United States

Securities and Exchange Commission

Washington, D.C. 20549

 

FORM 8-K

 

Current Report

 

Pursuant to Section 13 or 15(d) of

 

The Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): February 11, 2019

 

RCI HOSPITALITY HOLDINGS, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Texas   001-13992   76-0458229

(State or Other Jurisdiction

of Incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

 

10737 Cutten Road

Houston, Texas 77066

(Address of Principal Executive Offices, Including Zip Code)

 

(281) 397-6730

(Issuer’s Telephone Number, Including Area Code)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

[  ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
   
[  ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a -12)
   
[  ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d -2(b))
   
[  ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e -4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

 

 

     
     

 

ITEM 2.02 Results of Operations and Financial Condition.

 

On February 11, 2019, we issued a press release announcing results for the first fiscal quarter ended December 31, 2018. Also on February 11, 2019, we held a conference call to discuss these results and related matters. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

 

This information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

 

We are making reference to non-GAAP financial information in both the press release and the conference call. A reconciliation of these non-GAAP financial measures to the comparable GAAP financial measures is contained in the attached press release.

 

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS

 

(d) Exhibits

 

Exhibit Number   Description
     
99.1   Press release of RCI Hospitality Holdings, Inc. dated February 11, 2019

 

     
     

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 8-K to be signed on its behalf by the undersigned hereunto duly authorized.

 

  RCI Hospitality Holdings, INC .
     
Date: February 11, 2019 By:     /s/ Eric Langan
    Eric Langan
    President and Chief Executive Officer

 

     
     

 

 

 

 

RCI Reports 1Q19 Results and Files 10-Q

 

HOUSTON – February 11, 2019 – RCI Hospitality Holdings, Inc. (Nasdaq: RICK) today reported results for the Fiscal 2019 first quarter ended December 31, 2018 and the filing of its 10-Q.

 

1Q19 vs. 1Q18

 

● Diluted EPS of $0.65 compared to $1.47
● Diluted Non-GAAP* EPS of $0.61 compared to $0.53
● 1Q19 GAAP results included $1.2 million pre-tax gain on the sale of three non-income producing assets and $447K pre-tax non-operating loss reflecting the implementation of a new accounting standard
● 1Q18 GAAP results included $9.7 million deferred tax credit due to the new tax law and $827K in interest expense for debt issuance costs write-off and prepayment penalties related to a bank refinancing
● Free cash flow (FCF) totaled $11.1 million based on net cash provided by operating activities of $11.5 million, less maintenance capital expenditures of $0.4 million
● Total revenues of $44.0 million compared to $41.2 million on 46 and 45 units, respectively

 

Other News

 

● RCI reactivated its share buyback program in line with its capital allocation strategy, acquiring 28,211 shares from October 2018 to January 2019 for $660,000, or an average price of $23.39
● A subsidiary sold another non-income producing asset for an estimated $383K pre-tax gain in late January

 

Conference Call Today at 4:30 PM ET

 

● A conference call to discuss 1Q19 results, outlook and related matters will be held today at 4:30 PM ET
● Live Participant Dial In: Toll Free at 877-407-9210 and International at 201-689-8049
● To access the live webcast, slides or replay, visit: https://www.investornetwork.com/event/presentation/42936
● Phone replay: Toll Free at 877-481-4010 and International at 919-882-2331 (Passcode: 42936)

 

CEO Comment

 

“We generated strong first quarter results,” said Eric Langan, President & CEO. “Total revenues increased 6.8% year over year, led by our Nightclubs segment, with increases of 4.3% in same-store sales, 7.1% in total revenues, and only a partial quarter contribution from newly acquired clubs in Chicago and Pittsburgh.

 

“Non-GAAP operating income increased 9.9% as operating margin expanded 64 basis points due to increased operating leverage from higher revenues, in particular, higher service revenues, which were up 9.1%. This was despite legal, advertising and marketing costs related to the acquisitions of new clubs. Accordingly, non-GAAP EPS increased 15.1% to $0.61 and free cash flow increased 47.0% to $11.1 million.

 

“In line with our capital allocation strategy, during and subsequent to 1Q19 we reinitiated our buyback program, acquiring 28,211 shares in the open market, and sold four non-income producing assets for approximately $3.3 million.

 

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“We look forward to the balance of the year. Our FY19 plan calls for:

 

● Continuing to integrate our new clubs in Chicago and Pittsburgh
● Opening three more Bombshells Restaurant & Bars in the Houston area
● Improving Bombshells same-store sales
● Selling excess land developed around several of the new Bombshells
● Further reducing costs, and
● Continuing our capital allocation strategy as it applies to buybacks.”

 

Asset Management

 

● 1Q19: Subsidiaries sold the former Club Onyx Philadelphia business, the company’s former office in Houston, and a small parcel in San Antonio for a total of $1.9 million, consisting of $1.2 million in cash and $625K in a 9%, 10-year note receivable, for a pre-tax gain of $1.2 million. Most of the cash proceeds were used to pay down $945K in bank debt on the real estate sold.
   
● January 2019: A subsidiary sold an excess parking lot near the site of the former Club Onyx Dallas for $1.4 million, consisting of $250K in cash and $1.15 million in an 8%, 3-year note receivable, for an estimated preliminary pre-tax gain of approximately $383K, after closing costs.

 

1Q19 REVIEW ( All comparisons to year ago periods unless otherwise noted)

 

● Total Revenues: Total revenues of $44.0 million rose $2.8 million. By revenue line, growth reflected increases of $1.4 million (+9.1%) in service, $505K (+2.8%) in alcoholic beverages, $481K (+21.8%) in other, and $383K (+7.2%) in food. The other increase reflected the continued revitalization of Drink Robust.
   
● Operating Income: Operating income increased 21.8% to $11.1 million (25.3% of revenues) from $9.1 million (22.2%). Expenses increased $819K, but as a percent of revenues, declined 310 basis points to 74.7%. Most of the dollar increase reflected the addition of two nightclubs and legal, advertising and marketing costs related to their acquisition. This was partially offset by net gains of $1.1 million primarily from the sale of non-income producing assets. On a non-GAAP basis, which excludes such gains as well as other items in both periods, operating income increased 9.9% to $10.2 million compared to $9.3 million, and operating margin expanded to 23.1% compared to 22.5%.
   
● Nightclubs Segment: Revenues of $37.7 million increased 7.1%, with 39 units compared to 40. Same-store sales increased 4.3%. New clubs added approximately $1.9 million from acquisitions. Operating income increased 15.1% to $15.4 million (40.8% of revenues) from $13.4 million (38.0%). Operating income included the gain on sale of the former Club Onyx Philadelphia business. On a non-GAAP basis, operating income increased 6.6% to $14.3 million from $13.4 million, with operating margin approximately level at 37.8% compared to 38.0%.
   
● Bombshells Segment: Revenues of $6.0 million increased 3.2%, with 7 units compared to 5. New units added approximately $1.4 million from Houston area locations opened in April 2018 (Pearland) and December 19th (I-10). This more than offset the previously reported decline in comparable same-store sales of 20.5%, which reflected in part tough year-over-year comparisons to business generated in October 2017 when the Houston Astros won the pro baseball championship. As a result of reduced operating leverage, segment income was $119K (2.0% of revenues) compared to $891K (15.3%).

 

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● Other Metrics

 

○ Adjusted EBITDA of $12.0 million increased 8.4% compared to $11.1 million.
○ Occupancy Costs (rent and interest expense as a percentage of total revenues) were 8.0% compared to 7.7%. 1Q19 reflects higher debt raised in advance of two club acquisitions and multiple Bombshells units under construction. 1Q18 excludes $827K in interest expense related to a bank refinancing.
○ ASU 2016-01 , a newly adopted accounting guidance, required classification to current income of the change in market value of equity securities starting the quarter ended December 31, 2018. This resulted in the $447K loss in non-operating gains/losses.
○ Effective Tax Rate was an expense of 22.0% compared to a benefit of 134.3%. 1Q18 included $9.7 million deferred tax credit due to the new tax law.
○ Cash and Cash Equivalents were $9.4 million at December 31, 2018 compared to $17.7 million at September 30, 2018. The September position included proceeds from debt used to finance the acquisitions in November of clubs in Chicago and Pittsburgh and related real estate.
○ Long-Term Debt of $153.1 million at December 31, 2018 increased $12.5 million from $140.6 million at September 30, 2018. The increase was primarily due to $12.0 million in seller-financing used to close the Chicago and Pittsburgh acquisitions.
○ RCI’s FY19 FCF Target of $26 million is based on estimated net cash provided by operating activities of approximately $29 million, less projected maintenance capex of approximately $3 million.

 

*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 (or including) some items that management believes are not representative of the ongoing business operations of the Company, but are included in (or excluded from) 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 calculate non-GAAP operating income and non-GAAP operating margin by excluding the following items from income from operations and operating margin: amortization of intangibles, gains or losses on sale of assets, gain on insurance, and settlement of lawsuits. 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 Diluted Share. We calculate non-GAAP net income and non-GAAP net income per diluted share by excluding or including certain items to net income attributable to RCIHH common shareholders and diluted earnings per share. Excluded items are: amortization of intangibles, costs and charges related to debt refinancing, income tax expense (benefit), gains or losses on sale of assets, gain on insurance, and settlement of lawsuits. Included item is the non-GAAP provision for current and deferred income taxes, calculated at 22.2% and 26.5% effective tax rate of the pre-tax non-GAAP income before taxes for the quarter ended December 31, 2018 and 2017, respectively. We believe that excluding and including such items help management and investors better understand our operating activities.

 

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● Adjusted EBITDA. We calculate adjusted EBITDA by excluding the following items from net income attributable to RCIHH common shareholders: depreciation expense, amortization of intangibles, income tax expense (benefit), net interest expense, gains or losses on sale of assets, gain on insurance, and settlement of lawsuits. We believe that adjusting for such items helps management and investors better understand our 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. 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.
● Management also uses non-GAAP cash flow measures such as free cash flow. Free cash flow is derived from net cash provided by operating activities less maintenance capital expenditures. We use free cash flow as the baseline for the implementation of our capital allocation strategy.

 

Notes

 

● Unit counts above are at period end.
● All references to the “company,” “we,” “our,” and similar terms include RCI Hospitality Holdings, Inc. and its subsidiaries, unless the context indicates otherwise.
● Planned opening dates are subject to change due to weather, which could affect construction schedules, and scheduling of final municipal inspections.

 

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

 

With more than 40 units, RCI Hospitality Holdings, Inc., through its subsidiaries, is the country’s leading company in gentlemen’s clubs and sports bars/restaurants. Clubs in New York City, Chicago, Dallas/Ft. Worth, Houston, Miami, Minneapolis, St. Louis, Charlotte, Pittsburgh, and other markets operate under brand names, such as Rick’s Cabaret, XTC, Club Onyx, Vivid Cabaret, Jaguars, Tootsie’s Cabaret, and Scarlett’s Cabaret. Sports bars/restaurants operate under the brand name Bombshells Restaurant & Bar. Please visit http://www.rcihospitality.com

 

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 cybersecurity, 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 [email protected] and [email protected]

 

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RCI HOSPITALITY HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

 

    For the Three Months Ended December 31,  
    2018     2017  
    Amount     % of
Revenue 		    Amount     % of
Revenue 		 
Revenues                                
Sales of alcoholic beverages   $ 18,310       41.6 %   $ 17,805       43.2 %
Sales of food and merchandise     5,690       12.9 %     5,307       12.9 %
Service revenues     17,331       39.4 %     15,889       38.6 %
Other     2,692       6.1 %     2,211       5.4 %
Total revenues     44,023       100.0 %     41,212       100.0 %
Operating expenses                                
Cost of goods sold                                
Alcoholic beverages sold     3,736       20.4 %     3,755       21.1 %
Food and merchandise sold     1,984       34.9 %     2,094       39.5 %
Service and other     92       0.5 %     36       0.2 %
Total cost of goods sold (exclusive of items shown below)     5,812       13.2 %     5,885       14.3 %
Salaries and wages     12,096       27.5 %     11,377       27.6 %
Selling, general and administrative     14,027       31.9 %     12,812       31.1 %
Depreciation and amortization     2,053       4.7 %     1,909       4.6 %
Other charges (gains), net     (1,097 )     -2.5 %     89       0.2 %
Total operating expenses     32,891       74.7 %     32,072       77.8 %
Income from operations     11,132       25.3 %     9,140       22.2 %
Other income (expenses)                                
Interest expense     (2,521 )     -5.7 %     (3,079 )     -7.5 %
Interest income     51       0.1 %     67       0.2 %
Non-operating loss     (447 )     -1.0 %     -       0.0 %
Income before income taxes     8,215       18.7 %     6,128       14.9 %
Income tax expense (benefit)     1,811       4.1 %     (8,227 )     -20.0 %
Net income     6,404       14.5 %     14,355       34.8 %
Net income attributable to noncontrolling interests     (60 )     -0.1 %     (44 )     -0.1 %
Net income attributable to RCIHH common shareholders   $ 6,344       14.4 %   $ 14,311       34.7 %
                                 
Earnings per share                                
Basic   $ 0.65             $ 1.47          
Diluted   $ 0.65             $ 1.47          
Weighted average shares outstanding                                
Basic     9,713               9,719          
Diluted     9,713               9,719          
                                 
Dividends per share   $ 0.03             $ 0.03          

 

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RCI HOSPITALITY HOLDINGS, INC.

NON-GAAP FINANCIAL MEASURES

(in thousands, except per share and percentage data)

 

    For the Three Months  
    Ended December 31,  
    2018     2017  
Reconciliation of GAAP net income to Adjusted EBITDA                
Net income attributable to RCIHH common shareholders   $ 6,344     $ 14,311  
Income tax expense (benefit)     1,811       (8,227 )
Interest expense, net     2,470       3,012  
Settlement of lawsuits     60       27  
Loss (gain) on sale of assets     (1,157 )     82  
Unrealized loss on equity securities     447       -  
Gain on insurance     -       (20 )
Depreciation and amortization     2,053       1,909  
Adjusted EBITDA   $ 12,028     $ 11,094  
                 
Reconciliation of GAAP net income to non-GAAP net income                
Net income attributable to RCIHH common shareholders   $ 6,344     $ 14,311  
Amortization of intangibles     156       48  
Income tax expense (benefit)     1,811       (8,227 )
Settlement of lawsuits     60       27  
Loss (gain) on sale of assets     (1,157 )     82  
Unrealized loss on equity securities     447       -  
Gain on insurance     -       (20 )
Costs and charges related to debt refinancing     -       827  
Non-GAAP income tax expense     (1,701 )     (1,868 )
Non-GAAP net income   $ 5,960     $ 5,180  
                 
Reconciliation of GAAP diluted earnings per share to non-GAAP diluted earnings per share                
Diluted shares     9,713       9,719  
GAAP diluted earnings per share   $ 0.65     $ 1.47  
Amortization of intangibles     0.02       0.00  
Income tax expense (benefit)     0.19       (0.85 )
Settlement of lawsuits     0.01       0.00  
Loss (gain) on sale of assets     (0.12 )     0.01  
Unrealized loss on equity securities     0.05       -  
Gain on insurance     -       (0.00 )
Costs and charges related to debt refinancing     -       0.09  
Non-GAAP income tax expense     (0.18 )     (0.19 )
Non-GAAP diluted earnings per share   $ 0.61     $ 0.53  
                 
Reconciliation of GAAP operating income to non-GAAP operating income                
Income from operations   $ 11,132     $ 9,140  
Amortization of intangibles     156       48  
Settlement of lawsuits     60       27  
Loss (gain) on sale of assets     (1,157 )     82  
Gain on insurance     -       (20 )
Non-GAAP operating income   $ 10,191     $ 9,277  
                 
Reconciliation of GAAP operating margin to non-GAAP operating margin                
GAAP operating margin     25.3 %     22.2 %
Amortization of intangibles     0.4 %     0.1 %
Settlement of lawsuits     0.1 %     0.1 %
Loss (gain) on sale of assets     -2.6 %     0.2 %
Gain on insurance     0.0 %     0.0 %
Non-GAAP operating margin     23.1 %     22.5 %
                 
Reconciliation of GAAP net cash provided by operating activities to non-GAAP free cash flow                
Net cash provided by operating activities   $ 11,452     $ 8,145  
Less: Maintenance capital expenditures     376       608  
Free cash flow   $ 11,076     $ 7,537  

 

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RCI HOSPITALITY HOLDINGS, INC.

SEGMENT INFORMATION

(in thousands)

 

    For the Three Months  
    Ended December 31,  
    2018     2017  
Revenues            
Nightclubs   $ 37,728     $ 35,218  
Bombshells     6,013       5,828  
Other     282       166  
    $ 44,023     $ 41,212  
                 
Income (loss) from operations                
Nightclubs   $ 15,387     $ 13,371  
Bombshells     119       891  
Other     (119 )     (137 )
General corporate     (4,255 )     (4,985 )
    $ 11,132     $ 9,140  

 

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RCI HOSPITALITY HOLDINGS, INC.

NON-GAAP SEGMENT INFORMATION

($ in thousands)

 

    For the Three Months Ended December 31, 2018     For the Three Months Ended December 31, 2017  
    Nightclubs     Bombshells     Other     Corporate     Total     Nightclubs     Bombshells     Other     Corporate     Total  
Income from operations (loss)   $ 15,387     $ 119     $ (119 )   $ (4,255 )   $ 11,132     $ 13,371     $ 891     $ (137 )   $ (4,985 )   $ 9,140  
Amortization of intangibles     -       -       -       156       156       -       -       -       48       48  
Settlement of lawsuits     45       3       -       12       60       27       -       -       -       27  
Loss (gain) on sale of assets     (1,152 )     -       (5 )     -       (1,157 )     -       -       -       82       82  
Gain on insurance     -       -       -       -       -       -       -       -       (20 )     (20 )
Non-GAAP operating income (loss)   $ 14,280     $ 122     $ (124 )   $ (4,087 )   $ 10,191     $ 13,398     $ 891     $ (137 )   $ (4,875 )   $ 9,277  
                                                                                 
GAAP operating margin     40.8 %     2.0 %     -42.2 %     -9.7 %     25.3 %     38.0 %     15.3 %     -82.5 %     -12.1 %     22.2 %
Non-GAAP operating margin     37.8 %     2.0 %     -44.0 %     -9.3 %     23.1 %     38.0 %     15.3 %     -82.5 %     -11.8 %     22.5 %

 

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RCI HOSPITALITY HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

 

    December 31,     September 30,  
    2018     2018  
ASSETS                
Current assets                
Cash and cash equivalents   $ 9,387     $ 17,726  
Accounts receivable, net     5,583       7,320  
Inventories     2,578       2,353  
Prepaid insurance     3,603       4,910  
Other current assets     1,560       1,591  
Assets held for sale     2,356       2,902  
Total current assets     25,067       36,802  
Property and equipment, net     187,502       172,403  
Notes receivable     3,467       2,874  
Goodwill     54,731       43,591  
Intangibles, net     77,289       71,532  
Other assets     1,466       2,530  
Total assets   $ 349,522     $ 329,732  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current liabilities                
Accounts payable   $ 2,357     $ 2,825  
Accrued liabilities     11,940       11,973  
Current portion of long-term debt     14,898       19,047  
Total current liabilities     29,195       33,845  
Deferred tax liability, net     21,473       19,552  
Long-term debt, net of current portion     138,197       121,580  
Other long-term liabilities     1,567       1,423  
Total liabilities     190,432       176,400  
                 
Commitments and contingencies                
                 
Stockholders’ equity                
Preferred stock     -       -  
Common stock     97       97  
Additional paid-in capital     63,857       64,212  
Retained earnings     95,179       88,906  
Accumulated other comprehensive income     -       220  
Total RCIHH stockholders’ equity     159,133       153,435  
Noncontrolling interests     (43 )     (103 )
Total stockholders’ equity     159,090       153,332  
Total liabilities and stockholders’ equity   $ 349,522     $ 329,732  

 

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