RCI Hospitality Holdings, Inc.

Good afternoon, greetings, and welcome to RCI Hospitality Holdings' third quarter conference call. My name is Bradley Che. You can find the company's presentation on RCI's website. Go to investor relations section. All the links are at the top of the page. Please turn to slide two of our presentation. RCI is making this call exclusively on xSpaces. To ask a question, join the space with a mobile device. To listen only, you can join space on a personal computer. At this time, all participants are on a limo. A Q&A will follow shortly after. This conference is also being recorded. Please turn to page three. I want to remind everybody of our safe harbor statement. You may hear or see forward-looking statements that involve risk 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 to page four. I also direct you to the explanation of RIC's on-gap financial measures. Please turn to slide five. Our speakers today are Travis Reese, interim president and CEO, and Albert Molina, interim CFO. And I'm pleased to introduce Travis.

Okay, thank you, Travis. Turning to slide seven, I'll start with our view of our consolidated results. All comparisons are year-over-year for the quarter, unless otherwise noted. Total revenues were $73.9 million compared to $71.1 million, a 4% increase. Impairments and other charges, NEP, were insignificant compared to $2.3 million. Net income attributable to RCIHA shareholders was $6.4 million compared to $4.1 million, a 57% increase. Gap ETS was an 80% increase, and non-gap was $0.90 per share, a 17% increase. Net cash provided by operating activities and free cash flow were $2.5 million and $2.7 million lower, respectively. These primarily reflected payments of more outstanding payables compared to prior year quarter. On a sequential quarter basis, both net provided by operating activities and free cash flow were 14% and 26% higher, respectively. Adjusted EBITDA was $16.9 million, an increase of 10% year-over-year, and 9% sequentially. Moving to slide 8, I will now cover our results by segment, nightclubs first. Revenue increased by 1%, or record $63 million. Four newly acquired open and reformed clubs generated $4 million, and the 52 clubs in same-store sales produced $58.2 million. These more than offset $1.2 million in sales from four clubs closed subsequent to the year-ago quarter. Revenue tied, service increased by 7.6%, food merchandise and other declined by 1.4%, and alcoholic beverages declined by 4.2%. Operating income was $19.6 million compared to $17.9 million, with margin at 31.2% of segment revenues compared to 28.6%. Non-GAAP operating income, which excludes impairment and other net charges, was $20.2 million compared to $20.8 million, with margin at 32.1% of segment revenues compared to 33.3%. A slide line are the results for the bombshell segment. Revenue increased by 25.4% to $10.8 million. Three new locations generated $2.6 million, and the nine locations same-store sales produced $8.2 million. By revenue type, alcoholic beverages increased by 33.6%, and Food and Order increased by 16.6%. Profitability improved substantially as we increased higher margin beverage sales and improved operating leverage to segment. Operating income was $759,000 compared to $67,000 with margin at 7% of segment revenues compared to 0.8%. Land gap operating income was $801,000 compared to $80,000, with margin at 7.4% of segment revenues compared to 0.9%. Moving to slide 10, you will see the summary of our corporate expenses. Gap operating expenses declined by 19.7%, or $1.8 million, and $16.2 million. for $1.4 million on a non-GAAP basis. Both the GAAP and non-GAAP declines reflected a year-over-year reduction in insurance expense. 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 Net cash provided by operations and net income. Slide 12, please. We ended the quarter with cash and cash equivalents of $26.4 million, down by less than half a million dollars from March 31st. Our strong cash generation during the quarter enabled us to make net pay downs of $8.6 million, as well as buy back $1 million worth of shares. pre-cash flow margin was 14%, improving for the second consecutive quarter, and adjusted EBITDA margin was 23%, improving for the third consecutive quarter. Let's turn to slide 13. As I mentioned, debt declined from March 31st, affecting paydowns across all categories. The weighted average interest rate was 7.05%, which would be considered to be a very good rate for commercial real estate these days. Total occupancy cost of 8.3% declined sequentially. Debt to trailing 12-month adjusted EBITDA was 4.3 times. Excluding the fourth quarter legal accrual, debt to EBITDA was 3.7 times. Both are down from the second quarter. Debt maturities continue to remain reasonable and manageable, particularly with our plans to sell non-income producing properties. Now back to Travis. Our plans are going to change.

Thank you, Travis and Albert. Eric Langan, RCI's founder and head of M&A, will also be on the Q&A. If you would like to ask a question, please raise your hand in the X spaces. When you finish, mute your microphone to eliminate any background noise. We have a limited number of speaker spaces. After your question, we may move you back to the audience to free up space. Please understand we cannot discuss the legal situation in New York other than to reiterate the company's statement that RCI, the individuals involved, and the three clubs have pled not guilty to all of the charges and are taking all necessary actions to defend themselves. Furthermore, I've also been told that we've experienced some technical issues, so a transcript will be posted shortly as soon as we're able to to reflect what was said on this call. So, I'll start taking questions. I'm going to go ahead and bring in Orchard Welk They're on. Make sure you unmute. He still shows his listener, Brad. Promote him to speaker, please. One second. He's on mute. Can you unmute? He's in listen-only mode. He's a speaker now. Okay. Okay. You just have to unmute.