RCI Hospitality Holdings Inc (RICK) 2011 Q4 法說會逐字稿

Greetings and welcome to the Rick's Cabaret International fourth-quarter 2011 earnings conference call and webcast.

At this time, all participants are in a listen-only mode. A brief 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, Mr. Allan Priaulx, Investor Relations for Rick's Cabaret International. Thank you. Mr. Priaulx, you may begin.

Good afternoon everyone. I'm Allan Priaulx, Investor Relations Officer for Rick's Cabaret. Welcome to our fourth-quarter and full fiscal year 2011 conference call and webcast.

In a moment, I'll turn the call over to Eric Langan and Phil Marshall, who will present results from the quarter ended September 30, 2011 and the full year and then answer any questions you might have.

Before we begin, I'd like to call your attention to our Safe Harbor statement which is included on Slide 2 of our PowerPoint presentation. That's available on our Website, Ricksinvestor.com, and at PrecisionIR.com. Please take a good look at the statement as this conference call may contain forward-looking information within the meaning of Section 21-E of the Securities and Exchange Act of 1934.

In addition, adjusted EBITDA is a term you will hear during this call. For your convenience, we've included a definition of adjusted EBITDA in our PowerPoint on Page 3.

I'd also like to remind you that Rick's Cabaret files reports of other doctors with the SEC and all of them are available on our IR Website; again, that's Ricksinvestor.com. That's our discrete Investor Relations Web address. A transcript of this call will be available most likely tomorrow at that Website -- on that website. That's Ricksinvestor.com.

For those of you in the New York area, you are invited to our popular Due Diligence Ball at Rick's Cabaret tonight from 6 p.m. to 8 p.m. We hope you will come to the club and perform your own due diligence. You'll have a great time doing so.

Now, I will turn the call over to Eric Langan and Phil Marshall.

Thank you Allan. Thank you, everyone, for taking time out of your afternoon to join the call.

We'll do a quick overview. We're going to do a summary of the fourth quarter and our fiscal year for 2011, talk about our chief drivers of revenue, the chief drivers of our net income increase, our outlook for 2012 and as always we'll end with a question-and-answer session where we can hopefully address anything that we don't get in the call.

For a quick snapshot of the fourth quarter, we did $21.5 million in revenue versus $19.1 million last year, a 12.7% increase. Net income was $2 million versus a loss of $12.5 million in the fourth quarter of last year. Last year, we did take impairment charges. Without impairment charges, that quarter's net income was about $1.4 million, just to let you see the difference in the net income for the quarter.

Adjusted EBITDA for the fourth quarter was $5.5 million versus $4.1 million,(Sic-see presentation slides) a 24.7% gain over the fourth quarter of 2010. Our diluted earnings per share of $0.20 versus a loss of $1.24 in the fourth quarter of 2010, without the impairment charges and loss from discontinued operations, that number would have been $0.15, so still a nice increase in diluted earnings per share for the quarter.

Going to the fiscal year, we did $83.5 million, up 12%, versus the $74 million in fiscal 2010. Net income was $7.8 million versus a loss of $8 million. Without the discontinued op losses and the impairment charges, fiscal year 2011 would have been $10.1 million versus $6.2 million in the previous year. So as you can see, the extra revenue that we added really got carried to the bottom line.

Fiscal year 2011 earnings per share from continuing operations $1.01 versus $0.38 from the previous year. Our fully diluted earnings per share of $0.79 versus a loss of $0.82.

Adjusted EBITDA for the fiscal year, $23.6 million, up 32% from $17.9 million the previous year. Our net cash provided, which I believe is a true measure of the Company is our cash flow, is an increase to $18.9 million versus $17.3 million the previous year.

Also increased was our operating margins. If you go through the K, there's a section that will show you exactly how those operating margins increased to 22.5% from 20.2%. Our peak in 2008 for the fiscal year was about 23.7%. So as you can see, we are starting to return to a more normal growth time, and I'm hoping to see that the economy continues to do that.

As we continue that growth in our major markets and our same-store sales increases of 4.9% for this year, our goal is to be somewhere between 5% and 10% going forward. The reason of that is some of the well spenders are back in returning to our larger clubs, and our regular customer base in our smaller clubs has built through the discounting periods and through some of the recession and we are continuing to see those regular customers come in and actually spend a little more money than they were in the past.

Our recently acquired clubs are continuing to contribute as expected. Our Austin location, which I'll talk about later, is really shining right now.

Our new acquisitions in the Dallas-Fort Worth market are going to help expand us in that market. We do believe the Dallas-Fort Worth market is going to be a major factor going forward here in the next few years for our growth. The club Onyx Philadelphia location is continuing to rebuild, and we are still continuing to see improvements there with our new extent operating hours. Now that the laws are changed, they allow us to stay open late again. The Rick's Cabaret in Indianapolis gearing is up for the Super Bowl MMXII.

We had the TABC hearing and the case, as I'm sure most of you are familiar with our Rick's Cabaret near the DFW airport, was held in June. The ruling was issued in our favor, and we're just awaiting issuance of that license which we are consistently being told any day now, so we look forward to when that actually happens.

One of our major focuses this year was our debt and making sure that we continue to pay down and reduce that debt. Our current debt at 9-30-2011 was $35.6 million. We reduced that by $6.9 million in the 12 months ending 9-30. Based on normal payments, we'll pay another $5.5 million in fiscal 2012.

We are continuously looking at ways to refinance our current real estate debt as well as maybe tap that real estate equity. We have considerable real estate equity that we would like to use for acquisitions going forward, and we are looking for sources to do that.

Bringing us our growth strategy, going forward, we are still going to continue to emphasize organic growth. I do believe that we are doing a couple of remodels right now in our Charlotte location; the original Rick's Cabaret in Minneapolis, we're doing a pretty extensive remodel up there. We believe that bringing these and investing in some of our existing stores will help generate organic growth and that growth is -- will translate to the bottom line much higher because our costs, our fixed costs, are already covered in those locations, so any increase in the topline has a disproportionate increase to the bottom line.

We're continuing to explore accretive acquisitions. We are looking at markets that we are in as well as new markets. Most of our focus has been on existing markets just because it's easier to operate and there's less risk involved. As the economy continues to get better and we see the spending continue to increase at our existing stores, I think our risks -- we'll increase our risk-taking a little bit and really look to expand into newer markets that we are not in right now to help expand our brand and brand recognition.

There are lots of opportunities out there right now. We're looking at stuff nonstop. Really right now, we're just trying to get the right clubs at the right prices and make sure that we use our capital in a way that's easiest for us to manage and the best long-term growth for the Company with a minimal amount of risk.

Outlook -- if current trends continue and the economy cooperates, we believe 2012 may be one of our strongest years ever. The acquisitions are out there for us, if we can -- investors start looking at our Company again and the stock starts to perform and we have that currency where we end up with the real estate financing that we've been working on and lining up, we'll definitely be set to make some significant acquisitions in 2012.

We do believe our stock remains undervalued, and we are hoping that the back-to-back quarters and continuing to see improvement in our margins will help bring our stock price back to a more fair value. We'll see, as we move forward here. I know that the October November months have been good. The first couple weeks of December are very strong.

While we are not issuing any guidance at this time, let's talk about some of our winners. Obviously, Tootsie's Cabaret is a fantastic acquisition for us, the New York acquisition that started it all. Our Austin acquisition, to give you an idea of the improvement there in the last year, our gross revenue increased from $2.1 million in fiscal 2010 to $3.8 million in 2011, so we are very happy with that location. We originally paid about $2.5 million for that business, and it's making a very significant return for us.

The other big winner for us in 2008 was the XTC Cabaret in Dallas which started out as a Rick's Cabaret. The concept didn't work very well; we had some problems with the city and state on our liquor license there. We decided to relinquish that liquor license and go with a BYOB concept at that location. We recently paid $2.9 million for that business, and in 2010, it grossed $3.5 million, and in 2011 it grossed $4.4 million with a very significant portion of that revenue heading to the bottom line.

The other thing on our guidance is I'd like to look at -- analysts have us at about $1.09 for the next fiscal year. I believe that number is very easily attainable for us, especially based on our current deal. I think we've got most of our write-offs behind us. I think, moving forward, I don't think we'll be looking at a lot of impairment this year, if any.

The other thing we have is we have the Dallas acquisitions that we've recently made, our 2011 acquisitions that are going to start maturing. Our 2010 acquisitions are maturing. I think, as those acquisitions continue, they'll really start bottom-line improvement, could add as much as another $0.08 to $0.10.

I believe that we are also looking at several other acquisitions. If we just do two additional acquisitions and add that revenue, that could be another $0.08 to $0.10. If our same-store sales growth comes in line and continues to grow at above the 4.9% rate of last year, that we'll see additional $0.08 to $0.10, in that range. So if you put those together, we could be looking closer to, say, $1.40, $1.50 for earnings for the year. Now, granted, that takes a lot of ifs in there, and we will be working full-time in making sure we achieve those goals. That's what we're looking to do.

I don't -- I'm not confident enough at this time to give guidance but I'm hoping in the February quarter that maybe we can get back online with a little stronger guidance, or at least an outlook, a stronger outlook, on exactly where we think we will end the 2012 year.

At this time, that will end the formal presentation. I'll be happy to do any questions and answers at this time. I also want to make sure that anyone in the New York area who wants to stop by tonight, I will be at the club to take your questions and discuss things with you on the Company at the club as well.

Before we go, let me mention something really quick. I didn't want to interrupt you, you were on a roll. but whenever you were talking about refinancing our real estate debt, it just occurred to me that we've got 40 something people sitting here listening to us that are all investors and that kind of thing. If anybody out there has any thoughts about how we can refinance our real estate debt, you know some sources, please give me a call. I'll be happy to talk to you.

Definitely. That's a great idea, Phil.

(Operator Instructions). Eric Beder, Brean Murray.

Good evening. Congrats on a solid end to the year.

Thank you. We've been trying to stay with consistency. That's the name of the game right now.

Could you talk a little bit -- I have a bunch of questions. Could you talk a little bit about how the New York City store is doing? You New York City location has been going for you guys, always has been one of the strongest places for you.

It's fantastic for the year. Year-over-year numbers there for 2011 over 2010 were the best in the Company, which is no surprise. October, November were kind of flat. The Garden was closed. Basketball season didn't kick up. Hockey started late. But now that the Garden is back open again, and things are going on, the last three weeks have been very, very strong. So, I think we'll see significant growth in this year at that location as well as they just -- it's one of our best performers. It's one of our best staffs. The guys there are fantastic, nothing but continuous positive feedback from customers that visit that location and I've been very, very happy with it.

Great. In terms of the recent Dallas acquisition you made, are you now pretty much dominant in Dallas? Is there -- are there very few other competitors or (inaudible) was that last major competitor in Dallas?

No, we are in Fort Worth. We are very dominant in the Fort Worth market. We've just been moving -- we just continue to move east basically. The Dallas market is still very, very competitive. There's probably -- this will only be our third location in the Dallas market. There's probably 35 locations in Dallas total, so we are still very small fries in Dallas. There's a lot of growth potential there still in Dallas, and we continue to look in that market and talk with some other operators in that market about future acquisitions in that market.

In terms of buying back stock, I see your stock -- I believe your share count has continued to shrink. What's your thought on buying back more stock?

We've looked at it. Right now, there are some pretty decent acquisitions that we're looking at, so we've kind of been out of the market. We got out of the market around $7.50 or so, and we haven't been very heavy in the market. When the stock was around $6 and under $6, we were very, very active and very heavy marketing. We were buying just about every day I think at that point.

We've got the total share count down to about a little over 9.7 million shares. Really, we haven't looked at the total share count. Total share count hasn't really been a factor in our buying. It's really been more of a factor of how much cash we had on hand, how much we were generating each month, and what our stock price was versus, at one point, I think we were trading at about 2.6 times EBITDA, which is cheaper than anything we've bought in the private market. Why would -- we basically took the attitude "Why would we buy any clubs but our own when our clubs are the cheapest clubs we can buy?"

Right now, I think we are trading at a little under what we can probably buy some other stuff for out there, or are about even with that. So we're kind of sitting on the sidelines just to wait and see what happens there as we get through the end of the year, especially with a couple of these acquisitions that we are looking at and the acquisition that we've announced on -- at the Dallas location. So at that Dallas location, we'll be doing some considerable upgrades to the facility. It's a little over 40,000 square-foot building. About 14,000 of it's being used. With the upstairs, you actually get about 40,000 square feet more I believe we can build out. And so we're going to do some of the concepts. We probably -- we have been talking with a couple of businesses that would actually work well with our concept there that may be interested in leasing some of that space from us. So there's a lot of opportunity at that location going forward, and that's one of the main reasons we looked at it and one of the things that attracted us to it.

Great. In terms of the whale versus kind of day-to-day customers, which is really driving this business and which do you see driving it even more in 2012?

I think both are really driving it right now because, on the slower nights when we -- that whales are saving us and on the nights -- on the weekends, it's just massive amounts of customers through the door. So we're kind of getting the best of both worlds right now.

I think, going forward, the real driving factor will be both spend increasing, and the whales actually -- more visits from the whales as we go forward. Either way, it works out very well for us. Our staff are prepared. They have been -- we have been working on this for a couple of years now, so we've really learned to segregate the two businesses and take care of both groups' needs.

I think, pre-recession, a lot of the clubs focused on one group or the other. What the recession really did was taught us that the best way to succeed and to really be successful at all times is we have to focus on both groups at all times. That's been the focus of our management and of the style of management that we've really put into these locations and built these teams so that you have your VIP host and your VIP staff that really handle the whales and at the same time our floor hosts and our greeters that are down there shaking hands and making every single customer that comes in, whether they spend $50 or $5000, have that special and unique experience that they are searching for.

Just quick, the rental expense, I see it's going to go down significantly. Is that because of no more Vegas? You own most of your properties right now, right?

Yes. Vegas was about -- I believe about $1.2 million or $1.3 million in annualized rent, so that would be a big part of it. Most of our buildings we own now, yes.

Okay. All right, thank you.

(Operator Instructions). [Barry Burns], private investor.

Hi. Just a follow-up on the stock buyback. I know this is kind of maybe an awkward question, but it just strikes me, given the low stock price, and you haven't been able to use it as currency to buy other clubs and basically been doing it out of cash flow, effectively almost acting as effectively a private company, and yet you have all the hassles and the costs of the public company in terms of financial reporting. Is there any thought that if, for some reason, we just stay in this kind of price range, would the Company just be better off going private?

We rode for several years in the $2 and $3 range back in 2003 to 2005. There's -- the market always has cycles. We'll ride a cycle. Without being a public company in 2005, how would we have ever created the growth we created? We went from about $14 million of revenues to $80-some million in revenues in four or five years. No private company in our industry has had anywhere near that type of growth in the same period, nor could they. There's no access to capital; there's no access to funds. While we don't use our stock as collateral, being a public company puts our financials out there. It puts us out there and it creates confidence in the sellers that we are buying from to owner-finance more for us. It gives us creditability when we are dealing with cities and states for permits. So, I think there's a lot of benefit to being a public company.

Is it a hassle? Yes, sometimes it's a hassle, but we have the staff to handle that and we work through it. It's just a cost of doing business. Would the cost be less as a private company? Probably, but I believe the growth would be significantly less as a private company.

Eric Beder, Brean Murray.

Sorry. I know you're not giving out guidance for next year, but how should we think about, now that Vegas is gone, the seasonality in the results going forward?

I still think that the October to March quarters always tend to be our best quarters, and we weaken April/May/June and then of course the September quarter is usually our weakest quarter. I think, if you look at the numbers, we are kind of -- it's kind of what you see here. Based on your last report, the $0.20 for this quarter was our weakest quarter. The December quarter was considerably weaker last year. I don't think we'll see that this quarter. I think spending was really cut back. I can't remember; I'm trying to remember the events. I remember last October/November/December we had a little slowdown. People were kind of panicking that the world was coming to an end again. So I think, this year, I think people are definitely much more positive. The consumer is much more positive this year than they were last year and I think our results will show that this year as well.

Are you going to have any kind of -- I know last year we had the NBA All-Star game and we've had other pieces, so are there going to be any positives or negatives from the sporting events this year?

We have the Super Bowl in Indianapolis, so we have a club in Indianapolis which I think it will be a nice -- the Super Bowl will be a nice boost. We've got some pretty extensive marketing plans during that time and pushing up. As a matter-of-fact, most of that will start here in about three more weeks. We'll actually start about four weeks before the Super Bowl in promoting and pushing that market. We are hoping that we'll see significant increases in our go-forward revenues at that location. Other than that, I know we've got the big tournament in Charlotte every year, and of course the Big East tournament is up here. With the Garden remodeled, maybe we'll see a little bigger increase in that tournament as well so --. Of course, the NBA coming back at Christmas definitely won't hurt the New York location.

Great, thank you.

(Operator Instructions). There are no further questions at this time. I would like to turn the floor back over to management for closing comments.

Thank you, everyone, for your time. Like I said, if you're in New York tonight, I'll be over the at the club in about an hour, and will probably be there most of the evening. So if you [have] dinner plans and you want to come out late, go ahead and come out late. I'll still be around. I look forward to seeing anyone, and we'll see you guys again in February. Thank you.

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