RCI Hospitality Q4 2022 Earnings Call Transcript

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Provided by Quartr
December 14, 2022

Key Takeaways

  • RCI reported Q4 revenue of $71.4 M (+29.9% YoY) and full‐year revenue of $267.6 M (+37.1% YoY), with free cash flow up 71.6% in Q4 and 63.3% for the year.
  • Management plans fiscal 2023 growth from a full‐year benefit of 15 acquired/reopened clubs, the Heartbreakers deal, and pending Baby Dolls and Chico Locos acquisitions that are expected to add $11 M EBITDA initially and up to $16 M after expansions.
  • The company is investing approximately $10 M to develop Rick’s Cabaret Steakhouse & Casino in Central City, Colorado, applying for a license for 175 slots and 7 tables and aiming to open in late 2023.
  • Bombshells segment Q4 same‐store sales declined, generating $14 M in revenue with a 15.5% operating margin, though new locations and franchises are slated to open starting in FY 2024.
  • RCI’s capital allocation includes M&A, organic growth, and a share repurchase program, with $50.1 M used to buy back 268,185 shares in fiscal 2022.
AI Generated. May Contain Errors.
Earnings Conference Call
RCI Hospitality Q4 2022
00:00 / 00:00

There are 11 speakers on the call.

Operator

Greetings, and welcome to RCI Hospitality Holdings 4th Quarter and Fiscal 2022 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 information page. Scroll down and you'll find all the necessary links.

Operator

Additionally, it will be available in the tweet that will be pinned to the top of this space. 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 with Eric Langan, President and CEO of RCI Hospitality as well as Bradley Shea, CFO of the company.

Operator

Please turn with me to Slide 3. If you aren't doing so already, it's easy to participate in the call on Twitter Spaces. On Twitter, go to rickce0 handle and select the space titled $rickfy22 earnings call. 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.

Operator

RCI is also making this call available for listen only through traditional landline and webcasting. At this time, all participants are in a listen only mode. A question and answer session will follow. This conference is being recorded. Now please turn with me to Slide 4.

Operator

I want to remind everyone of our Safe Harbor statement. It reminds you that 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.

Operator

I direct you to the explanation of non GAAP measurements that we use. I'd also like to invite everyone listening in the tri state Greater New York City area to join Eric, Bradley and me tonight at 7 o'clock 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 Street between 5th Ave. And Broadway, a little in from Herald Square. If you haven't RSVP ed, ask for Eric, me or bullish intern at the door.

Operator

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

Speaker 1

All right. Thank you, Mark. Thanks for joining us today. Please turn to Page 6 on the slides for today's news. We had a great fiscal 2022 and look forward to a strong fiscal 2023.

Speaker 1

A big thanks goes out to our team members for making this possible. We couldn't have done it without you. Year over year for the Q4 and fiscal 2022, our key metrics continue to increase on a double digit percentage basis. This resulted in strong growth of free cash flow, adjusted EBITDA. This is helping drive future growth.

Speaker 1

We are a much larger company now, so we have been working on much larger agenda of growth initiatives. In fiscal 2023, our Nightclub business To see a benefit full year benefit of the 15 clubs acquired and the 2 reopenings from fiscal 2022. The addition of this year's Heartbreaker acquisition, the pending acquisition of Baby Dolls and Chico Locust chains and other possible acquisitions under consideration. We'll also be developing our exciting new Rick's Cabaret Stadium in Colorado. As for Bombshells, we have 6 company owned or franchise locations in development, this should start coming that these should start coming online over the course of fiscal 2024.

Speaker 1

I'll be back to tell you more and answer questions later. And for now, here's Bradley to review the financials.

Speaker 2

Thanks, Eric, and good afternoon, everybody. There's a lot of numbers on this slide, so I'm going to focus on a few big ones. Total revenues were $71,400,000 for the quarter, up 29.9%. For the year, revenues were $267,600,000 up 37.1%. Free cash flow was $14,500,000 for the quarter, up 71.6%.

Speaker 2

For the year, free cash flow was $58,900,000 up 63.3%. Adjusted EBITDA was $24,200,000 for the quarter, up 37.8 percent. For the year, it was $86,700,000 up 44 set. Non GAAP EPS for the quarter was $1.45 That's down 8.2% year over year, primarily due to the fact that our effective tax rate 23.4% this year versus 11.7% last year and also because we had 2.8% more weighted average shares outstanding due to the Lowery acquisition. For the year, non GAAP EPS was $5.38 up nearly 32%.

Speaker 2

Please turn to Page 7. With our fiscal 2022 performance, we continued our strong track record Since implementing our capital allocation strategy to the benefit of our long term shareholders, we thank you again. We initiated the strategy at the end of our fiscal 2015. Free cash flow has grown at a CAGR rate of 22%, while we reduced weighted average shares outstanding 1.5% on a compound annual basis. Our free cash flow conversion rate increased from 11% to 22% of revenues since 2015.

Speaker 2

We also survived our toughest challenges with COVID in fiscal years 2020 2021. Please turn to Page 8 to review our Q4 in more detail. The Nightclub segment had another excellent quarter. Revenues totaled $56,600,000 This was our 2nd sequential quarter not affected by COVID. Operating margin was 39.7 percent, 41.6 percent non GAAP.

Speaker 2

Operating income was $22,500,000 GAAP and $23,600,000 non GAAP. Our new acquisitions added $14,900,000 in sales. Same store sales were up, reflecting strong growth in New York, Illinois and Florida, and high margin service revenues increased 53.6%. Please turn to Page 9. The Bombshell segment also held its own during the 4th quarter.

Speaker 2

Revenues totaled $14,000,000 Operating margin was 15.5 percent. Operating income was $2,200,000 Same store sales were down for the quarter, but total sales improved sequentially through the period and were up 7.4% year over year in September. Bombshells Arlington, which opened in December of 2021, added $1,400,000 in sales. The San Antonio franchise added more than $100,000 in royalties since its opening in June 27. It also incurred $300,000 and start up expenses as part of our franchising agreements.

Speaker 2

Now excluding those expenses, operating margin would have been about 18%, which is in line with our target range and operating profit would have been about $2,500,000 Please turn to Page 10 to review our consolidated statement of operations. All comps are as a percentage of revenues and compared to a year ago Q4, unless otherwise noted. Cost of goods sold declined to 12.9%. This reflected the increased mix of higher margin service revenues of 36.5%. Our salaries and wages were approximately level at 25.3%.

Speaker 2

Now SG and A was 31.3%. This reflected newly acquired and reopened locations and around $2,400,000 of non cash stock based compensation. This relates to previously announced $100 per share options granted to a limited number of top executives and management team members. Excluding those stock based compensation, SG and A would have been approximately 28%, about the same as the year ago quarter. Depreciation and amortization were 6.7%, reflecting non cash amortization of intangible assets on newly acquired lease locations.

Speaker 2

Other charges reflected $1,700,000 gain on the sale of businesses and assets in the Nightclub segment compared to $11,900,000 impairment in the segment last year. Operating margin was 25.2%, 30% non GAAP. Interest expense was 4.8% versus 5.3%. This was a function of higher sales in the 4th quarter, partially offset by higher debt from club and bombshell site acquisitions over the course of the fiscal year. Please turn to Page 11.

Speaker 2

We ended the year with cash and cash equivalents of $36,000,000 a little higher than a year ago. Free cash flow was 20% of revenues for the 4th quarter and 22% of revenues for the year. Adjusted EBITDA was 34% of revenues for the quarter and 32% for the year. Both of these metrics exceed our target performance of 20% of revenues for free cash flow and 30% for adjusted EBITDA. Now if you will, please turn to Page 12 to review our debt and related metrics.

Speaker 2

Net of loan cost, debt was approximately $202,500,000 at year end. That's an increase of $14,500,000 from June 30. The increase primarily reflected seller financing used in the July 2022 Cheetah's acquisition. Our weighted average interest rate for the 4th quarter was 6.35%. This compares to 5.64% a year ago and 6.73% 5 years ago.

Speaker 2

Our amortization continues in the $9,000,000 to $10,000,000 annual range, which is very manageable with our cash flow. Now to pay off our balloons, our periodic refinancing enables us to convert higher rate seller financing and other unsecured financing into lower rate commercial real estate bank debt. We continue to have multiple unencumbered properties in our portfolio that we can borrow against if need be. And occupancy costs were 7.3% of revenues. This continued to be well within our 6% to 9% range we've averaged when sales weren't dramatically affected by COVID.

Speaker 2

Please turn to Page 13 to look at our September 30 debt pie chart. Our debt now consists of 59.8 percent secured by real estate, 26.7% secured by seller finance Debt secured by the respective clubs and or real estate to which it applies to, 5.1% of our debt is secured by other assets and 8.4% is unsecured debt. Please turn to Page 14. We continue to talk to new investors, so I'd like to take time to review our capital allocation strategy. Our goal is to drive shareholder value by increasing free cash flow per share 10% to 15% on a compound annual basis.

Speaker 2

Our strategy is similar to those outlined in the book, The Outsiders by William Thornby. We have been applying these strategies since fiscal 2016 with 3 different actions subject to whether there is other strategic rationale to do other ones. One is M and A, specifically buying the right clubs in the right market. We like to buy solid cash flowing nightclubs at 3x to 5x adjusted EBITDA, use seller financing and acquire the real estate at market value. In fiscal year 2022, we deployed $141,800,000 in capital to acquire 15 clubs in new and existing markets.

Speaker 2

Another strategy is growing organically, specifically expanding Bombshells to develop critical mass, market awareness and sell franchises. In fiscal 2022, we deployed $10,000,000 in capital to open up our 11th location and buy a property at 5 more locations. We also signed a 2nd franchisee. Our goal in both M and A and organic growth is to generate cash on cash Annual returns of at least 25% to 33%. Now the 3rd action is buying back shares when the yield on our free cash flow per share is more than 10%.

Speaker 2

In fiscal year 2022, we deployed $50,100,000 in cash to buy back 268,185 shares. Now let me turn the call over back to Eric to review our growth plans.

Speaker 1

Thank you, Bradley. Yesterday, we announced the signing of definitive agreements to acquire 2 Baby Dolls and 3 Chicas locations, Adult Nightclubs and their real estate in the Dallas Fort Worth and Houston markets, closing as expected in January. This will be our 2nd largest acquisition after the 11 clubs we bought in October of 2021. The price $66,500,000 consisting of $25,000,000 in cash, dollars 25,500,000 in 10 year 7 percent seller financing and 200,000 restricted shares of common stock tied upon closing at $80 per share. We expect to generate $11,000,000 of EBITDA in the 1st year.

Speaker 1

Four locations are open with the 5th being remodeled and RCI anticipates expanding operations of 2 of the locations. 1 of the remodeling expansions are complete, EBITDA is expected to grow to $14,000,000 to $16,000,000 annually. This is a group of well established, well run classic Texas gentlemen's clubs that are proven cash generators. We look forward to bringing them as a part of our family and our portfolio and welcome their management teams to the RCI family. They are some of the best in the industry and will enable us to continue to grow at an increased rate in 2023 and beyond.

Speaker 1

Please turn to 16. During fiscal 2023, we'll be working on the Rick's Cabaret Steakhouse and Casino. This is a great opportunity and a great market. We bought a 4 story, 30,000 square foot building in Downtown Central City for $2,400,000 in available cash. Central City is one of the only 3 Colorado towns with legalized gambling.

Speaker 1

Last year, dollars 1,000,000,000 was wagering in slot machines and Central City generating more than $80,000,000 in adjusted gross proceeds. We see this Ritz as a club with a casino component. Our plan is to feature classics, rich cabaret entertainment, fine dining as well as casino and sports betting. We've applied for a license to operate 175 slot machines and 7 tables. We've already have approved gaming license for machines in clubs in Illinois and Louisiana.

Speaker 1

Please turn to 17. Fiscal 2023 will also benefit from the 15 club acquisitions and 3 clubs and club related restaurant openings we made last year and the Q1 acquisition of Heartbreakers. We are also reformatted a club in San Antonio that should be opening December 28, and we are continuing to look at other potential acquisitions. Please turn to 18. We received a building permit for our Stafford location and construction has started.

Speaker 1

Stafford is in the Greater Houston market. We own land for 3 other locations in Texas, one in Rowlett, Texas, Lubbock, Texas and Austin. We're in the process of getting building permits and expect to start construction soon. Bombshells is also coming to Colorado. We have purchased land in Aurora, Colorado, which is in the Greater Denver market.

Speaker 1

We will begin the permitting process in January. We are also targeting 3 more locations in the Denver after the 1st of the year. We want to continue to expand the brand in that market. Nearly a quarter of Denver's population are millennials, making it one of the best cities for this demographic in the country. And it's also become another tech hub with a new nickname of Silicon Mountain.

Speaker 1

We expect our franchise in Huntsville, Alabama to receive their building permits very soon. All these locations to be ready Please turn to Slide 19. In the Q4 of 2022, our regional revenue breakdown was Texas 38%, including Bombshells Florida, 25 percent New York, 8% and Illinois and Colorado each at 7% each, with the other 8 states combined for 14%. This demonstrates our geographic diversification, our exposure to growth states like Texas, Florida and Colorado and how we develop business clusters in key areas. For example, with our 5 clubs in Denver, our Bombshells in Aurora and our Riggs Cabaret Steakhouse Casino in Central City, The Greater Denver area will become a major and new cluster for the company.

Speaker 1

Thanks. And now here's Mark.

Operator

Thank you very much, Eric and Bradley. I'd like to take a moment to encourage everyone to retweet this space Before we get into our most anticipated section, the Q and A section. If you would like to ask a question, please raise your hand in the Twitter space. When you're done asking your question, please mute your microphone to eliminate any background noise. We have a limited number of speaker spaces.

Operator

After your question, we may move you to the back of the audience to free up space. To start things off, we'd like to take questions from Rick's analysts And then we're going to move into some of our larger shareholders and hopefully be able to answer all questions from everyone in the audience. We have Scott from H. C. Wainwright, Lynn from Water Tower Research, Rob of Granite Research and Anthony of Sidoti.

Operator

First off, let's bring Scott up to the mic.

Speaker 1

Hi, good afternoon guys. Thank you for taking my questions. Eric, first, can you remind us where your comfort level is around leverage? I'm trying to judge what the capacity is for additional transactions in calendar 2023 Beyond yesterday's announcement? Yes.

Speaker 1

Typically, 3 times EBITDA is my comfort zone. Some analysis shows that because of so much of our real estate is owned, we could call. We pushed them closer to 4 times, but I've historically kept us around 3. I think the highest we've ever been is about 3 point one four times EBITDA. So we're right now, I would guess, in the 2, 2.25 range.

Speaker 1

So we should be in pretty good shape at this point. Great. That's helpful. And then what's the timeline on Rick's Steakhouse Casino opening, what's the scope of kind of renovation required there? And then just the timeline on regulatory approval.

Speaker 1

Yes, sure. So the total investment will include probably around $1,500,000 to $2,000,000 worth of remodeling and updating like security systems and stuff like that, an additional about $5,000,000 for the actual swap machines, we'll probably own the majority of our machines instead of doing the profit sharing or leases, as well as the table games. And then I figure maybe another $1,000,000 or so, so about $10,000,000 total overall Type investment is what I think we will be at some point. The licensing process in Colorado can take between 9 18 months typically. Right now, we believe they're running about 12 months.

Speaker 1

So we're hoping to be open by this time next year, and We'll start doing some of that build out and remodeling as soon as the state the first step in it is the background checks. Those are supposed to take about 90 days. So we turned our license in on November 28. I'm guessing with holidays, we may lose a week or 2. So hopefully sometime in April, Especially if the weather starts warming back up out there because it gets very cold in the mountain area out there at about 8,900 feet of altitude.

Speaker 1

So most of our construction and setup, I think, will start in April, May, June quarter And then hopefully finish everything out, get it all pre set up by the end of September once we can get a temporary license to buy the game, Put it in, set everything up, get the inspections done, and then all we wait for is the final license to be approved to basically flip on the switch and be open.

Operator

Fantastic. Next up, We're going to be bringing the star of the 2022 Gentleman Club Owners Expo, Rob Maguire Of Granite Research, Rob, you're up.

Speaker 2

Thank you, Mark.

Speaker 3

Eric, can you just discuss Central City in terms of Do you have goals in terms of revenue and EBITDA? How long that might take to ramp from day 1 after you open the facility?

Speaker 1

Yes. I mean, I think we're going to open I think it's going to be more like a typical bombshell site opening where we're we do very, very well in the first 3 to 6 months and then we'll kind of settle into a little groove type deal, settle down a little bit as we're not the new kid on the block anymore And then we'll re ramp back up. That's how I see it happening. To give you an idea, the average Machine, a swap machine in Central City is doing about approximately $150 in revenue. So they have 1700 machines that took in A little over $1,000,000,000 If you take that and say we're 10% of that, I think we could come up with Say we do $100,000,000 in I'm sorry, about 175 machines, yes.

Speaker 1

So basically 10% of $1,000,000,000 will be about $100,000,000 in total wagers, And you take 8% of that, which puts about $8,000,000 in slot revenue, add in the table game revenue, And then of course the nightclub and bar and the steakhouse, I mean, I think we could start out somewhere in the range of $10,000,000 to $14,000,000 in revenue to start. Hopefully, the margins are typically 30% to 40%. And the reality is if we can do some of the casinos in Blackhawk, which is basically the town right call. Really kind of connected and one is like the old downtown and one is like the new area. Some of the casinos over there are reporting as high as $400 per machine daily and wagers.

Speaker 1

So I figure somewhere in between there. So we could do anywhere from $12,000,000 to $14,000,000 to maybe as high as $35,000,000 to $45,000,000 in total revenue. You just don't have enough it's too new. We'll have to get in there and see how it goes, see if we can keep the people in there During the late hours right now, there's almost no entertainment in that market. So we're going to be like some of the first entertainment in that market, which I think is going to be a fantastic advantage for us.

Speaker 1

We've got a great location right as you come off the Casino Parkway, you're coming down the hill, you're looking right at our building. It's just an unbelievable location. So I think that solve? Those are kind of the ranges and we just won't know until we get in there and get going. Very little risk to us with a total investment of about $10,000,000 call.

Speaker 1

If we only do $10,000,000 and

Speaker 4

we do

Speaker 1

30% margin, we're still looking at $3,000,000 in EBITDA a year, which puts us well within our Hurdle range, so and it could really exceed all of our expectations as well, so.

Speaker 3

Thank you. I've got one more question and then I'll circle back in the queue with more. But what do you think the extent of entertainment will be in Central City?

Speaker 1

Well, we're going to start out, the adult entertainment license is not passed by city council yet. We did get it through the Planning Commission or the zoning commission, whatever they call it, was approved through them on a four-one vote. It has not Going through city council, so I don't know if we'll have, topless entertainment there or not, but if not, we'll do more like circa in Las Vegas where The entertainers will dance in bikinis or latex wear, stuff like that. The main thing I think is just having entertainment period in call. It's hard to find a place to eat after 11 o'clock at night out there.

Speaker 1

On the weekends, maybe you can Some of the snack bars open till 1 The weekends, Thursday, Friday, Saturday, Sunday are very, very busy out there. Sunday, Monday, Tuesday are much slower In that market, you get hotel rooms very, very cheap during the week and then they get very expensive on the weekends. So I think it will be more weekend driven business, especially in the beginning. But I think as over time, as we become known, we'll get More business will also cater to the other casino employees. When they get off work, they have to wait for buses and stuff to get home.

Speaker 1

So maybe we can get them to come over for a little while and hang out and eat and drink in our place because we're going to stay open late

Operator

Thanks so much, Rob. And before I bring up Anthony of Sidoti and Co, I'd like to encourage Lynn of Water Tower Research to accept The request to come up as a speaker to be able to ask any questions that you may have. Next up, Anthony, please take it away.

Speaker 3

Yes. Good afternoon and thank you for taking the questions. So, Eric, I would love to get your take as to what you're seeing thus far in this Current quarter, given that you're only a couple of weeks away from closing the Q1, can you just give us an update as to what you're seeing in terms of traffic or same store sales,

Speaker 5

both for the clubs and Bombshells? Yes.

Speaker 1

I mean, it's definitely a tough market right now. What we're seeing is a kind of a small drop off of what I would call the blue collar customer, basically our lower margin call. But most of that is being made up by our high margin customers and VIP spend at this time. So the numbers have been very steady as far as revenue wise with the previous quarters. I was Kind of hoping we get an increase.

Speaker 1

We'll just kind of see how the next couple of weeks go. We've got a lot of Christmas parties that happen between now and 24th or 23rd really. So we'll see how those Christmas parties go, how much business they bring in and what that looks like. But so far, I think we're going to be pretty close On revenue wise with analyst expectations, and I think that because of the Higher end spend, hopefully our margins will stay steady as well.

Speaker 3

Okay. Yes, thanks for that. And then In terms of Bombshell's operating margins, even excluding some of those non recurring items, I mean, they were In the mid teens, I would say. I think in the past you've talked about the operating margins for Bombshells. You wanted them to be in the 20% range.

Speaker 3

So how should we think about segment profitability going forward for Bombshells?

Speaker 1

Yes, sure. I mean, I've always said 18% to 22% was our target, and I think that's what they'll basically come in at when as they mature, We'll be in that 18% to 22%. We're kind of on the bottom end of it, but this is our worst quarter. That quarter Q4 is always our weakest quarter, if you look historically. And so we'll see how they look in this October, November December quarter.

Speaker 1

We have been talking, we are working on some changes, Doing some more drink specials, some higher margin appetizer specials where we and discount stuff without hitting the margins or profitability as much. And so that is starting we're starting to do some of that in some of our blue collar Clubs around the country as well where we're going to start driving more traffic. The one thing about Bombshells is we really don't spend any money on marketing. It's basically social media marketing, stuff like that. So we are looking at some possible marketing partnerships And some other things with Bombshells that would help drive traffic as well.

Speaker 1

And I think I said, we're going into a little bit of a different Economy than we've had in the past. And so we're going to have to be creative and do the things we do. And I think in our worst case, we're going to stay in this 18% to 22% range. It's nice when we can have some big months and Big events that drive that up into the 20%, 24%, 25%, 26%. But I do think overall that the average is going to be in the 18% to 22% range.

Speaker 3

All right. That's very helpful color. And then I guess my last question before I jump back in the queue. So you will be Spending certainly money on the Central City and some other initiatives. Can you give us a sense as to how much you're looking to spend for CapEx And if you have a maintenance CapEx number for fiscal 2023, that would be very helpful.

Speaker 1

Yes. I don't really have a CapEx I know that we want to invest $200,000,000 a year for the next 3 years. So our goal will be to try to Close to the $200,000,000 I think last year was 141 point something, dollars 0.8 I think that we got invested. CapEx is around $6,000,000 $6,000,000 a year I think. Maintenance CapEx, I'm sorry, maintenance CapEx, yes.

Speaker 1

I don't think that's going to change a whole lot For this year over last year, should be about the same.

Speaker 3

Got it. Thanks and best of luck.

Speaker 1

All right. Thank you.

Operator

Thanks so much for the question. Next up, we are going to bring Lynn from Water Tower Research. Lynn, please take it away.

Speaker 6

Thank you. I just have a question about casino opportunities in Colorado. Are there any additional opportunities?

Speaker 1

I mean there's other stuff we've looked at. Obviously, we're not a casino company, so we'd have to have some type of entertainment restaurant type component That would be the driving force for the business and the gaming would be just something to create extra revenue off of. We would want to have a business as standalone that has gaming added to it versus just a straight out casino. But, yes, we're definitely looking at other things out there. I think that what people don't realize, I think, in Colorado is they used to have $5 limit.

Speaker 1

Those limits were removed in September of 2021. And because of COVID, I think that Some of your casino operators have just been behind the ball on that. I know Tillman Fertitta of Golden Nugget just recently bought a call. Casino in Cribble Creek, which is one of the other three towns out there, that has some great opportunities, for about $43,000,000 for the casino he just purchased out there. And I'm sure based on the license of applications, there's several other applications, mainly smaller casinos In Central City, there are applications that are being applied for.

Speaker 1

So I think it's coming. I think we're just we got kind of got lucky and got ahead of the curve With the changes and just happened to be out there because of the acquisition we did, the 5 clubs in Denver, It really gave us the opportunity to get out there early and get ahead of things. So we're looking at other opportunities out there to bring more entertainment to that market and Hopefully, we make Central City the entertainment capital along with the gaming and then let the main gaming casinos Where the big boys are at over in Blackhawk, let them bring the people out and then we'll entertain them and send them back to Blackhawk. That's kind of the thought process right now.

Speaker 6

That sounds great. I have just one more question about Bombshells in Colorado. Will you have to change the prototype less Patio, is there are there any adjustments to be made for Bombshells when you go into a colder weather market?

Speaker 1

Absolutely. What we'll do with the patio, we'll still have the patio, but it will be more covered. Right now, we only cover about 60%. We'll cover 100% of the patio. And we'll put in basically their glass folding walls.

Speaker 1

I don't know if you've kind of seen some of the Excuse me, the big stadiums, like in Minnesota, where they have the walls, the whole wall just folds up and you got 40 foot of wall that Basically folds up into about a 2.5 foot column. We'll be using stuff like that type of design of glasswork and that It raises the cost about $300,000 but still well within the ROI that we need to build the location.

Speaker 6

I just have one more question. Can you talk about the demographic draw of the 2 new nightclubs that you just bought?

Speaker 1

The 2 brands is that

Speaker 6

Yes. The demographic is baby dog and Chica.

Speaker 1

Obviously, Chico Locos is very Hispanic based. It's Crazy Girls is the translation. And so it's very Hispanic based. Those 3 clubs are in really nice markets for that. And then the Baby Dolls is very traditional.

Speaker 1

It's hard to explain without you actually seeing it. So, it's a very I call it, if anything, it would be a middle class strip club. That's how I'd kind of or gentlemen's club And very Texas based, so there's country music. There's a lot of more classical rock '90s, '80s, '90s, Early 2000s, music played there, and it's very I think the Babydollars in Dallas is a Very large building, super high ceilings, and just a great fun atmosphere, the easiest way to explain it.

Speaker 6

Thank you, Eric. I think I'm good. Thank you.

Operator

Fantastic. Thank you so much, Lynn. And Eric, as you were saying, I'm a big fan of Babydoll, so I was very happy to see that acquisition. Now I want to take a moment to do Two things. First off, I would like to encourage everyone to retweet this space for us to be able to get as many people here as possible and to follow the example of 90s random consultant who had a nice retweet of this space recently.

Operator

I would now like to open the floor To everyone who would like to ask a question and we would encourage you to do so by raising your hand so that we can be made aware and we'll bring you up.

Speaker 1

First off, we're going to

Operator

bring the largest shareholder of RCI, Adam Wyden from ADW Capital. Adam, take it away. Hey, Adam, you're on mute.

Speaker 7

Can you hear me now?

Operator

We can hear you now.

Speaker 7

Okay, great. Wow, it's been a harrowing 3 years. I remember in March of 2020 driving by Tootsies and seeing the lines out the door and My bonehead analyst telling me that the company was going to go bankrupt and I should sell the stock. Well, I'm happy it doesn't work with me anymore and still a shareholder. So look, it's been an amazing run and you guys have continued to sort of raise the bar.

Speaker 7

I thought The Lowery was sort of special and now you've got Baby Doll and Cheetah, you did Cheetah's and Playmates and Look, anyone who knows me knows that I'm also trying to raise the bar. So I sort of point the question back, which is you sort of You know, had this sort of saga with Lowry, you know, you wanted the business long time ago, you took a private, you sort of got that, you've integrated, Lowry is making money, Now you got this other guy. I mean, what's the next thing? I mean, I know you got the casino, but like are there groups that are doing 30, 40, 50 of EBITDA? We know about Harry Money with very, very big business, what's the sort of the next thing?

Speaker 7

I mean, you obviously have invested so much talk. Time and energy to build this platform and get this scale. Now you sort of getting affirmation by the marketplace, the sellers are taking paper. You've now got this cash flow to make down payments on businesses. You used to save 3 years and hand and egg all this unsecured money and now with $120 of EBITDA, dollars 9, dollars 10 a share, dollars 9, dollars 10, whatever dollars a share of free cash flow.

Speaker 7

I mean, you can fund The cash component of these M and As from internally generated free cash flow, I mean, where are we in terms of sort of getting to that next level of club group size and sort of building that sort of corporation?

Speaker 1

Well, I mean, there's lots of acquisitions out there. We're talking with lots of owners. Some are small, some are large. It's really about the seller being ready to sell. I've been doing this for a long time.

Speaker 1

I meet with a lot of owners. Some say they want to sell, but after meeting with them for a while, I can call. They're just not ready to let go. Some of these guys have been running these clubs for 30 years and they're their babies. So it's difficult for them to make Final decision to go ahead and sell, but they're coming around.

Speaker 1

And part of it is, is there It's more convincing that you're joining the RCI family versus selling your club and retiring, though some of them are, But of course, they're concerned with the people that have worked with them and been with them for 20 30 years. They want to make sure they have opportunities. And I think it's convincing As I see the deal we did with Lowry and now this new deal and some of the other deals that we've done in the past, Well, they see the employees and the staff have done very well with RCI and moved up in our ranks and become better for themselves and better for those people, the opportunities are there for them. I think that's starting to have some effect. It definitely did in the Baby Dolls.

Speaker 1

I know they're very worried about their management team because they have a great management team there. And we don't we want to bring that management team in. We don't want to lose that management team. We want that management team to stay with us We need those types of people to continue to grow, especially as we've accelerated our growth rate. Typically, our goal is 10% to 15%, But we're actually pushing to grow at 30 plus percent for at least a 3 year period here And then we'll revamp and see where we're at.

Speaker 1

I think 'twenty three's growth is pretty much in the bag. We've been working very hard on 2024 with new stuff, with the new Bombshells, with the new Rick's Cabaret Steakhouse Casino, But we're also still lining up acquisitions. We're talking with operators of all sizes from $1,000,000 EBITDA deals to $30,000,000 EBITDA deals that we're talking with guys on right now. And there's a lot of guys in between, a lot of smaller $3,000,000 $5,000,000 $6,000,000 $8,000,000 $10,000,000 $12,000,000 Dollar guys that are out there and so we're trying to reach out to some of them, some of them reaching out to us and we'll find the right deals As we need them and continue to grow.

Speaker 7

Yes, I mean, look, on our model, absent any incremental M

Speaker 1

and A from here, I mean, You guys

Speaker 7

will be compounding cash earnings per share at about 40%. I mean, I don't know very many companies that are trading under call. Over a 10% free cash flow yield growing 40%. So it sort of brings me to my next question, which is, I know you're not buying back stock because the returns are very good. I don't think people really understand how good they are.

Speaker 7

Obviously, buying this business at 4 times EBITDA is incredible and the way you finance it. But I mean, we've sort of done some of our back of the envelope math on the Casino and based on sort of participation rates and size and stuff, I mean, you're talking about a $10,000,000 I think you said roughly $10,000,000 of investment. There's online concessions in some states. If you guys if you think about a casino, you don't just have slot machines, you have table games, you have liquor. I mean, Our back to the envelope math is this thing could be as much as $20,000,000 $30,000,000 of EBITDA and probably on the low end, probably high single digits.

Speaker 7

I mean, Can you sort of sharpen your pencil a little bit on it? I know you're new to the casino industry, so you don't want to sort of create high expectations for folks. But I mean, the returns, if you guys have some success here, the returns can be really, really meaningful. I mean, can you give people a little bit More color around what the casino could look like and the range of outcomes? I know you're new and it's early, but I mean it's can you give us a little bit more color on this casino?

Speaker 1

Yes. I mean, as I was telling Scott, we've kind of got the range of $10,000,000 if we are $10,000,000 to $14,000,000 of revenue up to as much as $40,000,000 in revenue and it really depends on what our average Slot play is. That's going to really adjust that the most.

Speaker 7

That's just gaming. That's not liquor. That's not liquor and the other stuff.

Speaker 4

That's just the gaming element, right?

Speaker 1

Well, that's just a slot element. Yes, slot, just slot. And the rest of it's just impossible for me to really see it this time as I just don't have enough. I mean the club side, I think The reality is for the club side, the liquor will be cheaper because there's gaming. We're not going to give away free liquor, but we will have discounted liquor.

Speaker 1

So the liquor prices will be cheaper than a typical club would be, because really we're trying to not only entice you to come in and see the girls, but come in and gamble as well. So there will be components of that, that we've got to get I got to feel out and learn and figure out. But we'll be spending some time on that. We're bringing in some casino experts. We've got a great firm that we're in negotiations with that consult with us on Not only the casino setup, but all of our system setups and those types of things.

Speaker 1

But the beauty is it's not a new industry, right? There's plenty of experts and plenty of people out there that know how to do it very, very well. And we'll put together a team and that will do it well and do it our way and call. Compliment our business model. There's a lot of excitement around it right now That with what we have planned out there and I think there's other opportunities at some point out there as well.

Speaker 1

So I don't know where that's call. It's a small part, it's a small investment for us. Dollars 10,000,000 is not a huge investment anymore, and the risk well outweighs the potential rewards. And so, I think we have to I've always said, look, acquisitions are difficult because you don't know we can't time them, Right. It's hard of time though.

Speaker 1

And so we're always looking for opportunities to expand and grow in areas where we can time the closing. So if we can't get an Acquisition done. We know well, we can open this business and we can open this business and therefore, we can keep our growth consistent and never let our growth dip below our 10% to 15% Planned rates and then if we are successful and we can land acquisitions like Babydoll's, like Lawrie's acquisition, Now we can see 40% growth. We can see 30% growth or maybe even higher depending on size and frequency of the acquisitions Combined with the openings, I mean, I'm very excited about 2024. Basically, we have our growth built in with new 6 new bombshells, the Steakhouse Casino, our growth is kind of built in, right?

Speaker 1

So any acquisition we do is really going to boost growth in 2024. I think 2023, we've got some great growth factors in that. The 15 locations that we bought, especially the 11 that we bought from Lowry had just come out of COVID openings. I mean, they didn't even some of them didn't even open until September of 'twenty one. They had only been open less than 2 months when we bought And so we had a huge step up in revenues and we're seeing that in the 1st 5 months we had a very difficult time because You have the job market, you had COVID stuff still hitting and bothering different markets.

Speaker 1

And so it's very difficult for those 1st 5 or 6 months. We Those clubs as they move into same store sales in January, February, March, and I think we're going to see really nice growth year over year growth With those 15 locations, as well as now the new acquisition coming in, so basically our 'twenty three growth is there, our 'twenty four growth could just be off the charts Depending on how acquisitions go in 2024 and I think by the end of 2023, we'll be focusing on 2025 growth. So I think we got 3 years here of really solid growth. We can take on probably another $100,000,000 plus of debt. Got about $5,000,000 in debt that's going to be they'll probably be paid off in the next quarter or 2 as we sell some we got some raw land assets that we're selling and An airplane that we'll be selling in the next quarter that will get rid of some debt there.

Speaker 1

So our debt level is probably about $5,000,000 less, we'll drop about $5,000,000 just from that, not counting the normal amortization. So our debt is still very manageable. Even if you say, I know you're trying to say $120,000,000 EBITDA, but I'm saying even if we're only at $100,000,000 in run rate EBITDA right now, we're at $200,000,000 in debt. So that's only 2x EBITDA debt ratio, so we've got at least another $100,000,000 in debt we can take on. We're generating well over $1,000,000 a week in cash flow right now.

Speaker 1

So we take that and put that back to work and then any equity component of these big acquisitions Just give us even more buying power for these deals. Though of course, now I don't Once we do this deal at $80,000,000 I don't think I would do another deal at $80,000,000 because with all the new EBITDA coming online, I think the stock is going to be worth more than that. And so we probably wouldn't use it And an immediate another deal at that price, but maybe the next deal is at 90, maybe the next deal is at 100, 110, 120. I guess that's up to the market To price that in for us and if they give us a we get to the multiples we need and we can buy the deals at the right price, we could use an equity component of them as well. If we just have to use debt and cash, as I just showed you, there's plenty of runway at least for the next year to 2 years To use this debt and cash that we're generating to make plenty of acquisitions with.

Speaker 7

I mean, you mentioned something about You know that you were I mean part of what attracted us to this investment early on is that you were spending a lot of time With getting the SEC reporting right and sort of getting the IT and Bradley and the infrastructure, I mean, Most of the sort of the public company costs and IT stuff is behind you. So your legacy free cash flow growth rate of 10% to 15% was really Also concurrent with the fact that you were also boosting your sort of corporate G and A function, IT and this and that. I mean, so for all intents and purposes, For the same amount of revenue, right, you're going to have really high disproportionate margin growth because you're not adding those incremental costs to the same degree, right? Part of the increase in free cash flow, I think, this year and I guess last year was you were adding revenue without the concurrent sort of Corporate non revenue generating G and A, I mean, so I mean, look, we're super excited about it. And look, the casino to us It's very interesting only because it provides another avenue for you to monetize your brand.

Speaker 7

And you had Scarlett's in Florida, You were able to bring Scarlett's to Colorado and to the extent that you can sort of monetize Rick's as a casino and And continue to sort of monetize your brand at high returns and invested capital, that's super interesting. And obviously, any

Operator

Thanks so much for that, Adam. And next, we're going to bring up Hammar Kath to ask a question. Hammerkaff, please take it away.

Speaker 8

Hi. Thank you so much for giving me the floor.

Operator

Is my sound coming through okay? You're sounding great. Great.

Speaker 8

So I noticed just from Some searching on Twitter that there's some dancers that you find who are saying that they noticed The recession is here from the sharp reduction in customer spend they're seeing in the clubs that they work at. Obviously, it's very Kind of anecdotal and it's only based on a few examples, but I did find a few people saying that. Maybe these are people girls working in clubs in locations that you would avoid as part of your screening process. But Could you speak a little bit to what extent that matches with anything you're seeing at any of your locations? And if there are any patterns?

Speaker 8

And kind of how, I don't know your behavior might change if that such evidence became gradually more pronounced, how it would influence your decisions on capital allocation? I have one follow-up if you have time, but I'm also happy to pass on.

Speaker 1

No, let me get let me answer that one for you. So basically, I have been watching our blue collar some of the blue collar Clubs have had some minor issues, and it's but it's very sporadic. It's 2 weeks here, then we have 2 good weeks, and then we have call. An off week and then 2 good weeks. Our VIP clubs, our higher end clubs have been doing very, very well.

Speaker 1

New York, for example, Chicago, Tootsie's in Miami, their sales are still growing and doing very well. I ran a 3 month deal on basically credit card advances, right? I can see what the credit card spend is on the money that goes to entertainers. And I did that and then we compared that to the prior 3 months and we're seeing increases. So I feel for the girls that are out there that are having, they're struggling here and there.

Speaker 1

I would say maybe you need to try some other clubs. Maybe I don't know the region you're in, the regions these girls are in or where they are, I mean certain regions are definitely being affected different than other regions. I think a lot of them are in California. I think California has had some talking to some girls that come from Las Vegas And come from California to some of our clubs, they have complained a little bit that this customer spend in those markets isn't what it used to be. And it makes sense that Vegas on the weekends especially is very California driven.

Speaker 1

And so maybe there's some issues in those markets from what I'm hearing. And like I said, in our markets, I'm seeing some off And our slowdown in spend and basically customer visits in the higher end Somebody got me an echo there, sorry. And so that's basically what I've seen so far. You got another question you said?

Speaker 8

Yes, yes. Thank you so much, Eric. And So I guess my other question is around some of your new projects. I gather that I'm sure they're not like moving the needle and to be focused on too much yet, but I gather you have An NST project and another project called Admire Me, which I believe is trying to create a sort of Full circle between being able to interact with some of the entertainers both in Real life and kind of through social media. Do you think that either of those projects could introduce kind of Elements of risk that could damage reputation, I'd know like For example, in the case of the NFT thing, if there was some kind of hack or security problem and in the case of Admire.

Speaker 8

Me, I guess it occurred to me that it could potentially threaten an entertainer's safety if it was if they were sort of interact If it I don't know if it was making them more easily contactable by customers?

Speaker 1

I mean, basically, the entertainers are There we go. Okay, sorry. Sorry, the echo was just too much. Basically, it's not any more risk than any other business or any other deal out there. The entertainers are basically other than telling them what club they work at, Their information is still private.

Speaker 1

They're not getting private information. As far as the hacking, I mean, We have that risk on credit cards. We have that risk on employee data. We have that risk, you carry insurance for it And you follow the guidelines and you do everything you can do to keep the information safe. But I don't think there's any other risk on those products than any other product that we have.

Speaker 1

There's very small investments, not a lot of money invested in those either of those projects. We did have some issues with, of course, our The Ukraine war with our programs being based in Ukraine became an issue. We have switched to a different group and hopefully we'll get The final bugs and everything worked out, it's actually the site is functioning. You can actually use the site. It's just it's not to the point we're ready to market and really push and spend the marketing dollars we're going to need to spend to get the site till we get everything working exactly the way we want it and have The page layouts and features on the site that we want to add.

Speaker 1

But to answer your question, I mean, I don't think there's any liability there that isn't any place else.

Speaker 8

Thanks. That's really helpful. And sorry to ask 2 kind of negative questions, but it's Just interesting to focus on some of the things that could be risk factors. But generally, Congratulations on all your achievements. It seems to be going great and I wish you the best of luck.

Operator

Thanks so much, Hamrakat. We appreciate the questions. I want to give a special shout out to Doctor. Parikh Patel, who is in the audience. We have no idea what that doctorate is in, but we love it.

Operator

I'd like to encourage everyone to retweet this space. And additionally, I wanted to mention one thing for Doctor. Parikh We're going to be sending you a custom Rick hoodie that was designed by Bradley Shea, who took a few years of graphic design lessons. And we're going to be giving some of these limited edition items out at the reception tonight as well. Next up, we have Johnny Shen.

Operator

Johnny, please take it away.

Speaker 9

Hey, thanks, Mike. How are you guys doing? Can you hear me? Am I coming in okay?

Speaker 1

Loud and clear.

Speaker 9

Beautiful, beautiful. All right. So nice to congrats to awesome quarter again. Nice to see you guys kind of talk about this One more time, I'm going to ask a couple of questions if I can about the big deal, the Baby Dolls Chicken Slocos. Just I know you have one location under it's currently being remodeled, I believe.

Speaker 9

And then you've got 2 expansion plans. Can you give me an idea just very roughly, however rough you want to See about it. Just kind of what are we looking at? Like how many square foot are you looking to add? Kind of roughly what kind of CapEx Budget are we looking at kind of roughly just like an end of 2023 thing and end of 2024 thing?

Speaker 9

Like what do you expect that to all kind of be as you envision it?

Speaker 1

I'm sorry, I forgot to unmute. Basically, the club is actually open. It's being remodeled. It just isn't really contributing to EBITDA At this time, so but it is ready to the remodel is done. They're going to basically reopen in a full capacity.

Speaker 1

They're open to very So open to full capacity probably right after closing. As far as the so there will be very little CapEx or no CapEx on that location. The two expansions are to expand they actually had the extra Space opened at 1 of the clubs pre COVID and did not reopen the extra space post COVID because it needs to be remodeled. They did a partial Club remodel, but not the entire building. We're going to finish that remodel.

Speaker 1

And then the other club would be actually adding They have some empty warehouse space that we would basically expand and do a new concept. So we'd have 2 concepts in the same building. And so that space would be the more expensive. I think total CapEx expenditure to do all this is probably between call. $2,000,000 $3,000,000 max, not a lot, but and I think that between the 2, we would add probably $4,000,000 in EBITDA.

Speaker 1

So you get the new club you get the club that's limited capacity open, get it back up to a run rate of about $2,000,000 Add that to the 11, you're at 13, and I say 4, maybe it's 3. So I gave myself $1,000,000 When I say $14,000,000 to $60,000,000 range, I gave myself $1,000,000 range. I mean, So I think 14% to 16% is pretty easy to do. And I think we can do all of it within the 1st 12 months of operations. Probably the remodel on the One Club that's pretty much existing, I would guess that's a 90 day to 120 day remodel and the actual build out is probably almost call?

Speaker 1

9 months, 12 months to build out. So hope that answers your question.

Speaker 9

Yes, that's beautiful. And I can see why you didn't go in-depth on it. I mean, those are very small items compared to the acquisition. So that's cool. The $66,500,000 is that including land or is that kind of Exclusive of the land, like should I think of land as a separate deal?

Speaker 1

No, that includes everything. That includes the land. That's the land, the clubs, The ATM the ATM is an separate company, it's the ATM company and it's all the intellectual property.

Operator

Fantastic. Thanks so much for that question. And in the same vein of real estate, We're going to bring up Jesse Escola at NeXT. And Jesse writes the number one REIT newsletter on Seeking Alpha with 56,000 followers. We encourage you to check out his profile.

Operator

He's got some great threads on Rick. So Jesse, take it away.

Speaker 4

Thank you very much, Mark. I appreciate it. And congrats on the great quarter. Johnny asked a question that I had in mind, but I'll ask about the buyback instead. Eric, you've previously talked about this $65 figure as this threshold for your buybacks, but your cash flow has grown quite considerably since then.

Speaker 4

Have you thought of updating it?

Speaker 1

Call? We haven't because right now we have such great opportunities, as you can see Buying and building things well above the 10% free cash flow yield, it is something we're going to have to look at Again, soon, probably wait till after 15th January or so. Let's get this acquisition closed, Kind of get a feel for where we're at, let's see if this recession is going to get any deeper, if we're just a slowdown. And I don't even know what it is. I don't like to call recession I'm not really seeing a recession.

Speaker 1

I'm seeing some a certain demographic, economic demographic affected by High gas prices and food inflations and those types of things and maybe getting a little more Less frivolous with their cash or their disposal income, and so they're tightening a little bit. Maybe we're getting a little less Quest Club visitor, a little less spend when they're in at the blue collar level. But I just don't know what to I don't know what it is yet. And then it could end tomorrow, maybe they're just maybe school started and Christmas call. Coming up and so that's many, but maybe by February, March, things go back to normal.

Speaker 1

I just or maybe they get worse. We just don't know, I think is the problem with that demographic in the current economy and situation. The Fed raised 0.5 today, which was expected. So obviously, they believe the economy has slowed down a little bit. Hopefully, inflation peaked and we'll see the inflation numbers come back down a little bit and we can get back to a more normalized Economy where we don't have free money, but it doesn't get so expensive that people can't do anything either.

Speaker 1

And I think that remains to be seen. But Like I said, it's not affecting our high end customer at all at this point, our high end spend at least and our high end clubs. So We just have to kind of watch, we'll make some shifts and maybe discount, maybe bring those people, give them a reason to come back in and make it a little less expensive for them to visit, but keep our revenues and margins in line at the same time. That's the

Speaker 4

plan. Got it. Thank you. And on the club acquisition front, Would you say that all this uncertainty, the talks of a recession, the high inflation, the rising interest rates, Could it be that this is one of the driving forces why you have so many cloud acquisition opportunities right now? Do you think that it's pushing a lot of the owners solve?

Speaker 4

To try to sell right now before perhaps we go into a recession and their clubs suffer some declining growth from that?

Speaker 1

I'm sure it is. I mean, that's what I would do if I was them and I was in that situation. I think the risk is higher when you have small operations versus a large company like ours and the geographic diversity that we have. But we've also as you'll see, we're moving these things to about a 4x multiple. So we're giving ourselves basically a 20% cushion anyway.

Speaker 1

So it's working out well for us. And I think that as we continue to push Through this and figure these things out, at the end, it doesn't really matter because we're a long term company. I think in the next 3 years, We're going to have tremendous growth and then as the economic cycle turns, then we'll just re reap those awards even better In the future, we're doing things with taking as minimal risk as we can. We've gotten, I think, very good at that part of The acquisitions through seller financing, through using cash and now equity in these last two deals, which is I think it's been fantastic for the company and it will be great for our ROI.

Speaker 4

Sounds good. That's all I had. Thank you very much.

Operator

Fantastic. Thank you so much, Jesse. And as we head into our 69th minute of this call, I'm going to bring up Hunter B. X. Thompson of BTT Long Short Capital Advisors.

Operator

Hunter, please take it away.

Speaker 7

Hey, thanks Mark. Hey, Eric. Congrats on the quarter.

Speaker 4

Love to hear that you're not seeing much regarding a recession and really appreciate those specific call outs within your customer demographics. That said, Wondering if we can hear any more color around your view on

Speaker 1

the strength of the consumer.

Speaker 4

Do you see any qualitative shifts in spending habits in your clubs? And then just a quick follow-up on that. Regarding linearity in the quarter, do

Speaker 7

you see this trend degrading through 4Q? Thanks.

Speaker 1

We have What we are seeing right now, like I said, is a little bit of slowdown and it's inconsistent. It's not a consistent slowdown. I mean, 1 week We'll be up a little bit, 10% and next week we'll be up 4%. So it's kind of a mixed bag of nuts right now. And in the high end customer base, we're not seeing much slowdown at all, if any.

Speaker 1

People are still partying. There are certain demographics, certain groups are Not changing their habits at all. Others have changed a little bit. But like I said, with our geographic diversity, it's a non issue for us. What I look at right now, I think is most important is not the year over year numbers because there was so much free money last year, there were so many factors that affected things last year.

Speaker 1

And so I'm more of a sequential guy. What are we doing on a weekly basis sequentially from like the last 6 months, last 26 weeks. However, our numbers are our numbers declining on a sequential basis, and we're not seeing that. Like I said, we're seeing it in certain markets for a while and then maybe it changes, but we're adjusting, our teams are adjusting. We see the numbers slipping, we step up marketing, Step up social media presences, we do the things we need to do to bring the business into our businesses.

Speaker 1

And so that's why call? When the guy earlier saying there are certain entertainers are saying they're not making as much money and stuff. So I mean, I'm aware of I'm watching those things closely to see if they will affect us. But I think right now, we just continue to figure out how to get our share of the market call? Better our share of the market if we're seeing any declines.

Speaker 1

And so that's how we've covered that. And I'm sorry, what was your second question? I should have wrote it down.

Speaker 4

I was just asking about linearity in the quarter. So did you

Speaker 7

see things going through 4Q?

Speaker 1

I don't. In fact, December is call. We are increasing over November right now and I expect the big parties that we have really starting yesterday Through yesterday starting yesterday and through 23rd, we'll have to see how these parties there's a lot of parties. And I think there's a lot of Christmas shoppers that go out and shop for a little while and then come by the club for a few drinks and stuff like that. So I think we're seeing a lot of that And we'll see how that goes over the next 8 days, 9 days.

Speaker 1

Hopefully, we'll have a really big week this next week. This week has been great. I think the only day this week that's been off so far was Saturday and it was off very minute, very, very new. And when we were up so much on Friday that For the week, we didn't we're not even going to notice it.

Speaker 4

Appreciate taking the question. That's it for me. Thanks.

Speaker 1

Yes. Thank you.

Operator

Thanks so much, Hunter. We appreciate the questions. Next up, we're going to bring Orchard Wealthy Deep Value Provocateur. You're up. You have to unmute.

Speaker 5

There we go. Hey guys. I just want to get a couple of things out of the way just to kind of understand things. There's about 2,200 clubs, 500 of which you guys think are candidates that you would be looking at. Can you ever see yourself like thinking about actually opening a new club from the ground up or that's just pretty much the world or the universe that you live in?

Speaker 1

I mean, there's areas we might be able to do that. It's It's not really our forte right now, right? I mean, our forte is buying existing cash flow, making that cash flow stronger through our Unit Economics through our best practices, through our national buying power, and that model works very, very well for us right now. We do have the bombshells for ground up builds. I'm not saying we wouldn't, but it's not something that we're Definitely looking at I mean, we are doing a ground up build in Lubbock, Texas, where our property was taken by the State of Texas to expand the highways and we bought 5 acres on another down the highway or across town or whatever.

Speaker 1

I'm not exactly sure how far away it is, but from our Oak Club, but it's very close. And we're building the ground up building there, but I don't really consider that new. We were able to do a licensing deal, move the license type deal because of the intimate domain, Gave us some opportunity to do things that we normally probably couldn't do. But as far as ground up builds, it's just not something I'm really into on the club side at this time. But I guess I'm a never say never guy.

Speaker 1

We'll see what it develops over time. And If somebody was to present us with a great location that we thought was very economically viable and The risk was minimal to us. I think we might take that chance, but it just doesn't really fit our business model at the current time to build new clubs.

Speaker 5

Okay. So I'm assuming at this point, I'm saying your buyback price is going to be $80 because that's what you did in the current deal and anything below that would basically make the overall rate of return cheaper. I'm looking forward to your update in February. The other thing is what do you think is your new cash comfort level given the increased cash that you guys are going to be bringing in?

Speaker 1

I mean, we've been keeping our cash under 40,000,000 We've been trying to put it to work where we get closer to 40. I think we peaked to 42 or 44 and we bought a couple of properties. And I think we're on the minimum side, we'd probably want between $15,000,000 $20,000,000 Obviously, we're going to put $25,000,000 out on this deal. I think I'd have to check, I think we're around $40,000,000 We've got some other stuff we're looking at right now. We've got some CapEx spend.

Speaker 1

We're taking in a little over $1,000,000 a week. So it builds really fast. Frank? And what we may look at the bank, we used to have a line of credit, dollars 5,000,000 line of credit. We may try to bring that $5,000,000 line of credit back after the 1st of the year With this $25,000,000 going out, so we don't have to borrow any money to do the deal.

Speaker 1

The only debt we want on as we do these new deals, as we're trying to do all seller finance debt, no unsecured high interest debt, staying away from the 12% money we've had to borrow in the past. Even though it's not so bad with the bank rates at 8%, 12% money doesn't look so bad today as it did when we brought it when bank rates were 4%, but It's still expensive money, not really expensive for us because our returns are 33% or so, 25% on a worst case, but we're still making double the money on the spread, but I just think that from a market standpoint, We're trying to keep our debt manageable and keep our interest rates as low as possible. So once we pay off that 12% debt, I think our weighted average will probably back under 6%. So we're not in a hurry to pay it back, but we could. Yes.

Speaker 5

And just one other thing, can you give me an idea of like this 5 Club deal that you just did, how long ago did the process really seriously begin?

Speaker 1

Typically 6 months is what it's taken on these things. From the time we start talking to the time we work things out it was about 30 days. So we signed the deal on the 12, which 30 days from there would put us somewhere around January 12, January 16, something like that. I think that was probably the most likely closing dates at this point.

Speaker 5

Okay. But I meant like the other the seller basically was saying, look, sometime around May or June, hey, I'd like to sell my club, Let's make this happen.

Speaker 1

Yes, I mean, yes, it's just like I said, it really varies. I mean, if you look at the BCG deal, for example, I mean, We tried to buy them in 2010, we tried to buy them in 2015, and then finally got the deal done the 3rd time to term. That deal, I would say from the time we call to the time we got seriously done was less than 90 days And then the rest was just, I mean, 11 states, lots of licensing. The other 3 months was, I mean, Look, if you got a willing seller, we can do a deal and like for example, the Heartbreakers transaction. That entire negotiation, the entire thing was Less than 45 days.

Speaker 1

From the time we first met to the time we owned the club was probably 45 days. So I mean, It just really varies. Okay. On the complexity of the deal, the dollar amounts, those types of things.

Speaker 5

Well, I mean, my general consensus is with the way things are going right now, even if you had some sort of slowdown at all in same store sales, it doesn't mean anything because you guys should keep buying and adding new clubs that would completely offset anything that any recession that happens and at the same time you guys are able to just buy clubs cheaper.

Speaker 1

So Yes, I think I look at this downside risk, right? If you buy my stock today, what's your downside risk, right? That's always been kind of my thought process. And If I was an investor, well, I am an investor in other companies and other stocks. And my thesis is always what's my downside risk, right?

Speaker 1

And if my downside risk outweighs my upside risk and I'm not interested. But I think you have very limited downside risk with RCI right now. You've got us buying back stock, the stock hits certain levels. You've got unbelievable like you said, Even if we have 10% turn down in same store sales, which would be very high for us, especially at the club level, call? The EBITDA drop would not be much more than that.

Speaker 1

We have we would find ways to control costs, we did during COVID. We know how to keep our costs aligned, keep our margins up. We would do all those things, but we're going to grow right through it. We're going to still grow faster. So the odds of us earning less free cash flow 6 months from now than we did a year ago, that same period is pretty slim.

Speaker 1

I just I don't see that happen.

Speaker 5

You're on the advanced part of the F curve right now with the growth.

Speaker 1

It's that definitely got. Yes. Thank you.

Operator

Fantastic. Thanks for the question. Next up, we're going to bring Cladicent. Cladicent, you're up.

Speaker 10

Thanks, Rob. Good morning, Mark. Eric, team congrats on the great quarter and also the recent club acquisitions. I mean, I looked through it and chatted with you guys over Adam Wyden's post yesterday. I think the deal makes Lot of sense to lay out some equity there.

Speaker 10

Looks like returns will be great. I have a question going back to the Lowery's acquisitions. It's been maybe about a year, a little over a year since that deal closed. Obviously, it takes some time to get the management teams integrated and just training for the rest of the staff there. Do you guys see room for more efficiencies in the Lawrie's Clubs or revenue growth there or how are the Lawrie's Clubs operating today?

Speaker 1

Yes. I mean, to give you a kind of a statistic, I looked at, November was the 1st month that we had a full month of operations Previous year and this year. So basically, we're going into our 14th month of operations with December. Typically, I think the worst location year over year was about a 2.89% increase. And the best location, there's 2 locations that were over 60% year over year growth with the Lowry Clubs.

Speaker 1

And I think the rest were all in the mid-20s to mid-20s. So very good growth year over year, What we've done, I think we're continuing to see certain of those clubs are still growing as we move forward. So we'll get some nice growth out of that. And you'll see that the $88,000,000 price seemed At the top end of our scale, when we made the acquisitions, but I think you're going to see it's more right in line as we see the EBITDA from those Clubs this year, I think you're going to see it's more right in line with our 4x, 4.5x, including real estate that we normally come in on these deals. So it's going to be a very nice acquisition for us over the long haul.

Speaker 10

Yes, great. I love how you buy things at 5 times and get the efficiencies in the business ends up being 4 times. So that's great. Thanks for the color on Maurice. And then just one more question, I guess, On the Central City opportunity, obviously early to tell and probably about a year, 18 months out like said before you're fully operational there with licensing and everything.

Speaker 2

Do you guys see that as

Speaker 10

a space you guys can expand into? I know mainly capital allocation is going into buybacks, buying of clubs and the Bombshells organic growth. But is that something you guys think you'd have an appetite if the results are good?

Speaker 1

If the results are good, absolutely, right. I mean, at the end of the day, I've said this, I don't know, for several years now, not in the strip club business, I'm not in the real estate business, I'm not in the restaurant business, I'm in the free cash flow business. And if I can create Free cash flow or buy free cash flow in that market and we have it's within our wheelhouse of operations. I don't think slot machines are pretty easy to operate, right? You plug them in, they work.

Speaker 1

If they break, you call somebody, they fix them, then you plug them back in again. Seems pretty simple. The trick is getting people in there to play them. One thing we're very good at is Through our entertainment and our marketing and our clubs, we're very good at getting large amounts of people into our buildings. So I think it's pretty right in our wheelhouse is very similar to the Bombshells where we have the waitresses are part of the entertainment of the business and then you had good food and drinks and good music and DJs and we trade a fun atmosphere where people want to come and hang out And drink would and eat and have a good time.

Speaker 1

I think the casino business is that the way we're going to do it is very similar In that regard, is it just we're going to take our entertainment factor and we're just adding another component to it. So I think we'll do very well then. I think we'll definitely look to expand that We find success. I mean, if we can find success with it and do it right, there's, I don't know, what, 38 states with some form of gaming now. So there are small states with small casinos all over the place that we can go in and transform from Traditionally, there's a big market with everybody's doing exactly the same thing and we can come in and do something just a little bit different than everybody else and do very well with it.

Speaker 1

I think we definitely would That's going on a corporate basis, provided we can be successful in Central City.

Speaker 10

That's great. Yes, it sounds like a great I know some people at first were a little critical of you guys trying to get in an area that you don't have experience in yet, but I love it like your free cash flow Business quote, maybe we need to get that quote on a hoodie for next time. Not able to make it to New York today, so missing out on that. But hey, when you guys grand open in Central City, I'll come out and see you. Congrats again on the results and thanks for the chance to ask question.

Speaker 1

Sounds great. Thank you.

Operator

We'll make sure to bring a sweatshirt for review when we see you then. Now before we bring up our next 2 and final question askers, I want to shout out VCs congratulating themselves who's out in the audience. I think someone needs to make a deep value investors congratulating themselves to count 2 for those invested in Rick. And speaking of investors in Rick, Let's bring up Adam Wyden for a follow-up question.

Speaker 7

Hey, it just occurred to me and I was texting with somebody While the call was going on and they said, Rick is really interesting. Eric is such a talented capital allocator. He's really been at it a long time. It trades at a good yield, but he's in his early 50s. It's taken him 20 years to get from $1,000,000 of EBITDA to $100,000,000 You obviously have done $120,000,000 whatever the number is.

Speaker 7

I sort of in my head sort of had you at like 60 pre COVID. So you can sort of say, over 3 years you sort of doubled the annualized earnings power From sort of like $60,000,000 to $120,000,000 How should we I think it would be helpful for investors As it relates to sort of establishing what your cost of capital is because you sort of said, well, what should we trade at? And you sort of put on Twitter. And I think it might be helpful in terms of sort of The more you grow, the sort of the higher the multiple the company sort of trades at based on sort of the expectation of growth and sort of what you plan on doing. Maybe it would just be helpful for you to sort of explain to people that you obviously your minimum is 10 to 15, but I mean, maybe talk about sort of the scope and the quantum of what you're building here.

Speaker 7

And if the next 10 years, does that look like $120,000,000 to $1,000,000,000 Does that look like $120,000,000 to $600,000,000 Like how big are you trying to make this thing? And I think obviously I have a front row seat to it, but it might be helpful for all the other investors to really Understand what you're going for here and the 20 years is really backlog for the next, call it, 5 to 10?

Speaker 1

Well, I mean, you talk about the 1st 20 years, I had no experience. I was a strip club operator, like literally running the clubs, I was bartending, I was The security, I was the bartender, I was the front door person, I was the valet driver sometimes. And I had to evolve into a public company. I went public in 'ninety seven, didn't like it, merged with Rick's in 'ninety eight thinking, all right, I'm back running clubs, I went back to running clubs and moved to Minnesota. I lived in a club for 3 months, turned that club from a $70,000 a month loss to a $40,000 gain the 1st 30 days I was there.

Speaker 1

When I left, I think we were making about $60,000 a month after 3 months of me being there. Everything was great. The founder had gone on vacation to France. He comes back. My team took over the Houston Clubs.

Speaker 1

We took His original team sent them to New Orleans. They turned to New Orleans Club, did a great job there. Houston was making money. So when he left, we were basically we had 7 clubs that were Net losing about $15,000 a month and when he came back, we had clubs that were making over $300,000 a month and It's first thing when he comes to the club is that their girl tries to charge him cover charge. He says, no, I'm the owner.

Speaker 1

She says, yes, we're a public company, everybody's an owner. It's still going to cost you $15 to get in the door. And she says, no, I'm really the owner, I'm Robert. She goes, okay, hold on, let me call somebody. She calls the manager up.

Speaker 1

Mayor says, how can I help you? And he says, well, I'm Robert, I'm the owner. And he says, okay, well, let me call Eric. And of course, that I think A little bit of ego Bruce, so he decided to fire me and that didn't work out for him because while he was gone we bought a call. In the company, the stock went from $5.30 And so we basically worked out, I ended up buying them out, taking over a public company and now here I was back to running Call the company in 1999, worked through that, got through that.

Speaker 1

We had no capital. Banks wouldn't loan us money. Banks wouldn't even talk to us. So we could barely get checking account banks, right? We got through all that process.

Speaker 1

We grew the NASDAQ company. We kept growing, kept growing. A few years in 2017, 2017's capital allocation strategy, 2017, we got our first big Bank loan, a $90,000,000 real estate consolidation loan, which really solidified financing for us. Then we got now we've got capital. We've learned capital, so we can't we couldn't use our stock for any deals because there's no way we're paying 20% capital like we were doing in 2,008 using equity The cap rate on our existing cash flow was 20%.

Speaker 1

So we got past that. We got everything going. We built to where we are today. And you say, what can we do? I mean, look what we've done in the last 5 years with actually since 2017, since we got bank financing.

Speaker 1

Now the market is rewarding us, market has given us a multiple on our stock that we can turn around and buy cheaper in the private market and bring it into the public company, Get that arbitrage and we're able to buy great quality assets, great quality clubs, licenses and properties that we couldn't have even thought about Brian before and more of those opportunities, the more the stock has moved up, the more of those opportunities are coming up on If you look at the acquisitions we're making in Dallas, those are that's a great club. You can go to the Texas Alcohol Beverage Commission and see that Baby Dolls The number one adult club in the state of Texas has been 5 years 18

Speaker 7

years old. Sorry to interrupt you, but I think Mark Mark's getting tired. I think you guys need to get to Rick's to do your meet and greet. I think what I'm getting at here is, it took you 20 years to get from 1,000,000 to $100,000,000 Some of it was capital allocation, some of it was operational. But like given the machine that you and Bradley and Dean and Ed and Josh and all these great Darcy, I don't but all these guys, you've built a machine now and you've got a machine and you're feeding the machine.

Speaker 7

Call. I'm really hungry. I've lost £50, I'm really hungry. I know you're hungry too because you've spent 20 years building the machine. How much food can we put in the machine over the next 5 to 7 years?

Speaker 7

How big how much bigger can we sort of make this machine now, like order of magnitude?

Speaker 1

I don't know what the total size is. I mean, we could my goal is world domination, right? I mean, not everybody's goal in business. What we've done is we've gone from a linear growth and we're entering our exponential growth stages, right, because of our capital allocation strategy. If you look, it's kind of if you look over the last 5 years, it's kind of been of a steady growth, but you're starting to see that curve curve up, up, up.

Speaker 1

And it's because we're able to make these big acquisitions. We couldn't even dream of doing an $88,000,000 acquisition in 2016, 2017. But last year, we did an $88,000,000 acquisition. We're doing a $66,500,000 acquisition. At the same time, we're doing those acquisitions, We're also we bought 6 pieces of property to build our to build bombshells on.

Speaker 1

We bought a piece of property to build a steakhouse and casino in. And we're looking at multiple other locations. We bought it we did a $9,000,000 acquisition with a $5,000,000 down payment. And by the time we started, right, 45 days from start to finish, the $5,000,000 payment was generated In that 45 days, so the day we started, we said, oh, we're going to have this much cash. So that will drop our cash over to this.

Speaker 1

But by the time we closed the acquisition 45 days later, we actually had more cash On our balance sheet, then we started 45 days earlier with after we spent $5,000,000 in acquisitions. That's the kind of power that we have today that we just didn't have in the past and we're putting that to use. And the beauty is we have the formula and we have the knowledge of our capital allocation strategy, do the 5th grade math to make sure we make the right deals. So how fast can we grow? As fast as we can find the deals, Close deals and manage them, if you ask anything, if you ask me what our weakest link would be, and I think it's our Strongest part of our company right now is our management teams, our people, stronger than it's ever been.

Speaker 1

But That's still at the end of the day going to be money and capital used to be our weakest link and now that our strongest Part of our company is probably still our weakest link because you still have to manage these things as you buy them. And those takes time. We got to put systems in, do those things. But we're getting really good at it. We kept getting really fast.

Speaker 1

We've got a lot of guys that have now been involved in acquisitions and takeovers versus I started out with me and Ed and a couple other Guys, we're starting and now we buy a club and we can send a regional manager. We don't even myself and Ed don't even have to go to the club. We have a regional manager now knows, okay, I know how to System, man, I know how to we got to get our security system, we got to get at least this is how we're going to operate it. This is the way that The bar needs to be set up. This is the way these things have to go.

Speaker 1

So we're getting much faster, Adam, for sure. And I think we can see that potential growth over the next 3 years. I mean, I told you a year ago that I wanted to put $600,000,000 to work over the next 3 years and We're well into that process. Now maybe it took us 14 months to put the first $200,000,000 to work, but hopefully we can put the next 200 to work in the next 12 months and see how that goes, keep the growth going.

Speaker 7

There are a lot of companies that I'm sure people on this conference call have followed whether it's Watsco or POOLCORP or many, many great companies that have basically offered a very simple capital allocation strategy of M and A and organic growth in sort of simple and mundane company. So if you can sort of join that group, You'll be in high esteem and high company. Thank you again. All right.

Operator

Thank you so much Adam for that phenomenal question. Adam's hungry, he's down £50, he's looking great and we're all ready to eat. Eric, Bradley, Ed, Dean, Josh, David The rest of the phenomenal Rick's team are leading the charge to world domination. And speaking of world domination, it starts tonight. For those of you who joined us late, you can meet management tonight at 7 at Rick's Cabaret New York, one of RCI's top revenue generating clubs.

Operator

Rick's is located at 50 West 33rd Street between 5th Avenue and Broadway, a little in from Herald Square. If you haven't RSVP'd, As for Eric Langan or me at the door, I will be busy using my own capital allocation strategy after 9 pm. On behalf of Eric Bradley and the company as well as our subsidiaries, thank you and good night. As always, Please visit 1 of our clubs or Bombshells restaurants to have

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