RCI Hospitality Holdings, Inc. (formerly Rick's Cabaret International, Inc.) Reports Strong Core 3Q14 Performance
HOUSTON – August 11, 2014 – RCI Hospitality Holdings, Inc. (formerly Rick’s Cabaret International, Inc.) (NasdaqGM: RICK) today announced strong core performance for the 2014 third quarter ended June 30, 2014; stepped up open market purchases of common shares in the 2014 fourth quarter; and an updated capital allocation strategy in recognition of the Company’s increased cash generating power.
3Q14 GAAP EPS diluted of $0.07 includes $0.21 per share cost net of tax of previously announced legal settlements and $0.02 per share net of tax on a loss on sale of property. Excluding these, the resultant core EPS diluted was $0.30 compared to $0.23 in the year ago quarter.
3Q14 Non-GAAP EPS* diluted of $0.35 includes the $0.02 cost mentioned above. Excluding this, Non-GAAP EPS was $0.37 compared to Non-GAAP EPS of $0.36 in the year ago quarter.
RCI has updated its capital allocation strategy to take maximum advantage of its growing cash generating ability. Rather than using excess cash to primarily finance the acquisition of adult clubs and the development of sports bars/restaurants, RCI will examine all opportunities—including current operations, potential acquisitions, restaurant development, expedited debt pay down, stock buybacks, and potential dividends—on the basis of which will provide the most favorable shareholder return.
As a result, RCI has stepped up open market share buybacks in 4Q14. Going into the quarter, RCI had $10 million of share repurchase authorization.
A conference call to discuss results for 3Q14, outlook and related matters will be held today, August 11, 2014 at 4:30 PM ET:
Eric Langan, President and CEO, invites investors for a “Due Diligence Ball” to meet, talk and tour one of RCI’s top revenue generating clubs.
When: Monday, August 11, 2014, 6:00 PM to 8:00 PM ET
Where: Rick’s Cabaret New York, at 50 W. 33rd Street, between Fifth Avenue and Broadway
RSVP: By 12:00 PM ET, August 11, 2014, with your contact information, to [email protected]
Mr. Langan commented, “2Q14 was a turnaround quarter in which we increased our level of revenue, core operating margin and cash flow. 3Q14 was a cleanup quarter in which we took advantage of our new, higher level of performance to resolve a number of outstanding issues.
“As previously reported, we incurred costs of $3.2 million to settle five cases--two injury, two tax, and one copyright. We also recorded a $334,000 loss on the sale of assets. While some legal issues remain, we believe we have significantly reduced these distractions.
“Overall, on a core basis, we had a good quarter. We are especially pleased that third quarter revenues increased 1.4% sequentially when historically they have declined from the seasonally larger second quarter. Sales were positively impacted by adult clubs acquired and sports bars/restaurants launched within the past year, as well as growth at existing adult clubs.
“Looking ahead, 4Q14 should benefit from a full quarter of the new Bombshells in Austin. Assuming schedules stay on track, we anticipate the 4Q14 opening of a Rick’s Cabaret in Odessa, the capital of fracking in Texas, and two new Bombshells in the Houston area.”
Total revenues reached a record $33.3 million, improving markedly over the $27-$29 million quarterly levels since 1Q13, when the Company began benefiting from the Jaguars acquisition, through 1Q14.
New adult clubs and sports bars/restaurants added $3.7 million in revenues year over year, benefitting from a full quarter of the new Vivid Cabaret New York adult club in Manhattan and the new Bombshells sports bar/restaurant in Webster, TX, in addition to initial revenues from the late June opening of the new Bombshells in Austin, TX.
Same store sales of $28.9 million increased 5.1% year over year, with nearly all major brands showing improvement. Sales at adult clubs open more than a year continued to reflect success of the Company’s post-recession strategy of increasing patronage from bigger ticket, higher margin customers.
Operating margin (excluding $3.23 million in legal settlements and $334,000 in loss on the sale of property) was 19.4% compared to 19.3% a year ago.
Salaries and wages, combined with stock based compensation, fell to 21.7% of revenues from 23.7% in the year ago quarter; cost of goods sold fell to 12.9% from 13.0%; and other costs fell to 7.8% from 8.2%.
Legal and professional fees increased to 3.6% from 2.8% due to the higher level of activity related to certain lawsuits and the large number of legal settlements in the quarter. Insurance costs increased to 3.0% from 2.0% due to Company growth and industry factors.
Pre-opening costs, which are spread among expense categories, totaled $306,000 compared to $185,000 in 3Q13 due to increased activity in opening new adult clubs and sports bars/restaurants.
Rent and interest combined, which is how the Company evaluates its cost of occupancy, was 10.1% of revenues vs. 9.6%. 3Q14 reflects the addition of Vivid Cabaret NYC and the Webster and Austin Bombshells, and the previously disclosed increase at Rick’s Cabaret New York.
The cash generating power of the Company, as reflected by adjusted EBITDA*, was $7.7 million compared to $6.9 million in the year ago quarter. Adding back the $334,000 loss on sale of property mentioned above, adjusted EBITDA would have been $8.1 million.
Adult Clubs: Rick’s Cabaret Odessa has received all necessary permits and approvals and is planned to open in August. Odessa has been ranked the second fastest growing metropolitan area in the US in personal income for the past three years. Separately, RCI decided not to proceed with its previously announced $11.06 million acquisition of Club O.
Sports Bars/Restaurants: Two Bombshells sports bars/restaurants—South Houston and Spring, TX, a suburb north of Houston—are planned to open in 4Q14, bringing the Company’s restaurant count to six. RCI expects to spend the balance of calendar 2014 solidifying plans to open four more Bombshells. RCI has changed the name of its NASCAR themed restaurant in Fort Worth, TX to “Pole Position Sports Saloon and Restaurant.”
Real Estate Investment Trust (REIT): RCI continued to make progress in the development of an independent, privately financed REIT. The REIT’s purpose is to acquire adult club real estate from RCI, enabling the Company to capture gains, reduce debt, and transform its balance sheet to that of a more traditional bar/restaurant chain.
FY14 Guidance: RCI reaffirmed its fiscal 2014 guidance of revenues of $130 million, up 16% year over year; GAAP EPS of $1.10, up 15%; and Non-GAAP EPS of $1.60, up 14%.
Mr. Langan explained: “Over the last three years we have focused on growing the top line. With the recession, we had to lower prices, but now prices are back up. We are generating a substantial amount of cash, but costs are up, too.
“We need to make sure we are redeploying cash to ensure maximum returns. So going forward, we are focused on the best use of cash, not necessarily wedded to any one thing, and we are focused on the bottom line, not necessarily the top line. So while our target had been 20% revenue growth organically and through acquisition, a more reasonable target going forward would be 15-20%.
“As a first step in implementing this strategy, we have been buying back stock. In addition, we have begun to review underperforming assets closely, looking for anything that is not generating sufficient cash. At present, there are no assets we plan to buy. We used cash in 3Q14 to resolve certain lawsuits to eliminate the uncertainty and potential future use of cash in connection with these matters.”
About RCI Hospitality Holdings, Inc. (NasdaqGM: RICK)
With 43 units, RCI Hospitality Holdings, Inc. (formerly Rick’s Cabaret International, Inc.) is the leading operator of adult gentlemen’s clubs and sports bars/restaurants in the US. Adult clubs in New York City, Los Angeles, Miami, Philadelphia, Charlotte, Dallas/Ft. Worth, Houston, Minneapolis, Indianapolis and other cities operate under brand names, such as “Rick's Cabaret,” “XTC,” “Club Onyx,” “Vivid Cabaret,” “Jaguars” and “Tootsie’s Cabaret.” Sports bars/restaurants, which also feature live entertainment, operate under the brand names “Bombshells” and “Pole Position Sports Saloon.”
*Non-GAAP Financial Measures
In addition to our financial information presented in accordance with GAAP, management uses certain “non-GAAP financial measures” within the meaning of the SEC Regulation G, to clarify and enhance understanding of past performance and prospects for the future. Generally, a non-GAAP financial measure is a numerical measure of a company’s operating performance, financial position or cash flows that excludes or includes amounts that are included in or excluded from the most directly comparable measure calculated and presented in accordance with GAAP. We monitor non-GAAP financial measures because it describes the operating performance of the company and helps management and investors gauge our ability to generate cash flow, excluding some recurring charges that are included in the most directly comparable measures calculated and presented in accordance with GAAP. Relative to each of the non-GAAP financial measures, we further set forth our rationale as follows:
Non-GAAP Operating Income and Non-GAAP Operating Margin. We exclude from non-GAAP operating income and non-GAAP operating margin amortization of intangibles, patron taxes, pre-opening costs, gains and losses from asset sales, stock-based compensation charges, litigation and other one-time legal settlements and acquisition costs. We believe that excluding these items assists investors in evaluating period-over-period changes in our operating income and operating margin without the impact of items that are not a result of our day-to-day business and operations.
Non-GAAP Net Income and Non-GAAP Net Income per Basic Share and per Diluted Share. We exclude from non-GAAP net income and non-GAAP net income per diluted share and per basic share amortization of intangibles, patron taxes, pre-opening costs, income tax expense, impairment charges, gains and losses from asset sales, stock-based compensation, litigation and other one-time legal settlements and acquisition costs, and include the Non-GAAP provision for income taxes, calculated as the tax-effect at 35% effective tax rate of the pre-tax non-GAAP income before taxes less stock-based compensation, because we believe that excluding such measures helps management and investors better understand our operating activities.
Adjusted EBITDA. We exclude from Adjusted EBITDA depreciation expense, amortization of intangibles, income tax, interest expense, interest income, gains and losses from asset sales, acquisition costs, litigation and other one-time legal settlements and impairment charges because we believe that adjusting for such items helps management and investors better understand operating activities. Adjusted EBITDA provides a core operational performance measurement that compares results without the need to adjust for Federal, state and local taxes which have considerable variation between domestic jurisdictions. Also, we exclude interest cost in our calculation of Adjusted EBITDA. The results are, therefore, without consideration of financing alternatives of capital employed. We use Adjusted EBITDA as one guideline to assess our unleveraged performance return on our investments. Adjusted EBITDA is also the target benchmark for our acquisitions of nightclubs.
Full Financial Tables
RCI’s Form 10Q for the quarter ended June 30, 2014 with full financial tables can be found on the Company’s corporate site at http://www.rcihospitality.com.
This press release may contain forward-looking statements that involve a number of risks and uncertainties that could cause the company’s actual results to differ materially from those indicated in this press release, including the risks and uncertainties associated with operating and managing an adult business, the business climates in cities where it operates, the success or lack thereof in launching and building the company’s businesses, risks and uncertainties related to the operational and financial results of our Web sites, conditions relevant to real estate transactions, and numerous other factors such as laws governing the operation of adult entertainment businesses, competition and dependence on key personnel. The Company has no obligation to update or revise the forward-looking statements to reflect the occurrence of future events or circumstances.
New Corporate Website
The Company’s new corporate website can be found at http://www.rcihospitality.com.
Media & Investor Contacts
Gary Fishman and Steven Anreder at 212-532-3232 or [email protected] and [email protected]