RCI Hospitality Holdings, Inc.

Good afternoon everyone. We're going to wait a few minutes for others to join and then we will get this going. We'll give this another 30 seconds or so and then kick off the third quarter 2025 earnings call. I've received words from Eric Lang and we're going to wait one more minute so Bradley Shay can finish using the bathroom and then we will begin. good afternoon greetings and welcome to rci hospitality holdings third quarter 2025 earnings conference call you can find the company's presentation on rci's website go to the investor relations section and all the links are at the top of the page Please turn with me to slide two of our presentation. I'm Mark Moran of Equity Animal, and I'll be the host of our call today. I'm coming to you from Washington, D.C. Eric Langen, President and CEO of RCI Hospitality, and CFO Bradley Shea are in Houston. Please turn with me to slide three. RCI is making this call exclusively on X Spaces. 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 the presentation. This conference call 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. Please turn to slide six. Thanks for joining us today. Let me run through some key takeaways. All comparisons are year-over-year unless otherwise noted. Nightclub revenues were nearly level despite economic uncertainty related to tariffs and the tax bill, which affected our customer base. Bombshell's revenue reflected the previously announced sale and divestiture of five underperformers, but both revenues and margins increased sequentially from the second quarter. Consolidated profitability benefited from the absence of impairment charges, partially offset by other factors. We continue to make solid progress on our back-to-the-basics cap allocation plan. We acquired two upscale nightclubs, Platinum West in South Carolina and Platinum Plus in Allentown, Pennsylvania. Price multiples were in line with our cap allocation strategy. We opened Rick's Cabaret and Steakhouse in Central City, Colorado. We also purchased more than 75,000 shares of common stock for $3 million and ended the quarter with approximately 8.76 million shares outstanding. Subsequent to the quarter, we opened a Bombshells location in Lubbock, Texas, which has been doing very well right out of the gate. Now here's Bradley to review our performance in more detail.

Thank you, Eric. Turning to slide seven, I'll start with a review of our third quarter results. All comparisons are year-over-year for the quarter unless otherwise noted. Total revenues were $71.1 million compared to $76.2 million, a difference of $5 million. This primarily reflected the sale and divestiture of underperforming bombshells rated locations late in fiscal 24 and early fiscal 25. Impairments and other charges were $2.3 million compared to $18.3 million a difference of approximately $16 million. Net income attributable to RCIHH common shareholders was $4.1 million compared to the loss of $5.2 million, a difference of $9.3 million. And GAAP EPS was 46 cents per share compared to a loss of 56 cents per share. Net cash provided by operating activities was $13.8 million compared to $15.8 million, a difference of $2 million. And free cash flow was about level at $13.3 million compared to $13.8 million. Adjusted EBITDA was $15.3 million compared to $20.1 million. And non-GAAP EPS was $0.77 compared to $1.35. Most of the year-over-year difference in non-GAAP EPS was due to slightly lower margins in nightclubs, lower margins in bombshells, higher non-cash expenses related to our self-insurance program with higher taxes. Now moving on to slide eight, I will now cover our third quarter results by segment, beginning with nightclubs. Revenues totaled $62.3 million, down less than 1% year-over-year. Key factors included a 3.7% decline in same-store sales and the absence of Baby Dolls Fort Worth due to a fire. This was mostly offset by $2.6 million from newly acquired or rebranded nightclubs. By revenue type, food, merchandise, and other increased 5.1%, service increased 0.3%, and alcoholic beverages declined 3.9%. Other net charges totaled $2.3 million compared to $7.7 million. In the third quarter of fiscal year 25, this included a mostly non-cash lawsuit settlement, partially offset by gain on insurance. In the year-ago quarter, this primarily included impairments. There were none in this quarter. Operating income was $17.8 million compared to $13.6 million, with a margin at 28.5% of revenues versus 21.7%. Results reflected the decline in other net charges and same-store sales, acquisitions not yet fully optimized, and the central city pre-opening costs. Non-GAAP operating income, which excludes other net charges, was $20.7 million compared to $21.9 million, with a margin at 33.2% of segment revenues versus 34.9%. I'd like to point out that while GAAP and non-GAAP operating margin were down year over year, they have increased two quarters in a row, essentially. Turning to slide nine, here are the results of the bombshell segment. Revenues totaled $8.6 million, a difference of $4.5 million. The key factors here included the sale and divestiture of five underperforming locations in the fourth quarter of 24 and the first quarter of 25. which impacted revenues by $3.8 million and a 13.5% decline in same-store sales. This was partially offset by two new locations not in same-store sales. Other net charges were minimal in the third quarter of 25 versus $10.3 million in impairments last year. There was an operating income of $87,000 compared to a loss of $8.9 million with a margin at 1% of segment revenues versus a negative 68%. Results primarily reflected the decline in impairments, sales from open locations, and Lubbock's pre-opening costs. Now on a non-GAAP basis, which excludes impairments, there was an operating income of $100,000 compared to $1.4 million profit, with a margin at 1.2% of segment revenues versus 10.8%. Moving to slide 10, you will see a summary of our corporate expenses. GAAP expenses totaled $8.7 million, an increase of $1.5 million. Non-GAAP was $8.3 million, an increase of $1.9 million. As we've explained on previous calls, starting this year, corporate expenses are being affected by an estimated non-cash self-insurance actuarial reserve for the quarter. That's why expenses were higher year over year in the first quarter, lower in the second, and higher in the third. Please turn to slide 11. We have slides coming up that discuss free cash flow and adjusted EBITDA, which are non-GAAP. In advance of that, we wanted to present the closest GAAP equivalents, which are operating income, net cash from operations, net cash by operations, and net income. So please turn to slide 12. We ended the third quarter with cash and cash equivalents of $29.3 million, During the quarter, we used $5.25 million as part of our two platinum acquisitions and $3 million to buy back shares. While they were down year over year, I'd like to note that both free cash flow and adjusted EBITDA increased sequentially. As a percentage of revenues, free cash flow margin increased from 11% in the second quarter to 19% in the third, and back to where we were two years ago in the third quarter of 23. while adjusted EBITDA remained approximately level at 22% for each of the first three quarters this fiscal year. Please turn to slide 13. Debt at June 30th declined slightly, $201,000 from March 31st quarter. This reflected scheduled pay downs, new acquisition-related debt, and construction financing for Bombshells Rowlett and Bombshells Lubbock. We continue to control the rate paid on our debt with an average weighted interest rate of 6.68% compared to 6.74% in a year-ago quarter. Total occupancy cost was 7.9% of revenues level with last year. And debt to trailing 12-month adjusted EBITDA was 3.82 times compared to 3.56 times in the preceding quarter. While debt stayed approximately level because of the recent acquisitions and adjusted EBITDA increased sequentially, Adjusted EBITDA for the trailing 12 months declined. As new locations generate revenue and EBITDA, occupancy costs and debt metrics should improve. Debt maturities continue to remain reasonable and manageable. Now here's Eric.