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Mark Moran: Greetings and welcome to RCI Hospitality Holdings First Quarter Fiscal 2023 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. Please turn with me to slide two of our presentation. I’m Mark Moran, CEO of Equity Animal. I will be the host of our call today. I’m here in New York City with Eric Langan, President and CEO of RCI Hospitality; and Bradley Chhay, CFO, who is in Houston, home of one of my favorite clubs Club Onyx managed by Josh Brooks. Please turn with me to slide three. If you aren’t doing so already, it’s easy to participate in the call on Twitter Spaces.

On Twitter go to @RicksCEO and select the space titled Rick RCI Hospitality Holdings Inc. 1Q ’23 Earnings Call. To ask a question, you’ll need to join the Twitter Space with a mobile device. To listen-only, you can join the Twitter Space on a personal computer. RCI is also making this call available for listen-only through traditional landline and webcasting. With Twitter having glitches today, in the event of a crash we’ll restart the Space, and if that fails, more to the tiling. A question-and-answer session will follow. And this conference is being recorded. Please turn with me to slide four. I want to remind everyone 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 5. I also direct you, to the explanation of Rick’s non-GAAP measurements. I would like to encourage everyone, to retweet and share this date. Finally, I’d like to invite everyone listening in the New York City area to join me and Eric tonight at 7:00 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 Fifth Avenue and Broadway, a little in from Herald Square. If you have an RSVPed, ask for Eric or me at the door where I will be deploying my own capital allocation strategy after 9:00 p.m. Now, I’m pleased to introduce Eric Langan, President and CEO of RCI Hospitality.

Eric, take it away.

Eric Langan: Thank you, Mark. Thanks everyone, for joining us today. Total revenue came in generally as expected with Nightclub segment having another great performance. This offset difficult Bombshells comparisons. GAAP EPS and net cash from operating activities and non-GAAP EPS and free cash flow were affected by repairs and maintenance CapEx that occurred in the first quarter. GAAP EPS also included $0.16 in non-cash, intangible amortization and stock-based compensation compared to a year ago quarter. Nonetheless, adjusted EBITDA was up 13.9% year-over-year and we ended the quarter with $34.1 million in cash. That was after making a number of club and restaurant and real estate acquisitions. Probably, the most important thing that happened in the quarter, is that we got off to a terrific start with our big three year initiative.

The goal is to continue our mission of growing free cash flow and EBITDA of a higher revenue base. Now, we have — we now have numerous acquisitions and projects and development. Highlights include our pending acquisition of a group of five Baby Dolls and Chicas Locas clubs in Texas. The Rick’s Cabaret Steakhouse Casino in Central City, Colorado. In addition, we have an even stronger lineup of new Bombshells locations in three states in Alabama, Colorado and Texas. I’ll be back to tell you more and answer questions. Now, here’s Bradley to review financials.

Bradley Chhay: Thanks, Eric and good afternoon, everybody. Looking at the sum of the major numbers for the quarter, total revenues were $70 million, up 13.2%. GAAP EPS was $1.11, up less than 1%. Non-GAAP EPS was $1.19, up 8.2%. Net cash from operating activities was $14.9 million. That’s off 8.4% from last year, mainly because we paid down more liabilities on our books in the first quarter compared to a year ago. Free cash flow was $13 million, that’s off 14.6% because of the change in net cash from operating activities and about $1 million more maintenance CapEx that fell in the first quarter. Adjusted EBITDA was $20.5 million, up 13.9%. And weighted average shares outstanding declined 1.9% year-over-year, due to repurchase over the last year.

Please turn to Page 7, to review Nightclub segment. Revenues totaled $56.3 million, up 20.4%. GAAP and non-GAAP operating margin was 40.4%. That reflected increased operating leverage from higher sales in particular higher-margin service revenues, which increased 23.4%. This was partially offset by increased amortization of club licenses at lease locations. As a result operating income increased 21.4%. Now fiscal year 2022 and first quarter acquisitions added $15.3 million in sales. Same-store sales were up 1.2%. This reflected strong contribution and growth from our white collar clubs mainly New York, Illinois and Florida, partially offset by some softness in our blue collar clubs. In the second quarter, the 11 clubs we acquired in October 2021 will fall into same-store sales.

Based on current trends this should result in growth in same-store sales. Please turn to page 8 to review the Bombshells segment with me. Revenues totaled $13.4 million compared to $14.8 million last year. Operating margin was 13.8%, primarily reflecting reduced operating leverage. Operating income was $1.8 million. Bombshells Arlington, which opened in December 2021 added $1.3 million in sales. Same-store sales were down compared to last year when the chain was experiencing very favorable local economic environment and the combination of government stimulus people returning to work and a little competition. However, compared to pre-COVID, first quarter of fiscal 2020, our December quarter same-store sales were up 3.6%. Please turn to page 9 to review our consolidated statement of operations with me.

All comps as a percentage of revenue and compared to a year ago quarter unless otherwise noted. Cost of goods sold continued at 12.9%. This reflected the increased higher margin service revenues in the sales mix. Salaries and wages were approximately low at 26.7%. Now SG&A was 32.5%. This reflected $900,000 of non-cash stock-based compensation and $400,000 of repairs. Now if we exclude these two items, SG&A would have been 29.5% compared to a year ago quarter, which was 29.9%. Expenses associated with these newly acquired and reopened locations will subside as a percentage of revenues as their sales build. The non-cash stock-based compensation is an ongoing item. While we have repair expenses every quarter, they are not typically as large as they were in this quarter.

Depreciation and amortizations were 4.7%. This reflected an increase in depreciable assets from newly acquired and constructed units. It also included increased non-cash amortization of licenses from the clubs at lease locations. Operating margin was 24.2% and 25.6% non-GAAP the same as last year. Interest expense was 5.3% versus 4.2%. This reflected higher debt from our club and Bombshells site acquisitions over the course of the year. Now please turn to page 10. We ended the quarter with cash and cash equivalents of $34.1 million. Free cash flow was 19% of revenues and adjusted EBITDA was 29%. That’s a little below our targets of 20% and 30%, respectively. Please turn to page 11 to review our debt metrics. Net of loan costs, debt was $211.2 million at December 31st.

That’s an increase of $8.7 million from September 30th. This increase primarily reflected financing used in the acquisition of Heartbreakers deal, down in Dickinson, Texas, the Denver Food Hall and Atlanta, Lubbock, Texas for a Bombshells location. Our weighted average interest rate continued at 6.35% this compares to 6.26% a year ago and 6.73% five years ago. Our amortization continues to be within the $9 million to $10 million annual range which is very manageable with our cash flow. Now please turn to Page 12 to review some of our other debt-related metrics. The ratio of debt to adjusted EBITDA was 2.4x as of December 31, well below our MAX comfort level of around three. Our occupancy costs were 7.8% of revenues. This continues to be well within the 6% to 9% range which average when sales weren’t dramatically affected by COVID.

Please turn to Page 13 to look at our December 31 debt pie chart. Our debt now consists of 61.9% secured by real estate, 25.2% secured by seller finance debt — secured by respective clubs to which the real estate at applies to, 4.9% of the debt is secured by other assets and 8% is secured by its unsecured debt. Please turn to Page 14. Now we continue to talk to new investors, so I’d like to take a moment 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. Our strategy is similar to those outlined in the book, The Outsiders by William Thorndike. We have been applying these strategies since fiscal 2016 with three different actions subject to whether there is strategic rationale to do otherwise.

The first one is M&A, specifically buying the right clubs in the right markets. We like to buy solid cash flowing clubs at 3x to 5x adjusted EBITDA and will use seller financing and acquire real estate at market value. Another strategy is grown organically, specifically expanding Bombshells to develop critical mass, market awareness and sell franchises. Our goal in both M&A and organic growth is to generate annual cash on cash returns of at least 25% to 33%. The third action is buying back shares when the yield on free cash flow per share is more than 10%. Now let me turn the call over back to Eric to review our big three year growth initiative.

Eric Langan: Thank you, Bradley. Please turn to Slide 15. We currently have acquisitions and projects in development involving nine clubs. In October, we acquired Heartbreakers in the Galveston area. At the end of January, we reopened the day shift. We plan to finish the clubs remodel in February and that should help increase its contribution forward. In late December, we reopened and reformatted a location in San Antonio as the Jaguars Club. The first quarter provided a little contribution, but we expect it will be bigger contributor going forward. In mid-December, we announced definitive agreements to acquire a group of five Baby Dolls and Chicas Locas clubs in Texas. We are awaiting transfer of liquor licenses. The club should contribute $11 million in EBITDA in year one.

And once we complete our expansion plans, they should contribute $14 million to $16 million in EBITDA. In December, we announced acquiring club assets in Fort Worth to create another PT show club. The remodeling is underway and the reopening should occur in the second half of fiscal 2023. Last year, we had to close our Jaguars Club in Lubbock, Texas because of an intimate domain issue we acquired another location with the money the state paid us. It is currently under construction and opening is expected in the second half of fiscal 2023. Fiscal 2023 will also benefit from a full year of the 15 club acquisitions and three club and club-related restaurant openings we made last year. I’d like to highlight the value we added in our big October 2021 acquisition of the 11 clubs.

Based on our management and optimization, we increased adjusted EBITDA 24%. That means we paid 4x for the operating assets compared to our original estimate of 5x their pre-COVID-adjusted EBITDA. Please turn to slide 16. We have nine locations in the process of acquisition or development. In late December, we acquired the Denver area food hall. We are currently remodeling it and installing the Bombshells kitchen. That is expected to be completed by the end of February, and an increased contribution in March. Earlier this week, we bought out our San Antonio franchisee for $12 million cash, and $2 million in debt. This is one of the best-performing Bombshells. Construction is continuing at our Stafford location in the Greater Houston area. Building permits have been approved for our Roulette location in the Greater Dallas market.

We are currently reviewing construction bids. In Lubbock, we are awaiting a building permit for our location. Our second location in Austin Texas is now pending site review. We have an LOI for a location in Downtown Denver with an existing building that will work very well for Bombshells, and we estimate it will take about $1 million or less in work to get it open. Our Huntsville, Alabama franchisee is awaiting his building permits and indexation of his land into the city of Huntsville. Regarding our other Denver location in Aurora, our plans are in process with the city. If you’ll turn to slide 17. In December, we announced acquiring a 30,000 square foot building in downtown Central City for only $2.4 million for our Rick’s Cabaret Steakhouse & Casino.

We have applied for our master casino license, and are moving full steam ahead on this. Turning to slide 18. This slide compiles all of our capital allocation to date for this fiscal year, including some shares we repurchased in the first quarter and the major acquisition we have pending. Altogether, we are looking at allocating about $93.2 million so far this fiscal year, and I estimate approximately $20 million in additional capital expenditures will be used to build the improvements for these properties that are still in development for last €“ and the properties still in development for last year. As I’ve said, our goal is to allocate about $200 million on average per year over the next three years. Please turn to slide 19 for an updated on our geographic focus.

In the first quarter of 2023, our regional revenue breakdown was Texas 38%, including Bombshells. Florida 25%. New York 9%, a little higher than fourth quarter 2022. Illinois and Colorado each at 7% and the other eight states combined for 14% of revenue. This demonstrates our geographic diversity. Our exposure to growth states like Texas, Florida and Colorado, and how we develop business clusters in key areas. I want to say thank you to all of our loyal and dedicated teams for all their hard work and effort. We can’t do it without you. Now here’s Mark.

Mark Moran: Thank you very much, Eric and Bradley. I want to encourage everyone to retweet and share this Space. And I’d like to give a special shout out to Cynthia Daniels. I was very much enjoying your profile, while Eric was speaking.

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A – Mark Moran: If you would like to ask a question, please raise your hand in the Twitter Space, when you are done asking your question please mute your microphone to eliminate any background noise. We have a limited number of speakers Space’s. After your question, we may move you back to the audience to free up Space. To start things off, we’d like to take questions, from RICK’s analysts and then some of its largest shareholders. Our five analysts are Scott Buck of H.C. Wainwright, Anthony of Sidoti, Lynn Cole of Water Tower Research, Rob McGuire of Grant Research and Joe Gomes of Noble Capital Markets. First up, we have Scott Buck. Scott, take it away.

Scott Buck: Hi, guys. Thank you for taking my questions. First one, Eric, could you talk a little bit about the trends you’re seeing in the clubs in January and the first part of February? Still seeing some of the soft pockets in the blue collar clubs, or is that kind of worked itself out?

Eric Langan: Yes. I mean I still think there’s a little weakness. I was going over everything looking at a four-month trending deal with October, November, December, January. This January total sales were a little over October — I mean I’m sorry a little over November and December’s total revenues. So, I think that’s a promising deal. Typically when we see these slowdowns, they affect us for about six months. I think the slowdown started in November based on what I’m seeing. So I’m hoping that it will be a little shorter and that March I think is going to be the big turnaround for us. Of course we have Super Bowl this week. So this week we’ll be abnormally affected by a one-time event for this weekend, especially out in the Phoenix market and — as well as the two great teams with the Eagles and Kansas City in the Super Bowl, I think that’s going to be a help a lot with viewership. It’s to help the Bombshells in Texas as well I think.

Scott Buck: Great. That’s helpful. And my second question, Bradley, should we think about these higher than anticipated repair and maintenance costs as a pull forward from future quarters or is this in addition to?

Bradley Chhay: Now, last year was the same thing. We had $4.5 million in maintenance CapEx. I wanted to clarify something. So last year we had that. And this year we had $6 million as our target. So 1.5 per quarter what our maintenance CapEx should be. Now that’s an impact to free cash flow. However what we’re talking about is repairs and maintenance costs. Those repairs were done in part of the winter storm and all that stuff and some plumbing. We don’t anticipate higher than expected repairs and maintenance expense going forward.

Scott Buck: Great. Appreciate the additional color.

Bradley Chhay: Yeah.

Mark Moran: Thank you very much, Scott. Next up, we’re going to have Anthony. Anthony, take it away.

Anthony Lebiedzinski: Good afternoon and thank you for taking the questions. So as far as Bombshells, the operating margins there were lower than where we had projected. Can you just talk about kind of what happened there? And then how should we think about segment margins there going forward?

Eric Langan: Yes. I think we got a little surprised at some of the weakness in late October — I mean late November and December. The margins I think will return to a more normal mean of 18% to 22% as we move forward. The Houston market was extremely weak. The Houston, Texas did not contribute anything at all this year, which hurts a little bit in that marketplace. Overall I think that Bombshells has gone through a little bit of some growing pains in that — in the previous years we’ve had less competition in the marketplace, because so many places were closed. We were some of the only places open after COVID. We were first to open after COVID, and there was a lot of vacant buildings. And I think over the last year and especially in the Houston and Dallas market, those vacant buildings have been reopened new businesses, new restaurants have moved in and come into the marketplace.

And they’re going through their honeymoon periods, because they’re new. And so everybody rushes to the new place for a while. But I think over the next few months we’re going to start seeing some of that return back to normal where the customers kind of float around a little more than they were as those places are no longer than their honeymoon periods. I would also like to remind everybody that same-store sales were still up 3.6% from our pre-COVID 2019 numbers. So overall Bombshells is still on course. We do have some cost — the Grange Food Hall is in the Bombshells segment because it’s a restaurants, we put that in the restaurant segment. So, were some cost there in the first — last 10 days of December that didn’t really contribute revenue.

And I think as the Grange, we’re doing the remodel the new TVs are in, the games are in, the actual Bombshells kitchen construction starts next Tuesday, should be finished by Friday or Saturday and we hope to have that open by the first of March. And so we’ll have a lot more contribution from the Grange this year — in this quarter as well as for March and then of course going forward. But we also have the — on February 1st we took over operations from our franchisee as they lost their operating partner and the investment partners decided they wanted to sell the location and rather than trying to go through the whole franchising process and finding somebody we just discussed them selling us the location. We financed that location with $1.2 million cash down and a $2 million a five-year seller note.

So, a very manageable note for us with that location averaging sales of about $120,000 a week. That’s about a $6 million year a unit. So, I don’t think we could have even built the unit for that cost. So, it’s an upgrade for us. It’s sad that we lose a franchisee. We’re really hopeful on the franchising model at some point in the future. Maybe Huntsville will be the guy who’s successful. But at the same time we pick up a fantastic location for ourselves.

Anthony Lebiedzinski: Okay. That’s good to hear. And then given the choppiness in traffic in both of the blue collar locations and Bombshells, are you guys maybe perhaps rethinking your promotional strategy to do maybe more specials as far as for food or drinks, or like how are you thinking about that?

Eric Langan: Yes absolutely. I mean we have been — we kind of switched modes in early December. We don’t want to get too crazy about it in December because we did have a lot of preplanned parties and Christmas party and stuff. We did get affected a little bit — pre-Christmas was pretty decent and it slowed down the week between Christmas and New Year’s was a little off but then New Year’s was — New Year’s weekend was fantastic for us. So, it’s been a strange — I would say it’s been a little strange adjusting to it right? Because this — I call this a psychological recession in that there’s plenty of jobs. People can go out and earn money and make money very easily right now. It’s just — it’s psychological. Everybody keeps saying things are going to get bad, things are going to go bad.

And people are seeing prices a little higher. And so I think there’s still a little sticker shock on certain items and certain prices out there. But overall I think that by March — I’m thinking by March out we’ve adjusted our plans. We’re seeing like I said January was better than December and November in total revenues. February the short month we only have 28 days, so we don’t get those extra three days. So, we’ll see how February comes in. But I think on a per week basis or if you do an average daily sales, I think February is going to be up from January. And I expect March will put us back on the path and we’ll have to see how we run through this summer.

Anthony Lebiedzinski: Got it. Thank you very much and best of luck.

Mark Moran: Thank you very much Anthony. Next up we are going to have Lynne Collier of Water Tower Research.

Lynne Collier: Thank you very much. Eric, I wanted to ask you do you have any other color that you can provide on the casino in terms of the progress you’re making?

Eric Langan: Well, yes and no. We’re in some negotiations right now. We would try to complete with a national partner that’s not quite done yet, but we’re working on that process hopefully by the next — by next week we’ll get some color on that which I think will be exciting for us. Overall, we are — we’ve done our 3D scans. We’re starting all of our layouts. We’re going — we’ll be up there Monday after Super Bowl to — with some of our operational team we’re going to actually do floor layouts and flow patterns for the location to get to the architect. I suspect and hope that we’ll have the roofing and HVAC systems repairs and replacements started in April and hopefully completed by the end of April. My personal goal is to have the casino turnkey ready to open by November 1.

A lot of that will depend on whether we can get our preliminary approval by June 1 which we should be able to do because that’s about six months. And typically it only takes three or four so we may have it much sooner. We’ve been in licensing I guess going on about December January about 2.5 months. So hopefully based on what we’ve heard from historic from other operators in the Colorado market is that between four and six months you typically will get your preliminary approval so you can start your casino setup. So if everything goes right we’ll be turnkey ready by November 1. And our total cost on that is we’re buying most of our machines. We’re not going to do a lot of leases or what we call they call participation machines will — should come in just under $10 million between the remodel the machines, the table games everything else the security systems that type of stuff is what you think including the land and building cost of $2.4 million.

So basically I figure we’re going to spend about another $6.5 million on build-out and gaming devices and leave us about $1 million bank for start-up.

Lynne Collier: That sounds great. Thank you so much. I just have another question. It would being in Dallas and the weather has been pretty unfavorable. I know we’re only a few days end of February, but can you comment at all on how the weather has impacted the last couple of weeks or so in Texas?

Eric Langan: Yes. We had 10 locations that were closed for two days. Six of those locations were closed for a third day. We also had a tornado that hit our Fuqua location in South Houston. It was closed for a couple of days. While we got the — some of the repairs done and there was no electricity on that part of town down your part Texas. You’ve seen it on the news that’s where the tornado actually hit. We just got the tail of it I think or the beginning of it I’m not sure which. But it was pretty bad tornado. It actually ripped a metal the metal top off of our garbage dumpster and it blew out the fence on the roof like the AC units, HVAC or the system was damaged. We had to get that repaired. We have insurance so we’ll worry about the insurance part of it later.

Right now we’re just getting everything fixed. Back the store closed for about two days. So there were some minor stuff but most of that I think there was two days in January and then February 1. I think I remember. It might have been all three days at the end of January. So our January numbers which I said were better than November and December were affected by those 10 stores closings as well. So I think we’ve been a little better off with those 10 stores and we’ve gotten those three days from those 10 stores. So..

Lynne Collier: That’s great color. Thank you so much. I just have one final question and that’s about Bombshells in Colorado. How many units or restaurants do you anticipate being able to build in the Denver area over the next couple of years?

Eric Langan : We have about six site locations — or area locations that we’re looking into. Right now we have the one in Aurora. We have a downtown Denver location very close to the convention center that I think will be just an unbelievable location. And it’s a — I won’t call it a turnkey location, but it’s pretty close. Everything we’re going to do is cosmetic. The current — the previous operator left everything in the building, so all the kitchen equipment is there. It was a large operation, great location. And hopefully, we’ll — we’re in the contract negotiation to get that under contract and close. And I think that if we can get this done in the next week that we could actually have that location open in time for the football season when the Denver Broncos have their first home game.

That’s going to be our goal is to get that one. So that one could be opened very quickly and very inexpensive. Total cost of probably less than $1 million on the build-out and we have bank financing on the purchase. We’re buying the property so we’ll have bank financing on the purchase. So it will be a super fast cash-on-cash return as well for us. So I’m excited about that location.

Lynne Collier: That’s great. Thanks so much. I think I’m good for now. Congratulations on another great quarter and thanks again for taking my question.

Eric Langan: Thank you. Appreciate it.

Mark Moran: Thank you so much, Lynne. And Eric I just wanted to give you a second to clarify something, because I believe that you might have said the San Antonio Bombshells franchise was acquired for $12 million versus the $1.2 million?

Eric Langan : Well, $1.2 million in cash and a $2 million note is what I thought I said. So if I misspoke that I’m sorry that is the — the total purchase price was $3.2 million, which like I said is less than we could probably build that location for. And it’s $1.2 million in cash $2 million on a five-year promissory note.

Mark Moran: Phenomenal. Thank you so much, Eric and then thank you again, Lynne. Next up we have Rob McGuire of Granite Research in a hold position. Rob, take it away.

Rob McGuire : Nice quarter guys. Can you give us an update on perhaps when baby dolls could close? And anything unusual going on with those alcohol licenses, or any color around that?

Eric Langan : Yes. I really thought we’d closed by February 1. That was my plan. We were prepared and ready to close by February 1. We have a line of credit set up through our bank ready to draw down on as soon as we need it to close the transaction. What’s going on right now is they had a couple of outstanding issues. And so the Texas Beverage Commission has put an administrative hold on the transfers. So they can’t turn their licenses in so ours can be issued. And ours aren’t ready yet due to a couple of other issues with the cities, but all of our stuff is now in. It’s in processing with the Beverage Commission. We’re — as they say waiting on the government. So hopefully I know the attorneys are working. Probably you’ll have more color based on our discussions by February 20.

I would love to see us close by March 1, but it could be March 15, it could be March 31. But I do think we will get it closed in this quarter. That’s seven weeks. Surely they can resolve issues even dealing with state agencies. The problem is, we have a sense of urgency but they just don’t have a sense of urgency. They want to get through the process at their speed and their time. And we’ll just be sitting here waiting to go. But everything on our end is ready to go. We’re ready to close the transaction. We have — like I said, they have the money in the bank the line of credit setup. And we’re good to go. So our teams are ready. We’ve already preordered all the POS equipment, so we can — excuse me — so we’ll have the POS in immediately everything on our side that go we’re just waiting for those final approvals.

So it could be — I guess, it could be March 1st, it could be March 15th, or it could be March 31st. So I think sometime in that time, they gave me a couple of time deadlines on typical time it takes to do these things. And I think one was March 20 — or I mean April 20 something March third date and I remember seeing like a March 30th date or something. So sometime in the — sometime in that plan will get it done. But basically as soon as the licenses are approved, I think we’ll probably try to close the next day or the day after.

Rob McGuire: Thank you. And then, just turning to Denver, can you talk about, — you’re looking at six potential Bombshell area locations. You’ve got two under your belt. And you’ve been able to acquire that land for less than what we’ve seen in Texas. Do you expect that trend to continue with the other four locations, if you expand or continue to expand there?

Eric Langan: I think so. I mean, we look at some properties that are more expensive than Texas, in that market. But there’s still a lot of vacant restaurant space out there. Unlike, Texas which opened pretty quickly, they were closed for a much pro-longer period of time. So a lot of what I would call better operators still walked their locations out there. So there’s still a lot of land, I think tied up in courts and leases and stuff issues. So we’re sorting through all that trying to find the right locations. Obviously, I have seven on my plate right now, so I’m not in a hurry. We are lined up for 2024. I think one of the problems — I think what people don’t realize for like 2023 is, the only growth — we have to grow through acquisitions in this year, because we weren’t doing any — we weren’t lining up these things in 2021 and 2022 like — I’m sorry, 2020 and 2021, like we normally would have because of COVID.

And so, the Bombshells, has taken a pause here. But now that we’re coming back online and I think some of that has — not having new growth kind of dulls the excitement for the brand a little bit as well. So that could have some effect on us, as we move forward. But I think as we start — as we get to the end of this year. And we start opening up new locations again. And we energize our management teams with upward mobility I think we’re going to see some great things out of the Bombshells brand again. And for brand, we don’t have another kind of COVID shutdown or anything like that ever again, I think that brand will be very, very well over the next three years as part of our plan to get us to that 30-plus units and get us to $50 million-plus EBITDA out of our restaurant division.

So I don’t think we’ll have any problem getting there.

Rob McGuire: I appreciate that. And then shifting — staying in Denver but shifting to the Nightclubs. You talked about the substantial improvement in operations from the, 11 Nightclub Acquisition you made, but can you talk about potential for lock them to continue to improve here? And just give us the backdrop on that?

Eric Langan: Sure. So the plan is to convert that location into Rick’s Cabaret Denver. I know the name has been there for a long time. But with the convention business there and the people that travel from out of the country Chicago, New York and other and Miami other major markets where RCI operates, we think that the Rick’s brand will do very, very well there. We’ve been waiting for approvals for permits in the outside remodel and signed permits on that, which are all starting to come in and we hopefully will have that location converted by April.

Rob McGuire: Well, that’s it for me. Thank you so much and congratulations on the quarter.

Eric Langan: Yes. Thank you, Rob.

Bradley Chhay: Hey. Brad just one clarifying point. The Bombshells San Antonio franchise location. I know Eric said $1.2 million down, $2 million note, five-year and but two-year balloon 7%? Just wanted to put that all out there. Thanks.

Mark Moran: Thanks, so much, Bradley and good thing you’re not referring to these five balloon that was recently hovering over. Rob, thank you so much for the question. And I want to encourage everyone to also check out Rob’s recent video on misconceptions of the adult entertainment industry. Now before we move into our open Q&A session. I would like to encourage people to raise their hand to be called out, to be able to ask questions. We’re going to bring in Joe Gomes as our final equity research analyst up to ask questions. Joe, take it away.

Joe Gomes: Thanks. Congrats on the quarter. Just wanted to go back to Bombshells for a second. I know we’re kind of beating the dead horse here. But maybe Eric can you give us a little more color and detail as to how the San Antonio operator kind of left so to speak? And even though Bombshells is performing better than pre-COVID, it has been somewhat negative on a same-store sales basis here, I don’t know the last four quarters or so. How is that impacting your efforts to attract additional franchisees?

Eric Langan: Yes sure. I mean right now with the current economy we’re not getting a lot of franchise calls because it’s a $6 million-plus investment. And people are €“ I guess at the psychological €“ I call it a psychological recession, where people €“ nothing’s really changed for them other than maybe the gas and foods up for especially for maybe your top 50% of the population your bottom 20 probably getting very squeezed by those things. But there’s plenty of jobs for €“ especially in the even €“ with the tech layoffs, if you read the reports, most people are laid off in the tech reports were back to work within one week. Unemployment claims did go up. On as last time hundreds of thousands of people were laid off in a recession and unemployment payments went down.

So there’s plenty of jobs. And so when I say psychological, I mean people are expecting things to get worse and so therefore they are changing habits. And those changing of habits are what we have to adjust our business model too. I think we’re doing a fantastic job of that. As far as being the Bombshells look, we’ve expected €“ we knew we were going to get very hard comps. We knew that as all these new restaurants and all these spaces were being leased and we saw the construction going up that we were going to be effective for a period of time at those locations. We’re adjusting our model. We’re doing the things we need to do to get Bombshells back to their 18% to 22% margins €“ excuse me. And I think it’s just going to take time. We have to work through it just like €“ when everything €“ back in 2008, 2009, when we saw the €“ our earnings dropped $0.08 per share from the 20s.

And that was the first time we had experienced anything like that. And so, we had to adjust our models that took us a little longer. And I think this time, we’ve adjusted our models very quickly. Instead of globally, because of the information systems Bradley has put in place for us, we’re able to do this on a regional and club-by-club basis and that’s why we know that the recession — or I say recession — the slowdown, whatever this period of end, the consumer trying to decide whether you want to keep spend their money as they have in the past or save in case it slows down has been to the point where it’s affected certain clubs and not other clubs. And so instead of switching the model at all of our clubs across the country, like we did in 2008, 2009, we were able to target specific locations and make those adjustments.

And you’ll see the clubs are still positive. Our clubs are still comping positive. The Bombshells is a little different market and it’s not as geographically diversified as the clubs are. It’s all Texas-based, mainly Houston, where the majority of our locations are in Houston Texas. And so, like I said, we were affected. We’re affected by sports because we’re a sports bar. So when the Texans are winning three games in a year and one of them shouldn’t have been won, because they lost first-round after, those are the kind of things that are effected the Bombshells market a little bit. As we move into March, we’re going to have Mark Madness, the Suite 16 in Houston Texas this year at NRG Stadium. That’s going to be a huge event for us 1st of April.

So I think going forward, we’re looking at easier comps because now we’re comping against a period where we had a bunch of new locations for other businesses opening in honeymooning, going against very strong comps. And like I said, I just like to remind everybody that the Bombshells segment, while our margins are a little off right now, we’re making some adjustments to get those back in line. But our overall revenues are still up 3.6% on a same-store sales basis from 2019 pre-COVID. So overall, the brand is still as solid today as it was in 2019, maybe not as strong as it is when you’re the only one selling liquor in town, but still very strong overall. We’ve just got to get like I said some of the costs in line. It’s very difficult. Your beef prices change daily, your chicken price has change daily, your labor costs have had creep, that is loosening.

I think our — like chicken has come way down in cost, but it may go back up with all these egg shortages and whatnot they can end up having chicken shortages at some point. So, we’ve got to watch those things. We got to adjust to them and keep our prices in line and keep things working in the right direction.

Rob McGuire: Thanks, Eric. One more for me here. You didn’t talk anything at all today about admire me. I was just wondering, maybe give us an update on where that program stands today? Thanks.

Eric Langan: Sure. So as of January 1, we have replace our developers. It was a very tough decision. And our developer was a Ukraine-based company. Ukraine is in a war as everyone knows. We tried to stick with that group and they’ve just been unable to perform and meet the standards and the time lines that we wanted. The new company came in on January 1. They took about six weeks to basically learn all the code, get the code together. They’re now making a lot of the — what we call bug fixes, they’re getting the bug fixes fix everything works correctly again. I would suspect that in about three months time, they will get us a viable product. That’s our hope. I think, the problem with all the bugs and things that just weren’t working properly, we were just spending money trying to get €“ we pay them to fix something and while they fix that they break something else, because they weren’t a coherent team.

The new group we have is a very coherent team. They’re working very well together. We’ve seen some major improvements in the site as far as the things that didn’t work are all fixed. I would €“ I guess, I suspect about three more months, we’ll have €“ maybe next quarterly call we’ll have some much better news on that front. But that’s a problem with technology but at least we’re not billions of dollars in like Meta. We’re keeping our cost relatively inexpensive relatively low number for the company on that transaction..

Rob McGuire: Great. Thanks for the insight Eric. Congrats again on the quarter.

Eric Langan: Thank you.

Mark Moran: Thank you so much for the questions Joe. We actually just got interrupted by a few individuals who walked into the office. We have large Tyler Moore and Dave Portnoy of Barstool Sports. Thanks for coming guys. Tyler, do you €“ you look like you got a question do you want to ask anything?

Tyler Moore: Yeah, I do. Congratulations on the quarter Eric. Great quarter, I want to talk a little bit about what you guys are doing out in Colorado. It seems like you’re spending quite a bit to get into the gaming space. I just want to know a little bit more about that about what the expansion plans are there.

Eric Langan: Sure. Thanks for the question. The main thing we’re doing out there right now is creating an entertainment zone. If you’re familiar I know Barstool Sports and Penn Gaming have the Ameristar out there great property one of my favorites, but there’s no entertainment. There’s no night clubs. There’s no fun places, I would say other than casinos. You all a gamble if you want to hit the tables you want to hit the spot. That’s great out there. If you want to go the outdoors it’s great. But as far as nightlife and for younger people, one of the big things when we first started looking up there and almost passed, because I was like well, I mean, this Colorado casinos for since 1990s come on. This is nothing new. Why would I go to this market and try to do something that nobody has been able to work for 30 years?

And so I started a study and I said, well, wait a minute. They had $5 bet. Then they had $100 bet. Now there’s no limit. In the trailing 12 months through June 30, 2022 $9 billion went into slot machine in Black Hawk Central City area. The average keep was 8%. It’s huge. The amount of money was huge. And so we said well, okay how are we going to differentiate ourselves? I don’t get to come just be the same thing. And so we saw let’s build a club. Let’s build a Rick’s Cabaret up here, and let you have nightlife entertainment. Let’s turn the music up, and let’s draw the 30-year-olds up here, because right now they rarely come up here. As we were going to the clubs, I was talking to all the people in our clubs, especially all the entertainers the wait staff or bar tenders, all this age group that’s that 20 to 35-year-old crowd I said “Hey, you all want to go to Central City, I want to go to Black Hawk with me tonight, why?

There’s no reason to go because there’s nothing to do. And so what we want to do is create €“ take Main Street in the City of Central, and say let’s do some music festivals, let’s do street festivals, they already have some, but what do we do all the stuff. And in the meantime, if we can control the nightlife, so on the street got closed 11:00, it’s a residential area. So, all the stuff goes down 11:00. We call everybody into the buildings. We built a couple of nightclubs or turn the music up and I think we can do some unbelievable business up there.

Mark Moran: Phenomenal. Thank you so much for that question. Now next up let’s bring Adam Wyden up. Adam? And Adam before you go ahead. Adam, I think you are on mute.

Q €“Unidentified Analyst : Can you hear me?

Eric Langan: Yeah. Now we can hear you.

Bradley Chhay: Yeah.

Q €“Unidentified Analyst: Perfect. All right. You guys — this presentation had a lot of good disclosure that you didn’t have in the past. So I just want to go through some sort of logistical questions and then talk bigger picture. So on Slide 15, you have a whole thing about club acquisition and development and on Slide 16 Bombshells acquisition development. And as you know in restaurants and sort of club business, when you’re doing a lot of remodels and your — Bradley talked about maintenance CapEx and repair and maintenance, but I suspect a lot of the clubs that you had to shut down, clubs that you had to reformat, the grading or the beer haul, I mean you’re running a lot — you were running a lot of stuff through the P&L that is going to be a cost center that will be a profit center as you roll in 2023.

I mean do you — and then on top of that, you have all the legal and transaction work associated with Baby Dolls and whatever you’re doing on the casino front. And can you try and sort of give us a sense of sort of how much sort of — I don’t call it onetime, but sort of how much sort of preopening or growth CapEx or sort of onetime stuff that sort of will be reversed in the coming periods? Is that — we sort of have our arms around sort of $2 million or $3 million EBITDA, is that sort of a good place to start in terms of sort of not recurring sort of inflation hit, but more just sort of onetime cost investment that will manifest itself in revenue in future periods.

Eric Langan: Yeah. So make it real simple, okay? Other than the San Antonio franchisee location, every one of these properties involve real estate that we now own. And so we purchased that real estate ahead of time. So there’s carrying costs. Like you said there’s legal costs, survey costs those types of things. Those are not capitalized. Those are expensed for the most part. And so yes, there’s cost. You also have interest carrying expense, right? So now these things are carrying interest. And so we’re having — it’s not a lot of expense. But when you look at this many properties, it starts to add up and it becomes a larger number. And what you’re going to see, as we move into the end of 2023 or second half of 2023, definitely I think in the fourth quarter of 2023, you’re going to see these — the early units of Heartbreakers, Jaguar, San Antonio the acquisition or maybe I certainly hopefully closed by March 31.

I mean I will be all over if we’re not open — we’re not done with this by then, but they should be able to get this work done. Our side is done. We — like I said we’re just waiting on the state of Texas and the seller to work out a couple of issues they have with each other. The Jaguars club in Lubbock which is under construction in the PT sub. All those are taking cash out right now, but that’s going to reverse as soon as they open — as soon as those locations are open and it’s a double source. So let’s say we are spending $0.50 million or $1 million a year, and now of sudden you got units to start making between $0.50 million and $2 million each unit here, all the sudden you’re going to see those big swings, right. So if you’re losing $0.50 million you make $1 million or $1.50 million swing in the EBITDA.

And so we are going to see those things, come to solution. I think in march you’re going to see the a couple of the locations really pick up, the Denver food hall definitely will have an unbelievable mark. I know Heartbreakers is set up with the grand opening in the end of February to really lead us into March as well with the new day shift to open and the construction. The VIP room construction upstairs is about 85% complete. I know they were doing sound and lights last week when I was down there. So that’s all being done. That site should be done pretty quick. I was just at the Denver food hall on Monday. All the new TVs are in. We have a 220-inch screen up. A bunch of 90-inch televisions are all around the place, it looks unbelievable compared to what it was before.

Everyone there is very excited. Business is up. January — I think January this year over January last year; sales were up about 42%. But that’s still not where it needs to be yet. And it’s because we lost the largest sales — over 30% of their sales were the single booth that moved out, where Bombshells is moving into. And so, when that location reopens in March, that’s going to be big for that. So you have a lot of income coming in. Stafford location right now is targeted for 2024. They’re a little ahead on construction. So hopefully maybe we get that one a little early, which will be nicely changed and small cell construction usually runs a month or two over. So I’ll be excited if they get done early. We’re very close on roulette. We finally worked everything out with the developer, because our bids were extremely high, because they had us doing a bunch of work that the developer had to put in, the roads and stuff like that.

They were not our — the city made us put them on the plans. And so, everybody thought we had to build those, but that’s the developer’s part of that. So we finally got that worked out. So that construction should start soon. The club in Lubbock, the construction has started. The club in Fort Worth, construction has started. We’re waiting permits. So the Lubbock is probably a few months from starting construction and Huntsville is only a few months from starting construction. So there’s going to be a lot of stuff that’s going out but we — the main thing is, we’ve spent on all these things, right? We paid the architects. We paid for the building permits. We paid for a lot of this — a lot of this stuff is in our cost. So that will get much better as we move forward.

Q €“ Unidentified Analyst: Okay. Perfect. Moving to — I got two more and then I’ve got kind of a more qualitative one. On slide 18 you added this fiscal year 2023 capital allocation of $93 million and that includes Baby Dolls and Buyback and Heartbreaker and this and that. And I know you’re going to put more money in the casino. But you sort of committed to doing $200 million a year. Now, obviously, if you invest another — I think, yes, you said another $20 million on top of what you’ve already invested so far. I mean, do you still think you can fill out that $90 million? I mean that could be sort of two — that could be sort of a few Cheetahs or another big, Baby Dolls or Lowrie. I mean, do you still think that you can get another sort of large size acquisition, at least announced this year or even closed, another big deal or another couple of mediums to get you to 200?

Eric Langan: Or several smaller units could still happen. We’ve got about $90 million, right? We’re at about $110 million, right? We put the $90 million and $20 million, get you about $110 million. Thinking about $90 million, so we want to get invested this year. We’re talking with several operators. And, yes, I definitely think, last year we closed the Cheetah Club in May. We closed another club in August with Playmates. So, I mean, yes, it’s — we’ve got plenty of time. We’re literally four months and nine days into the year, right? So barely over a-third of the year is over and we lined up $110 million investment so far. So to think that we can’t line up another $90 million in the next eight months, I guess, I could take a long vacation and miss, but I don’t plan on doing that so —

Q €“ Unidentified Analyst: Yes. Eric, this is helpful. And then, I’m going to have to turn my question sort of out of order, but like I was talking about it with someone that works internally at the firm and isn’t an analyst, isn’t a stock person, but sometimes it’s helpful having sort of non-stock people and they said well — and in the old days, you got all these guys that are getting older, and they weren’t earning any money in the bank and they just went through a global pandemic. Now you’re giving them 6% seller finance, and there’s actually a cost to their capital is sort of the point that we’re making. I mean, you see this in the ’80s. You see this in the periods when interest rates go up, smaller guys sort of get squeezed out, there’s a cost to their money and you sort of seen consolidation.

I mean, do you think the higher interest rates and sort of just going through COVID could actually bring some of these guys and say look, I don’t want to go through another downturn. Eric, is going to give me money from my club. He’s going to pay me cash, stock, 6% 7% on a mortgage. I mean, don’t you think that like this environment where capital has a cost might actually bring some sort of older guys in saying look, I’m going to use this as an opportunity to sell, because interest rates could go back down in theory. I mean, do you think that this environment sort of lends itself to consolidation and people coming to you and say, I’m finally ready to sell?

Eric Langan: I mean, I think we’re getting those calls, we’ve been getting those calls. COVID kind of got some pretty major players, interested in selling as you know from the Denver acquisition, which was — has been fantastic for us. I think there’s still room. We’re still going to have growth. I mean trailing 12 months, 24% increase over their 2019 numbers. And I think that we’ll see more increases in trailing 12 months, from today, I think that number is going to be even better. So as we move forward, I certainly think there’s plenty of opportunity out there for us. I am being a little pickier, because I’ve got so much on our plate right now, and that’s one of the things I wanted to lay out, in this slide, is just how much we’ve actually been working, right?

Because you guys don’t see this. Until you announce it and we open. When I buy, a $1 million piece of land or maybe $0.5 piece of land it’s not material. I don’t put out press releases over these small things, but we have a lot on our plate right now. We’re ready for more on the right — of the right kind of deals. I mean, I’ve been talking with a couple of owners and like look they’re like I want 4 times or I want 4.5 times and I’m like well you’ve got a 3 times unit. I’m sorry. I can’t pay you 4.5 times for a 3 times unit. If you want to give me some better terms, you want to carry more paper. You want 65% cash down. That raises my cost. I’m going to pay you less. One way or the other, it balances out. Now if you want to take, if you want to take the finance portion of what I’m willing to pay for your free cash flow, and carry the paper, sure I’ll be happy to give you that.

You carry more paper. I’ll give you another point of interest, but you don’t take any of my cash from me. I go in there and generate the income from their particular location to pay for it, then yes, I’m willing to give them a little better multiple. But when they increase my risk factor, I’m in a market that I’m — it’s not a major market or I’m not extremely comfortable with the market, I’m going to pay less for it. And we’ve targeted guys said, well, I don’t want to sell my club to anybody else. I said what you’re really saying is, nobody else wants to buy your club for this price. And I can’t buy for that price, either. This is the price I will pay, call me when you’re ready. And I guarantee you, one day we’ll get that call. We’re probably paying with — it’s not that we’re paying the top price, because people offer them more money.

What we are paying with is reputation. We’re paying with — we’ve never missed a payment. In 30 years, we made every payment to a seller we’ve ever promised to make. We made every payment through COVID, to 90% of our seller finance notes and the only ones we didn’t pay were because they said, hey, don’t pay me. I know you guys are settling right now, don’t pay me. If you guys have been good to me, take three months of payments and just to firm. We’ll work it out later. And so we were able to do those types of things. But — and so that’s what we are the preferred buyer, because they know they’re going to get paid. People offer them more money but they want less cash down. They want — they offer them higher interest rates but they’re never going to get their money.

Plus they also know that when we take over their club, we’re not going to run their club into the ground. We’re going to remodel. We’re going to build. If they ever did get it back from us, it would be in better shape than it was the day they gave it to us, whereas, they sell to these other — if they sell somebody else who’s carrying so much paper in their cabinet, they may be struggling and they — as they go and they may not — not only they not pay the payment but they’re going to run their clubs into the ground as well. And so that’s what we’re using as our past reputation in how we do business and they can call any owner if there’s none out there listening looking to sell their club, I mean, you can call anybody we bought clubs from, no one that I know of we’ll say a bad thing or has ever said a bad thing about us on how we do business and how we treat you and how we work with you through anything that comes up.

Q €“ Unidentified Analyst: Yeah. No, I definitely — and the other thing that we’ve gotten in our research is like there’s basically one large strategic who is not really active in consolidation anymore déjà vu hairy, and so like there really isn’t anyone who has the balance sheet to facilitate transactions like Baby Dolls or VCGH or what have you. I mean, you’re really the only guy out there that can do it. That has the ability to close and get property level mortgages and fund the cash down payment. And I mean I don’t think a lot of people have $30 million of cash or $25 million in cash to buy a $10 million, $15 million EBITDA asset. So I worry less about competing for the asset and more about sellers wanting to sell to you and having a cost of their capital.

But, yeah, look I think we’ve still got a long way to go on the M&A. And then the other part is back to the casino. I think you’ve been a little bit cagey about this. And so again and true to Adam Wyden form, we’ve done our own diligence. And I know a guy that operates slot machines down here, operates casino, and I do the math on 30,000 square feet and the number of slots and I can back into it, if you guys are going to spend $10 million and most of that is slot and gaming you’re not participating. I mean, again, I don’t know what you’re doing with your online gaming and your sports betting, but I suspect that’s part of the equation as well. I mean, there are scenarios where a 30,000 square foot casino could generate in the tens of millions of EBITDA.

I mean, I know it’s early in the evolution, but I think it would be helpful, because I think — again I — look I know that we spoke this much about Bombshells. I mean, Baby Dolls is double the EBIT that all Bombshells is doing. I mean one freaking transaction is $15 million of EBIT pro forma versus $8 million of EBIT out of Bombshells. I mean, the fact that we spent the first hour on the call is just absolutely abhorrent. But separately if I say separately, I sort of look at a lot of guys are like wow he’s doing this casino it’s — Adam, it’s barely weekend , and we don’t think about it at all. We’ve seen the renderings and we say look this is a Cabaret, you’ve got — it’s sort of like the old Western Cabaret Casino, I think it’s just so on brand.

But I think even more importantly I think it’s important for you to come out there. And I know it’s early, you are an entrepreneur and so am I. But I think when you’re making an investment in a casino for $10 million of cash and again in the grand scheme of your market cap and your balance with $35 million cash I mean it could go to zero. But when we do the math we’ve sort of seen the range of outcomes of like low end of the range you’re making like $10 million of EBITDA like high end of the range you could be making as much as $25 million or $30 million. And I think it’s super important that like you sort of and I’m not trying to put words in your mouth, but I think it’s important for us and the investor community to understand that like you’re not you’re in the no-brainer business.

When you buy strip clubs with real estate at four times EBITDA that’s a no-brainer. And that you’re getting into this because A, it’s sort of like — it is a strip club itself. It’s a strip club steakhouse casino; and B the returns are so good you can’t not do it. So I just wanted to sort of lay that out and give you an opportunity to respond.

Eric Langan: Well, I’ll respond to the way without saying anything. I don’t invest my money unless I think I can get a minimum of 25% to 33% return on an average risk investment. I would consider this a high-risk investment, right? I’m going into a new market. I’m building something from scratch. And if I didn’t think that I could get the returns in the 50% to 100% range, I wouldn’t even be looking at this. Our preliminary numbers are very similar to the model you laid out. I don’t know what I don’t know. I know how many people are out there. I know there’s 5000-plus hotel rooms. I know on the weekends those rooms run out for $300 a night. I know that based on my observations 60% plus of the people out there are men mostly 30 years to 55 years of age in Black Hawk.

Now in Central City it’s a much older crowd but I’m going to draw those younger guys to Central City which is — it’s basically everybody says Central City Blackhawk, but it’s really one area. It could be one town. It’s so close together. And so you don’t even know if, they didn’t put a sign up you wouldn’t know you’re leaving one town and entering the other. You would think you’re in the downtown district which is the old town and you drive out in your — in the new part of town is basically how I see it when I’m out there. I don’t think the road is 1.5 miles long that connects the downtown — the old town to the new town. It’s a very, very short very close knit little area there. People that work in Blackhawk live in Central City people that live in Central Live and Blackhawk may work in Central City.

It’s really just one area out there of Blackhawk Central City. And the difference I think is the betting laws changed in September of 2021. One of the things people say well Colorada casinos for 30 years. So you’re not going to go out there and make any big changes or do anything that’s going to — how are you going to do any different than all these other operators. And like I said the difference is that the rules changed. And people have been slow to realize these rule changes. And also I think, I’ve been going to council meetings and Central City since July. And I think we’ve got a very progressive mayor and very progressive city council now that’s becoming more business friendly. I think in the past they’ve had a much more protectionist City Council that was more concerned with keeping Central City the way it is even to the detriment of economic growth.

And I think that the there’s a balance. And I think this new City Council and the Mayor have a great plan for balance to bring new business in at the same time preserve what Central City is. And it’s a great town. I posted some videos on my Twitter. You can or you can go to the City of Central’s website and look at the videos of the town and it’s a great old town. It’s got the oldest opera in the country, been there since the 1800. It’s just — it’s an amazing little area but one of the things is they’re just no nightlife and no entertainment. So, we’re going to be the only thing to do after 11 o’clock at night. And I’m very excited about it. You’ve run casino numbers. If I put 300 people in the building every day 500,000 to 700,000 people on the weekend, you know what the numbers are going to be.

Q €“ Unidentified Analyst: Yes. I mean look again I don’t know what you’re doing as it relates to your online gaming or sports betting, but I suspect if you’re working with a national partner you’re getting a deal that’s sort of minimum guarantee and some capacity. And again I don’t know but if you’re getting a minimum guarantee on your sort of sports betting or online gambling, I suspect that that in some ways is probably covering a lot of your sort of upfront investment for the thing altogether. So, again I sort of like don’t know the exact numbers, but I suspect that between your online gaming and sports betting, if you’re working with a national partner you’ll have some sort of minimum guarantee and that will cover some part of your investment hopefully all of it.

So, again, I sort of look back and I say to myself I don’t know why we spent two hours or now we’re talking about Bombshells when this casino nightclub strip club thing could be 25%, 30% of EBITDA, it could be doing four times the amount of EBIT that all of Bombshells is doing. So — and not to mention Baby Dolls alone at maturity is $15 million of EBITDA. That’s double. That one acquisition is double the amount of Bombshells. So, look I obviously hope that Bombshells margins go up, but I think the major takeaway for us and all of this is that if you do the casino and it does well, it’s triple the amount of EBIT as Bombshells. If you do one more Baby Dolls, it’s double the amount of EBIT as Bombshells yet somehow the entire sell-side analyst community spent the first hour talking about Bombshells.

So, look it’s exciting this casino and obviously, we’d love to see more Baby Dolls and that’s it for me. Thank you.

Eric Langan: Thanks Adam. Appreciate it.

Mark Moran: Thank you so much for that question Adam. Phenomenal actually more than one question, plural. Next up we’re going to bring Ticker History — actually let’s bring up StockMKTNewz Evan. Evan, please the floor is yours.

Unidentified Analyst: Yes, I appreciate you let me get a question here. Fantastic quarter. I’m also a really big fan of the Rick’s CEO account, the person hosting the space. So, first of all everyone down below make sure you’re following the account. And that’s kind of where I want to dig into my question. We’re doing this on Twitter Spaces. You’re very active on social media. I would love to hear a little bit more about how your use of social media has helped the company, helped the stock? Anything in general, but really how you’ve seen your use of social media Twitter Space is kind of helping Rick’s?

Eric Langan: Sure. I’ll tell you what it’s done. It’s been amazing. We’ve been able to communicate directly with not only end users of our product, investors in our company, potential investors, critics it’s — to me it’s so engaging. I just love the immediate feedback. I can post something. I can ask questions. I can do hypotheticals. I can just be goofy if I want to. It’s just — it’s a great — it’s just it’s a great tool, I would say with Twitter. One of the main things I would say that what has Twitter done for our shareholder base. We started out — I have to go back and pull the exact numbers, I don’t know but it’s 6,000 — between 6,000 and 7,000 shareholders on our name list finish the owners list. And I think now we’re getting close to 9,000.

I’ll get the new list on the 15th of February. We’ll kind of see if that trend has continued. I saw institutional ownership dropped from 54% to 42%, and yet our stock was hitting all-time highs. This never happened before, right? When you lose your institutional ownership, your stock crashes. But that didn’t happen with RCI. And I can say — the only thing I can contribute, the only thing we changed was we went on Twitter. We hired Equity Animal to get our story out to the people directly, right? And that’s what’s changed. And like I said, I can’t be more excited about how it’s going, how it’s been going. I throw two parties at the clubs and it’s money because 20 30 people show up sometimes. Sometimes four people show up. Sometimes one guy shows up.

And me and that guy get to sit down and have a drink together, and talk and I get to hear one-on-one, why did you come here? Why did you do — what do you like about us versus somebody or other clubs you’ve been to? I get to get just direct feedback, and to me that’s incredible. My direct messages. I follow people. I don’t care if your account has a small amount of followers or a large amount of followers. You tell me you’re a shareholder and you engage with me, I’m going to follow you, so you can direct message me. I get a lot of direct message. We can talk. And like I said, it’s just direct feedback. You can’t get that any place else.

Mark Moran: Thanks so much for that question Evan. Eric, we appreciate the kind words. we’re going to get to you next. Great profile picture by the way. But first, let’s bring up Orchid Wealth , you’re up. The floor is yours.

Unidentified Analyst: Hey, guys. Great quarter. I just was going to second Adam’s comments. Obviously, with the vast majority of the money constantly coming from the strip clubs, adult clubs a lot of Bombshells talk and focus, I feel like people whoever is listening and wants to focus in on that does not understand the entire story. I’m completely behind this idea about this casino expansion. And like anything else, I have faith in what you’re doing, Eric. I really don’t have anything to add other than just to congratulate you. I’m happy that you’re moving into the space. And from the looks of things and the way you’ve done things in the past you have my confidence with my shares. So I’m going to just leave it at that. Thanks.

Eric Langan: Thank you. I really appreciate that. It means a lot. I mean that’s what I said. This is — that’s — that there is why I’m on Twitter. It’s why — it’s been so important. It’s why I spend so much time. And I know I’ve been in Colorado over three days. I don’t think I’ve made two posts in three days. I was looking at my engagement. I said, oh man, I’m way down. But we’ve been out there. We’ve had non-stop meetings to give credit to our Vice President Travis Reese. Man, he is engaged in this casino stuff in the laws in every aspect of creating this new concept. So one of the things, he’s good at helped the Bombshells and help create that concept and really got it started before we brought a restaurant expert in who basically fixed the concept turned it into what it is today.

And Travis has been great at that. Very happy we’ve been — I don’t think in the last three years we’ve spent as much time together on a day-to-day basis that we have in the last six months. So it’s nice to be able to spend time with him again. But his engagement in this deal in Colorado has been fantastic. So, I want to throw that out there say thanks to Travis for that too.

Mark Moran : Fantastic. Thank you so much for the question. Now in that same vein, Eric, I’m going to ask you a question that was submitted to me anonymously. This individual was curious about the plans of the brewery. And is it similar to Robust in terms of vision, Robust for those who don’t know is the energy drink. Also actually let’s answer that one first and then we’ll move into the second question.

Eric Langan : Yes. No the brewery is nothing like Robust. Robust is basically a generic product that has a flavor profile very similar to the leading brand, which Mark is drinking right now. That’s a no, no in RCI world, now just joking. But seriously it saved us about $20 a case off of the major brand product. We were using about 25,000 cases a year at the time. I think now. I don’t even know what the numbers are. It’s much higher than that today, because we’ve grown so much. And so it was more of a cost saving deal. We just bought the product at first, but then they were trying to expand the brand. And so we bought into it. Probably shouldn’t have done that. I probably wouldn’t do it under our capital allocation strategy today the numbers wouldn’t make sense, and we probably wouldn’t have moved in that direction.

But we did. And then we ended up loaning them money that they couldn’t pay back and so that we ended up basically buying them out and taken over the brand. Since then we’ve done very well with it. We’ve expanded some of our distributors, but the main thing is slice our own clubs. And we’re working with others to say, look, you’re paying all this money you could be saving, especially big operators in this energy market that sell by thousands of cases could save so much money with this product. And from a chemical standpoint, it’s one molecule different. It’s not — it’s very, very, very — when it’s mixed with any type of alcohol whatsoever you can’t really tell the tale. I call it the Pepsi Coke challenge. If you remember the old days of the Pepsi and Coke challenges of exactly the same thing.

I can pour on two different glasses. You can drink them, tell me which ones which is very difficult to do. I will say that the hardcore drinkers can tell the difference. But the casual drinkers, especially if you put vodka you can’t tell the difference. So that’s kind of that. But with the breweries more this was kind of a one-off thing where we were buying this building and it was a great property. We’re going to close it down turn it into a Bombshells. And as we did more site inspection, we started looking at how it operated and we thought — and when we look at they’re actually making money and not much, but they’re profitable. When we started going through the financials — we asked for the financials, right? Well wait a we just keep this business open give us the financials.

And we start to look at their financial, and we said, well, we can cut this, we can change that. And again, we can make this thing. This thing could actually have better margins than a Bombshells, because we get all the alcohol, but we don’t have to have the food. We don’t have to have the labor cost, because all that rented out. So we get basically paid for the space and they provide all the food product, which is our lowest margin in the Bombshells, but we get all of the alcohol. We get all of the sports stuff and we can make our own beer, which cost us even less. So the keg instead of paying $120 a keg, we can get kegs for $30 or something making them ourselves. And that’s kind of how we got started in that and it’s evolving. It remains to be seen.

We may build this into a concept that we may decide to build more of if the returns are right on it. Like I said, it’s early. And it’s a good way for us to get a Bombshells into the Denver market right away. So we can start training staff. We’ll have our cooks ready we do all our training at the food hall when we get ready to open up the Bombshells we’re building out there.

Mark Moran: Fantastic, phenomenal answer. As a very hard consumer of energy drinks I cannot tell a difference. Next up we have Hot Girl Capital and I would just take a moment to encourage everyone to raise your hand if you have a question, because we’re starting to get towards the end of our Q&A segment. Hot Girl Capital. Take it away.

Unidentified Analyst: Thanks, Mark and congrats on a great quarter. I’m super curious if you guys are going to do any like celebrity or brand collaborations?

Eric Langan: Well, we’re talking about that with the casino right now for sure. Definitely what admire me once we get a viable product we will definitely be doing some stuff with some influencers in that regard for sure. Mark and I have been brainstorming a few ideas around our new merchandise store that we’re getting ready to launch. So yes, there’s definitely going to be opportunities for that. And as we’re getting €“ I’m still relatively a baby on Twitter. I was €“ my one-year anniversary was the other day and I said, well that was just the day I signed up. That wasn’t really my one year in or €“ my real one year anniversary of sometime in May after I met Mark. And he said, why don’t you try doing this and do some of this stuff.

And then of course they wrote me a little bread and got me some stuff going. And the more I started this. So I think May is probably really my first one year anniversary. So hopefully, we’ll €“ we can €“ they keep telling me 10,000 is the magic number I got to get. You have to get to 10,000 cards. You have to get 10000 followers. So hopefully, by May we will be there. I think definitely by November, when we opened the casino up we’ll get there. But yes definitely looking at some different ideas with influencers and doing some collabs on certain things to bring people not only into our clubs or restaurants but also into the casinos as we move forward.

Mark Moran: Fantastic. Great question and great answer, Eric. Now I’m going to ask the last question of today. Eric, the last earnings call it ended with you talking about your vision for Empire Building. And I wanted to ask what your update is on that? And what the vision is now moving forward?

Eric Langan: I think we laid that out pretty well on Slide 15 and 16 on what we’ve been doing and how we’re doing it. So have you looked at that. I think we have to continue to basically do what we do. And that is used fifth grade math to make sure that as we make these investments that we have an expected cash on cash return. I know the construction stuff. I’ll be honest, I hate construction. I hate those new things. I’d rather just go out and buy Nightclub-after-Nightclub-after-Nightclub. Unfortunately, it’s just not that easy. Someone’s saying to me, well, you should just have a whole stream a whole line of clubs line up. I said, well, we kind of do, but you don’t have sellers. So they start doing comparisons to Carnation and Waste Management and AutoZone and all these roll-ups.

And then, I said, yeah, I have 500. And I already own 50 of them, so there’s, about 450 targets. You’re talking about acquisitions where they had 45,000 targets. Yes, it’s easy to line up two or three acquisitions a month or a quarter when you have 45,000 targets. When you have 450 targets and of those 450 targets there’s multiple players, multiple of multi-club operators so you’re really probably talking about less than 100 individuals that I have to do deals with, so it does take a considerable amount of time. And you’ve got to have people that are ready to sell. I know a lot of these guys are older and they are thinking about it. The multiples as we started paying four times to five times multiples instead of just three, because we used to — we were just stuck at just three for a while.

So certain locations have probably worked more, until we started off of that and we started getting better acquisitions. I think we’re going to continue to see that. It’s just — it takes time. We’re going to buy — an every year. Some will be single-clubs some multi-clubs. But I’m very confident in our three-year plan here to really roll this up to the next level and grow from $100 million in EBITDA to $250 million in EBITDA at four times — $600 million at a four times would be $150 million additional EBITDA. So I think — so on a shooting for the moon. Okay, well, I’m shooting for the moon. And I only get into the stratosphere. So I only get to $175 million or $200 million. That’s still significantly over a three-year period, exceeding our 10% to 15% growth target.

And so as long as I can do that, I’m going to be very excited, very happy. And hopefully our shareholders will be. And I’ll say it again, I say it every call, I say it on Twitter all the time. We’re not for everyone. We’re not looking for momentum investors. We’re not looking for guys that care what we do, next quarter or the quarter after. We’re looking for long-term guys. They’re going to be with us for three years. Let us execute our plan. And let’s all get wealthy together.

Mark Moran: Amazing. And with that, let’s all get wealthy together. Thank you, Eric and Bradley. For those who joined us late, you can meet management tonight at 7:00 at Rick’s Cabaret, New York one of RCI’s top revenue-generating clubs. Rick’s is located at 50 West 33rd Street, between Fifth at and Broadway, a little in from Harold Square. If you have an RSVPed ask for Eric Langan or me at the door, after 9:00 p.m. however I will be busy implementing my own capital allocation strategy. On behalf of Eric, Bradley, the company, our subsidiaries and my favorite dancer on Instagram thank you and good night. As always, please visit one of our clubs or restaurants and have fun.