RCI Reports 1Q24 Results; X Spaces Call at 4:30 PM ET Today

HOUSTON, Feb. 8, 2024 /PRNewswire/ — RCI Hospitality Holdings, Inc. (Nasdaq: RICK) today reported results for the fiscal 2024 first quarter ended December 31, 2023. The company also filed its Form 10-Q today.

Summary Financials (in millions except EPS)

1Q24

1Q23

Total revenues

$73.9

$70.0

EPS

$0.77

$1.11

Non-GAAP EPS1

$0.87

$1.19

Net cash from operating activities

$13.6

$14.9

Free cash flow1

$12.7

$13.0

Net income attributable to RCIHH common stockholders

$7.2

$10.2

Adjusted EBITDA1

$17.5

$20.5

Weighted average shares used in computing EPS – basic and diluted

9.37

9.23

1 See “Non-GAAP Financial Measures” below

CEO Comment

Eric Langan, President and CEO, said: “Net cash from operating activities and free cash flow held up well, declining only 8% and 3%, respectively, despite previously reported macro uncertainty that negatively affected same-store sales.”

“Nightclubs performed generally in line with expectations. Bombshells did not perform as well. We are in the process of making major structural management changes to the Bombshells team and are considering any and all options to improve performance, including potentially seeking an operational partner or selling the business.”

“Separately, we continued to make progress with our growth plans based on opening new casinos, clubs and restaurants; acquiring more clubs; and buying back shares when appropriate. To add to our war chest, we are in the process of completing an approximately $20 million cash-out bank loan, using an estimated $30 million of unencumbered real estate.”

Conference Call at 4:30 PM ET Today

1Q24 Results (Comparisons are to the year-ago period unless indicated otherwise)

  • Nightclubs segment: Revenues were $61.0 million compared to $56.3 million. The $4.7 million increase primarily reflected the benefit of newly acquired and remodeled clubs, which more than offset the decline in same-store sales.2 By revenue type, alcoholic beverages increased 18.7% and food, merchandise and other increased 11.3%, while service declined 1.6%. The differing growth rates primarily reflected a higher alcohol and lower service sales mix from the newly acquired Baby Dolls-Chicas Locas clubs. Operating income was $20.4 million (33.4% of revenues) compared to $22.7 million (40.4% of revenues). On a Non-GAAP basis, operating income was $21.0 million (34.3% of revenues) compared to $22.8 million (40.4% of revenues). The margin decline primarily reflected lower service revenues, wage inflation, and an increase in the Texas patron tax to $10 from $5.
  • Bombshells segment: Revenues were $12.7 million compared to $13.4 million. The $700 thousand decline primarily reflected lower same-store sales, partially offset by increases from FY23 acquisitions not in same-store sales and the opening of a new location.2 Operating income was $86 thousand (0.7% of revenues) compared to $1.8 million (13.8% of revenues). On a Non-GAAP basis, operating income was $149 thousand (1.2% of revenues) compared to $1.8 million (13.8% of revenues). The decline in profitability primarily reflected lower same-store sales.
  • Corporate segment: Expenses totaled $7.1 million (9.6% of total revenues) compared to $7.5 million (10.7% of total revenues). On a non-GAAP basis, expenses totaled $6.6 million (9.0% of total revenues) compared to $6.6 million (9.4% of total revenues).
  • Interest expense was 5.7% of revenues compared to 5.3%. The increase reflected higher average debt mostly from seller-financed promissory notes related to FY23 acquisitions.
  • Effective tax rate was 19.9% and 22.8%. The rate is affected by state taxes, permanent differences, and tax credits, including the FICA tip credit.
  • Weighted average shares outstanding increased 1.5% year over year due to shares used in the 2Q23 Baby Dolls-Chicas Locas acquisition, partially offset by subsequent share buybacks.
  • Share repurchases totaled 37,954 common shares for $2.1 million or an average of $54.59 per share, with $14.6 million in remaining stock repurchase authorization at 12/31/23.
  • Debt was $234.1 million at 12/31/23 compared to $239.8 million at 9/30/23. The reduction reflected scheduled paydowns.

2 See our January 9, 2024 news release on 1Q24 sales for more details

Non-GAAP Financial Measures

In addition to our financial information presented in accordance with GAAP, management uses certain non-GAAP financial measures, within the meaning of the SEC Regulation G, to clarify and enhance understanding of past performance and prospects for the future. Generally, a non-GAAP financial measure is a numerical measure of a company’s operating performance, financial position or cash flows that excludes or includes amounts that are included in or excluded from the most directly comparable measure calculated and presented in accordance with GAAP. We monitor non-GAAP financial measures because it describes the operating performance of the Company and helps management and investors gauge our ability to generate cash flow, excluding (or including) some items that management believes are not representative of the ongoing business operations of the Company, but are included in (or excluded from) the most directly comparable measures calculated and presented in accordance with GAAP. Relative to each of the non-GAAP financial measures, we further set forth our rationale as follows:

  • Non-GAAP Operating Income and Non-GAAP Operating Margin. We calculate non-GAAP operating income and non-GAAP operating margin by excluding the following items from income from operations and operating margin: (a) amortization of intangibles, (b) gains or losses on sale of businesses and assets, (c) gains or losses on insurance, and (d) stock-based compensation. We believe that excluding these items assists investors in evaluating period-over-period changes in our operating income and operating margin without the impact of items that are not a result of our day-to-day business and operations.
  • Non-GAAP Net Income and Non-GAAP Net Income per Diluted Share. We calculate non-GAAP net income and non-GAAP net income per diluted share by excluding or including certain items to net income attributable to RCIHH common stockholders and diluted earnings per share. Adjustment items are: (a) amortization of intangibles, (b) gains or losses on sale of businesses and assets, (c) gains or losses on insurance, (d) stock-based compensation, and (e) the income tax effect of the above-described adjustments. Included in the income tax effect of the above adjustments is the net effect of the non-GAAP provision for income taxes, calculated at 19.9% and 22.7% effective tax rate of the pre-tax non-GAAP income before taxes for the three months ended December 31, 2023 and 2022, respectively, and the GAAP income tax expense (benefit). We believe that excluding and including such items help management and investors better understand our operating activities.
  • Adjusted EBITDA. We calculate adjusted EBITDA by excluding the following items from net income attributable to RCIHH common stockholders: (a) depreciation and amortization, (b) income tax expense (benefit), (c) net interest expense, (d) gains or losses on sale of businesses and assets, (e) gains or losses on insurance, and (f) stock-based compensation. We believe that adjusting for such items helps management and investors better understand our operating activities. Adjusted EBITDA provides a core operational performance measurement that compares results without the need to adjust for federal, state and local taxes which have considerable variation between domestic jurisdictions. The results are, therefore, without consideration of financing alternatives of capital employed. We use adjusted EBITDA as one guideline to assess our unleveraged performance return on our investments. Adjusted EBITDA is also the target benchmark for our acquisitions of nightclubs.
  • We also use certain non-GAAP cash flow measures such as free cash flow. Free cash flow is derived from net cash provided by operating activities less maintenance capital expenditures. We use free cash flow as the baseline for the implementation of our capital allocation strategy.

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

With more than 60 locations, RCI Hospitality Holdings, Inc., through its subsidiaries, is the country’s leading company in adult nightclubs and sports bars-restaurants. See all our brands at www.rcihospitality.com.

Forward-Looking Statements

This press release may contain forward-looking statements that involve a number of risks and uncertainties that could cause the company’s actual results to differ materially from those indicated, including, but not limited to, the risks and uncertainties associated with (i) operating and managing an adult entertainment or restaurant business, (ii) the business climates in cities where it operates, (iii) the success or lack thereof in launching and building the company’s businesses, (iv) cyber security, (v) conditions relevant to real estate transactions, (vi) the impact of the COVID-19 pandemic, and (vii) numerous other factors such as laws governing the operation of adult entertainment or restaurant businesses, competition and dependence on key personnel. For more detailed discussion of such factors and certain risks and uncertainties, see RCI’s annual report on Form 10-K for the year ended September 30, 2023, as well as its other filings with the U.S. Securities and Exchange Commission. The company has no obligation to update or revise the forward-looking statements to reflect the occurrence of future events or circumstances.

Media & Investor Contacts

Gary Fishman and Steven Anreder at 212-532-3232 or [email protected] and [email protected]

RCI HOSPITALITY HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF INCOME

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








For the Three Months Ended


December 31, 2023


December 31, 2022


Amount

% of Revenue


Amount

% of Revenue

Revenues






Sales of alcoholic beverages

$            33,316

45.1 %


$            29,650

42.4 %

Sales of food and merchandise

10,802

14.6 %


10,347

14.8 %

Service revenues

25,119

34.0 %


25,563

36.5 %

Other

4,670

6.3 %


4,408

6.3 %

Total revenues

73,907

100.0 %


69,968

100.0 %

Operating expenses






Cost of goods sold






Alcoholic beverages sold

6,281

18.9 %


5,374

18.1 %

Food and merchandise sold

4,038

37.4 %


3,586

34.7 %

Service and other

40

0.1 %


49

0.2 %

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

10,359

14.0 %


9,009

12.9 %

Salaries and wages

21,332

28.9 %


18,676

26.7 %

Selling, general and administrative

25,201

34.1 %


22,732

32.5 %

Depreciation and amortization

3,853

5.2 %


3,307

4.7 %

Other charges, net

(3)

(0.0) %


(654)

(0.9) %

Total operating expenses

60,742

82.2 %


53,070

75.8 %

Income from operations

13,165

17.8 %


16,898

24.2 %

Other income (expenses)






Interest expense

(4,216)

(5.7) %


(3,687)

(5.3) %

Interest income

94

0.1 %


91

0.1 %

Income before income taxes

9,043

12.2 %


13,302

19.0 %

Income tax expense

1,799

2.4 %


3,031

4.3 %

Net income

7,244

9.8 %


10,271

14.7 %

Net income attributable to noncontrolling interests

(18)

(0.0) %


(33)

(0.0) %

Net income attributable to RCIHH common shareholders

$              7,226

9.8 %


$            10,238

14.6 %







Earnings per share






Basic and diluted

$                 0.77



$                 1.11








Weighted average shares used in computing earnings per share






Basic and diluted

9,367,151



9,230,258


RCI HOSPITALITY HOLDINGS, INC.

NON-GAAP FINANCIAL MEASURES

(in thousands, except per share and percentage data)





For the Three Months Ended


December 31, 2023

December 31, 2022

Reconciliation of GAAP net income to Adjusted EBITDA



Net income attributable to RCIHH common stockholders

$                  7,226

$               10,238

Income tax expense

1,799

3,031

Interest expense, net

4,122

3,596

Gain on sale of businesses and assets

(3)

(590)

Depreciation and amortization

3,853

3,307

Gain on insurance

(64)

Stock-based compensation

470

941

Adjusted EBITDA

$               17,467

$               20,459




Reconciliation of GAAP net income to non-GAAP net income



Net income attributable to RCIHH common stockholders

$                  7,226

$               10,238

Amortization of intangibles

659

695

Gain on sale of businesses and assets

(3)

(590)

Gain on insurance

(64)

Stock-based compensation

470

941

Net income tax effect

(220)

(200)

Non-GAAP net income

$                  8,132

$               11,020




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



Diluted shares

9,367,151

9,230,258

GAAP diluted earnings per share

$                    0.77

$                    1.11

Amortization of intangibles

0.07

0.08

Gain on sale of businesses and assets

0.00

(0.06)

Gain on insurance

0.00

(0.01)

Stock-based compensation

0.05

0.10

Net income tax effect

(0.02)

(0.02)

Non-GAAP diluted earnings per share

$                    0.87

$                    1.19




Reconciliation of GAAP operating income to non-GAAP operating income



Income from operations

$               13,165

$               16,898

Amortization of intangibles

659

695

Gain on sale of businesses and assets

(3)

(590)

Gain on insurance

(64)

Stock-based compensation

470

941

Non-GAAP operating income

$               14,291

$               17,880




Reconciliation of GAAP operating margin to non-GAAP operating margin



Income from operations

17.8 %

24.2 %

Amortization of intangibles

0.9 %

1.0 %

Gain on sale of businesses and assets

(0.0) %

(0.8) %

Gain on insurance

0.0 %

(0.1) %

Stock-based compensation

0.6 %

1.3 %

Non-GAAP operating margin

19.3 %

25.6 %




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



Net cash provided by operating activities

$               13,633

$               14,895

Less: Maintenance capital expenditures

983

1,864

Free cash flow

$               12,650

$               13,031

RCI HOSPITALITY HOLDINGS, INC.

SEGMENT INFORMATION

(in thousands)





For the Three Months Ended


December 31, 2023

December 31, 2022

Revenues



Nightclubs

$               61,033

$               56,325

Bombshells

12,731

13,431

Other

143

212


$               73,907

$               69,968




Income (loss) from operations



Nightclubs

$               20,369

$               22,740

Bombshells

86

1,847

Other

(196)

(185)

Corporate

(7,094)

(7,504)


$               13,165

$               16,898




RCI HOSPITALITY HOLDINGS, INC.

NON-GAAP SEGMENT INFORMATION

($ in thousands)








For the Three Months Ended December 31, 2023


Nightclubs

Bombshells

Other

Corporate

Total

Income (loss) from operations

$       20,369

$               86

$           (196)

$        (7,094)

$       13,165

Amortization of intangibles

591

63

5

659

Gain on sale of businesses and assets

(1)

(2)

(3)

Stock-based compensation

470

470

Non-GAAP operating income (loss)

$       20,959

$             149

$           (196)

$        (6,621)

$       14,291







GAAP operating margin

33.4 %

0.7 %

(137.1) %

(9.6) %

17.8 %

Non-GAAP operating margin

34.3 %

1.2 %

(137.1) %

(9.0) %

19.3 %








For the Three Months Ended December 31, 2022


Nightclubs

Bombshells

Other

Corporate

Total

Income (loss) from operations

$       22,740

$         1,847

$           (185)

$        (7,504)

$       16,898

Amortization of intangibles

628

2

61

4

695

Gain on sale of businesses and assets

(569)

(21)

(590)

Gain on insurance

(48)

(16)

(64)

Stock-based compensation

941

941

Non-GAAP operating income (loss)

$       22,751

$         1,849

$           (124)

$        (6,596)

$       17,880







GAAP operating margin

40.4 %

13.8 %

(87.3) %

(10.7) %

24.2 %

Non-GAAP operating margin

40.4 %

13.8 %

(58.5) %

(9.4) %

25.6 %

RCI HOSPITALITY HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)





For the Three Months Ended


December 31, 2023

December 31, 2022

CASH FLOWS FROM OPERATING ACTIVITIES



Net income

$                          7,244

$                        10,271

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



Depreciation and amortization

3,853

3,307

Gain on sale of businesses and assets

(3)

(686)

Amortization and writeoff of debt discount and issuance costs

163

144

Doubtful accounts expense on notes receivable

22

Gain on insurance

(64)

Noncash lease expense

762

719

Stock-based compensation expense

470

941

Changes in operating assets and liabilities, net of business acquisitions:



Accounts receivable

1,229

1,447

Inventories

(218)

(94)

Prepaid expenses, other current, and other assets

(9,029)

(7,208)

Accounts payable, accrued, and other liabilities

9,140

6,118

Net cash provided by operating activities

13,633

14,895

CASH FLOWS FROM INVESTING ACTIVITIES



Proceeds from sale of businesses and assets

2,784

Proceeds from insurance

64

Proceeds from notes receivable

55

55

Payments for property and equipment and intangible assets

(5,135)

(12,553)

Acquisition of businesses, net of cash acquired

(4,000)

Net cash used in investing activities

(5,080)

(13,650)

CASH FLOWS FROM FINANCING ACTIVITIES



Proceeds from debt obligations

701

1,500

Payments on debt obligations

(6,352)

(3,361)

Purchase of treasury stock

(2,072)

(98)

Payment of dividends

(562)

(462)

Payment of loan origination costs

(136)

(96)

Share in return of investment by noncontrolling partner

(600)

Net cash used in financing activities

(8,421)

(3,117)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

132

(1,872)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

21,023

35,980

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$                        21,155

$                        34,108




RCI HOSPITALITY HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)






December 31, 2023

September 30, 2023

December 31, 2022

ASSETS




Current assets




Cash and cash equivalents

$                 21,155

$                  21,023

$                 34,108

Accounts receivable, net

8,617

9,846

6,016

Current portion of notes receivable

253

249

235

Inventories

4,630

4,412

4,051

Prepaid expenses and other current assets

10,985

1,943

8,611

Total current assets

45,640

37,473

53,021

Property and equipment, net

284,398

282,705

246,536

Operating lease right-of-use assets, net

34,169

34,931

36,329

Notes receivable, net of current portion

4,362

4,443

4,631

Goodwill

70,772

70,772

70,189

Intangibles, net

178,486

179,145

143,949

Other assets

1,388

1,415

1,503

Total assets

$               619,215

$                610,884

$               556,158





LIABILITIES AND EQUITY




Current liabilities




Accounts payable

$                   5,254

$                    6,111

$                   5,182

Accrued liabilities

26,564

16,051

18,864

Current portion of debt obligations, net

19,789

22,843

13,291

Current portion of operating lease liabilities

3,037

2,977

2,850

Total current liabilities

54,644

47,982

40,187

Deferred tax liability, net

29,143

29,143

30,562

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

214,324

216,908

197,943

Operating lease liabilities, net of current portion

34,392

35,175

35,270

Other long-term liabilities

328

352

386

Total liabilities

332,831

329,560

304,348





Commitments and contingencies








Equity




Preferred stock

Common stock

94

94

92

Additional paid-in capital

78,815

80,437

68,070

Retained earnings

207,714

201,050

183,726

Total RCIHH stockholders’ equity

286,623

281,581

251,888

Noncontrolling interests

(239)

(257)

(78)

Total equity

286,384

281,324

251,810

Total liabilities and equity

$               619,215

$                610,884

$               556,158





SOURCE RCI Hospitality Holdings, Inc.

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