RCI Hospitality Holdings Inc (RICK) 2009 Q3 法說會逐字稿

Greetings and welcome to the Rick's Cabaret third quarter conference call. (Operator Instructions). A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. On the call today, we have Mr. Eric Langan, Chief Executive Officer; and Mr. Phil Marshall, Chief Financial Officer for Rick's Cabaret international. And to start the call, I'll hand the floor over to Mr. Allan Priaulx, Investor Relations Counsel. Thank you, Mr. Priaulx, you may now begin.

Thank you Jackie, this is Allan Priaulx. I'm the Investor Relations Counsel for Rick's Cabaret. I want to remind you that on page two of the presentation, which is on the VCall Website and also accessible through the www.ricks.com Website, is our Safe Harbor statement. And we call your attention to it. It contains all of our forward-looking statements information.

I also want to remind you before I turn the floor over to Eric Langan and Phil Marshall, that tonight at Rick's Cabaret in New York City, that's 50 West 33rd. St. we're having a due diligence ball and anybody is invited to come down to that. Eric will be there and be able to answer any further questions that you might have. And you'll get a chance to see the club and see how we really operate. So, without further ado, I hand the phone to Eric Langan.

Thanks Allan. And thank you, everyone for taking your time this afternoon to call in or listen on the Internet. We begin with the third quarter overview in the presentation. We're going to review our third quarter results. We're going to talk about highlighting some of our significant improvements that we've done at some of our locations. What we're we're going to do is to continue our ongoing performance of those improvements, talk about our acquisition strategy, the outlook for the remainder of the year. And then, we'll get to a question and answer session where you can ask any questions that you might have.

Our third quarter snapshot, we decided to go with our third quarter versus second quarter, rather than year-over-year. Due to the current economic times, we just don't think it's relevant as much on the year-over-year as it is to show you how it's getting better in sequential quarters for us right now. But our total revenue of $20.8 million versus $18.3 million in the last quarter, we're up 14%. A lot of that was the Las Vegas location, as most of you know. Our income from continuing operations of about $1.9 million versus $1.5 million in the second quarter, up 26%. And most importantly, our net income of $1.8 million versus the third quarter of about $840,000 or up about 113%.

Our same-store sales were slightly off for the quarter, though we were up in June by a 0.25%. For a total for the quarter off by 0.9%, so about 1%, versus a 6.9% decline in the second quarter. However, our cash flow still continued strong and continues to remain strong. Our powerhouse clubs in Miami and New York were both up around 7% for the quarter. And we had some nice turnarounds with Philadelphia, Onyx in Dallas and our Dallas XTC, the success was continued there.

And most importantly, the Las Vegas market continues to improve. The Las Vegas club lost approximately $300,000 in the quarter. $200,000 of that loss was in April. So, as you can see, it got much better in May and in June. We've continued the aggressive marketing campaign and we're continuing to earn market share and create relationships in the market to help to build our brand. We expect further improvements there as the economy rebounds.

Our Philadelphia and Dallas turnarounds have been great. In Philadelphia, the Onyx concept is doing very good for us. We're drawing a lot of the top athletes, a lot of hip-hop artists visiting. We're drawing customers as far as New York City that are in the city coming down for the weekend for certain parties and whatnot. The conversion of Rick's Cabaret in Dallas, our XTC location is also paying off big dividends for us and is a very successful location. We've been able to raise cover charges there recently on the weekends because it's just been so busy that the easiest way is to thin the crowd a little bit was to increase the cover charges, which allows us to earn more money.

The Rick's Cabaret in New York is still continuing growth, monthly sales continue to build. In July, they were up 7.4% over the previous year. Playboy.com. and YesButNoButYes and other reviewers are voting Rick's as the number one club in New York City. And we've also started to build our weekend bachelor party business and party businesses through special offers and special pricing and party packages. Finally, we opened the Smoking Deck, which has been a huge success so far and allows you to have a place in New York City where you can not only smoke but you can drink at the same time. With New York City's ban on indoor smoking, there's not very many places that you can smoke and drink at the same time.

Tootsie's in Miami, we're continuing -- we've added more space into the next level, which is very high margin for us, in preparation for the Super Bowl and the Pro Bowl coming up and to help relieve some of the weekend wait times. We've got a great mix of local customers and tourists. Very strong marketing programs we've put in place in Miami as well. As we've said in past calls, that we were going to really focus on our number one locations because of the flight to quality that the current economic recession is causing. And we're really building towards that Pro Bowl and Super Bowl in 2010.

As most of you have probably read, we raised $7.2 million recently through convertible debentures at 10% interest. We've looked at some of the other debentures out there and we're very happy that we were been able to raise that 10%. We've seen even some of the low-off casinos raising money as 16% and 18%. So, we're very lucky in the investors that we've brought in. We've sold our unimproved land that we had in Texas for $775,000, along with some equipment that was on that, which will equate to about a $200,000 profit for the Company in this next quarter. And it will be a one-time profit but it also gets rid of a non-cash producing piece of real estate. That, along with our current cash on hand, we have a little over between $12 million and $13 million for acquisitions at this time. The new funding creates this awards test for us to go out and look at acquisitions and for the sellers to know that we have the cash in the bank.

That was the biggest motivation for us in raising this money, is as we've talked to people and everybody wanted to know; How are you going to pay for it? How are you going to pay for it? This way, we know we have cash in the bank and so does the seller, which we believe will motive the sellers more. We are seeking accretive acquisitions to put this cash to work. We've been talking with several owners around the country. We do have some targets that we could act on quickly. But we've decided to wait until after the Gentleman's Club Owners Expo that's on the 23 to the 25 of this month and see who we run into out there. And make sure that we know about all the deals that are available. And that we've put our cash use in the best location, not only for a return on investment but also making sure that we're continuing to build the Rick's brand.

Our outlook going forward, we've had steady build since March -- or February, since the Super Bowl of last year. We've had a steady build of -- and building of the business. And sales and revenue are starting to build. Income is starting to come back up. And I expect that to kind of plateau in August and September. Kind of see maybe a flat quarter here this quarter. But I really expect the major lift to start in the fall or early October 1, second quarter of 2010. The second quarter of 2010 will be a very big quarter for us in that we have the Super Bowl and Pro Bowl in Miami and the NBA and All-Star game in Dallas, which will be very powerful drivers to our revenue and especially our net income.

We anticipate 2010 to be a much stronger year than 2009 has been. And I do continue to see and expect record revenues and income going forward. With that, we'll end the formal presentation and I'll be more than happy to take any calls or questions anyone has.

(Operator Instructions). Thank you, our first question is coming from [Steven Garp of John Locke.]

Two quick questions. If you could, a little more granularity in what you're seeing in Vegas? If you were to take the last couple of weeks and compare it to a couple of months ago, what you're seeing, in scope of number of customers, average spend, just a general sense of the climate there? And then two, on the Philly club, I'm curious on what you think a fresh Eagles season brings? If that impacts the club any more with the thing in Onyx in now or if that doesn't really matter?

Okay. I'll do your second first, the Philly location. Yes, the football season will definitely help that location, as well as will basketball season when it starts up in November. We expect that this is going to be a very big deal for Philadelphia when the sports season comes up. The summer has been okay but of course, they -- with a big manufacturing town and all, Philly has been affected by the recession a little harder than some cities. But business has been good. And we're making money there and that's what's important. And we're going to continue to see that.

But I think we will see, as we move forward and as the economy starts to come back, that that location will get better. And I think that the sporting events will bring people out and give them a reason to come out. And once they're out, we think we can get them to the club because the club is right down the street from the stadium. So, it should be better. Plus all the visiting teams tend to visit the location when we have big parties or events going on, if they don't have something to do right after the game.

As far as Vegas, Vegas, it's summertime. So our revenue numbers are definitely down for July and I believe they will be for August as well. But at the end of August, the convention season kind of starts up and it really heats up at the end of September, going into October. And I do expect that the numbers will get much better there. We have lowered the costs a lot, as you can see, over $300,000 this quarter versus $700,000 loss last quarter. And over $200,000 of that $300,000 loss was lost in the month of April. So, we've gotten a good handle on things out there. We understand the market much better than we did six months ago. And I think that as we move forward into the next six months, if the economy comes back out there, we are poised to take advantage of it 100%.

The nice thing is we're on the map. Everyone knows where Rick's location is now. There is no more -- that place? Where is that? What is that? Everyone knows it's there. It's not the old scores anymore. It is Rick's Cabaret and everyone knows Rick's Cabaret, which is really part of what all of our marketing was about. Was just getting our brand and our name out there and making sure that people knew that we were there and that we have one of the nicest clubs in the city, in one of the best locations and easiest to get to from the strip.

Okay, great. Thanks a lot.

Thank you. (Operator Instructions). Our next question is coming from Jamie Clement of Sidoti & Company.

Eric, good afternoon.

Hi, Jamie, how are you?

Good thanks. I was wondering if I could just ask a question about the month of July. You all put out a press release the other day showing same club sales increases, a little bit in excess of 5%. What are the locations, organically, that are starting to do better in the month of July?

Well, like we said in the release, of course New York and Miami are strong. Minnesota picked up and our San Antonio location has surprisingly picked up quite a bit. And then the rest of the locations are doing better than they were three months ago. So, we're starting to see that step build come. And I really think that, like I said, as we move into October where there's not as much competition for the entertainment dollar, where it's dark at 7:00 and 6:00 and 5:00 at night, instead of 9:00 and 10:00 at night. So, we have more hours of people actually being out in a nighttime party mode, that we're going to continue to see that build.

Okay, great. And I don't know if you want to handle this or you want turn this one other to Phil. But is the loss on the change in fair value of the derivatives, that is put option-related?

Yes, I can explain it because I've been over it with Phil about 100 times. Now, basically, when we change the derivative, if the -- whatever the stock price was the day we signed the deal, is basically where the day we had the fair market of that derivative. If the stock price goes down, we lose money on that derivative. So, we have to take an expense on it. If the stock price goes up, we gain money on that derivative.

Okay.

So, even though it's noncash deal, so for example, we lost $120,000 some in the last quarter but now at the end of July, our stock is up. So in July, you're going to see an income on that derivative.

Okay. So an income -- okay, so that's just -- the $122,000, that's not the difference between the original price and what it was put back to that?

There is a formula, and Phil can get a copy of that formula.

That's on a end of quarter mark-to-market number?

Yes.

Okay, got you. Thank you very much for your time.

(Operator Instructions). Thank you. This concludes our question and answer session for today. I'll hand the floor back over to management for any closing comments.

Okay. Well, the main thing I want to go over to with you is, of course, the due diligence party tonight. Please come on out if you're in New York and you can make it by the city. We would appreciate it.

And the other thing I'll touch on, I really thought I was going to get some questions about it, is the patron tax and how we're handling that now. We are still expensing that patron tax, however, it is going into our payables, our current liabilities because we're not actually paying the tax right now. So I just want to let everybody know that if you look at our accrued liabilities at the end of June 20, you'll see $3.731 million in accrued liabilities there. That number, about $670,000 of that is part of that patron tax. We expect that we will not pay that tax and we also expect that of about $3.6 million we paid in, that when we get the majority of that money back at some point, once the tax is completely ruled unconstitutional.

The lower court and the Third Circuit Appeals Court in Texas both ruled that unconstitutional. It's currently appealed to the Texas Supreme Court. And we expect that if they hear it that we'll prevail but there's still a chance they may not even hear the case and we just want to make people aware of that. All right. And that will do it. I really appreciate everybody calling in. And we look forward to talking to you again in our next call. Thank you.

Thank you, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.