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RCI Reports Positive Operating Cash Flow and EPS for 1Q21

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HOUSTON, Feb. 9, 2021 /PRNewswire/ -- RCI Hospitality Holdings, Inc. (Nasdaq: RICK) today reported results for the fiscal 2021 first quarter ended December 31, 2020 and filed its Form 10-Q. Results are not comparable to year-ago periods due to the COVID-19 pandemic, which has caused state and local governments to restrict the opening, occupancy, and operating hours of locations in different ways, at different times.

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

1Q21 Highlights

  • GAAP EPS of $1.07 and non-GAAP EPS of $0.39

  • GAAP results included $4.9 million pre-tax gain from debt extinguishment and a $384,000 tax benefit

  • Weighted average shares outstanding declined 3.3% year-over-year

  • $17.0 million cash and cash equivalents at December 31, 2020

  • Net cash from operating activities of $6.3 million and free cash flow* of $5.7 million

  • Total revenues of $38.4 million, up 33% from 4Q20 and equal to 79% of 1Q20 revenues

  • Nightclubs segment revenues of $25.2 million with 33.7% operating margin

  • Bombshells segment revenues of $13.0 million with 20.9% operating margin

Eric Langan, President & CEO, said: "1Q21 saw the best overall company and Nightclubs performance since the pandemic began in our March 2020 quarter, as well as continued strong Bombshells results. This enabled us to keep our teams employed, generate free cash flow, build cash, and achieve operating and net profitability on a GAAP and non-GAAP basis. Once again, we thank our loyal customers, dedicated team members, and steadfast investors.

"Looking ahead, we're encouraged more clubs have been allowed to reopen and hope this trend continues as the COVID-19 vaccines are rolled out. As of today, 31 clubs and all 10 Bombshells are open. We're also evaluating potential club acquisitions. To expand Bombshells, we recently acquired a great site in the Dallas area and are conducting due diligence on three more. In addition, we are closely collaborating with our initial franchisee on their first location and continue to speak with potential new franchisees. As part of the effort to refinance our real estate debt at better terms, we are awaiting results of appraisals."

Conference Call Today at 4:30 PM ET

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1Q21 Statement of Operations (All comparisons are to 1Q20)

  • Consolidated revenues of $38.4 million compared to $48.4 million. By segment, Bombshells generated $13.0 million compared to $10.4 million, and Nightclubs generated $25.2 million compared to $37.9 million.

  • During 1Q21, 24 clubs were open the full quarter and 26 by period end, and all 10 Bombshells were open the full quarter. During 1Q20, 38 clubs were open, and the ninth Bombshells opened October 2019.

  • Cost of goods sold was 16.2% vs. 14.0% of revenues due to the change in sales mix from a higher proportion of food and a lower proportion of service revenues.

  • Salaries and wages were 29.9% vs. 27.3% of revenues, reflecting the impact of fixed salaries on lower sales.

  • SG&A was 31.6% vs. 34.2% of revenues due to cost-savings initiatives and lower variable expenses due to lower sales, partially offset by fixed expenses.

  • Income from operations was $6.6 million (17.1% of revenues) vs. $9.7 million (20.0% of revenues).

  • Bombshells segment profitability increased 73% to $2.7 million on a 26% increase in sales and a 570 basis point increase in margin to 20.9% of segment revenues. Results reflected higher sales, more consistent traffic while operating in line with indoor restrictions, and greater operating leverage.

  • Nightclubs segment generated $8.5 million in operating income with a 33.7% operating margin. This is the segment's best performance since the 2Q20 quarter, when the pandemic was declared March 13, 2020.

  • Non-operating gains of $4.9 million pre-tax from debt extinguishment of forgiven loans.

  • Tax benefit of $384,000 caused primarily by reversal of the tax valuation allowance and the impact of the loan forgiveness.

December 31, 2020 Balance Sheet (All comparisons are to September 30, 2020)

  • Cash and cash equivalents of $17.0 million compared to $15.6 million.

  • Debt of $134.8 million compared to $141.4 million, reflecting debt extinguishment and regular paydowns.

Note

  • As of the release of this report, we do not know the future extent and duration of the COVID-19 pandemic on our businesses. Lower sales caused by social distancing guidelines could lead to adverse financial results. We are continually monitoring and evaluating the situation and will determine any further measures to be instituted, which could include refinancing several of our debt obligations.

  • All references to the "company," "we," "our," and similar terms include RCI Hospitality Holdings, Inc. and its subsidiaries, unless the context indicates otherwise.

*Non-GAAP Financial Measures

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

  • Non-GAAP Operating Income and Non-GAAP Operating Margin. We calculate non-GAAP operating income and non-GAAP operating margin by excluding the following items from income from operations and operating margin: (a) amortization of intangibles, (b) gains or losses on sale of businesses and assets, (c) gains or losses on insurance, 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, (f) gain on debt extinguishment, and (g) 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 19.1% and 21.8% effective tax rate of the pre-tax non-GAAP income before taxes for the three months ended December 31, 2020 and 2019, respectively, and the GAAP income tax expense (benefit). We believe that excluding and including such items help management and investors better understand our operating activities.

  • Adjusted EBITDA. We calculate adjusted EBITDA by excluding the following items from net income attributable to RCIHH common stockholders: (a) depreciation and amortization, (b) income tax expense (benefit), (c) net interest expense, (d) gains or losses on sale of businesses and assets, (e) gains or losses on insurance, (f) unrealized gains or losses on equity securities, (g) settlement of lawsuits, and (h) gain on debt extinguishment. We believe that adjusting for such items helps management and investors better understand our operating activities. Adjusted EBITDA provides a core operational performance measurement that compares results without the need to adjust for federal, state and local taxes which have considerable variation between domestic jurisdictions. The results are, therefore, without consideration of financing alternatives of capital employed. We use adjusted EBITDA as one guideline to assess our unleveraged performance return on our investments. Adjusted EBITDA is also the target benchmark for our acquisitions of nightclubs.

  • Management also uses non-GAAP cash flow measures such as free cash flow. Free cash flow is derived from net cash provided by operating activities less maintenance capital expenditures. We use free cash flow as the baseline for the implementation of our capital allocation strategy.

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

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) the impact of the COVID-19 pandemic, and (vii) numerous other factors such as laws governing the operation of adult entertainment 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, 2020 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 gary.fishman@anreder.com and steven.anreder@anreder.com

RCI HOSPITALITY HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share and percentage data)


















For the Three Months Ended December 31,






2020


2019






Amount


% of
Revenue


Amount


% of
Revenue

Revenues










Sales of alcoholic beverages


$ 17,360


45.2%


$ 20,743


42.9%


Sales of food and merchandise


8,609


22.4%


7,447


15.4%


Service revenues


10,060


26.2%


17,193


35.5%


Other


2,369


6.2%


3,011


6.2%



Total revenues


38,398


100.0%


48,394


100.0%

Operating expenses










Cost of goods sold











Alcoholic beverages sold


3,262


18.8%


4,146


20.0%



Food and merchandise sold


2,863


33.3%


2,553


34.3%



Service and other


79


0.6%


77


0.4%




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


6,204


16.2%


6,776


14.0%


Salaries and wages


11,486


29.9%


13,223


27.3%


Selling, general and administrative


12,152


31.6%


16,531


34.2%


Depreciation and amortization


2,023


5.3%


2,204


4.6%


Other gains, net


(50)


-0.1%


(26)


-0.1%



Total operating expenses


31,815


82.9%


38,708


80.0%

Income from operations


6,583


17.1%


9,686


20.0%

Other income (expenses)










Interest expense


(2,434)


-6.3%


(2,485)


-5.1%


Interest income


60


0.2%


98


0.2%


Non-operating gains (losses), net


4,916


12.8%


(72)


-0.1%

Income before income taxes


9,125


23.8%


7,227


14.9%

Income tax expense (benefit)


(384)


-1.0%


1,593


3.3%

Net income


9,509


24.8%


5,634


11.6%

Net loss attributable to noncontrolling interests


134


0.3%


-


0.0%

Net income attributable to RCIHH common shareholders


$ 9,643


25.1%


$ 5,634


11.6%













Earnings per share










Basic and diluted


$ 1.07




$ 0.60















Weighted average shares outstanding










Basic and diluted


9,019




9,322















Dividends per share


$ 0.04




$ 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,



2020


2019

Reconciliation of GAAP net income to Adjusted EBITDA





Net income attributable to RCIHH common stockholders


$ 9,643


$ 5,634

Income tax expense (benefit)


(384)


1,593

Interest expense, net


2,374


2,387

Settlement of lawsuits


152


24

Gain on sale of businesses and assets


(5)


(30)

Gain on debt extinguishment


(4,949)


-

Unrealized loss on equity securities


33


72

Gain on insurance


(197)


(20)

Depreciation and amortization


2,023


2,204

Adjusted EBITDA


$ 8,690


$ 11,864






Reconciliation of GAAP net income to non-GAAP net income





Net income attributable to RCIHH common stockholders


$ 9,643


$ 5,634

Amortization of intangibles


79


156

Settlement of lawsuits


152


24

Gain on sale of businesses and assets


(5)


(30)

Gain on debt extinguishment


(4,949)


-

Unrealized loss on equity securities


33


72

Gain on insurance


(197)


(20)

Net income tax effect


(1,219)


(26)

Non-GAAP net income


$ 3,537


$ 5,810






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





Diluted shares


9,019


9,322

GAAP diluted earnings per share


$ 1.07


$ 0.60

Amortization of intangibles


0.01


0.02

Settlement of lawsuits


0.02


0.00

Gain on sale of businesses and assets


(0.00)


(0.00)

Gain on debt extinguishment


(0.55)


-

Unrealized loss on equity securities


0.00


0.01

Gain on insurance


(0.02)


(0.00)

Net income tax effect


(0.14)


(0.00)

Non-GAAP diluted earnings per share


$ 0.39


$ 0.62






Reconciliation of GAAP operating income to non-GAAP operating income





Income from operations


$ 6,583


$ 9,686

Amortization of intangibles


79


156

Settlement of lawsuits


152


24

Gain on sale of businesses and assets


(5)


(30)

Gain on insurance


(197)


(20)

Non-GAAP operating income


$ 6,612


$ 9,816






Reconciliation of GAAP operating margin to non-GAAP operating margin





GAAP operating margin


17.1%


20.0%

Amortization of intangibles


0.2%


0.3%

Settlement of lawsuits


0.4%


0.0%

Gain on sale of businesses and assets


0.0%


-0.1%

Gain on insurance


-0.5%


0.0%

Non-GAAP operating margin


17.2%


20.3%






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





Net cash provided by operating activities


$ 6,274


$ 10,273

Less: Maintenance capital expenditures


605


1,021

Free cash flow


$ 5,669


$ 9,252

RCI HOSPITALITY HOLDINGS, INC.

SEGMENT INFORMATION

(in thousands)










For the Three Months




Ended December 31,




2020


2019

Revenues






Nightclubs


$ 25,197


$ 37,859


Bombshells


13,006


10,350


Other


195


185




$ 38,398


$ 48,394







Income (loss) from operations






Nightclubs


$ 8,495


$ 13,776


Bombshells


2,717


1,573


Other


(75)


(207)


General corporate


(4,554)


(5,456)




$ 6,583


$ 9,686

RCI HOSPITALITY HOLDINGS, INC.

NON-GAAP SEGMENT INFORMATION

($ in thousands)
























For the Three Months Ended December 31, 2020


For the Three Months Ended December 31, 2019



Nightclubs


Bombshells


Other


Corporate


Total


Nightclubs


Bombshells


Other


Corporate


Total

Income (loss) from operations


$ 8,495


$ 2,717


$ (75)


$ (4,554)


$ 6,583


$ 13,776


$ 1,573


$ (207)


$ (5,456)


$ 9,686

Amortization of intangibles


47


4


28


-


79


57


4


95


-


156

Settlement of lawsuits


118


34


-


-


152


24


-


-


-


24

Gain on sale of businesses and assets


-


-


-


(5)


(5)


3


-


-


(33)


(30)

Gain on insurance


(197)


-


-


-


(197)


(20)


-


-


-


(20)

Non-GAAP operating income (loss)


$ 8,463


$ 2,755


$ (47)


$ (4,559)


$ 6,612


$ 13,840


$ 1,577


$ (112)


$ (5,489)


$ 9,816






















GAAP operating margin


33.7%


20.9%


-38.5%


-11.9%


17.1%


36.4%


15.2%


-111.9%


-11.3%


20.0%

Non-GAAP operating margin


33.6%


21.2%


-24.1%


-11.9%


17.2%


36.6%


15.2%


-60.5%


-11.3%


20.3%

RCI HOSPITALITY HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)












For the Three Months Ended





December 31, 2020


December 31, 2019

CASH FLOWS FROM OPERATING ACTIVITIES





Net income


$ 9,509


$ 5,634

Adjustments to reconcile net income to net cash





provided by operating activities:






Depreciation and amortization


2,023


2,204


Deferred income tax benefit


-


(150)


Gain on sale of businesses and assets


(5)


(30)


Gain on debt extinguishment


(4,920)


-


Unrealized loss on equity securities


33


72


Amortization of debt discount and issuance costs


51


61


Doubtful accounts reversal on notes receivable


(93)


-


Noncash lease expense


421


329


Gain on insurance


(250)


(20)


Changes in operating assets and liabilities:







Accounts receivable


1,433


2,345



Inventories


(22)


(141)



Prepaid expenses, other current assets and other assets


1,125


1,565



Accounts payable, accrued and other liabilities


(3,031)


(1,596)


Net cash provided by operating activities


6,274


10,273

CASH FLOWS FROM INVESTING ACTIVITIES





Proceeds from sale of businesses and assets


-


51

Proceeds from insurance


250


932

Proceeds from notes receivable


26


357

Payments for property and equipment and intangible assets


(1,289)


(4,058)


Net cash used in investing activities


(1,013)


(2,718)

CASH FLOWS FROM FINANCING ACTIVITIES





Proceeds from debt obligations


-


318

Payments on debt obligations


(1,745)


(2,081)

Purchase of treasury stock


(1,794)


(6,441)

Payment of dividends


(360)


(279)

Distribution to noncontrolling interests


-


(10)


Net cash used in financing activities


(3,899)


(8,493)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS


1,362


(938)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD


15,605


14,097

CASH AND CASH EQUIVALENTS AT END OF PERIOD


$ 16,967


$ 13,159

RCI HOSPITALITY HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)
















December 31,


September 30,


December 31,






2020


2020


2019

ASSETS







Current assets








Cash and cash equivalents


$ 16,967


$ 15,605


$ 13,159


Accounts receivable, net


5,334


6,767


4,250


Current portion of notes receivable


211


201


659


Inventories


2,394


2,372


2,739


Prepaid expenses and other current assets


5,348


6,488


6,386


Assets held for sale


-


-


4,825



Total current assets


30,254


31,433


32,018

Property and equipment, net


180,548


181,383


183,657

Operating lease right-of-use assets


25,125


25,546


26,981

Notes receivable, net of current portion


2,965


2,908


4,149

Goodwill


45,686


45,686


53,630

Intangibles, net


73,149


73,077


75,795

Other assets


882


900


1,062




Total assets


$ 358,609


$ 360,933


$ 377,292











LIABILITIES AND EQUITY







Current liabilities








Accounts payable


$ 3,601


$ 4,799


$ 3,202


Accrued liabilities


13,100


14,573


13,759


Current portion of debt obligations, net


15,685


16,304


14,898


Current portion of operating lease liabilities


1,658


1,628


1,521



Total current liabilities


34,044


37,304


33,380

Deferred tax liability, net


20,390


20,390


21,508

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


119,136


125,131


126,928

Operating lease liabilities, net of current portion


25,017


25,439


26,745

Other long-term liabilities


360


362


407



Total liabilities


198,947


208,626


208,968











Commitments and contingencies

















Equity









Preferred stock


-


-


-


Common stock


90


91


93


Additional paid-in capital


50,040


51,833


54,874


Retained earnings


110,080


100,797


113,523



Total RCIHH stockholders' equity


160,210


152,721


168,490


Noncontrolling interests


(548)


(414)


(166)



Total equity


159,662


152,307


168,324




Total liabilities and equity


$ 358,609


$ 360,933


$ 377,292

Cision
Cision

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SOURCE RCI Hospitality Holdings, Inc.