RCI Hospitality Holdings Inc (RICK) 2023 Q2 法說會逐字稿

Greetings, and welcome to RCI Hospitality Holdings Second Quarter Fiscal 2023 Earnings Call. You can find RCI's presentation on the company's website. Click Company and Investor Information under the RCI logo. That will take you to the company and investor info page, scroll down and you'll find all the necessary links. Please turn with me to Slide 2 of our presentation. I'm Mark Moran, CEO of Equity Animal. I'll be the host of our call today. I'm here in New York City with Eric Langan, President and CEO of RCI Hospitality and Bradley, the human calculator, Chhay, the Chief Financial Officer. Please turn with me to Slide 3.

If you aren't doing so already, it is easy to participate in the call on Twitter Spaces. On Twitter, go to @RicksCEO and select a space titled $RICK RCI Hospitality Holdings Inc 2Q23 Earnings Call. (technical difficulty) Apologies for the technical difficulties here. We good. Looks like we're back at it. To ask a question, you will need to join the Twitter space with a mobile device. To listen only, you can join the Twitter space on a personal computer. RCI is also making this call available for listen-only through traditional landline and webcast.

(Operator Instructions) This conference is being recorded. Please turn with me to Slide 4. I want to remind everybody of our safe harbor statement. You may hear or see forward-looking statements that involve risks and uncertainties. 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 that occur afterwards. Now please turn with me to Slide 5. I'd also direct you to the explanation of Rick's non-GAAP measurements.

Finally, I'd like to invite everyone listening in the New York City area to join Eric Bradley and me tonight at 7:00 to meet management at Rick's Cabaret New York, one of RCI's top revenue-generating clubs. Rick's is located at 50 West 33rd between Fifth Avenue and Broadway, a little in from Herald Square. If you have an RSVPed, ask for me or Eric at the door. Now I'm pleased to introduce Eric Langan, President and CEO of RCI Hospitality. Eric, take it away.

Thanks, Mark. Thanks, everyone, for joining us today. Please turn to Page 6 for today's news. We moved ahead on a number of fronts in the second quarter. Revenue grew to $71.5 million. That's an increase of 12.3% year-over-year, reflecting both same-store sales and acquisitions. Free cash flow was $14.8 million, up 33%. Adjusted EBITDA was $21.7 million, up 8.8% Club we look forward to optimizing their contributions. On a sequential quarter basis, our Bombshells turnaround program has started to produce results. We also advanced many of our projects involving club acquisitions, new club developments, the Rick's Cabaret Steakhouse and Casino in Colorado and new Bombshells locations. I'll be back to tell you more and answer questions later. Now here's Bradley to review the financials.

Thanks, Eric, and good afternoon, everybody. Looking at some of the other major numbers in the quarter. EPS was $0.83. This reflected some nonrecurring items. On a non-GAAP basis, PS was $1.30, up 9.2% year-over-year. On a non cash on operating activities was $16.8 million, up 44.8%. We had 9.3 million weighted average shares outstanding. That's down 2.4% year-over-year due to prior period repurchases. The 200,000 shares issued as part of the Baby Dolls, Chicas Locas acquisition had a minor impact. That's because they were issued late in the quarter. Now moving on to the income statement.

Please turn to Page 8 to review the Nightclubs segment. Revenues totaled $57 million, up 18.4% year-over-year. That was driven by $6.9 million from acquisitions and newly remodeled clubs and 3.7% same-store sales growth. Operating margin was 31.6% and 39.3% non-GAAP. GAAP operating margin included primarily a legal settlement expense and an impairment.

Compared to the first quarter from fiscal 2023, revenues increased 0.3% driven primarily by acquisitions, while non-GAAP operating margin declined 1 percentage points. That reflected the fact that we had 2 weeks of the Baby Dolls, 3 Chicas Locas acquisition, which now did not allow enough time for optimization. Please turn to Page 9 to review the Bombshell segment. I only have 3 things to say here. Number one, results improved sequentially. Revenues increased 6.6%, driven mainly by the acquisition of Bombshell San Antonio and the Grange Food Hall with its new Bombshells Kitchen.

Non-GAAP operating margin expanded 1.6 percentage points. All of this reflects initial progress from our turnaround program. Number 2, while our operating margin target remains 18% to 21%, the segment's performance at 15.4% non-GAAP was right in the middle of many well-known publicly traded restaurant chains that have recently reported the results. And lastly, number 3, Segment was profitable, generating $1.8 million GAAP and $2.2 million non-GAAP.

Please turn to Page 10 with me to review our consolidated statement of operations. Note that all comps are the percentage of revenues. Cost of goods sold declined year-over-year, reflecting increased service revenues. Salaries and wages were higher year-over-year and quarter-over-quarter. This was due to minimum wage increases in many states where we have clubs on January 1. It also reflects the higher labor costs at newly acquired clubs. SG&A was higher year-over-year, but declined quarter-over-quarter. Year-over-year reflected newer acquisitions that are not fully optimized and quarter-over-quarter reflected the absence of year-end audit expenses. Depreciation and amortization were higher year-over-year and quarter-over-quarter. The second quarter of 2023 included a onetime accelerated amortization of Grange Food Hall leases.

Other charges and gains reflected $3.1 million in legal settlement expense and $662,000 of noncash impairment. Operating margin was lower year-over-year and quarter-over-quarter, but on a non-GAAP basis was approximately level with the year ago quarter and expanded 1 percentage basis point from the first quarter. Interest expense was higher year-over-year but quarter-over-quarter. Second quarter 2020 included initial cost of new debt and mid-acute to strategic low. Please turn to Page 11 Keep in mind that this was after paying $18.4 million for the cash portion of acquisitions. Free cash flow was 20.6% of revenues and adjusted EBITDA was 30.3%.

Both increased sequentially are in line with our 20% and 30% targets, respectively, as a percentage of revenues. To wrap up our discussion of the income statement, please turn to Page 12 for an update of our geographic focus. In the second quarter of 2023, our regional revenue breakdown was Texas at 31%; Florida at 25%. New York, Colorado and Illinois are 8%, 7% and 6%, respectively, and the other 8 states combined for 13%. This demonstrates our geographic diversification, our exposure to growth states like Texas, Florida, Colorado and how we develop our business clusters in key areas.

Turning to review our debt metrics. Net of loan cost debt was $45.8 million as of March 31. That's an increase of $35 million from December 31. The increase primarily reflected financing for the 5 Club Baby Doll Chicas Locas acquisition, primarily offset by scheduled paydowns of other debt. Our weighted average interest rate was 6.52%. This compares to 6.14% a year ago and 6.6% 5 years ago. Excluding balloons, our amortization schedule is now in the $12 million to $15.7 million annual range, which is very manageable with our higher level of cash flow. Please turn to Page 15 to review some of our other debt-related metrics. Just 1 as of March 31, below our comfortable of around 3.

Please note that this reflects our new debt related to Baby Dolls Chicas Locas acquisition, but only 2 weeks of contribution. Occupancy cost was 7.6% of revenues. This continued to be well within the 6% to 9% range. We've averaged when sales weren't dramatically impacted by COVID. Now please turn to Page 16 to look at our March 31 debt pie chart. Our debt now consists of 54.9% secured by real estate, 30.4% seller financing secured by respective clubs and or the real estate, which it applies to 6.6% of unsecured debt. debt secured by other assets. And lastly, 4% that relates to new bank line of credit that was used in the Baby Dolls Chicas Locas acquisition that was also secured. Now let me turn the call over back to Eric.

Thank you, Bradley. For this quarter, we added a third section to our presentation. We call it or take and are using it to explain underlying thinking to where we are going. I want to remind everybody of our safe harbor statement. You may hear or see forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those currently anticipated. -- claimants obligation to disclose in this call as a result of developments that occur afterwards.

Please turn to Slide 18. Everything we do is about our capital allocation strategy, which is similar to those outlined in the book, The Outsiders, by William Thorndike. First and foremost, the goal of our strategy is to drive shareholder value by increasing free cash flow per share by at least 10% to 15% on a compound annual basis. We have been implementing this strategy since the end of fiscal 2015 with 3 different actions to whether there is strategic rationale to do otherwise. One is mergers and acquisitions, specifically buying the right clubs in the right markets. We like to buy solid cash flowing clubs at 3 to 5x adjusted EBITDA using seller financing and acquire the real estate at market value. Another strategy is growing organically, specifically expanding Bombshells to develop critical mass market awareness, and sell franchises.

Our goal in both M&A and organic growth is to generate annual cash-on-cash returns of at least 25% to 33%. The third action is buying back shares when yield on flow per share is more than 10%. As a result of these efforts, we have exceeded our primary goal. Through the end of fiscal 2022, we have increased free cash flow by 22% on a compound annual basis while reducing shares by 1.5% on a compound annual basis. Please turn to Slide 19. I -- so what is the current point between whether we should buy shares or invest in buying or opening new locations using a possible range of $68 million to $78 million for fiscal against 9.43 million shares, the 10% yield point for buying back shares comes in at $72 to $83 per share, subject to whether we can make better invest -- please turn to Slide 20.

Let's take a look at our most recent club acquisition. We used $15 million in cash, $16 million in stock and $35 million in debt to acquire 5 Baby Doll and Chicas Locas clubs and their real estate. We estimate the acquisition will generate $11 million in adjusted EBITDA in the first full year after closing. After that, with remodeling and some expansions, we estimate it will generate $14 million to $16 million in adjusted EBITDA. We assume conservatively, we go from $11 million in year 1 to midpoint $13 in year 2 and $15 million in year 3. That total $39 million would represent a more than 50% on the $15 million that we put down on this acquisition.

If you turn to Page 21. Let's take a look at our planned Rick's Cabaret Steakhouse and Casino in Central City, Colorado. We bought the building in real estate for only $2.4 million. We anticipate it will take us about $8 million to complete, which would include 200 slot machines, including the casino, a similar RCI club between $8 million and $10 million offers in revenue. Slot machines at existing Central City casinos averaged $129 per day. That's another $9.4 million in annual revenue. So, the combined estimated revenue of $18.4 million had a 40% average club margin, which generates $7.4 million operating profit. Let's assume conservatively that we only do $3.7 million in year 1. And in year 2, we billed to $7.4 million. That's a total of $11.1 million. That would represent an average annual cash-on-cash return of more than 50% on the $10.4 million invested. Keep in mind, this does not include any table games or sports betting revenue.

Please turn to Slide 22 -- I'm sorry, Slide 23. We also believe we have the opportunity to add even more locations. For example, it took 28 years for the company to go from one location to 21 locations. -- the following 7 years, we added 19 more. And in the next 5.5 years, we added another 6 total 56 clubs, which represent only a small portion of the market we want to consolidate. As our company expands in size, we believe we can continue to potentially accelerate our rate of growth. This is due to a variety of factors, including increased economies of scale, enhanced market penetration and greater access to resources. With a larger company footprint, we made a better position to capitalize on opportunities, take advantage of the synergies and achieve operational efficiencies that can both -- that can help drive growth. Therefore, we believe as we continue to grow as a company, we can potentially experience faster rates of growth and achieve greater levels of success. Turning to page -- Slide #23, sorry.

We believe we have the cash to do this. Let's take -- let's look at what happened in the second quarter. At December 31, we had $34.1 million. We made an acquisition of $7.1 million in net new cash or we made an additional $7.1 million in net new cash, and we used $18.4 million in cash, primarily for the Baby Dolls Chicas Locas acquisition, ending the quarter in cash. Now let's look at what could happen in the next fiscal year, using the range of $68 million to $78 million in free cash flow, plus $21.7 million in debt maturities keeps us with a range of $46 million to $56 million in projected cash available to use for future investments. Turning to Slide 24.

We also have shares we can use to finance acquisitions, provided we continue to do it carefully, judiciously and in an accretive manner. To that end, we believe we have demonstrated a strong track record. Since the implementation of our capital allocation strategy, we have acquired more than 2 million shares at an average price of $19.55 per share. We have issued 700,000 shares at an average price of $65.71 to provide $46 million of capital for acquisitions. From our viewpoint, we use shares that we bought at an average of 155 and sold them for $65.71 or a 23% cash-on-cash return.

To sum up, we have a long list of investment opportunities with the potential to generate significantly compelling returns when we -- when combined with our strong, disciplined and proven track record to make it happen. Please turn to Slide 25. Before we go into the Q&A, we announced we'll be holding our 30th anniversary Gentlemen's Club EXPO convention, August 20 through 23 at the Paris Hotel in Las Vegas. For more information, go to the website listed on the slide. Thank you to our loyal and dedicated teams for all their hard work and effort. We can't do it without. Now here's Mark to start the Q&A.

Thank you, Eric and Bradley. Before we move on, I'd like to -- thank you, Eric and Bradley. Before we move on, I'd like to congratulate you both on the 1-year anniversary of our first Twitter spaces, the first-ever earnings call on Twitter Spaces. If anyone would like to ask a question, please raise your hand in the Twitter space. When you finish your question, please mute your microphone to eliminate any background noise. We have a limited number of speaker spaces. And after your question, we may move you back to the audience to free up space. Before we start things off, I'd like to give a special shout out to Kelyn Curry, a listener in the audience and former equity research analyst at JPMorgan who will be challenging George Santos next year for New York's Third Congressional District. Thank you for joining us.

Let's go ahead and start this show. We'd like to take questions from Rick's equity research analysts and some of its largest shareholders first. To begin, we'll have Scott Buck of H.C. Wainwright. Scott, please take it away.

Eric, I'm curious, can you give us an update on where you are in terms of licensing for gaming for the Central City, Colorado location?

Typically, their time is going to take 12 months. We filed at the end of November of 2022. So, we're hoping to hear something soon. Typically, you'll get some type of preliminary deal, which allows us to then set up the casino. I'm hoping that we see that in August, September. It could be as late as October. Gaming in Colorado has been a very slow process, not just for us, but for all new licenses. But I think there -- I believe there are 7 or 8 licenses that are now applied for in the state of Colorado. Some are much older due to various reasons on funding of the casino, things like that.

I think as a publicly traded company, our funding will be super easy to explain its cash flow on the bank accounts. So, I don't think we're going to have any issues when we reach that point. It's just getting to that point. I know that there's been some shuffling at higher levels in the Colorado gaming development -- or department. And so hopefully, the new people who are coming in are going to hopefully speed this process up a little bit. we would like to definitely like to see in our license issued by the end of the year. We'd like to do our grand opening as the New Year's Eve party. But I think worst case, we could be looking at as late as March. So, it's a very -- until they contact you, there's not really much we can do just sit and wait.

Understood. Now I'm just curious if you could give us kind of an update on what you're seeing in the clubs just given the current environment? I know over the past couple of quarters, there has been some weakness in a few of the blue-collar clubs, but you were kind of more than making up for that in some of the higher-end stuff. So any kind of update there on the business would be great.

Yes. I mean I think right now, it's just inconsistencies. I don't see real trends forming up or down. I don't see -- I think we're just seeing kind of more of the same. We have the location gets down a little bit. We make some adjustments up and then we have another location that's down a little bit, and we make some adjustments and it goes with it. So, it's just a constant right now, it's like a shale game we're just kind of moving parts around the moving pieces around and just overall shooting for a set number each week.

And if we're hitting that number, we're looking -- like I said, we're looking for the weak spot from the strong spots and we focus on those, and everybody else is just kind of water right now. Overall, though, revenues have been strong, as you see in this quarter. I don't believe that we've acquired enough new stuff. I don't think we'll see any decline in revenues. The question now is, can we continue to keep the growth rate at double-digit growth rates. We are looking at other club acquisitions right now that will help that hopefully, by the time we get into the fourth quarter or definitely through 2024. And everything is really -- we've been priming the pump here, so to speak, for 2021. And I think you'll see a lot of activity as we move into 2020.

Great. I appreciate that. And then just last one on the acquisition front. First, congrats on the deal closed earlier this year. What are you seeing in terms of pricing when you talk to folks? Any changes there? Or are people kind of holding that?

I mean it's always been 3 to 5x. I mean we basically set the market. Other operators that are trying to expand don't have the capital or the cash typically that we are able to pull into a transaction. They definitely don't have the track record and a public track record. So I think we just stick to the plan right now. It's all about the adjusted EBITDA. If we see trends, if their numbers are trending down, then we'll we're on a forecast based on those (inaudible) trend numbers and make an offer according to that numbers are trending up, and then we'll make an offer according to that. So, we just kind of watch where everyone is at and what we're seeing in our markets and their market. And it's been pretty basic math these days for us. I mean nothing is going to really change much. Well, appreciate it the additional time goes.

Thank you very much Scott. And to further highlight your question on spend. I'd like to add that my spend at Rick's establishments has stayed consistent. Next up, we're going to bring Anthony of Sidoti and Company.

Yes. So just a follow-up, Eric, you mentioned that you're making some adjustments to some of the clubs that have to use your phrase implementing softness that you've had. So just -- can you just talk about some of the adjustments that you've been making and just wondering, are these generally the same clubs... First quarter...

Anthony, I'm not sure if that's you in the background, but could you repeat the question?

That was not me in the background now. So, I'll repeat the question. So yes, Eric, just wanted to follow up about the adjustments that you said you're making in some of the clubs that you've seen some softness. Can you just expand on that as to what you're doing? And then just in terms of the -- what's the common theme, I guess, as far as the clubs that you have seen some softness last few quarters.

Yes, sir. I mean basically, what we will do is increase social media, make sure that doing get people into the clubs. We may run some bottle service specials on slower nights. We may basically just do whatever we need to do to create a better value for the customers and guests that are visiting the location and doing things to put more people through the door, whether that's social media, whether that's on-site promotion. We had huge -- we had huge crews out of the Mega game last night. So I'm sorry, I think was the day before. But you get the idea it's just -- it's more promotional. We become more promotional, we become more proactive in -- and then like I said, we watch if our main floor is not full, we try to fill it up. And VIPs empty will try to run some specials [PIP]. We may do more shot specials. We may do like I said, more social media promotions and specials. So just things to put people through the door. That's how we fix it.

Got it. Understood. Yes. And then just in terms of the second quarter here, you also cited higher labor costs at the newly acquired clubs. Do you expect to bring those costs down as a percentage of revenue now that you've had a few weeks already under the belt?

Yes, certainly. I mean, obviously, when we first take stuff over there a little heavy. We put some extra labor in there as well. So, we've become a little heavy on labor. We sort to move people around. We if there's deadweight, we have to get rid of the dead weight to get the numbers where they need to be. Typically, in a 3-month to 6-month process, like Denver. Denver was took a lot longer, I think this location because it's in Texas will be much faster for us.

Got you. Okay. And then it was good to see Bombshells margins up sequentially. Do you still expect that longer term, you can get to your target range of 18% to 22% segment margins for that piece of the business?

Absolutely. We didn't -- we were reviewing prices through most of March. We raised most of the prices we needed to raise at the end of the March period. So, you didn't see any of those price increases in that quarter. You'll see the prices increase -- effective price increases in April, May and June. And the fights have been good. We had a couple of really big pipes in April and the first week of May. We've got the NBA playoffs have been fantastic, some unbelievably close games that are bringing people out. James Harden playing in Philadelphia. There's still a lot of James Harden Vans in Houston. So that's bringing people out to Bombshells in Houston to watch games and hasn't disappointed. It's been like iit's been a great series. And I think next 3 is going to be even better, which I think will bring more people out and then we get to the playoffs. And I guess we're just relying on baseball for a while and then football will start back up same...

We have the WWA, Eric.

Next up, we have Lynne Collier of Water Tower Research.

And congratulations. Great quarter. Congratulations again. I had a couple of questions around your incredible growth opportunity in Central City. The first question is, is there some reasons that Central City cannot be built out as Black Hawk? In other words, is there some sort of zoning issue that prevents it from being as big as BlackRock from a gaming perspective, number one? And then number 2, what do you envision for Central City looking out over the next 2 or 3, 4 years.

Sorry, I couldn't get my mic to come off. I know you were just up there. I wish I have been able to meet with you while you're up there. I just couldn't make the timing work for my schedule. There's no reason Central City can't build like Black Hawk other than in the historical district, it won't happen. But there is other gaming areas down the Gulf and whatnot, where they can build some larger hotels like the casino there in Central City. I think it's a 400-some hotel, it's about close to 700 gaming devices. -- and that whole I think can be developed at some point in the future.

I think the biggest changes is -- Blackhawk had a much more business-friendly leadership in the city and basically grew their town faster. I think what's changed as well is the gaming loss changed in September of '21, which is now allowing BlackHawk I mean now in Central City to grow. If you look, there's, I think, 7 or 8 licenses applied for in the state of Colorado, all but one is in Central City. So Central City is the next growth area for gaming in Colorado. Central City has so much charm. They have so much more offering forms of entertainment, art, opera than Blackhawk. So, I think over time, you're going to see -- and I really don't look at it as 2 competing cities because the reality of it is they're 0.9 miles away from each other. And does the strip and downtown Las Vegas really compete with each other?

Or is it just they each have their customer base, their they cater to the clientele. I think that Central City in that regard is that they'll share some customers, of course, sometimes they'll go to Black Hawk and sometimes you'll go to Central City. But I think the reality is most people on most visits will end up in both towns at one point or another because they're just so close. And as they grow together as that gold has developed and BlackHawk develops up towards Central City and they develop into each other, is just going to seem like one giant gaming area. And that's what I see over the next maybe 3, 5, 10 years in that market up there.

That sounds great. And I think they're only like a mile or 2 miles apart, right? Black Hawk and Central City?

I'm sorry, you broke up... Yes, they're only 1 mile or 2 miles... Yes, they're miles. They're 0.9 miles. They're not even a mile apart. City center city center is 0.9 miles.

Okay. Okay. Great. I just have one follow-up question. You talked about Bombshells and the new initiatives that you have that are resonating with the consumer, and you talked about pricing, but what other things are you doing from an initiative perspective regarding Bombshells.

Lynne, we were having some technical difficulties on our end. Would you be able to repeat that question again for Eric?

Yes. I wanted to ask you about the initiatives that you have implemented at Bombshells. They seem to be really resonating, and I know part of it is pricing, but what other initiatives have you put into place at Bombshells in the last 2 to 3 months?

The pricing was at the end of the quarter. So, none of the result is from pricing. A lot of it is just -- we always call it -- or I always call it getting back to the basics. Teams get lazy or teams get complacent. And so, we have to remind them to get back on the basics. That's getting back on social media, getting the girls on TikTok, the gills on Instagram, hitting out there and taking the girls to promotion events, whether it's a basketball game or going hit all the automotive car lots and buying all the car dealers and salesman in and stuff like that is getting out there, getting seen and getting our name out there, so that so that people come into the business.

And then of course, once they're in the store, providing the best customer service we can provide, making sure that managers are touching tables and that they're making sure the guest experience is the best that it can be, so that not only do we have a guess when we get returning guests because that's how you build and that's how you build the margins. Of course, upselling drinks and upselling appetizers and desserts all help with margins. And so, it's just basically getting everybody doing the things they're supposed to be doing anyway that I just feel that when you number when your margin slip, it's typically because of those types of things that just kind of slip by a little bit or people let go a little bit, maybe they didn't go to this game or they didn't go to that game because they were too busy or they thought they were too busy. And just making people understand that we're never too busy. We must continue to promote. We must continue to bring people into the business.

And after going out to Colorado, I'm just amazed at what you've accomplished and you really have a true home run. And congratulations. That's all for me, but I appreciate the time.

Next up, we're going to bring Rob McGuire of Granite Research. Rob, please take it away.

Congratulations on the quarter. Just have a couple of questions here. First off, on Bombshells. Can you get the Bombshells margins back to 18% of the Arlington on-ramp off ramp has not yet reopened.

Okay. Great. And since the price increases went into effect this quarter. Can you just give us an idea of how those have been going?

I don't -- it's too early. I don't have the numbers on that period yet.

All right. On -- can you just talk about where cash is today? I might have missed that earlier. And what you intend to do just where your cash is today in general.

I think $22.8 million what we ended the quarter with. And we haven't disclosed anything after that publicly. But it's increasing.

Very good. And then if you could just look at the wages, they're a little higher in terms of wages as a percentage of overall revenues. Is that something we can expect going forward? Do you think that corrects back towards the mean with the price increases you've been putting on?

I mean I think we will continue to be in that 25% range, I think is what we try to normally shoot for. Give or take a couple of points. I don't really worry about 1 quarter simply because you could have a bunch of overtime. You could have a lot of little things that affect one quarter. If we start seeing it trend up on a longer-term basis, and we'll have to be much more concerned about it. But right now, it's very, very small amount of money anyway.

Okay. I appreciate that. And then lastly, just -- you talked a little bit about the softness in the night clubs. Has the trend of the softness really being limited as blue collar evolved? Or does it continue to be kind of contained in that segment as you kind of look at the business over the last, I don't know, 6 to 9 months?

In the past, yes, it's been pretty based on the blue collar. It's hard to say with April because this April, we had Easter this year, but last year, Easter was in March. And so, the only weakness was the week of Easter weekend and -- good Friday. And of course, the Monday after Easter. This was a little weak. And so I don't know if the softness was just because of that 1-week period or if we're -- if there's softness, there's no trends. Like I said earlier, I'm just not seeing any trend in weakness or any trend in strength either way. And so, we'll continue to watch -- as long as we're doing our total weekly numbers, we'll monitor the best locations. We'll monitor the weaker locations and we'll try to fix the weakest locations and try to make sure that our focus at the high locations continues and they continue to build and do the big numbers.

And that softness around Easter was as a former ultra-potent church that weekend rather than go to tubes. Next up, we have Joe Gomes of NOBLE Capital Markets.

Congrats on the quarter, Good. So again, service revenues continue to perform nicely. Just wondering, in your mind, Eric, is that something that you think can just continue? Or do you think that at some point in time they start to level out?

I mean they're going to find a top at some point, but I think they're going to continue to be in these ranges. I think the highest peak of the business, we were doing 42% or 43% service revenue margins. So, we're still below those peaks, but we do have more Bombshells nowadays than we had back then. So, I think there's just a an ongoing trend. We'll just keep watching. And as certain markets do better with the higher service revenues like New York, we get seed service revenues increase. But I mean, the reality is they're going to fluctuate. I mean, for example, in Miami this weekend was in San Formula One racing, UFC, which was big USC boxing or FICA d then you had the big boxing event.

So, it was -- there was a lot of things driving traffic. When there's that much traffic on the floor, of course, that drives VIP because customers want to be not bumped into or get away and they want the private area. So, which drastically increases our service revenue. So, it really, I think, just depends as we move forward, how many events and those types of things, that we have a bunch of events in a quarter, you'll see higher service revenues.

All of a sudden, there's not a bunch of events in the quarter, we could see a little bit lower service revenues. But like I said, overall, I'm much more concerned with monitoring our total revenue and our total revenue numbers, we're beating our internal goals for April and through May so far. So, I'm very happy to see those numbers being beaten. They -- I thought they were pretty optimistic numbers to begin with. And the fact that the club goals, we set goals at the clubs and the fact that they're beating those numbers. I'm excited about. We are going to gain some major comps. Like I said, April last year had no Easter. So we did have a very strong April last year. I think April was our strongest month of the year last year actually.

And I want to try to figure out why I know it can't just be Easter. There must have been some major sporting events and some other things in that month as well. But we started out the first week of May with a very, very strong week. I said, with F1 and the NBA games have been fantastic for us. Just a lot of positive. I mean, you've got Phoenix, you got Miami, you got New York, you got Denver, all teams that definitely help our revenues right now in the playoffs. So, we can't lose in the Miami, New York game because either one of those are great. I think we're leaning towards Denver. We have more clubs in Denver than we do in Phoenix. So, I'd love to see Denver advanced and because I think that will be more revenue for us. So, we're watching those games close. And like I said, with James Harden, a lot of Houston fans for James Harden still. And so I think that the years continue to advance, that will help our business as well. So, we've got 3 of the 4 series are great for us.

Excellent. Now I think at the end of the first quarter, you had talked about, I think, reopening the Galveston Heart breakers and the Jaguars in San Antonio. I'm just wondering how they were performing this the past couple of months?

Sure. Both are continuing to see improvements. Heartbreakers has had a couple of record weeks, so we're very excited that, that location is continuing to get better and better for us. The real thing now is to get the Baby Dolls in Fort Worth reopened, which should open by mid-June, I think, at the latest. We probably could have opened what we -- earlier, but we decided we wanted to do things right. And so there were some electrics and heating air conditioning issues there just wasn't up power to the building. So, we had to add additional power to the building, which added about 4 to 6 weeks to the process. But we just -- there's no sense in opening in June or July or August having huge problems because we can't call the building. So that's all being worked on right now. We've also got our Lubbock Jaguar's location is under construction. They've got steel up, they're closing the building, the (inaudible) board. So that location will come online soon as well as the pent-up location that we bought in Fort Worth, Texas. -- that will start construction probably in the next 90 days on that property. 3 more clubs coming up.

Great. And then one more for me, if I may. I know you had that $200 million goal of investment for the -- each year, over the next couple of years. I think at the end of the first quarter, we were around 110. Are you still confident you'll be able to get that other, let's call it, $90 million invested over the remainder of this fiscal year?

I mean we're certainly going to try. We've got to find the right deals. We've got a lot of construction going on. We're getting -- we're in the process of 4 bank loans. -- right now for different various constructions and properties. So hopefully, those will all come through. We're getting rates between, I think, 6.8% and 7.25%. So, rates are not horrible yet. So, we're going to try to lock in what we can lock in and get the other construction projects going. Some of the construction projects we're doing in cash like the Jaguars in Lubbock is all cash. Our staff for location, we basically paid all cash for the construction there.

So, we've got multiple properties that we could turn around and cash out of it at some point here in the next 6 months if rates settle back down as Fed stops and when the rates come back down, and we start seeing a 6% rate again. I would look for us to do a refi or cash out, I should say, of probably around $20 million to $25 million, which gives us a nice chunk of cash going forward, which will make it easier to hit that $200 million mark. Right now, I'm not seeing anything to stand in our way from us making those investments other than you must find the right deals. I'm not doing deals to do deals. I want to do deals if they meet our requirements, and we can get the cash on cash returns that I see versus buying back our stock.

Before we bring up our next questioner, I'd like to encourage everyone to retreat and share this space. If you have a question to ask, please raise your hand, and we will bring you up as a speaker. Next up, we have the deep value provocateur, Orchard Wealth. The mic is all yours.

Got it. Good quarter. My big thing that I wanted to get some clarity on is you guys obviously keep acquiring the real estate in these prime areas, Texas, Florida and South Colorado. Do you have any idea what the underlying property values that you've been buying have accumulated by? Like I mean if I'm in where to these used to be, how much in those respective counties is commercial property going up year after year, which you don't record on your balance sheet as those properties move up.

Well, we're not allowed to take a step-up basis. We have to use cost basis accounting under GAAP. But I would get in certain markets, I mean, we've turned down some pretty -- there's always people trying to buy your properties, right? I don't know if you guys -- anybody knows property knows the your phone rings off look, I want to buy your house, I want to buy this Ian. We get those calls on a regular basis.

We've gotten some offers. I mean, we bought Turkey's property. I can't remember what year it was 2015, maybe for $15 million. I've got an unwritten offer verbal over the phone, would I take $24 million for it. course I laughed. I was like be out of 0, we can sit down and talk. We own the club, we thought you could just move that tenant. So no, we are that tenant. So -- but I mean, I don't know. I think there's somewhere -- I think we have about $250 million plus in real estate last time I did everything. We have 10 on the sheet, I think, about $120-some million in real estate debt. Is that Slide 14.

All right. So, the thing I keep looking at the fact that your borrowing costs on this real estate that you stated over the years. It seems to be growing at least equal to what you're paying out an interest on these properties? Probably easily. I mean, we're only -- you got to remember, our weighted interest rate now on our real estate is only 5.41%. I mean our overall 6.50, but our real estate does finance is much cheaper. -- about a point, right? A little over point cheaper. So that's highly possible.

And you got to remember, a lot of this real estate that we bought, we've done some pretty major improvements to the properties as well. So that never hurts with the value.

And then about what percentage of the entire business do you own real estate and what percentage is waste?

(inaudible), I just said this the day 85 and 15 or 83% and 17% -- 15% to 17% leased, and that's because of the -- one reason we have so much lease now is because the restaurants and the Lowry acquisition. So, I think it's pretty close to 85% and 15%, I believe. Now we've got all the new locations we're getting ready to open that we're building like Roulette, Lubbock, Austin, Texas, Cora, Colorado, downtown Denver, Colorado, all those locations are owned. So as more locations open, the percentage of owned properties are going to go up versus lease properties because we haven't added any lease properties recently. Not that we won. I mean we find the right locations and they just got the right term lease and the police price is right. I mean we can lease achieved and then we can buy it, then we may tend to lease. But just really depends on how much capital we have to put into the location as well.

At the new casino location, when that goes in, you're going to have a steakhouse and you will have a club in there. Are there any other clubs in that area? At the new casino location, but I didn't get the rest, I'm sorry. At the new casino location, you're going to put it in a steakhouse and you're also going to have a club of some sort, are there any other clubs within that area.

The 5 clubs we own, which are about average of about 45 minutes away. So, the idea of being is if somebody is on a vacation and I've got a bunch of guys and we all head up there, and we're looking for something. You are the only game in town when it comes to that. Or hopefully. I'm but the only game in town for you to eat after 10 p.m. at night up there other than 24/7 at Monarch. I mean discount is -- it's amazing to me because it's literally the -- it's a gaming town. All you can do is Gamble. There's not -- I mean you can fish in the summer, there are some things to do. But in the winter, their numbers tie down. You've got the Opera, -- you've got a lot of art galleries and stuff in Central City.

But for Blackhawk, other than the new distillery area that they're opening, I just don't know a lot. In the casinos. I mean they barely have rounds. I saw some adds for this summer, they're bringing in some lounges. I was like, well, finally allow a live band of some kind, something, literally, there's no entertainment in that marketplace right now. And that's what was so exciting to me. I was like, we can take Central City and turn it into the Fremont Street of Vegas with all the entertainment and the strip is 0.9 miles away and has 0 entertainment. So, from 11:00 at night, midnight, you're on a table and you're not doing very good. You're not feeling it, you're like, I got to get out of here.

You got 2 choices you drive back in Denver or you go to bed in your hotel room. Nothing else to do out there. I'm going to give you a third option. Well, hey, let's go see the girls at Rick's or as we continue to look at properties out there and do other things, we may build a night club out there of some kind. Just other things to create an entertainment zone for the thousands of people, especially Thursday, Friday and Saturday that are out there. that are gaming. And this -- if you're winning, you want to stop and go do something else, if you're losing, you want to stop and do something else, right? So, I just want to give them those other options.

But I think -- and if you want a game still, you still can, which I think will be a big part of our deal is, you may come to the casino to gamble and end up seeing an entertainer and ending up in VIP, you may come to see the entertainers end up in VIP and then decide, hey, let's go play Blackjack for a while. So, I think there's just going to be a lot of synergies between the 2 businesses. I know it hasn't been tried before, and I know I'm going to have a learning curve. But the beauty of it is both businesses are so profitable that I'm still going to be paid very, very well in working through my learning group. And that's what you see in our analysis.

We said, look, the first year, let's say we only do half the money. We only do 3-point-some-odd million, and it takes us that full year to learn and get to the point where the second year we earned the $7.5 million. We're still a 50% cash-on-cash return on this investment. So, to me, it's just a super easy. I haven't seen anything that's excited me like this since 2004 when I bought Rick's Cabaret on 33rd Street, and that was a better company deal at that time. And we did $6.7 million of revenue the year before, and we paid $7.6 million for a single club and within 4 days of owning it I toured down. There was nothing left but 3 brick walls. And then we spent $3.8 million rebuilding it, which was an unbelievable amount of money for us at that time. But that's what created the RCI that we see today. I think this property for a very small investment of $10 million has a chance of taking this company to a whole different level than where it is today.

When -- on a different pivot, when you take over clubs over the history of, let's say, the last 5 years or so, when you take over the business, what's like the Rick's premium that you guys are able to squeeze out on average from what they were doing numbers wise to what you think like in a year, 1.5 years of you being there, you can get it up to -- is it like 15% improvement, it's quiet improvement?

Typically about 20%. I think we're at 17.4% on the trailing 12 months through December 31. I don't know if Bravern it in March, we did, I didn't see the report. But I know through December 31, I think we were up -- or maybe that was through March 31. -- were 17% or 18%. So yes, I think 20% is a pretty good number for us. We tend to increase revenues and EBITDA by about 20%.

So, when you're purchasing the clubs for 3 to 5 is 3 to 5x their numbers, but then you come in and you're finding another 20% on top of that, which obviously lowers your acquisition costs, but you don't realize that until a few years later.

Yes, typically, I mean, typical what we're seeing sometimes we've seen in the first year, sometimes set it right away. I mean, look at Sishen we bought in 2007, we bought $18.8 million in revenue on -- and they were doing $8.8 million in EBITDA. We paid $25 million for it. And in the first year, we did $23.8 million in revenue and $11.4 million in EBITDA. So sometimes it's immediate. Sometimes, it takes like Denver probably would have been pretty immediate. It had we not been coming out of COVID and there were employees to hire, and we didn't lose so much on the management staff because they had just not really recovered from reopening from Covid. They only been opened 4 weeks in Denver, and we bought it. Some of the other clubs have been open a little bit longer. But I mean, they were all -- and they were in markets at all open-plan -- there was a lot of issues we had to work through. So it took us almost 6 months to realize and see the game there.

One last question. When you showed us the universe of the 2,200 total clubs that are out there, give or take, what percentage of them are owners that have, let's say, 4 or more clubs I mean like it's all the individual owners. But I mean like when you go to the industry, I've gone through a couple of these events, I seem to run into people that these people own like 6, 4, 5, sometimes there's a bunch of 1s and 2s. But it seems a lot of the participants at these club events are usually the guys that own multiple clubs.

Yes. The Expo is definitely a lot of multi-club owners, and I think it's anywhere from 20 to 25 with these guys own. Of course, you've got a couple of big boys that not on lots of clubs like us. But there's not very many of those. I think we acted only one other club on early owns the same number, more -- probably more clubs than we do. Most of them are smaller, between 4 and 10 clubs a day, I would say, is an average. And you've got a few, like I said, they're probing up to about 25 range. So, there's plenty of people out there for us to purchase clubs from as we go through.

And there's a lot of one-offs that we can do throughout time. The key is running them. So, we just made a major acquisition, and I laugh I say people are worried about Bombshells and with one single location in the WAF acquisition does more annual EBITDA than all the Bombshells combined. So, it's like why don't we focus on the important stuff but to me, which is the clubs. And everything else is just bonus for us, bonus ways for us to come up with the money, build additional free cash flow and put money to work while we're waiting for the next Club acquisition because we have to put management teams in.

We have front. So, our director of operations for RCI Management Services is in Dallas right now. He's working on getting the new club open. He's putting the teams together, putting our POS systems and getting our culture ingrained in the acquisition in the clubs that we acquired. And that takes time. I mean it's a 3- to 6-month process. So, people say, well, can you go buy something else? I could probably go buy something else right now. but why stretch our management team. That's -- our pace of how we've done it has increased over time because our ability to manage them has increased over time. And as our ability to manage and absorb more acquisitions increases, we'll buy more, we'll make more acquisitions. But in the meantime, it's nice to have a couple of other things to put our cash flow into and keep the machine running.

Before we bring up our next person to ask a question, I'd like to give a shout out to DKNY. My man, if you come by the shareholder reception tonight, I will teach you how to purchase sunglasses that aren't from the women's section. We also have a dunk tank waiting for you as well as Bradley Chhay, America's CFO, to do an arm wrestle challenge. And if you lose, you will become a shareholder of RCI Hospitality Holdings. Next up, we're going to bring Adam Wyden, the largest individual shareholder of RCI Hospitality Holdings Inc. up, Adam, please take it away.

Okay. Perfect. So sorry, I'm a little late. I had another earnings call, and I know these go on for a while, but -- so you'll have to catch me up. But I'm just reading through the deck a second time. On the counting casino, you guys talked about conservatively taking 2 years to get from 3.7 to 7.4%. Have you guys sort of quantified -- I know your slot revenue participation is very -- is less than half of Black Hawk, which is really conservative.

So, I mean if you could match BlackHawk, to that's a lot more EBITDA, it's probably another 4. But have you sort of talked a little bit about like what the table games? I know there's also supposed to be a steakhouse there. You're talking about digital sports betting but also potentially in-house sports betting. I mean, it'd be nice to sort of -- you've sort of given a bare bones estimate of what the revenue and EBITDA contribution. But it might be helpful to sort of give the other layers. And obviously, it's a new business for you, so you're not going to guide to it, but it might be helpful to sort of outline the sort of other buckets and how big they could be.

Well, you've outlined the buckets, I'm not making any guess on any of those other revenue sources at this time because I just don't know. I think the steakhouse is actually part of the club revenue. So, the only thing you really have that we didn't include is table games, which we have no clue on at this point. We've got some preliminary numbers. You can go to the Colorado Department of Gaming's website. You can download every casinos numbers. You can download combined casinos numbers, you can download it by city. So, you guys can go look at all those things yourselves and put together models, I'm not sharing my models at this time. I think it's way too premature for that for us. And as far as the sports betting goes, I mean, we know that the online sports [scans] self I say sell are basically a partner with an online sports betting group or partner with a casino in those range anywhere from about $7.5 million to $10 million over 10 years on a contract on a revenue share basis with a minimum payments. So, we are not including any of that at this time. We don't have a signed contract at this time with any other group.

We have been talking with groups negotiating with groups, and I think that within 30 days after our license is issued, we will have a full-time partner probably the data life (inaudible) have the partner, and they'll be licensed in 30 days after that. And so that will be an immediate income as well. But I don't want to particulate on where we're going to be or what that revenue is going to be at this time. I don't need to. I mean I just showed you that if I make 0 off of all those other things, I make 50% a year for 2 years, and that's anticipating that I am going to be so behind the learning curve that I'm only going to do 50% of the revenue in the first year that we anticipate that well, it's not even that we anticipate is that the other operations do -- so I don't have the conservative.

I think it's a conservative number. I don't need to go. I don't know, Lam. I don't need to say we're going to make $20 million or $15 million or anything else to justify the investment. I wouldn't even be trying to justify the investment, but I have a lot of calls and a lot of people saying, why are you doing this? And I wanted to put out there why we're doing it. This is our take. This is our math. This is the way we see it happening. And if we can make 50% cash-on-cash returns, I mean, that's not too many investments I'm not going to invest in when I have the certainty of an investment like this in the backup with table games and with online sports betting and actual sports book on the premises as well. I mean, we didn't include any sports betting that I can make my 50% returns that easily. So...

That was sort of my point that you beat the (expletive) out of the numbers, it's still a 50% cash on cash. So those are the best types of investments where everything goes to Hallinan basket and you make 50%. I was just trying to lay out the other buckets for folks so they understand that if you execute on this like you've done on other things there's a lot of upside. But that's helpful. What else... Have you…

I'll give you a little color on the spot. -- for example, Central City is $129 a day. I think the BlackHawk average is about 200 and something a day. So, if you take your top casinos over there, they're running over 400 something a day. So, if we can come in somewhere between 129 and 300 even at the middle of that zone, you're talking about millions more dollars. So, I think there's a lot of uniqueness to our project. And I believe that with our properties in Denver, we will to market our properties around the country. We'll be able to market a lot of packages to not only our employees and entertainers and our guests of our existing clubs around the country, but they will bring friends and this will become a very, very unique market, I think, for us.

Got it. I don't know if anyone has asked about sort of M&A. I know you've got your digesting birch and you did Lowry. Can you talk -- have you commented at all about sort of these little clubs that you sort of are renovating and repurposing and so the ramp up of those or any of the other sort of smaller M&A opportunity and what that looks like?

Yes, we've talked about the 3 properties that we have in various stages of construction right now that will probably all be open in 2024. And we talked about -- I forgot what slide number it is now, but we've talked about the free cash flow generation on Slide 23, that how much cash will have we're still looking to invest $200 million a year. We're showing where this cash is going to come from. We talked about the bank loans that we'll still be able to get on our real estate, how we have about $20 million, $25 million in cash out that we can do if interest rates drop back under 6%, we're probably immediately cash that real estate out on new real estate loans. So, I mean, all the places are in place. We just have to continue to do what we do.

Right. Yes. And I noticed that you updated your buyback slide for different fiscal year '24 ranges of free cash flow. Obviously, these are on the consensus numbers. I suspect not where you think you are, but sort of gives people a sort of a band of outcomes in terms of where the buyback is. And so looking forward to hopefully seeing some of that as well. But I'll hop back into the queue and I have more questions.

I'll raise my hand. All right. Thanks, Adam. And I'll let Mark take over again.

Next one I think we deflation has the best open winter. -- please take it away. Thank you... And congratulations to Eric Bradley on the RCI team for a great quarter. As a frequent customer, I wanted to ask you guys a following question. What... Turn up your met there. Ask questions. Is it better now I wanted to ask a follow-on question, which is what systems do you guys have in place to ensure club quality stays consistent as expansion continues to grow... We just put our systems.

We put our closer in. If you follow at Dean read or rear in game, whatever Dean's handle is on Twitter. That's our Vice President of Operations. He's post all the parties how he takes the teams to lunches and dinners and post the DJ meeting the other day where we had big and Mastar as a surprise speaker on the costs. I mean those are things we do. We build our culture and our [Kearl] keeps everything else in line because people want to be a part of it. Thank you...

(technical difficulty) It seems like sweaters having some difficulty guys. We're sorry. We're working on it here. But hopefully, you can hear me... Like everyone who I'm hearing. And apologies for all of the technical difficulties we're having. We're going to blame Elon on this one. Now I have a question that was submitted anonymously. And so I'd like to encourage anyone who has questions who is listening, who would like to ask them that you can go to the form at the top of this space and type them in, they'll be related to me or you can DMM. This question is, Eric, what is the go-to-market strategy for you guys to expand into sports betting in an already crowded sports book app market? What is the main product differentiation?

Well, the beauty for us is it's not our product. We're being paid a minimum fee to use our license in the state of Colorado. You got to remember sports Betty may be credited in certain markets and other markets, it's not as crowded because you have to have a license in that state in order to take best in that state. And currently, in the state of Colorado, there are only 31 possibilities. And I don't even -- I believe maybe 21 or 24, I can't remember the number, but I'm sure you can find it on the Colorado gaming Department's website on how many of those licenses are actually are using what they call a skin. They call it scanning it.

So, they spin it with their things. So, like when you bet on say bet-on sports, Penn Gaming steel, you're actually betting through the Ameristar Casino and Blackhawk Colorado on their license. Everything is done their license through the skin of bet-on sport -- so that kind of gives you an idea. There's still plenty of -- and you talk about all those gaming companies. Well, all those gaming companies aren't licensed in the state of Colorado and anyone that aren't licensed could reach out to us because we have 2 skins at this point that should be available sometime around the first of the year. So in fact, I'm going to go to a gaming convention tomorrow afternoon and market those skins as well...

And with that, we are going to be concluding our Q&A session. So, thank you so much, Eric and Bradley on this 1-year anniversary of the first ever earnings call on Twitter spaces. For those who joined us late, you can meet management tonight at 7:00 at Rick's Cabaret New York, one of RCI's top revenue-generating clubs and also where DKNY, our favorite troll will be participating in an arm wrestling battle with Bradley Chhay -- she and will become a shareholder tonight.

Rick's is located at 50 West 33rd Street between Fifth Avenue and Broadway, a little in from Herald Square, also the exact crime scene of where I spent $20 in ATM fees last night. I think at 3x, Mark. Okay. It was 30%. It was 30%. All right, Eric. Rick? If you haven't RSVPed already, you can ask for Eric Langan, or me at the door. After 9:00 p.m., however, I will be busy implementing my own capital allocation strategy. And I'm going to pass it off to Eric to say one more thing, but on behalf of all of us at the company and our subsidiaries, thank you so much. Now Eric, with the last word.

Yes. I just want to thank shot-out Antonio Brown, who brought the camels and the go to Houston to visit with me for a couple of days and thank them personally for inviting me to their barbecue at their meat and great. It was -- it was a great event. I had so much fun. And I look forward to next year's meat and greet the camels in Denver, where I plan to host you guys again. And hopefully, we set up some other companies for you guys to visit why you're out there, so you're not just learning about us. Thanks again for inviting me and sharing your time...

And Eric, one last thing is you said you hadn't been this excited since 2004 about the Central City opportunity, but I was just as excited when I saw Marissa laden and Nancy landed video earlier today. So I very much look forward to meeting you ladies in Dallas or Miami. Oh, we met them in Miami. They were with us a I didn't refer you did I did...

Yes. Great. We had a great time. We probably did start think about floor in the morning. So yes, definitely enjoyed the visit with them and look forward to hosting them again next time I'm in Miami or they make it to Dallas, I'll try to make it up there as well. And with that, I thank everyone for your time today. I look forward to another great quarter as we move forward and hope to talk to everyone again soon. Thanks.