RCI Hospitality Holdings, Inc. Reports Fiscal 1Q15 Results

HOUSTON – February 9, 2015 – RCI Hospitality Holdings, Inc. (NasdaqGM: RICK) today announced results for the fiscal 2015first quarter ended December 31, 2014.

1Q15Highlights (comparisons to 1Q14)

·         GAAP EPS diluted of $0.32 compared to $0.25, an increase of 28.0%.1Q15 included an asset impairment charge related to an underperforming adult club, partially offset by a gain.

·         Non-GAAP EPS* diluted of $0.47compared to $0.31, an increase of 51.6%. Non-GAAP EPS excludes above mentioned items, as well as others from both periods, for comparability.

·         Non-GAAP operating margin* expanded to 25.0% from 22.6%.

·         Total revenues of a $36.5 million—a quarterly record—compared to $29.4 million, an increase of 24.0%.

·         As part of its buyback program,RCI repurchased 109,616 shares in the open market.

Conference Call

A conference call to discuss these results, outlook and related matters will be held today, February 9, 2015 at 4:30 PM ET:

·         Live Participant Dial In (Toll Free): 877-737-7051

·         Live Participant Dial In (International): 201-689-8878

·         Webcast URL: http://www.investorcalendar.com/IC/CEPage.asp?ID=173569

Meet Management

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, February 9, 2015, 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: Please send your contact information to gary.fishman@anreder.com

CEO Comment

“Fiscal 2015 – the 20th anniversary of our IPO – is off to a great start,” Mr. Langan commented.“During the first quarter, we saw record revenues and strong year over year growth in GAAP EPS, non-GAAP EPS, and adjusted EBITDA, which reflects our cash generating power.

“Core profitability of our nightclub segment expanded due to higher revenues and our margin improvement program. With more units and expanded revenues, our Bombshells restaurant/bar segment added positively to results.We continued to repurchase stock in the open market, reflecting confidence in our opportunities, favorableoutlook, and the market's undervaluationof our shares.

“We look forward to an even stronger second quarter. Many of our adult clubs benefitted from the recent pro football championship. Our Rick’s and Vivid Cabaret clubs in New York City should similarly capitalize on the pro basketball all-star game being held in the city this month.Upcoming warmer weather in Texas should further enhanceBombshells’ patio business.

“We will focus our cash flow on buying back stock. At this point, our own assets represent a highly attractive acquisition.”

1Q15Analysis(all comparisons to 1Q14 unless otherwise noted)

Total Revenues

·         Total revenues of $36.5 million compared to $29.4 million, reflecting heavier traffic and more units (44 in 1Q15 versus 40 in 1Q14). Nine units generated more than $1 million each as opposed to four in the year ago quarter.

·         Units opened less than a year added $6.0 million, benefitting from new adult clubs Vivid Cabaret New York in Manhattan and Rick’s Cabaret in Odessa, TX; and from new Bombshells in the Texas cities of Austin, Webster, Spring and Houston.

·         Same store sales increased 4.1%.

Operating Margin& Costs (as % of revenues)

·         GAAP operating margin was 16.8% compared to 19.1%. The decrease was principally due to the previously mentioned asset impairment charge, equal to 3.7% of total revenues.

·         Non-GAAP operating margin, which excludes certain non-operating items from both periods for more meaningful analysis, was 25.0% compared to 22.6%. The increase reflectedexpanded profitability ofadult clubs due to higher revenues and the elimination of three under-performing units, as previously announced, and the growing performance of Bombshells restaurants/bars.

·         Cost of goods increased to 14.0% from 12.7%, primarily due to increased food sales from restaurants.

·         Insurance costs began to decline under our new contract, to 2.2% from 2.7%.

·         Rent and interest combined, which is how RCI evaluates cost of occupancy, declined to7.5% of revenues versus 11.0%. 1Q15 reflected increased operating leverage and the previously announced 4Q14 reduction of $6 million in Jaguars related debt. 1Q14 included temporarily higher rent at Rick’s Cabaret New York.

·         1Q15income from operations included a non-cash asset impairment charge of $1.4 million, equal to  ($0.08) per share net of tax,related to a reduction in operating hours atTemptations Cabaret in Lubbock, TX, in December 2014 as part of the company’s margin expansion efforts.

·         1Q15 results also included a non-cash gain of $0.6 million, equal to $0.03 net of tax, from RCI’s Robust Energy® drink distribution investment.

Adjusted EBITDA

·         RCI’scash generating power, as reflected by adjusted EBITDA*, amounted to$9.7 million, up 32.7% from $7.3 million in the year ago quarter.

 

 

Business Segments(all comparisons to 1Q14 unless otherwise noted)

Nightclubs

·         The segment includes the company’s 37 adult clubs and two bar/nightclubs. Revenues increased 9.6%, to $31.1 million from $28.4 million.Operating income increased 8.1%, to $6.4 million from $5.9 million. Operating margin was 20.7% of revenues compared to 21.0%.

·         Excluding the previously mentioned asset impairment charge, operating income increased 30.9%, to $7.8 million, and operating margin was 25.1% of revenues.

·         In January, RCI subsidiaries purchased Down in Texas Saloon country-themed gentlemen’s club and real estate in an Austin, TX suburb, as previously announced. Total consideration of $6.8 million consisted of $3.5 million for the club business and $3.3 million for the 3.5 acres of real estate.

Bombshells

·         Two Bombshells —in Spring, TX, a suburb north of Houston, and another in south Houston—opened September 30 and November 3, 2014, respectively. This brings the unit count to five, with a cluster of three in the Houston area. The new units are performing well.

·         Revenues increased nearly 7-fold, to $4.9 million from $0.7 million. Operating income was $425,000 compared to a loss of $139,000. Operating margin expanded to 8.7% of revenues from -19.7% and is expected to grow as revenues continue to buildand training costs subside.

·         A newBombshells is planned for the Willowbrook area of northwest Houston. Management is identifying additional locations.

Balance Sheet (December 31, 2014 compared to September 30, 2014)

·         Assets increased 4.6% to $250.2 million, long term debt fell 0.8% to $69.8 million, and total permanent stockholders’ equity increased 9.7% to $124.3 million. Long term debt of $70.4 million at September 30, 2014 had fallen 14.6% from June 30, 2014.

Stock Buy Backs

·         The Board of Directors increased itsstock repurchase authorization to $10.0 million in May 2014. During 1Q15, RCI purchased109,616 shares of common in the open market for an aggregate cost of $1.1 million, leaving $7.8 million of remainingauthorization.

*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, gain on contractual debt reduction 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, gain on contractual debt reduction 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 earnings before interest, taxes, depreciation and amortization (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, gain on contractual debt reduction 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 fiscal first quarter ended December 31, 2014 with full financial tables can be found on the company’s corporate site at http://www.rcihospitality.com.

About RCI Hospitality Holdings, Inc. (NasdaqGM: RICK)

With 45 units, RCI Hospitality Holdings, Inc., through its subsidiaries, is the country’s leading company in adult gentlemen clubs and restaurant/bars. Adult clubs in New York City, 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.” Restaurant/bars operate under the brand name “Bombshells.” Please visit http://www.rcihospitality.com/

RCI Hospitality in 2015 is celebrating the 20thanniversary of its IPO – two decades of innovation in the adult club segment of the hospitality industry.

Forward-Looking Statements

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.

Media & Investor Contacts

Gary Fishman and Steven Anreder at 212-532-3232 or gary.fishman@anreder.com and steven.anreder@anreder.com