Transcript: RCI Hospitality Hldgs Q3 2026 Earnings Conference Call

RCI Hospitality Hldgs (NASDAQ:RICK) released third-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below.

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Summary

• RCI Hospitality Hldgs reported a 4% increase in total revenue to $73.9 million, with net income attributable to shareholders up 57% to $6.4 million. GAAP EPS was 83 cents, up 80%, non-GAAP EPS was 90 cents, up 17%, and adjusted EBITDA rose 10% to $16.9 million.
• Nightclubs revenue rose 1% to a record $63 million, with operating margin improving to 31.2% from 28.6%. Bombshells revenue rose 25.4% to $10.8 million, with same-store sales up 4.7% and operating margin rising to 7.0% from 0.8%.
• The company cut debt by $8.6 million in the quarter and $16 million over the past six months, with about $8 million more planned this quarter. Management paused buybacks to reduce leverage and hopes to be back in the market around Oct. 1.
• Bombshells has returned to its bar-centric roots under a “Pre-Game and Party All in One” strategy, lifting beverage mix at some stores to 62%-64% while also growing food sales.
• Under its Back to Basics 5-Year Capital Allocation Plan, RCI targets $400 million in revenue, $75 million in free cash flow and 7.5 million shares outstanding by fiscal 2029 year-end.

Full Transcript

Participants: Travis Reese, Interim President and Interim CEO; Albert Molina, Interim CFO; Eric Langan, Head of Mergers & Acquisitions; Bradley Chhay, Head of Corporate Development. Q&A: Jason Scheurer, Orchard Wealth & Legacy Management. This is a clean verbatim transcription provided by the company that has been edited to increase readability.

Bradley Chhay, Head of Corporate Development

Greetings, and welcome to RCI Hospitality Holdings’ Third Quarter Conference Call. My name is Bradley Chhay. You can find the company’s presentation on RCI’s website. Go to the "Investor Relations" section. All the links are at the top of the page.

Please turn to slide 2 of our presentation. RCI is making this call exclusively on X Spaces. To ask a question, 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 is being recorded.

Please turn to page 3. 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 to page 4. I also direct you to the explanation of RICK’s non-GAAP financial measures.

Please turn to slide 5. Our speakers today are Travis Reese, Interim President & CEO, and Albert Molina, Interim CFO. Now, I’m pleased to introduce Travis.

Travis Reese, Interim President and Interim CEO

Thank you Bradley, and thank you all for joining us. Please turn to slide 6.

I’m pleased to report that we filed our 10-Q today and announced our results for the third quarter ended June 30th. All comparisons are year-over-year unless otherwise noted.

We posted another quarter of improved core performance with better segment margins, strong Bombshells growth, share repurchases, debt reduction, and continued progress with our Back to Basics 5-Year Capital Allocation Plan.

Sales, EPS, non-GAAP EPS, net income attributable to RCIHH common stockholders, and adjusted EBITDA all increased. Bombshells revenues increased 25.4% with same-store sales up 4.7%. Nightclubs revenues increased 1% with same-store sales down 0.8%. Increased activity tied to high-profile professional basketball and soccer games later in the quarter helped offset cautious discretionary spending earlier in the period due to geopolitical uncertainty and its impact on inflation. The quarter also reflected lower impairment and insurance costs.

We continued to execute on our Capital Allocation Plan. We are seeing encouraging early progress in improving sales and margins at our clubs and sports bars. We opened our last Bombshells under development in the Dallas suburb of Rowlett. We bought back 41,500 shares, and weighted average shares outstanding were down 13% year over year. We also reduced debt by $8.6 million for June 30 versus March 31. Now here’s Albert to review our performance in more detail.

Albert Molina, Interim CFO

Thank you, Travis. Turning to slide 7, I’ll start with a review of our consolidated results. All comparisons are year over year for the quarter, unless otherwise noted.

Total revenues were $73.9 million dollars compared to $71.1 million dollars, a 4% increase. Impairments and other charges, net, were insignificant compared to $2.3 million dollars. Net income attributable to RCIHH shareholders was $6.4 million dollars compared to $4.1 million dollars, a 57% increase. GAAP EPS was 83 cents, an 80% increase, and Non-GAAP was 90 cents per share, a 17% increase.

Net cash provided by operating activities and free cash flow were $2.5 million dollars and $2.7 million dollars lower, respectively. This primarily reflected payment of more outstanding payables compared to the prior-year quarter.

On a sequential quarter basis, both net cash provided by operating activities and free cash flow were 14% and 26% higher, respectively. Adjusted EBITDA was $16.9 million dollars, an increase of 10% year over year and 9% sequentially.

Moving to slide 8, I will now cover our results by segment, Nightclubs first. Revenues increased by 1%, to a record $63 million dollars. Four newly acquired, opened and reformatted clubs generated $4 million dollars, and the 52 clubs in same-store sales produced $58.5 million dollars. These more than offset $1.2 million dollars in sales from four clubs closed subsequent to the year-ago quarter. By revenue type, service increased by 7.6%; food, merchandise and other declined by 1.4%; and alcoholic beverages declined by 4.2%.

Operating income was $19.6 million dollars compared to $17.9 million dollars, with margin at 31.2% of segment revenues compared to 28.6%. Non-GAAP operating income, which excludes impairment and other net charges, was $20.2 million dollars compared to $20.8 million dollars, with margin at 32.1% of segment revenues compared to 33.3%.

On slide 9 are the results for the Bombshells segment. Revenues increased by 25.4%, to $10.8 million dollars. Three new locations generated $2.6 million dollars and the nine locations in same-store sales produced $8.2 million dollars. By revenue type, alcoholic beverages increased by 33.6% and food and other increased by 16.6%.

Profitability improved substantially as we increased higher-margin beverage sales and improved operating leverage across the segment. Operating income was $759 thousand dollars compared to $67 thousand dollars, with margin at 7.0% of segment revenues compared to 0.8%. Non-GAAP operating income was $801 thousand dollars compared to $80 thousand dollars, with margin at 7.4% of segment revenues compared to 0.9%.

Moving to Slide 10, you will see a summary of our corporate expenses. GAAP operating expenses declined 19.7% or $1.8 million dollars and 16.3% or $1.4 million dollars on a non-GAAP basis. Both the GAAP and non-GAAP declines reflected a year-over-year reduction in insurance expense.

Please turn to slide 11. We have slides coming up that discuss free cash flow and adjusted EBITDA, which are non-GAAP. In advance of that, we wanted to present the closest GAAP equivalents, which are operating income, net cash provided by operations, and net income.

Slide 12, please. We ended the quarter with cash and cash equivalents of $26.4 million dollars, down by less than half a million dollars from March 31. Our strong cash generation during the quarter enabled us to make debt paydowns of $8.6 million dollars as well as buy back $1 million dollars of shares. Free cash flow margin was 14%, improving for the second consecutive quarter, and adjusted EBITDA margin was 23%, improving for the third consecutive quarter.

Turn to slide 13. As I mentioned, debt declined from March 31, reflecting paydowns across all categories. The weighted average interest rate was 7.05%, which would be considered to be a very good rate for commercial real estate these days. Total Occupancy Cost of 8.3% declined sequentially. Debt to trailing 12-month adjusted EBITDA was 4.3 times. Excluding the fourth quarter legal accrual, debt to EBITDA was 3.7. Both are down from the second quarter. Debt maturities continue to remain reasonable and manageable, particularly with our plans to sell non-income producing properties.

Now, here’s Travis.

Travis Reese, Interim President and Interim CEO

Please turn to slide 14. Our plan remains unchanged. Allocate about 40% of free cash flow to club acquisitions and 60% to share buybacks, debt reduction, and dividends, and grow free cash flow per share by an average of 10% to 15% annually.

Operationally, we remain focused on our core nightclub business. We regularly review every club to improve same-store sales, with underperforming locations rebranded, reformatted, or divested. About 70% of our income comes from 20% of our clubs, creating meaningful optimization opportunities. Divesting weaker assets should improve margins while generating proceeds for our capital allocation strategy.

We target adding an average of about $6 million dollars of adjusted EBITDA annually through the acquisition of strong individual clubs or the occasional strong group of clubs. Metrics remain 3x to 5x adjusted EBITDA for the club business, fair market value for real estate, and 100% cash-on-cash returns within three to five years. Transactions may involve bank financing, cash, seller notes, or stock if our valuation improves.

For Bombshells, our priorities are improving existing locations, achieving 15% operating margins, and restoring same-store sales growth. Now that we’ve opened Rowlett, we have no other locations in development. We would prefer to sell the chain as a whole, but current market conditions are unfavorable.

We will also continue repurchasing shares opportunistically and increasing dividends modestly.

From fiscal 2025 through fiscal 2029, our goal is to generate more than $250 million dollars in free cash flow. By fiscal 2029 year-end, our targets are $400 million dollars in revenue, $75 million dollars in free cash flow, and 7.5 million shares outstanding. This would double free cash flow per share to about $10 versus fiscal 2024.

Please turn to slide 15 for an update on our progress against our Back to Basics 5-Year Capital Allocation Plan. We have continued making progress across several key initiatives.

Nightclubs non-GAAP margin has improved sequentially for three consecutive quarters. This reflects disciplined operational execution and ongoing optimization efforts. We have implemented our “Pre-Game and Party All in One” strategy across all Bombshells locations. This has helped increase sales as well as our mix of higher-margin beverage sales. The opening of Bombshells Rowlett is now contributing revenue while eliminating its carrying costs and pre-opening expenses.

Since launching our five-year capital allocation plan, we’ve reduced shares outstanding by nearly 15%, increasing each shareholder’s ownership interest and helping free cash flow per share. We also remain focused on improving cash flow through continued reductions in SG&A and disciplined cost management.

While there’s more work ahead, we believe these actions will strengthen our operating performance, enhance free cash flow generation, and create long-term value for shareholders.

Finally, I would like to thank our dedicated team members for their hard work and commitment, as well as our shareholders for their continued support and confidence in our strategy.

Now, here’s Bradley.

Bradley Chhay, Head of Corporate Development

Thank you, Travis and Albert. Eric Langan, RCI’s founder and head of M&A, will also be on the Q&A.

If you would like to ask a question, please raise your hand in the X Space. When you finish, mute your microphone to eliminate background noise. We have a limited number of speaker spaces. After your question we may move you back to the audience to free up space.

Please understand we cannot discuss the legal situation in New York other than to reiterate the company’s statement that RCI, the individuals involved, and the three clubs have pled not guilty to all of the charges and are taking all necessary action to defend themselves.

I’m going to bring up Orchard Wealth.

Jason Scheurer, Orchard Wealth & Legacy Management

Okay. All right. Anyway, it seems like the call that you guys just did, I’ve spoken to multiple people, it seems like every six seconds you could hear something, and then every two or three seconds, it would go completely blank.

My main concern now is, how long before you guys are paying down debt at the accelerated rate before you can begin buybacks again? Because at this current rate and the prices, it’s just—

Eric Langan, Head of Mergers & Acquisitions

I agree with you. The prices are extremely favorable for stock buybacks right now. However, I was very uncomfortable with a 4.17x debt-to-EBITDA ratio, so I wanted to get that knocked down. We also had some very timely payments, to be able to pay down a few things, to prepare for making some acquisitions here, hopefully in the next three to six months. So we wanted to kind of line those things out right. So we decided to just take a small break from buying back stock. You see, we bought through April, we slowed down in May, and in May and June, basically just mainly paid debt.

The real story here, if you look at the last six months, we paid down $16 million worth of debt. Through the debt schedule, you see we plan to pay out $8 million this quarter. So we’ll pay down almost $24 million in this brief period of time. We’ve got a property sale that should happen in September that will probably pay another one million. So our three-month total should be a reduction of debt of almost $25 million. We just refinanced two things that we’re going to see coming up in the next quarter where we move some maturity dates and change some terms, paid off some 12% money, to lower our debt service ratios. I’m hoping we’re back in the market around the 1st of October as we start into the next fiscal year.

Jason Scheurer, Orchard Wealth & Legacy Management

Okay. It seems like you’ve had a big turnaround in Bombshells. I guess it seems like you guys have flipped from being a restaurant back to being a bar that sells food. What have you specifically done that’s been catching on? Because it seems like you started with that one that you were managing, and it’s increasing across the footprint.

Eric Langan, Head of Mergers & Acquisitions

Yeah. I’m getting a bunch of messages that people are still not hearing this call. I have not missed a single word of the call, and I’m in Colorado on a basic Wi-Fi connection on my cell phone, so I don’t know. But to give you an idea of what we’ve done is, we went back to our core. We started the concept almost 15 years ago in Dallas, Texas. The idea was to make a fun bar-type atmosphere with sports, girls and great food, with no nudity, that we could take and expand around the country. I think after COVID, everybody had to become restaurants. I think that too much of that got it into our culture. So what we’ve really done is massively changed the culture of Bombshells.

We have brought in a new director of operations for Bombshells. He’s a club guy. He’s been in the club business since he was 18 years old. He understands fun, creating the party, not joining the party. And we’ve kept enough of the food guys to keep the food at a quality level, and just slowly transform the concept back to what it’s supposed to be and what it should probably have always been. We were doing some major expansions in 2021 and 2023 with these two large acquisitions, $88 million acquisition, a $66.5 million acquisition. I think our focus was on that club growth, and the Bombshells kind of slid into a rut.

We kept telling them, “You need to change this, you need to do that.” And of course, the team that we had at the time was very good at restaurant business, but just not the club side. To give an example of what we’ve done is we’ve taken stores that were around 50/50 food and beverage to 62% to 64% beverage and increasing revenue at the same time. So it’s not like we’re getting rid of the food business or losing the food business. We’re actually generating more food business as well, but we’re also making it a fun place to be again, and a fun place to be late night, to come in at 10:30, 11:30, 12:30 at night, and fill those hours back up, which as a restaurant, there was almost no business during those hours. The previous management was actually trying to tell us that we should close at midnight.

So we really got the concept of, “Let’s go fix this thing. Let’s go turn it back into a bar. Let’s bring it back to the original core of the concept.” We’ve done very, very well with that. We took over February, mid-February, I went into a store with another manager. We started working that one store, fixing the things, changing things with the concept. We took that to three stores in March, and about mid-April, we launched that across all 11 stores as we prepared to open the store in Rowlett and make sure that it opened properly with the right party attitude and atmosphere from the very get-go. We’re seeing the results in it. I think you’ll see improved results again this quarter based on what we’ve done in July so far. I think once football season starts, it’s going to get even better.

Jason Scheurer, Orchard Wealth & Legacy Management

What’s the update right now on the Dallas club that burned down? Are you guys making progress with rebuilding?

Eric Langan, Head of Mergers & Acquisitions

We’re still working to replat that property. We’ve had some issues with the city. That property was originally built in the 1970s. There’s no sewer, no sewer ridge there, so we’re on a septic tank. Of course, the laws have changed on septic tanks, so we’re working through those processes as well. So, I think it’s going to be a while before we can start construction there, and once we start construction, it’ll be nine months to build.

We have started construction on the Baby Dolls West Fort Worth location on Mark IV. That construction is going. They just recently passed, I don’t know what you actually call this, but basically the rough-ins. All the plumbing and stuff that are all underground, all that has been done, and they’ve got permission to start filling that in and should be working on most of the vertical stuff here soon. I suspect that location will open around May 1st.

Jason Scheurer, Orchard Wealth & Legacy Management

In terms of the clubs that you do have, I remember you were giving some stat about how a certain number of clubs equal 80%, like some Pareto principle between the profitability. Do you guys have any clubs that you think you’ll be trimming off and selling real estate on?

Eric Langan, Head of Mergers & Acquisitions

We have a couple that we– As you know, we got rid of Arlington, we got rid of Edinburg, El Paso location. We have a couple of locations that we’re in negotiations with, to possibly sell those locations. It doesn’t mean every location’s for sale for the people that are listening that want to buy every club that we own. We will know when a club is for sale. We’re not marketing. It’s going to be a random club here or there, and we’ll market it through a broker so that you’ll absolutely know that it’s for sale when we make that final decision.

But it’s not a lot, just a couple small locations. They’re in very small markets, and we’re focusing on our larger markets. Our acquisitions that we’re working on are larger market acquisitions. That’ll be very accretive for us. And we’re taking it very slow, because right now, we do believe that buying our own clubs is absolutely the best use for our money.

Jason Scheurer, Orchard Wealth & Legacy Management

How much more in payments do you have to do to ADW?

Eric Langan, Head of Mergers & Acquisitions

It’s a $1 million a month, so 14-15 more months.

Jason Scheurer, Orchard Wealth & Legacy Management

So you’ve been paying about a $1 million dollars to ADW, which at some point will stop, and that will be added back into profits. And then you’ve been accelerating debt payments of about, what, a half a million dollars per month also?

Eric Langan, Head of Mergers & Acquisitions

We paid down our line of credit. I think after August, we’ll be paid down to $100,000. So, we will not be making additional payments on that anymore. So, we’re going to have to kind of look and see where we want to put the other money. I know that we have a property that’s supposed to sell in September. If it closes, we’ll pay down about $900,000 in bank debt, and we’ll probably pay $1 million dollars to ADW. So, that’ll take one month off of that, plus save us the 12% interest over 15 months. So, we’ll get a nice savings off of that and still put a little, not a much, but a little bit of cash in the bank on our side as well.

We are in negotiations on multiple other properties. I’ve been working with brokers. We’re accepting cash offers. We’re looking to lease some of the properties that we haven’t been able to sell in the last six months. Put a tenant in and just keep it and collect rent if the ROI is good enough. Those are things we’re definitely building on that income-producing property. I think that’s a lot of value that we can unlock over the next 6-12 months. Hopefully, with interest rates and the oil prices and the uncertainty with the Iran war has definitely not helped commercial real estate sales. So, that is part of the issue, I believe.

Like I said, we have a lot of people that we’re talking to, a lot of groups on a bunch of our properties in multiple areas, and a lot of it is, can they get the financing, can the financing at the right prices and whatnot. So, that’s what we’re up against. But I’m hoping those headwinds will die down here, especially as we move closer to the election and right after the first of the year. I look very forward to hopefully seeing that settle down so we can move some more of these properties.

Jason Scheurer, Orchard Wealth & Legacy Management

With the club sales, are they kind of pretty much in line, or is there like a hotter area than the other geographically? In terms of just the revenues that you guys are bringing in from the club side of the business.

Eric Langan, Head of Mergers & Acquisitions

No, I guess it’s pretty spread around the country. One area gets hot, another area slows down a little bit. A lot of it’s been sports-based in the last few months. We’ve seen with the World Cup and of course with the Knicks and the NBA Finals and winning the NBA Finals. That’s definitely affected New York and helped New York. But the games also help Bombshells. They helped the clubs in Miami, where there’s people coming to watch the games, watch the New York Knicks. It probably didn’t help us in Chicago because Bulls fans probably aren’t Knicks fans, but there’s enough Knicks fans in other parts of the country, I think, that did very well for us.

Then, of course, the World Cup. The most matches were in Dallas, right next to the bombshells in Arlington, and two of our clubs in that area, which did very well during those World Cup games. We had games in Houston, we had games in Miami, we had games in New York, that all helped contribute to those regional areas. But they helped everywhere because people came out to watch the games as well. So, it’s hard to say that anything helped one particular area more than the next. I think that overall, we just had very strong results.

Like I said, we’re looking very forward to football this year. We’re putting a lot of promotion and sports stuff in fantasy draft parties, as well as come watch the games or game-watching parties and bottle specials during the games to get people to bring larger parties out. We did very, very well with during World Cup, so we’re going to take the success we had there and multiply that, push that right into the football season. And then by October, we’re going to be picking up basketball as well, and hockey kicks in. Baseball will heat up here as the pennant races start. So sports should be very, very good for us, I think, September, October, November, and probably all the way into February.

Jason Scheurer, Orchard Wealth & Legacy Management

Have you noticed anything different with the service side of the clubs? Obviously, it seems like it’s picking up. Does that seem like it bottomed a little while ago when you guys are going back to normal?

Eric Langan, Head of Mergers & Acquisitions

I think just service revenue declined there for a while. There’s a lot of macro stuff going on, but I think we are focusing on it. We are working on keeping people in our VIP rooms. That’s where our service revenue is created when people go to our VIP rooms. So we’ve got to keep the pressure on the floor, keep more people in the building so people want to pay to move up, right?

If you’re the only person on a 737, you don’t care if you’re sitting in first class or not, right? Because there’s nobody next to you. But if all of a sudden every seat in the back is full and the front is empty, you might as well ask, “Can we move up there?” That’s what we have to do with clubs. I think our guys are doing a fantastic job of creating that pressure by putting more and more people through the door, and really focusing on just overall customer service right now.

Jason Scheurer, Orchard Wealth & Legacy Management

When it comes to service revenue, is there an age range of the ideal client that is spending the bigger dollars? Because I can’t see it being 21, 22-year-old kids. To me, it would seem like some guy that’s in his 30s to 50s, because they’re the guys with the money that can drop it.

Eric Langan, Head of Mergers & Acquisitions

It depends strictly on the club and the format of that club. There’s a lot of 20-something tech guys out there that are making good money, right? And getting their first job. And there’s a lot of crypto guys out there that are in their 20s. And these influencers, right? These media influencers on social media. They make a lot of money, and they will come in and blow some money sometimes. Then we’ve got the real estate tycoons who can come in and put out his platinum credit card and says, “Everything’s on me.”

I don’t think the age groups are as tight as they were. I know that we have really done a better job, I think, of social media marketing and working with some influencers and whatnot, to really bringing in more of that younger crowd that we haven’t necessarily had in the past. We’re doing everything we can to put butts in seats, basically.

Jason Scheurer, Orchard Wealth & Legacy Management

My last question is, are there a significant amount of women that have been showing up to the clubs with their husbands, or just it’s a thing for girls to go to?

Eric Langan, Head of Mergers & Acquisitions

That’s been for 10 years now. That hasn’t really adjusted much. Not as many during the week, but on weekends, absolutely, especially Saturdays. Saturdays, we should have a couples night, I think. But we do too much other business on Saturday with bachelor parties, everything else, to kind of really focus on that crowd. But we do focus on the customer service for that crowd, for sure.

Jason Scheurer, Orchard Wealth & Legacy Management

Excellent. Thanks guys.

Bradley Chhay, Head of Corporate Development

Just to deal with the technical issue that people have been texting and messaging about, the immediate replay and recording will be posted right afterwards on X Spaces, as well as a posting of the transcript of this call. Sorry for the technical issues.

So on behalf of Travis, Albert, and Eric, the company, and our subsidiaries, thank you and have a great night. Please visit one of our clubs or sports bars and have a great time. Thank you.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.

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