the innovator in bar-restaurant-entertainment hospitality...business, (ii) the business climates in...
TRANSCRIPT
NASDAQ: RICK Investor Presentation
March-April 2016 www.rcihospitality.com
The innovator in bar-restaurant-entertainment hospitality
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Forward Looking Statements
Certain statements contained in this presentation regarding RCI Hospitality 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 "anticipate," "approximate, " "believe," "estimated," "expect," "goal," "intent," "outlook," "planned," "potential," "will," "would," 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.rcihospitality.com or on the SEC's internet website at www.sec.gov.
Unless required by law, RCI Hospitality does not undertake any obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.
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Overview
Three Parts to Our Presentation
• What do we do • Why it’s a good business • How we are growing EPS and cash flow, buying
back shares and now paying a dividend
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Leader in Gentlemen’s Clubs
Subsidiaries own/operate 38 of the best venues in the US
• Powerful brands, quality environments, beautiful entertainers, excellent restaurants
• Larger units in major cities • Smaller ones in the South/Southwest
Licensing Limits Favor Acquisitions
• We acquired ~80% of clubs we own • Most municipal licenses tied to physical location • Few municipalities issuing new licenses
Goal: Acquire More of the Industry’s Best
• 3,500 clubs in the US / 500 meet our qualifications • Most long-term owners interested in selling • As only public company in the space, and with access to
bank financing, we are the acquirer of choice
Elegant clubs with restaurants
High-end, high-energy club for young professionals
Nation’s mega club with 74,000 square feet
High-end clubs for African-American professionals
Lively BYOB clubs for blue collar patrons and the college crowd
Lively BYOB clubs for blue collar patrons and the college crowd
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Fast-Growing Bombshells Chain
First Military-Themed Franchise in Sports Bar Segment
• Leverages expertise in bars, restaurants and entertainment • Drives traffic through design strategy and attractive
Bombshell Girls in uniforms • Large venues (7,500-10,000 sq ft), full bar, scratch kitchen,
big flat screen TVs, live music, huge patio
Five Company Owned Units
• Houston (3), Dallas (1), Austin (1)
Franchising Approved in All 50 States
• Potential to develop a chain of ~100 units • Wider appeal than competitive brands • Attracts men, women, singles, couples, and families • Strong lunch, dinner and late night business
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The Bar-Restaurant-Entertainment Spectrum
RCI Hospitality RCI Hospitality Dave & Buster’s Brinker International
38 clubs featuring beautiful dancers/entertainers
5 sports bars/restaurants featuring attractive
waitresses in uniform and live music
81 sports bars/restaurants with large arcades*
1,641 casual dining Chili’s and Maggiano’s with no
entertainment**
Entertainment Food
Key Traffic Driver
DAVE & BUSTER’S chili’s
* Source: Dave & Buster’s March 2016 Investor Presentation ** Source: Brinker International January 12, 2016 Investor Presentation
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RCI Advantages: Nationwide Scale
Industry Makeup
• Most clubs individual owner operated
RCI’s Advantages
• Nationwide scale, resources and operating efficiencies • In business since 1983 • Sophisticated systems, purchasing, best practices,
training, and innovation • Ability to maximize management, marketing and
profitability • Platform for expanding along the spectrum of bar-
restaurant-entertainment businesses
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RCI Advantages: Expanded Access to Bank Financing
More Banks Offering RCI Traditional Commercial Loans
• Finance real estate acquisitions • Refinance higher rate mortgages
RCI’s Advantages
• Our real estate is now a major source of collateral • Helps finance growth along with our strong free cash flow • Reduces interest rates on loans • Enhances profitability • Makes RCI the industry acquirer of choice
Recent Examples
Acquisition Financing Anticipated Benefit
Retail mall where Tootsie’s Cabaret is located (largest club)
• $4.0M cash • $11.3M, 5.45% bank loan
• $0.6M annual pre-tax profit • 15% cash on cash return
Building and land where Rick’s Cabaret NYC is located (2nd largest club)
• $10.0M, 5.00% bank loan • Reduces expenses more than $0.7M annually over term of the loan
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2011 2015
Unit Growth
• 2011-2015: Period of major expansion • 9/30/15 units almost double from 9/30/11 • Took advantage of acquisitions and opportunities to create new clubs
Bombshells 5 units
Clubs 38 units
2015 Unit Mix
23 Units
43 Units
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$83.5
2011 2015
Revenue Growth ($ in millions)
2011-2015: Compound annual growth rate of ~15%
Other 2% Clubs
(outside Texas) 44%
2015 Segment Mix Bombshells
13%
Clubs (in Texas)
41%
$144.7
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Revenue Mix ($ in millions)
Food & Beverage
56%
RCI Fiscal 2015
Entertainment Related & Other
44% Food &
Beverage 47%
Dave & Buster’s Last 12 Months as of Q3*
Entertainment Related & Other
53%
* Source: Dave & Buster’s March 2016 Investor Presentation
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GAAP $0.79
GAAP $0.90
2011 2015
EPS Growth ($ in millions)
2011-2015
• Non-GAAP up 34% • GAAP up 14%
1Q16
• Non-GAAP of $0.30 • GAAP of $0.25
FY16
• Expect year over year growth
$1.04 Non-GAAP
$1.39 Non-GAAP
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Strong Free Cash Flow ($ in millions)
Significant Feature of Clubs
• High gross margin business (86% in FY15) • Low capex • Inventory turns quickly
RCI’s FCF Performance
• Averaged 16% of revenues 2011-2015 • Defined as operating cash flow less maintenance capex
FY16 Target
• $15-$18M • 1Q16 on track with $3.9M
$14.9
2015 2016 Target
$15-$18
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Disciplined Capital Allocation Strategy
19% 17%
15% 13% 12% 11%
37%
33% 30%
27% 24%
22%
0%
10%
20%
30%
40%
$8 $9 $10 $11 $12 $13
Afte
r Tax
Yie
ld
Stock Price
Return Using FCF to Buy Back Shares
Required Return Using FCF to Open / Acquire New Unit At Least 2X Return to Risk Adjust vs. Stock Buy Back
Use FCF to buy back shares
• Compelling after tax yield of 17% with shares in $9 range
Buy / open new units only if:
• Risk adjusted return rivals buying our assets in the market
• There is a significant strategic rationale
Higher after tax yield buying back stock vs. paying down debt
• Only at ~$17 does it make sense to pay down 13% debt at an accelerated rate (assuming no pre-payment penalty) Notes
• Based on annual FCF of $15M • Based on fully diluted share count at 12/31/15 incorporating
expected dilution from convertible securities as stock price rises • Conversion of these securities would reduce debt $3.8M
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10.295
9.948
1/31/15 1/31/16
225,280
336,714
FY15 FY16 to Date as of1/31/16
$2.3
$3.3
FY15 FY16 to Date as of1/31/16
Capital Returned via Buybacks ($M)
Shares Retired via Buybacks Shares Outstanding (M)
Increased Share Buybacks in FY16
• We have already spent and bought back more shares FY16 to date than in all of FY15
Initiated Annual Cash Dividend
• $0.12 per common share, payable $0.03 quarterly • 1.3% yield on $9 per share • Payout ratio (8% of FY15 FCF) provides room for increases
Share Buy Backs & Cash Dividend
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FY16 Plan to Expand Cash Flow
Reduce Costs
• Expanded access to bank financing enabling us to: Refinance high cost debt at lower interest rates
Extend amortizations
Buy properties to reduce occupancy costs
Improve Club Margins
• Eliminated 6 non-performing clubs in FY14-FY15
• Engaging new, lower cost social media marketing versus more expensive radio
• Re-launching two clubs with higher revenue generating prospects
Open New Units with Higher Return Potential
3.8%
4.3%
3.6%
3.3% 3.4%
3.6%
3.1%
2.8%
2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16
Rent Going Down (as % of revenues)
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Open New Units with Higher Return Potential
3rd Club in NYC
• To open 2nd half of FY16 • Sports themed, first of its kind in Manhattan, near Madison Square Garden • Why returns should be higher 50-50 joint venture with landlord contributing adult license and real estate
Management and cost efficiencies with three NYC units
6th Bombshells
• To open 1Q17 • Demographics and location similar to No. 1 Bombshells unit in Houston • Why returns should be higher We already have most of the equipment necessary
Management and cost efficiencies with four Houston units
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FY17 Preview
Strong Sports Line Up
• NFL “Big Game” in Houston (7 units) • NBA All Star Game in Charlotte (1 club) • Could add $1.5-$2M in incremental, high margin sales
Bombshells Expansion
• 6th unit to open 1Q17 • Expect to site a 7th unit • Franchise sales anticipated
Reduced Debt / Property Sales
• $2.0M used pay off convertibles in FY16 will be available • Expect to complete sales of real estate that is no longer
needed
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Conclusion
Investment Opportunity
• Growing trend in bar-restaurant-entertainment • Clubs generate strong free cash flow • Implementing plan to grow FCF even more • Can finance growth without raising capital
Disciplined Capital Allocation
• Buying back significant number of shares • Initiated meaningful dividend • New units with higher return potential
Long-Term Growth
• Multiple club acquisition opportunities • Promising sports bar/restaurant franchise
Entrance to Rick’s Cabaret New York in Midtown Manhattan
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Corporate Office 10959 Cutten Road Houston, TX 77066 Phone: (281) 397-6730 Investor Relations Gary Fishman Steven Anreder Phone: (212) 532-3232 IR Website www.rcihospitality.com Nasdaq: RICK
Contact Information
NASDAQ: RICK Investor Presentation Appendix
March-April 2016 www.rcihospitality.com
The innovator in bar-restaurant-entertainment hospitality
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S&P 500 RICK
History
Timeline • 1983: Founded by Robert Watters as Rick’s Cabaret International • 1995: NASDAQ Initial Public Offering • 1998: Merged with Eric Langan’s publicly traded company of smaller
clubs • 1999: Langan named President and CEO • 2014: Name change reflected transformation to hospitality company • 2015: 20th year as a publicly traded company
Stock Performance: March 1999-March 2016*
• Total return has outperformed the S&P 500 by 7x • RICK: 810% with annualized return of 13.9% • S&P: 116% with annualized return of 4.6% 116%
810%
Total Return March 1999-March 2016
* Source: Bloomberg
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Executive Background
Eric Langan Chairman, CEO, President
• President and CEO since 1999 • Involved in nightclub/restaurant business since 1989 • Acquired his first club at age 21 with proceeds from the sale of his baseball cards • Merged his XTC Cabaret chain with RCI in 1998
Ed Anakar Director of Operations
• Joined RCI 2003, Director of Operations since 2009 • Grew up in the hospitality industry – started at a young age as a waiter • Worked his way up to district manager for a large management company that operated
hotels, restaurants and nightclubs across the US • Launched and operated numerous RCI venues, including Tootsie’s Cabaret in Miami,
Rick’s Cabaret New York, Vivid Cabaret New York, and Bombshells
Phillip Marshall Chief Financial Officer
• Joined RCI 2007 as CFO • Began his public accounting career with KMG and became a partner in 1980 • Continued as a partner after merger with Peat Marwick • Partner in charge of the audit practice at Jackson & Rhodes 1992-2003 • Chief Financial Officer of CDT Systems, Inc. (publicly traded) 2003-2006
Travis Reese EVP & Director of Technology
• Joined RCI 1999 as VP-Director of Technology • VP with Digital Publishing Resources, Inc. 1995-1997 • Senior network administrator at St. Vincent's Hospital 1997-1999
Strong Management Team
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Capital Allocation Metrics
After Tax Free Cash Flow (FCF) Yield of Buying Back Shares(1)
Annual Free Cash Flow (mm) $15.0 $15.0 $15.0 $15.0 $15.0 $15.0
Stock Price $8.00 $9.00 $10.00 $11.00 $12.00 $13.00
FD Shares at 12/31/15 with expected dilution from convertible securities as stock price rises (mm)(2) 10.023 10.023 10.023 10.216 10.216 10.397
Market Capitalization (mm) $80.2 $90.2 $100.2 $112.4 $122.6 $135.2
After Tax Yield (FCF/Market Cap) 18.7% 16.6% 15.0% 13.3% 12.2% 11.1%
Notes 1) RCI defines FCF as operating cash flow less maintenance capex 2) Conversion of these securities would result in $3.8M reduction of debt
After Tax Free Cash Flow (FCF) Yield of Paying Down Debt
Interest Rate on Debt (interest is tax deductible) 13.0% 12.0% 11.0% 10.0% 9.0% 8.0%
After Tax Yield (assuming 35% tax rate) 8.5% 7.8% 7.2% 6.5% 5.9% 5.2%
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Long-Term Debt ($ in millions)
Total of $94.8 at 12/31/15
$60.3 Secured by Real Estate • Average weighted rate: 6.78% • $90.7 in net buildings and land on the
balance sheet • ~$50 in net real estate equity
$20.3 Secured by Subsidiary Stock • Average weighted rate: 10.61% • Secured by three of RICK’s more
profitable groups of subsidiaries
$6.8 Texas Comptroller Settlement • Average weighted rate: 9.58% • Imputed for accounting purposes • Paid in monthly installments of $0.12
$3.8 Convertible Debt • Average weighted rate: 9.02%
$3.6 Secured by Other Assets • Average weighted rate: 7.31%
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Date / Time Event* April 12, 2016 2Q16 Club & Restaurant Sales
May 10, 2016 2Q16 & 6M16 Financial Results
July 12, 2016 3Q16 Club & Restaurant Sales
August 9, 2016 (tentative) 3Q16 & 9M16 Financial Results Date might be adjusted around 23rd Annual Gentlemen’s Club EXPO in New Orleans (August 7-10)
October 11, 2016 4Q16 Club & Restaurant Sales
December 14, 2016 4Q16 & FY16 Financial Results
Calendar
* RICK is looking at other investor conferences where we would like to present this year