RCI Hospitality Holdings Inc (RICK) 2015 Q4 法說會逐字稿

Greetings and welcome to RCI Hospitality Holdings fiscal 2015 fourth-quarter and year-end conference call and webcast.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce Mr. Gary Fishman who handles Investor Relations for RCI. Thank you, Mr. Fishman, you may now begin.

Hi, please turn to slide 2. Thank you everybody. I wanted to remind you of our Safe Harbor statement, it's posted at the beginning of our conference call presentation.

It reminds you that you may hear or see forward-looking statements that involve a number of risks and uncertainties. I urge you to read it.

Actual results may differ materially from those currently anticipated. We disclaim any obligation to update information disclosed in this call as a result of developments which occur afterward.

Please turn to slide 3. I also direct you to the explanation of non-GAAP and adjusted EBITDA measurements that we use and that are included in our presentation and news release.

Finally, I'd like to invite everyone in the New York City area to join us at Rick's Cabaret in New York tonight at six o'clock to get a firsthand look at one of our flagship clubs. Rick's Cabaret New York is located at 50 W. 33rd Street between Fifth Avenue and Broadway, around the corner from the Empire State building. If you haven't RSVPed ask for me at the door.

Now I'm pleased to introduce Eric Langan, President and CEO of RCI Hospitality.

Thank you, Gary. Good afternoon everyone. Please turn to slide 4.

We ended fiscal 2015 in great shape. Non-GAAP EPS came in at a record $1.39. We finalized our two major legal issues as well as a number of smaller ones.

Now there should be no overhang from this going forward. In addition we implemented a number of new measures to expand margins, EPS, cash flow in fiscal 2016 and beyond. These measures will immediately benefit us this year.

We have no club acquisitions or restaurant openings on the immediate horizon so we're looking at flattish revenues for 2016. As I said on the last call, we put our stock buyback on hold in the fourth quarter pending final resolution of the New York fair labor standards act case. Now that that issue is over we are aggressively pursuing our capital allocation strategy.

To date in the first quarter that has translated into our significantly stepping up the pace of share repurchases. I'd also like to note that some of our slides today incorporate our new investor presentation. We used it earlier this month at the LD Micro Investor Conference in Los Angeles.

We had a highly productive and encouraging two and a half days filled with one-on-ones. We then concluded with our formal presentation. We believe the reaction has been very favorable.

Please turn to slide 5. Here's a summary of our fourth-quarter and year-end results. The fourth-quarter revenues were up 4.4% and revenues for the year were up 12%.

From a profit point of view year-over-year comparisons for the fourth quarter are a little difficult. Income from operations included approximately $2.9 million in nonrecurring items. There was a final $800,000 payment related to the Fair Labor Standards Act settlement.

We had $300,000 in other legal settlement. This was to remove any ongoing overhang from those issues. There were $1 million in final legal and professionals costs related to resolving these issues and others. And we had $800,000 expense for leasehold improvements for the prospective bombshell space that is now in legal dispute in Houston.

Looking at the year-ago fourth quarter it benefited from a $5.6 million gain from a contractual reduction of debt. Even with all this on a GAAP and for the most part on a non-GAAP basis operating margins for 2015 was about level with the previous year.

Please turn to slide 6. One of the main things I want to communicate today is that we have put our two major legal issues behind us. The final cost of the Fair Labor Standards Act settlement came in at $11.1 million.

While this was a little higher than our original reserve it was still much lower than the maximum $15 million we had negotiated. I'd also like to note that since 2011 our contracts contain clauses related to no class-action participation and the use of arbitration agreements.

Earlier in fiscal 2015 we settled our dispute involving the Texas Patron Tax. We had been expensing the Tax since the issue first arose and accrued more than $17 million. We settled for $10 million or about 40% less.

We are paying this reduced amount over the course of 84 months. And as previously reported the settlement resulted in an $8.2 million pretax gain.

Please turn to slide 7. The second major item I want to communicate today is how we have aggressively been implementing our capital allocation strategy. In recent years we have consistently generated annual free cash flow of approximately $15 million.

By buying back our own shares we generated an after-tax yield on free cash flow of 14.5% at $10 per share and 13% at up to $11 per share. We consider this yield risk free since we are buying our own asset which we know very well.

Right now the yield is much higher than the risk-adjusted return of buying new clubs, opening new restaurants or paying down debt ahead of schedule. Consequently we have stepped up the pace of our share acquisitions effort. We plan to continue buying back shares until our stock in our view is more fully valued.

While there is always a possibility we might come across or develop a compelling opportunity for now we continue to return value to shareholders in this matter. Then when our stock is higher it will make better sense to think about buying clubs or opening new restaurants in a more aggressive manner.

Please turn to slide 8. Like many of our shareholders we have been frustrated with the performance of our stock. As you can see on this slide for many years our stock rose in line with Company's performance.

In 2013, however, the stock began to drift lower while revenues and profits continued to grow. We wanted to find a way to reward our long-term investors.

At this time we believe share buybacks are the most tax efficient manner of returning capital to shareholders. Through our stock buyback and margin expansion our goal is to close the gap you see on this chart and then rise above it.

Please turn to slide 9. You can see we have significantly increased our share buybacks since September 30.

To date we have acquired $1.6 million in shares compared with $2.3 million for all of fiscal 2015. Right now I'm comfortable saying the amount we expect to spend in 2016 could easily complete the $6.6 million remaining in our plans.

Please turn to slide 10. A third major item I want to communicate is how margins and cash flows are expected to grow in fiscal 2016 and beyond. With the resolution of major legal issues, legal and professional costs should decline.

This would reverse the trend we've experienced. These expenses have grown from 2.3% of revenue in fiscal 2013 to 2.6% in fiscal 2014 and 3.2% in fiscal 2015.

Also our new insurance with major firms is also resulting in cost reductions, down to 2.3% revenues in fiscal 2015 from 3.1% in fiscal 2014. Access to bank financing is reducing our interest expense. This has reverse the trend in RCI's cost of occupancy.

We calculate this metric is a combination of rent plus interest. It's fallen to 7.9% in fiscal 2015 from 9.7% in fiscal year 2014.

In addition the new bank debt is coming with extended amortizations. We estimate this will expand free cash flow by approximately $2.3 million in fiscal 2016.

Over the last year we have eliminated six units not meeting expectations. Based on their individual performance in the last year of operations they collectively cost the Company approximately $2.2 million.

In October we initiated our Bombshells franchising program. If this is as successful as we anticipate it should play a major role in expanding the segment's margins beginning in fiscal 2017. With annual revenues of about $145 million if cost were reduced by an amount equal to 1% of revenue that reduction will equate to approximately $0.09 per share in after-tax profit using the September 30 share count.

Please turn to slide 11. This slide updates recent and pending financings from the last conference call. Last call we told you how we had completed the acquisition of Miami Gardens Square Mall.

This is a property where Tootsie's Cabaret Miami, our largest unit, is located. The acquisition will generate $600,000 in annual profit, generating a 15% cash-on-cash return. We have since completed the refinancing of selected Dallas-Fort Worth properties.

We refinanced them for $4.5 million at 5% interest. That kept our interest payment level but enabled us to pull $2 million in equity out.

In another update we expect to close on the acquisition of Rick's Cabaret New York real estate in January. This will reduce our expenses by more than $700,000 a year over the term of the loan.

With bank financing more economical and our balance sheet strong a lot has changed for us. Going forward we look to finance acquisitions through cash and debt without any equity component.

Please turn to slide 12. This slide shows the drastic decline in our cost of occupancy.

As you can see it's come down from 11.6% of revenue in the fourth quarter of 2013 to 7.6% in the fourth quarter of 2015. With the Rick's Cabaret New York real estate acquisition we believe this should further decline to about 7.4%.

Turn to slide 13. A fourth major item I want to communicate is how our balance sheet has improved.

In particular, there has been a major reduction in current liabilities. This is largely due to the Texas Patron Tax settlement and I'm pleased to show that we generated a more than 13% increase in shareholders' equity.

Please turn to slide 14. Now let's go through some fourth-quarter and year-end numbers. In the fourth quarter our total revenues were up.

New units added $4.1 million, more than offsetting the 5.6% reduction in same-store sales. I'll explain what we're doing about same-store sales in a later slide.

For the year revenues were up double digits, mainly from new units. Same-store sales were about level. Certain units are performing particularly well in fiscal 2015, such as the Temptations in Beaumont and the Onyx in Houston.

Turn to slide 15. Looking at the fourth quarter, the main difference between our non-GAAP margins compared to a year ago is the increase in legal and professional costs. Our customary non-GAAP analysis does not exclude these expenses.

Looking at the year, in addition to the factors that affected the fourth quarter there were two other things that I want to mention. One was our success at Bombshells.

Due to the greater percentage of its revenues and its sales mix overall margins are a little lower. In turn, this was particularly offset by improved performance at our nightclub segment.

Please turn to slide 16. As I noted in the past, we view adjusted EBITDA as a proxy for our cash generating power which we can use to buy back stock and finance growth. That was up more than 6% in fiscal 2015 to a record $34.6 million.

Turning to slide 17, now let's look at our two segments. Nightclub revenues were down only slightly in the fourth quarter even though there was a 5% reduction in units.

With the elimination of underperforming units and other factors non-GAAP operating margins expanded for both the quarter and the year. As a result non-GAAP operating income was about level for a year-ago quarter and up nicely for the year.

Now I know a lot of you are concerned about the decline in same-store sales that we have a Texas oil problem. I want you to know that I personally visited many locations in Texas in the last quarter.

Yes some of the oil and gas patches have seen revenue declines but they are still nicely profitable. Keep in mind Texas is a big, diversified state economically.

Other clubs are up, benefiting in part from more money in people's pockets as a result of paying less at the pump. In general, however, we've noticed that the big spenders are spending a little less. For those of you familiar with RCI this is a cycle we go through from time to time.

It response we are adjusting our marketing and for example we're moving more of our advertising to social media and away from radio. Based on past cycles we hope to show improvement as the year progresses and especially by the second half of 2016.

Please turn to slide 18. Looking at the Bombshells segment, this segment also had a good quarter. This was mainly because we have five units in operation versus four in the year-ago period.

Bombshells in Dallas performed particularly well in 2015. According to statewide liquor sales, our Bombshells in the South Houston area is one of the top bars of its type in all of Texas. In fiscal 2016 we'll be comparing our five units against their performance from the year before.

That means we're going up against large initial sales when the Bombshells in spring in South Houston had their first full quarter in fiscal 2016 during their honeymoon period. In fiscal 2016 we'll also be rolling out our franchising program. Keep in mind this is a step-by-step process.

Right now we are close to completing the legal process for franchising in most states. Our goal is to begin signing our first franchises so that we can generate revenue from them in fiscal 2017.

Turn to slide 19. To wrap up, we ended 2015 in great shape. Our two big legal issues as well as others are behind us.

While we expect flattish revenue in fiscal 2016 as a whole we have implemented measures to expand margins, EPS and cash flow. Rather than continue to aggressively acquire new clubs and open restaurants we are focusing our resources on generating cash and buying back our shares.

The program is to return capital to long-term investors and take advantage of what we consider to be a very favorable risk free, after-tax yield on our free cash flow. We can already see evidence of this with the stepped-up pace of our share buybacks.

Speaking up on behalf of all of RCI's management and that of our subsidiaries I would like to thank our loyal shareholders for their continued support. With that, let's open the line for questions. Operator?

(Operator Instructions) John Rolfe, Argand Capital.

Hey guys. I see that the K was just filed and I've tried to pull a few things out of there but so I apologize if these questions are duplicative. But in terms of both the New York class-action settlement as well as the poll tax, can you give me some detail in terms of what has gone out the door from a cash perspective as of the balance sheet at September 30, 2015?

Sure. We're making monthly payments of about I think around $110,000, $120,000, I don't have the exact amount, per month on the Patron Tax settlement.

As far as the Fair Labor Standards Act we paid $1.833 million to the attorneys. And we deposited into an account a little over $6.9 million, almost $7 million for the class checks to be sent out.

Okay. So the debt and cash balances as of September 30 effectively reflect most of the cash that you're expecting to go out the door --

Well that's all the cash that could possibly go up door. We also know that now obviously because we have the final settlement that we've got about $1.24 million of that cash back in this quarter in December, which that's where you got your total.

We had reserved $10.3 million. The actual cost ended up being right around $11.2 million if I'm correct. Is that right, Phil?

Yes. $11.1 million.

$11.1 million. Okay, thank you, a little over $11.1 million. So right between $11.1 million and $11.2 million is our total actual cost of the settlement.

Okay. Okay but --

We still owe basically two more payments, one next year and one the following year to the attorneys of $1.83 million apiece actual cash. But we've expensed all that, so you've got a balance sheet.

But one you're talking cash and one you're talking actual costs. So I was trying to get to what we actually paid out in cash for that through September 30. And then we got some of that cash back this year but we'll actually have to pay another $1.8 million out at the end of next year or the end of this year.

Okay. So basically if I'm looking at the balance sheet as of September 30, subsequent to that you've got $1.2 million back in but another $1.8 million will go out at year-end for the attorneys and then in fiscal 2017 there will be an additional $1.8 million going out for the attorneys?

Correct.

Okay. Then with respect to the poll tax, how many months -- what you had been paying that for --

I think we started paying, was it the April quarter, Phil, or did we start paying with the April-May-June quarter did we pay that or did we start paying the following quarter?

In the June quarter.

I'm sorry?

We started in the June quarter.

So we paid April-May-June we paid. Correct?

I think it started actually started in May.

Right. But that's the monthly. But then we also actually paid the tax as well.

Yes, we paid the tax as of March 31.

As of March 31. Okay. So we basically have been paying the tax since last January and we started making the payment starting May 1.

Okay, got it. And I think you mentioned in the press release that the interest rate at fiscal year-end was I think it was 7.8% but then you also mentioned that there are some other refinance activities going on currently.

What's a good blended rate to use for fiscal 2016 as a whole? And again I know we're getting a little far out here but given that you've got some favorable dynamics on the refinancing I mean as we look forward past 2016 would you expect that rate to continue coming down?

I think there's not a lot of room for it to come down more but yes there's definitely some additional. I think we're going to be probably blended about 7.5% for 2016 and we can see a little bit off of that in 2017. Because of course as we some of the loans will actually pay off in those time periods, some of the amortizations will end which will lower but those are small amounts of the interest.

So I don't know what they will actually equate to in percentage base, maybe 0.1%, 0.2%. Now if we are talking with the bank right now, actually two different banks, about having some additional real estate equity and paying off all of our debt over 10%. If we do that then that could be significant.

I believe there's about $8 million or $8.5 million in debt over 10% that we could eliminate if we do something like that. That could take us under 7% probably.

And lastly, has there been any progress or what's been going on with Robust? I think on the last call you had talked about the possibility of a national rollout at some point in 2016. Has there been any progress there?

We launched in November in Florida, the state of Florida with Southern Wine & Spirits. We're launching the state of Minnesota in January and the state of Nevada in March.

And as those two go if they go as well as Florida then I would suspect that they will step up the launches in additional states at a much quicker pace. That's our hope.

We're also launching a new product with Robust by putting in a syrup form. So we'll be selling they call it bag in a box. We will not be selling it in a box to go in your soda gun and that product will launch early January and we're very excited about the prospect of that product as well.

Okay, great. Thanks very much.

Marcel Herbst, Herbst Capital Management.

Yes, good afternoon and thanks for taking the question. You mentioned the overall same-store sales in Texas were a bit soft in Q4. How is Texas trending so far in Q1 compared to Q4?

Through November very similar. From about June through November we're seeing the first week of December was our first positive. We're getting through the end of this week now, so depending on how tonight goes we'll know how the second week of December is going to trend for us.

But it seems like at least right now we're getting a little bounce, could be just a holiday bounce. It could be maybe some of the trends are changing. It really is going to depend on the high-end spenders.

Our total visits are good. What we're not seeing is the high dollar spender is not spending the money he was spending prior to June.

Okay. And you gave an example on how certain cost savings combined with the $145 million in revenues would result in about $0.09 in additional EPS. Is this meant as your EPS guidance or will this trade as purpose only?

No, that's for illustrative purposes. Basically what we're saying as you can see we showed you all the ways we're going to reduce our cost, then we wanted to show you that basically for every 1% of revenue, total revenue costs are reduced it will equate to about $0.09. So you can kind of do some of the math based on some of the examples.

Okay, that makes sense. And what are you planning for 2016 in terms of free cash flow?

Right now it's really tough to say. But I'm going to guess what do you think, Phil, between $15 million and $18 million based on just depending on how same-store sales recover?

Yes, I think with the reductions we've made in the clubs I think we'll be over $15 million for sure.

We've been pretty steady $15 million, so I don't think we'll have any problem with $15 million. We're basing everything on our buyback margins everything at $15 million as we get through the quarter.

So if that number starts to look like it's going to increase then we'll redo our capital allocation slides based on the new amount. We're very comfortable with $15 million.

Okay, thank you.

Mike Mork, Mork Capital Management.

Hi, just two quick questions. Given kind of a static view right now, what price would your stock have to be at for you to say we're going to start expanding again physically? Like 16, 17, somewhere around there?

I mean I think if we find select top-notch locations basically we're looking at a three-year cash-on-cash payback. I think we would look to start getting looking at 12 to 14.

I think once we get over 15 we'll get a little less aggressive with the stock buyback and more aggressive on expansion with our cash. As far as using any type of equity I don't think we're going to look at using equity under $20. I just don't see the Company doing any type of equity using any type of equity under $20 at this time.

Okay, well that makes a lot of sense. Then the other thing is with the Bombshells, once you get done all the regulatory hoops and whatnot do you think you'd hope to franchise five or six a year? And let's assume you did that, then are we talking like a 5% royalty on sales?

Our royalties are 5.5%, plus I think 1.5 or 1.9, I can't remember what we've decided, I need to go back and look at the document, for our advertising, for our national advertising fund. I think we sell, our hopes are to sell six to eight units in territories, it would actually be a territorial unit hopefully encompassing three stores over a certain time period over say three years and sell six to eight in 2016, sell an additional six to eight in 2017 with the six to eight opening in 2017 from the first contracts.

And then in 2018 you have the six to eight number two stores open, plus the new contract six to eight more stores there. And then of course in the third year you get that ramp up which would basically put us somewhere between 70 and 100 stores in five to seven years.

Okay, sounds good. Thank you.

Norman Sarafian, RBC Wealth Management.

Yes, Eric, congratulation on the success at Bombshells. That's kind of exciting.

Yes, we're enjoying it. It's really two of our stores are really doing fantastic right now in Texas. Number one and number five in their rankings among the peers, so very excited.

I had one question. You put the real estate on hold. I just wonder is that likely to be gone for good or how do you see that going in the future?

You're talking about the real estate investment trust?

Yes.

We actually formed it and we're ready to go but the money is more expensive than the bank financing we're getting right now. So we just didn't see the benefit to our shareholders to pay higher interest and higher rents longer term, we just couldn't make it make economic sense when we were -- our rates were running 9% to 13%. We were promised if we would do the REIT we would get rates in the 5%, 6% range when it actually got everything formed we started raising the money we started to get bank financing at 5% to 5.25% and the REIT rates that we were being quoted at that time started becoming 7%, 8%, 9%, 10%, some even at 11%, 12% money.

And we are like hold on the second, this doesn't make any sense. And so with the bank financing going so strong it just -- we couldn't make it make economic sense for our shareholders.

Fantastic. I like that answer. Thank you.

Daniel Nall, Aristides Capital.

Hi, good afternoon guys. I was wondering if you could break down what percentage of the Bombshell revenue was alcohol sales for the year?

We're running approximately 50% to give you an idea. Our goal is to stay between 40% and 60%.

Some stores are close to the 40%, some stores are actually our South Houston store can even run in certain months has run as high as 65%. Our goal is 50% and I think overall we're right at that number.

Okay. And is there any reason to not expect that in the franchise locations?

No, I think if they follow our business plan that's where you're going to come in at.

Okay. That's all I had. Thanks and I like to see the buyback so I appreciate that.

You bet. Thank you.

Nate Rusbosin, DePrince, Race & Zollo.

Yes, hey guys, how's it going?

Hi, Nate. How are you doing?

Doing pretty well thanks. A couple of different questions here. First, if you just want to talk a little bit about the cost savings, I know you addressed this earlier with the $145 million in revenues, every 1% of revenue is $0.09 in earnings.

You go through in the press release and talk about the legal costs, the new insurance coming down, what type of opportunity do you see there? You talk about the leverage but just curious when we see 2%, 3% of that coming out?

I mean if you look at the total there again we're right in the 3% to 4% range so that we've saved through this year. And I think we continue to obviously in 2016 that's going to drop off because with the insurance should continue I think to decrease a little bit. Not a lot because I think we're starting to squeeze that out as much as we can but we're going to keep working it.

The legal I think the legal is where you're going to see a huge difference in legal. We just had so much legal expense. We had 40 some cases that were left over from the insurance company.

We've gotten rid of a lot of those. We had the patron tax which was draining us and very expensive legal fight.

You had the Fair Labor Standards act and multiple other offshoots of that as well. In Florida we had a case we took to the court, in Texas we had a case we took the court to enforce our arbitration agreement on a non-class participation agreement which we won in Minnesota.

We won in Texas, we won in Florida, in the Carolinas I think, I don't think we had a case though in Philadelphia but I think we got the lawyers to agree to not even to file the case, it went to an arbitration. We're in the process on that.

And we settled a lot of those early cases that were filed before all the changes, before the courts caught up with all the changes we had made. And the lawyers have realized now that they are not going to get a giant class action case and so we've gotten more reasonable, we got rid of most of that. And that was a lot of a cost in that last quarter.

Plus you had the cost of the REIT, you had the cost of franchising, the franchising work for Bombshells all in this last year. And there's a lot of legal in the last year that we're going to see disappear going forward.

So what's a normalized level there do you think? You mentioned in the press release --

It's really tough because we haven't had a normalized level in so many years I really don't know. I'm hoping we get it under 2% to be honest with you. I just don't really know.

We're trying to go through and that's one of the things I've got on my agenda as we get through this October, November, December quarter. Unfortunately there's still a little bit of overhang because the class actually finished December 5. And there's still a hearing before the judge I think they've got to do, whatnot, closing it all out and so we've still got a couple of little things that are in this quarter.

I think by March we'll be normalized, 100% normalized I'm hoping by March. We still have a couple of other cases out there that we've worked through in this October, November, December quarter and probably looking at my mediation schedule we've got a couple more coming up in the next quarter as well. But they are much smaller cases than what we've looked at in the past.

And then maybe if you go back to the buyback a little bit, I know I can't remember the exact quote but you said well on pace to use the $6.6 million this year.

Well I mean we were at $1.6 million through last Friday. And I don't see us slowing down in December unless the stock all of a sudden goes crazy and jumps up $4 a share we might slow down. But I mean at this point I don't see us slowing down in the buyback.

Basically we're generating $15 million in cash flow which if you figure $3 million, $3.5 million a quarter we had some stuff this quarter we had to pay and we had to wait to get the money back from the lawsuit because we really squeezed herself at the end of September as you see in the K on a cash standpoint. We typically keep $8 million, $10 million cash on hand. We're getting under that $8 million right at that $8 million.

So when we get to the bottom end of that we tighten up a little bit. But as of right now we have $8 million or more we're transferring money to the broker and buying back stock.

Okay.

And it is pretty steady on that. I don't see that changing, unless the stock jumps up $4, $5 a share then we'll sit down and reevaluate based on our capital allocation.

The beauty is we put it into a mathematical formula. There's no guesswork. You want to know what I'm doing with the Company's cash?

It's right there on paper. Do the math, see what my return is. If the risk-free return is X we're going to be out there buying back stock.

If the risk-free return drops to a low enough number we can pay back debt then we might pay back debt or we can then still take risk-adjusted returns on new operations or new acquisitions. We're going to value those, we're going to do the math on the return and say okay, this return is 22.7% versus a risk-free return of 11.7%, okay, it's more than double. All right, now we will maybe go take some risk. That's how we're doing it.

Yes, well I know we certainly see the aggressiveness so far and you'll keep it up. What I was going to ask is if we do start bumping up against that ceiling is it a likelihood that we will expand that buyback?

Absolutely. Yes, the Board is very committed to our allocation strategy at this time.

If we were run out we have some big windfalls, sudden we bought $6 million with the stock by the end of March you'll see us put a new plan in place. I will definitely be asking for one and I don't see why the Board wouldn't approve it.

Certainly. Then finally I know this is something we talked about, we've talked about it a lot, but expanding to get more institutional investors involved in the name. And just wanted to get an update on that and Wall Street coverage, I think I would obviously do a lot for your stock price and any thoughts on how that could be developed, how that could be expanded upon maybe?

Sure. Coverage is very difficult unless we pay for it and we're not raising capital and these small investment firms if they can't get transactional work out of you, how do they justify the coverage and their cost on the coverage? So that's been real difficult for us.

As far as expanding our institutional ownership we're going to be out there and we were out, I'm staying in New York for a couple of days, we've got some meetings appear. The LD Micro Cap Conference was really good for us. We're going to continue to look for those type of opportunities where we can pay a small fee and get in and talk to hundreds of investors and just really keep pushing to increase our institutional ownership.

I think were up to 32%, so we have increased it. Though you're not seeing it in the stock price I do believe as we move forward and as the Company continues to buy back stock and we increase that institutional ownership we'll start seeing a more fair value for the stock. I think that the story is just now getting out there.

This is the first K where you're really starting to see the difference in the balance sheet from this lawsuit settlement, from the patron tax settlement. And I think as the next quarter comes out in February which is relatively soon and I definitely expect to see a nice jump in May in our stock price.

The way I look at it even if we sit here and buy back 1 million shares of stock a year with the $15 million in cash flow and the stock goes from $10 to $12 you're still getting 20% return to our existing shareholders and the guys who stay here with us. And the following year we get more. However, I do think the stock has got to catch up.

I mean if you look at the chart showing 2013 how the stock went down while revenue and earnings continue to grow, we've got to get some expansion of our multiple at some point. We're just trading too cheap. We're trading cheaper than we can go purchase assets for which to me just doesn't make a lot of sense.

And I don't see how the market can continue. As we execute on this strategy and stay disciplined in our capital allocation we're going to get some multiple expansion at some point.

Yes, and I think some would probably argue that Wall Street coverage could help that but I --

And I agree with you and if you can come up with a way to help us --

I hear you.

We're out talking with people. You know, we're talking with different banks. Basically if we want to start writing checks for $150,000, $250,000 a year we can get coverage but it's paid coverage and I don't know that it helps us really.

Yes, exactly.

So we need to get -- but now as our stock moves up and we start getting more fair value in our stock maybe there will be some banking transaction business out there for some of these banks and we'll get some coverage. I think right now we just stick with our capital allocation strategy which almost guarantees, we're going to go if we go from 10 million to 9 million shares outstanding the stock should keep the same multiple we have now, the stock should move to a $12 price which is a 20% return to our holders. And that's what we've got to do.

We've got to see our long-term shareholders seeing some appreciation in their stock price. We've talked with our shareholders.

You know better than anybody when we sat here for years and years and traded $10 a share it's not good for anyone. Especially when we've created this cash cow, it's just sitting here spitting out $15 million in cash a year.

Exactly. Okay, I appreciate it.

Thanks for your time.

Steven Martin, Slater.

Hi there. Can you talk about some of the other expense lines?

You're operating fewer units because you close some of the nonperforming units. So when I go down cost of goods sold, salary and wages, advertising and marketing, what kind of trends should we see in food and beverage cost, salaries, etc.?

I think you're going to see pretty flat for 2016 on most of those items simply because while we've closed units we've also bought two new units and the new units were larger units than some of the ones we've closed. But you're going to see a slight reduction in some items, like salary and wages, obviously the salary and wages for two larger stores is not the same as six smaller stores. You're still going to get a reduction in probably management and wait staff, you don't need as much wait staff for two locations as you do six.

But really we're just going to have to -- we've been so focused on settling everything and getting all this behind us that we're now moving and a really focusing on some of the other stuff. Your food costs you're seeing some climb because you had more Bombshells locations. But our liquor and even the Bombshells their liquor costs are still higher than our nightclub costs because they don't sell drinks for as high as markup as we do at the nightclubs. But overall I think we'll start seeing some of those costs decline from the closed units.

But what about advertising and marketing? Is that something that is going to grow, stay the same or decline?

I think we're going to see the marketing decline because we've really are starting to get away from some of the radio ads, the radio spots that we've run in the past. And we're spending money on social media marketing which we hadn't done in the past but the new social media costs are not as high as the past radio costs. But that's why you're seeing some of the same-store sales come down as well.

Take a club that spends $8,000 in radio, just to break even on that radio they are going to have to do $16,000, $18,000 in sales between the markup on the radio and the cost and the taxes and whatnot to make that profit. So when you take that $8,000 in radio out and sales drop $12,000 at that location, we still make more money to the bottom line even though we lost the sales from that radio.

That's really what we've really focused on. And we're taking that and taking say $2,500 of that $8,000 and putting it into social media and we're getting $7,000 or $8,000 of those sales back. And that's what we're starting to see right now.

So where we had clubs decline we're getting a little bit of that back through a lesser expense and probably making money on the $2,500 invested in social media versus the money we were losing on the $8,000 invested in radio. It's new for us. It's something we're going through in this last quarter and we're going to probably expand on some more going into January, February and March.

The restaurants, it's been very successful for the restaurants. I know a lot of people talk about our social media presence on the restaurants and some of you got all the negative complaints out there because everybody that's negative at a restaurant will always go out of their way to post 50 messages on you but people who have a great experience may or may not post at all unless they are engaged. So we basically are now working through our restaurants and through a third-party vendor in engaging our satisfied customers as well on social media.

Let me ask, the other line item is the biggest, is one of the biggest expense lines. Is that where all the settlements --

I'm sorry, which one?

If you look at the other operating expense line, can you talk about what's in there? Because it's such a big number for the quarter and for the year?

It is but it's so many different things. Phil, do you have a grasp on exactly what's in that other?

It's just the operating expenses -- no utilities are separate.

We held utilities flat. We're probably going to have to look at that again and maybe break out a couple of largers again.

During our last SEC review they commented on the size of the other. And I think it's crept up again because of so much stuff has gone in there, we're going to have to look at and may be breaking out one or two of those items. I'll look at that.

I guess I get to see you at some point this week we can talk about some of those.

Yes, yes, definitely. I will take a look at that again and go through it.

Because I noticed it kind of crept up a little bit this year as well. And I've been talking with Phil about what it is and the problem is it's just so many little things because of the way just the way the system works.

Okay, all right. We'll speak to you soon.

I would now like to turn the conference back over to management for any additional comments.

Thank you, Eric. Everybody please turn to slide 20.

Here's our initial reporting calendar for fiscal 2016 so you know when we'll be issuing sales and earnings news releases and holding our calls. And for anybody who joined us a little late I want to remind you that we do have a due diligence event at Rick's Cabaret New York from 6 to 8 o'clock tonight. That's at 50 W. 33rd Street between 5th and Broadway and if you haven't RSVPed yet ask for me at the door.

Thank you everybody and good night. Thank you for joining us.

On behalf of Eric, the Company and all our subsidiaries best wishes for a happy holiday season. And please celebrate by going to one of our clubs or restaurants. Thank you.