RCI Hospitality Holdings, Inc. Reports Fiscal 3Q15 Results

GAAP EPS of $0.78 Up 11x YoY on Gain from Tax Settlement

Aug 10, 2015, 16:05 ET from RCI Hospitality Holdings, Inc.

HOUSTON, Aug. 10, 2015 /PRNewswire/ -- RCI Hospitality Holdings, Inc. (NasdaqGM: RICK) today announced results for the fiscal 2015 third quarter ended June 30, 2015.

3Q15 Highlights

  • GAAP EPS diluted of $0.78 includes the previously announced gain from the settlement of the Patron Tax issue with the State of Texas. This compares to $0.07 in 3Q14.
  • Non-GAAP EPS* diluted of $0.32 increased 6.7% from $0.30 in 3Q14. Non-GAAP EPS excludes the above mentioned tax settlement as well as other items from both periods for comparability.
  • Total revenues of $35.8 million grew 7.3% year over year.
  • $2.3 million used to buy back shares in the open market in the first nine months of Fiscal 2015.
  • Company on track for a solid FY15 and another year of growth in FY16.

Conference Call

A conference call to discuss these results, outlook and related matters will be held today, August 10, 2015, at 4:30 PM ET:

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, August 10, 2015, 6:00 PM to 8:00 PM ET
  • Where: Vivid Cabaret New York, 61 W 37th St, NY, NY 10018, bet. 5th and 6th avenues
  • RSVP: By 5:00 PM ET, August 10, 2015, with your contact information, to gary.fishman@anreder.com

CEO Comment

"We're pleased to have generated a 6.7% year over year increase in non-GAAP EPS on a 7.3% year over year in total revenues in 3Q15 despite particularly bad weather in Texas that affected sales there," said Mr. Langan.

"This underscores the soundness of our bar/restaurant strategy, reflecting Bombshells sales up more than threefold year over year; the success of new clubs and our recent acquisitions; and the elimination of some underperforming clubs last year.

"We are particularly pleased to have settled the Texas Patron Tax issue. This resulted in a pre-tax gain of $8.2 million, increasing GAAP EPS to $0.78. This gain will cover close to 80% of 2Q15's New York federal wage and hour class action settlement, which is being implemented as planned.

"Also during 3Q15, we continued to repurchase stock in the open market, reflecting confidence in our favorable outlook, combined with the market's undervaluation of our shares.

"We are on track for a solid Fiscal 2015. Year to date, total revenues are up 14.7%, adjusted EBITDA is up 16.9%, and GAAP EPS and non-GAAP EPS are both up 23.2%. With better weather, same store sales have begun to rebound in 4Q15. Recently, we acquired the retail plaza in Florida where Tootsie's Cabaret, our largest adult club subsidiary and the plaza's largest tenant, is located. We expect this transaction to also be accretive.

"We look forward to Fiscal 2016 as another year of continued growth. With all major outstanding issues behind us, we'll have the ability to apply even more cash generated toward the repurchase of shares."

3Q15 Analysis (all comparisons to 3Q14 unless otherwise noted)

Total Revenues

  • Total revenues of $35.8 million compared to $33.3 million, up 7.3%.
  • 46 units in operation versus 43, up 7.0%.
  • Same store sales declined 5.3% due to unusually severe rain and flooding in Texas that affected our nightclub segment, in particular, as previously announced.
  • Units opened less than a year added $5.2 million from new adult clubs – Rick's Cabaret in Odessa, TX, the January acquisition of Down in Texas Saloon in Austin, TX, and the May acquisition of The Seville Club of Minneapolis, plus new Bombshells in Austin, Spring, and Houston, TX.

Operating Margin & Costs (as % of revenues)

  • GAAP operating margin was 39.6% compared to 8.7%. 3Q15 benefitted from the $8.2 million gain from the settlement of the Texas Patron Tax. 3Q14 was adversely affected by $3.2 million from the settlement of lawsuits and other one-time costs.
  • As reported, in May RCI reached a settlement with the State of Texas over payment of a Patron Tax on adult club customers. RCI agreed to pay $10.0 million in taxes owed in 84 equal monthly installments without interest and to remit the tax on a monthly basis going forward. Because RCI had accrued more than the $10 million owed, the company recorded an $8.2 million pre-tax gain in 3Q15.
  • Non-GAAP operating margin, which excludes the gain and certain other non-operating items from both periods for more meaningful analysis, was 18.3% compared to 19.6%. 3Q14 primarily reflects growth of the Bombshells segment, whose margins, while growing, are less than that of the nightclub segment.

Adjusted EBITDA

  • RCI's cash generating power for the quarter, as reflected by adjusted EBITDA, amounted to $8.2 million, up 6.1% from $7.7 million in the year ago quarter.

Business Segments (all comparisons to 3Q14 unless otherwise noted)

Nightclubs

  • Includes 41 units, the same as in the year ago quarter.
  • Sales of $30.6 million compared to $31.5 million, a 2.9% decline.
  • Operating income of $17.3 million compared to $8.5 million.
  • Adjusted operating income, which excludes the previously mentioned gain and certain other non-operating items from both periods for more meaningful analysis, was $9.1 million (29.8% of sales) compared to $11.8 million (37.3% of sales).
  • In May, RCI subsidiaries acquired The Seville Club, a popular gentlemen's club in Minneapolis, for total consideration of $8.5 million.
  • In August, an RCI subsidiary acquired the Miami Gardens Square retail plaza in Florida, where Tootsie's Cabaret is located. Total consideration of $15.3 million consisted of $3.975 million in cash and a 5.45%, $11.325 million bank loan.

Bombshells

  • Includes five Bombshells, all in Texas, compared to two in the year ago quarter.
  • Sales totaled $4.8 million, up from $1.6 million.
  • Operating income improved to a profit of $369,000 compared to a loss of $170,000, a $539,000 turnaround.
  • Operating margin expanded to 7.7% of revenues from (10.7%) and should increase as revenues continue to build and training costs subside.

Balance Sheet (June 30, 2015 compared to March 31, 2015)

  • Assets increased 1.7% to $265.0 million, primarily due to the acquisition of The Seville Club and related real estate.
  • Current liabilities declined 37.6% to $28.8 million and long-term debt increased 15.9% to $72.9 million, primarily due to the Texas Patron Tax settlement.
  • Total permanent stockholders' equity increased 6.7% to $129.0 million, primarily reflecting the after-tax benefit of the gain from the Patron Tax Settlement and core profits.

Stock Buy Backs

  • The Board of Directors increased its stock repurchase authorization to $10.0 million in May 2014.
  • During 3Q15, RCI purchased 32,853 shares in the open market for an aggregate cost of $370,799, leaving $6.6 million of remaining authorization.
  • For the nine months ended June 30, 2015, RCI purchased 225,280 shares at a cost of $2.3 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, gain on settlement of patron tax case, pre-opening costs, gains and losses from asset sales, stock-based compensation charges, litigation and other one-time legal settlements 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. While we were in litigation in the patron tax case, we also included patron taxes as an exclusion, but after settlement of the case, we no longer exclude patron taxes from operating income.
  • 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, gain on settlement of patron tax case, pre-opening costs, income tax expense, impairment charges, gains and losses from asset sales, stock-based compensation, litigation 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. While we were in litigation in the patron tax case, we also included patron taxes as an exclusion, but after settlement of the case, we no longer exclude patron taxes from net income.
  • Adjusted EBITDA. We exclude from Adjusted 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 settlement of patron tax case 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 third quarter ended June 30, 2015 with full financial tables can be found on the company's corporate site at http://www.rcihospitality.com.

About RCI Hospitality Holdings, Inc. (NasdaqGM: RICK)

With 46 units, RCI Hospitality Holdings, Inc., through its subsidiaries, is the country's leading company in adult gentlemen clubs and sports bars/restaurants. 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." Sports bars/restaurants 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 its 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 NINE MONTHS

ENDED JUNE 30,

ENDED JUNE 30,



2015



2014



2015



2014

(in thousands, except per share data)


(UNAUDITED)



(UNAUDITED)













Revenues:
















Sales of alcoholic beverages


$

15,148



$

13,626



$

45,963



$

38,300

Sales of food and merchandise



5,049




4,076




15,515




11,478

Service revenues



13,870




14,035




42,623




41,112

Other



1,694




1,606




5,557




4,746

Total revenues



35,761




33,343




109,658




95,636

















Operating expenses:
















Cost of goods sold



5,033




4,295




15,525




12,083

Salaries and wages



8,176




7,219




24,323




20,650

Stock compensation



120




2




360




156

Other general and administrative:
















Taxes and permits



5,444




5,150




16,546




14,707

Charge card fees



562




479




1,653




1,356

Rent



1,189




1,315




3,514




3,699

Legal and professional



939




1,206




2,962




2,420

Advertising and marketing



1,506




1,420




4,185




4,111

Insurance



866




1,014




2,487




2,785

Utilities



727




650




2,169




1,891

Depreciation and amortization



1,923




1,532




5,454




4,438

Loss on sale of property



178




334




160




248

Impairment of assets



-




-




1,358




-

Settlement of lawsuits and other one-time costs



10




3,233




10,560




3,503

Gain on settlement of patron tax



(8,167)




-




(8,167)




-

Other



3,103




2,602




8,893




7,624

Total operating expenses



21,609




30,451




91,982




79,671

Operating income



14,152




2,892




17,676




15,965

Other income (expense):
















Interest income



-




-




39




112

Interest expense



(1,630)




(2,060)




(5,032)




(5,996)

Gain from original investment in Drink Robust



-




-




577




-

Income before income taxes



12,522




832




13,260




10,081

Income taxes



4,442




203




5,023




3,448

Net income



8,080




629




8,237




6,633

Less: net loss attributable to noncontrolling interests



187




62




549




183

Net income attributable to RCI Hospitality Holdings, Inc.


$

8,267



$

691



$

8,786



$

6,816

















Basic earnings per share attributable to RCIHH's shareholders:















 Net income


$

0.81



$

0.07



$

0.86



$

0.70

Diluted earnings per share attributable to RCIHH's shareholders:















 Net income


$

0.78



$

0.07



$

0.85



$

0.69

















Weighted average number of common shares outstanding:
















Basic



10,245




9,883




10,262




9,695

Diluted



10,707




9,968




10,724




9,922

 

 

RCI HOSPITALITY HOLDINGS, INC. AND SUBSIDIARIES

NON-GAAP FINANCIAL MEASURES










For the Three Months 


For the Nine Months 


Ended June 30,


Ended June 30,







(in thousands, except per share data)

2015


2014


2015


2014









Reconciliation of GAAP net income to Adjusted EBITDA 








GAAP net income attributable to RCIHH

$8,267


$691


$8,786


$6,816

Income tax expense

4,442


203


5,023


3,448

Interest expense and income

1,630


2,060


4,993


5,884

Litigation and other one-time legal settlements

10


3,233


10,560


3,503

Gain on settlement of Patron tax case

(8,167)


-


(8,167)


-

Impairment of assets

-


-


1,358


-

Acquisition costs

105


22


283


111

Depreciation and amortization 

1,923


1,532


5,454


4,438

Adjusted EBITDA 

$8,210


$7,741


$28,290


$24,200









Reconciliation of GAAP net income to non-GAAP net income








GAAP net income attributable to RCIHH

$8,267


$691


$8,786


$6,816

Amortization of intangibles

312


82


892


254

Stock-based compensation

120


2


360


156

Litigation and other one-time settlements

10


3,233


10,560


3,503

Gain on settlement of Patron tax case

(8,167)


-


(8,167)


-

Pre-opening costs

-


306


328


743

Income tax expense

4,442


203


5,023


3,448

Impairment of assets

-


-


1,358


-

Acquisition costs

105


22


283


111

Non-GAAP provision for income taxes

(1,739)


(1,588)


(6,672)


(5,206)

Non-GAAP net income

$3,350


$2,951


$12,751


$9,825









Reconciliation of GAAP diluted net income per share to non-GAAP diluted net income per share








Fully diluted shares

10,707


9,968


10,724


9,922

GAAP net income attributable to RCIHH

$0.78


$0.07


$0.85


$0.69

Amortization of intangibles

0.03


0.01


0.08


0.03

Stock-based compensation

0.01


0.00


0.03


0.02

Litigation and other one-time settlements

0.00


0.32


0.99


0.35

Gain on settlement of Patron tax case

(0.76)


-


(0.76)


-

Pre-opening costs

-


0.03


0.03


0.07

Impairment of assets

-


-


0.13


-

Income tax expense

0.41


0.02


0.47


0.35

Acquisition costs

0.01


0.00


0.03


0.01

Non-GAAP provision for income taxes

(0.16)


(0.16)


(0.62)


(0.52)

Non-GAAP diluted net income per share

$0.32


$0.30


$1.22


$0.99

 

 

RCI HOSPITALITY HOLDINGS, INC. AND SUBSIDIARIES

NON-GAAP FINANCIAL MEASURES










For the Three Months 


For the Nine Months 


Ended June 30,


Ended June 30,







(in thousands, except per share data)

2015


2014


2015


2014









Reconciliation of GAAP operating income to non-GAAP operating income








GAAP operating income

$14,152


$2,892


$17,676


$15,965

Amortization of intangibles

312


82


892


254

Stock-based compensation

120


2


360


156

Litigation and other one-time settlements

10


3,233


10,560


3,503

Gain on settlement of Patron tax case

(8,167)


-


(8,167)


-

Impairment of assets

-


-


1,358


-

Pre-opening costs

-


306


328


743

Acquisition costs

105


22


283


111

Non-GAAP operating income

$6,532


$6,537


$23,290


$20,732









Reconciliation of GAAP operating margin to non-GAAP operating margin








GAAP operating income

39.6%


8.7%


16.1%


16.7%

Amortization of intangibles

0.9%


0.2%


0.8%


0.3%

Stock-based compensation

0.3%


0.0%


0.3%


0.2%

Litigation and other one-time settlements

0.0%


9.7%


9.6%


3.7%

Gain on settlement of Patron tax case

-22.8%


0.0%


-7.4%


0.0%

Impairment of assets

0.0%


0.0%


1.2%


0.0%

Pre-opening costs

0.0%


0.9%


0.3%


0.8%

Acquisition costs

0.3%


0.1%


0.3%


0.1%

Non-GAAP operating margin

18.3%


19.6%


21.2%


21.7%

 

 

RCI HOSPITALITY HOLDINGS, INC. AND SUBSIDIARIES

SEGMENT INFORMATION















For the Three Months



For the Nine Months


Ended June 30,



Ended June 30,

(in thousands)

2015


2014



2015


2014










Business segment sales:









Nightclubs

$

30,568


$

31,486



$

93,564


$

91,037

Bombshells


4,789



1,585




14,510



3,668

Other


404



272




1,584



931


$

35,761


$

33,343



$

109,658


$

95,636














Business segment operating income:











Nightclubs

$

17,271


$

8,526



$

26,000


$

25,947

Bombshells


369



(170)




1,480



(268)

Other


(682)



(220)




(1,995)



(521)

General corporate


(2,806)



(5,244)




(7,809)



(9,193)


$

14,152


$

2,892



$

17,676


$

15,965














Reconciliation of Nightclubs GAAP operating income to non-GAAP operating income













Nightclubs operating income

$

17,271


$

8,526



$

26,000


$

25,947

Gain on settlement of Patron tax case


(8,167)



-




(8,167)



-

Litigation and other one-time settlements


10



3,233




10,560



3,503

Impairment of assets


-



-




1,358



-

Nightclubs non-GAAP operating income

$

9,114


$

11,759



$

29,751


$

29,450














Nightclubs non-GAAP operating margin


29.8%



37.3%




31.8%



32.3%

Logo - http://photos.prnewswire.com/prnh/20140805/133696

 

SOURCE RCI Hospitality Holdings, Inc.



RELATED LINKS

http://www.rcihospitality.com