RCI Hospitality Holdings, Inc.

Greetings and welcome to RCI Hospitality Holdings first quarter 2024 earnings conference call. You can find the company's presentation on the RCI website. Go to the investor relations section and you'll find all the necessary links at the top of the page. Please turn with me to slide two of our presentation. I'm Mark Moran, CEO of Equity Animal. I'll be the host of our call today. I'm coming to you from New York. Eric Langan, President and CEO of RCI Hospitality, and CFO Bradley Shea are in Houston. Please turn with me to slide three. If you aren't already doing so, it is easy to participate in the call on X Spaces. Log in to X, formerly known as Twitter. Go to at Rick's CEO and select a space titled dollar sign R-I-C-K, RCI Hospitality Holdings, Inc., 1Q24 earnings calls. To ask a question, you will 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 a 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. Please turn with me to slide five. I also direct you to the explanation of RIC's non-GAAP financial measures. Now, I am pleased to introduce Eric Langan, President and CEO of RCI Hospitality. Eric, take it away.

Thank you, Mark, and thanks everyone for joining us today. If you'll please turn to slide six. Our first quarter revenues were in line with what most people were expecting. They totaled $73.9 million, up 5.6% compared to last year. This was primarily due to club acquisitions. which more than offset a consolidated same-store sales decline of 9.8%. The fundamental nightclub business remained solid. We believe nightclub same-store sales reflect the macroeconomic uncertainty everybody is talking about. Margins were lower than what we had been expecting, mainly on bombshell side of the business. Bradley will go into that in more detail later. EPS was 77 cents per share with non-gap at 87 cents. Net cash from operating activities and free cash flow held up very well. They declined only 8% and 3% respectively. Please turn to slide seven for other key takeaways. We are pleased to report that during the quarter and after the quarter, we continue to make progress toward our key initiatives. We have a solid plan to lower costs, increase revenue, and return our margins to their target goals. The newest development is an agreement to relaunch Admirami with a strategic partner, already in the online and mobile adult entertainment business. During the first quarter, we also continued to buy back shares and we remain confident we have access to sufficient cash resources to implement our plans. Please turn to slide eight to review nightclub development plans. We continue to add value to our Baby Dolls Chicas acquisition. Sales in the first quarter were up 10% from the fourth quarter and have improved every quarter since we've owned them. In addition, Our margin improvement program resulted in 130 basis point improvement on a sequential quarter basis and 260% basis point improvement versus the acquisition performance in fiscal 23. Looking at new clubs, the replacement location in Lubbock, Texas is nearing completion. Due to the success of the Baby Dolls brand, we are converting the Appalene location to that format, which is awaiting installation of its audio and video systems and furniture deliveries. The planned Baby Dolls in West Fort Worth is simply awaiting a building permit to begin construction. A Chica's Locust brand has also been successful for us. And as a result, we have decided to remodel and convert a BYOB locations in Harlingen, Texas, into a Chica Locust. And we are currently awaiting the issuance of the liquor license. Regarding acquisitions, we are evaluating a sizable number of targets. The hardest part we face is coming up with fair value because owners want to be rewarded for post-COVID highs during 2021 and 2022. We are typically by on a two-year historical performance. You please turn to slide nine. We continue to be excited about our Central City Colorado casinos, Rick's Cabaret Steakhouse Casino and our Bombshell Sports Casino. In the few weeks since Christmas and New Year's, there have been no new developments with our gaming license. Meanwhile, interior construction on the Rick's Casino has been progressing on schedule and we anticipate completion in June of 2024. We will then await issuance of our gaming license so that we can install, test, and configure the devices and systems in order to open the casino. For the Bombshells Casino, we are awaiting the building permit. We continue to anticipate both casinos to open in fiscal 2024, and they will represent a significant free cash flow opportunity. In Colorado's most recent fiscal year, Central City slots averaged 131 adjusted gross proceeds per day, and nearby Blackhawk does 307, mainly because they run 24-7 as we plan to do. Please turn to slide 10. Admire Me is a service we've been developing to help club entertainers monetize their content and develop stronger relationships with their customers. Based on the agreement that we've recently signed, we worked out We will retain 75% ownership. Our new partner will own 25% and the service will be relaunched later in the June quarter under a new name. This partner has an existing internet platform with domestic and international traffic, safety controls, credit card processing, all necessary technology we need at a far less cost than if we did it alone. This includes highly valued live video streaming. The result is that overnight we obtain access to a strong, technology infrastructure with significant distribution and proven revenue collection and disbursement capabilities. This will provide club entertainers with even greater potential to make money, and RCI will become the largest publicly traded entity owning a worldwide interactive social media adult platform with streaming video, both live and prerecorded. Our vision is to create a digital extension of our physical brands, connecting tens of thousands of contractors and workers on the front lines the entertainers and waitresses, et cetera, and the customer who come through our door so they can continue to interact or receive content. We want it to be an easy and seamless way for entertainers and waitresses to monetize their relationships 24 hours a day, seven days a week, 365 days a year. You walk into the club, the entertainers are on the platform promoting themselves, getting customers to sign up and subscribe to them, and then come back and visit them in the club. Please turn to slide 11 to review our Bombshells Development Program. Our newest location, Stafford, a suburb of Houston, opened in mid-November. Construction is continuing at our Relic location, which we plan to open in late June or July of this year, and the Lubbock location construction is well underway, and we plan to open that in the fourth quarter of 24 as well. We are getting ready to begin the remodeling of downtown Denver location as soon as we receive our building permits. Since this is a simple remodel of an existing restaurant location, It should be a quick turnaround to get this site open. As for future developments, we have decided to list our Aurora, Colorado site for sale or lease and to put our second Austin location on hold. Both moves are intended to help us better focus on other opportunities. The Huntsville franchisee is still awaiting his building permits. The bigger issue is Bombshell's performance. After we've seen the results from the quarter, we have made a major structural management changes in bombshells team. And we are also considering any and all options to improve performance that potentially includes seeking an operational partner or selling the business. Now here's Bradley to go into more details on our results.

Thanks Eric. Please turn to slide 12 to review our nightclub segment, fourth quarter revenues.