RCI Hospitality Holdings, Inc. Reports 4Q14 & FY14 Results
HOUSTON – December 15, 2014 – RCI Hospitality Holdings, Inc. (NasdaqGM: RICK) today announced results for the fiscal 2014 fourth quarter and year ended September 30, 2014.
4Q14 vs. 4Q13
· GAAP EPS diluted of $0.42 compared to $0.17, an increase of more than 147%.
· 4Q14 included the benefit of a gain on contractual reduction of debt,partially offset by an asset impairment charge related to the subsequent sale of a one adult club and the closing of another.
· Non-GAAP EPS* diluted of $0.28compared to $0.28. Non-GAAP EPS excludes above mentioned items, as well as others from both periods, for comparability.
· Total revenues of $33.5 million compared to $28.0 million, an increase of 19.6%.
· The company, as part of its buyback program, repurchased 101,330 shares in the open market.
FY14 vs. FY13
· GAAP EPS diluted of $1.13 compared to $0.96, an increase of 17.7%.
· Non-GAAP EPS diluted of $1.44 compared to $1.43.
· Total revenues of $129.2 million compared to$112.2 million, an increase of 15.1%.
Conference Call
A conference call to discuss these results, outlook and related matters will be held today, December 15, 2014 at 4:30 PM ET:
· Live Participant Dial In (Toll Free): 877-737-7051
· Live Participant Dial In (International): 201-689-8878
· Webcast URL: http://www.investorcalendar.com/IC/CEPage.asp?ID=173461
Meet Management
Eric Langan, President and CEO, invites investors for a “Due Diligence Ball” to meet, talk and tour one of RCI’s top revenue generating clubs.
· When: Monday, December 15, 2014, 6:00 PM to 8:00 PM ET
· Where: Rick’s Cabaret New York, at 50 W. 33rd Street, between Fifth Avenue and Broadway
· RSVP: Please send your contact information to gary.fishman@anreder.com
CEO Comment
“We continue to make solid progressgenerally in line with our expectations,”Mr. Langan commented.
“New clubs, especially Vivid Cabaret New York, and our new Bombshells sports bar/restaurant chain, are performing very well, as are most clubs and restaurants open more than a year. Morale is excellent and favorable business climates where we have a presence are contributing to overall performance.
“We took initial steps to implement our updated new capital allocation strategy to expand operating margin, generate more cash, and return capital to shareholders. Wedecided to sell Vivid Cabaret Los Angeles and close Jaguars Houston because of underperformance. We also decided to closeXTC Fort Worth, a low performing club, because of an eminent domain issue.
“We negotiateda new insurance contract with a major carrier that should significantly lower our coverage costs in FY15. We also repurchased stock in the open market, reflecting our confidencein the company’s opportunities and, given our confident outlook, in the market's mispricing of our shares.
“Looking ahead, we continue to evaluate club acquisition opportunities on a highly selective basis and to establisha REIT to further strengthen RCI’s financial profile.Through a subsidiary, we purchased exclusive distribution rights to Robust Energy® brand drinks in North America focused on the on premises bar and restaurant market. Initial results have been highly satisfactory, based on its price point and margin potential for our and other clubs and bars.
“To sum up, we haveembarked upon the new fiscal year with afavorable outlook, which we anticipate will result in continuedrevenue and profit growth and cash generation.”
4Q14 Analysis(all comparisons to 4Q13 unless otherwise noted)
Total Revenues
· Total revenues of $33.5 million compared to $28.0 million, an increase of 19.6%. There were 45 units in 4Q14 versus 39 in 4Q13.
· Sales of units opened less than a year added $4.8 million in revenues, benefitting from new adult clubs, including Vivid Cabaret New York in Manhattan and Rick’s Cabaret Odessa, TX; and new Bombshells sports bars/restaurants in Austin and Webster, TX.
· Same store sales increased 6.7%. Nearly all major brands increased sales, including Club Onyx, which has been in a turnaround.
Operating Margin& Costs
· GAAP operating margin was 8.7% compared to 15.5%. The decrease was principally due to the previously mentioned asset impairment, discussed in more detail below. Non-GAAP operating margin*, which excludes certain non-operating items from both periods for greater performance comparability, was 19.2% compared to 21.4%.
· Salaries and wages declinedto 22.5% of revenues from 23.3%, and other costs fell to 8.6% from 9.8%.
· Rent and interest combined, which is how RCI evaluates cost of occupancy, declined to8.5% of revenues versus 11.6%. 4Q14 reflects increased operating leverage and the pay down of some higher cost debt. 4Q13 included temporarily higher rent at Rick’s Cabaret New York.
· Legal and professional fees increased to 3.0% from 0.5% due to the higher level of litigation activity, while insurance costs under the former contract increased to 3.6% from 2.0%. Based on the new contract, insurance costs are expected to be reduced in FY15.
· As previously mentioned, 4Q14 included a non-cash asset impairment charge of $2.3 million, reflecting write downs associated with the deposition of Vivid Cabaret Los Angeles and XTC Cabaret Fort Worth.
Adjusted EBITDA
· RCI’scash generating power, as reflected by adjusted EBITDA*, was$7.4 million, up 14.5% from $6.5 million in the year ago quarter. For the year, the companyposted $32.5 million in adjusted EBITDA, up 13.9%.
Gain on Contractual Reduction of Debt
· Under terms of the 2012 Jaguars acquisition agreement, if a regulatory authority attempts to enforce or collect the Texas Patron Tax,RCIcould reduce its debt to the seller. This resulted in thecompanyrecording a gain of $5.6 million and a comparable reduction in debt in 4Q14.
Balance Sheet
· RCI ended FY14 with assets of $239.0 million, up 7.2% from a year ago; long-term debt of $70.4 million, down 10.9%, and stockholders’ equity of $113.3 million, up 16.7%.
Stock Buy Backs
· The Board of Directors increased itsstock repurchase authorization to $10.0 million in May 2014. During 4Q14, RCI purchased 101,330 shares of common in the open market at prices ranging from $10.45 to $12.00, leaving $8.8 million of the remainingauthorization.
Business Updates
Sports Bars/Restaurants
· Two Bombshells sports bars/restaurants—in Spring, TX, a suburb north of Houston, and another in south Houston—opened September 30th and November 3rd, respectively. This brings the number of Bombshells in the chain to five, with a cluster of three in the Houston area. The two new units are performing well.A sixth Bombshells is planned for the Willowbrook area of Northwest Houston. Management is presently focused on identifying severaladditionallocations.
Bars/Nightclubs
· In early December 2014, an RCI subsidiary opened a bar/nightclub under theUnion Square brand at the Fort Worth location that formerly housed Pole Position. The unit is being managed by the same team that successfully turned around the company’s Vee Lounge acquisition in Fort Worth, which is now an ultra-exclusive lounge and high-energy weekend nightclub.
Robust Energy® Drink Distribution
· In early November 2014, RCI announced the formation of a new subsidiary that purchasedexclusive distribution rights to Robust energy drinks in North America.Robust is a fast growing brand targeting the commercial on premises bar and mixer market. The subsidiary has already begun efforts to expand distribution to this market through beer and liquor distributors.
Real Estate Investment Trust (REIT)
· Progress continues in the development of an independent, privately financed REIT. The REIT’s purpose will beto acquire adult club and other bar/restaurant real estate from RCI, enabling the company to capture gains, reduce debt, and transform its balance sheet to that of a more traditional bar/restaurant chain. The REIT may also acquire properties from other club owners not affiliated with the company. The REIT is expected to launch in the beginning of calendar year 2015. We are in the process of recruiting a board and management team for the REIT.
*Non-GAAP Financial Measures
In addition to our financial information presented in accordance with GAAP, management uses certain “non-GAAP financial measures” within the meaning of the SEC Regulation G, to clarify and enhance understanding of past performance and prospects for the future. Generally, a non-GAAP financial measure is a numerical measure of a company’s operating performance, financial position or cash flows that excludes or includes amounts that are included in or excluded from the most directly comparable measure calculated and presented in accordance with GAAP. We monitor non-GAAP financial measures because it describes the operating performance of the company and helps management and investors gauge our ability to generate cash flow, excluding some recurring charges that are included in the most directly comparable measures calculated and presented in accordance with GAAP. Relative to each of the non-GAAP financial measures, we further set forth our rationale as follows:
· Non-GAAP Operating Income and Non-GAAP Operating Margin. We exclude from non-GAAP operating income and non-GAAP operating margin amortization of intangibles, patron taxes, pre-opening costs, gains and losses from asset sales, stock-based compensation charges, litigation and other one-time legal settlements, gain on contractual debt reduction and acquisition costs. We believe that excluding these items assists investors in evaluating period-over-period changes in our operating income and operating margin without the impact of items that are not a result of our day-to-day business and operations.
· Non-GAAP Net Income and Non-GAAP Net Income per Basic Share and per Diluted Share. We exclude from non-GAAP net income and non-GAAP net income per diluted share and per basic share amortization of intangibles, patron taxes, pre-opening costs, income tax expense, impairment charges, gains and losses from asset sales, stock-based compensation, litigation and other one-time legal settlements, gain on contractual debt reduction and acquisition costs, and include the Non-GAAP provision for income taxes, calculated as the tax-effect at 35% effective tax rate of the pre-tax non-GAAP income before taxes less stock-based compensation, because we believe that excluding such measures helps management and investors better understand our operating activities.
· Adjusted EBITDA. We exclude from earnings before interest, taxes, depreciation and amortization (EBITDA) depreciation expense, amortization of intangibles, income tax, interest expense, interest income, gains and losses from asset sales, acquisition costs, litigation and other one-time legal settlements, gain on contractual debt reduction and impairment charges because we believe that adjusting for such items helps management and investors better understand operating activities. Adjusted EBITDA provides a core operational performance measurement that compares results without the need to adjust for Federal, state and local taxes which have considerable variation between domestic jurisdictions. Also, we exclude interest cost in our calculation of Adjusted EBITDA. The results are, therefore, without consideration of financing alternatives of capital employed. We use Adjusted EBITDA as one guideline to assess our unleveraged performance return on our investments. Adjusted EBITDA is also the target benchmark for our acquisitions of nightclubs.
Full Financial Tables
RCI’s Form 10K for the fiscal year ended September 30, 2014 with full financial tables can be found on the company’s corporate site at http://www.rcihospitality.com.
About RCI Hospitality Holdings, Inc. (NasdaqGM: RICK)
With 44 units, RCI Hospitality Holdings, Inc., through its subsidiaries, is the country’s leading company in adult gentlemen clubs and sports bars/restaurants. Adult clubs in New York City, Miami, Philadelphia, Charlotte, Dallas/Ft. Worth, Houston, Minneapolis, Indianapolis and other cities operate under brand names, such as “Rick's Cabaret,” “XTC,” “Club Onyx,” “Vivid Cabaret,” “Jaguars” and “Tootsie’s Cabaret.” Sports bars/restaurants operate under the brand name “Bombshells.” Please visit http://www.rcihospitality.com/
Forward-Looking Statements
This press release may contain forward-looking statements that involve a number of risks and uncertainties that could cause the company’s actual results to differ materially from those indicated in this press release, including the risks and uncertainties associated with operating and managing an adult business, the business climates in cities where it operates, the success or lack thereof in launching and building the company’s businesses, risks and uncertainties related to the operational and financial results of our Web sites, conditions relevant to real estate transactions, and numerous other factors such as laws governing the operation of adult entertainment businesses, competition and dependence on key personnel. The company has no obligation to update or revise the forward-looking statements to reflect the occurrence of future events or circumstances.
Media & Investor Contacts
Gary Fishman and Steven Anreder at 212-532-3232 or gary.fishman@anreder.com and steven.anreder@anreder.com
