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RCI Hospitality Holdings, Inc. (RICK) CEO Eric Langan on Q2 2022 Results - Earnings Call Transcript

Sep 23, 2022

RCI Hospitality Holdings, Inc. (NASDAQ:RICK ) Q2 2022 Earnings Conference Call May 9, 2022 4:30 PM ET

Company Participants

Mark Moran - Head, Business Development Operations, Litquidity

Eric Langan - President Chief Executive Officer

Bradley Chhay - Chief Financial Officer

Conference Call Participants

Joe Gomes - Noble Capital Markets

Anthony Lebiedzinski - Sidoti Company

Adam Wyden - ADW Capital

Mark Moran

Good afternoon, ladies and gentlemen. Greetings, and welcome to RCI Hospitality Holdings Second Quarter Earnings Call. The first ever earnings call by a publicly-traded company hosted on the Twitter Spaces platform. You can find today's presentation pinned to the top of this space's page.

Now please turn with me to slide number 2 of our presentation. I'm Mark Moran, Head of Business Development and Operations at Litquidity, a Wall Street Communications and Media firm. I'll be the host of our call today. I'm here with Eric Langan, President and CEO of RCI Hospitality; and Bradley Chhay CFO of the company.

Now please turn to slide 3. If you aren't doing so already, it's easy to participate on this Twitter Space. On Twitter search @RicksCEO and click the pinned Tweets. We want to remind you that if you would like to ask a question through Twitter Spaces, you will need to be joining the Twitter Space with a mobile device. In addition to Twitter Spaces, RCI is making this call available through traditional landline and webcasting.

At this time, all participants are in a listen-only mode and question-and-answer session will follow the formal presentation. With this being the first ever earnings call on Spaces we're going to be doing this a bit differently. For our QA portion we'll start off with equity research analysts and selected shareholders then move into a fireside chat format for all to have the opportunity to participate. Be sure to re-share this and engage.

Now please turn with me to page 4. I want to remind everybody of our safe harbor statement. It is posted at the beginning of this presentation and it reminds you that you may hear or see forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those currently anticipated and we disclaim any obligation to update information disclosed in this call as a result of developments that occur after the call.

Now please turn with me to slide 5. I also direct to you an explanation of non-GAAP measurements that we use. As a reminder this conference is being recorded. And I also like to invite everyone listening in the South Florida area to join Eric and me tonight at 8 o'clock to meet management at Tootsie's Cabaret in Miami, one of the top adult clubs in the country and RCI's top revenue-generating club. Tootsie's is located at 150 North West 183rd Street if you have an RSVP just ask for Eric or me at the door.

Now it's my pleasure and my privilege to introduce Eric Langan, President and CEO of RCI Hospitality.

Eric Langan

Thank you Mark and thanks for joining us today everyone. We had an outstanding quarter across the board. Nearly all of our key metrics were up double digits year-over-year for the second quarter and the first half. Nightclubs and Bombshells continued to perform well that includes our 12 recent club acquisitions and our new company-owned Bombshells in Arlington, Texas. High-margin service revenues continue to rebound especially in our New York market and favorable trends are continuing.

Total revenues in April exceeded March. We are also executing well on our growth plan. In Nightclubs we made one acquisition and we have a second under contract. For Bombshells, we acquired real estate for another company-owned location and we have two other locations under contract. Our first franchisee is very close to opening. Their first location in San Antonio and we've announced a second franchisee with plans to open their first location in Huntsville, Alabama. And our efforts to harness new technologies to drive club traffic are all moving ahead as planned. We have also continued to take advantage of market conditions to buy back shares.

And now here's Bradley to review the financials for the quarter.

Bradley Chhay

Thanks Eric and good afternoon to all those listening. All of our comparisons in this call will be to the year-ago second quarter unless otherwise noted. The second quarter marks the second anniversary since COVID hit in March of 2020. With that in mind, I'm pleased to report we generated record revenues of $63.7 million, up 44.6% year-over-year. Omicron affected the first four to six weeks of the quarter. We estimate it reduced revenue by close to $2 million. Since then sales have been strong and even growing stronger.

Nonetheless, EPS increased 69.1% to $1.15. Non-GAAP EPS was $1.19, up 58%. Net cash from operating activities was $11.6 million, an increase of 5.7%. Free cash flow totaled $11.1 million, which was up 23.3%. Net income attributed to RCI Hospitality Holdings was $11 million, up 79.8%. And lastly adjusted EBITDA totaled $19.9 million, which is up 46.8%.

Please turn to page 7. The second quarter Nightclubs segment revenues, operating margin and income from operations were all up significantly from a year ago quarter once again. Revenues totaled $48.2 million and grew 56.5% year-over-year. Operating margin was 39.7%, up from 34% last year. Non-GAAP operating margin was 39.5%, up from 38.8% last year. Segment operating profit totaled $19.1 million that's up 82.7% increase year-over-year. Non-GAAP segment operating profit was $19 million 58.9% increase year-over-year. Revenues grew $17.4 million year-over-year attributed to some factors. Newly acquired clubs accounted for about 50% of that. Clubs that were opened enough days, that qualified for same-store sales accounted for 20% of that and eight northern clubs, not including any of our recent acquisitions accounted for about 30% of that. These clubs, which do substantial VIP business, were not included in the same-store sales as they were not opened enough days in the year-ago quarter.

Segment operating margin was also benefited from high-margin service revenues, which were up 87.8% year-over-year. We look forward to continued progress, with our acquisitions in our northern clubs as they continue to rebuild their businesses. We also look forward to continued strong performance from our other clubs.

Now please turn to Page 8. Bombshells also had a good second quarter. Revenues totaled $15.3 million that's up 16.7% year-over-year. Operating margin was 22.6% compared to 23.9%. Revenues grew $2.2 million year-over-year. 85% of that came from Bombshells Arlington, which opened up in early December. Another 14% came from an increase in same-store sales. Our operating margin came in at 22.6% and significantly improved from 19%, in the first quarter.

Now if you recall, our first quarter operating margin was affected by more than two months of preopening costs, without sales for our newest location Bombshells Arlington. As a result, segment operating profit was $3.5 million in the second quarter, that represents an increase of 10.4% year-over-year and 23.8% from the preceding quarter. Overall, we believe that we are doing a great job at managing the impact and food inflation. We look forward to continued progress in this segment as well.

Please turn to Page 9, to review our second quarter consolidated statement of operations. Cost of goods sold as a percentage of revenue, improved to 13.8% as compared to 15.4% a year ago. This is the best performance since fourth quarter of 2019. Margin improvement primarily reflected the increase in the sales mix, the higher-margin service revenues within the Nightclubs segment. Service revenues represented 33.8%, of sales in the second quarter compared to 26.1% in the year-ago quarter.

Small price increases in the Nightclubs and Bombshells segment, also contributed to strong margin performance. Salaries and wages and SGA were approximately level from a year ago quarter as a percentage of revenue. Salaries and wages reflected the addition of new employees, at acquired units along with new mandates, which increased the minimum wage as of January 1st in some of our states in, which we operate.

SGA reflected increased variable expenses related to those sales -- increase in sales. As sales at acquired units continued to grow related salary and SGA costs should decline as a percentage of revenue. Consolidated operating margin was 26.8% of revenues compared to 22.3%. Non-GAAP operating margin was 26.9% compared to 25.9%. Interest expense declined as a percentage of revenues, although the dollar amount was slightly higher. This reflects higher sales and lower weighted average interest rate, partially offset by higher debt related to financing club acquisitions in the first quarter and the real estate in the second quarter.

Now please turn to Page 10. Cash and cash equivalents were a record $38.1 million, on March 31st. I already went over our numbers of free cash flow and adjusted EBITDA for the quarter. So I'd like to take this time to actually focus on the six months trend. Free cash flow for the first half of the year was $26.3 million, which was up 79% -- 79.8% year-over-year. As a percentage of revenue, free cash flow for the first half was 21%, in line with our expectations. Maintenance CapEx was a little low in the second quarter but our return to a more normalized quarter -- normalized number for the rest half of the year, we expect it to be about $6 million for the year. Adjusted EBITDA was $37.9 million, which was up 70.2% year-over-year. As a percentage of revenues, it was 30.2% also in line with our expectations.

Please turn to Page 11, to review our debt and debt manageability. Debt net of loan costs was $178.1 million at March 31st, that's an increase of $60.2 million from December 31st. The increase primarily reflected the January 2022 real estate loans. We continue to reduce our weighted average interest rate. Our second quarter rate was 6.14%. That compares favorably to 6.66%, a year ago and 7.23% five years ago.

Our periodic refinancing enables us to convert higher rates seller financing and other unsecured financing used in club acquisitions, into lower rate commercial real estate bank debt. We currently have multiple unencumbered properties in our portfolio. We can borrow against them, should we need additional capital. Our refinancings enables us to smooth out debt maturity schedules and currently our amortization is about $7 million to $8 million range a year for the next five years, which is very manageable with our cash flows. Occupancy costs were 7% of revenues. This is well within our 6% to 9% range we've averaged, when sales weren't dramatically impacted by COVID.

Now please turn to Page 12 to look at our March 31 debt pie chart. Our debt primarily consists of 66.5% of our debt which is secured by real estate, 19.3% of is seller financing debt, this is secured by our respective clubs to which it applies to and 4.4% of debt is secured by other assets. Unsecured assets consists of less than 10% of our total debt. And as we mentioned on the last call, we have reached the end of our Texas Comptroller Settlement. This has been costing us about $1.3 million a year in cash flow which is great news.

Now let me turn the call over back to Eric. Thank you.

Eric Langan

All right. Thank you, Bradley. Now please turn to Page 13 of the presentation. We are continually talking to new investors and have several on this Twitter Spaces, so I'd like to go over our capital allocation strategy. Our goal is to drive shareholder value by increasing free cash flow per share 10% to 15% on a compounded annual basis. Our strategy is similar to those outlined in the book The Outsiders by William Thorndike.

He studied companies that focused on generating cash flow per share and allocating that cash effectively to generate more cash. We have been applying these strategies since fiscal 2016 with three different actions subject of course to weather their strategic rationale to do otherwise.

One as mergers and acquisitions, specifically buying the right clubs in the right markets. We like to buy good solid cash flowing clubs at three times to five times adjusted EBITDA. We use a combination of cash, seller financing and acquire the real estate at market value. Another strategy is using cash to grow organically, specifically expanding Bombshells to develop critical mass, market awareness and sell franchises.

Our goal in both MA and organic growth is to generate annual cash on cash returns of at least 25% to 33%. The third action is buying back shares of our stock when the yield on free cash flow per share is more than 10%. For fiscal 2022, as of last Friday, we bought back 83,343 shares for a total of $5.3 million or an average price of $62.37.

Please turn to Page 14 for a review of our growth initiatives. In our Nightclubs segment, we are making good progress for the clubs we acquired in the first quarter. At the end of March we reopened our rebranded club in Louisiana at Scarlett's Cabaret. In May, we opened Rick's Steakhouse Lounge in the same building as Scarlett's in Miami. We expect to open another reformed – a reformatted club this quarter in San Antonio. And in May we acquired a club in South Florida.

We have a club in Fort Worth under contract and we are in active discussions with a number of other club owners. These acquisitions are part of our efforts to add $20 million of adjusted EBITDA in fiscal 2023. In our Bombshells segment, the new Arlington store is doing very well. During the second quarter, we acquired a property in Stafford Texas, a suburb of Houston for our 12th location and we are under contract to purchase two more locations one in Rowlett, a suburb of Dallas and one in Lubbock Texas. And we continue to look for more locations in Dallas, Austin, Florida and Arizona.

Our first franchisee expects to open its first location soon in San Antonio and the agreement with our second franchisee costs for three locations over five years in Alabama, the first to be in Huntsville and we are in serious talks with three potential franchise groups.

Regarding capital management, as we previously reported, we acquired this Scarlett's property for $7 million in cash at the end of the first quarter. Our $18.7 million bank loan in January provided us with more resources to implement our capital allocation strategy and we sold an access parcel real estate for $2.1 million in the second quarter. We have two more pieces of real estate currently under contract for sale for a total of more than $7.7 million and these transactions are expected to close by the end of the fiscal year.

Please turn to Page 15. I'd like to take another minute to review how we are harnessing new technology to drive club traffic and in particular attract the next generation of customers. In early March, we began rolling out Bitcoin as a method of payment at our clubs, starting right here in South Florida at our flagship Tootsie's and Scarlett's clubs. Acceptance has been really good, particularly in light of all the crypto-related investment conferences taking place in Miami. Our new Rick's Steakhouse Lounge in Miami also is accepting Bitcoin.

In April, we announced guest benefits NFT program called Tip-N-Strip. We expect it to go on sale sometime later this quarter. This will be the ultimate party pass with an annual party access to other private parties, VIP experiences and a wide range of other benefits. The reaction has been particularly good and we expect to commence it by the end of June.

AdmireMe, our new social media platform is now in full beta testing with a soft launch planned for later this quarter. Similar to OnlyFans and enables entertainers at our clubs to post content and receive payment from their admirers so they can build an Internet business as well as their club business. That ends the formal presentation with a big thanks to all of our teams, Nightclubs, Bombshells and our corporate staff for all your hard work and dedication.

And with that Mark let's open the line for questions.

Question-and-Answer Session

A - Mark Moran

Thank you, Eric and Bradley. The floor is now to be opened for questions. [Operator Instructions] We will now take our first question from the audience. We're going to have Joe Gomes of Noble Capital Markets.

Joe Gomes

Hello. This is Joe Gomes. Can you hear me?

Eric Langan

Hey, Joe. Loud.

Joe Gomes

Perfect. So this Twitter stuff is actually working, fantastic. Great quarter. Thanks for taking the questions. So the first one I wanted to jump in with is you mentioned the club acquisitions one in South Florida and one in Fort Worth under contract. Can you provide any details about, the cost or the multiples that you're paying what do you expect them to add to the top-line? And you had that goal of adding $20 million of EBITDA how far along would they to get you to that goal? So they are my first one. I had a couple of follow-ups.

Eric Langan

Sure. Well the South Florida acquisition that we filed the 8-K on Friday, you see at the $16 million acquisition it includes the real estate. We estimate it will add about $3 million in EBITDA, the price of about $13 million so just over four times plus the real estate was $3 million.

As far as the Fort Worth location this is a location that -- it's basically the owner had passed away his family -- the club closed at this time and his family have the property and licenses available for sale. So we're basically purchasing for the value of the real estate and we'll build the club out.

We'll probably do a full remodel of the location. We also are talking with several other operators around the country right now to line up additional acquisitions including one significant size probably around $8 million in EBITDA on a multi-club acquisition. We're waiting for various stages of rating for financials -- reviewing financials other due diligence as well. So I suspect that by the end of -- definitely through fiscal 2023 we will be able to add the $20 million without too much problem at all. And I'll take your next question.

Mark Moran

Hey, Joe. You need to unmute yourself to speak again for the follow-up.

Joe Gomes

Sorry, about that. So on the event side one of the big events for this year was the F1 race that was yesterday in Miami. Just - -Eric maybe give us a little impression of how that went for the clubs the Scarlett's and Tootsie's in that area how the F1 race helped them?

Eric Langan

Yes, sure. To give you an idea Miami Tootsie's did it's first $1 million week without a suitable in town, which is fantastic for us. Overall the company sales exceeded $6 million for the first time last week so we did very well. We also have the Kentucky Derby in Louisville which is great for the Louisville location. And just overall a lot of our locations are performing at super high levels right now.

Joe Gomes

Great. And if I could just sneak in one more here. So I just wanted to talk a little bit about the NFTs. Were the mining of those generate a new source of high margin revenue for Ricks and do you think the NFT program will help generate more revenue for the clubs on an ongoing basis?

Eric Langan

Sure. The NFT itself is -- it's not about raising a bunch of money for -- or creating big revenue streams it's about creating a community of end users for our product and creating basically our benefits program for those users including our annual party. I think over the long run it will increase revenues of the clubs by creating like I said a loyalty following of those users. But I don't think the NFT itself is really made to be a revenue generator.

Joe Gomes

Great, Eric. Thanks for taking the questions. I’ll jump back in queue.

Eric Langan

All right. Thanks.

Mark Moran

Thanks for the questions, Joe. One thing I will add is speaking to Joe, you can mute please. There we go. One thing I will add is speaking of the utility of Tip-N-Strip you can go to Eric's profile to see a video of his birthday a few weeks ago. Now for our next question we're going to be going to Anthony of Sidoti Co. Anthony, you are up. Anthony, we are ready for your….

Anthony Lebiedzinski

Sorry, about that. My apologies – sort of hear you for few seconds. So congrats on the quarter. Can you talk a little bit about the momentum that you're seeing kind of just go into like April you said it was better than March. So can you just talk about what's driving that momentum give us a little bit more details about that?

Eric Langan

I mean, I just think that, they are – our teams are operating on all the cylinders. We're having an exciting time. The clubs are very, very fun. I think we're spending more and more time and energy on social media bringing in a lots of new guests as well as our VIP spend is coming back in the North as you saw from the increase in as a percentage of total revenues from our service revenues moving back up to 37% of revenues. And hopefully, we will see that heading closer to 40%, where we're traditionally used to be, especially as Minnesota comes online.

We have a major convention the 19th to the 22 of May in Minneapolis. It'll be one of the first major conventions from the US Bank Stadium for Beacon for our NFT collector. They'll know that very well Gary and team. And I think that's going to be great for business. Two of our clubs are basically right on the path to the stadium. Our team will be up there also promoting our NFT and bringing guests in from that conference into the clubs so they can kind of see firsthand some of the utility benefits of owning our NFT.

But I think that will help sales and hopefully bring – help bring the Minneapolis market back. It's came back pretty strong in April, but it's still lagging other markets at this time. So I'm hoping that, this convention will be the turnaround point for that. And basically, I think we're just --- like I said, it's just been strong basically across the board. The only thing, I noticed in this last week is a – couple of our smaller blue collar college town clubs had a little bit of minor weakness but that's very typical for the first week of the month.

And so I'm not worried about it. I'll be watching that over the next few weeks to figure out if we have to go into any type of discounting or we have to really start pushing for – to put more quantity of customers to the door than the quality of customers those kind of things we do, if we start seeing any type of downturn or recession coming in. But I see no signs at all of any type of recession at this point, I mean, every week we just keep getting stronger.

Anthony Lebiedzinski

Got you. Okay. Thanks for that. And then hypothetically speaking right, I mean, if there was a recession, do you think this would enable you to buy more clubs at better prices?

Eric Langan

Certainly, when things turn down certain guys don't catch up soon or not don't make the change fast enough. In the past, we made some pretty good acquisitions in down markets. So we've definitely taken advantage of that. I think the fear of a downturn has got a lot of people – I mean, I had like 11 calls last week from different brokers and club owners and stuff. So I mean, I think there some fear out there for sure that's starting especially with the market downturn and whatnot. So we're getting the calls. We're going to be looking at everything. We're going to find what we believe are the absolute best acquisitions for us and put our capital use.

As you see, we ended the quarter with about $38 million. I think prior to last week at the end of April, we were in about the $43 million range. We spent $5 million down payment on the Miami acquisition last week, and I think we're probably sitting on $38 million, I suspect by next – by Tuesday by tomorrow, cash counts will be closer to $40 million in cash again.

So we're generating a tremendous amount of cash every week right now and we're putting about only about $500,000 week into our stock buyback right now, because I want to hold about $40 million cash on hand as we do these acquisitions. So if we start getting significantly over or the stock gets significantly cheaper, where the yields are much higher we may change that philosophy, but that's kind of the philosophy right now if the stock holds under $65.

Anthony Lebiedzinski

Got you okay. And then just to follow-up about the Miami club acquisition. So when you look at the valuation did you look at pre-COVID 2019 revenue adjusted EBITDA or 2021 results? Just wanted to get a better understanding as to how you came up with the valuation for that Miami club?

Eric Langan

Sure. What we're using right now is 2019 full year and trailing 12 months. So we're looking at those two versus – normally, we would look at like 2021, but 2020 isn't really viable so basically what we decided is trailing 12 months plus 2019 is kind of our gauge and we're kind of seeing what the difference is whether way up way down and coming up with what we think is a fair market valuation based on that. And that's why this one we basically worked out to about – I guess 4.1 times, 4.2 times EBITDA.

Anthony Lebiedzinski

Terrific. Okay. And the last question from me, can you just give us some sense as to what you've seen thus far from the beta launch at Miami?

Eric Langan

Well, bugs obviously. The biggest problem we had is our developers were from Ukraine of course with the Ukranian war that set us back considerably. We're still working with a few of those developers who have gotten out of Ukraine some are still in Ukraine. We've also set up a backup team in Brazil, who is helping program, some of the newer items but we worked through those. We recently put a performance enhancement that they just went live with which has drastically increased the speed of load of pictures and changing pages. So I'm very happy with that. And we're starting to add a few more girls get more content. We're starting to get more guys on the site as well who are buying tokens and trying to spend money on the girls. And so right now it's that delicate balance of chicken and egg.

We need enough customers to keep the girls happy. We need enough girls to keep the customers happy and just trying to keep a nice balance between the two, while we're in this beta mode and then hopefully fill to full out launch and really push the site through keyword buys through the clubs themselves and through the entertainers at the clubs through their social media and their influence as well. So I think we're probably -- I would say, another 60 days before we really start a really hard push on that right toward for this quarter.

Anthony Lebiedzinski

Got it. Okay. Well, thank you and best of luck.

Eric Langan

Okay. Thank you.

Mark Moran

Wonderful Joe and Anthony. Thank you for that. Now we're going to move on to our next individual who normally needs no introduction. But for this call so some of you may not know who Adam Wyden is. He is 9.999 percentage shareholder of RCI. And Adam we're going to add you up. Let's take it away.

Adam Wyden

Can you guys hear me?

Mark Moran

We can now.

Adam Wyden

Yes, sorry. I'd be with you guys celebrating at Tootsie. But as you and Eric know I got COVID. So I'm quarantining over here. But I don't think I'm actually a 9.99% shareholder anymore. I think the 84,000 share buyback put us over 10%. So I suspect my CFO has to be amending our filing. But I just want to go over a couple of housekeeping things.

Eric has been talking about Omicron effect in January and February and March. I think you commented that March was a record month and April was even better than that. Given the operating leverage in the business and Eric basically commenting that he thought that by May or June or July, you've got $100 million EBITDA run rate, maybe Bradley could step in here and kind of comment on kind of if we are able to sustain the March revenue productivity that what that would imply for run rate EBITDA as a starting point?

Bradley Chhay

Hey, Adam. Good morning.

Adam Wyden

Hey.

Bradley Chhay

Theoretically speaking if we're looking at $24 million in March and then April beat that if we had a $75 million quarter in revenue and everybody knows what I said on the call, which was our adjusted EBITDA to revenue ratio is about 30%. And you marginalize that multiplied times four, you can almost get there, yes, theoretically, right? But I don't want to make any full commitment given the macroeconomics of the environment. But what we've seen in our industry is not recession proof, but definitely recession-resistant, so.

Adam Wyden

So that's helpful as a starting point. And so maybe it might be helpful to talk about your mix. And so when you kind of backed into Bombshells at like 30% margins including real estate and you kind of look at what your gentlemen's clubs are doing. I mean each incremental dollar, I mean, again it's a well-run night club like Tootsie's or Scarlett's does a 50% or 60% operating margin, including real estate to itself.

If you drive a 10% comp in Tootsie's or in Scarlett's that's because you raised prices on booze and you own your own real estate. I mean, it is theoretically possible for margins to keep going up. I mean, that's the idea, right? Like as you drop that service margin in New York, as you drive incremental sales at Tootsie's and Scarlett's, I mean, less so on Bombshells, because your food costs are higher, but like on the government's clubs alcohol is 90%, right? Your cover charges for people are 100% margin. The fees for the growth today is 100% margin. I mean, all -- on the nightclub side, many of your revenue drivers are 100% margin. So like in theory right like the incremental margins on the nightclub side could be very, very high.

Eric Langan

Yes. Just -- I ,mean you're kind of hitting it on the head right there. When I look at 2017, 2018, 2019 right just looking at the Nightclub segment in particular I'm seeing the service revenues used to be in the high 30s, sometimes it's hitting the 40% of our sales mix, right. But when you look at the first and second quarter of this year, it's in the low 30s. And then I go look at the northern states like Minneapolis, New York, I see that there's still definitely a run rate in the high service margin revenue business. So now we got that back to the pre-COVID levels? Yes. All that service revenue margin, which includes cover charge room rentals, dance dollars all would drop to the bottom line.

Adam Wyden

Right. So just kind of work you backwards for a minute, right. So, clearly, margins aren't going lower on higher sales. So if you kind of back into it and you say March basically implies a $100 million EBITDA run rate. And that doesn't include the new club that you bought in Florida or anything else. So I mean is it fair to assume that we're kind of on path assuming we complete our $20 million EBITDA MA that we could exit call it calendar fiscal year at $120 million of EBITDA?

Eric Langan

It's hard for me to say, Adam. I can't use two months as a trend. I can just say the favorable trends are continuing, which means like April is doing better than March. And what I've seen in May, I mean, with Kentucky Derby and Formula One, I mean, we're on that path but there's also seasonality. As I mentioned earlier, macroeconomics with recessions and stuff like that discretionary is trendy. So, I'd like to be able to predict it through Q3 and Q4 but we'd have to wait to see what the summer brings.

Bradley Chhay

Adam, give me a second. I'll answer your question the easy one. If we were to do a quarter of Marches, if we had three Marches in the same quarter basically our margins would increase to about 35% and our free cash flow would -- or I mean our EBITDA would increase to -- EBITDA not free cash flow. EBITDA would increase to about $25.1 million. So basically we have three Marches in a row that's where we would be sitting.

Adam Wyden

Right. And April was better than March. So right now, we got two in a row. We just need a couple of more, right? Let me…

Bradley Chhay

That's why I said, all along once we get through May and June we will have a very, very good idea of exactly what our run rate is, because first time we’ve not been affected by COVID.

Adam Wyden

Let me ask you something else. I mean a lot of guys on Twitter are talking about that this is a super pro-cyclical business. And look me as a stock analyst and kind of a historian, I go back and look at what Ricks looked like in 2008, and it looks very different now than it was then, right? You had Vegas that you bought which was -- that was micro and Vegas got hit in 2008 and then you had a lot in New York and you had the great financial crisis and the Wall Street guys weren't going and you didn't have as much Florida or Texas.

And so, even now when you look at the business and on some level you can look to COVID and say look at how Bombshells during COVID, look at how the night clubs are during COVID. I mean can you speak a little bit about kind of your confidence in kind of the economic kind of -- or maybe kind of the countercyclical or perhaps resistant elements of this business that gives you confidence that even if we go into a consumer-led recession that you guys are going to do pretty well?

Eric Langan

Well, it looks like if there's any type of recession coming, we're lagging it, because we are not seeing any slowdown. In fact, like I said, we've seen increases month-after-month, week-after-week. We've been very, very excited about the way it's looking. May doesn't seem to be any difference right now. Like I said, we've got the big convention. We've got some great conventions coming up in June as we move into early summer. I mean I don't see anything negatively affecting us at this point.

I don't think one or two points in the mortgage rate is changing -- change anybody's decisions right now. I think demand is too high. And I think that the reality is that a lot of this inflation is supply-side driven. And as soon as the supply comes in the prices will come back down some, especially with oil, especially with cars, furniture, some of the big ticket items. I think that that once supply is available and eventually, I mean it's got to come off the boats eventually, right? You can't sit on the ports forever. We'll see some of that.

And I just don't see -- like I said, I don't really see it affecting the majority of our customer base right now. In fact, I don't really see it affecting any of our customer base, other than like I said the Blue Collar clubs have seemed to go back to a normal trend where they do very, very well week three of the month. And then, in week four of the month and then week one they slow down a little bit. Week two it comes back; week three, week four, they're big again. That is very, very typical of that customer base.

So there's nothing out of the ordinary. And even with that what was out of the ordinary was we weren't seeing any slowdown. Every single first week -- as a matter the first week or the third week of the month those clubs were still doing fantastic. So we've seen a little bit of trend to normal on those clubs, but not any type of downward trend just to trend back to normal. As far as the high-end clubs, we're just seeing continuous growth and continuous spend at the high-end clubs.

Adam Wyden

All right. This is the last question for me and then, I'm going to get out and maybe I'll come back later. But look, for those of you who have been following this company for many years, I mean this has been a labor of log for you Eric. I mean you sold your baseball card collection, you vended in a few clubs into this Ricks from Robert Watters where you had the previous thing and then you merged that with Ricks. But I mean this has been a labor of log.

You've gone from $1 million of EBITDA to $100 million. You wanted to buy Lowrie, whatever. I think it was like in 2007 or 2010. I can't remember many, many years ago. He took it private, you wanted Lowrie, you got them, right? I mean you just bought a business that's pro forma $20 million of EBITDA. If I go back and look at when I first looked at RCI Hospitality, I don't even think you were doing $20 million of EBITDA. But now you're doing single transactions that are larger than your entire business was eight years ago.

I mean look, you've been at it a long time and you've basically gotten no love from anyone right? Your cost of capital is probably one of the lowest it's been since you've been public. I mean maybe it might be helpful to talk about what Lowrie symbolizes in terms of the scope of the transactions. I saw Jerry on the phone. Jerry is doing Bombshells. He owns a bunch of clubs. I mean are there people coming to you and saying, hey Eric like I see what you're building. I want to own stock in it. I want to be part of this business going from $100 million to $500 million of EBITDA.

I mean I'm really interested in -- you've invested 20 years of your life to go from $1 million to $100 million. I would think that over the next five years you want to go from $100 million to $500 million. I mean I just -- I want to know kind of what the sentiment is the momentum the energy like are people coming to you and say, I finally want to jump on this train?

Eric Langan

I mean I don't think everybody is ready to just jump on yet, but especially with the market as weak as it is right now. But we're definitely getting attention. We're talking with the guys that we haven't talked to. We're getting, like I said, lots of phone calls right now what would you pay for my clubs what are my clubs worth? I want to sell or I want to get out I'm ready to be done with this.

So, we're talking with these guys. We'll continue to roll it up. Whether it's $500 million I don't know. I mean if I get to double every five years I'm happy but if we can get five times I mean we get some more big transactions like Lowrie transaction of course. I mean it would grow -- it would grow exponentially for sure as those type of transactions present themselves. The hardest part of roll-up stories is finding people to sell to you. That's why we created the Bombshells concept to steady out the growth.

I do believe that we're in a phase right now that we've never seen before. We have the lowest debt to EBITDA ratios that we've had in a long, long time. Our interest rates -- our average rate is like what 6.18%. I couldn't even borrow money at 6% five years ago, right? Everyone was well interest rates are so low why don't you pay so much? I said because that's what people loan me money at. We borrow the money as cheap as we possibly can. But at the same time, we don't want -- we want super cheap money that gives us -- ties our hands and doesn't let us run and grow our business.

We do want to have the freedom to make decisions and to move quickly when the right acquisitions come along without having to have 15 other people who aren't in the business that tell us how to run our business. And so that's why we've done some of our unsecured debt the way we've done it in the past. We pay a little more interest sometimes, but we get free and that freedom is well worth the one or two points of interest.

Adam Wyden

But I mean look if you just take your MA schedule that you presented at Noble the $20 million in calendar 2022 and we're halfway through the year now so 2020 and 2022, 2024, and 2023 and 2028 if I just add up those numbers, you're increasing your EBITDA from a $100 million base by 75% over the next three years not including Bombshells. I mean if you--

Eric Langan

You're moving forward a year it's actually 2023, 2024, 2025, but that's--

Adam Wyden

Your fiscal years, I'm doing calendar years.

Eric Langan

Got you. Okay.

Adam Wyden

Your fiscal year I do calendar. So, I'm giving you an extra quarter to do it. But I'm just saying if you were just to do it and say, okay I'm at 100 right now, you're basically -- just based on your acquisition schedule, you're going to basically be double in two and a half years not including Bombshells. So, look I think it can be done. I think Lowrie to me is kind of a watershed moment because you never really have the cash or the stock to kind of put it all together and you got it done.

And we'd all like to see the stock higher because it's going to make the deals cheaper. But I mean look I think this is kind of what I've been waiting for getting these $20 million deals and getting an $8 million deal. And look at $200 million of EBITDA they're going to be able to ignore us less when $100 million and at $400 million they'll ignore us even less. So, thank you again and I'm sorry I'm not with you tonight at Tootsie's.

Eric Langan

That's fine. I hope you get better buddy.

Mark Moran

Wonderful. Thanks so much Adam definitely just feel free to raise your hand if you have a question in the future and we'll remove you as a speaker. Now, part of the uniqueness of it is we're going to start to embrace the FinTwit community. If people are looking you can see we have Dr. Parik Patel here Wolf Financial Stock Market News, John W. Rich among many others including Litquidity. And so we're going to start off with Wolf who is very, very appropriately raising their hands. So, Wolf kick it off and then we're just going to kind of keep rolling with people as we embrace the fireside chat format.

Unidentified Analyst

Perfect. Appreciate the introduction there Mark. Yes great to be on here, excited to be a part of making history with the Rick team here. I've got two questions. The first one is regarding forward-looking guidance. We've seen this just kind of gas companies over the last couple of months as they come out and have beat on top and bottom-line, but unfortunately can't give the targets that the consumer wants that Wall Street wants ultimately. And because they are lowering guidance and other things like that we are ultimately seeing huge pull up in these stock prices.

So, I'm curious going into this next quarter or really for year-over-year whatever it is that you are projecting here, are there a few specific key items that are being factored in? I know that moving out of the COVID area is one of them. The new acquisitions is another perhaps the Tip-N-Strip and the apps that you're doing with that end.

Essentially, just what went is that formula where you were analyzing those future-looking projections in an effort to make sure that you want them to obviously be solid until continued growth but not be overzealous and suffer the stock reduction or stock price reduction that a lot of these companies are seeing now?

Eric Langan

If you look back we have stayed away from any type of predictions. And I've said for over nine months now that I didn't feel that until I have full quarters without COVID and we got hit by COVID in January. I mean we had six weeks at end of December, for all four weeks of January, and almost the first week of February where at some place or another around the country were affected by COVID two weeks in New York -- they basically hit each location for about two weeks and it affected between 40% and 50% of the staff.

And I don't know how much the customer base right because if the staff is affected the customer base is affected. And so that was kind of the -- I think we would have beat all of the numbers that the analysts had out for us had we had that $2 million in revenue. That rise we lost about $2 million in revenues.

On a go-forward basis, everybody is pushing are you going to be this, you're going to be $25 million, are you going to do this? Look I don't know for sure. I can tell you what the run rates for March because we know that now. And we can take March and say okay we did that three times what we would be doing, would be at $25 million in revenues -- or $25 million in EBITDA. The reality is we stick to cash flow. Free cash flow is -- to me is the only thing that matters. The other numbers are gauges. They're nice. But at the end of the day, I can only spend the free cash. And so we stick hard in free cash flow.

Our goal is 10% to 15% growth. I've said with the acquisition that we're going to definitely exceed the 10% to 15% growth rate. If you take $33 million that we did last year and we added 20% you'd have $6.6 million, you'd be at $39.9 million. We're at 26% and change already for the first six months of this year. So, we're definitely going to blast through our typical 10% to 15% growth rate for this fiscal year. And we did have COVID. We had some COVID issues and stuff from last year that affected the free cash flow. But I still think, if you took and basically calculated the COVID effect from last year and get the free cash flow and you take free cash, we're still going to be well over 20-plus percent free cash flow per share growth for this year, even though we issued another 500,000 shares.

If you look, we've already bought back 16% of those shares at an average price of $62.30, which if we take that and figure it out basically, we borrowed $30 million. I look at the stock as a $30 million loan right that pays no interest. And the interest is whatever we buy that stock back are over $60. And so far, we bought back 15% of that stock at an average annualized interest rate of about 1%. And so, that's why I get excited about the stock buy back. I don't get carried away and get crazy because I want to use the cash for acquisitions because the deals we can find are way better than 10% to 13% free cash flow yield that we have on our stock right now depending on where you're at in the range of free cash flow per share for the year.

And if I can get 25% to 33%, some of the deals we're doing are 50%, 70%, cash-on-cash returns right now. It gets very difficult to just go well, we should just use all of our cash to buy back stock when these other deals are out there right now. So I'm sorry what was your second question? I know you asked something else. I lost my train of thought.

Unidentified Analyst

No, you're good. I hadn't asked yet. I wanted to get that first.

Eric Langan

All right. That's why I forgot. I just know you said two questions. Okay.

Unidentified Analyst

Good. So the second question is more around the marketing schematics. So we're seeing you take to a new format here with Twitter Spaces where we just engaged. This is something that we do pretty regularly all day, every day. And we love the style. We find so many companies are now interested in utilizing this for market product, for building, brand recognition. Recently we saw the RCI accounts get verified. I know that you've been active on social media. I've also seen that the Tootsie's account has a strategy there. How much does social media fits into your marketing strategy for the clubs here and utilizing this really rare content than a company which -- this genre of companies have typically not been, I would say great with their social media presence and utilizing it to drive customers to it? I'm just wondering, if there's any more plans that you have for continuing to innovate with social media?

Eric Langan

Absolutely. I mean we've used Twitter -- I mean we've used Facebook quite a bit. We've used Instagram. We use TikTok. Twitter is very new for the corporate side. I mean the clubs have used it a little bit, but I think they've really focused more on TikTok and Instagram to drive traffic. But the definition, I'm saying is doing the same thing over and over again with different results. And we've done several in-person and on Zoom conference call or investor meetings this year conventions with the Noble here in Miami were recently LD Micro out in L.A. We've done the Sidoti online. And I find that like every time we do those we're reaching about 30 to 50 potential investors.

And then with the presentation session that we've used video tape and it gets replaced. We get a few hundred people that watch that as well. And so I started doing Twitter Spaces. And I've been in your space a couple of times and I sat there and notice something like and they got 800 people. They got 1,400 people. How they get so many people. We spend all this money to do these big conventions and we reach 30 to 50 maybe 150 potential investors. And so that's what really got me excited about Twitter.

And then when I met with Mark and you started talking about liquidity and what they could do and we do a Twitter Spaces and I say let's do it, let's move our call at Twitter Spaces. Let's let everyone that wants to listen, listen; let people who want to ask questions ask questions. And if the call goes all night, we'll keep ourselves up till 6 a.m., I'd like to get out on the floor at some point tonight. But if we have to be here we will be here, because I want to make sure that we're able to speak with the shareholders, speak with potential shareholders and get people interested in our company. That's really what this is about is getting our story out there, letting our story travel with the retweets.

In fact everybody you retweet this room right now would be great. Let everybody know we're in here, we're in the QA session and maybe people have more questions. But that's really to me what this space is all that. And the nice thing is, it's building the clubs too. As you see, I did a birthday party with the NFT deal that's going -- that video has been going around pretty wild out on the Internet right now with Twitter and even in a few other. I think they put it on some Instagram and some other social media. The social media is amazing because, it's very low cost and it's super effective. It's immediately effective. I mean I'll post -- I posted I was going to be in the Denver club. And like six people said, oh I'm in Denver, I'm going to come by and see you tonight. So those are the kind of things that I think is just fantastic as far as immediate reach and be able to basically embrace shareholders in a way that you -- it's never happened before, at least not that I'm aware of.

Unidentified Analyst

Awesome. Appreciate that Eric. Sorry, Eric, I know it’s not -- but it’s just kind of rolled off the tongue.

Mark Moran

Wonderful. Thanks Wolfe. Appreciate that. I'm getting a lot of participation in my DMs from the community from FinTwit people like Snowman LLC, Garland, BTT Longshore Capital Advisors. So we appreciate that. I'll encourage everyone to raise their hand if you have a question. We're next going to go to Stock Market News. So you're up.

Unidentified Analyst

Awesome. Appreciate. You had a super, fantastic quarter. First of all, I'd like to always add this thing on the Spaces. Guess you're also checking out and given all of the accounts up here a follow. Huge shout out to the RCI account RicksCEO posting a lot of great content and Mark Moran also hosting the Spaces so huge shout out to you. But I want to kind of dig in. You guys mentioned a little bit at the start about franchisees that you are launching your first one and you're kind of in the work on your second one. I wanted to hear a little bit more about that side of the business. Is that something that's more of a one-off, two off thing, or is that kind of an exciting area for you guys to look forward?

Eric Langan

Now I'm very excited about it. First of all, royalty revenue gets a higher premium right, higher multiple. Second, it's very little investment on our side and almost no investment because the franchisee basically pays our fees. We use those fees to get them open, get their people trained, get them done. They pay for the majority of the training. We've got a little travel expenses. And then at a 5.5% gross royalty, it will create several. I figure that the average franchisee will do about $5 million in sales, which will create basically after cost for us I think about $250,000 in revenue. And basically there's no cost against that so other than taxes. So basically it's going to be -- go right to the bottom line.

Basically our typical stores we're investing up to $6 million in. We can do some remodels in the three range of pieces but we prefer to own our property. I think owning the property is a lot a lot less risk for us just because of the way we are able to leverage the cash-on-cash returns with bank financing at 4% and 5% that we've been doing so far. But the franchisees' model to me is fantastic. It gets us to markets that we're not even looking at right now and get us there much quicker. It's going to grow the brand much faster, which will help increase brand recognition.

We have an advertising, national advertising program at 1.9% of gross that at some point right now we're going to return that to the franchisees to spend in their local markets. We want everybody to spend on local markets. And -- but eventually we'll run that into a national field campaign. We'll be able to do national ads and really help build the brand even stronger. So I'm very excited about the franchise model.

We're talking with three other potential franchisees right now. We've got to get the -- I think we've got two approved that we're working on price collection and we're in the process of getting the third. The way the franchising works, you can't sign a contract with the franchisee until they have a specific location because the contract has to be tied to that specific location. So that's part of the time process. We want to get some feasibility done due diligence on the property, make sure that they meet all the zoning requirements and the licensing requirements to build a Bombshell there.

And so those are kind of the steps we have to go through. So I would love to see us to the point where we're going to open six company stores every year. That's my plan right now. I'd love to get to a point we’re opening an additional six franchisees a year so we're opening 12 stores a year six and six, and then we'll grow from there. We'll see as we bring on more franchisees, set up a separate team. I mean, maybe we get to a point where at some point we're open 24 stores a year and they could be 12 and 12 or maybe we're doing eight and we're opening 16 franchises. It is really going to depend on how it goes and grows over the next few years, but we're going to be prepared for it however it turns out.

Unidentified Analyst

Awesome. Thank you. I appreciate you answering the question.

Mark Moran

Awesome. Thanks so much. Who do we have with the next question, please raise your hand. So, Gavin [ph] you're up.

Unidentified Analyst

Yeah. What’s up and congrats on a good quarter. Took a stake in the company last week and already the top shareholder. My question is about Bombshells. So due to the nature of your business, Bombshell get a way lower multiple than it should. In the future, do you have any plan to grow it and spin it off or sell it out to someone else for a higher multiple entire business?

Eric Langan

Well, we've been offered by a group to roll into us back about eight months ago at about 14 times multiple. We looked at that and said, okay, so you were doing $20 million you're going to give us $280 million of value for this. But we're going to grow this over the next three years to over $50 million, which would be $700 million. So where else can we earn $420 million in the next three years, almost guaranteed in value? So we've decided that we would keep Bombshells in-house right now in the parent company.

One of the things we do as we reach $50 million in EBITDA for Bombshells we could spin it off into a separate public company. We can go back and look at private equity groups again. In the next three years, we may see multiple expansion in RCI, which if we do maybe we just keep it in RCI.

We don't rule out anything. I think people get confused, on what business we're in. And I say this a lot. We're not in the real estate business. We're not in the restaurant business. We're not even in the strip club business. We're in the free cash flow business.

And at the end of the day all those are tools that we use to generate that free cash flow and we're going to continue to use our capital allocation strategy, create the most value we can and we're going to monopolize on that value as opportunities present themselves.

We love the Bombshells concept. We love what it's doing for the company. We love the attention it gets. I think we've gotten some multiple expansions because of Bombshells, on the strip club revenues. So it's kind of working how we want it.

I mean the market is kind of weak right now, so it's hard to tell. But in the early part of this year the stock went up to $95 or $94, and I thought we were kind of on our way to getting that multiple and holding it.

Then we saw some weakness on the stock kind of sold off a bit. But I think that -- I think we're going to get the realization, especially now that we're with Twitter Spaces and opening ourselves up to more-and-more investors and getting the story out there and using social media to tell that story.

I'm hoping, we're going to continue to see, multiple expansion for the company. But -- and the reality is, we're going to do whatever is best for our shareholders and creating value for our shareholders over the long-term.

Unidentified Analyst

I have one more question. It is about AdmireMe. So if I'm not wrong, I think you mentioned more, I think collabing with the clubs and using those same people that work there to put them on the platform. Could you talk about that a bit?

Eric Langan

Sure. If you go on the platform, now you'll see there are several entertainers, not only from our clubs, but from our partner. Our partner has about 30 clubs around the country, 15% of the site we own 65% of the site. And so, you'll see some girls on there. Those are the tests -- they're kind of our beta test girls. We're starting to add a few more here and there, as time goes on.

Eventually we've got a few influencers in mind that work in the industry or work in some of our clubs that will be added to the site, that typically are on OnlyFans or similar sites right now that we're going to try to move them and their customer bases over to AdmireMe.

So I'm very excited about the long-term prospects of it. It is taking a little longer than originally anticipated because of the Ukrainian war. It's probably one of the only things that's really affected -- the Ukrainian war has really affected for our company and that's because our programmers were based there. But I think we're getting there. And I think that we'll continue to push forward on that.

Unidentified Analyst

Fantastic.

Mark Moran

Now for our next question we do have a special guest here Suzanna, who wrote a phenomenal article in Forbes earlier today. I wanted to reach out to you to see if you wanted to ask any questions. So I invite you to speak you don't have to, but just wanted to throw that out there. If not, no worries. Next, then let's bring up Stamford Sam [ph] that's stamford_sam which now will be recorded on this transcript when people read in the future. So let's have you up next. Are you with us, Stamford Sam?

Unidentified Analyst

Hey. Yeah. Sorry, I had some Twitter Spaces technical difficulties. Anyway, so I've done some reading of the past few Ks past few Qs, I see some chatter here about this material weakness that I believe originated in 2020.

It was discussed in the K, that there would be provisions put in place and they used the wording saying that, something along the lines of I'm paraphrasing here that, we believe this will get resolved sometime soon.

And I see that it's popped up in your most recent Q. So, could you possibly give us some additional color on, what that revolves around and sort of how the process is on correcting that issue?

Eric Langan

Yeah. Go ahead Bradley. Go ahead.

Bradley Chhay

Are you talking about the tax provision material?

Unidentified Analyst

Yes.

Bradley Chhay

Yeah. So it started off, as you say, in 2020, we took a stance and our auditors took a stance on it. And at that time Congress and IRS, couldn't agree on, whether the PPP should be deemed as a discrete item or a non-discrete item, whether it should be counted as forgiveness item or not. So that being said, it was just a material weakness on difference of opinion.

And then, as you fast forward it, we had another material weakness, because we have to make an adjustment to our tax provision entry. All of these are just non-cash estimates that come up as accrual entries. So I mean, we have instilled more of a review process. We have hired more CPAs and we're going to be doing a lot more reviews with the [indiscernible].

Unidentified Analyst

Okay. Sure. And was the switch of auditors, in regards to this or is that completely independent?

Bradley Chhay

No, completely independent.

Q –Unidentified Analyst

Okay. Cool. Thank you. Yes, I am not a tough guy.

Bradley Chhay

All right.

Mark Moran

Amazing, amazing. Next we have Adam coming back in from ADW Capital. Adam…

Adam Wyden

No. I mean look I've just been commenting – looking at some of the stuff on Twitter. And I think a lot of the diehard value investors are like you know, the stock should – let the stock trade at some crazy low level and you can buy it all back and blah blah blah. That's all good in theory. But I mean I think it might be important to explain to folks that part of the outsiders is yes being able to buy back stock when it's cheap but also being able to create a multiple arbitrage.

I mean what we saw with Lowrie is that you were able to do a transaction I think choice of 500,000 shares at $60, $30 million. I mean you would not have been able to execute on that transaction if the stock did not trade at a multiple higher than what you're acquiring. And so as I recall, you paid this money $88 million whatever the number was some around from debt. And the idea was you buy it and pro forma it'd be 20 of EBITDA. And so I think it might just be important to clarify the fact that part of the strategy and part of becoming a corporation and getting from 100 to 200 to 400 without [Technical Difficulty] being able to have that capital available to you.

That's like obviously in the absence of having your cost of capital, you're going to grow accordingly, you'll buy back stock if it gets cheap and you'll do things intelligently. But your goal is to get a cost of capital that's different than what you're acquiring. Because at the end of the day, if you're trading at 5x EBITDA and the business that you're buying is a fraction like you buy one business with $16 million in sales and $15 and $3 million of EBITDA, why should one club in one geography be worth less on a multiple basis than 50 clubs in a restaurant business? I mean I think it's important to clarify that like you guys aren't doing this to – I think Samford asked on one of the other things you said, well, will you commit to not selling the stock. I mean I think a lot of people think that this is like some sort of promotion thing. I think this is an effort to educate the market about where these assets can trade so you guys can execute on your strategy. I mean I think it would be helpful for you and Bradley to speak on that.

Eric Langan

I mean, definitely, I mean we don't sell stock cheap. We use the $60 value. The stock was – I think when we priced at $60 the stock was in the mid-50s. We said look, we're going to get a bump from this from the deal. So we got a little bit of upright on it. And I thought we just wouldn't issue the stock any cheaper than that. So we finally cut the deal on it. The stock ran to the 90s at one point. I thought we would – like I said, I thought we were I thought we were on our way to a fair valuation that would give us the opportunity to maybe pick up that arbitrage between the multiple our stock trades at and the multiple of that we're able to purchase asset debt.

We don't want to issue cheap stock but we do want to issue stock that is the cheapest form of capital we can use. And that's really what this is about. This is about – it's not about me being to able to sell stock or the company being able to sell stock, it's about creating a fair value for our current assets that we can leverage those current assets and to mind other assets at a much lower valuation and getting picking up that arbitrage between the two.

This is – I've been in this business for many, many years. I've been with RICK since 1999. I haven't sold shares. There's been many times when the stock was – I mean in 2008, at one point our market capitalization was higher than Bladeways [ph]. And everybody was saying, well, you should sell some stock, you should sell some stock and I said, I'm a long-term player. I don't need the money. I need to create more wealth. I'm trying to create more wealth for myself, more wealth for our shareholders, more wealth for our employees, who are our shareholders and that's really what this is about.

I think that our company is very misunderstood in certain Wall Street circles. And so basically, I'm trying to circumvent those circles by going directly to the individual investors and saying hey, look at our company, take a look at our financials, take a look at our cash flow and what do you think is a fair value for our stock.

Create a fair value, create the arbitrage and then we'll take that capital and use it to expand our company even higher or even faster and create more and more free cash flow per share. It's not about just free cash flow. It's on a per share basis. We want to make sure that everything we do is creating more and more value for our shareholders, especially since I'm one of the largest shareholders. So that's where the focus is at.

Mark Moran

And Adam added you back as a speaker if you have any follow-up on that. But if not then Jack Reins, [ph] can you please step up to the plate and request to be a speaker for this?

Unidentified Analyst

Somebody already granted me speaker on here. Eric,. thank you and Bradley and the whole team for coming out and doing this. It's been really cool getting to like to you guys speak on Twitter Spaces. I had one question about revenue. Do you guys – so for revenue that comes from like ATM withdrawal and transaction fees within the clubs, do the clubs themselves, like is that revenue realized by you guys or by the ATM companies? And do you think that by accepting crypto some of these will that affect how much revenue you get from those ATM transactions?

Bradley Chhay

It's recorded in the segment that is bidding that. So for example we have ATMs in Bombshells we have ATMs in the Nightclubs, right? So we get a commission for all of the ATMs that is processed through the machines, right? Because they're in our facility we own most of our own ATMs and we're getting a commission cut from the processor. Is that what you're asking?

Unidentified Analyst

Yeah. Yeah, I was. I'm sorry I've been driving during the call so I wasn't able to look at the presentation but I appreciate it.

Eric Langan

No problem. And to answer your question on the Bitcoin. I think people misunderstand. We expect Bitcoin as form of payment. That doesn't mean that we take the Bitcoin. It's just like Visa Mastercard American Express, we get paid in US dollars. When we accept Bitcoin, the processor buys the Bitcoin from us at the exact time of the transaction. So the Bitcoin never actually is in our possession. Basically, the transaction is processed, the Bitcoin is collected from the processor, the processor pays us in US dollars for the Bitcoin at the time of transaction. So it allows us to accept Bitcoin as a form of payment, but not actually have any of the exposure to the market conditions of Bitcoin or any other -- and hopefully at some point we'll be able to accept other cryptocurrencies as forms of payment and we'll do it the same way. It'll all be through the processor. And they will be the ones that are taking the market risk not the company.

Unidentified Analyst

Got it. Thanks. One follow-up question on the ATMs. How much revenue did you guys realize from those ATM fees last year or last quarter?

Bradley Chhay

This most recent quarter about $1.5 million in the Nightclub segment Bombshells is significantly less. It's probably about somewhere in the double-digit thousands. I don't know the number off the top of my head. But I know in the Nightclub, I saw that number about $1.5 million per quarter.

Mark Moran

Thanks, Jack. Now for our next question, I'm going to call up Tiger Grand Capital. And that is going to be the handle grand-cub T with a picture of Tiger. So let's give you room to ask a question. Here we go.

Unidentified Analyst

Hello, Mr. Langan, and thank you for taking my question. My question is…

Mark Moran

That was going to happen. That is going to be an interesting one for the transcript. For our next question can we have someone raise their hand and we'll call you up. We're going to have Bullish Studios. Next Bush. You're good to go.

Unidentified Analyst

Hi, guys. How are you? So Eric, thank you very much for this very insightful call. I wanted to ask, can you give us a sense for how big the Gentlemen's Club, Strip Club market is in the US? And how big you guys are of a player in that category? And how much of the category you guys are aspiring to take over or acquire or partner with in some way?

Eric Langan

Sure. I mean basically, we look at 2200 clubs in the US. If you look at there's prediction anywhere from $2 billion to $8 billion industry. I'm unsure because there's so many private and it's still mom-and-pop. It's really hard to tell what the total dollar amount value is of the industry. But we own basically right now 50 clubs. There's about 500 that we've targeted as potential acquisition targets. So it leaves us 450 pretty active clubs that we would like to purchase. So basically, we purchase nine for every one we own. So there's plenty of room for growth right now. I don't think we have to have any stress on having too much of the market share for the roll-up strategy for at least another five to 10 years. I think there will be plenty of clubs to buy over the next five to 10 years. At that point, we might have to really consider what else we're going to do. But right now, I think we've got plenty of opportunity out there available to us.

Unidentified Analyst

And is that growing at like a top line? Are you seeing more clubs open up now than in the past, or is it relatively flat?

Eric Langan

Basically, say pretty flat because of the licensing and it's very difficult to get new clubs and new licenses. I mean you do see some here and there and then you see a few clubs close here and there. But I think overall, it's remained pretty flat over the last few years. And that's what we love about it. It's a big moat, right? It's the moat that's most exciting about our industry is that we buy these cash flow machines and they just sit there and operate and operate and operate. There's not a lot of competition that's going to come into the market and make any major change to the cash flow. And there's more people, especially in Florida and Texas right now so many more people moving to Florida and Texas. I think that's why we're seeing very nice increases in revenue in our key clubs in those markets is because there's so many more people in those markets. So there's more demand and less supply, which is well basically always good for business, right? We're going to continue to buy clubs throughout the country. We're basically looking in our existing markets. If we have a competitor that we can buy out we always like to pick them up first and gain control more market share in the existing market. We're also looking at new markets as we did with the Lowrie transaction. We picked up Denver. We bought two of the clubs in St. Louis that we didn't own or control. And we've got several other markets; Raleigh North Carolina in that transaction Louisville Kentucky, Portland Maine the only club in Portland Maine. So those are kind of things we really like to do is pick up locations with limited competition.

Mark Moran

Fantastic. Thank you very much, bullish. Now for our next question we're going to go to Ryan James Invest. Ryan James Invest, you're up.

Unidentified Analyst

Hi. Thank you. What are your innovation targets for this fiscal quarter and fiscal year 2022?

Eric Langan

What you – I'm confused what you mean by innovation targets. I mean, our new projects are obviously our NFT Project, creating a loyalty program reaching to the Web three space. Really, what that involves is we're trying to reach that 25 to 40 year old crowd and introduce them to our products our services our clubs in ways that they understand and ways they communicate. I think the biggest problem with a lot of companies right now especially as your company matures and you get older and your industry matures is you rely on doing the same things you've always done and that doesn't work.

You have to innovate and adapt to the changing wishes of your clientele and the communication vehicles that your clientele uses your potential clientele uses. And that's what Twitter has been about that's what Instagram, TikTok all those types of things is reaching this younger crowd. NFT space Web 3 space is about that. The AdmireMe space is also a – I think it's a Web 2 space, but I think it's a way that basically take Web two customers and draw them into our brick and –sorry, about that. My AirPods are out. Well, draw them into our brick-and-mortar business. That's about. That's what you mean. I'm not sure that answers your question.

Mark Moran

Again I'll say, it's that idea of you're taking the Web 3.0 stuff bringing people to Web 2.0 and then pushing them into brick-and-mortar is kind of outside my view with it. For the next person we have we're going to have zippy_capital so Zippy. Let's get you up here and hopefully you're not a troll.

Unidentified Analyst

Hello, can you hear me? Sorry about that. Eric and Bradley thanks for doing this. Really appreciate it. So I pitched the stock for the investors and a common pushback I get is that folks don't want to invest in adult entertainment industry, because it feels dirty to them. I guess, could you just talk about how a RICK run club is better than kind of your average mom-and-pop gentleman's club? What kind of standard operating procedures do you have in place that are different than the rest of the industry? Because my kind of view on this is that a club run by you guys is actually better for society and safer for the girls and customers because you have the strong – high level of standards and procedures that the other clubs may not have. So I would love to get your take on this theme.

Eric Langan

Yeah. Sure. I mean I would tell you – I don't know, what markets you're in, but go to some of the clubs you can talk to the entertainers, you can talk to our wait staff, you can talk to our bartenders our management teams. Our staff stays with us for a long period of time. We have managers started out entertainers worked up the ladder. We have people that worked in our clubs and moved into our corporate staff went to college went to school. One of our top controllers who worked in the cage at one of the clubs for many years and then moved into our corporate office went and got her CPA. we helped pay for her way through college. And she's fantastic.

I think people misunderstand our industry, when they say – they think that, our industry is all about the exploitation of women. And I'll say it and I think you could talk to a lot of the women in the industry and they'll say the same thing, it's about empowering them. When you have no money, you have no power period. They're in maybe bad relationships or they just broke up. They may have a young child. They have no way – how they're going to pay for themselves. Oh, I got to move back in with my parents. They're going to take control of my life again. And so we give them independence and financial independence, because financial independence is how you create – get other independence in your life. They're able to get their own apartment, they're able to get their own cars, they're able to basically pay their own way and not have to rely on somebody else or the conditions somebody else puts on any kind of help that they give them. So I think that's the biggest misconception of our industry.

If you look at – you can Google Walmart and drugs and see there's drugs in Walmart. There's drugs in lots of places. It's not as – we have zero tolerance policies here. If we catch people selling drugs on our premises or having drugs on premises, I mean, we've had them arrested. I was recently involved in a deal with a District Attorney and they were like well you had 14 drugs arrests I said, yes. And if you look, 14 times we made the phone call, right? We called you and told you come get these drug dealers off our property. We're not going to put them back on the street, because they'll just sell their drugs to somebody else. We want them off the street. We want them out of our businesses.

And so those are the kind of things, I think that over a long periods of time that that's the difference we make. We have best practices. We try to do the best we can do. I'm not saying, we're perfect because, we're not. There's mistakes we've made in the past and we try to learn from them and grow. But we're constantly updating our policies, updating our procedures and trying to create best practices at all times, whether it's from an accounting standpoint or an operational standpoint. So hope that answers your question.

Unidentified Analyst

Yes. Thanks Eric. Well, appreciate it. I don't think your company is really going to be an ESG kind of stock, but I think your answer helps some folks that are resting with I guess, some of the ethical or moral questions. So thank you.

A – Eric Langan

Thank you.

Mark Moran

Fantastic. All right. For our next participant we are going to pull up Josh Kaplan [ph] who is JK Value Investor. Josh with two followers let's go. Josh, you're on mute so you're going to have to unmute.

Unidentified Analyst

Can you guys hear me?

Mark Moran

We can go for it.

Unidentified Analyst

Awesome. Hey, thanks for doing this. I'm a new investor and really excited about the direction of the company. Eric, as you touched on obviously the point of this Twitter Spaces, to get the individual investors excited. And one of the things for me, a little disconcerting, is such low trading volume. And just one small thing that came to mind, is there any way without kind of crossing boundaries to get club goers potentially interested in becoming investors in some sort of I don't know maybe, like a loyalty program or something like that? Any, thoughts?

A – Eric Langan

Well we're doing NFT, which is a our benefits program. But we also had a program back in the early '90s, called Own a Piece of the Action and we advertised that we are NASDAQ-traded company in all the clubs. And we've been talking recently about bringing that promotion back as well and putting that back out into the clubs, since so many individual investors are also customers and our guests of our locations. So that's one of the things we do. And remind all of our employees. I mean, I think the majority of our employees know, that we're a publicly traded company. We pushed that pretty heavily, especially at management meetings and staffing and whatnot. But certainly, it can't hurt to bring back that part of the outreach as well to the retail investor.

I think that's what we have to do. As you can see, I mean we -- like I said, we've done the same things over and over again on the institutional side of things and we keep getting the same valuations and the same cycles and trends over and over again. We get up to a fair value, then we come back now and then we're buying back our stock. And it's just I think, that -- I think we just want to reach a much broader audience. I think, we want to reach an audience that has a long time frame to give us that three to five years, that we need to really grow this company the way we want to grow it, over the next three to five years.

Unidentified Analyst

Do you see, any sort of risk that you'd be taking on as far as accepting crypto as payment?

A – Eric Langan

Well, like I said earlier, we don't -- we accept it as payment just like Visa and Mastercard. The beauty of crypto there's no chargebacks. And second, we don't have any market risk on the crypto because we never actually invest or own the crypto. The crypto is just a form of payment. We immediately sell the crypto, at the point of transaction for US dollars at the then price of the crypto at the time, we accept it. So we're paid exactly in US dollars, what that transaction would be worth, if they paid with Visa Mastercard or cash. It makes no difference to us.

Unidentified Analyst

Awesome perfect. Thank you very much.

Mark Moran

Great. Thanks so much Josh. For our next question we're going to bring up UBQ branding_Q2. You're up. Please remember to just unmute before you start talking. UBQ how you are doing? Okay. I do not think that's working. So next up we're going to bring Midwestern. Someone who is now no longer asking questions. So Bullish Studio you're up again with another question. Bullish?

Unidentified Analyst

Hi, I wanted to ask a follow-up question to the chargebacks. How bad of a problem, is credit card chargebacks for the business? People calling up the next day, saying like it wasn't me that trend the bill. Is that a material threat to the business, or how do you guys approach that?

A – Eric Langan

Actually it's a very small now, with EMV chip reader cards. Before the chip reader cards, as they were in the transition it was becoming pretty bad. I think we got up to about $0.25 million in chargebacks in a year. Now I think, we're -- I don't even know, if we're in five figures. It's very, very small now.

The nice thing is, on large transactions we have some unbelievable protocols, very similar to casinos, including fingerprint all high transactions are signed under a camera. So the transaction is recorded by video.

So it's eliminated the majority of those. There's been time in the past, different cycles of credit cards where there's been issues. But today it's not really an issue at all. But zero is a whole lot better than even $1 as far as I'm concerned, that's why I like crypto.

Mark Moran

Next we have JP who is connecting and the handle is freeshkrelisix [ph] as in Martin Shkreli. So JP please have at it.

Unidentified Analyst

Hey. Thanks for taking my question. I have a question. So as kind of Adam said, Eric you've taken this company from 1 million to up to about 100 million. You've been through the ups and downs. Does this create some kind of key man risks where, is there someone else within the company that could step in tomorrow and to fulfill your responsibilities or are you the single guy that could? Thank you.

Eric Langan

No, there's many people in our company. We have 2,900 employees now. Our corporate staff in our corporate office is over 60-some people. We have an Executive Vice President who's been with me since 1992.

Our Director of Operations has been with us since 2003. His Vice President has been with us for only a few years, maybe 10 years or eight years now I think he's been with us, but he's been in the industry for a long, long time.

I always say, I work myself out of a job. So I used to do everything. We have a whole legal department. I used to be the legal department. I have a CFO and a full accounting staff. I used to be the CFO with one Secretary back in the early days when we're doing $5 million $6 million in revenue.

My goal every day is to work myself out of a job, create people that can do everything that I do. And while there's no one person, there's enough people combined and I'm not one person. Everybody thinks I'm the one person that does everything, but I'm the face, but the reality of it is, there's many, many people behind me.

And as I say in every call, I want to thank all the staff, I want to thank all of the different people, the restaurant division, it’s completely separate from the club division. So there's a whole another group of people on that side. So I'm not worried at all if something was to happen to me.

I mean, you got to remember about probably 90% 95% of my wealth is in the stock of this company. I have six children. I have to make sure that they're very well taken care of, if anything did happen to me.

And I trust the staff that it’s -- allow me with that, I haven't done anything to sell stock, leverage stock and leave investment in this company in any form at this point. And I don't see myself doing that in the near future now. Obviously, if we have an AMC run, that might be a different story. But I think as long as we're staying in fair valuations, I'm here for the long haul.

Is there a risk? I guess, there's always some risk anytime a key man of the company goes away there. You have a little bit of risk. But with Ed Anakar as Director of Operations and Travis Reese onboard, I am not worried about it at all. And Bradley here now, Bradley has been with us for, going on, I think eight years now, or six years.

My son has now been working in our corporate office for some time. So he's a -- he thinks like me a lot. He's still young, but he's come a long way. And I think the team would figure it out very quickly. So I'm not overly worried about that.

Everything I do, somebody else has been involved many, many times in the process at every process, whether it's legal process, whether its acquisition process, accounting, reviewing financials, there's just a full team behind us now. We're a very large company behind the scenes, versus the public side of the company.

Mark Moran

Fantastic. And now, for our next participant, we're going to have Dimes Square Holdings LP, rvc330 is the handle, you're up.

Unidentified Analyst

Hey can you guys hear me?

Mark Moran

We can. Go for it.

Unidentified Analyst

Hi. Thanks for having me, Mark. Big fan. So, I guess, my question is, if you are trying to appeal to retail investors and was not like AMC and other companies are, why would you not want to hold on to the Bitcoin that customers are paying for stuff then? So like that would -- if you're doing the whole -- you had other crypto things, why not do that?

Eric Langan

I can answer that in three letters. SEC. Right now the SEC has a very strict deal. It's not very clear. The guidance on it is not very good. And at this point we just feel that the least amount of crypto that we have, the better off we will be in that regard. Give them the time to catch up. We need the laws and all the regulations and all the accounting guidance to catch up with the technology. That's the biggest reason.

It's not really the spear of the market. We could play the market and would play the markets at that like we've done in the past with others. With other things real estate investments other investments we've made in the past. It's just to us it's really not -- it's just really not worth the outside risk of the SEC at this point for our company.

Unidentified Analyst

Cool. Thank you.

Mark Moran

Great. Thanks very much, Dine Square. Next we're going to bring up Value Hunter [ph]. Value Hunter 7 you're now up. Value Hunter is still connecting. In the meantime, I'm going to bring up Quantitative Tightening with the handle @waygkg. So Quantitative Tightening please step up and then Value Hunter, we will call on you afterwards. Quantitative, you're going to have to unmute.

Unidentified Analyst

Hey. Sorry about that. Real quick within your clubs have you ever considered digital art QR codes, OnlyFans stuff like that?

Eric Langan

We use QR codes for many things, especially, our menus even our bottle service menus at our clubs are now all QR codes. We love the QR codes. As far as digital art, I mean, we have plenty of things that we broadcast across our TVs most of it's marketing in all of our locations. We're doing our NFT. That's going to be our first real stab at the digital art. And the real appeal for me was to create -- I'm sorry, the real thing for me was to create a utility for the NFT, but in keeping with the nature of NFT somewhere I was in the -- in the communities and switched to communities it's all about the artists.

The artists really started the NFT demand in corporate world I think is going to move into Web 3, but I think we have to recognize that the artist created this Web 3 and created the trading of NFT. And so we hired some artists and we're bringing artists in and really trying to have a unique art part of our project as well. So I mean it's kind of all just plays together right?

Unidentified Analyst

Yes, I like it. Anyways thanks for answering my question. Furthermore, I've seen performers and people of that nature actually using their streams and taking payments with NFTs and such. Didn't know if that could be put physically into clubs. But that's all I got. Thank you.

Mark Moran

Thanks so much. Now for our next individual do we have the Quantitative person there anymore now. Okay. So let's move on to what's EBITDA. And so this is incoming IB analyst. Given our history on the Internet be very careful about the line you're about to walk because I'll mute you real quick you're up let's go. And while you are coming up I just want to encourage everyone to re-tweet this and put the dollar sign RICK out there so more people can see it. We will be going as long as we can with questions on this. So feel free to add in and do not be shy.

Incoming are you going to speaking with us. There you go Incoming. I'll give it a few more seconds. If this is going to work? If not we're going to be moving on to Value Hunter again. Okay. So those two are still connecting. I'm adding Bullish back into this if you connect first then you can ask the question.

Unidentified Analyst

Hi. Can you hear me?

Mark Moran

Yes. We can hear you.

Unidentified Analyst

So in New York there's a lot of conversations about cannabis coming towards the end of the year early next. And I know obviously on New York there's going to be a consumption license opportunity. Obviously, you guys have the liquor license there's going to be some challenges there. Is cannabis something that is exciting to you? Either that or with sports betting becoming legalized. Is that another opportunity with either of those two categories as they grow and become more legalized and how does the industry shakeout?

Eric Langan

I mean definitely I think we have a club in Colorado that has an on-premise cannabis consumption permit in Denver, Colorado that we purchased with the last acquisition. I don't until federal law legalizes cannabis everywhere, I don't see the company looking or doing anything in that part basically. But as far as sports betting, if sports betting becomes legal, yes, we would move into sports betting very rapidly especially with our Bombshells sports bars. We could have kiosk sports betting in those locations with a revenue share with major casino operator, yes, we would jump on that very quickly.

So, we're definitely not against the gaming. We have gaming in Louisiana -- at our club in Louisiana just some video poker machines. We're in the process of adding machines were approved. We're waiting for the license to actually be issued for our gaming at five of our locations is in the State of Illinois. So, we will -- we should start seeing more gaming revenue at some of our locations as time progresses.

Mark Moran

Thanks for the question [indiscernible]. Next we have incoming IB analyst what EBITDA is the handle up here, so feel free to unmute.

Unidentified Analyst

Yes. Great quarter guys. And again Eric thank you for being so proactive within the community. I really appreciate it. As the younger guy experienced in these type of clubs, I wonder if the team has looked into acquiring talent through venues like Twitch and YouTube, I'm not sure if you've heard the names of upcoming companies like Adin Ross and iShowSpeed, but any detail on that to kind of get the best talent through the door?

Eric Langan

Well, we use features at some of our major clubs most of them have very large followings because they travel around the country and get build up their presence. We have looked at some influencers. We've been talking about that. I think that's one of the things the big annual party with the NFTs will be about. I think we will be reaching out to influencers obviously and trying to get some of the bigger names and some of the celebrities at the party for our users. It's going to be a lot of fun.

I've been talking with a couple of our big DJs and they're all very excited about the potential featured entertainers potential foreign [ph] stars, potential influencers that could be the possible host or co-host of the actual party and as far as the putting on the entertainment for the party as well including some music groups and some other stuff that are very excited about being part of our parties.

So, it's going to be interesting. I say we're kind of stepping our toes in right now. I don't -- I'm not good at putting my toes into the pool. I'd like to jump right into the deep end. So, we're going to go all out with it pretty quickly. We just -- like I said we've got to get these launch done here. The artworks in the process of being done. We're promoting the NFT now. We'll see how the mint goes at the end of June. We're going to be at VCON. We're going to be at NYC New York. I think we might be adding in a convention in Austin, Texas first week of June for the team to go out and promote there as well. So, we're built.

Unidentified Analyst

Well, it's crazy. Thanks for the response. And just one more question. You seem like BNPL really take off. Some for me personally, I'm not getting that investment banking money now, but in a few months, I will. Is there any way we could integrate or is the team looking to integrate BNPL into any of your services? Like could I get advance in installments? Like what's the deal with that?

Mark Moran

Hey no one knows what the BNPL is so we're just going to move on past here. But your first question was great and it's been a pleasure to watch your maturity grow on the timeline. So thank you so much for joining us. Next we're going to have Brandon Blakeman. So, Brandon you're up incoming going to remove you. Thank you.

Unidentified Analyst

Hi there. Very thankful for being able to talk to you guys. I guess my only question there being a Canadian investor here not being able to experience any of these clubs. Is there any plans and not just within kind of the next 12 months there, but forward-looking to expand internationally and kind of more specifically into Canada where the laws for clubs may be closer in line with those of Canada. Thank you.

Eric Langan

Yes, we've looked at clubs in Vancouver in the past, a couple of clubs in Toronto. So, we're definitely not adverse to moving into the -- into Canada and the Canadian markets. There are some decent clubs there, definitely interesting. Obviously, a little different than US operations, but nothing that we can't figure out. It's just really going to depend on the availability of clubs to purchase.

Unidentified Analyst

Awesome. Thank you and great quarter.

Eric Langan

Thank you.

Mark Moran

Thanks a lot. Now, we're going to try bringing up Value Hunter seven for the third time. So, let's see if this one works while you connect. We are almost approaching on two hours, which is fantastic. So, Value Hunter you're connected, and go for unmute.

Unidentified Analyst

Yes, I’m connected. Thank you very much guys. I'm sorry for the technical issue before. My question is regarding the partnership that you guys have on the AdmireMe platform with this other operator, I'm not -- you said 30 clubs. So has there ever been a conversation about potentially acquiring a partner? And if not, any reason why we tend to go for even bigger acquisition?

Eric Langan

Yeah, a lot of his clubs are in smaller markets and not really our cup of tea. However, we have been talking with him about certain markets. He's not ready to sell yet. He's still -- and he's relatively young in his 50s. But it is something that I think at some point in the future we will be sitting down have a serious talks about as we continue to move forward and he warms up to the idea and understands the multiple that we can pay is higher than he's going to get any place else. Everybody has times in this industry where you love the industry and everybody has time of the hate industry. We just got to be patient and wait for these guys to go, oh, I don't want to be here anymore. And then we will pick them up. So...

Unidentified Analyst

If I could have a second question very quickly, which markets that you're not present in you would be interesting. You don't need to be specific about the city but maybe the state. That would be interesting to know. Thank you.

Eric Langan

Yes. Sure East Coast. We love East Coast much more than the West Coast. We've stayed out of California. We love some additional expansion in Arizona. Colorado Texas, of course, where we're already at. But anywhere in the Midwest, we bought five clubs in Illinois. We just got a recent club in Indiana Kentucky. So those markets would be good if we can find locations. Wisconsin, Michigan, Minneapolis or Minnesota, we're always looking in those markets as well.

But really anywhere we like stuff that's close or in our current markets, because it's obviously easy to manage. We already have regional management team set up. We don't like anything too far away. But as we did with Denver, we buy enough clubs in a market. It's fantastic for us, because then we can set up a regional manager for that area and then expand out outside of that area, from that area into the smaller markets that surround that area. And so, we're looking at some stuff in Colorado right now. They have to expand our presence in that state. And like I said, in Phoenix, we have a single club in Phoenix but with the club in Colorado now we've got a bigger base in that area. So we're able to really look around more in those markets.

Unidentified Analyst

Thank you very much, and continue the great work.

Eric Langan

Thank you.

Mark Moran

Is there much Value Hunter, now with our next question we're going to have [indiscernible]. So you are able to unmute yourself and please ask a question.

Unidentified Analyst

So I guess just my only question is how do you think about the cyclicality of this business as we enter a downturn is the gentleman's club industry as cyclical as other hospitality and leisure businesses? And then, I guess my follow-up to that would be, how many of the marginal dollars that are spent at these clubs are coming out of these bubble categories, like crypto or NFTs? Thank you.

Eric Langan

I think the NFT market, crypto market is kind of in a bear market, bigger than the regular market, so I don't know that the money is coming from there. But what I'm saying is slowdown the slowdown we're not in. I can tell you that right now. We have seen no slowdown anywhere at this point. I'm not saying we won't. But I mean if you look at April numbers, every category was up. So it doesn't matter if it's retail. It doesn't matter if it was cards. It doesn't matter if it's -- every category was up. So I think that we're seeing -- I think people are trying to predict a recession and in fact trying to cause recession by predicting a recession, right? We're going to be ready. I mean we're watching our numbers. We have -- the beauty of our new ERP system is we get data in real time. We report our clubs. We follow our trends.

Unidentified Analyst

Thank you.

Eric Langan

Yeah. If we see something trending down, we will immediately switch to our -- basically what I call, our recessionary mode where we -- instead of shooting for high quality of customer, we start shooting for higher quantities of customers. We'll take our slower nights. We'll do more specials. We'll be -- maybe we do bottle service to fill VIP rooms if the VIP rooms aren't full. But like the other night I had a customer come over and complain to me, because we were setting it basically Booth 1, which is right in front of the VIP room deal. And he come over and said, man, they're telling me 45 minutes to get a VIP room tonight. Yes, we're a little bit busy tonight. So when everything of VIP room is full, we don't have to worry about that right now.

But, like I said, if we start seeing those rooms not filling up or not that can always discount. We can -- there's a lot of things that we can do that keep our numbers running, keep our -- our margins might freeze a little bit but we'll keep our revenues high. So -- and keep our people work and keep our people making money and then it will -- they basically get cycle typically about a six-month cycle for us. I look in the past, you can look back in the '90s, you can look at 2009 and 2010, you'll see that we have like two quarters where revenue -- where earnings declined, revenue stayed pretty strong, earnings declined for about two quarters and then boom bounced back up.

So I don't worry too much about it. The difference now is back then we didn't have the technology that we have today to see those trends early enough. So basically back then you have to have it happen at say we had 30 clubs. Well, we didn't notice till it was hitting about 20 of them. Now we can do each club individually and we see in real-time trends over a four to six-week period of each individual location. And we can say why is this location down? What percentage is it down? Okay. Is it management? Is it -- what's causing it? And we can basically evaluate and then immediately respond so that we're turning those trends around on an individual club basis within weeks of any type of downturn and getting them back on course whether it's through discounting, whether it's through changing management or whatever outside sources are causing the issue at that club we're adjusting to it. So it's much quicker.

Unidentified Analyst

Got you. Thank you so much. I mean, I’ll switch to listening now.

Mark Moran

Great. Thanks for the question. Now for our next question, we're going to bring Pixie [ph] up, and I think this is going to be an interesting one, because I'm reading your bio and it says from stripper poll to podcaster. So I believe it's our first female speaker and question asker, and given that Twitter bio, let's have you up and feel free to unmute whenever you want and ask a question.

Unidentified Analyst

Well, thank you for reading my Twitter bio. I am a retired adult entertainer from Denver, Colorado. So I am familiar with the brand of La Boheme, PT’s Gold and a lot of those things. So it has always been a brand standard. I did work at a couple of different clubs. I am a preferred of smaller club. As you guys are ramping out and buying other clubs in different locations, how are you going to mark up the revenue, the excitement for new dancers to come in and understand possibly the market that you've already built say in Denver in a different location? Are you reaching out to past entertainers maybe? Are you -- I only just jumped into the room because of my friend, but I want to know more about the one to one ratio with the adult entertainers that you're bringing on to the company in these new districts in these new states? Thank you.

Eric Langan

Sure. Well, we use social media. Obviously our brand is very well-known around the country. Our company is very well-known as we're very big in the industry. And as we make announcement that we bought clubs, some of our girls that already work for us will be like, oh, I used to live in Denver. I want to go back or my parents live in Denver, I'm going to move back there now that you guys have a club there. So that helps.

And like I said social media has been fantastic for us. We're hoping that -- hope to get AdmireMe. We also use a third-party app called Pole Position and our clubs are all listed on Pole Position. So a lot of new entertainers, they do a lot of marketing for new entertainers. They have some classes and schools and pole dancing and advice columns and tax columns and stuff that they offer to new entertainers and help with the industry.

So we use that so that the -- any entertainer that's using that app can also find our clubs on that app. So we're very excited about that for future entertainer growth. But luckily we've been very fortunate, like I said our brand has a very good reputation and a lot of girls find us. We don't have to really go out too much and seek new entertainers, they tend to come straight to our clubs, so.

Unidentified Analyst

Thank you for your answer.

Eric Langan

Yeah, thank you. I’m glad you got on the call. Thank you.

Mark Moran

Thanks for that question. Pixie, we appreciate it. Now for our next question, we're going to have AndyP [ph], coming up with the handle Andy3P [ph]. So please step on up and unmute when you're ready.

Unidentified Analyst

Hello. Can you guys hear me?

Mark Moran

We can hear you.

Unidentified Analyst

All right. Phenomenal. Thanks so much for doing this and thanks for bringing me up here. Just thinking about your balance sheet here, seeing about $17 million of cash and about $200 million of debt. How do you foresee the debt payoff? Is this a heavy debt load because you guys own some of the real estate that you operate out of? And do you own some real estate, or is this on leases? Because if you do then the debt is understandable, but if you -- and you can unlock value?

Eric Langan

Yeah, you must be looking at an old one. Our current Q, we just filed today we have $38 million plus in cash. So, we have about $180 million of debt. The majority of our debt is real estate backed debt. It's all long-term loans, 20-year amortizations about 5% to 5.5% interest rates on that. Most of those loans were done in the last year. So we still have at least four years plus on the two major loans, real estate loans and we probably own 85-plus percent of our real estate around the country right now. So hope that helps you a little bit, but our real estate cost us about the equity side of is about $7 million a year in debt reduction that we pay right now on those loans.

Unidentified Analyst

That's fantastic. Do you know if there are air rights in some of the properties that you own? Because I know that you obviously can't place a strip club near a school. So you got to be in one of those zoning areas where there's air rights or you could potentially build industrial. And I know industrial has heavy demand, so can unlock value there by selling off some real estate.

Eric Langan

Yes, a lot of our real estate is freeway based real estate. We do have a few pieces here and there with air rights. Some air rights we have sold to local developers in the area for a very large sum of money, which we are happy to do and making our property best use for adult entertainment.

Right now I think the majority of our clubs are their best use is adult entertainment. If at any time in the future that changes and developing that into some other type of real estate use would exceed the free cash flow that we generate from the clubs or give us a large amount of cash that we could then allocate or capital allocation strategy to higher returns, we would explore and look at that.

We get offers a lot on a lot of our real estate, because we have some very, very good pieces of real estate especially like Tootsie's here in Miami right in the heart here of 441, 95 Florida Turnpike. Amazon has been trying to buy this property for some time. We had AutoZone wanted to put a distribution center here. This is the old BJ's Wholesale Southeast distribution center. There's 385,000 square feet under roof here of which the club uses about 47,000 square footprint with two stories, which we have about 70 -- with the new build I think we're over a little over 78,000 square feet. We have 83,000 square feet of indoor parking and the other 200,000 plus square feet is retail or warehouse space that's leased to third parties.

But even when they offer us $3 million, $4 million over in appraised value, they can't replace the $25 million that Tootsie's is going to make this year. So I keep telling them add another zero and we can talk and they tend to make them go away on this property, but we have lots of properties like that. We're -- there's a lot of other uses. Our real estate value is solid -- big financing so.

Unidentified Analyst

Thank you for that. That's awesome color. What would you say the average LTV is on some of the real estate 50%?

Eric Langan

No. Our bank loans were recent. We do about 65% LTV I think, on when we did 72.3% LTV on a short period, but we paid additional principal for the first year to knock that back down to 65%. So I'd say right now the loans are fairly new. But I think we've got really bad appraisals on some of our stuff because we did the appraisals during the COVID shutdown, and so some of our appraisals came back very bad. So I'd say we're probably between 50% and 60% LTV if we were to do new appraisals today with everything with the economy of fully back opening.

So and then of course with inflation going on the real estate inflation going could get some higher appraisals. But we'll probably wait we probably won't look to refinance those loans for at least three to four years we build up enough equity to make it worthwhile. And then it just depends on if we have an acquisition that we need to pull capital out for potentially when we'll refinance our real estate pull out our equity to basically buy more real estate more and more EBITDA.

Unidentified Analyst

All right. That's awesome. Thank you so much.

Mark Moran

Wonderful. Thanks so much for the question Andy. It's funny. In one of the group chats I'm in right now my DMs Spooky John is saying, it's seriously impressive how well this guy knows the numbers of this business. I'm sitting next to Eric, who I'm looking at just drawing aimlessly on a piece of paper with nothing else in front of me. So it is very impressive.

And I think this phone call has been very unique, very insightful into this company and one that we're very fortunate for everyone who joined us who took the time to do that. I think one interesting data point for this is previously for RCI their highest attended call on the traditional method was around 178 people. So with this at one point I think we were hitting 600. So it's a very different method, very enjoyable to be dealing with everyone and something that was truly unique. So thank you Eric and Bradley and everyone else who asked a question.

For those of you who joined us late, you can meet management tonight at Tootsie's Cabaret in Miami, one of the top adult clubs in the country and RCI's top revenue-generating club. Tootsie's is located at 150 Northwest 183rd Street. And if you have an RSVP, ask for Eric or me at the door. And this is the Tootsie's that is mentioned in the Drake song’s Second floor at Tootsie's, getting shoulder rubs, and now that's in the transcript of this. So thank you everyone. On behalf of Eric, Bradley, the company and all our subsidiaries, thank you and have a good night. Stay safe, stay healthy. And as always, please visit one of our clubs or restaurants.


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