investor presentation (pdf version) - rick's cabaret international, inc
TRANSCRIPT
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Forward Looking StatementsCertain statements contained in this presentation regarding Rick's Cabaret future operating results or performance or business plans or prospects and any other statements not constituting historical fact are "forward-looking statements" subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. Where possible, the words "believe," "expect," "anticipate," "intent," "would," "will," "planned," "estimated," "potential," "goal," "outlook," and similar expressions, as they relate to the company or its management have been used to identify such forward-looking statements.
All forward-looking statements reflect only current beliefs and assumptions with respect to future business plans, prospects, decisions and results, and are based on information currently available to the company.
Accordingly, the statements are subject to significant risks, uncertainties and contingencies, which could cause the company‘s actual operating results, performance or business plans or prospects to differ materially from those expressed in, or implied by, these statements.
Such risks, uncertainties and contingencies include, but are not limited to, risks and uncertainties associated with (i) operating and managing an adult business, (ii) the business climates in cities where the company operates, (iii) the success or lack thereof in launching and building the company’s businesses, (iv) the operational and financial results of the company's adult nightclubs, (v) conditions relevant to real estate transactions, (vi) the loss of key personnel, (vii) laws governing the operation of adult entertainment businesses, and (viii) the inability to open and operate our restaurants at a profit.
Additional factors that could cause the company’s results to differ materially from those described in the forward-looking statements are described in forms filed with the SEC from time to time and available at www.ricksinvestor.com or on the SEC's internet website at www.sec.gov.
Unless required by law, Rick's Cabaret does not undertake any obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.
January 2014 Investor Presentation
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Explanation of Non-GAAP TermsNon-GAAP Net Income and Non-GAAP Net Income per Diluted Share (referred to as “Non-GAAP EPS” herein). We exclude from GAAP net income and GAAP net income per diluted share amortization of intangibles, patron taxes, income tax expense, impairment charges, gains and losses from asset sales, stock-based compensation, litigation, loss from discontinued operations, and other one-time legal settlements and acquisition costs, and include the Non-GAAP provision for income taxes, calculated as the tax effect at 35% effective tax rate of the pre-tax non-GAAP income before taxes less stock-based compensation, because we believe that excluding such measures helps management and investors better understand our operating activities.
Adjusted EBITDA. We exclude from GAAP net income depreciation expense, amortization of intangibles, income tax, interest expense, interest income, gains and losses from asset sales, acquisition costs, litigation and other one-time legal settlements and impairment charges because we believe that adjusting for such items helps management and investors better understand operating activities. Adjusted EBITDA provides a core operational performance measurement that compares results without the need to adjust for Federal, state and local taxes which have considerable variation between domestic jurisdictions. Also, we exclude interest cost in our calculation of Adjusted EBITDA. The results are, therefore, without consideration of financing alternatives of capital employed. We use Adjusted EBITDA as one guideline to assess our unleveraged performance return on our investments. Adjusted EBITDA is also the target benchmark for our acquisitions of nightclubs.
Our Form 10-K for the year ended September 30, 2013 and our press release dated December 16, 2013 contain additional details relative to the non-GAAP financial measures and are posted on our website at www.ricksinvestor.com.
January 2014 Investor Presentation
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Investor Snapshot• Nation’s leading hospitality company in adult gentlemen’s clubs and
sports bars/restaurants
• Customers: Focus on friendly, entertaining, quality experience
• Shareholders: Focus revenue growth and cash generation
January 2014 Investor Presentation – Overview
Key Statistics (FY ends September 30th) Amount
FY13 Total Revenue $112.2 M, up 18%
FY13 Adjusted EBITDA $28.1 M, up 18%
FY13 Fully diluted income from continuing operations $0.98 per share, up 23%
Units at 1-16-14 42, in 10 States
Shares Outstanding 9.6 M
Shares in Public Float 7.8 M
Market Cap at 1-16-14 $106 M
Enterprise Value at 1-16-14 $173 M
Stock Performance at 1-16-14 vs. year ago 36%
Quick Facts• Founded 1994
• Based in Houston
• NASDAQ listed
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Investment ThesisAdult Clubs
• Consolidation and growth of a classic American form of entertainment into a national, professionally managed chain
$2 B revenue, fragmented industry (3,800-4,000 clubs)
Limited number of licenses, typically tied to real estate
We are the primary exit strategy for sellers Clubs typically generate higher margins and
cash flow than traditional bar/restaurants Enables us to fuel growth Industry awareness similar to gaming in the
1980s
Bar/Restaurants
• Leverages core expertise and infrastructure
Enables us to maximize revenues and profits per unit
Complements acquisition of adult clubs Can lease vs. own Better understood by investors
Texas• 76% of units, generating 50% of adult club
and sports bar/restaurant revenues (1Q14)
Benefiting from strong job and population growth
In-migration of corporate offices and revitalization of domestic energy industry
January 2014 Investor Presentation – Overview
• Demonstrated ability to consummate and integrate acquisitions successfully
• 2008 to date, this team has opened or acquired 32 units
• Management and Directors own 15% of shares outstanding
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Seasoned Management TeamName Title Years
With Rick’s Background
Eric S. Langan Chairman, CEO & President
15 • 20+ years industry experience as owner/operator
• Founder / Director of Adult Club Executives (ACE)
Phillip K. Marshall Chief Financial Officer
6 • Audit Partner, KPMG• CFO of CDT Systems, Inc. (CDTN)
Ed Anakar Director of Operations
13 • 20+ years hospitality industry management experience
Travis Reese Director, Executive Vice President
15 • IT executive• Director of Internet Division
January 2014 Investor Presentation – Overview
EBITDA Growing Faster than Revenues ($ in millions)
$15
$18
$24 $24
$28
$10
$15
$20
$25
$30
FY09 FY10 FY11 FY12 FY13
EBITDA
16.7% CAGR
$76
$83 $83
$95
$112
$40
$60
$80
$100
$120
FY09 FY10 FY11 FY12 FY13
Revenues
10.3% CAGR
• Generates cash for acquisitions and bar/restaurant development
• Permits accelerated payoff of higher priced debt
• Allows buy-back of common stock when price is right
January 2014 Investor Presentation – Overview
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But Significantly Undervalued vs. Industry
Source: Interactive Data, accessed 01-16-14
January 2014 Investor Presentation – Overview
RICK Leisure Industry (includes Restaurants) Difference
Growth & Profitability
Sales - 5 Yr Growth Rate (%) 11.6 4.3 172%
Gross Margin (TTM) (%) 87.5 36.5 140%
EBITD Margin (TTM) (%) 33.3 21.2 57%
Valuation
P/E Ratio (TTM) 11.6 22.9 -49%
Price to Sales (TTM) 1.0 2.2 -59%
Price to Free Cash Flow (TTM) 15.9 93.0 -83%
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Operating StrengthsKey Factor Comment
1. Efficiencies of scale • Buy liquor, food, advertising and other services at increasingly lower unit costs
2. Multiple brands and formats
• Expands market by reaching wider, more varied types of customers
• Facilitates “clustering”• Maximizes a license’s potential
3. Las Vegas style cash / credit card security
• Very low shrinkage• Overnight cash register and inventory
reconciliation• Webcams pointed at every register
4. Friendly, entertaining, quality experience • Encourages regular customer visits
5. Zero tolerance to illegal conduct • Attracts the best managers, staff and entertainers
6. Critical mass and credibility • Typically provides first access to deals• Ability to use seller financing
January 2014 Investor Presentation – The Business
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High Gross Margins (FY13)
Category Comment % of Revenue Gross Margin
Service • Cover charges• Patron charges• Dancers • Room rentals
44.0% Approaching100%
Alcohol • Liquor• Beer• Wine
40.6% 78.5%
Food & Merchandise
• Food• Non-alcoholic drinks• Merchandise• Cigars, cigarettes
9.3% 54.0%
Other • Internet and media revenue• ATM commissions• Valet income• Video games / vending
6.1% 95.4%
100% 86.7%
January 2014 Investor Presentation – The Business
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Multiple Adult Club BrandsRick’s Cabaret Club Onyx XTC and
Temptations Tootsies Jaguars Vivid
• Flagship brand• High-end clubs
with restaurants
• Upscale nightclubs
• Casual atmosphere
• BYOB clubs
• Unique facility• 74,000 sq. ft.• Four clubs in one
• Lively clubs • Our newest• Leverages
leading brand in adult video
• High energy party atmosphere
• Higher net worth, mature patrons
• 35-55 years
• African-American professionals
• Younger and blue-collar patrons
• 18-35 years
• Higher net worth, mature patrons
• Younger patrons (tourists, college students)
• Primarily workers in booming Texas energy industry
• Younger patrons• 18-35 years
11 Units• Texas (7)• Minneapolis (2)• NYC • Indianapolis
4 Units• Texas (2)• Charlotte • Philadelphia
9 Units• Texas (8)• Sulphur, LA
1 Unit• Miami, FL
10 Units• Texas (9)• Phoenix
2 Units• Los Angeles • NYC
January 2014 Investor Presentation – The Business
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New Sports Bar/Restaurant BrandsBombshells
Restaurant & BarRicky Bobby
Sports Saloon
• Military themed• Looking for sites near bases
• Motorsports themed• Looking for sites where NASCAR is popular
• Great food• Big TVs for sports• Live entertainment• Large outdoor patios
• Attracts lunch crowd• Family friendly during dining hours• Fun atmosphere for younger singles and couples later hours
• #1 Opened in Dallas in March 2013 • #1 Opened in Fort Worth in July 2013
Restaurant Model• $1.2 M start up costs
• $3 M annual revenues
• 15-25% operating margins
• Multiple locations in a single market
• Lease vs. own
January 2014 Investor Presentation – The Business
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• Clustering of adult clubs and restaurants in Texas
• Select adult clubs in major metro areas, many with big tourist businesses
Notes1. The map above details Rick’s locations as of September 2013 2. Shaded areas indicate states the Company maintains clubs3. New Orleans is a licensed venue
New York City
Minneapolis
Indianapolis
New Orleans
Austin
Houston(HQ)San Antonio
Miami
Charlotte
Philadelphia
Dallas
PhoenixLos Angeles
Geographic StrategyReal Estate• Company owns real
estate for 85% of its facilities
• Adult club licenses typically tied to the physical location
January 2014 Investor Presentation – The Business
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79
10
1416
18
22
34
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2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
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Creating Company/Shareholder Value• Maximize existing club licenses and
properties
• Acquire new adult clubs
Continue to look at several targets
Not indiscriminate buyers
500 clubs in our target market
• Roll out our restaurant concepts
Initial target: 10 open or in development by 12/31/14
• Pay down higher priced debt
• Unlock real estate value
January 2014 Investor Presentation – The Future
Units Open at End of Each Fiscal Year26% CAGR, FY2003-2013
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New & Planned LocationsQuarter Brand Location4Q13-Opened Temptations (AC) Beaumont, TX
4Q13-Opened Vivid Cabaret (AC) Los Angeles, CA
1Q14-Opened Jaguars (AC) Houston, TX
1Q14-Acquired Black Orchid (AC) Dallas, TX
2Q14-Just Opened Vivid Cabaret (AC) New York, NY
2Q14-Opens January Bombshells #2 (R) Webster, TX
Planned for FY14 Rick’s Cabaret (AC) Odessa, TX
Planned for FY14 Bombshells #3 (R) Austin, TX
Planned for FY14 Bombshells #4 (R) Beaumont, TX
Considering BombshellsHouston, TXMiami, FLSan Diego, CA
Key: (R) Restaurant, (AC) Adult Club
Current Status• 42 adult club and
bar/restaurant locations
• 4 in various stages of development
• 3 under active consideration, not including acquisitions
January 2014 Investor Presentation – The Future
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Unlocking Real Estate Value
• New York Transaction Contract to buy 50 W33rd Street location for $10M over next 5 years
Sold residential air rights to third party for $8 M, enabling us to reduce monthly lease to $100K for next 5 years vs. $180K
• REIT• Intend to form privately-held REIT or similar investment vehicle
• Rick’s will hold a minority equity interest
• Rick subsidiary will manage the REIT’s asset portfolio
January 2014 Investor Presentation – The Future
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Balance Sheet Update (9-30-13 vs. 9-30-12, $ in millions)
• Cash: Nearly doubled to $10.7• LT Debt: $78.6
$38.7 real estate debt
$29.2 sub level debt from acquisitions
$7.2 parent company level debt
• Current portion of LT Debt: $8.8 Paying off ~$2 per quarter
• Tootsies Debt: $5.3 Our most expensive debt
Paying down as fast as possible
$87.6
$97.1
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
9-30-12 9-30-13
Total Permanent Stockholders’ Equity
January 2014 Investor Presentation – The Future
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FY14 Guidance• Revenues
Continuing to target 20% to 30% annual growth
Growth from existing clubs and restaurants, and ones expected to open in 2014
Potential upside from major sporting events
• Operating Margin Continued expansion
Benefit from recovery strategies at adult clubs
Operating efficiencies through improved purchasing on larger base of clubs and restaurants
• EPS Non-GAAP of ~$1.70
GAAP of ~$1.20
January 2014 Investor Presentation – The Future
Event LocationPro Football’s Big Game (February)
NYC
Big East (March) NYC
Final Four (April) DFW
NHL (FullSeason)
NYCDFWMinneapolis
Big Sports Events 2014