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RCI Reports 1Q23 Results: Total Revenues $70.0M, GAAP EPS $1.11, Non-GAAP EPS $1.19

Feb 09, 2023 4:05 PM

Twitter Spaces Conference Call at 4:30 PM ET Today; Meet Management at 7 PM ET Tonight

HOUSTON, Feb. 9, 2023 /PRNewswire/ -- RCI Hospitality Holdings, Inc. (Nasdaq: RICK) today reported results and filed its Form 10-Q for the fiscal 2023 first quarter ended December 31, 2022.

Summary Financials

   1Q23   

Change YoY

Total Revenues

  $70.0M  

+13.2 %

EPS

$1.11

-0.9 %

Non-GAAP EPS*

$1.19

+8.2 %

Net Cash from Operating Activities

  $14.9M  

-8.4 %

Free Cash Flow*

  $13.0M  

-14.6 %

Net Income Attributable to RCIHH Common Stockholders

  $10.2M  

-3.2 %

Adjusted EBITDA*

  $20.5M  

+13.9 %

Weighted Average Number of Basic & Diluted Shares Outstanding

  9.2M  

-1.9 %

* See "Non-GAAP Financial Measures" below.

Eric Langan, President and CEO of RCI Hospitality Holdings, Inc., said: "1Q23 results were generally in line with our expectations as we launched our big, three-year growth plan for fiscal 23-25. Thanks to our loyal and dedicated teams for all their hard work and effort."

"During 1Q23, a 21.4% year-over-year increase in Nightclubs operating income more than offset challenging comparisons in Bombshells. GAAP EPS and net cash from operating activities, and non-GAAP EPS and free cash flow, were affected by higher than anticipated repairs and maintenance capital expenditures that happened to occur during the quarter. Nonetheless, adjusted EBITDA increased 13.9% year-over-year, and we ended 1Q23 with $34.1 million in cash."

"To continue with our mission of growing free cash flow and adjusted EBITDA in the years ahead, we now have numerous acquisitions and projects in development. These include our pending acquisition of the five Baby Dolls and Chicas Locas adult nightclubs in Dallas, Fort Worth and Houston; our exciting new Rick's Cabaret Steakhouse & Casino in Central City, CO; and new Bombshells in Alabama, Colorado, and Texas."

Conference Call at 4:30 PM ET Today

Participants need to use Twitter Spaces on their mobile phones to ask questions during the Q&A

Twitter Spaces

Telephone

Webcast, Slides & Replay

  • Toll Free 888-506-0062
  • International: 973-528-0011
  • Passcode: 677580

Meet Management at 7:00 PM ET Tonight

  • Investors are invited to Meet Management at one of RCI's top revenue generating clubs
  • Rick's Cabaret New York, 50 W 33rd St, New York, NY 10001
  • RSVP your contact information to [email protected] by 5:00 PM ET today 

1Q23 Segments

  • Nightclubs: Revenues of $56.3 million and operating income of $22.7 million. 1Q23 revenues included $15.3 million from the 15 clubs acquired in FY22 and one of two clubs acquired in 1Q23, and a 23.4% year-over-year increase in higher-margin service revenues. Same-store sales also increased.1 Operating margin was 40.4% versus 40.1% in 1Q22 due to increased operating leverage from higher sales, partially offset by increased amortization of club licenses.
  • Bombshells: Revenues of $13.4 million and operating income of $1.8 million. Revenues included $1.3 million in sales from the Arlington, TX, location (opened December 2021). Same-store sales declined.1 Operating margin was 13.8% versus 19.0% primarily due to reduced operating leverage compared with 1Q22, when the chain benefitted from an unusually favorable local market environment.

1Q23 Consolidated (Comparisons are to 1Q22 and % are of total revenues unless indicated otherwise)

  • Cost of goods sold: 12.9% vs. 14.4% mainly due to increased higher-margin service revenues in the sales mix.
  • Salaries and wages: Level at 26.7% vs. 26.7%.
  • SG&A: 32.5% vs. 29.9% mainly due to non-cash stock-based compensation of $0.9 million and $0.4 million of repairs. Excluding these items, 1Q23 SG&A would have been 29.5%.
  • Depreciation and amortization: 4.7% vs. 3.5% due to increased depreciable assets from newly acquired and constructed units and amortization of licenses from clubs at leased locations.
  • Operating margin: 24.2% vs. 25.7% (level at 25.6% vs. 25.6% non-GAAP).
  • Interest expense: 5.3% vs. 4.2%, primarily reflecting higher average debt mostly from seller-financed promissory notes from FY22 acquisitions.
  • Income tax expense: $3.0 million vs. $2.9 million. The effective tax rate was 22.8% compared to 21.7%.
  • Weighted average shares outstanding: Decreased 1.9% due to repurchases, partially offset by shares issued for clubs acquired in October 2021.
  • Debt: $211.2 million at 12/31/22 compared to $202.5 million at 9/30/22. The increase primarily reflected financing for the acquisitions of Heartbreakers Gentlemen's Club; Lubbock, TX land for a Bombshells; and the Denver food hall.

Note

The novel coronavirus (COVID-19) pandemic disrupted and may continue to disrupt our business, which has and could continue to materially affect our operations, financial condition, and results of operations for an extended period of time. All references to the "company," "we," "our," and similar terms include RCI Hospitality Holdings, Inc., and its subsidiaries, unless the context indicates otherwise.

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: (a) amortization of intangibles, (b) gains or losses on sale of businesses and assets, (c) gains or losses on insurance, (d) settlement of lawsuits, and (e) stock-based compensation. 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 stockholders and diluted earnings per share. Adjustment items are: (a) amortization of intangibles, (b) gains or losses on sale of businesses and assets, (c) gains or losses on insurance, (d) unrealized gains or losses on equity securities, (e) settlement of lawsuits, (f) gain on debt extinguishment, (g) stock-based compensation, and (h) the income tax effect of the above-described adjustments. Included in the income tax effect of the above adjustments is the net effect of the non-GAAP provision for income taxes, calculated at 22.7% and 22.3% effective tax rate of the pre-tax non-GAAP income before taxes for the three months ended December 31, 2022 and 2021, respectively, and the GAAP income tax expense (benefit). We believe that excluding and including such items help management and investors better understand our operating activities.
  • Adjusted EBITDA. We calculate adjusted EBITDA by excluding the following items from net income attributable to RCIHH common stockholders: (a) depreciation and amortization, (b) income tax expense (benefit), (c) net interest expense, (d) gains or losses on sale of businesses and assets, (e) gains or losses on insurance, (f) unrealized gains or losses on equity securities, (g) settlement of lawsuits, (h) gain on debt extinguishment, and (i) stock-based compensation. 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.

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

With more than 60 locations, RCI Hospitality Holdings, Inc., through its subsidiaries, is the country's leading company in adult nightclubs and sports bars/restaurants. See all our brands at 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, including, but not limited to, the risks and uncertainties associated with (i) operating and managing an adult entertainment or restaurant business, (ii) the business climates in cities where it operates, (iii) the success or lack thereof in launching and building the company's businesses, (iv) cyber security, (v) conditions relevant to real estate transactions, (vi) the impact of the COVID-19 pandemic, and (vii) numerous other factors such as laws governing the operation of adult entertainment or restaurant businesses, competition and dependence on key personnel. For more detailed discussion of such factors and certain risks and uncertainties, see RCI's annual report on Form 10-K for the year ended September 30, 2022, as well as its other filings with the U.S. Securities and Exchange Commission. 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]

1 See our January 10, 2023 news release on 1Q23 sales for more details.

 

RCI HOSPITALITY HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share, number of shares and percentage data)










For the Three Months Ended December 31,


2022


2021


Amount


% of
Revenue


Amount


% of
Revenue

Revenues








Sales of alcoholic beverages

$          29,650


42.4 %


$          26,431


42.7 %

Sales of food and merchandise

10,347


14.8 %


10,894


17.6 %

Service revenues

25,563


36.5 %


20,876


33.8 %

Other

4,408


6.3 %


3,635


5.9 %

Total revenues

69,968


100.0 %


61,836


100.0 %

Operating expenses








Cost of goods sold








Alcoholic beverages sold

5,374


18.1 %


4,834


18.3 %

Food and merchandise sold

3,586


34.7 %


3,957


36.3 %

Service and other

49


0.2 %


100


0.4 %

Total cost of goods sold (exclusive of items shown below)

9,009


12.9 %


8,891


14.4 %

Salaries and wages

18,676


26.7 %


16,505


26.7 %

Selling, general and administrative

22,732


32.5 %


18,486


29.9 %

Depreciation and amortization

3,307


4.7 %


2,194


3.5 %

Other gains, net

(654)


-0.9 %


(151)


-0.2 %

Total operating expenses

53,070


75.8 %


45,925


74.3 %

Income from operations

16,898


24.2 %


15,911


25.7 %

Other income (expenses)








Interest expense

(3,687)


-5.3 %


(2,604)


-4.2 %

Interest income

91


0.1 %


106


0.2 %

Non-operating gains, net

-


0.0 %


84


0.1 %

Income before income taxes

13,302


19.0 %


13,497


21.8 %

Income tax expense 

3,031


4.3 %


2,933


4.7 %

Net income

10,271


14.7 %


10,564


17.1 %

Net loss (income) attributable to noncontrolling interests

(33)


0.0 %


11


0.0 %

Net income attributable to RCIHH common shareholders

$          10,238


14.6 %


$          10,575


17.1 %









Earnings per share








Basic and diluted

$              1.11




$              1.12











Weighted average shares outstanding








Basic and diluted

9,230,258




9,407,519











Dividends per share

$              0.05




$              0.04



 

RCI HOSPITALITY HOLDINGS, INC.

NON-GAAP FINANCIAL MEASURES

(in thousands, except per share, number of shares and percentage data)






For the Three Months


Ended December 31,


2022


2021

Reconciliation of GAAP net income to Adjusted EBITDA




Net income attributable to RCIHH common stockholders

$             10,238


$          10,575

Income tax expense

3,031


2,933

Interest expense, net

3,596


2,498

Settlement of lawsuits

-


192

Gain on sale of businesses and assets

(590)


(342)

Gain on debt extinguishment

-


(85)

Unrealized loss on equity securities

-


1

Gain on insurance

(64)


(1)

Stock-based compensation 

941


-

Depreciation and amortization

3,307


2,194

Adjusted EBITDA

$             20,459


$          17,965





Reconciliation of GAAP net income to non-GAAP net income




Net income attributable to RCIHH common stockholders

$             10,238


$          10,575

Amortization of intangibles

695


50

Settlement of lawsuits

-


192

Gain on sale of businesses and assets

(590)


(342)

Gain on debt extinguishment

-


(85)

Unrealized loss on equity securities

-


1

Gain on insurance

(64)


(1)

Stock-based compensation 

941


-

Net income tax effect

(200)


(38)

Non-GAAP net income

$             11,020


$          10,352





Reconciliation of GAAP diluted earnings per share to non-GAAP diluted earnings per share




Diluted shares

9,230,258


9,407,519

GAAP diluted earnings per share

$                  1.11


$              1.12

Amortization of intangibles

0.08


0.01

Settlement of lawsuits

-


0.02

Gain on sale of businesses and assets

(0.06)


(0.04)

Gain on debt extinguishment

-


(0.01)

Unrealized loss on equity securities

-


0.00

Gain on insurance

(0.01)


(0.00)

Stock-based compensation 

0.10


-

Net income tax effect

(0.02)


(0.00)

Non-GAAP diluted earnings per share

$                  1.19


$              1.10





Reconciliation of GAAP operating income to non-GAAP operating income




Income from operations

$             16,898


$          15,911

Amortization of intangibles

695


50

Settlement of lawsuits

-


192

Gain on sale of businesses and assets

(590)


(342)

Gain on insurance

(64)


(1)

Stock-based compensation 

941


-

Non-GAAP operating income

$             17,880


$          15,810





Reconciliation of GAAP operating margin to non-GAAP operating margin




GAAP operating margin

24.2 %


25.7 %

Amortization of intangibles

1.0 %


0.1 %

Settlement of lawsuits

0.0 %


0.3 %

Gain on sale of businesses and assets

-0.8 %


-0.6 %

Gain on insurance

-0.1 %


0.0 %

Stock-based compensation 

1.3 %


0.0 %

Non-GAAP operating margin

25.6 %


25.6 %





Reconciliation of net cash provided by operating activities to free cash flow




Net cash provided by operating activities

$             14,895


$          16,264

Less: Maintenance capital expenditures

1,864


998

Free cash flow

$             13,031


$          15,266

 

RCI HOSPITALITY HOLDINGS, INC.

SEGMENT INFORMATION

(in thousands)






For the Three Months


Ended December 31,


2022


2021

Revenues




Nightclubs

$         56,325


$         46,781

Bombshells

13,431


14,771

Other

212


284


$         69,968


$         61,836





Income (loss) from operations




Nightclubs

$         22,740


$         18,736

Bombshells

1,847


2,802

Other

(185)


(43)

Corporate

(7,504)


(5,584)


$         16,898


$         15,911

 

RCI HOSPITALITY HOLDINGS, INC.

NON-GAAP SEGMENT INFORMATION

($ in thousands)






















For the Three Months Ended December 31, 2022


For the Three Months Ended December 31, 2021


Nightclubs


Bombshells


Other


Corporate


Total


Nightclubs


Bombshells


Other


Corporate


Total

Income (loss) from operations

$     22,740


$       1,847


$        (185)


$     (7,504)


$     16,898


$     18,736


$       2,802


$          (43)


$     (5,584)


$     15,911

Amortization of intangibles

628


2


61


4


695


47


3


-


-


50

Settlement of lawsuits

-


-


-


-


-


177


10


-


5


192

Loss (gain) on sale of businesses and assets

(569)


-


-


(21)


(590)


45


13


-


(400)


(342)

Gain on insurance

(48)


-


-


(16)


(64)


(1)


-


-


-


(1)

Stock-based compensation 

-


-


-


941


941


-


-




-


-

Non-GAAP operating income (loss)

$     22,751


$       1,849


$        (124)


$     (6,596)


$     17,880


$     19,004


$       2,828


$          (43)


$     (5,979)


$     15,810





















GAAP operating margin

40.4 %


13.8 %


-87.3 %


-10.7 %


24.2 %


40.1 %


19.0 %


-15.1 %


-9.0 %


25.7 %

Non-GAAP operating margin

40.4 %


13.8 %


-58.5 %


-9.4 %


25.6 %


40.6 %


19.1 %


-15.1 %


-9.7 %


25.6 %

 

RCI HOSPITALITY HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)






For the Three Months


Ended December 31,


2022


2021

CASH FLOWS FROM OPERATING ACTIVITIES




Net income

$          10,271


$          10,564

Adjustments to reconcile net income to net cash provided by operating activities:




 Depreciation and amortization 

3,307


2,194

Gain on sale of businesses and assets

(686)


(523)

Gain on debt extinguishment

-


(83)

Unrealized loss on equity securities

-


1

Amortization of debt discount and issuance costs

144


51

Doubtful accounts expense on notes receivable

-


17

Noncash lease expense

719


629

Stock-based compensation 

941


-

Gain on insurance

(64)


-

Changes in operating assets and liabilities:




Accounts receivable

1,447


1,344

Inventories

(94)


(445)

Prepaid expenses, other current assets and other assets

(7,208)


(6,519)

Accounts payable, accrued and other liabilities

6,118


9,034

Net cash provided by operating activities

14,895


16,264

CASH FLOWS FROM INVESTING ACTIVITIES




Proceeds from sale of businesses and assets

2,784


803

Proceeds from insurance

64


185

Proceeds from notes receivable

55


34

Payments for property and equipment and intangible assets

(12,553)


(9,850)

Acquisition of businesses, net of cash acquired

(4,000)


(39,302)

Net cash used in investing activities

(13,650)


(48,130)

CASH FLOWS FROM FINANCING ACTIVITIES




Proceeds from debt obligations

1,500


17,002

Payments on debt obligations

(3,361)


(2,488)

Purchase of treasury stock

(98)


-

Payment of dividends

(462)


(380)

Payment of loan origination costs

(96)


-

Share in return of investment by noncontrolling partner 

(600)


-

Net cash provided by (used in) financing activities

(3,117)


14,134

NET DECREASE IN CASH AND CASH EQUIVALENTS

(1,872)


(17,732)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

35,980


35,686

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$          34,108


$          17,954

 

RCI HOSPITALITY HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)








December 31,


September 30,


December 31,


2022


2022


2021

ASSETS






Current assets






Cash and cash equivalents

$            34,108


$            35,980


$            17,954

Accounts receivable, net

6,016


8,510


6,012

Current portion of notes receivable

235


230


225

Inventories

4,051


3,893


3,530

Prepaid expenses and other current assets

8,611


1,499


8,245

Assets held for sale

-


1,049


3,113

Total current assets

53,021


51,161


39,079

Property and equipment, net

246,536


224,615


203,878

Operating lease right-of-use assets

36,329


37,048


35,845

Notes receivable, net of current portion

4,631


4,691


5,512

Goodwill

70,189


67,767


54,484

Intangibles, net

143,949


144,049


125,314

Other assets

1,503


1,407


1,566

Total assets

$          556,158


$          530,738


$          465,678







LIABILITIES AND EQUITY






Current liabilities






Accounts payable

$              5,182


$              5,482


$              5,807

Accrued liabilities

18,864


11,328


18,413

Current portion of debt obligations, net

13,291


11,896


9,003

Current portion of operating lease liabilities

2,850


2,795


2,288

Total current liabilities

40,187


31,501


35,511

Deferred tax liability, net

30,562


30,562


22,040

Debt, net of current portion and debt discount and issuance costs

197,943


190,567


152,847

Operating lease liabilities, net of current portion

35,270


36,001


35,154

Other long-term liabilities

386


349


357

Total liabilities

304,348


288,980


245,909







Commitments and contingencies












Equity






Preferred stock

-


-


-

Common stock

92


92


95

Additional paid-in capital

68,070


67,227


80,397

Retained earnings

183,726


173,950


139,888

Total RCIHH stockholders' equity

251,888


241,269


220,380

Noncontrolling interests

(78)


489


(611)

Total equity

251,810


241,758


219,769

Total liabilities and equity

$          556,158


$          530,738


$          465,678

 

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SOURCE RCI Hospitality Holdings, Inc.