Q1 2024 RCI Hospitality Holdings Inc Earnings Call
Participants
Mark Moran; CEO; Equity Animal
Eric Langan; Chairman, President & CEO; RCI Hospitality Holdings, Inc.
Bradley Chhay; CFO; RCI Hospitality Holdings, Inc.
Presentation
Mark Moran
Good afternoon to everyone out there. We are going to be starting this call off in a short a minute or so as we wait for a few more people to join.
Greetings and welcome to RCI Hospitality Holdings' first-quarter 2024 earnings conference call. You can find the company's presentation on the RCI website. Go to the Investor Relations section, and you'll find all the necessary links at the top of the page.
Please turn with me to slide 2 of our presentation. I'm Mark Moran, CEO of Equity Animal. I'll be the host of our call today. I'm coming to you from New York. Eric Langan, President and CEO of RCI Hospitality; and CFO, Bradley Chhay, are in Houston.
Please turn with me to slide 3. If you aren't already doing so, it is easy to participate in the call on X space. Login to X, formerly known as Twitter, go to @RicksCEO and select the space titled $RICK, RCI Hospitality Holdings in 1Q '24 earnings call. To ask a question, you will need to join the X space with a mobile device. To listen only, you can join the space on a personal computer. RCI is also making this call available for a listen-only through a traditional landline and webcast.
This conference call is being recorded.
Please turn with me to slide 4. I want to remind everyone of our Safe Harbor statement. You may hear or see forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those currently anticipated. We disclaim any obligation to update information disclosed in this call as a result of developments that occur afterwards.
Please turn with me to slide 5. I also direct you to the explanation of RICK's non-GAAP financial measures. Now I am pleased to introduce Eric Langan, President and CEO of RCI Hospitality. Eric, take it away.
Eric Langan
Thank you, Mark, and thanks, everyone, for joining us today.
If you'll please turn to slide 6. Our first-quarter revenues were in line with what most people were expecting. They totaled $73.9 million, up 5.6% compared to last year. This was primarily due to club acquisitions, which more than offset a consolidated same-store sales decline of 9.8%.
The fundamental nightclub business remained solid. We believe nightclub same-store sales reflect the macroeconomic uncertainty everybody is talking about. Margins were lower than what we had been expecting, mainly on Bombshells side of the business. Brad will go into that in more detail later.
EPS was $0.77 per share, with non-GAAP at $0.87. Net cash from operating activities and free cash flow held up very well. They declined only 8% and 3%, respectively.
Please turn to slide 7 for other key takeaways. We are pleased to report that during the quarter and after the quarter, we continued to make progress toward our key initiatives. We have a solid plan to lower costs, increase revenue, and return our margins to their target goals. Our newest development is an agreement to relaunch AdmireMe with a strategic partner already in the online and mobile adult entertainment business. During the first quarter, we also continued to buy back shares and we remain confident we have access sufficient cash resources to implement our plans.
Please turn to slide 8 for a review of nightclubs development plans. We continue to add value to our Baby Dolls Chicas acquisition. Sales in the first quarter were up 10% from the fourth quarter and have improved every quarter since we've owned them. In addition, our margin improvement program resulted in 130-basis-point improvement on a sequential quarter basis and 260%-basis-point improvement versus the acquisition performance in fiscal '23.
Looking at new clubs, the replacement location in Lubbock, Texas is nearing completion due to the success of the baby dolls brand. We are converting to an athlete location to that format, which is awaiting installation of its audio and video systems and furniture delivery plan, Davidoff and West Fort Worth is simply awaiting a building permit to begin construction. She has loved this brand has also been successful for us. And as a result, we have decided to remodel and convert a BYOB. locations in Harlingen, Texas into a cheaper location. And we are currently awaiting the issuance of the liquor license.
Regarding acquisitions, we are evaluating a sizable number of targets. The hardest part we face is coming up with fair value because owners want to be rewarded for post-COVID highs during 2021 and 2022, we are typically by on a two year historical performance.
Please turn to Slide 9. We continue to be excited about our Central City, Colorado casinos, Rick's Cabaret steakhouse casino and our Bombshells sports casino in the few weeks since Christmas and New Years, there have been no new developments with our gaming license. Meanwhile, interior construction on the River Casino has been progressing on schedule, and we anticipate completion in June of 2024. We will then await issuance of our gaming license so that we can install test and configure the devices and systems in order to open the casino for the Bombshells casino, we are waiting for building permits. We continue to anticipate both casinos to open in fiscal 2024 and that they represent and they will represent a significant free cash flow opportunity.
In Colorado's most recent fiscal year, central 35 averaged 131 adjusted gross proceeds per day and nearby Blackhawk does 307 mainly because they run 24 seven as we plan to do.
Please turn to Slide 10. I admire me as a service we've been developing to help club entertainers, monetize their content and develop stronger relationships with their customers. Based on the agreement that we've recently signed, we worked out we will retain 75% ownership. Our new partner will own 25% and the service will be relaunched later in the June quarter under a new name. This partner has an existing Internet platform with domestic and international traffic, safety controls, credit card processing all necessary technology. We need at a far less cost than if we did it alone. This includes highly valued live video streaming. The result is that overnight, we obtain access to a strong technology infrastructure with significant distribution, improving revenue collection and distribute and disbursement capabilities. This will provide club entertainers with even greater potential to make money. And RCI will become the largest publicly-traded entity owning a worldwide interactive social media data platform with streaming video, both live and prerecorded Our vision is to create a digital expansion of our physical brands, connecting tens of thousands of contractors and workers on the frontlines, the entertainers and waiters, et cetera. And the customer who come through our door so they can continue to interact or receive content. We wanted to be an easy and seamless way for entertainers and waitresses to monetize their relationships 24, 24 hours a day, seven days a week, 300, 65 days a year. You walk into the club, the entertainers around the platform, promoting themselves, getting customers sign up and subscribe to them and then come back and visit them in the club.
Please turn to Slide 11 to review our Bombshells development program, our newest location, Stafford, a suburb of Houston opened in mid November. Construction is continuing our rollout location, which we plan to open in late June or July of this year, and 11 location construction is well underway. And we plan to open that in the fourth quarter of 24 as well. We are getting ready to begin the remodeling of downtown Denver location as soon as we receive our building permits. Since this simple remodel of an existing restaurant location, it should be a quick turnaround to get this site open and for future developments, we have decided to list our Aurora, Colorado site for sale or lease, and to put our second Austin location on hold. Both moves are intended to help us better focus on other opportunities. The Huntsville franchisee is still awaiting his building permits. The bigger issue is Bombshells performance. After we've seen the results from the quarter, we have made a major structural management changes in Bombshells team and we are also considering any and all options to improve performance that potentially includes seeking an operational partner or selling the business.
Now here's Bradley to go into more details on our results.
Bradley Chhay
Thanks, Eric. And please turn to Slide 12 to review our nightclubs segment fourth quarter revenues, assuming physical.
Okay.
Please turn to Slide 12 to review our nightclubs segment fourth quarter revenues increased $4.7 million year over year. This was primarily due to a $8.9 million increase from acquisitions and a 4 million decline in same-store sales by revenue type. Alcoholic beverages increased 18.7%, food 40.1% and other by 8.2%. Meanwhile, service declined 1.6%. The different growth rates reflect the higher alcohol and food in the sales mix from the newly acquired heart breakers.
David, at Chico's focus club GAAP operating income was $20.4 million or 33.4% of revenues. Non-gaap operating income was 21 million or 34.3% of revenues. Margins were affected by different sales mix from the newly acquired clubs, lower service revenues and wage inflation.
Please turn to slide 13 to review our Bombshells segment. Fourth quarter revenues declined $700,000 year over year. This primarily reflected a 2.7 million decline in same-store sales and a $2.1 million increase from the newly acquired and new locations, the acquired locations, our Bombshells, San Antonio and Cherry Creek food hall with its Bombshells kitchen. The new location is Bombshells Stafford, which opened in mid November. Gaap operating income was a profit of $86,000, 4.7% of revenues and non-GAAP was a profit of $149,000, 1.2%.
Please turn to Slide 14. The combined operating loss from our other and corporate segments was $400,000 less than that of last year. On a non-GAAP basis, there were about $100,000 less.
I also wanted to note the effective tax rate for the year was 19.9% compared to 22.8%. The rate is affected by state taxes, permanent differences, tax credits, including the fiber tip credits.
Now please turn to Slide 15. We have a couple of slides coming up that we'll discuss free cash flow and adjusted EBITDA, which are non-GAAP in advance of that we wanted to present you with the closest GAAP equivalents on this slide, which are operating and net income.
Now please turn to Slide 16 to look at some of our other key metrics. We ended the quarter with cash and cash equivalents of 21.2 million. During the first quarter, we used $2.1 million to buy back shares. First quarter free cash flow was $12.7 million or 70% of revenues. Adjusted EBITDA was $70.5 million or 24% of revenues. Our more recent free cash flow and adjusted EBITDA conversion rates reflect a lower percent service revenues in our nightclubs.
Now please turn to Slide 17 to review our debt metrics, debt as of December 31st declined $5.8 million from September 30th due to scheduled paydowns. Weighted average interest rate was 6.61%, in line with what we have been paying. Total occupancy cost was at 8.2%, inched up a little bit from a sequential quarter on a sequential quarter basis. But we are still in our comfort range of 6% to 9% at 2.9 times debt to trailing 12-month adjusted EBITDA also inched up just a little bit, but continues to be in our comfort zone of less than three. Please note that both occupancy costs and debt to adjusted EBITDA reflect the fact that we are developing a number of projects as they opened. We began and we began generating revenues and EBITDA occupancy costs and getting adjusted EBITDA should decline. Debt maturities continue to remain reasonable and manageable. We are also in the process of completing a $20 million cash out bank loan using 30 million of our unencumbered real estate.
Please turn to Slide 18 for that pie chart. We continue to pay down all of our slices of our debt. The percentage share of our different pieces of debt remained largely the same as before QUARTER.
No, let me turn the presentation back to Eric.
Eric Langan
Yes, incredible.
Thanks, for having.
Thanks, Bradley.
And please turn to Slide 19. Before we go into Q&A for our new investors, I want you to know that everything we do is centered around our capital allocation strategies. We employ three different approaches subject to whether there is a compelling rationale to do otherwise mergers and acquisitions, organic growth and buying back shares when the yield on our free cash flow per share is more than 10%. All this is being done with the ultimate goal of driving shareholder value by increasing free cash flow per share by at least 10% to 15% on a compound annual basis. To see more about this strategy, please visit our new website at our CIHH. dot com. Please turn to Slide 24 by sticking to our capital allocation strategy. Since the end of fiscal 2015, we have generated compound annual growth rates of 10.2% for revenues 12.1% for adjusted EBITDA, 17.2% for free cash flow. We also reduced our fully diluted share count, including shares used for acquisitions, but nothing goes up in a straight line. The key point is we have the plans, tools, resources and expertise to get the job done. We'll make more acquisitions while taking a little longer to get projects up and running. The drag will be behind us. The doors will open and our numbers will improve. We will get our free cash flow and adjusted EBITDA margins back to the 20% and 30% as we have in the past. Unfortunately, in the current environment, it has taken us a little longer to open new locations and we have, but we have dealt with economic downturns before I know that these numbers are a little disappointing to some and they're disappointing to us. But I ask you to have faith in our team's ability. As I do that, we will reach our future targets. Thank you to our loyal and dedicated team members for all their hard work and effort and all of our shareholders who believe and make our success possible.
Now, here's Martin.
Question and Answer Session
Mark Moran
Thank you very much, Eric and Bradley. If you'd like to ask a question, please raise your hand and the X space when you've finished, please mute your microphone to eliminate any background noise. We only have a limited number of speaker spaces. So after you ask your question and we may ask you to move to the back of the audience to free up space.
To start things off, we'd like to take questions from Rick's analysts and some of its larger shareholders before moving into general Q&A.
First up, we have Anthony of Sidoti & Company. Anthony, please take it away, if any.
I'm not sure if you're on mute.
Well, Anthony works that out. We can clearly now who say that, yes, we can hear you.
Okay.
That will stay on Andrew's SD takeaway.
Sorry about that. I have a new phone or video, so apologies for that. So anyway, well, thanks for taking the questions. I do want to get into a little bit more about the same-store sales numbers as far as traffic versus average ticket that you've seen on and also in your January sales release?
Eric, can you talk about that?
You know, hopefully that I think the quote was basically saying that hopefully we've seen the worst of the same-store sales declines that given the uncertain macro conditions. So just wondering if you think that's still so and I have a couple of other questions as well.
Yes, sure. I mean, the same-store sales declined, obviously not much has changed from the last call.
Eric Langan
We got the December numbers.
December was decent. January was starting off.
Okay.
Eric Langan
Then we have the weather issues for a couple of the middle weeks, but finished finished very strongly. The first week of February has been a good week for us. Overall. I don't have breakdowns on same-store sales for January, February because it's just too early for me to have all those numbers yet, but hopefully, we'll get an idea of those soon. I think the worst of it is behind us.
I mean, Bombshells is still an issue.
Eric Langan
We've had to make some cost changes. There are some structural changes of management and how we're operating those locations and hopefully, we'll start seeing those results as we move into March Madness. I think March Madness, where we're doing a big push from March from March Madness. Some of the changes we started today with our launch rate Thursday. So we're going to do a few more things, be a take the Bombshells concept, make it a little more risky. I think part of the team kind of started focus on restaurant operations too much and what we're doing, and we've got to get back to our basics and which is keeping our alcohol sales that are in the 60% range of sales. Those have declined a little bit, and I want to get that back to normal and making the place fun again, especially in the evening hours. So that's kind of what we're focused on right now, gosh.
Okay.
Bradley Chhay
Thanks for that.
And then I know you recently hired a new assistant of Director of Operations for Bombshells. What has he done so far and kind of what are your plans? Can you share any specifics as to what do you what you're doing as far as to get that segment in better shape.
Eric Langan
Yes, or done some cost cutting at the management level, taking our regional managers, put them back in individual stores, having them focus on individual stores which allowed us to get rid of some underperforming general managers and not replace other managers through that naturally leads to attrition by moving people around the new guy has been in training in Houston. He's now in Dallas. It will be working at the Dallas and the Arlington location to get those locations, which are our biggest decliners. And back in back in shape, just making sure people are promoting doing the things we do and really focusing on customer service, like I said, and making that making the place, making the place fine again, to hang out. And I think I said earlier that they've been focused on restaurant operations more than more than what I would consider the alcohol sales operations. And I think that's kind of the key. We've made some major changes in music format, DJs, some of the things I've just kind of as we went and visited stores in our secret shoppers and just found things that we weren't happy with on some of the direction that the current management team has been taking it to. And so we're and then also by moving these regionals into direct stores. You will have a lot more accountability as we move into the March April May months, and we'll see significant changes or we'll look and we'll continue to to make changes in management there as well.
Got you.
Okay.
And then switching gears that you talked about the admire we relaunch with a new strategic partner. How should we think about this first for us from a financial perspective, as far as what this could mean to you guys, if you could add any additional color that would be great.
Eric Langan
Hey, how are you picking up on time here?
I'm sorry, my lab somebody my mute turn itself back on. Sorry about that.
Thanks, Mark. So for the for the new site, basically our new partner already has the software up and running on another for their for their site. So we're going to basically white label that software. So we're waiting for the scans to be done right now, which hopefully will be done sometime in April. We'll begin early testing and basically full launch this in that next quarter. It lowers our cost tremendously because we are spending about $40,000 a month on programmers trying to get in Miami up and running. So basically it will cut about $0.5 million a year from our expenses, which is a part of our overall cut to cut over 2 million and a quarter in expenses from a from our budget right now. And so that will be a big part of that. And we'll continue to move forward launching this new site with video streaming, which we weren't we didn't have in Miami and weren't going to have on in Miami for some time and who knows at what cost to get to that. So basically, I think it just moves the software light years ahead. The concept is still the same to get all of our entertainers and wait staff and employees that are interested in creating content to create content and have it means to do so.
All right.
Well, thank you very much. I'll pass it on to others and best of luck.
Van Anthony, thank you so much.
And next up, we'll bring Scott Buck of H.C. Wainwright. Scott, take it away.
Eric Langan
Hey, good afternoon, guys.
Thanks for taking my questions. Eric, I'm curious on the licensing, I know you don't have an update for us, but I'm curious at what point do you start to get a little nervous in your ability to get the properties open by year in fiscal 24, it may may we need to have we need to be on the agenda for approval by May or not by may lead very difficult. It's going to take somewhere between a full, probably three and four months.
Eric Langan
So somewhere between 90 and 120 days to do all the install testing and get all the certifications we need to gain to get the final go-live approval. So we really if we want to open in September. We need to have that approval for the license itself, no later than the end of May. We have a quarterly updates with them.
The next update isn't about a week from now. So once we have that update, hopefully we'll have better information on where on where they're at in the process.
As far as me getting worried, I don't really worry about overall unless, of course, they start issuing a bunch of licenses to the other and have all the other licenses target energy to other operators that implied I think there's six licenses applied for incentives to you right now. If all of those were to start getting approved and ours was not getting on the agenda, I would be concerned but as of right now, there's no concern. I think it's just the normal flow of operations and the way the Colorado Department of Gaming does their investigations.
No.
Understood. I appreciate that and I'm curious what's the remaining CapEx on those two properties to get them open?
Really depends on how we do.
Eric Langan
Certain things so far were about 2.5 million and I believe on my last update that I've gotten, we just signed about a $3 million contract for our all of construction on the rigs, which will which includes of some pretty major changes to the overall deal. And the age fact systems are in Denver right now. So they will be installed soon as weather permits and they get other our ducks in a row because we're replacing the roof at the same time, they put the unit. So basically you're going to pull those existing units operate. We're going to put all the new curves and stuff in for the roofing, they'll set the units and then no re-roof the building. So that will be considerable. It should be done, I would think no later than the end of March. At this time, I'm so six or seven more weeks, we'll have all the heat you see in that building and have everything up and running we think final construction other than the actual gaming machine should be completed sometime in June?
Yes.
Hey, Scott, we can't hear you if you have another question.
Yes, sorry about that. I went back on mute.
Yes.
So on Bombshells and the strategic review, you talked about a potential sale or lease exploration.
You guys hired some outside help to to kind of speed that process along or at this point are you still and looking at opportunities internally to do something?
Eric Langan
We are working with a with a outside group right now as well as a few things on our own as well. So when we say exploring everything, I mean, we're we're we're looking everywhere. We're talking with lots of people. But as far as getting rates as far as far as lifting and whatnot, we haven't gone as far as listing them for sale at this point because right now, we are really kind of out when we can find either the right partner like we did with at Miami for giving our and making the changes we've done internally and seeing if that if that is going to make a difference in a quick enough time period for my liking paragraph that. So those are those are the best wherever that.
That's helpful, Eric. And then just last thing quickly, what's the timing look like on the cash out known?
And are you kind of in conversations with folks already about potential acquisitions?
Eric Langan
We're pushing along because we have been in talks with several outside operators and would need significant cash downpayments. So we're going to just kind of get that cash sitting in our books.
We've been working on this for about five weeks.
Eric Langan
We had to get appraisals in environmental studies on a couple of the properties because they weren't current. That's all updated and we should be going to loan committee in the next week or so. So I would look for I would look for are hoping our hope is to close sometime in either the last week of February, first week of March to close that the closed loan.
So hopefully we can stay on that time line as long as nothing comes up or nothing comes out of committee that was missed in the U.S. and the bedding grand casinos in Black Hawk ran their casinos in Central City, both for the past 20 some years.
Eric Langan
He's very knowledgeable, very well known by the Department of Gaming as well as many of the other operators, employees and whatnot in that central city car carrier.
Great.
And I'm sorry, you broke up a little earlier, but can you talk about where do you see your budget for the casinos, but to the point where what do you believe the budget will be when you complete the casinos?
Eric Langan
I'm sorry, can you repeat that?
I'm sorry.
Yes.
Can you give us an idea of what the budget will look like, but to complete the casinos? I believe you mentioned that earlier, but it was you kind of broke up?
As I shared the budget?
The budget for casinos is probably overall about 20 million for both properties, including the real estate purchases we spent about $2.5 million on the deal.
Eric Langan
The real estate purchase there about another eight.
So we've got about 10 million more to spend. It depends on how we're going to and how we're going to do the machines.
Eric Langan
If we pay all cash for the machines, that would be a very significant amount of money. But it looks like we're going to do, but there are some terms we can get the other 12 months, same as cash. We not start making payments. So after the machines are installed with some operators, we can also do rev share that will also create from it was certainly no cash outlays saving to us. We still have to pay, but and we have time to do that.
Great.
Bradley Chhay
Thanks, Eric.
And then lastly, with regards to the macro economic uncertainty that you've been discussing, if I take it that, could you just confirm if it's still in the blue-collar, how your white-collar customers are holding up? And then kind of in general, what do you think we have to see to move beyond this area or time period of macroeconomic uncertainty?
Eric Langan
Well, I mean, we have to get rid of the uncertainty in the marketplace.
And it's funny because you read, you know, stuff in the media and you hear Al, how great things are in jobs and this and that but that when you go out into on Main Street and you start talking with people, they're uncertain, even the people that are doing very well in their jobs right now are uncertain as my jobs are going to be here three months from now?
Eric Langan
Or am I still going to be doing as well?
What are interest rates going to be.
Eric Langan
And we're seeing that the customer you're seeing the customer trade down and so which is typically recessionary behavior. So we're definitely seeing the customer trade down we're seeing the customer maybe not come as often are our Mondays and Wednesdays are becoming slower and you're going to start seeing us do some some basically what I call recessionary discounting on other days, which has been kind of a dynamic pricing on the way we do it on certain days rather than all the time. So we're going to see that happen as we're moving forward. We've already got a lot of these things going in place right now. And until that customer's confidence is back, I think we're going to have to figure out ways to bring that customer in and get that customer to a and to continue to spend money.
Thank you.
That's it for me.
Thanks so much, Rob. We appreciate the question next up, we're going to have 42 wells, and I'd like to encourage everyone who has a question to raise their hand and we'll bring you up to the speaker spot or could well take it away as let's go into the Miami 2.0 that you guys are going to be doing, how long have you been dealing or engaging with this partner that you're bringing on.
Eric Langan
But trying to put it on mute myself.
We started talking with them at Expo in Vegas in August, and we've kind of developed the relationship we had to get comfortable with each other.
Eric Langan
We've laid out the foundation for our expectations from both sides and done that.
We've we probably signed the agreement about three weeks ago, I believe and there they've been working on some skinny ideas and how they're going to what it's going to look like.
Eric Langan
But second, look like I have registered the domains and or purchase the domain. So we have those all ready to go for the for the new launch.
And they're very excited because they were shooting for basically some testing of which we don't do a lot of testing.
Eric Langan
The software is really just making sure that everything flows properly with the design so that we don't end up with you like you click on a link in our on our site and actually end up seeing content or something from their previous website. So it's basically just wanted to make sure everything's it's working properly and then we'll be ready to launch. We'll start. It's a couple of specific clubs putting on entertainers from those clubs, first, getting everything rolling and then basically do a full a full company-wide launch, hopefully by pipe by May June.
And then outline how long is this partner been in the business of doing this in terms of like they're going to handle the credit card processing role that, that aspect of the business, you're basically supplying the performers for the entertainers.
I kind of I mean, I guess if they'll be through our company.
Eric Langan
So we are processing our stuff, but we're going to be working with different banks that we work with in Miami, who they have a much longer and stronger relationships with as well as other vendors that they've been doing.
They've been in the business.
Eric Langan
And since the early two thousands back when I think they it's funny because we we started talking about different people throughout in the industry from back when the rigs had dancer dorm back in 99, early two thousands. And we all kind of knew the same people and I was kind of funny that we were both in the business at the same time back then and didn't really I didn't really meet up back then. So I'm very optimistic and excited to see where where the concept will go when it has the right software. I think we have the right idea. We just didn't have the right to the right medium to it basically put the entertainers and the customer base together and with their software, we're going to be able to do that.
And with I guess, I would book with full video streaming. That seems to be the big the big thing these days. So very excited about it.
And how many entertainers do you think you're going to be able to at least offer this as an option by being an independent contractor within the firm family?
Well, I mean, we are we have we had in 2023, we got over 25,000 contracts with entertainers nationwide.
Eric Langan
So I mean, if we can get 5%, I will now be 1,250. If we can get 10%, we'd have 2,500 and so on. So yes, I don't really know. And that doesn't count waitresses or any other front-of-house staff, whether there's some bartenders or a door growth, whatnot, that might be interested in and being on this site and then, of course, other clubs and outside the people as well. So I think it will I think it will grow relatively quickly, we would do and we're doing pretty decent and growing at it. When we were pushing at the few times, we've tried to push in Miami, but as soon as we start putting any people on the site, it would we've run into bugs and problems that we have to stop and hold back and trying to fix the software. The beauty of their software is up and running and is already ready to handle hundreds and hundreds of people at a time. So that's going to be a big plus for us are any other clubs in the marketplace doing something like this?
Or are you guys going to be at the forefront of this where other clubs that are maybe what you know, competitors or not competitors in other markets would want to join on board.
Eric Langan
And this becomes like this is the entertainers only fans, you know, one-stop shop because it seems like a lot of this stuff is really about just being first to market. It looked like with us trying to do it before. I know how much it costs. And I don't think any of their upper, I don't know of any other operators that are trying right now. I haven't heard anything and when they start looking at what it cost to trying to get there. It's going to rain too much. So I don't think they'll do it. That's kind of where I got to that. It sounds like, but we're not going to keep at the rate. We're going against another 3 million trying to get this thing working. And here we got a guy in our partner who's got everything we can do about 25% of the deal and the light years ahead of where we're at, and it is about being first to the market. So I didn't want someone else is going to start trying to wrap these up. I know there's some other sites out there that have tried to tap the Entertainer market, but I don't think they have the traits contact with the people who are the entertainers like we do as well as some of our competitors, we will be able to offer them incentives for them to put their entertainers on our site and earn residual income and as well. So through a referral program. So the new the new operator and the new software is going to be incredible. All we have to do is do what we do is in our entertainers on there. Basically we get them to show up and they provide everything else, which is right.
And then just one last question. Is I know only fans that we got an 80 20 revenue share with 80% of the entertainers and 20% to the only fence platform is your it's going to be similar to that. It's exactly the same as you've seen from in Miami or we have it set up the same way, and we may end up using part of our 20% ASAS. referral fees for a time period. And we may also bring some big influencers over from other sites that are also in the entertainment, whether in our clubs or other clubs, and we may offer them a little more of the percentage. So there may be we may make a little less than 20% at the beginning but at some point now that those promotions will and it will just be a marketing dollars basically, and then we'll revert to the standard was fantastic. I mean, I think this venture obviously has been something you've been hoping for for years.
Well, good luck with that and look forward to the next call.
Thank you so much for the question. Next up we will have added to now. Evan, please take it away.
Eric Langan
Hey, guys.
Thanks for taking my call on is the way you talking about kind of the same-store sales performance in the nightclub segment mix, do you think that you guys are kind of of the opinion that if a similar thing is how I'm sorry, this is Bradley.
Bradley Chhay
Can you repeat the question. We missed the first part of it.
Oh, sorry, I think the first part was just me thanking you for taking the call, but so obviously, you guys have talked about the kind of the macro environment it at the clubs. And it makes me think that are you guys are of the opinion that the results at other clubs are kind of similarly negative in terms of same-store sales. So I was just wondering if that's kind of the poor results for results at other clubs or kind of increasing the inbound offers you guys have in terms of acquisitions or might make the multiples that you guys can pay a little lower given the recent performance?
Yes.
Eric Langan
I've talked with several other club operators that can go into it Business Week and what they want with a club operator, that basically between him some of his partners, about 65 clubs around the country, they're very they're all very similar in current declines on a lot of their declines or even higher than ours. I'm hearing from some people as much as 20% and 30% of certain locations declines from from their highs. And so that's that's definitely going to be an issue. But as far as more and more operators get, we're talking we're talking with several acquisition targets the biggest problem we have is everybody wants to sell based on their 2023 numbers. And, you know, don't we all the reality of it is there was a lot of free cash out there and there was a lot of pent-up demand. It doesn't exist today and higher interest rates and more economic uncertainty. And so I can't be buying at a five times multiple of 2022 when we're in 2024. And I know that those numbers aren't repeatable.
Okay, thanks. And then one more question. So there was a couple of threads on Twitter about the kind of some of the learnings in the 10-Q's and 10-K's over the years about about internal internal controls. And I was just wondering I know there's one warning about like goodwill impairments and there was one about like user access to the IT systems. And I was just wondering if you could kind of address some of those concerns or maybe help explain kind of what those are about the people that are, I don't know or that or just might be reading the financials for the first time, yes, or if you noticed a continuously change, right.
Eric Langan
It's like our auditors are continually trying to find some new material weakness every single year. And typically, we when they're when they're found whether by us, whether by our app, our internal third party independent auditors or by the auditing company names or by auditors ourselves, we immediately make changes and adjust and correct them. But the problem is in order to get a clean bill of health, you have to be it has to be fixed for the entire year. So even if it was one day that something was off, you get a material weakness. So we have to deal with that. I'm hoping while we do is keep pushing and keep working and keep fixing things. As they say. I will say that none of the none of the weaknesses they've ever found a very cause restatement of financials. They've never found any fraud or anything like that. It's just it's the most pain is what, if what, if, what, if what, if a man I wish you said, I always like to use the example of if you have a bank vault in your home and you have a security system in your home and you have all these things to stop somebody from being able to steal a necklace out of your home and they come up with a way to break into your house, circumvent all of your stuff and still fill the necklace, even though the net loss was never stolen. They take turn and say, well, that's a material weakness. And so now you've got to fix this new new what-ifs. And so those are things we face and as a growing company in the beginning, it was software as all software our software didn't do.
We put an ERP system in.
Eric Langan
We corrected the majority of those what-ifs with our stuff. I mean, at the end of the day, you have to have somebody in IT that that's responsible for supply chain for monitoring system, keeping the system up and alive running the backup. And these are that's a very high paid employee who's who has to have that access. And just like the company has to have a CEO that has the ability to make certain decisions and whatnot. And so basically, what they say with our REIT stuff, I think is basically is basically one guy had powers to change and do things and where was the check system on him. And I think we've resolved all of that now through notifications to certain people, things are changed and whatnot. But I if you don't know what you don't know until they come in and say, oh, this is of this this could happen or this could have even though it's never happened. Obviously, once that happens we've always taken or anything's ever had. We've always been able to fix and adjust the system, but we can't think of every little detail and every little thing costs and what you know, that could happen when it's when it does never happened or has never happened or happening, we have to somebody else. So those are things we deal with and we just keep working on that.
Fantastic. Thank you so much.
And then next up, we are in stereo and Mark talks next.
Okay. Thank you, Eric. To next up, we have Adam Wyden of ADW Capital.
Okay.
Yes, yes, you're right.
I'm here.
I'm here on a couple of things. Um, you know, it was encouraging that you wrote in the press release that you thought you've seen the bottom in the same-store sales and and consistent with other people's commentary and sort of live entertainment, Dave & Buster's bowl all the stuff. It seems like you know that you're doing more promoting or stuff like that, but people or people are still willing to spend maybe spend differently, but people are still willing to spend. So that's good. And I guess this is your seasonally weakest quarter anyway, that's like about 20% of EBITDA at least historically. So some sort of gives you a nice baseline of sort of where you are a couple sort of procedural question. You mentioned 2 million of costs annualized per quarter. That's roughly 8 million of EBITDA. Is that in Bombshells nightclubs?
Corporate Can you talk a little bit about where you think that cost is going to come from?
Eric Langan
Well, I mean, we're doing the COVID sleep as I call it when we got closed down for COVID, we had to sit down and go through every single possible expense and where we can weigh what we could get rid of how we can make changes where we could where we could make cuts what non-income-producing properties or non-income producing assets we needed to get rid of. We're going to sit down and we've been doing it, but we're going to continue. I mean, there's a lot of in our 70 some operating subsidiaries. So there's less subsidiaries still to go through. But we've been working on this basically since the week. We internally had results for the past quarter, so it's going to be a lot of places. And part of it was within Miami, making the major change with the Miami bringing on a partner, there's going to be a significant cost reduction for us going forward. We're looking at all SG&A expenses. We're looking at all club by club, whether it's employees whether it's security, whether it's basically every little costs and figuring out where we can where we can make the cuts just like we just like we had to do back in 2020 when COVID hit.
So you guys did an excellent job cutting costs during COVID. So um, you know, obviously, you guys have shown that you guys can make margin with lower revenues. So look, I'm I know another 8 to 10 million of cost. If you can do it, it would be well, would be well welcomed from it from a cash flow perspective as it relates to being able to allocate capital into share repurchase or or more clubs, um, secondly, obviously, unit you expect to get the casinos open, but you talked a lot about non-income-producing properties. You've got, I don't know, three or so clubs. I can't keep Australia that are sort of being remodeled being reopened. Those are obviously not you're not sort of waiting on same-store sales to come back. Do you mind, but trying to sort of enumerate sort of what you think that is in revenue and potential EBITDA contribution?
I mean I'm just sort of trying to sort of give people an understanding of when I look at the Company does nothing from here, same-store sales don't improve, you get the eight plus million dollars of EBITDA from cost and yet another X million dollars of revenue and EBITDA from the clubs reopening. And that sort of gives you a baseline, assuming things don't get worse, but you don't think they are what's sort of not in the numbers today. So you can sort of take the 18 multiply by five gets you to 90 if it's 20%. And then you add the $8 million of cost reduction plus clubs. Sort of gives you a sense of what normalized EBITDA is ex casinos?
Yes, you're right.
Yes, I got you. So well, the one is actually a remodel.
Eric Langan
That's the Abilene and we'd close that down and remodel because we were going to get a liquor license then we couldn't get the late hours. And so we basically went back to the BYLB. for a very short period of time. And then once we did that, the city works with us up there to get us the late hours. So now we have we're going to be able to sell alcoholic beverages till 2 a.m. So we've rebranded it to now we have baby dolls doing so well, we rebranded it to baby dolls. It will open hopefully in March. And then as well as the Lovett club is near completion and should open as March as well.
So we should get six months of both of those locations.
Eric Langan
Both of those locations will have gone from BYOB. clubs to alcohol sales club, I should I'm guessing should be somewhere around 60 to 80, 80,000 a week sales clubs. So somewhere between three and 4 million annualized revenue use a 40% margin rate or 30, 35% margin rate. Where we're at here, I think both clubs will be able to have the IP areas. So we should have plenty of service revenue at both those locations and the third location will not open and probably until the first quarter of 2025. So it won't really contribute in 2024 but it is a very large location, a location we bought in Fort Worth, Texas. We bought the property. We're going to revamp and reopening club there. We're building a second floor we're doing a lot of concerns about a 3 million rebuild of the building. So that part of the billing will still be there. But we face we're turning down a big portion of the building, tearing off the roof and going up all new on the parking and whatnot. So it will be a very a much bigger deal. But absolutely, I think it will contribute in a much larger ratio in that. That location is probably around 140 to $180,000 a week location when it reopens So somewhere between seven and 9 million. And I think the margins will be at that larger location, much closer to our 40% typical margins for a club. So just humor me for a minute now, maybe even a humor me for a minute.
Do you know if you you say you do in oh seven for the two little clubs and and you know, for the big cloud, but maybe even more that's like 15 million and a 35, 40% margin, and that's another six of EBITDA.
And then add another eight for cost reductions. That's like 14 again on you're not going to get it this year, but I'm just saying, you know, sort of on a normalized basis, if I take your sort of 17 and 18 and multiply it by five. You know, I'm getting to a number that looks like, you know, around 105 million without the casinos without M&A and without sort of improperly Bombshells, just to sort of give people a baseline of like assuming you talk about do nothing on a capital allocation perspective? I'm sort of saying do nothing on an operating basis, i. e, the same-store sales don't improve. And all you do is you do your Covance week, get your clubs open right now then you're looking at something like 105 and EBITDA, not including casinos, not including M&A.
I mean, as I said, following that out, California, Matt, like I think you're we do have to have same-store sales bottom out and we have to have same-store sales.
Yes, hey, Eric, you're cutting out.
Yes, you said we have to have same-store sales and then we lost you.
