RCI Hospitality Holdings, Inc. Reports Fiscal 2Q15 Results

May 11, 2015 4:05 PM

HOUSTON, May 11, 2015 /PRNewswire/ -- RCI Hospitality Holdings, Inc. (NasdaqGM: RICK) today announced results for the fiscal 2015 second quarter ended March 31, 2015.

2Q15 Highlights

GAAP EPS of ($0.28) includes an accrual for the previously announced NY FLSA legal settlement.
Non-GAAP EPS* diluted of $0.50 increased 11.1% from $0.45 in 2Q14. Non-GAAP EPS excludes the accrual as well as other items from both periods for comparability.
Record total revenues of $37.4 million grew 13.8% year over year.
$1.9 million spent buying back shares in the open market in the first half of Fiscal 2015.
Company on track for a strong FY15.

Conference Call

A conference call to discuss these results, outlook and related matters will be held today, May 11, 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=173981

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, May 11, 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: With your contact information to [email protected]

CEO Comment

"RCI performed well in 2Q15," said Mr. Langan. "We achieved record revenues and strong year over year growth in non-GAAP EPS and adjusted EBITDA, which reflects our cash generating power.

"Our performance was especially favorable since 2Q15 was affected by bad weather, especially in the Dallas-Fort Worth area, where we operate 11 clubs. We also had tough comparisons to 2Q14, when we benefitted from the big football championship in the New York City area, where we have two top clubs.

"Core profitability in nightclubs expanded due to higher revenues and margin improvement. With more units and increased revenues, our Bombshells restaurant/bar segment also added positively to results.

"We repurchased more stock in the open market, reflecting confidence in our favorable outlook, combined with the market's undervaluation of our shares. We will continue to focus cash flow on buying back shares. At current levels, our own assets represent a highly attractive return.

"We are on track for a strong Fiscal 2015. Year to date, total revenues are up 18.6%, adjusted EBITDA 22.7%, and non-GAAP EPS 23.1%.

"We look forward to a solid third quarter. Many units benefitted from our showing the recent Mayweather-Pacquiao 'Fight of the Century'. Warm weather in Texas should further enhance Bombshells' patio business."

2Q15 Analysis (all comparisons to 2Q14 unless otherwise noted)

Total Revenues

Total revenues of $37.4 million compared to $32.9 million.
45 units (40 adult clubs and nightclubs and 5 restaurants) versus 43 (41 adult clubs and nightclubs and 2 restaurants).
Same store sales increased 2.1%.
Units opened less than a year added $4.4 million. This included new adult clubs – Rick's Cabaret in Odessa, TX and the recently acquired Down in Texas Saloon in Austin, TX – and new Bombshells in Austin, Spring and Houston, TX.

Operating Margin & Costs (as % of revenues)

GAAP operating margin was (7.0%), reflecting the previously mentioned accrual, compared to 22.7%.
Non-GAAP operating margin, which excludes the accrual and certain other non-operating items from both periods for more meaningful analysis, was 24.9% compared to 26.9%.
Non-GAAP operating margin reflects the growth of the Bombshells segment, whose margins, while growing, are less than that of the nightclub segment. This was partially offset by the elimination of under-performing adult clubs.
The accrual of $10.3 million pre-tax, or ($0.65) per share net of tax, represents the company's best estimate at this time of the total cost of the settlement, announced April 1, 2015, in its New York federal wage and hour class action case.

Adjusted EBITDA

RCI's cash generating power, as reflected by adjusted EBITDA*, amounted to $10.2 million, up 10.8% from $9.2 million in the year ago quarter.

Business Segments (all comparisons to 2Q14 unless otherwise noted)

Nightclubs

Includes the company's 38 adult clubs and two bar/nightclubs, compared to a total of 41 in the year ago quarter.
Sales increased 2.4%, to $31.9 million from $31.2 million.
Operating income was $114,000 compared to $9.6 million.
Excluding the previously mentioned accrual, operating income increased 8.0% to $10.4 million and operating margin expanded to 32.6% from 30.9%.
In May, RCI subsidiaries acquired The Seville Club, a popular gentlemen's club in Minneapolis known for its famous downtown location, as previously announced. Total consideration of $8.5 million consisted of $4.5 million for the assets of the club business and $4.0 million for its historic building.

Bombshells

Includes the company's five Bombshells, all in Texas, compared to two in the year ago quarter.
Sales increased nearly 3.5 times, to $4.8 million from $1.4 million.
Operating income was $571,000 compared to a loss of $12,000.
Operating margin expanded to 11.9% of revenues from (0.9%) and is expected to increase as revenues continue to build and training costs subside.
A sixth Bombshells is planned for the Willowbrook area of northwest Houston. Management is identifying additional locations.

Balance Sheet (March 31, 2015 compared to December 31, 2014)

Assets increased 4.1% to $260.5 million and long term debt increased 2.4% to $71.5 million. The increases primarily reflected the acquisition of the Down in Texas Saloon of Austin and related real estate.
Total permanent stockholders' equity declined 2.8% to $120.8 million, primarily reflecting the NY FLSA accrual partially offset by core profits.

Stock Buy Backs

The Board of Directors increased its stock repurchase authorization to $10.0 million in May 2014.
During 2Q15, RCI purchased 82,811 shares of common in the open market for an aggregate cost of $840,340, leaving $7.0 million of remaining authorization.
During the six months ended March 31, 2015, RCI purchased 192,427 shares at a cost of $1.9 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 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 second quarter ended Mach 31, 2015 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 46 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 20^th anniversary 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.

RCI HOSPITALITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

	FOR THE THREE MONTHS				FOR THE SIX MONTHS
	ENDED MARCH 31,				ENDED MARCH 31,
	2015		2014		2015		2014
(in thousands, except per share data)	(UNAUDITED)				(UNAUDITED)

Revenues:
Sales of alcoholic beverages	$	15,576	$	12,985	$	30,815	$	24,674
Sales of food and merchandise		5,241		3,979		10,466		7,402
Service revenues		14,559		14,347		28,783		27,077
Other		2,034		1,559		3,833		3,140
Total revenues		37,410		32,870		73,897		62,293

Operating expenses:
Cost of goods sold		5,381		4,041		10,492		7,788
Salaries and wages		8,115		6,854		16,147		13,431
Stock compensation		120		151		240		154
Other general and administrative:
Taxes and permits		5,709		5,142		11,102		9,557
Charge card fees		544		449		1,091		877
Rent		1,184		1,156		2,325		2,384
Legal and professional		1,064		426		2,023		1,214
Advertising and marketing		1,312		1,406		2,679		2,691
Insurance		801		972		1,621		1,771
Utilities		708		646		1,442		1,241
Depreciation and amortization		1,886		1,513		3,531		2,906
(Gain) loss on sale of property		(18)		(86)		(18)		(86)
Impairment of assets		-		-		1,358		-
Settlement of lawsuits and other one-time costs		10,303		150		10,550		270
Other		2,917		2,591		5,790		5,022
Total operating expenses		40,026		25,411		70,373		49,220
Operating income (loss)		(2,616)		7,459		3,524		13,073

Other income (expense):
Interest income		26		35		39		112
Interest expense		(1,783)		(1,924)		(3,402)		(3,936)
Gain from original investment in Drink Robust, Inc.		-		-		577		-
Income (loss) before income taxes		(4,373)		5,570		738		9,249
Income taxes (benefit)		(1,265)		1,922		581		3,245
Net income (loss)		(3,108)		3,648		157		6,004
Less: net (income) loss attributable to noncontrolling interests		267		74		362		121
Net income (loss) attributable to RCI Hospitality Holdings, Inc.	$	(2,841)	$	3,722	$	519	$	6,125

Basic earnings (loss) per share attributable to RCIHH shareholders:
Net income	$	(0.28)	$	0.39	$	0.05	$	0.64
Diluted earnings (loss) per share attributable to RCIHH shareholders:
Net income	$	(0.28)	$	0.37	$	0.05	$	0.62

Weighted average number of common shares outstanding:
Basic		10,275		9,661		10,269		9,604
Diluted		10,275		10,853		10,273		10,763

RCI HOSPITALITY HOLDINGS, INC. AND SUBSIDIARIES
NON-GAAP FINANCIAL MEASURES

	For the Three Months		For the Six Months
	Ended March 31,		Ended March 31,

(in thousands, except per share data)	2015	2014	2015	2014

Reconciliation of GAAP net income to
Adjusted EBITDA
GAAP net income (loss)	($2,841)	$3,722	$519	$6,125
Income tax expense	(1,265)	1,922	362	3,245
Interest expense and income and gain on Drink Robust investment	1,783	1,924	3,402	3,936
Litigation and other one-time legal settlements	10,303	150	10,550	270
Preopening costs	268	-	328	-
Acquisition costs	95	-	178	-
Impairment of assets	-	-	1,358	-
Depreciation and amortization	1,886	1,513	3,531	2,906
Adjusted EBITDA	$10,229	$9,231	$20,228	$16,482

Reconcilation of GAAP net income (loss) to
non-GAAP net income
GAAP net income (loss)	($2,841)	$3,722	$519	$6,125
Patron tax	805	866	1,567	1,605
Amortization of intangibles	336	82	579	171
Gain on Drink Robust investment	-	-	(577)	-
Stock-based compensation	120	151	240	154
Litigation and other one-time settlements	10,303	150	10,550	270
Pre-opening costs	268	122	328	416
Income tax expense	(1,265)	1,922	362	3,245
Acquisition costs	95	18	178	18
Impairment of assets	-	-	1,358	-
Non-GAAP provision for income taxes	(2,695)	(2,409)	(5,202)	(4,148)
Non-GAAP net income	$5,126	$4,624	$9,902	$7,857

Reconciliation of GAAP diluted net income
per share to non-GAAP diluted net income per share
Fully diluted shares	10,275	10,853	10,273	10,763
GAAP net income	($0.28)	$0.37	$0.05	$0.62
Patron tax	0.08	0.08	0.15	0.15
Amortization of intangibles	0.03	0.01	0.06	0.02
Gain on Drink Robust investment	-	-	(0.06)	-
Stock-based compensation	0.01	0.01	0.02	0.01
Litigation and other one-time settlements	1.00	0.01	1.03	0.03
Pre-opening costs	0.03	0.01	0.03	0.04
Income tax expense	(0.12)	0.18	0.04	0.30
Acquisition costs	0.01	0.00	0.02	0.00
Impairment of assets	-	-	0.13	-
Non-GAAP provision for income taxes	(0.26)	(0.22)	(0.51)	(0.39)
Non-GAAP diluted net income per share	$0.50	$0.45	$0.96	$0.78

RCI HOSPITALITY HOLDINGS, INC. AND SUBSIDIARIES
NON-GAAP FINANCIAL MEASURES

	For the Three Months		For the Six Months
	Ended March 31,		Ended March 31,

(in thousands, except per share data)	2015	2014	2015	2014

Reconciliation of GAAP operating income to
non-GAAP operating income
GAAP operating income (loss)	($2,616)	$7,459	$3,524	$13,073
Patron tax	805	866	1,567	1,605
Amortization of intangibles	336	82	579	171
Stock-based compensation	120	151	240	154
Impairment of assets	-	-	-	-
Litigation and other one-time settlements	10,303	150	10,550	270
Pre-opening costs	268	122	328	416
Acquisition costs	95	18	178	18
Non-GAAP operating income	$9,311	$8,848	$16,966	$15,707

Reconciliation of GAAP operating margin to
non-GAAP operating margin
GAAP operating income	-7.0%	22.7%	4.8%	21.0%
Patron tax	2.2%	2.6%	2.1%	2.6%
Amortization of intangibles	0.9%	0.2%	0.8%	0.3%
Stock-based compensation	0.3%	0.5%	0.3%	0.2%
Impairment of assets	0.0%	0.0%	0.0%	0.0%
Litigation and other one-time settlements	27.5%	0.5%	14.3%	0.4%
Pre-opening costs	0.7%	0.4%	0.4%	0.7%
Acquisition costs	0.3%	0.1%	0.2%	0.0%
Non-GAAP operating margin	24.9%	26.9%	23.0%	25.2%

RCI HOSPITALITY HOLDINGS, INC. AND SUBSIDIARIES
SEGMENT INFORMATION

	For the Three Months				For the Six Months
	Ended March 31,				Ended March 31,
(in thousands)	2015		2014		2015		2014

Business segment sales:
Nightclubs	$	31,933	$	31,196	$	62,995	$	59,550
Bombshells		4,813		1,379		9,721		2,083
Other		664		295		1181		660
	$	37,410	$	32,870	$	73,897	$	62,293

Business segment operating income (loss):
Nightclubs*	$	114	$	9,644	$	8,671	$	17,618
Bombshells		571		(12)		1,111		(317)
Other		(797)		(87)		(1,344)		(257)
General corporate		(2,504)		(2,086)		(4,914)		(3,971)
	$	(2,616)	$	7,459	$	3,524	$	13,073

* Nightclubs operating income for the three and six months ended 3/31/15 includes accrual of $10,303 for the settlement of a lawsuit, and for the six months ended 3/31/15 also includes impairment of assets of $1,358. Excluding these items, nightclubs operating income for the three months ended 3/31/15 would have been $10,417 and for the six months ended 3/31/15 would have been $20,332.

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SOURCE RCI Hospitality Holdings, Inc.