RCI Hospitality Holdings, Inc.

and welcome to rci hospitality holdings fourth quarter 2024 earnings conference call you can find the company's presentation on rci's website go to the investor relations section all the links are 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 City. Eric Langen, President and CEO of RCI Hospitality, and CFO Bradley Shea are in Houston today. Please turn with me to slide three. RCI is making this call exclusively on XSpaces. To ask a question, you'll need to join the space with a mobile device. To listen only, you can join the space on a personal computer. At this time, all participants are in a listen-only mode. A question-and-answer session will follow, and this conference is being recorded. Please turn with me to slide four. I want to remind everybody 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 may occur afterwards. Please turn with me to slide five. I also direct you to the explanation of Rick's non-GAAP financial measures. Now, I'm pleased to introduce Eric Langen, President and CEO of RCI Hospitality. Eric, take it away. Thank you, Mark.

And thanks for joining us today, everyone. All comparisons are year-over-year unless otherwise noted. Please turn to slide six. Fourth quarter nightclub sales increased for the second quarter in a row. This was the first time since the first half of fiscal 2023. But total company sales declined due to a hurricane and a fire resulting in lower EPS. However, non-GAAP EPS, net cash provided by operating activities and free cash flow all increased. We ended fiscal year 24 with 8.955 million shares outstanding, a reduction of 4.7% year over year. Turning to the capital allocation, we have officially launched our back to the basics five-year plan. We have already made some considerable progress in implementing this plan. That includes continuing to buy back more shares in the current fiscal quarter, first quarter of 2025. We also divested four underperforming bombshells location, closed the Denver food hall, reduced bombshells related debt and discontinued franchising. Please turn to slide seven. RCI has grown significantly since we initiated our capital allocation strategy at the end of fiscal year 2015. Revenue has more than doubled from $135 million to $296 million, a CAGR rate of 9%. More importantly, free cash flow has more than tripled from $15 million to $48 million, a CAGR of 14%, while our share count fell by 13%. We are proud of this achievement. Thanks to all of our employees, entertainers, and partners who have made this possible. Looking ahead, we plan to build on this progress through our back to the basics strategy. Please turn to slide eight. Operationally, this means focusing on our core nightclub businesses and making new acquisitions. For bombshells, this means improving performance of existing locations and finishing the last three units under construction. Looking at capital allocation, we expect to generate more than $250 million of free cash flow over the next five years. Under our plan, we will allocate 50% of that to club acquisition, which includes the repayment of debt since most of our debt is acquisition-related, and we will allocate 50% to share buybacks and dividends. Our fiscal 2029 targets call for hitting $400 million in revenue, $75 million in free cash flow, and reducing our share count to 7.5 million or less. This would result in a doubling of free cash flow per share from where it is today. Please turn to slide nine for more details. Nightclubs are a core business. For anyone new to RCI on this call, we love this business because it generates an estimated 35% plus in operating margins. There are high barriers to entry and clubs produce steady and significant cashflow. Currently, we are evaluating every club in our portfolio and we will rebrand, reformat, or divest underperforming locations. As for bombshells, our target for the segment is 15% operating margins with a return to same-store sales growth. Regarding club acquisitions, our goal is to acquire $6 million of adjusted EBITDA a year, focusing on the best clubs, buying for base hits, and maybe an occasional run. Our target metrics remain the same, three to five times adjusted EBITDA for club, business, and farm market value for the real estate. We will continue to finance our deals with a combination of cash on hand, bank financing, and seller notes. We will also consider using stock if and when our valuation improves. We will continue to target 100% cash on cash returns within a three to five year period. For the final part of our plan, as opposed to periodically buying shares, we anticipate implementing a program of regular buybacks and flexing up the stock and buyback if the stock is particularly cheap. We expect to buy a significant amount of stock if the price is right. Given where our stock is trading and our view of what the business can do over time, we believe this is a great use of capital. We are also planning small dividend increases annually. Please turn to slide 10. Based on our track record, we believe our five-player plan is very achievable. Since fiscal 2017, we have completed $267 million of club and related real estate acquisitions. We have stayed disciplined on price. We have improved operations and financial performance consistent with our goals. And we have been able to deploy larger amounts of capital as we've grown. We think there's a lot more runway for club acquisitions as illustrated in the pie chart. Although we can't predict the size or timing, we think our goal of acquiring $6 million of EBITDA per year is very achievable on a five-year average basis. Please turn to slide 11. Here you can see that the anticipated growth rates of some of our key financial targets are somewhat conservative based on past performance. We also do not anticipate increasing leverage to achieve our goals. Please turn to slide 12. We have already made considerable progress on our plan. In our nightclub business, we have generated two quarters of positive same-store sales growth. We are working on three potential acquisitions. In our bombshells business, as I mentioned earlier, we have divested underperforming units. We closed the Denver Food Hall in early December and are marketing that real estate for sale. And we also discontinued franchising. In addition, during the fourth quarter, we increased our share buyback program. We increased our cash dividend by 16.7% and we are continuing to reduce our share count. Please turn to slide 13 for the first look of our updated capital allocation strategy. This is the path we will take to grow the company to 400 million in revenue, 75 million in free cash flow, and continue to reduce our share count. Now I'd like to turn the presentation over to Bradley to review performance for the fourth quarter.

Thank you, Eric. Please turn to slide 15. All comparisons are year over year unless otherwise noted. Fourth quarter sales declined $2 million. This was largely due to a hurricane-related closures and the sale of Bombshell San Antonio in early September. Net income, attributable to RCIHH common shareholders, declined a similar amount with EPS at $0.03. Looking at some of our other key metrics, non-GAAP EPS increased by $1.63. Net cash provided from operating activities increased $3.5 million and free cash flow increased $2 million. while adjusted EBITDA declined $2.3 million. Please turn to slide 16. Nightclub revenues declined $307,000. This primarily reflected a 2.2 same-store sales growth, 10 closure days at Houston area clubs due to Hurricane Beryl in July, and some other changes that we were going through to improve our club lineup. Alcoholic beverage sales increased 0.3%, Food, merchandise, and other increased 0.9%, and service declined 1.7%. The differing growth rates primarily reflected higher alcohol and food and lower service revenues. Impairment and other charges were lowered by $2 million. As a result, operating income was $1 million higher, while non-GAAP was $1.1 million lower. Please turn to slide 17. Bombshell's revenues declined $1.643 million. This primarily reflected a 16.2 same-store sales decline, which was negatively affected by 26 closure days at Houston area locations due to Hurricane Beryl in July. Impairments and other charges were $3 million higher. This primarily reflected impairments partially offset by gain from reducing San Antonio-related debt. As a result, there was an operating loss of $2.5 million compared to an income of $1.2 million. On a non-GAAP basis, however, operating income was $701,000 compared to $1.4 million. These bombshell impairments included locations that were divested and the Denver Food Hall, even though these events occurred in the first quarter of 2025. These divestitures and closings are anticipated to improve the segment's performance. Collectively, these five locations accounted for $14.6 million in sales in fiscal 2024. Excluding $10.3 million in impairment and $2.9 million in gain on the sale, they lost the collective $1.1 million. Please turn to slide 18. Corporate expenses increased modestly by $284,000 and a little less on a non-GAAP basis. Please turn to slide 19. We have a couple slides coming up that will discuss free cash flow and adjusted EBITDA, which are non-GAAP. In advance of that, we wanted to present the closest GAAP equivalents on this slide, which are operating income and net cash provided by operations and net income. Please turn to slide 20. We ended the fourth quarter with cash and cash equivalents of $32.4 million. During the quarter, we used $7.8 million to buy back shares. As a percentage of revenues, free cash flow was 18%, and adjusted EBITDA was 24%. Please turn to slide 21. Debt at September 30th declined $7.2 million from June 30th. This reflected eliminations of bombshell San Antonio debt, early paydown of $1.5 million of the playmate notes, and other scheduled amortized paydowns. The weighted average interest rate was 6.67%, only three basis points higher than a year ago. Total occupancy cost was 8% and decline is at 8% and decline from 8.1% year over year. Debt to trailing 12-month adjusted EBITDA was 3.28 times, similar to the third quarter. This should now further decline in fiscal year 2025 as sales grow from locations that have come online and more recently, and from those anticipated to open it throughout the year. Debt maturities continue to remain reasonable and manageable. Now here's Eric.