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RCI Reports 1Q20 Results and Files 10-Q

HOUSTON, Feb. 27, 2020 /PRNewswire/ -- RCI Hospitality Holdings, Inc. (Nasdaq: RICK) today reported results for the Fiscal 2020 first quarter ended December 31, 2019 and the filing of its 10-Q.

RCI Hospitality Holdings Corporate Logo (PRNewsFoto/RCI Hospitality Holdings, Inc.)

1Q20 vs. 1Q19

• Diluted EPS of $0.60 compared to $0.65 (1Q19 benefitted from $1.1 million in pre-tax gains on the sale of non-income producing assets)

• Diluted non-GAAP* EPS of $0.62 compared to $0.61

• Weighted average shares outstanding fell 391K or 4.0% due to repurchases

• Cash rebounded to $13.2 million at December 31, 2019 after $6.4 million in 1Q20 share buybacks

• Free cash flow (FCF) totaled $9.3 million (based on net cash provided by operating activities of $10.3 million, less maintenance capital expenditures of $1.0 million)

• Total revenues of $48.4 million compared to $44.0 million on 47 and 46 units, respectively

• Bombshells quarterly revenues hit a record $10.4M as segment margin rebounded to +15%

 

Conference Call 4:30 PM ET Today

• Call to discuss 1Q20 results, outlook and related matters

• Live Participant Phone Number: Toll Free 877-407-9210, International 201-689-8049

• To access the live webcast, slides or replay, visit: https://www.webcaster4.com/Webcast/Page/2209/33364 

• Phone Replay: Toll Free 877-481-4010, International 919-882-2331, Passcode: 33364

CEO Comment

"Bombshells revenue, margin and profit continued to grow noticeably in 1Q20 from new and older locations, despite pre-opening costs for two new units," said Eric Langan, President & CEO. "Performance should continue to expand with Bombshells Katy, which opened mid-1Q20; Bombshells 59 in southwest Houston, which opened mid-2Q20; and the remodeling and expansion of our first Bombshells, which opened seven years ago in Dallas.

"Nightclubs maintained their strong contribution as two new locations – Rick's Cabarets in Chicago and Pittsburgh – made up for two clubs closed part of the quarter for repairs, and one less selling week during the high-volume Thanksgiving and Christmas period. Performance has already begun to pick up appreciably. Scarlett's Cabaret St. Louis and Rick's Cabaret Odessa have reopened. We have a great sports calendar in 2Q20 in markets where we have larger clubs, and we continue to look forward to closing on our Northeast Corridor acquisition.

"Salaries and wages and SG&A were higher than what we'd like due to accounting, legal and overtime costs related to our recently filed 10-K, which included the reaudits of FY 2017 and FY 2018 in conjunction with the FY 19 audit. While these costs will continue to be somewhat high in 2Q20, with the 10-K and now the 10-Q filed, we expect them to subside in the second half and help increase operating leverage.

"Nonetheless, we continued to move forward in 1Q20 with our capital allocation strategy. We reduced shares outstanding 4% year over year, buying back 332,671 shares, for $6.4 million, and still ended the quarter with $13.2 million of cash compared to $14.1 million at September 30th. In addition, free cash flow continues at a run rate of approximately $30 million based on $34 million in net cash from operating activities less $4 million of maintenance capital expenditures.

"To increase our financial flexibility, in 1Q20 and 2Q20 we refinanced $12.2 million of debt, eliminating $10.8 million of near-term non-realty balloon payments, to avoid any large near-term cash needs. This flexibility will be further enhanced when we close on approximately $6.7 million in excess properties under contract to sell, and we sell or lease remaining excess properties with approximately $9 million in market value."

1Q20 REVIEW (All comparisons to 1Q19 unless otherwise noted)

  • Total Revenues: Total revenues of $48.4 million rose $4.4 million or 9.9%. Growth reflected increases of $2.4 million (+13.3%) in alcoholic beverages, $1.8 million (+30.9%) in food, and $319K (+11.8%) in other. Service revenues declined $138K (-0.8%). Beverage and food reflected strong sales at Bombshells. Service reflected one less holiday sales week for clubs.
  • Operating Income: Due to the company's growth and other factors, operating expenses increased $5.8 million or 17.7%. Cost of goods increased $964K or 16.6%, reflecting a higher amount and proportion of beverage and food sales. Salaries and wages and SG&A increased $3.6 million or 13.9% due to more units open, Bombshells pre-opening costs, and expenses related to RCI's recently filed 10-K. Other gains, net, declined $1.1 million from 1Q19, when three non-income producing assets were sold. As a result, GAAP operating income declined $1.4 million, while non-GAAP operating income fell only $375K.
  • Nightclubs Segment: Revenues increased slightly to $37.9 million, with 38 units compared to 39, as sales of new clubs offset clubs closed for part of the quarter and the shorter holiday selling season. GAAP operating income declined $1.6 million from 1Q19, which included most of the 1Q19 gains on sales. On a non-GAAP basis, operating income fell only $440K.
  • Bombshells Segment: Revenues of $10.4 million increased 72.1%, with 9 units compared to 7. Revenues from new units totaled $4.8 million from four Houston area locations—Pearland (opened April 2018), I-10 (December 2018), Tomball (March 2019), and Katy (October 22, 2019), which experienced a record month for a Bombshells in November. Same-store sales increased 19.2%. Units also benefitted from increased traffic as a result of the Houston pro baseball team playing through to the 7th game of the championship. Operating margin expanded to 15.2% compared to 2.0%. Segment profit jumped to $1.6 million from $119K.
  • Other Metrics

*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) settlement of lawsuits. We believe that excluding these items assists investors in evaluating period-over-period changes in our operating income and operating margin without the impact of items that are not a result of our day-to-day business and operations.
  • Non-GAAP Net Income and Non-GAAP Net Income per Diluted Share. We calculate non-GAAP net income and non-GAAP net income per diluted share by excluding or including certain items to net income attributable to RCIHH common stockholders and diluted earnings per share. Adjustment items are: (a) amortization of intangibles, (b) gains or losses on sale of businesses and assets, (c) gains or losses on insurance, (d) unrealized gains or losses on equity securities, (e) settlement of lawsuits, and (f) 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 21.8% and 22.2% effective tax rate of the pre-tax non-GAAP income before taxes for the quarter ended December 31, 2019 and 2018, respectively, and the GAAP income tax expense (benefit). We believe that excluding and including such items help management and investors better understand our operating activities.
  • Adjusted EBITDA. We calculate adjusted EBITDA by excluding the following items from net income attributable to RCIHH common stockholders: (a) depreciation and amortization, (b) income tax expense (benefit), (c) net interest expense, (d) gains or losses on sale of businesses and assets, (e) gains or losses on insurance, (f) unrealized gains or losses on equity securities, and (g) settlement of lawsuits. We believe that adjusting for such items helps management and investors better understand our operating activities. Adjusted EBITDA provides a core operational performance measurement that compares results without the need to adjust for federal, state and local taxes which have considerable variation between domestic jurisdictions. The results are, therefore, without consideration of financing alternatives of capital employed. We use adjusted EBITDA as one guideline to assess our unleveraged performance return on our investments. Adjusted EBITDA is also the target benchmark for our acquisitions of nightclubs.
  • Management also uses non-GAAP cash flow measures such as free cash flow. Free cash flow is derived from net cash provided by operating activities less maintenance capital expenditures. We use free cash flow as the baseline for the implementation of our capital allocation strategy.

Notes

  • Unit counts above are at period end.
  • All references to the "company," "we," "our," and similar terms include RCI Hospitality Holdings, Inc. and its subsidiaries, unless the context indicates otherwise.
  • Planned opening dates are subject to change due to weather, which could affect construction schedules, and scheduling of final municipal inspections.

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

With more than 40 units, RCI Hospitality Holdings, Inc., through its subsidiaries, is the country's leading company in gentlemen's clubs and sports bars/restaurants. Clubs in New York City, Chicago, Dallas/Ft. Worth, Houston, Miami, Minneapolis, St. Louis, Charlotte, Pittsburgh, and other markets operate under brand names such as Rick's Cabaret, XTC, Club Onyx, Vivid Cabaret, Jaguars Club, Tootsie's Cabaret, and Scarlett's Cabaret. Sports bars/restaurants operate under the brand name Bombshells Restaurant & Bar. Please visit http://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 in this press release, including, but not limited to, the risks and uncertainties associated with (i) operating and managing an adult 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) our ability to regain and maintain compliance with the filing requirements of the SEC and the Nasdaq Stock Market, and (vii) numerous other factors such as laws governing the operation of adult entertainment businesses, competition and dependence on key personnel. The company has no obligation to update or revise the forward-looking statements to reflect the occurrence of future events or circumstances.

Media & Investor Contacts

Gary Fishman and Steven Anreder at 212-532-3232 or gary.fishman@anreder.com and steven.anreder@anreder.com

RCI HOSPITALITY HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share and percentage data)


















For the Three Months Ended December 31,






2019


2018






Amount


% of
Revenue


Amount


% of
Revenue

Revenues










Sales of alcoholic beverages


$  20,743


42.9%


$  18,310


41.6%


Sales of food and merchandise


7,447


15.4%


5,690


12.9%


Service revenues


17,193


35.5%


17,331


39.4%


Other


3,011


6.2%


2,692


6.1%



Total revenues


48,394


100.0%


44,023


100.0%

Operating expenses










Cost of goods sold











Alcoholic beverages sold


4,146


20.0%


3,736


20.4%



Food and merchandise sold


2,553


34.3%


1,984


34.9%



Service and other


77


0.4%


92


0.5%




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


6,776


14.0%


5,812


13.2%


Salaries and wages


13,223


27.3%


12,096


27.5%


Selling, general and administrative


16,531


34.2%


14,027


31.9%


Depreciation and amortization


2,204


4.6%


2,053


4.7%


Other gains, net


(26)


-0.1%


(1,097)


-2.5%



Total operating expenses


38,708


80.0%


32,891


74.7%

Income from operations


9,686


20.0%


11,132


25.3%

Other income (expenses)










Interest expense


(2,485)


-5.1%


(2,521)


-5.7%


Interest income


98


0.2%


51


0.1%


Non-operating loss


(72)


-0.1%


(447)


-1.0%

Income before income taxes


7,227


14.9%


8,215


18.7%

Income tax expense


1,593


3.3%


1,811


4.1%

Net income


5,634


11.6%


6,404


14.5%

Net income attributable to noncontrolling interests


-


0.0%


(60)


-0.1%

Net income attributable to RCIHH common shareholders


$    5,634


11.6%


$    6,344


14.4%













Earnings per share










Basic and diluted


$      0.60




$      0.65















Weighted average shares outstanding










Basic and diluted


9,322




9,713















Dividends per share


$      0.03




$      0.03



 

RCI HOSPITALITY HOLDINGS, INC.

NON-GAAP FINANCIAL MEASURES

(in thousands, except per share and percentage data)








For the Three Months



Ended December 31,



2019


2018

Reconciliation of GAAP net income to Adjusted EBITDA





Net income attributable to RCIHH common shareholders


$    5,634


$    6,344

Income tax expense (benefit)


1,593


1,811

Interest expense, net


2,387


2,470

Settlement of lawsuits


24


60

Gain on sale of businesses and assets


(30)


(1,157)

Unrealized loss on equity securities


72


447

Gain on insurance


(20)


-

Depreciation and amortization


2,204


2,053

Adjusted EBITDA


$  11,864


$  12,028






Reconciliation of GAAP net income to non-GAAP net income





Net income attributable to RCIHH common shareholders


$    5,634


$    6,344

Amortization of intangibles


156


156

Settlement of lawsuits


24


60

Gain on sale of businesses and assets


(30)


(1,157)

Unrealized loss on equity securities


72


447

Gain on insurance


(20)


-

Net income tax effect of adjustments above


(26)


110

Non-GAAP net income


$    5,810


$    5,960






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





Diluted shares


9,322


9,713

GAAP diluted earnings per share


$      0.60


$      0.65

Amortization of intangibles


0.02


0.02

Settlement of lawsuits


0.00


0.01

Gain on sale of businesses and assets


(0.00)


(0.12)

Unrealized loss on equity securities


0.01


0.05

Gain on insurance


(0.00)


-

Net income tax effect of adjustments above


(0.00)


0.01

Non-GAAP diluted earnings per share


$      0.62


$      0.61






Reconciliation of GAAP operating income to non-GAAP operating income





Income from operations


$    9,686


$  11,132

Amortization of intangibles


156


156

Settlement of lawsuits


24


60

Gain on sale of businesses and assets


(30)


(1,157)

Gain on insurance


(20)


-

Non-GAAP operating income


$    9,816


$  10,191






Reconciliation of GAAP operating margin to non-GAAP operating margin





GAAP operating margin


20.0%


25.3%

Amortization of intangibles


0.3%


0.4%

Settlement of lawsuits


0.0%


0.1%

Gain on sale of businesses and assets


-0.1%


-2.6%

Gain on insurance


0.0%


0.0%

Non-GAAP operating margin


20.3%


23.1%






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





Net cash provided by operating activities


$  10,273


$  11,452

Less: Maintenance capital expenditures


1,021


376

Free cash flow


$    9,252


$  11,076

 

RCI HOSPITALITY HOLDINGS, INC.

SEGMENT INFORMATION

(in thousands)










For the Three Months




Ended December 31,




2019


2018

Revenues






Nightclubs


$  37,859


$  37,728


Bombshells


10,350


6,013


Other


185


282




$  48,394


$  44,023







Income (loss) from operations






Nightclubs


$  13,776


$  15,387


Bombshells


1,573


119


Other


(207)


(119)


General corporate


(5,456)


(4,255)




$    9,686


$  11,132

 

RCI HOSPITALITY HOLDINGS, INC.

NON-GAAP SEGMENT INFORMATION

($ in thousands)
























For the Three Months Ended December 31, 2019


For the Three Months Ended December 31, 2018



Nightclubs


Bombshells


Other


Corporate


Total


Nightclubs


Bombshells


Other


Corporate


Total

Income (loss) from operations


$  13,776


$    1,573


$   (207)


$ (5,456)


$  9,686


$  15,387


$        119


$ (119)


$ (4,255)


$  11,132

Amortization of intangibles


57


4


95


-


156


-


-


-


156


156

Settlement of lawsuits


24


-


-


-


24


45


3


-


12


60

Gain on sale of businesses and assets


3


-


-


(33)


(30)


(1,152)


-


(5)


-


(1,157)

Gain on insurance


(20)


-


-


-


(20)


-


-


-


-


-

Non-GAAP operating income (loss)


$  13,840


$    1,577


$   (112)


$ (5,489)


$  9,816


$  14,280


$        122


$ (124)


$ (4,087)


$  10,191






















GAAP operating margin


36.4%


15.2%


-111.9%


-11.3%


20.0%


40.8%


2.0%


-42.2%


-9.7%


25.3%

Non-GAAP operating margin


36.6%


15.2%


-60.5%


-11.3%


20.3%


37.8%


2.0%


-44.0%


-9.3%


23.1%

 

RCI HOSPITALITY HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)












For the Three Months Ended





December 31, 2019


December 31, 2018

CASH FLOWS FROM OPERATING ACTIVITIES





Net income


$                  5,634


$                  6,404

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






Depreciation and amortization


2,204


2,053


Deferred tax expense (credit)


(150)


458


Gain on sale of businesses and assets


(30)


(1,176)


Unrealized loss on equity securities


72


447


Amortization of debt discount and issuance costs


61


95


Deferred rent expense


-


142


Noncash lease expense


329


-


Gain on insurance


(20)


-


Changes in operating assets and liabilities:







Accounts receivable


2,345


1,723



Inventories


(141)


(163)



Prepaid expenses, other current assets and other assets


1,565


1,939



Accounts payable, accrued and other liabilities


(1,596)


(470)


Net cash provided by operating activities


10,273


11,452

CASH FLOWS FROM INVESTING ACTIVITIES





Proceeds from sale of businesses and assets


51


1,245

Proceeds from insurance


932


-

Proceeds from notes receivable


357


32

Additions to property and equipment


(4,058)


(7,295)

Acquisition of businesses, net of cash acquired


-


(13,500)


Net cash used in investing activities


(2,718)


(19,518)

CASH FLOWS FROM FINANCING ACTIVITIES





Proceeds from long-term debt


318


5,652

Payments on long-term debt


(2,081)


(5,279)

Purchase of treasury stock


(6,441)


(355)

Payment of dividends


(279)


(291)

Distribution to noncontrolling interests


(10)


-


Net cash used in financing activities


(8,493)


(273)

NET DECREASE IN CASH AND CASH EQUIVALENTS


(938)


(8,339)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD


14,097


17,726

CASH AND CASH EQUIVALENTS AT END OF PERIOD


$               13,159


$                  9,387

 

RCI HOSPITALITY HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)
















December 31,


September 30,


December 31,






2019


2019


2018

ASSETS







Current assets








Cash and cash equivalents


$      13,159


$       14,097


$        9,387


Accounts receivable, net


3,131


6,289


5,583


Current portion of notes receivable


659


954


-


Inventories


2,739


2,598


2,578


Prepaid insurance


4,150


5,446


3,603


Other current assets


2,236


2,521


1,560


Assets held for sale


4,825


2,866


2,356



Total current assets


30,899


34,771


25,067

Property and equipment, net


183,657


183,956


187,502

Operating lease right-of-use assets


26,981


-


-

Notes receivable, net of current portion


4,149


4,211


3,467

Goodwill


53,630


53,630


54,731

Intangibles, net


75,795


75,951


77,289

Other assets


1,062


1,118


1,466




Total assets


$    376,173


$     353,637


$    349,522











LIABILITIES AND EQUITY







Current liabilities








Accounts payable


$        3,202


$         3,810


$        2,357


Accrued liabilities


13,759


14,644


11,940


Current portion of long-term debt


14,898


15,754


14,898


Current portion of operating lease liabilities


1,521


-


-



Total current liabilities


33,380


34,208


29,195

Deferred tax liability, net


21,508


21,658


21,473

Long-term debt, net of current portion and debt discount and issuance costs


126,928


127,774


138,197

Operating lease liabilities, net of current portion


26,745


-


-

Other long-term liabilities


407


1,696


1,567



Total liabilities


208,968


185,336


190,432











Commitments and contingencies

















Equity








Preferred stock


-


-


-


Common stock


93


96


97


Additional paid-in capital


54,874


61,312


63,857


Retained earnings


112,404


107,049


95,179



Total RCIHH stockholders' equity


167,371


168,457


159,133


Noncontrolling interests


(166)


(156)


(43)



Total equity


167,205


168,301


159,090




Total liabilities and equity


$    376,173


$     353,637


$    349,522

 

Cision

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SOURCE RCI Hospitality Holdings, Inc.