped, uh, but, uh, you know, we need those VIPs back in, you know, back home and, and, uh, and back in the clubs. Uh, you know, the problem you have is we can put a lot of people through the door, uh, at a hundred dollars, you know, put, put guys that spend a hundred bucks in the club. Uh, and it takes a lot of them to make up a guy that drops 40 or 50 K. Uh, and so that's kind of the process we're going through right now. We are seeing strong customer accounts. We're happy with the customer accounts. We just want to see that VIP spend come back up in the next three to six weeks.
spk04: Understood. Okay. And then just a quick other question. As far as bombshells, so you're looking to expand that. Admittedly, you guys have struggled in that segment, and it's certainly a lower portion of your overall cash flow. Just how should we think about that as far as your willingness to continue to invest in that segment given, you know, the recent performance?
spk06: I mean, we're working on the top line numbers. We're seeing those numbers start to grow a little bit quarter over quarter. And so we've just got to get to the point where now we're, you know, focusing on that bottom line, getting our margins back to that 18 to 22% rate that we're shooting for. I think we'll be there, you know, pretty quickly, hopefully in the next two quarters. We just reviewed everything, did some more minor pricing increases to get certain items in line with costs. You know, we have a couple points of labor costs that creep. Our food costs are now back, you know, to pre-COVID levels where we'd like them to be. Just like I said, I've got a couple of other little items we need to adjust there. And then, of course, adjust the marketing and a few other items that are helping bring people in and get those costs back to a more normalized level so we can bring the margins up to that 18% to 22%.
spk04: Okay. Well, sounds good. Yeah, if you could get those margins back to that 18% to 20% in the next couple of quarters, that would be wonderful. So, all right. Well, thank you very much, and best of luck going forward.
spk07: Thank you so much. Thank you very much, Anthony. Next up, we're going to have Lynn Collier of Water Tower Research. Lynn, the floor is yours.
spk01: Thank you so much. Congratulations on a great quarter. Just have a couple of questions that are somewhat general and then one specific. First of all, I want to ask you about any trends that you're seeing geographically. I know Texas is slower and it has weather issues, but What are you seeing across the country? Any sort of trends geographically that you're seeing?
spk06: Yeah, I mean, overall, we're not, I mean, we have a few locations that are still up pretty strongly from 2023. And I think that is, you see Chicago, you see Denver. It's the very, what I call the late bloomers, you know, the cities that kept everybody locked down a little longer. We're still seeing some nice boosts in those markets, but generally across the country and the other markets, Uh, we're seeing, you know, slight declines in same store sales. Uh, but like I said, the biggest part of that is, uh, you know, the, the, the VIP revenue. Uh, and I, and when, you know, we, we try to throw parties, we're going to throw VIP parties and our hosts will call VIPs and they'll be like, Oh, I'm out of the country. Uh, you know, I can't make it. Uh, thanks for the invite, stuff like that. I'll see you when I get back. And so we know that a lot of our big spenders are on vacations. not just articles in the Wall Street Journal that tell us that. It's actual talking to our guests when we try to throw VIP parties. We're postponing VIP parties. We'll try to pick a lot of those up in that October, November, December quarter as we welcome everyone back. I think we'll see a nice boost from that. Like I said, we'll have easier comps that we're going against. If you look historically, whenever we see a downturn in our same store sales, it typically lasts two quarters and then it starts to, uh, run back up for us on the nightclub side. Now the bombshells has been a little different for us, uh, and a little tougher, uh, in comps. And of course, like I said, it's a hundred degree heat. It's not helping that at all. Uh, so hopefully that, uh, will end soon, but, uh, I just looked at my 10 day forecast, uh, or, uh, Dallas and it's like 107 every day in Houston is about 102 every day. So, uh, for the next 10 days, at least we know we're going to have some, some pretty tough weather in those markets. So, uh, you know, we'll ride it out. We're like, so we'll keep pushing indoor stuff. Uh, we're starting to do some different social media marketing and some other, uh, trying some other new stuff, uh, bringing some new faces into the, into the bombshells. Uh, but I think our, like I said, once our patios come back, I think that, I mean, I know I'm dying to go sit back outside and eat. I mean, sitting in restaurants indoors and whatnot. I really love, I spend a lot of time in Colorado where almost like probably 50% of my meals outdoors now in Colorado. And I'd really like to, cause it's 70 degrees up there and beautiful. So we'd love to see that back in Texas. I think, you know, I think our consumers will, we'll be right back on our patios once the weather permits.
spk01: Thank you. I just have one more question regarding Texas, which you spoke, spoken a lot about, and it's obviously very hot here being in Dallas, I know for sure. But are you seeing any trade down in terms of tickets in Texas? Or is it just, you know, it's so hot, no one can go outside? Are you observing anything else in Texas other than weather?
spk06: Not really. I mean, like I said, we're missing big ticket spenders. That's what we're missing. I think that, you know, I predicted what happened last year. that the wealthy would run out of tech, you know, run out of the United States and run to Europe and run to the Caribbean and go on all these, you know, fancy vacations. And, uh, the reality of it is I was, I was off by a year. Uh, it actually took another year before, uh, everybody, everybody went out of town. If you look up European hotels and European flights, I mean, it's crazy if you can find them, if you can even find anything available, it's extremely expensive. And, uh, you know, I think people just, didn't go last year. And so they all started booking this year and everybody ran. Maybe look, if you look last year, we got the benefit of no one left the country and, but they all ran to Miami. Uh, they all ran to, you know, uh, to, to the South. Uh, they all ran, you know, every tourist place in the United States was, was overbooked last year. All the VRBOs started filling up. Uh, and this year, you know, you're hearing about the VRBOs being down, uh, a lot of them being empty, especially in tourist areas.
spk00: Uh,
spk06: And so I think that's affecting our sales in certain markets that were really, really good last year that are being off a little this year. And those were big ticket spenders. I mean, those are, you know, in the smaller markets, those are your $1,500 to $5,000 guys. In our bigger markets, they're, you know, $10,000, $20,000, $30,000, $50,000 guys. So with those guys out of town, it doesn't take a lot of them, you know, for $2 million of revenue.
spk01: Thank you. I just have one quick follow-up on bombshells. Your comment about pricing. Do you know approximately how much menu pricing of bombshells you're carrying this year versus last year? Just a ballpark figure?
spk06: You know, we've tried to price with inflation pretty much, but we've also made some adjustments based on food costs coming down. So some items we maybe just held steady because the food costs actually came down. So we'd already marked it up for the food costs. So we took the adjustment on that side. So we moved on the other side where the food costs were up and we had to raise prices. But I'd say overall, we're trying to run about a 6% to 8% increase across the board as best we can.
spk01: That's great. Thanks again. And congratulations again.
spk07: Thank you. Thanks so much, Lynn. Next up, we will have Rob McGuire of Granite Research. Rob, please take it away.
spk05: Good afternoon. Eric, you've laid out your vision for 2024. Are you looking at anything in 2025 at this point?
spk06: You know, I'm really not at this point. I mean, yes, we have enough things on. We have about 14 projects. I think we're down to 12 projects now. I think we have about 12 projects. that are running right now. If we get the two casinos open, the three bombshells, and the three clubs, that'll be eight of them. So we'll still have about six items on the burner that we can shoot for 2024 or 2025 with, I mean. And of course, acquisitions. I think the focus as we open these new things, we'll only need to find one or two more new locations for bombshells since the rest are already set. And those will be toward, you know, The end of 25, they'll be targeted for the end of 25, so we won't need to fine for the end of 24, which is close to 14 to 16 months where we really have to worry about that. I'm hoping that the casinos will be heavily involved in close investment and spending those between February and April, hopefully for late April or May openings. depending on licensing, of course. That's the big unknown. But we have to get the heat and HVAC systems. There's very long lead times on those right now, which puts us at the end of January, early February, before we get those units in. And I just don't want to spend any real money without the heat in there and have a pipe freeze or something in the winter or something, not have fire protection on because we decided to do some work, but we turned the water off. I don't want to do any of the expensive stuff until we have the heat and air conditioning systems in the buildings. So one of the units – one of the buildings will have all their units put in hopefully by the end of September. We will begin the remodel on that, but it's a lower-cost remodel and a smaller casino, so it will take less expense and be quicker. So kind of where we're at right now.
spk05: Thank you for that. We've been in a somewhat inflationary environment, but when I look back at the pre-COVID nightclub comps, they've been somewhat flattish from 2019 to the present. I was wondering if you could give us a feel for that.
spk06: I mean, like I said, if you look at this quarter, it's, you know, the first two quarters was kind of the blue collar. The blue collar is kind of stabilized now. We've kind of got that down. We're doing the right discounting, the right marketing to, that customer's kind of leveled off. Their spend's kind of leveled and we're, We're pretty solid there. If you look, you can look at our, you can just look at the, look at the sales breakdown. You'll see the service revenue declined. We had the biggest drop this year or this quarter. And like I said, it started about mid-May. It was pretty strong in April, started dropping in mid-May. And, you know, June was pretty bad. July was a little better, I think, than June, but not a lot. And like I said, I suspect over the next two weeks to start seeing that spin come back. We saw a little bit of it this weekend, so we may just see it on the weekends for right now. But we'll just have to keep watching. I just don't know when it's going to come back. I guess when you said, I think when school starts back up and everybody gets back from their vacations and starts settling back in and going back to work, we'll see that spin come back.
spk05: You know, when we emerge from an environment like COVID, do you find that RCI tends to be the price leader, raising prices coming out of it, you know, into a stronger economy? Do you tend to be a lagger?
spk06: I'd say we lag, is what I would say. I mean, we're not, we're making plenty of money and we're doing very well with our customer accounts. And we see our competitors raising prices. uh we will we will hold off and and take some of that especially the on the lower end of the blue car we were able to do that very well uh as you've seen we've steadied off very quickly uh like i said it tends to be about a six month trend for us uh we're you know this quarter into it like i said we saw a little bit of the weakening uh with uh with the blue collar earlier on uh And now we're seeing that, like I said, level off and actually stay in a little build in some markets. So we're just going to have to watch the white-collar spin there, the high-end spin. That's the key to success, I believe, on the nightclub side. On the bombshells, obviously, like I said, we need to get the patios open. We did raise prices, but it was towards the end of June when we made a lot of those changes and adjustments as we got enough data from April and May to figure out where we were headed and what we needed to do. So you're not seeing any of that. results in this quarter, which is why the margins were, uh, I think 12 or 13% and between 12 and 13% for bombshells this quarter. Uh, I do suspect that, uh, and I'm, I'm very hopeful that as we get through July, August, September, that we're going to be closer to the 18 to 22% if we're not in the 18 to 22%. And I definitely think in the first quarter of 2024, we will bring those margins back. The new store will be open. Uh, there's a peak. Other stores or construction are moving along. So starting to energize the team. They're getting excited about the growth again. COVID stopped all growth at bombshells. And without growth, the restaurant chains, it's hard to keep some of your top people, right? Because there's other chains they can try to steal them away and promise them new positions and that. So we want to make sure we can keep and attract the management team that we need. keep bombshells going. And that's, I think, part of it. The growth is part of that process.
spk05: Okay, thank you. And last question. The company's laid out a lot of cash for a number of projects at this point. At what point would you see bank financing or obtain bank financing for those projects?
spk06: Well, when I need it, I can go get money from the bank anytime. We're still sitting on $25 million in cash. I don't see a reason to not just keep using our cash. We're tying the cash up. The only other thing we have to do is buy back stock with it. The stock's not in such a huge discount rate that I think, oh, let's borrow money to buy back stock. We'll just use normal cash flow, buy our $100,000 a day in stock like we've always done. We're not trying to affect the stock price. We're trying to get the best price for the stock we can get for our long-term shareholders. You know, I... just don't need the cash and we've got we put out about 29 to 30 million dollars i think in the last nine months in cash so we're not you know not building up on the on the balance sheet but it's being invested that's going to give us fantastic returns when you think about how we've typically grown in the past we've added 20 30 million in debt we've had those debt carrying costs uh and so when the new stuff opens you know you're still you know carrying that interest expense we're gonna have very little interest expense with these new operations as they open, which is going to increase the, you know, the flow through to the bottom line, stop the carrying cost drag, what little there is from utilities and property taxes and those things, which will all be paid out of, you know, an operating revenue. So I think it's going to be, I think 2024 is going to be a great year for us. We had that momentum rolling as we ran into 2019 right before COVID hit us, right? I mean, we were who just hitting our stride, uh, really taken off in that January, February, March quarter, even though we were closed for, I think we're closed for 15 days or, you know, we still beat the previous year, uh, without having 15 days. So, uh, you know, you look at 19 over, uh, 18, and I think you're going to see 24. We're going to have another one of those, those, those types of jumps. And that's all with no acquisition. Uh, I do believe, you know, the team's ready. Like I said, Ed, uh, Talked with Ed. Ed's in New York with me. He'll be at the meet and greet tonight. His team's ready. They've got the Baby Dolls acquisition all up and running. They've got great management teams in place now. Our systems are in place. We're starting to see the revenue growth that we expect to see as we enter that three to six month period. We're working early to get that flow to the bottom line. Making some pretty decent adjustments. to lower some of the costs that we picked up with the acquisition. And like I said, I think everything kind of comes to a great meeting point starting the first quarter of 2024. So I'm excited, very excited for 2024. I think that's going to be our best year ever.
spk07: Thanks so much for the questions, Rob. Next up, we will have Josh of Noble.
spk09: Josh, please take it away. Hey, good afternoon, guys. Thanks for taking my questions. Thanks, Josh. Hey, so you guys got answered most of mine, but I just kind of want to see how just the overall environment is just looking like for any just new potential club acquisitions. How are owners being, obviously, in this kind of cautionary environment?
spk06: Yeah. I mean, we haven't pursued, so I don't really know. I've told almost everyone that has called me in the last, you know, two months that we've got to get this other acquisition under our belt. We're working on it. Let's talk at Expo. Let's talk at Expo. I'm hoping, I mean, you know, seeing the hotel room count full already means there's going to be lots of people there. So I'm very optimistic that, and I've got, got some, meetings set up and some people that I'm going to, you know, we're going to make sure we talk to while we're out there and people that want to talk to us while we're out there. So I think we'll get a kind of a list put together and we'll, you know, talk multiples and locations and try to figure out what, what's the quickest and easiest for us in timing and, you know, what the best deal is. And, you know, cherry pick the best clubs like we've been doing for the last, you know, 10, 15 years. But Expo, every year at Expo, we always meet someone and we always start the process. So the reality is just how quickly we can do it. We're ready now, so we could close something pretty quickly. I think we have, if I'm correct, approximately $45 or $46 million worth of unencumbered real estate or under-encumbered real estate we could roll into a loan. And a 70% loan to value that pull about 28 million, uh, with the under-encumbered parts, probably four or 5 million, we'd have to pay off. So we could easily pull a $20 million down payment out from our bank right now, if we need it, uh, not counting our line of credit. So we could hit it. You know, we paid down our line of credit a little bit, so we could probably hit that line of credit again if we needed to. Uh, so we're, we're in good shape and we still have 25 million cash on the books. So we're, we're in great shape to make an acquisition. obviously we're not using equity at these prices so it would be a debt uh in cash uh acquisition right now i don't you know unless of course the stock from record speed you know runs back up over 80 dollars over the next few weeks which uh you know the market where it's at some of the uncertainty out there i think that's probably unlikely so i would love it if it did because it would give us even more ammunition uh as we as we go to expo in a few weeks but uh If it stays under, then we'll just continue to buy back a little bit every week with some of our cash and just keep following our capital allocation strategy. We've proven from 2015 on, it works. There's no flaw in it so far at this point. So I think we'll just keep doing what we do.
spk09: Yeah, perfect. Yeah, and this kind of, I guess, kind of leapfrogs into this question. I know you guys talked about the $200 million investment goal Uh, the basketball quarters, I just kind of want to see just the status of that right now. Do you think the company can really achieve this, uh, the goal this year?
spk06: I think it's going to be very difficult by September 30th, but 200 in the first year. And I'd said before, you know, uh, the goal is 200 per year. We may not hit it each year. However, I think, you know, we can get pretty damn close over a three year period of buying the amount of EBITDA we want. Uh, obviously we did a 66 and a half million dollar acquisition. We're at about 29.9 million, I think, or between 29 and 30 million. So, you know, we're at 96, 97 million. We probably put another five out in July that I know of. So we're 100 plus million right now. There's only a couple months left, so probably not going to hit 200 million. But we could. I mean, we could find an acquisition in August. We probably wouldn't close it, but at least we'd have that money We still have, with everything going, we probably have about another $40 to $50 million that we know we're going to invest over these 12 projects that we have out there, maybe a little bit more than that. So it is lined up. We've basically allocated, probably getting close to allocating $150 of the $200. So we can go find another $50 million acquisition, then we've at least allocated the $200 for this year. I know we'd have to – may not all get put out until the following year, sometime probably between, I don't know, November and April would be my guess.
spk09: Okay, perfect. And then I guess the last one for me is, you know, is there any really updates on Admire Me? I know you guys mentioned the first quarter of the new team, how they're working on bug fixes and how – Yep, it is up and running.
spk06: You can actually go on the site now. There's some new entertainers and feature stars on there we're actually doing a, a, a, a live hard launch at expo. Uh, so we have a bunch of, uh, feature entertainers that are going to be, uh, going on the site, uh, that week, uh, coming to the site that week, uh, let's start doing some push, uh, uh, some traffic. We're going to start, uh, you know, flowing some traffic to it and, and see what happens to get out there and do some, do some marketing. Uh, once we get the girls up, you know, uh, They call it on-ramping or whatever. Once they get them on the site and have them posting and using the site regularly, then we'll start directing more traffic to the site. But we should have an interesting next three months with the Miami. We'll see how that goes. I'm optimistic, finally. I've been pretty pessimistic on it. I won't lie. I mean, it's very difficult, but I'm not a programmer. And understanding we had a team that worked on it for a year, the Ukrainian war, kind of destroyed the team and the model there. And we, you know, finally had to make a switch to get it done. And then of course, now your new programmers have to learn everything and go back through and they recoded some things. And because we had lost programmers throughout that year where it's, you know, the Ukrainian company was there, but the one program we work on it, then another program would take over. And so there was some coding issues that had to be fixed and, Why not, but I believe that all that is done, we're actually adding new features. Uh, I think almost on a weekly or biweekly basis right now, whenever they upload from the, uh, the program environment to the active environment. And, uh, it's actually starting to come along pretty good. Uh, I've talked to a couple of the girls that post on there fairly regularly, and they're really starting to like how the features are. Uh, we brought in a group of feature entertainers, uh, that are on other platforms that are going to come to our platform. as well, and they've given us a lot of feedback and what we need to do and how we need to do it. They've been basically in the practice environment, not the programming environment, not the live environment, so they could basically work through, and as they made the fixes or changes, they were able to basically beta test and make sure they're working properly. In that environment, it seems to be going very well, and like I said, we're starting to see the changes in the live environment on a weekly to biweekly basis, so I'm very excited about it. We'll see how it goes over the next three months.
spk09: Thank you, guys.
spk06: Thank you.
spk07: Thank you so much, Josh, and to all of our research analysts. We're now going to open up the Q&A to the broader audience and would like to encourage everyone who has a question to please raise your hand and we'll put you in the queue. I'd also like to encourage everyone to retweet and share this space. First up, we're going to have Orchid Wealth. The floor is yours. Hey, Orchid, I think you need to unmute.
spk08: There we go. Hey, just a couple quick things. I think the main focus here should just be really talking about the casino plans for next year because the cash flow looks a lot bigger than what I originally thought it would be. You've got two locations now for different casinos in the market. How many total slot machines do you guys think you might be coming to market with?
spk06: Well, the The current estimate is about 500 gaming devices. This includes table games and slots, about 500. But less than 20 of those will be tables. So mainly it's going to be slots. If you look at the average take in Central City right now, the keep is about $139 a day. If you look at Blackhawk, it's about $330 something a day. I hope to be somewhere in the middle, to be honest with you. Okay. Each machine somewhere in the 200 range, 180 to 220 range per day, 365 days a year. You lose maybe 19 days a year because of weather up there. So you can do the math and use a 340-day year instead of a 365-day year. You're going to get you a pretty nice deal there, and then that's your gross revenue. And then typically, after all your casino costs and everything, you're running about 40% margins on that. So if we can keep that, that's how our budgets are being built. That's how everything's being set up with our player rewards, all those types of things, all in that budget. So it should be pretty interesting. And then you have the table games and the nightclub revenue, the alcohol and food sale revenues. I think, yeah, the casinos are a little bit – we can do a little bit more money than we originally anticipated, but we're getting a lot more machines now. uh, and space in there than we originally anticipated as well. So, okay. So, and that doesn't include the sports book. We're going to have a sports book as well.
spk08: So when, um, as soon as you receive approval from the gaming license people, is that then I'm assuming you're already talking with people about the sports book?
spk06: Oh yes, absolutely. We're, we've been talking with lots of people about sports book. Uh, we'll, we'll, we'll have our skin deal done, uh, prior to that license being issued, but it won't be effective until a license is issued. And, you know, hopefully, I'm hoping, originally we anticipated getting a preliminary approval sometime between the end of August and the end of September. However, talking with the Colorado Department of Gaming, they are running behind They have been short staffed. They are working on staffing issues and hiring right now and hoping to speed the process up here from what we understand. But it could be maybe as late as November, December before we get our preliminary. Once we have our preliminary, it'll take us about 90 days to get everything. Maybe I say 90, it could be 120. So that's why I'm saying I'm predicting now April to May openings at the earliest. That also has to do with how quickly we can get the AC in the construction. So it's kind of all – it's longer than I wanted, but it's all coming together at the same time. So it's actually working out beneficial.
spk08: Okay, so I'm just going to kind of – the town next to you guys, Black Hawk, they do 330 on their slot machines, the machines.
spk06: town you're in i believe that i believe that's correct now i don't know how old that data is because i haven't ran it recently uh but i tell you you can just go to the cal colorado department of gaming's website all of its public information right uh by city it won't tell you by casino it won't tell you you know but it'll give you every every slot machine that's in the central city all of their keep all of their you know their coin ins their keeps all those numbers are all available same with blackhawk same with cripple creek so you can actually look at cripple creek uh down in uh south of Colorado Springs as well. So you get all three cities, and you can see how many machines are in there, what their average keep is, and do your math. They did a billion dollars going in. They kept this amount of money, and on a per-machine basis, this is what it was, and then divide it by 365, and you kind of get the gist of how we do the math.
spk08: Well, the numbers you're talking about are between $7 and $10 million. Just to work backwards, though, When you do a slot machine in Colorado, you've got to pay 20% as a haircut off the top. I mean, from that number, you're left with about 40% after you pay all your bills.
spk06: Yeah, pretty much.
spk08: Okay, so you're looking at like something in the neighborhood of about $65 per machine per day. In the town that you guys are in, are the casinos open 24-7? No. They're not?
spk06: No. That's why I think we will run higher. Most of them close – by 2 o'clock, some close at midnight, some close by 2 a.m. Okay. And, you know, it's just, it's a different, it's different than Blackhawk. Blackhawk, yes, most everything in Blackhawk is open 24 hours a day. You know, you've got some, these are the casino operators that have been there for years and years. They've owned their properties. Now, one casino, if you look up Century Casinos, they're publicly traded as well. They are open 24 hours. So they're the only casino that, It's open 24 hours a day in Central City. I think the Z Casino might be as well. So I guess I should say that no more. Less than half the machines are open, are on 24 hours a day. I say that. I always forget about the Z Casino because it's downhill. It's not on Main Street there. Okay.
spk08: So in that number, if I go look it up, I've got to assume you guys are going to be open 24-7, so to speak. And half the people in the town, when they come up with that $139 per slot machine, I got to do some sort of a factor. Okay. So I can understand why you're modeling. I just want to understand why you're saying you think you could do about $180 to $200.
spk06: Yeah, well, I think part of it's going to be the fact that we're open 24 hours, and we're going to have entertainment and food that the other casinos don't have. We're going to have... I think we have a lot younger employees, uh, as we draw from our, our base of waitresses, bartenders, and entertainers in Denver, Colorado, they're 45 minutes away, uh, where we can have a split, a split shift type deal where they work, you know, two days and up in the mountains and then work three days back home. Uh, so it will be a, an interesting, I think we'll have an interesting drawing on the, the, the quality of customer service that we're going to be able to offer at our casinos versus, you know, Blackhawk versus Blackhawk casinos. If you look up the numbers of Blackhawks running about 140% of their pre COVID revenue with 65% of their employed staff that they had in 2019. So there's a, there's a, there's definitely a shortage of employees up there. So if you can get the employees, which we believe we can get, we've been talking with our staffing and, Talking with our people, they're very excited in the Denver market. We'll get the new bombshells open prior to these casinos opening. So we'll have another, you know, two, 300 employees with that bombshells, you know, to draw from as well. So we're very excited about the potential to draw the younger people up there that the other casinos have not been able to do.
spk08: Okay. Okay. All right, so we're going to go from 13 bombshells to 17 in the next year, if you ever take. You're going to go from 57 clubs with the reopenings and so forth. You're going to be at 60, not counting any acquisitions that you make, and you're going to have two new casinos.
spk06: All right. Correct. Yes, if we make no acquisitions.
spk08: Right. All right, perfect. Sounds great to me.
spk06: Yep. Thank you.
spk08: Thanks.
spk06: Yep.
spk07: Thanks so much for the question. Next up, we're going to have Adi Sitapara. Please take it away.
spk02: Eric. Hey, Bradley. Congrats on the great quarter, fellas. I really have two questions. The first one's around, you mentioned the outsiders. And one of the most accretive assets you can have is your IP, your brand. And I'm wondering, Is there something on your roadmap where you kind of stop investing in your own organic idea on bombshells and building that brand up and think about leveraging and buying something bigger that might have more of a national presence? You know, what do you answer that first?
spk06: Yeah, I mean, obviously it would depend on the multiple we could buy it at versus the multiple we trade at. If we looked at other restaurant chains right now, they would have to basically be willing to merge with us at a multiple rating similar to ours and then ride the multiple expansion up with us. If someone was willing to do that, I think we'd definitely look at an acquisition of that type, especially if we could bring a strong management team in, a growth management team. While I'd have to have the right concept, it would have to have the right numbers to make sense to me. What would be most important to me is that we're bringing the team on that's then going to take and run a true restaurant division and not only build the brand that we're buying, but help us with our brand as well and expand and build our brand as well. And then, of course, if that's successful, we get that right team, we put that together, then we can you know, basically rent wash, rinse and repeat. Right. We do it. Uh, we've been doing it with strip clubs for, uh, 30 years. So, uh, you know, acquisitions are acquisitions. It's just, it's just math, right? Anybody can do the math and the rest is just, uh, like I said, the right people so far, I've been pretty good at putting the right people together in these situations to build the clubs, build out our teams. And then we just have to do the same, uh, same for the restaurants. And when the process is doing it for the restaurants, I mean, we, we don't have to buy anybody to pick up a team. We're building our team. Just the building process is always slower than, you know, the acquisition process.
spk02: Yeah, no, that makes sense. I'm glad you brought up people because that's kind of my second question. You know, it's 2023, the era of chat GPT and AI. I know you guys run pretty decentralized, but how do you guys think about automating even basic workflows or even team members and seeing how their own productivity changes?
spk06: Well, I mean, Bradley's been doing a great job of, of keeping our, you know, office corporate office costs down using technology, uh, you know, to keep costs lower. Uh, we've been, you know, picking up and then learning more of these, uh, you know, FICA tip credits and all these other, uh, earning credits, tax credits, you can, you can get for different employment, uh, people, uh, different, uh, hiring different, uh, in different markets, different areas, enterprise zones, all these things. We're actually working on one of the casinos as a historic building in a historic zone. So we're going to get historic tax credits for all the improvement. We're taking a building that hasn't been used in 15 years and going to make it usable. So we're going to get tax credits on that, we believe. So, you know, basically the federal government's going to help us build half of one of our casinos, I think. It's kind of what it works out to. Bradley can probably explain explain it better than me at this point, but it's kind of where we're at.
spk03: Awesome. Awesome. Well, fellas, congrats on the quarter once again. A lot to celebrate. I'll probably see you guys tonight at 33rd. I'd like to finally meet in person.
spk07: Fantastic. Thank you so much for that question. Now, before we go on to a submitted question, I'd like to encourage anyone to raise their hand here for us to call on you. Eric, we have a question that was submitted from a follower in the audience. The capital allocation structure has been proven due to its performance since 2015. Ratings downgrade increases risk of higher and longer interest rates by the Fed, in addition to other macro factors. Does that change your calculus? Are you comfortable with current debt levels?
spk06: I mean, I'm comfortable with our current debt levels at the moment. Obviously, I've said in the past, we want to stay under three times. We're at 2.7 times. But I think that number will drop down as our VIP spend comes back. October, November, December, new stuff opens in 24. You're going to see a bunch of new revenue, new EBITDA come in and drop that back down probably in the 2.2 range. So that gives us plenty of room to take on additional debt. Of course, we buy anything we pick up the EBITDA from any acquisition as well. That helps keep that debt level in check. I'm not too worried about it. I think, you know, I bought my first house in 1993 and my interest rate was 7.58. So, you know, 7.65% is not horrendous. I think rates are still below that. So we're still not at the 1993 level from when I bought my first house. So I'm not too worried about it right now. I think our weight is 6.52. If we were to readjust right now and refinance 100% of all our debt into one thing, I would probably get around a seven and a half percent. I think we just closed a loan at seven point one, two percent. So I think we get a seven and a half percent loan. I mean, that wouldn't be the end of the world to raise our interest a point on two hundred and forty million in debt, which is which is a considerable amount of money. But but nothing that's going to stop our growth or stop us from continuing to take on debt.
spk07: fantastic thank you so much eric and bradley and to all who ask questions with that we will be concluding the q a segment of this earnings call i'd like to encourage everyone to check out the rick store at shop.rix.com and to follow eric at rick's ceo for his 10 000 follower we're going to be doing a little giveaway with merchandise from the store as well as tonight For those of you who joined us late, you'll be able to 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 Ave and Broadway, a little in from Herald Square. If you haven't RSVP'd yet, please ask for Eric Langan, myself, Martin Shkreli, or DKNY at the door. On behalf of Eric Bradley and the company, as well as our subsidiaries, thank you and have a good night. As always, please visit one of our clubs or restaurants and have a phenomenal time. Thank you all.
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