RCI Hospitality Holdings Inc (RICK)

[Drmicrocap]

RCI Hospitality Holdings, Inc. Reports Fiscal 2Q15 Results

Non-GAAP EPS of $0.50 Up 11% Year over Year


PR Newswire
RCI Hospitality Holdings, Inc.
May 11, 2015 4:05 PM

HOUSTON, May 11, 2015 /PRNewswire/ -- RCI Hospitality Holdings, Inc. (RICK) today announced results for the fiscal 2015 second quarter ended March 31, 2015.

.RCI HOSPITALITY HOLDINGS INC
2Q15 Highlights
•GAAP EPS of ($0.28) includes an accrual for the previously announced NY FLSA legal settlement.
•Non-GAAP EPS* diluted of $0.50 increased 11.1% from $0.45 in 2Q14. Non-GAAP EPS excludes the accrual as well as other items from both periods for comparability.
•Record total revenues of $37.4 million grew 13.8% year over year.
•$1.9 million spent buying back shares in the open market in the first half of Fiscal 2015.
•Company on track for a strong FY15.

Conference Call

A conference call to discuss these results, outlook and related matters will be held today, May 11, 2015, at 4:30 PM ET:
•Live Participant Dial In (Toll Free): 877-737-7051
•Live Participant Dial In (International): 201-689-8878
•Webcast URL: http://www.investorcalendar.com/IC/CEPage.asp?ID=173981

Meet Management

Eric Langan, President and CEO, invites investors for a "Due Diligence Ball" to meet, talk and tour one of RCI's top revenue generating clubs.
•When: Monday, May 11, 2015, 6:00 PM to 8:00 PM ET
•Where: Rick's Cabaret New York, at 50 W. 33rd Street, between Fifth Avenue and Broadway
•RSVP: With your contact information to [e-mail]

CEO Comment

"RCI performed well in 2Q15," said Mr. Langan. "We achieved record revenues and strong year over year growth in non-GAAP EPS and adjusted EBITDA, which reflects our cash generating power.

"Our performance was especially favorable since 2Q15 was affected by bad weather, especially in the Dallas-Fort Worth area, where we operate 11 clubs. We also had tough comparisons to 2Q14, when we benefitted from the big football championship in the New York City area, where we have two top clubs.

"Core profitability in nightclubs expanded due to higher revenues and margin improvement. With more units and increased revenues, our Bombshells restaurant/bar segment also added positively to results.

"We repurchased more stock in the open market, reflecting confidence in our favorable outlook, combined with the market's undervaluation of our shares. We will continue to focus cash flow on buying back shares. At current levels, our own assets represent a highly attractive return.

"We are on track for a strong Fiscal 2015. Year to date, total revenues are up 18.6%, adjusted EBITDA 22.7%, and non-GAAP EPS 23.1%.

"We look forward to a solid third quarter. Many units benefitted from our showing the recent Mayweather-Pacquiao 'Fight of the Century'. Warm weather in Texas should further enhance Bombshells' patio business."

2Q15 Analysis (all comparisons to 2Q14 unless otherwise noted)

Total Revenues
•Total revenues of $37.4 million compared to $32.9 million.
•45 units (40 adult clubs and nightclubs and 5 restaurants) versus 43 (41 adult clubs and nightclubs and 2 restaurants).
•Same store sales increased 2.1%.
•Units opened less than a year added $4.4 million. This included new adult clubs – Rick's Cabaret in Odessa, TX and the recently acquired Down in Texas Saloon in Austin, TX – and new Bombshells in Austin, Spring and Houston, TX.

Operating Margin & Costs (as % of revenues)
•GAAP operating margin was (7.0%), reflecting the previously mentioned accrual, compared to 22.7%.
•Non-GAAP operating margin, which excludes the accrual and certain other non-operating items from both periods for more meaningful analysis, was 24.9% compared to 26.9%.
•Non-GAAP operating margin reflects the growth of the Bombshells segment, whose margins, while growing, are less than that of the nightclub segment. This was partially offset by the elimination of under-performing adult clubs.
•The accrual of $10.3 million pre-tax, or ($0.65) per share net of tax, represents the company's best estimate at this time of the total cost of the settlement, announced April 1, 2015, in its New York federal wage and hour class action case.

Adjusted EBITDA
•RCI's cash generating power, as reflected by adjusted EBITDA*, amounted to $10.2 million, up 10.8% from $9.2 million in the year ago quarter.

Business Segments (all comparisons to 2Q14 unless otherwise noted)

Nightclubs
•Includes the company's 38 adult clubs and two bar/nightclubs, compared to a total of 41 in the year ago quarter.
•Sales increased 2.4%, to $31.9 million from $31.2 million.
•Operating income was $114,000 compared to $9.6 million.
•Excluding the previously mentioned accrual, operating income increased 8.0% to $10.4 million and operating margin expanded to 32.6% from 30.9%.
•In May, RCI subsidiaries acquired The Seville Club, a popular gentlemen's club in Minneapolis known for its famous downtown location, as previously announced. Total consideration of $8.5 million consisted of $4.5 million for the assets of the club business and $4.0 million for its historic building.

Bombshells
•Includes the company's five Bombshells, all in Texas, compared to two in the year ago quarter.
•Sales increased nearly 3.5 times, to $4.8 million from $1.4 million.
•Operating income was $571,000 compared to a loss of $12,000.
•Operating margin expanded to 11.9% of revenues from (0.9%) and is expected to increase as revenues continue to build and training costs subside.
•A sixth Bombshells is planned for the Willowbrook area of northwest Houston. Management is identifying additional locations.

Balance Sheet (March 31, 2015 compared to December 31, 2014)
•Assets increased 4.1% to $260.5 million and long term debt increased 2.4% to $71.5 million. The increases primarily reflected the acquisition of the Down in Texas Saloon of Austin and related real estate.
•Total permanent stockholders' equity declined 2.8% to $120.8 million, primarily reflecting the NY FLSA accrual partially offset by core profits.

Stock Buy Backs
•The Board of Directors increased its stock repurchase authorization to $10.0 million in May 2014.
•During 2Q15, RCI purchased 82,811 shares of common in the open market for an aggregate cost of $840,340, leaving $7.0 million of remaining authorization.
•During the six months ended March 31, 2015, RCI purchased 192,427 shares at a cost of $1.9 million.

*Non-GAAP Financial Measures

In addition to our financial information presented in accordance with GAAP, management uses certain "non-GAAP financial measures" within the meaning of the SEC Regulation G, to clarify and enhance understanding of past performance and prospects for the future. Generally, a non-GAAP financial measure is a numerical measure of a company's operating performance, financial position or cash flows that excludes or includes amounts that are included in or excluded from the most directly comparable measure calculated and presented in accordance with GAAP. We monitor non-GAAP financial measures because it describes the operating performance of the company and helps management and investors gauge our ability to generate cash flow, excluding some recurring charges that are included in the most directly comparable measures calculated and presented in accordance with GAAP. Relative to each of the non-GAAP financial measures, we further set forth our rationale as follows:
•Non-GAAP Operating Income and Non-GAAP Operating Margin. We exclude from non-GAAP operating income and non-GAAP operating margin amortization of intangibles, patron taxes, pre-opening costs, gains and losses from asset sales, stock-based compensation charges, litigation and other one-time legal settlements, gain on contractual debt reduction and acquisition costs. We believe that excluding these items assists investors in evaluating period-over-period changes in our operating income and operating margin without the impact of items that are not a result of our day-to-day business and operations.


•Non-GAAP Net Income and Non-GAAP Net Income per Basic Share and per Diluted Share. We exclude from non-GAAP net income and non-GAAP net income per diluted share and per basic share amortization of intangibles, patron taxes, pre-opening costs, income tax expense, impairment charges, gains and losses from asset sales, stock-based compensation, litigation and other one-time legal settlements, gain on contractual debt reduction 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 earnings before interest, taxes, depreciation and amortization (EBITDA) 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, gain on contractual debt reduction 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.

Full Financial Tables

RCI's Form 10Q for the fiscal second quarter ended Mach 31, 2015 with full financial tables can be found on the company's corporate site at http://www.rcihospitality.com.

About RCI Hospitality Holdings, Inc. (RICK)

With 46 units, RCI Hospitality Holdings, Inc., through its subsidiaries, is the country's leading company in adult gentlemen clubs and restaurant/bars. Adult clubs in New York City, Miami, Philadelphia, Charlotte, Dallas/Ft. Worth, Houston, Minneapolis, Indianapolis and other cities operate under brand names, such as "Rick's Cabaret," "XTC," "Club Onyx," "Vivid Cabaret," "Jaguars" and "Tootsie's Cabaret." Restaurant/bars operate under the brand name "Bombshells." Please visit http://www.rcihospitality.com/

RCI Hospitality in 2015 is celebrating the 20th anniversary of its IPO – two decades of innovation in the adult club segment of the hospitality industry.

Forward-Looking Statements

This press release may contain forward-looking statements that involve a number of risks and uncertainties that could cause the company's actual results to differ materially from those indicated in this press release, including the risks and uncertainties associated with operating and managing an adult business, the business climates in cities where it operates, the success or lack thereof in launching and building the company's businesses, risks and uncertainties related to the operational and financial results of our Web sites, conditions relevant to real estate transactions, and numerous other factors such as laws governing the operation of adult entertainment businesses, competition and dependence on key personnel. The company has no obligation to update or revise the forward-looking statements to reflect the occurrence of future events or circumstances.







RCI HOSPITALITY HOLDINGS, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF INCOME





















FOR THE THREE MONTHS



FOR THE SIX MONTHS


ENDED MARCH 31,

ENDED MARCH 31,




2015



2014



2015



2014


(in thousands, except per share data)


(UNAUDITED)



(UNAUDITED)















Revenues:

















Sales of alcoholic beverages


$

15,576



$

12,985



$

30,815



$

24,674


Sales of food and merchandise



5,241




3,979




10,466




7,402


Service revenues



14,559




14,347




28,783




27,077


Other



2,034




1,559




3,833




3,140


Total revenues



37,410




32,870




73,897




62,293



















Operating expenses:

















Cost of goods sold



5,381




4,041




10,492




7,788


Salaries and wages



8,115




6,854




16,147




13,431


Stock compensation



120




151




240




154


Other general and administrative:

















Taxes and permits



5,709




5,142




11,102




9,557


Charge card fees



544




449




1,091




877


Rent



1,184




1,156




2,325




2,384


Legal and professional



1,064




426




2,023




1,214


Advertising and marketing



1,312




1,406




2,679




2,691


Insurance



801




972




1,621




1,771


Utilities



708




646




1,442




1,241


Depreciation and amortization



1,886




1,513




3,531




2,906


(Gain) loss on sale of property



(18)




(86)




(18)




(86)


Impairment of assets



-




-




1,358




-


Settlement of lawsuits and other one-time costs



10,303




150




10,550




270


Other



2,917




2,591




5,790




5,022


Total operating expenses



40,026




25,411




70,373




49,220


Operating income (loss)



(2,616)




7,459




3,524




13,073



















Other income (expense):

















Interest income



26




35




39




112


Interest expense



(1,783)




(1,924)




(3,402)




(3,936)


Gain from original investment in Drink Robust, Inc.



-




-




577




-


Income (loss) before income taxes



(4,373)




5,570




738




9,249


Income taxes (benefit)



(1,265)




1,922




581




3,245


Net income (loss)



(3,108)




3,648




157




6,004


Less: net (income) loss attributable to noncontrolling interests



267




74




362




121


Net income (loss) attributable to RCI Hospitality Holdings, Inc.


$

(2,841)



$

3,722



$

519



$

6,125



















Basic earnings (loss) per share attributable to RCIHH shareholders:
















Net income


$

(0.28)



$

0.39



$

0.05



$

0.64


Diluted earnings (loss) per share attributable to RCIHH shareholders:
















Net income


$

(0.28)



$

0.37



$

0.05



$

0.62



















Weighted average number of common shares outstanding:

















Basic



10,275




9,661




10,269




9,604


Diluted



10,275




10,853




10,273




10,763























RCI HOSPITALITY HOLDINGS, INC. AND SUBSIDIARIES


NON-GAAP FINANCIAL MEASURES












For the Three Months


For the Six Months



Ended March 31,


Ended March 31,









(in thousands, except per share data)

2015


2014


2015


2014











Reconciliation of GAAP net income to









Adjusted EBITDA









GAAP net income (loss)

($2,841)


$3,722


$519


$6,125


Income tax expense

(1,265)


1,922


362


3,245


Interest expense and income and gain on Drink Robust investment

1,783


1,924


3,402


3,936


Litigation and other one-time legal settlements

10,303


150


10,550


270


Preopening costs

268


-


328


-


Acquisition costs

95


-


178


-


Impairment of assets

-


-


1,358


-


Depreciation and amortization

1,886


1,513


3,531


2,906


Adjusted EBITDA

$10,229


$9,231


$20,228


$16,482











Reconcilation of GAAP net income (loss) to









non-GAAP net income









GAAP net income (loss)

($2,841)


$3,722


$519


$6,125


Patron tax

805


866


1,567


1,605


Amortization of intangibles

336


82


579


171


Gain on Drink Robust investment

-


-


(577)


-


Stock-based compensation

120


151


240


154


Litigation and other one-time settlements

10,303


150


10,550


270


Pre-opening costs

268


122


328


416


Income tax expense

(1,265)


1,922


362


3,245


Acquisition costs

95


18


178


18


Impairment of assets

-


-


1,358


-


Non-GAAP provision for income taxes

(2,695)


(2,409)


(5,202)


(4,148)


Non-GAAP net income

$5,126


$4,624


$9,902


$7,857











Reconciliation of GAAP diluted net income









per share to non-GAAP diluted net income per share









Fully diluted shares

10,275


10,853


10,273


10,763


GAAP net income

($0.28)


$0.37


$0.05


$0.62


Patron tax

0.08


0.08


0.15


0.15


Amortization of intangibles

0.03


0.01


0.06


0.02


Gain on Drink Robust investment

-


-


(0.06)


-


Stock-based compensation

0.01


0.01


0.02


0.01


Litigation and other one-time settlements

1.00


0.01


1.03


0.03


Pre-opening costs

0.03


0.01


0.03


0.04


Income tax expense

(0.12)


0.18


0.04


0.30


Acquisition costs

0.01


0.00


0.02


0.00


Impairment of assets

-


-


0.13


-


Non-GAAP provision for income taxes

(0.26)


(0.22)


(0.51)


(0.39)


Non-GAAP diluted net income per share

$0.50


$0.45


$0.96


$0.78













RCI HOSPITALITY HOLDINGS, INC. AND SUBSIDIARIES


NON-GAAP FINANCIAL MEASURES












For the Three Months


For the Six Months



Ended March 31,


Ended March 31,









(in thousands, except per share data)

2015


2014


2015


2014











Reconciliation of GAAP operating income to









non-GAAP operating income









GAAP operating income (loss)

($2,616)


$7,459


$3,524


$13,073


Patron tax

805


866


1,567


1,605


Amortization of intangibles

336


82


579


171


Stock-based compensation

120


151


240


154


Impairment of assets

-


-


-


-


Litigation and other one-time settlements

10,303


150


10,550


270


Pre-opening costs

268


122


328


416


Acquisition costs

95


18


178


18


Non-GAAP operating income

$9,311


$8,848


$16,966


$15,707











Reconciliation of GAAP operating margin to









non-GAAP operating margin









GAAP operating income

-7.0%


22.7%


4.8%


21.0%


Patron tax

2.2%


2.6%


2.1%


2.6%


Amortization of intangibles

0.9%


0.2%


0.8%


0.3%


Stock-based compensation

0.3%


0.5%


0.3%


0.2%


Impairment of assets

0.0%


0.0%


0.0%


0.0%


Litigation and other one-time settlements

27.5%


0.5%


14.3%


0.4%


Pre-opening costs

0.7%


0.4%


0.4%


0.7%


Acquisition costs

0.3%


0.1%


0.2%


0.0%


Non-GAAP operating margin

24.9%


26.9%


23.0%


25.2%













RCI HOSPITALITY HOLDINGS, INC. AND SUBSIDIARIES



SEGMENT INFORMATION





















For the Three Months



For the Six Months




Ended March 31,



Ended March 31,



(in thousands)

2015



2014



2015



2014
















Business segment sales:













Nightclubs

$

31,933



$

31,196



$

62,995



$

59,550



Bombshells


4,813




1,379




9,721




2,083



Other


664




295




1181




660




$

37,410



$

32,870



$

73,897



$

62,293




















Business segment operating income (loss):

















Nightclubs*

$

114



$

9,644



$

8,671



$

17,618



Bombshells


571




(12)




1,111




(317)



Other


(797)




(87)




(1,344)




(257)



General corporate


(2,504)




(2,086)




(4,914)




(3,971)




$

(2,616)



$

7,459



$

3,524



$

13,073




















* Nightclubs operating income for the three and six months ended 3/31/15 includes accrual of $10,303 for the settlement of a lawsuit, and for the six months ended 3/31/15 also includes impairment of assets of $1,358. Excluding these items, nightclubs operating income for the three months ended 3/31/15 would have been $10,417 and for the six months ended 3/31/15 would have been $20,332.



















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