RCI Hospitality Holdings Inc (RICK) 2010 Q3 法說會逐字稿

Greetings and welcome to Rick's Cabaret International, Inc. third quarter 2010 earnings conference call and web cast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Allan Priaulx, IR for Rick's Cabaret International, Inc. Thank you Mr. Priaulx, you may begin.

Thanks, Doug. Good afternoon and welcome to our third quarter 2010 conference call and web cast. In a moment, I will turn the call over to Eric Langan and Phil Marshall who will present our second quarter results and then answer any questions you might have. Before we begin, I would like to call your attention to our Safe Harbor statement, which is included on slide two of our power point presentation which is available on our web site www.ricksinvestor.com and at precisionIR.com. Please take a good look at this statement as this conference call may contain forward looking information within the meaning of section 21 E of the Securities Exchange Act of 1934. I would also like to remind you that Rick's Cabaret files reports and other documents with the SEC and all of them are available on our IR web site, www ricksinvestor.com, which is the new discreet investor relations web address for our investors. You can also get all kinds of information about Rick's Cabaret international on our regular web site , ricks.com.

I want to invite anyone who is in the New York City area today to attend our due diligence event in the Rick's Cabaret in Manhattan tonight, starting at 6 PM. You'll get a chance to meet Eric Langan and get a guided tour of the club and see how we conduct our business at the club level. Now I will turn the conference call over to Eric Langan.

Thanks Al, thanks for your time this afternoon. I will begin the conference call with a quick overview of our third quarter for 2010. We will be reviewing our third quarter performance, we will be discussing the impact of the non-cash events on the earnings per share, talk about strong cash flow, update you on our balance sheet, talk about the outlook for the remainder of this year and then conclude with a question-and-answer session.

Total third quarter revenues were $19.9 million, versus $21 million in the previous year. Net income was $857,000 versus $1.8 million last year, and earnings per share were $0.09 cents versus $0.19 cents. Part of the decline in revenue was same store sales were off 13.9%. Primary factors of that were the decline in Las Vegas. Las Vegas sales were down about $2.5 million dollars, over the previous year. Due to the difference in marketing expenses and the way we are doing business this year versus last year.

Our earnings per share were affected by one time redemption related costs based on the convertible debenture we called. There was a fee with raising that money that was originally amortized over a three year expected life of the debenture because we were able to call that debenture early and convert it earlier, we had to take an immediate write off of that fee of about $275,000. Booked at interest expense was actually part of the fees related to raising the capital. We also had a derivative loss due to the stock price decline, the Dallas put options for collateralized and created derivative instrument and due to the decline in the stock price we had a derivative loss of about $400,000.

We had New York legal expenses based on the labor lawsuit we have in New York City that affected us by about $90,000 over what they have been averaging throughout the quarters. Like I said the marketing expenses in Las Vegas reduced. Total marketing expenses reduced to $1.2 million, compared to $3.3 million last year. Cash flow from operations continued strong with $4.1 million in the third quarter, and $12.2 million in income from operations in the trailing nine months of this year.

Our third quarter highlights were visits to our clubs remain strong. What we are seeing in April, May and June was the customer spend decline. Where we had seen in January, February, March, that spend level really heat up, that trend ended in March and in April started down cline all the way in through about the third week of July. We are seeing some decent spending in the last few weeks -- or last ten days or so of July, and going forward in to August so far. So, we will see what happens when school starts if that spend continues and business travel continues I think we are back in much better shape. We are going to remain focused on bottom line right now and bring our new clubs up to speed and maximizing revenues and earnings in those new locations. They are starting to contribute significantly and our club in the Fort Worth market is doing very well for us.

We are also going to carefully watch our marketing cost and try to control those marketing costs so that we are spending money that generates us more revenue than it costs us. We're going to continue to cut operating expenses and looking for better uses of our regional efficiencies, controlling purchasing power and working to continue to lean out our corporate structure as well to keep our costs down. Our goal is to resume revenue growth and build strong bottom line earnings going forward. This may take another quarter or so as we continue to phase out that high marketing cost from Las Vegas, but I believe we will be poised to return to positive growth in 2011.

I'm sorry, additional highlights for 2010 were new clubs in Fort Worth beginning to generate the strong revenue as I said. We are doing what we said we would do about getting guests in to the clubs during these tough economic times. We're using marketing and pricing initiatives and we're trying to use marketing that's less expensive than traditional marketing and doing some social marketing. We're getting very involved in some of the social networks and those types of things that don't really cost us a lot of money but seem to have great results for us right now. And we are continuing to build our brand loyalty as we prepare for the recovery.

While the Las Vegas revenue declined, so did our net losses there. Losing $200,000 for the quarter versus$ 300,000 last year. Our taxi cab marketing costs are now ranging about $20 to $60 for this quarter, on average versus $50 to $100 per head last year. And we are tracking the Las Vegas economy as visits to the city are up but the gaming industry is reporting declines in gaming and food revenue. The upcoming convention season will help our visibility for the next year as bookings are reported very strong for the next six months.

Looking at our balance sheet, we have approximately $18 million in cash on hand as of June 30. Our assets total $166 million compared to $145 million a year ago. And we continue to use our free cash flow to buy back the put options at this time and so that stock does not enter into the marketplace. Our growth strategy moving forward, will be to continue to stress organic growth to generate free cash. We'll be opening a new club in the Dallas Fort Worth -- near the Dallas Fort Worth airport hopefully in September sometime. We are going to continue to build our customer base of other new clubs and we are planning for the Super Bowl in Dallas in February '11 and starting some of our marketing and promotions for the Super Bowl as well, and setting up with marketing partners that will help fund some of the parties and other things that we will be offering during that time.

We will continue to try to close an acquisition each quarter. We are seeking properties that will be immediately accretive. Generally, our plan, like I said, is one acquisition per quarter. We have $18 million in cash, so we should have -- we should not have to use equity at this time or take on additional debt at this time for most of the acquisitions. We are looking at the mega clubs that may require additional debt. We probably would not be issuing equity at this time at these prices.

The marketplace knows we are the serious buyer. We are basically the only ones out there with the large amount of cash right now and so we are being picky on the properties that we are considering. We are watching the overall economy closely and if the strength returns after the summer, we will be more aggressive in making acquisitions. Our goal is to identify high quality targets and buy them for the right price. While we have the money to buy anything and everything and get crazy, we are waiting to make sure that we have seen the true bottom of revenues and sales because we didn't want to be buying at the top and making the mistake we did with Vegas. However, when we see that we will continue to we will start looking at larger acquisitions.

As you can see, we've made four acquisitions in the last 12 months, with the one that we made from BCG here in July. So, we are actually out there looking we are going to continue to look. We are more interested in clustering at this point because it's markets we know, we know the market place and know how strong the local economy is in those markets so that's really where we are looking at this time. But, we are also looking outside for the near future.

Our financial outlook going forward is, we will miss our previous guidance of $0.95 cents to $1.05. The main reasons are that the economy just didn't rebound at the earlier rates as we had seen in January, February and March, and we've actually seen declines in April, May and June. Our customer spend is wildly inconsistent. And until we get some consistency in customer spend, it's very difficult for us to really give guidance. It's one of the same problems we had in 2009 when we were not really issuing guidance because of the fact our customer spend was too inconsistent.

Going forward, we think 2011 is going to be a great year for us. Many factors are going to affect our earnings in 2011 and I think add to them including the Dallas Super Bowl. The contribution of the new clubs as they mature. Our lower legal bills as we -- as the lawsuits mature and we don't have as much discovery and other high legal expenses. The anticipated Texas poll tax ruling by the Supreme Court upholding, as we anticipate, upholding the unconstitutionality of the ordinance could have a positive impact in 2011.

We are not issuing new guidance at this time, but we will be watching that closely. When we get a better feel for customer spend and we can actually see for sure where it looks like things are going, hopefully we will get out there and give you better guidance as to where we think earnings are going to be at. I do believe that the September quarter we will earn more than we did in this quarter. Based on what we seen in July so far and first two weeks of August here. At this time, I will take any questions you may have. So, we will have the operator tell you how to queue for the questions.

Thank you. Ladies and gentlemen, at this time we will be conducting a question-and-answer session. (Operator Instructions) Our first question comes from the line of Eric Wold from Merriman Curhan Ford. Please proceed with your question.

Thank you. Good afternoon Eric.

Hello, how is it going?

Good. So, on the sales trends you are seeing in the store and clubs right now as you said, correct me if I'm wrong, you said that attendance remains healthy but seems like the people that are there aren't spending as much as they were in the past?

Yes, what we are seeing is more gawkers and in January, February, March we were getting a lot of VIP, top of the menu ordering. It was very promising, very exciting. And what we are seeing, is in April we've seen it slow down a little bit, and we thought it's just a fluke, it's April, tax time. But then, of course we rolled in to May and kept see -- we continued to see the trend in June, June really started the fall off. And the first two weeks of July were very scary.

The third week we've seen some recovery and then those last ten days it was like somebody turned on the water spickets full blast. Spending increased and customers were coming out and having a great time. We started seeing big spend and VIP sales were up. It's just like I said right now it's a consistency of the customer spend. They are there, you know, if you have 400 people in the building and they are all holding back on spending, it is definitely going to affect our top line.

So, I guess, my question on that is if people are coming to the clubs but just the spending is the uncertainty, can you -- how can you market around that to get people that are already there to spend more or do you have to wait and see how it happens?

Well, what we've been doing, is we're running more specials, we're running more in-house specials than we typically used to. We are doing more bottle discounting in certain clubs, not all the clubs, but certain clubs doing bottle discounting, VIP discounting if we have a full main floor, and it's filling up and our VIP is completely empty we will try to find customers that potentially will spend money and maybe try to free upgrades to VIP or those types of things to try to really move that traffic and get that spending started.

Okay. Then switching to Vegas, a current sales trends I guess right about where they are now and the spend you are doing on the taxi cabs, is the club profitable right here?

I think we are really, really close. When we were at 20 last time and made money I think we are really close right now. It's really going to depend on the conventions really start next week with the gentlemen's club owners , there is a couple of small one there is this week, the gentlemen's club owner's expo, and then magic is that following week and then I think we start rolling into the cycle. The magic show really is the first big convention of the season and then it starts and runs all the way through about May. We are hearing and of course the casinos put out that bookings are very strong. What we need to see is if everybody shows up. Then once they show up, can we get them in the clubs and spending money.

Follow up on that, --

At $20, we will be -- if the people come out and the people spend we will be profitable at that level for sure.

I mean, admittedly the purchase timing wasn't optimal. Looking a at the dynamics of the Vegas market versus other markets depending on visitation, really depending on a big taxi cab situation that can ebb and flow a number of times. Is that a market that may not make sense or may make sense sell the club, walk away and focus on the other markets on completely different dynamics?

You know, I'll be honest. We have been considering it. It's one of the options. We're really trying to see how the next six months go. If the convention business does come back and we can get the customers in and spend the hold taxi thing down a couple of the clubs have been purchased by competitors and have competitors now working together as partners .

So, there is not as many clubs to really jack around with the rates as there used to be. So, that's going to be nice and hopefully we can keep those rates controlled and operate on a level like we do in every other market that we operate in and when we get a level playing field, we do very, very well. When the playing field becomes unlevel, that's when we start having the problems. And in that market, the only way you keep the playing field level is outspend our competitors. I think that in the past it escalates, -- there used to be a gradual escalation, somebody starts paying $5 more, then this guy pays $5 more. Well, we've basically taken the stance than if you pay any more than what everybody agrees to, we are going back to the top.

Instead of taking a whole year to play out, or two years to play out in the past, where you edged up $5 at a time, $5 at time to get up back up to $60, $70, $80, $100, an unsustainable number. Basically what we decided to do is any time somebody tries to take advantage by paying a little extra, we take it take it back to an unsustainable number, immediately. So instead of trying to out do by $3 or $4 or $5 or $10, we just take it right back to the unsustainable number and say when everybody wants to pay a fair price, we will all go back to making money.

Seems to have worked at this point and seems to be holding things in check a little bit out there. We don't want to pay it, neither does anybody else. Nobody wants to lose money. So, if somebody can get advantage for six months or three months because it takes time to escalate back up to an unsubstantial number then people tend to play games as little bit. But, I think with the new strategy everybody is using out there, that's ended the -- because everybody matches immediately now. Somebody goes up to the max, somebody goes up to an sustainable number, everybody matches immediately. So there is no slow, gradual ceiling. I think all the club owners have learned that letting another club get advantage from that is a problem.

Final question, on the -- you spend about classified in the cash flow statement is $4.9 million of purchase of property and equipment. How much of that was actual capital purchase for the clubs versus maybe land was thrown in there as well?

I believe it's all club -- we purchased $3 million -- we purchased $3 million of land in Austin, correct, Phil?

No. It was $2.5.

Somewhere in that range. Most -- there is a big chunk of land in there.

So, if you take out the $2.5, $2.5 million of pure CapEx spending is a pretty big pick up.

It's not all CapEx. I'm sorry that is purchase of the assets of those three clubs as well. We added the Austin location. Two clubs in this time period. The Austin location was added in December, and in June we added the Fort Worth gentlemen's club acquisition which became XTC Fort Worth.

Okay, but there's two line items acquisition of businesses, and there's also additions of property and equipment, so I'm just wondering which can go into which category?

Okay. This is Phil. The acquisition of property and equipment is also -- includes the property at those clubs that we bought. My guess is that maintenance CapEx over the nine months probably about $1 million.

$1 million cumulative?

Yes.

Okay, perfect, thanks, guys.

Our next question comes from the line of Eric Beder from Brean Murray. Please proceed with your question.

Hi, this is Jennifer filling in for Eric today. At this point, what do you think the general mind set of the consumer is? You talk about spending patterns being so inconsistent how are you looking at the balance of the year and what assumptions are you making?

When I talk to people, the biggest thing is confusion. It's really the same place we are really at in our acquisitions right now. We have decent acquisitions out there if we would pay up a little bit more [inaudible]. If we pay up a little more we could probably close other acquisitions right now. But the problem you have is you don't know where the consumer is going where the spending is going and so you are not sure.

People in the same place they don't know where their business is going so they don't know where their income or earnings are going to be. So, they're being conservative in spending. It's market confusion. The markets confused on which way the economy is going to go. Half the people say it's getting better half saying it's getting worse. Is it getting better or is it getting worse? It's not really a consensus right now.

Right. So, I mean, as you are looking ahead, in The last conference call you talked about passing on price increases or doing some cut backs on the happy hours and specials and promotions and now that things are weakening you are doing a little bit more of the in house specials. What are you anticipating doing -- what is your thought process?

We are hoping as we get into prime season -- we actually instituted the price increases that we talked about. We actually cut happy hours down a little bit. We stuck with that. We haven't really pushed that back out yet. What we chose to do instead of rolling out across the board to everyone, price increases, what we've done -- is because the customers are coming in to the building. So, it's not like we need to give cheap prices to pull people into the building, what we've done is gone to a more on the spot discount where we've given our management team, in certain locations where we are having these problems, the ability to discount a VIP membership or discount a bottle during certain times or running certain brands at a discount on certain nights to try to boost spending that way.

Do you think there is general weakness, more so in the high end customer than say your b-club customer?

Yes. Absolutely. Our b-club customers, we've seen same store sale increases as we do every summer. Summer is a good time for that because that blue collar worker is working hard. The construction guys are out working hard because the weather is great, lawn guys are all out working now, all that type of stuff. Those customers are all out there working making money. And they are coming in and spending it.

What we are seeing is the high end customer, who is working harder, working more hours, has less free time and really is uncertain of the future. As we see -- I think as we see the recovery roll out more that that will stabilize and we will have a much better feel and we'll be able to know when a discount what to discount, that type of stuff. Sometimes even the discounting doesn't help, at this point. So, I don't know if it's whatever was on CNN that morning or what came out in the Wall Street Journal that morning is really affecting peoples's thinking when they go out that night, but there is definitely some affect of people on the economy on people in their spending right now.

Okay. Then, just one last question. Can you call out specifics about stronger versus weaker markets? You know, how Tootsie's doing or how is the market doing in Philadelphia?

Well, Philly has been really tough. It is getting better we changed out our management team there. We are doing new promotion stuff and seeing some increase this last month and hopefully we will continue as we roll forward. Tootsie's is doing very well, it is off a little bit year-over-year and the New York club continues to be one of our strongest markets.

Where we're really seeing the strength right now is in the Dallas Fort Worth metroplex. The Dallas Fort Worth clubs, the new locations that we bought and of course the two clubs in Dallas and the Fort Worth locations are doing very well. The other thing about Philly, it's coming up in September they're going to open the first casino, there's other casinos planned to open. We think once the casinos get opened, there will be more traffic, because those casinos are on Columbus Boulevard where the club is located, it will bring more traffic to that part of town as well so it will be good for us.

Thank you and best of luck.

Thank you.

Next question comes from the line of Steven Gart, with John Locke Capital. Please proceed with your question.

Most of my questions got answered or asked and answered already. But, just generally speaking, what are you looking for to signal a turn around sustainable as far as when you go back to making acquisitions. We got a lot of investors --

That's the problem.

Is it five consecutive good months, three, six? Is there some kind of thing you're really looking for that makes you go I think we are out of the woods, for real?

You know, I think really it's going to be the consumers. We've seen it in January and February. Actually really more February and March. January is pretty decent as well, but we seen it in February and March. If we'd have seen the same strength run into April and May, we probably would have been willing to pay a little bit more on at least two acquisitions that I've been looking at recently. We would be looking at new market as little more. Not really whole lot more money, I don't see us spending more on the multiple at this point, but I'd be more leery to take more risks outside of existing markets.

But when we see it sliding off in April,l we kind held our own and then we said let's see what happens in May and by the third week of May we knew, we are going to tighten back down. Let's go ahead and move on these acquisitions in Fort Worth and close this up and get that done so that we -- basically we own at this point when the new club opens we will own -- well, we actually do already, but with the new club we'll have five locations. We own every location over 4500 square feet in Fort Worth. So, we own all of the major clubs in the city of Fort Worth right now. That clustering gives us a great benefit.

None of our major clubs compete with each other. They all have a different demographic or different feel to them so therefore different customers will prefer the different locations and don't have as much cross over as customer base as we do if we compete with someone directly. And also none of the customer base is alienated because basically we have something -- one of our clubs is exactly what different demographics of the customer base are looking for. It's not like we are not buying stuff we are buying stuff we raise the cash because we do intend on continuing to try to buy something, acquisition every quarter. We are looking at a couple of larger locations and if we can come to the right terms, -- everybody gets serious about it, we'll get it done.

There's always times, there's your double edged sword, because the companies you are buying are looking to buy might be persuaded to sell at a lower rate, which is long-term beneficial -- obviously you are waiting for economic recovery for the overall club performance. But go back to Vegas for a second. I'm curious. I covered casino stocks for ten years what I'm generally hearing from CFO's or CEO's is that weekends are very strong still. Thursday night, Friday, Saturday, they are largely running pretty good occupancy, pretty good rates. It's the Sunday through Wednesday where they are seeing a lot of pain, where they can move the --

That's what we are seeing. The customer spend on the weekends is decent, it's not great, but it's decent. And we're busy. There's lots of people in the club. Friday, Saturday and even Thursdays, we moved our local parties, we changed our local parties up and now we're doing our local parties on Thursday, so even our Thursdays are very, very big. Busy Thursday, Friday, Saturday, and then Sunday is hit and miss depending on what convention is on Monday. There is no convention on Monday, there is no Sunday. If there is no conventions on Tuesday, Wednesday, you can be pretty thin out there. You get a decent convention in, Tuesday, Wednesday, hit and miss.

We expect all that to change, I think the casinos are probably saying the same thing as we move in to the convention time. These conventions got great bookings. The room rates were down, so a lot of people booked, so it's a matter of all those people showing up and the room rates are actually are coming up a little bit they are not high. But they are better than they were.

They're making concerted effort to get the business going. But you will see it's still similar to what you are experiencing.

Basically you can stay at Mandalay Bay on Sunday through Wednesday for about the equivalent of $39, they are charging $100 something dollars but giving you a $75 Mandalay Bay credit that you can spend anywhere. You can buy cigarettes at the gift shop, any place in Mandalay Bay, you can spend it.

That's the promotions that are hurting them. They are getting people in. The effective net rev par is still hurting them.

That's what is hurting the clubs. We get a guy in, he comes in to Vegas and coming on one of these little junkets where you're getting a cheap airfare for $100 something, and hotel for $100 something and he has $400 in his pocket. How much money is he going to come to the club and really spend?

They also have a good night on the table [inaudible]. So it's not just the general macro problem.

It's in line with the rest of the Vegas economy right now.

Vegas economy is tough. Just generally speaking, local job market also isn't helping. You are still working through --

The nice thing we are bringing a lot of locals out. They don't have a lot of money. They are coming out and hanging out and spending. The good news is if the economy comes back -- we've built brand now. [OVERLAPPING SPEAKERS] We went out there two years ago.

You got to do the best you can. You build the brand and get them in the door, even if they're e not spending much. You hope the recovery isn't two years, that it's six months or nine months and spend goes up. I'm curious, last question out of curiosity, do you see any correlation on your high end spend, like obviously you pay very close attention to how April, May, the month go, on the high end with how the stock market is doing? I'm wondering if there is a correlation or not. You look at you're paying out one day and it's nice and green you are a lot more whether it's your place, Amazon, whatever, I find myself, yes, what's $500 for this? I'm not spending any money.

We see that in VIP's for sure. The nice thing about the New York club is that we're very very steady and lots of business.

You have such key location right by the path and the main trains. I think that club is a great club.

Really, a lot of our higher end clubs are similarly affected, but not like New York is probably the most. But the nice thing about New York, is you got guys on the short bike, too, so what we see is one group of customers isn't coming in, spending another ones. What has been lagging is the market is staying here in this range, guys don't know whether to be short or long so that's where we are really seeing the effect of the market I think on that.

Overall, I don't think our especially in our b-clubs, I don't even know if they know the stock market exist as lot of times. It doesn't really affect their lives one way or the other as longs that they are working and making money they are pretty happy.

Our next question comes from the line of Greg Finny who is a private investor. Please proceed with your question.

Hi, thanks a lot. I just had a question regarding the interactive media division, to find out whether or not there has been an upside performance there whether or not there are any opportunities for potential acquisition there that might be either accretive or help you substantially with marketing.

Actually, really all the -- all of our internet stuff that we actually do and generate money on is stuff we wrote ourselves and created ourselves, basically now. So, we haven't really looked to acquire anything. Our internet revenues are down as you've seen from the queue.

And that is because that is a lot of -- our CouplesTouch website and our NaughtyBids website have a huge base of middle class Americans that are the customer there and they are the ones that are being affected by the downturn. So, they are cutting corners everywhere they can and that's just one of the ways they can save money. So, hopefully as we see the rebound hopefully we will get some of those customers back and continue to add to that. But to answer your question, simply, no, we really aren't looking at acquisitions in that field right now. We are really sticking with the brick and mortar business.

Okay. Thanks.

(Operator Instructions) Our next question comes from the line of William Steadpacker, who is a private investor. Please proceed with your question. [NO AUDIO]Mr. Steadpacker, your line is live.

[NO AUDIO] I think we lost him.

Your line is live.

I'm here.

Now we can hear you.

I can hear you now. How are you doing?

You mentioned a couple of months ago at the Noble conference that you were working at two mega clubs. Do you anticipate Mega club as an acquisition or smaller type club and when do you see that happening?

We are definitely looking. We haven't been real real serious as the numbers, we were get pretty serious especially around the time of Noble. We were having trouble getting to numbers we could all agree upon. On the one acquisition on the other acquisition we kind of taken a, we are going to wait and see what happens in that -- in the economy a little bit on it.

I don't really know exactly what we are going to buy next. We are looking and we are trying to judge everything. What we don't want to do, we don't want to sit on the sideline [NO AUDIO] cash for a whole long time, but at the same time, we don't want to run out and just buy something because we have cash. We have the cash. It's not burning a hole in our pocket we can afford the interest right now. We are generating strong cash flow, we have earnings.

So, it's not like we are losing money where we have to panic. In fact, I think we've got the only real clubs that are loss, or a bit of concerns are Philadelphia and Las Vegas. The Austin location we are currently in negotiations on a joint venture, and I think that joint venture will probably be consummated here soon. Which will stop us -- part of the agreement will be that they're responsible for any losses, we are going to basically use our property and licenses to contribute. That will be our contribution to the joint venture. Hopefully we can get that consummated here shortly and that will stop any losses at that location. We closed a location insignificant losses again.

The reality is it's so hard to tell right now. If you asked me two weeks ago or three weeks ago, you asked me the second week of July I would say we are not buying anything, now we are going to sit and wait until we find a bottom. We found the bottom the second week of July.

We've seen a nice upturn and the last ten days a sharp upturn and the first two weeks of August are holding decent. We are not where I want to be, but we are not we are headed in the right direction right now. I really thought that we would be around the $0.25 a quarter. If you add backs and add backs back in to the $0.09 after tax, we would have been around $0.15 for this quarter. So, we are still off. We are not running on eight cylinders as far as we would like to be. But it's not horrible either. So, if you look for the next quarter, we will have an idea.

-- (Inaudible. )

I'm sorry?

Certainly ways deal with the -- [NO AUDIO] [TECHNICAL DIFFICULTIES]

What we've always said is we are -- we buy clubs we are out there looking to buy the cheapest clubs we can buy. If our clubs become the cheapest clubs we can buy, that's what we will do with our cash. We definitely did raise that money to buy back our stock. In fact we were really kind of hoping things would continue to roll and the stock price would hold and we would convert out of this make a couple of acquisitions in the next six months and convert out of it. And I still hold hopes that is what will happen, is that we will find the right acquisitions in the next six months and two quarters and make those acquisitions and the stock will rebound back up and we will convert out of it.

This quarter to me was a miss. I think the analysts were ahead of us, but even with the -- I think they brought down to the -- I think they were around $0.19 consensus, and we really thought we would be in that range ourselves. In fact, we were really hoping to do over $0.20 cents this quarter. Like I said with the add backs at 15 we look at numbers at 15 because the non-cash is a non-cash we actually generated that money from operation the cash came in. In fact we generated $12.2 million in cash in nine months in nine months $1.20 share in cash flow from operations. So, the cash flow is there, once the stock finds a spot and the derivative stuff goes away that will be gone, $275,000 there was nothing we could do we had to write that off once we converted. I would rather take $275,000 on non-cash expense in the quarter rather than pay 10% interest on $8.2 million, $7.2 million, for the next 2.5 years. As a company, long-term we came out ahead on that and our shareholders benefit from that.

We are looking at the long-term right now. We are really trying to not focus on short-term this quarter, next quarter type deal and really say okay, if we get everything running and get through October, November, December, the new club will be open and hope we make another acquisition in that quarter. And we are ready to move forward and 2011 will be our year.

Okay. Thank you.

There are no further questions in the queue. I would like to hand the call back over the management for closing comments.

All right. Thank you for your time this afternoon and I will be at the New York City location tonight from about 6 PM to 8 PM. Come by for the due diligence ball. And I'll see you there. Thank you.

Ladies and gentlemen, this does conclude today's teleconference, thank you for your participation. You may disconnect your lines at this time and have a wonderful day.