RCI Hospitality Q1 2025 Earnings Report

RCI Hospitality EPS Results

• Actual EPS: $1.01
• Consensus EPS: $0.52
• Beat/Miss: Beat by +$0.49
• One Year Ago EPS: N/A

RCI Hospitality Revenue Results

• Actual Revenue: $71.48 million
• Expected Revenue: $71.12 million
• Beat/Miss: Beat by +$366.00 thousand
• YoY Revenue Growth: N/A

RCI Hospitality Announcement Details

• Quarter: Q1 2025
• Date: 2/13/2025
• Time: After Market Closes
• Conference Call Date: Monday, February 10, 2025
• Conference Call Time: 4:30PM ET

RCI Hospitality (NASDAQ:RICK) operates as a diversified hospitality and entertainment company focused on the ownership and operation of adult nightclubs and themed sports bars throughout the United States and select international markets. The company’s U.S. Nightclub segment includes venues branded as Rick’s Cabaret, Club Onyx and various other upscale adult entertainment clubs, offering private dance experiences, VIP services and live performances. Its Restaurant & Bar segment operates Bombshells, a brunch-themed sports bar chain featuring chef-driven menus, craft cocktails and game-day viewing in a military-inspired setting.

In addition to its brick-and-mortar venues, RCI Hospitality deploys proprietary digital platforms for talent recruitment, training and scheduling, helping to streamline operations and drive customer engagement. The company also offers a membership-based loyalty program, online reservation system and mobile app to support marketing initiatives and improve guest retention across its entertainment and dining concepts. RCI’s integrated business model blends live performances with food and beverage sales to diversify revenue streams and enhance customer experiences.

Originally founded in 1983 with the opening of Rick’s Cabaret in Houston, Texas, RCI Hospitality has grown through both organic expansion and strategic acquisitions. Headquartered in Houston, the company now serves patrons in multiple U.S. states as well as in Mexico and Southeast Asia. Fred Beigler Jr. serves as Chairman and Chief Executive Officer, leading a management team with extensive experience in hospitality, entertainment and restaurant operations. RCI Hospitality’s focus on branding, customer service and operational efficiency underpins its position in the competitive nightlife and casual dining markets.

RCI Hospitality Q1 2025 Earnings Call Transcript

Key Takeaways

• Nightclub segment Q1 revenues rose 1.1% driven by a 3.7% same-store sales gain and three new/reformatted clubs, with GAAP operating profit flat at $20.9 M (33.8% margin).
• Bombshell segment sales fell 24.7% after closing five underperforming locations, but GAAP operating margins surged to 20.6% (from 0.7%) and non-GAAP margins to 6.7% (from 1.2%).
• Consolidated net cash from operations of $13.3 M and free cash flow of $12.1 M (17% of revenues) nearly matched last year, supported by $34.7 M in cash and a $3.2 M share repurchase (66 k shares).
• RCI acquired Detroit’s Flight Club for $11 M (club and real estate), projecting $2 M in annual EBITDA, and opened Bombshells Denver as part of its portfolio optimization.
• The five-year capital allocation plan directs 40% to club acquisitions and 60% to buybacks, dividends and debt repayment, aiming for 10–15% annual free cash flow per share growth and $75 M FCF by fiscal 2029.

Presentation

[Mark Moran, CEO at Equity Animal]

Greetings, and welcome to RCI Hospitality Holdings' First Quarter 2025 Earnings Call. You can find the company's presentation on RCI's website. Go to the investor relations section, and all the links will be at the top of the page. Please turn with me to slide two of our presentation. I'm Mark Moran, CEO of Equity Animal. I'll be the host of our call today. I'm coming to you from Denver, Colorado. Eric Langan, President and CEO of RCI Hospitality, and CFO, Bradley Chhay are in Houston. Please turn with me to slide three. RCI is making this call exclusively on X Spaces. To ask a question, you'll need to join the space with a mobile device. To listen only, you can join the space on a personal computer. At this time, all participants are in a listen-only mode. A question-and-answer session will follow. This conference call is being recorded.

[Mark Moran, CEO at Equity Animal]

Please turn with me to slide four. 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. Please turn with me to slide five. I also direct you to the explanation of RCI's non-GAAP financial measures. Now, I'm pleased to introduce Eric Langan, President and CEO of RCI Hospitality. Eric, take it away.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

Thanks, Mark. Everyone, please turn to slide six. Thank you for joining us today. Let me run through some key takeaways. All comparisons are year-over-year, unless otherwise noted. In our nightclub segment, we generated an increase in total sales and same-store sales, while GAAP and non-GAAP operating profits were approximately level with a year-ago quarter. In our Bombshells segment, total sales declined as expected, with the sale closure of underperforming locations, but GAAP and non-GAAP operating profit and margins both improved. On a consolidated basis, net cash provided by operating activities and free cash flow nearly matched year-ago levels. We continue to make notable progress with our Back to the Basics five-year capital allocation plan. During the first quarter, we sold or closed four underperforming locations in the Bombshells segment for a total of five since September of 2024.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

We also repurchased 66,000 shares for $3.2 million, and as of 12/31, we had 8,989,000 shares of common stock outstanding. In January, we acquired The Flight Club, a premier gentlemen's club in the Detroit market. Purchase price was $8 million for the club and $3 million for the real estate. We estimate the club should generate about $2 million in annually adjusted EBITDA. We also opened the Bombshells in Denver. As part of the effort to improve Bombshells, we have changed leadership, and Rafael Pedraza is now promoted to our Director of Operations from Assistant Director of Operations. Now, here's Bradley to review our performance in more details.

[Bradley Chhay, CFO at RCI Hospitality Holdings]

Thank you, Eric. Please turn to slide seven. All comparisons are year-over-year, unless otherwise noted. Fourth quarter sales totaled $71.5 million. That largely reflects the sale and closure of the non-performing locations in the Bombshells segment, partially offset by the increased sales in the nightclub segment. Other gains totaled $2.2 million. Net income attributed to RCI HH common shareholders was $9.0 million. EPS was $1.01 GAAP and $0.80 non-GAAP. Net cash provided by operating activities was $13.3 million. Free cash flow was $12.1 [audio distortion]. Please turn to slide eight.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

Bradley, we lost you there after the $12.1 million, I think.

[Bradley Chhay, CFO at RCI Hospitality Holdings]

Sorry. Adjusted EBITDA was $15.7 million. Let me read that line over. Sorry for the cutoff. Net cash provided by operating activities was $13.3 million. Free cash flow was $12.1 million, and adjusted EBITDA was $15.7 million. Please turn to slide eight. Nightclubs' revenues increased $0.7 million, or 1.1%. The key factors driving the first quarter revenues included a 3.7% increase in same-store sales, and the addition of three new or reformatted clubs. This was partially offset by the absence of Baby Dolls Fort Worth. Food, merchandise, and others increased 8.6%, alcoholic beverages, 3%, while service declined 3.7%. Other net gains totaled $0.8 million versus virtually nil from a year-ago quarter. The first quarter 2025 amount included a $1 million in additional cash proceeds from Baby Dolls Fort Worth insurance. Operating income was $20.9 million compared to $20.4 million. Margin was 33.8% of revenues versus 33.4%.

[Bradley Chhay, CFO at RCI Hospitality Holdings]

Non-GAAP operating income was $20.6 million compared to $21 million, and non-GAAP margin was 33.4% of segment revenues versus 34.3%. Please turn to slide nine. Bombshells' revenues declined $3.1 million, or 24.7%, due to the sale and closure of five underperforming locations and a 7.5% decline in same-store sales. This was partially offset by a full quarter of the Stafford, Texas location, which opened in mid-November 2023. Other net gains totaled $1.3 million versus virtually nil from a year-ago quarter. The first quarter 2025 amount reflected a gain for the Bombshells that were sold. Operating income increased $1.9 million, with a margin of 20.6% of segment revenues versus 0.7%. Non-GAAP operating income increased $500,000, with a margin of 6.7% of segment revenues versus 1.2%. During the first quarter, there were no weather-related closures for nightclubs and Bombshells.

[Bradley Chhay, CFO at RCI Hospitality Holdings]

To date however, in the second quarter, we've had 14 days for nightclubs and 7 days for Bombshells. Please turn to slide 10. Corporate expenses increased $1.7 million on a GAAP and non-GAAP basis. This was due to the establishment of insurance reserve. Please turn to slide 11. We have some slides up in the upcoming that discuss the free cash flow and adjusted EBITDA, which are non-GAAP. In advance of that, we wanted to present the closest GAAP equivalents on this slide, which are operating income, net cash provided by operations, and net income. Please turn to slide 12. We ended the first quarter with cash and cash equivalents of $34.7 million. During the quarter, we used $3.2 million to buy back shares. As a percentage of revenues, free cash flow was 17% and adjusted EBITDA was 22%.

[Bradley Chhay, CFO at RCI Hospitality Holdings]

Free Cash Flow was slightly lower than a year-ago quarter, because maintenance CapEx was almost 30% higher. Please turn to slide 13. Debt at December 31st declined $2.7 million from September 30th, reflecting scheduled paydowns. The weighted average interest rate was 6.65% compared to 6.61% in a year-ago quarter. Total occupancy costs were 8% versus 8.2% a year ago. Debt to trailing 12-month adjusted EBITDA was 3.32x compared to 3.28x in the preceding quarter. This metric will decline as sales grow from locations that have come online more recently, and from those anticipated to open. Debt maturities also continue to remain reasonable and manageable. Now, here's Eric.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

Thank you, Bradley. Now, please turn to slide 14. For those of you new to the company, let me review our capital allocation strategy. Under our plan, we will allocate 40% to club acquisitions. We will allocate 60% to share buybacks, dividends, and debt repayment. The goal is to grow free cash flow per share by 10%-15% on an average annual basis. Please turn to slide 15. Operationally, this means focusing on our core nightclub business. Currently, we are evaluating every club in our portfolio. The goal is to increase same-store sales on a regular basis. Our nightclubs plan also involves acquisitions. Our goal is to acquire an average of $6 million of Adjusted EBITDA a year, focusing on the best clubs, buying base hits with occasional home runs.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

Our target metrics remain the same, 3x-5x adjusted EBITDA for the club business and fair market value for the real estate, targeting 100% cash-on-cash returns in three to five years. Purchases would be made with cash on hand, bank financing, and seller notes. For Bombshells, our plan calls for improving the performance of existing locations. Our near-term target is 15% operating margins, and return to same-store sales growth. Our plan also calls for finishing two other locations currently in development in Lubbock and Rowlett, Texas. For the final part of our plan, we anticipate continuing to implement a program for regular buybacks. We also anticipate small dividend increases annually. Altogether, we expect to generate more than $250 million in free cash over the next five years, and buy back a significant amount of stock.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

Given where our shares are trading and our view of what the business can do, we believe this is a great use of our capital. Our fiscal 2029 targets are calling for hitting $400 million in revenues, $75 million in free cash flow, and reducing share count to 7.5 million shares. This would result in a doubling of free cash flow from fiscal 2024, to approximately $10 a share in 2029. Please turn to slide 16. With Bombshells Denver now open, we have six remaining developments. Chicas Locas, El Paso is finished, and reopening is planned for March 1st. Interior construction at Bombshells Lubbock is underway, and we are targeting a mid-March opening. Completing final finish outs at Rick's Cabaret Central City, and we are targeting an April opening. Framing and stucco are underway at Bombshells Rowlett, and we are targeting a May opening.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

I would like to note that both Lubbock and Rowlett construction are being financed through bank loans. We are still awaiting construction permits for Baby Dolls Fort Worth West, and we are awaiting engineering review of our plans for the original Baby Dolls to be rebuilt. At this point, I'd like to thank all of our loyal and dedicated teams for all their hard work and effort, and for all our shareholders who believe and make our success possible. Here is Mark.

[Mark Moran, CEO at Equity Animal]

Thank you very much, Eric and Bradley. If you'd like to ask a question, please raise your hand in the X space. When you finish, mute your microphone to eliminate any background noise. We have a limited number of speaker spaces, so 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 RCI's analyst, Scott Buck of H.C. Wainwright, and then some of our larger shareholders. Scott, please take it away.

[Scott Buck, Analyst at H.C. Wainwright]

Hey. Good afternoon, guys. Thanks for taking my questions. Bradley, I want to ask about the $1.7 million to establish the self-insurance reserve. That is non-cash or is that a cash expense? Should we think of that as one-time in nature?

[Bradley Chhay, CFO at RCI Hospitality Holdings]

Yeah, I can answer that, Scott. It is a one-time. I think it's a one-time. It was a catch-up deal, since we decided to self-insure starting October, due to the outrageous cost of insurance. Until we get our captive set up, we're in the process of setting that up. Once the captive's set up, we will see how that all plays out. Right now, we have to follow the GAAP rules on accounting for this insurance potential liability. Unfortunately, it's just going to non-cash, so it goes into a reserve account and the balance just sits there. If we get claims or have to pay defense costs, they will be for this time period, it will come out of those reserves.

[Scott Buck, Analyst at H.C. Wainwright]

Okay, and you guys did not add that back into your Adjusted EBITDA number, right? Normalizing that Adjusted EBITDA is a little north of $17 million.

[Bradley Chhay, CFO at RCI Hospitality Holdings]

Yes, we did not add that back in because the rules don't allow for that.

[Scott Buck, Analyst at H.C. Wainwright]

Okay. No, I appreciate that. Eric, the club you acquired in Detroit, can you talk about whether or not there's any opportunity there to maybe improve the EBITDA margins there? I know you said $2 million this year, but I'm curious if that could move a little higher over time.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

It could. It's too early to tell. We've only had it for a few weeks. I don't know if you're familiar with the Detroit weather and how it's been for the last few weeks, but Old Man Winter has given us a very, very cold welcoming into Detroit, with extremely cold temperatures and lots of snow. It's really hard to tell, but yeah, we believe that we will definitely be able to do much better as we get rolling in that market and get out of this unseasonably cold weather.

[Scott Buck, Analyst at H.C. Wainwright]

Great, I appreciate that. On the Bombshells that closed, are there any residual cash outlays that you guys are responsible for on those, was it five locations that you've shut down?

[Eric Langan, President and CEO at RCI Hospitality Holdings]

Not at this point. We do have a landlord that's suing us, but we believe that our defenses will be fine there. The parent company did not guarantee the lease in any form or fashion and they're trying to tie the parent company in, but we don't believe that's going to be feasible for them to do under Texas law, contract law. Also, I want to make sure you understand that the $1.7 million insurance reserve is the excess insurance that we put on corporate. We provided the corporate. The actual number for reserve is $4.1 million, and it was basically divided by segment based on previous year's insurance and a prorated share of the excess. The $1.7 million is basically what we call a makeup. It's kind of a makeup deal for how they do these actuarial tables. It's insane math. I mean, I've studied it.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

I kind of get it, but it's extremely complicated. I call it trigonometry. It was pretty insane as we were trying to go through all this and figure out how to do it, because we've never guessed our insurance costs in the past. We've always had it, but this is kind of a guess of, in the worst-case scenario, what would our maximum liability for the quarter be? Is how we had to look at this. We had to take all these historic deals and take best quarters and worst quarters over a five-year period, combine it all in together and really like I said, it became very complicated. This is what the people that do these actuarials came up with, and so that's how we booked it.

[Scott Buck, Analyst at H.C. Wainwright]

I appreciate the clarification there. Last one for me, if you could just speak broadly to the operating environment, especially on the club side, what you're seeing and what is in store here for the first part of 2025?

[Eric Langan, President and CEO at RCI Hospitality Holdings]

Sure. If you look at the December quarter, we saw our two largest contributors were actually down a little, and a lot of our mid-sized clubs were up. I don't understand that, other than that we've really gotten very good at going from quality of customer to quantity of customers. We're trying to really push more people through the door. Some of our VIP spend is back, but obviously, self-service revenue is declined, at 3.7% year-over-year. It's not where we'd like it, but we were able to make some pricing changes and make up some of that in food, merchandise, and other revenue sources, by increasing that to 8.6% and raising overall nightclub revenues at 3.7%.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

I am very confident that we have the pricing powers that we need, if we do need to increase prices to keep our margins in line and keep our same-store sales growth as close to 3% as possible, which is our goal as part of our five-year plan over the next five years. Keep that same-store sales growth as steady at 3% as we can, as well as increasing with new acquisitions and just monitoring and controlling costs. If you look right now, we have somewhere between $23 and $28 million in non-income-producing assets, that we are going to start to try to lease or sale or somehow make those assets produce income for us, or give us our cash back so that we can take it and put it in other places.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

That's going to be a big component of, I think the next nine months, 12 months trying to get those properties fixed as well. If you go back and look at when we originally adopted the capital allocation strategy in 2015, I think we're in early 2017, where we've divested some properties. We have a couple of clubs that we are looking to sell as part of that $23 million-$28 million in assets, as well as other just plain raw properties that we bought in the past. We'll keep pushing on that, working on that, and that will play into our factors of getting to our growth rates as we get into 2026.

[Scott Buck, Analyst at H.C. Wainwright]

Great. I appreciate the time, guys. Thank you very much.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

Yeah. Thank you.

[Mark Moran, CEO at Equity Animal]

Thanks so much for the questions, Scott. Next up, we have Orchid Wealth. Please take it away.

[Mark Moran, CEO at Equity Animal]

Hey, guys. I see that we have 56 clubs right now. Does Detroit make it 57?

[Eric Langan, President and CEO at RCI Hospitality Holdings]

I believe so, but I don't know if we're counting El Paso in the 56 or not.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

Okay.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

It might be 58 when El Paso opens on March 1st. To get a better understanding of that, we've probably got so many clubs I can't keep track of them.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

[audio distortion]

[Eric Langan, President and CEO at RCI Hospitality Holdings]

I actually have to go to the accounting office. They have to say, "Okay, exactly how many clubs are open and made money or generated revenue this quarter?" I think those are revenue-generating.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

Okay. With El Paso reopening, what are you thinking about sales from these locations? You've got four clubs and three Bombshells that are going to come online, not including Detroit. What are you thinking that total sales would be once all of those are incorporated onto the existing number?

[Eric Langan, President and CEO at RCI Hospitality Holdings]

I don't know. We've reformatted El Paso. I know the old El Paso club used to generate about $600,000 in EBITDA. I'm hoping with the new format and upgrades, and the liquor that we can actually generate more income than that, but I just don't know at this point.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

Okay.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

Oh, we don't have the liquor license there yet, do we? No, El Paso doesn't have liquor yet. I'm sorry. That's Harlingen. We don't have liquor yet, but we're trying to get the liquor license there. Probably very similar numbers to what we're doing before, around $600,000 EBITDA out of El Paso.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

Obviously, we don't know anything about Central City because that's brand new, but [audio distortion].

[Eric Langan, President and CEO at RCI Hospitality Holdings]

Yeah, that'll be brand new. I'm hoping it's $1 million-$2 million EBITDA a year out there. I think that'll be a deal. There's a lot of moving factors in that one. Let's get it open and then we'll [audio distortion].

[Eric Langan, President and CEO at RCI Hospitality Holdings]

Okay, and then Baby?

[Eric Langan, President and CEO at RCI Hospitality Holdings]

Whether we open the whole club, whether we open four days a week or seven days a week, there's a lot of factors going on in that one at this point till summer. I'll have a really good idea on the August call with that location.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

The Baby Dolls Fort Worth?

[Eric Langan, President and CEO at RCI Hospitality Holdings]

We're shooting for around the 1st of October, to complete that construction and get open on the west side, and then we're shooting for January on the location where we had the fire at. Both of those are up in the air still because we're still in permitting.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

[audio distortion].

[Eric Langan, President and CEO at RCI Hospitality Holdings]

I know once we get the permits, we can build them in about six months, but we've got to get the permits in place and get everything rolling on both of those.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

Okay. Just to go back, because obviously the rebuild because of the fire, how much was that contributing before the fire? Obviously, if you get it back online [audio distortion].

[Eric Langan, President and CEO at RCI Hospitality Holdings]

We had it up to about $4 million in revenues, and margins were probably about $1.5 million, would be my guess, about 35% margins on $4 million for that location. Now, the good news is, we didn't lose all of that because a lot of that customer base went to the club that we own across the street. We've reformatted the club across the street. We've been able to recoup. I haven't looked, but I'm going to guess we recouped about 40% of that. We really only lost about $1 million, not $1.5 million. Say 1/3 of it we recouped, so we're probably up about $500,000 at the other location. We probably lost about $1 million at that location.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

The big hit for us of course was the late-night change in Dallas, that made us reformat XTC Cabaret. That's been the biggest hit. If you look at all the numbers, if we still had XTC, we would be in way, way better condition than we are right now, our shape right now. As far as EBITDA, free cash flow, everything would be up probably between $2 million-$2.5 million on EBITDA and $1 million plus on free cash flow.

[Bradley Chhay, CFO at RCI Hospitality Holdings]

The way it's looking right now is, we've got about 60 locations right now. With all said and done, a year from now, I'm trying to think how many more. We'd have seven more, so 67 clubs.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

Six more.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

Six more.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

Six more.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

Do you have anything in the works in Denver?

[Eric Langan, President and CEO at RCI Hospitality Holdings]

Yeah, Denver plus six. Denver's open now. Denver was not open in this quarter.

[Bradley Chhay, CFO at RCI Hospitality Holdings]

It is open. It opened in January [audio distortion], so we'll be open in this quarter.

[Bradley Chhay, CFO at RCI Hospitality Holdings]

Any news on any buys or things you're still working on? Obviously, we [audio distortion].

[Eric Langan, President and CEO at RCI Hospitality Holdings]

We have clubs out there that we're looking at, lots of opportunities. You'll see that we actually adjusted the capital allocation strategy from a 50-50 with debt and acquisitions on one side, and stock buybacks and dividends on the other. We moved the debt to the stock buyback, and dividend side and raised that to 60%, which basically works out about $13 million in stock buyback, $2.5 million in dividends, $14.5 million or $14.8 million in debt reduction or debt payoff, and leaving us close to $20 million in cash on the other side of that equation to go to the cash portion of acquisitions.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

I'm assuming if something comes along, it's better than making an exception.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

Oh, always. We'll always follow strategic rationale should one arise.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

Sure, okay.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

For the next five years, our plan will be, and any strategic rationale that I think we do, as far as I can see in the foreseeable future, will relate directly to allocation of the capital, per the capital allocation strategy. In other words, we would change percentages here. We'd buy less stock because we have better acquisition, or the stock price gets really, really cheap, and we do less acquisition cash and much more stock buyback.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

I think those are the only two real factors that we're going to be juggling any kind of money around. I don't have any intentions of building anything new at this point. I'm not even looking. I have people call me all the time like, "No, we're not building anything. Would you be interested in this? Is it open? Is it raking money?" No, okay. No, I would probably not be interested. I just don't think we're going to take any. We are very risk-off until all of this construction is done. All of our stuff is open, and we've really tightened our capital strategy to the max.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

All of our expenses, all of our non-income-producing assets, basically get all the ducks in a row before we go out and say, "Okay, maybe we can risk building a club over here or buying this club, and reconcepting it or something, if we think we have a really good concept that can go into a license that's not producing." Until this time, for at least the next nine months, the rest of this fiscal year 2025, I think we stick directly with the plan. We have enough on our plate. We don't need to add anything else. What we need to do now is just button up all the hatches and make everything perfect.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

On the last point, the idea being is, over the course of the year, you got $23 million-$28 million worth of non-performing assets that you'll be repositioning, that could be used for any of these other items we discussed.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

Absolutely. Obviously, it'll become capital. It'll go into our cash, and then we'll allocate it accordingly.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

All right, great. Thanks, guys.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

Yep.

[Mark Moran, CEO at Equity Animal]

Fantastic. Thank you so much for that. Next up, we have D&D Realty. Please take it away.

[Mark Moran, CEO at Equity Animal]

Hi. Thank you for having me on and taking my question. You just mentioned that you're looking at selling some clubs. How many of those clubs? I have two questions. One is, how many clubs are you currently looking to divest? The second question is, you guys have now 88 properties that you own. What is your feeling, have you done an analysis on how much your real estate is actually worth? I know your property and equipment carry it at about $280 million. What do you think the fair market value is for all your real estate? Thanks.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

I think you're including property and equipment in the $280 million.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

Yeah, but I'm just wondering what [audio distortion].

[Eric Langan, President and CEO at RCI Hospitality Holdings]

A lot of that is equipment and not necessarily real estate. Our real estate, I just don't know really. Appraised values have been all over the place. We haven't really had appraisals. I think the last appraisal we got was in 2021, on a few properties that we put into the new REFI. The original REFI was done in 2017, I think. We haven't done any new appraisals on those properties. If I had to guess, real estate is probably in the $250 million-$280 million range, just real estate without all the equipment and everything else. It's just hard to tell, like I said, because I just haven't laid it all out.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

Sorry, and then how many clubs are you looking to divest also?

[Eric Langan, President and CEO at RCI Hospitality Holdings]

There are two clubs. They're both in the same area, so it's just a market we want to get out of. We've got it with a broker who sells adult clubs, who's meeting with people and are keeping it pretty on the down low as far as that they're for sale. We're not going to publicly advertise, "Oh, these clubs are for sale." We will sell them through a broker who has a lot of contacts with people already in the adult entertainment business, who are looking at those two locations with us right now.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

Thanks.

[Eric Langan, President and CEO at RCI Hospitality Holdings]

Yep.

[Mark Moran, CEO at Equity Animal]

Fantastic. Thank you for that question. On behalf of Eric, Bradley, and the company, as well as our subsidiaries, thank you and good night. Please visit one of our clubs or restaurants to celebrate Valentine's Day, St. Patrick's Day, or just to have fun and have a great time. Take care, and have a good one.

Participants

Executives

• Eric Langan, President and CEO
• Bradley Chhay, CFO

Analysts

• Company Representative at D&D Realty
• Company Representative at Orchid Wealth
• Scott Buck, Analyst at H.C. Wainwright
• Mark Moran, CEO at Equity Animal