RCI Files 10-K and Reports 4Q19 and FY19 Results

HOUSTON, Feb. 13, 2020 /PRNewswire/ -- RCI Hospitality Holdings, Inc. RICK today filed its 10-K and reported 4Q19 and FY19 results for the year ended September 30, 2019.

 

 

CEO Comment

"With a solid performance in the fourth quarter, total revenues for the year increased 9.2%, to a record $181.1 million, and free cash flow increased 43.3%, to a record $33.3 million," said Eric Langan, President & CEO. "We had FY 2017 and FY 2018 reaudited in conjunction with the FY 2019 audit, where our auditors issued an unqualified opinion on those financial statements. Utilizing our strong cash generating power, we also reduced shares outstanding another 1% in FY19. Now that the year-end audit is complete, we are preparing our 1Q20 10-Q for filing later this month.

"We're looking forward to a strong FY20. Total club and restaurant sales were up 10% in 1Q20. Nightclubs experienced added business from the big mixed-martial arts fight in January and the pro football championship in February. We expect the rebound in Bombshells same-store sales and margins to continue. New locations, including the most recently opened unit in Houston, are doing well.

"We have approximately $6.7 million in excess property sales under contract, and we expect to continue to generate strong free cash flow, which we'll deploy for the optimal return according to our capital allocation strategy."

4Q19 & FY19 REVIEW (All comparisons to year ago periods unless otherwise noted)

Revenues

• 4Q19: Total revenues of $45.2 million increased 11.1%. By revenue line, growth reflected increases of $2.5 million (+15.3%) in alcoholic beverages, $1.1 million (+20.4%) in food, $680K (+4.3%) in service, and $210K (+6.8%) in other, which includes Drink Robust business and Gentlemen's Club Expo trade show in August.
• FY19: Total revenues of $181.1 million increased 9.2%. By revenue line, growth reflected increases of $6.0 million (+8.7%) in alcoholic beverages, $4.0 million (+6.2%) in service, $3.4 million (+15.1%) in food, and $1.9 million (+19.3%) in other.

Operating Income

• 4Q19: Operating income more than tripled, to $2.4 million. Margin expanded to 5.4% of revenues from 1.7%. Other charges declined 23.3% to $4.9 million due to gains on insurance and property sales, and all other costs and expenses increased 158 basis points greater than sales growth due to higher accounting and related legal costs. On a non-GAAP basis, operating income increased 4.3% to $7.4 million, with a margin at 16.5% of revenues compared to 17.6%.
• FY19: Operating income increased 25.9% to $34.7 million as margin expanded to 19.2% of revenues from 16.6%. Other charges declined $6.6 million due to gains on sale of business and assets compared to losses, and from lower legal settlements. All other costs and expenses increased 156 basis points greater than sales growth due to higher accounting and related legal costs. On a non-GAAP basis, operating income increased 2.6% to $37.9 million, with a margin of 21.0% compared to 22.3%.

Other Charges

• 4Q19: Other charges, net of $4.9 million primarily reflected: (i) two impairments in Fort Worth ($3.6 million of Cabaret East's building and land, and $1.1 million of Rick's Cabaret goodwill), (ii) two gains ($747K from insurance covering costs earlier in FY19 to repair two clubs) and from the sale of excess property ($1.6 million proceeds and $677K gain); and (iii) miscellaneous smaller impairments, gains and losses related to 9 other assets.
• FY19: Other charges, net of $2.6 million reflected: (i) $2.9 million in gains primarily from the sale of eight excess properties in Texas and (ii) 4Q19 items mentioned above.

Nightclubs Segment

• 4Q19: Sales increased 5.3% to $35.9 million, with 37 units in both periods. Sales growth reflected larger new locations (Rick's Chicago and Pittsburgh) more than offsetting smaller closed locations. Operating income increased 7.5% to $6.2 million. Margin expanded to 17.3% of sales from 17.0%. The increase in segment profit and profitability was due to improved revenues and lower other charges. On a non-GAAP basis, operating income increased 1.9% to $11.0 million, with a margin of 30.6% of sales compared to 31.6%.
• FY19: Sales increased 6.1% to $148.6 million. Operating income increased 16.3% to $50.7 million. Margin expanded to 34.1% of sales from 31.1%. The increase in segment profit and profitability reflected improved revenues and margins and lower other charges. On a non-GAAP basis, operating income increased 8.5% to $53.3 million, with a margin of 35.9% of sales compared to 35.1%.

Bombshells Segment

• 4Q19: Sales increased 53.9% to $8.5 million, with 8 units compared to 6. Sales from new locations (Pearland, I-10 and Tomball) increased 194.4%. Comparable same-store sales increased 19.4%. Operating income improved $2.0 million, to $764K (9.0% of sales) from a loss of $1.2 million (-21.8% of sales). 4Q18 included $1.4 million in other charges, net. On a non-GAAP basis, operating income quadrupled to $790K, with margin at 9.3% of sales compared to 3.3%.
• FY19: Sales increased 27.9% to $30.8 million. Sales from new locations increased 201.9%, which more than offset a 6.1% decline in same-store sales in FY19. Operating income increased 13.1% to $2.3 million, with margin at 7.5% of sales compared to 8.5%. On a non-GAAP basis, operating income was $2.3 million (7.6% of sales) compared to $3.6 million (15.1%).
• Non-GAAP operating income included pre-opening costs without the benefit of revenues related to the four new Bombshells over the course of FY19. These costs ended in late January 2020 with the recent opening of the fourth of these new Bombshells on US 59 in Houston.

Other Metrics

• Cash and cash equivalents of $14.1 million at September 30, 2019 increased 28.7% from June 30, 2019 and declined 20.5% from September 30, 2018. 4Q18 balances benefitted from funds borrowed in advance to fund club acquisitions in 1Q19.
• Long-term debt of $143.5 million at September 30, 2019 fell 2.1% from June 30, 2019 and increased 2.1% from September 30, 2018.
• Occupancy costs (rent and interest expense as a percentage of total revenues) fell to 7.6% from 7.8%, 4Q19 vs. 4Q18, and increased to 7.8% from 7.7%, FY19 vs. FY18.
• Adjusted EBITDA increased 7.3% to $9.6 million, 4Q19 vs. 4Q18, and 4.2% to $46.2 million, FY19 vs. FY18.
• Effective Tax Rate for FY19 was an expense of 20.1% compared to a FY18 benefit of 17.5%, which included the benefit of $8.8 million as a final calculation of the reduction of deferred tax liability because of the new Tax Cuts and Jobs Act. The FY18 ETR resulted in a 4Q18 income tax increase to adjust for the year. On a non-GAAP basis, FY18 ETR was an expense of 24.5%, which resulted in a 4Q18 income tax reduction to adjust for the year.

*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 (or including) some items that management believes are not representative of the ongoing business operations of the Company, but are included in (or excluded from) 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 calculate non-GAAP operating income and non-GAAP operating margin by excluding the following items from income from operations and operating margin: (a) amortization of intangibles, (b) impairment of assets, (c) gains or losses on sale of businesses and assets, (d) gains or losses on insurance, (e) settlement of lawsuits, and (f) gains or losses on settlement of patron tax case. 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 Diluted Share. We calculate non-GAAP net income and non-GAAP net income per diluted share by excluding or including certain items to net income attributable to RCIHH common shareholders and diluted earnings per share. Adjustment items are: (a) amortization of intangibles, (b) impairment of assets, (c) costs and charges related to debt refinancing, (d) gains or losses on sale of businesses and assets, (e) gains or losses on insurance, (f) unrealized gains or losses on equity securities, (g) settlement of lawsuits, (h) gains or losses on settlement of patron tax case, and (i) the income tax effect of the above described adjustments. Included in the income tax effect of the above adjustments is the net effect of the non-GAAP provision for income taxes, calculated at 20.1%, 24.5% and 37.0% effective tax rate of the pre-tax non-GAAP income before taxes for 2019, 2018 and 2017, respectively, and the GAAP income tax expense (benefit). We believe that excluding and including such items help management and investors better understand our operating activities. The calculated amount for adjustment (i) above in fiscal 2018 was significantly affected by the change in the statutory federal corporate tax rate caused by the Tax Act.
• Adjusted EBITDA. We calculate adjusted EBITDA by excluding the following items from net income attributable to RCIHH common shareholders: (a) depreciation and amortization, (b) income tax expense (benefit), (c) net interest expense, (d) gains or losses on sale of businesses and assets, (e) gains or losses on insurance (f) unrealized gains or losses on equity securities, (g) impairment of assets, (h) settlement of lawsuits, (i) gains or losses on settlement of patron tax case. We believe that adjusting for such items helps management and investors better understand our 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. The results are, therefore, without consideration of financing alternatives of capital employed. We use adjusted EBITDA as one guideline to assess the unleveraged performance return on our investments. Adjusted EBITDA multiple is also used as a target benchmark for our acquisitions of nightclubs.
• Management also uses non-GAAP cash flow measures such as free cash flow. Free cash flow is derived from net cash provided by operating activities less maintenance capital expenditures. We use free cash flow as the baseline for the implementation of our capital allocation strategy.

Notes

• Unit counts above are at period end.
• All references to the "company," "we," "our," and similar terms include RCI Hospitality Holdings, Inc. and its subsidiaries, unless the context indicates otherwise.
• Planned opening dates are subject to change due to weather, which could affect construction schedules, and scheduling of final municipal inspections.

About RCI Hospitality Holdings, Inc. RICK

With more than 40 units, RCI Hospitality Holdings, Inc., through its subsidiaries, is the country's leading company in gentlemen's clubs and sports bars/restaurants. Clubs in New York City, Chicago, Dallas/Ft. Worth, Houston, Miami, Minneapolis, St. Louis, Charlotte, Pittsburgh, and other markets operate under brand names such as Rick's Cabaret, XTC, Club Onyx, Vivid Cabaret, Jaguars Club, Tootsie's Cabaret, and Scarlett's Cabaret. Sports bars/restaurants operate under the brand name Bombshells Restaurant & Bar. 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, but not limited to, the risks and uncertainties associated with (i) operating and managing an adult business, (ii) the business climates in cities where it operates, (iii) the success or lack thereof in launching and building the company's businesses, (iv) cyber security, (v) conditions relevant to real estate transactions, (vi) our ability to regain and maintain compliance with the filing requirements of the SEC and the Nasdaq Stock Market, and (vii) 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

 

 

 

 

 

 

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SOURCE RCI Hospitality Holdings, Inc.