Rick's Cabaret International, Inc. Reports $13.4 Million Non-GAAP Net Income For Fiscal 2013 vs. Year Ago $12.3 Million; Non-GAAP EPS Was $1.40 vs. $1.27

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Dec 16, 2013, 04:05 ET

HOUSTON, Dec. 16, 2013 /PRNewswire/ -- Rick's Cabaret International, Inc., (NasdaqGM:RICK), the publicly traded hospitality company operating gentlemen's clubs and restaurants, today reported non-GAAP* net income of $13.4 million for the year ended September 30, 2013 vs. $12.3 million in the previous year, on revenue of $112.2 million vs. $95.2 in the previous year. Non-GAAP EPS was $1.40 vs. $1.27 in the previous year. GAAP net income was $9.2 million vs. $7.6 million, with EPS of 96 cents vs. 78 cents last year.

(Logo: http://photos.prnewswire.com/prnh/20110418/MM85342LOGO)

For its fourth quarter ended September 30, 2013, the Company GAAP net income was $1.6 million vs. $1.5 million in the previous year; non-GAAP net income was $2.5 million vs. $3.0 million last year; GAAP EPS was 17 cents for the quarter vs. 15 cents last year; non-GAAP EPS for the fourth quarter of 2013 was 27 cents vs. 31 cents last year.

"Fiscal 2013 was in many ways a transitional year for us as we moved from a recessionary model in many clubs to our more typical formats," said President and CEO Eric Langan. "This shift means that some lower margin customers are visiting the clubs less frequently, but higher margin guests are returning, which helps improve our income picture. The year was also notable for the launch of our restaurant division, which we believe will become a solid growth catalyst in the future. Going forward, we are looking at a strong 2014. We have over 40 locations open at the present time, with six more in various stages of development or construction. We continue to examine acquisition possibilities and ways to unlock the value of our real estate."

The Company will hold a conference call today at 4:30 pm ET during which Mr. Langan will discuss the fiscal year and quarterly results, and comment on the outlook for fiscal 2014. The call-in number is 877-407-8033 (International: 201-689-8033), with webcast at www.ricksinvestor.com. Replay of the call is available at 877-660-6853 (ID number 13572974). In addition, following the conference call today the Company plans a "Due Diligence Reception" from 6 p.m. to 8 p.m. at its New York City Rick's Cabaret club (50 West 33^rd St.) during which investors will get a chance to tour the club and see its operations first hand.

In the Management Discussion and Analysis section of the Company's Form 10K filed today with the SEC, the company said:

The increase in total revenues for fiscal 2013 was generated chiefly from new clubs and restaurants acquired or launched in 2013, a full year of revenues from clubs purchased in 2012, and increased sales at some existing clubs, especially XTC Cabaret in Austin, Rick's Cabaret DFW and the two cabarets in Minneapolis, MN.
Non-GAAP operating margins were 24.5 percent, level with the previous year, while GAAP operating margins increased to 19.7 percent for 2013 compared to 17.3 percent for the prior year.
The increase in both GAAP and non-GAAP net income, although slowed in part by costs associated with the opening of new restaurants, was attributed to pricing changes, lower cost of goods sold achieved through better inventory management and other efficiencies, and a decline in legal and professional expenses.
Cash flow generated from operating activities remained level with 2012, at $18.4 million.

As of September 30, 2013, the company had long-term debt of $78.6 million compared to $63.5 million a year earlier, of which $38.7 million is related to real estate. A total of $24.4 million in principally real estate debt was added as a result of 2013 acquisitions, while the Company also amortized $9.3 million of long-term debt during the year.

RICK'S CABARET INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF INCOME Year Ended September 30

	Year Ended September 30,
(in thousands, except per share data)	2013		2012		2011

Revenues:
Sales of alcoholic beverages	$	43,189	$	38,687	$	32,575
Sales of food and merchandise		12,249		8,810		7,402
Service revenues		49,974		41,942		38,178
Other		6,796		5,781		5,336
Total revenues		112,208		95,220		83,491

Operating expenses:
Cost of goods sold		14,152		12,644		10,427
Salaries and wages		25,145		20,857		18,321
Stock-based compensation		847		315		8
Other general and administrative:
Taxes and permits		17,607		14,639		12,542
Charge card fees		1,482		1,352		1,361
Rent		3,642		2,872		2,988
Legal and professional		3,114		5,861		2,289
Advertising and marketing		4,611		4,046		3,471
Depreciation and amortization		5,314		4,921		3,904
Insurance		2,208		1,439		1,157
Utilities		2,241		1,762		1,605
Loss on sale of property and other		16		332		-
Other		9,716		7,667		6,624
Total operating expenses		90,095		78,707		64,697
Income from operations		22,113		16,513		18,794

Other income (expense):
Interest income		9		19		118
Interest expense		(6,538)		(4,003)		(3,930)
Interest expense – loan origination costs		(539)		(310)		(359)
Gain on change in fair value of derivative instruments		1		117		129
Gain on settlement of debt		-		-		903
Income from continuing operations before income taxes		15,046		12,336		15,655
Income taxes		5,501		4,374		5,403
Income from continuing operations		9,545		7,962		10,252
Loss from discontinued operations, net of income taxes		(143)		(172)		(2,195)
Net income		9,402		7,790		8,057
Less: net income attributable to noncontrolling interests		(211)		(212)		(211)
Net income attributable to Rick's Cabaret International, Inc.	$	9,191	$	7,578	$	7,846

Basic earnings (loss) per share attributable to Rick's shareholders:
Income from continuing operations	$	0.98	$	0.80	$	1.01
Loss from discontinued operations		(0.02)		(0.02)		(0.22)
Net income	$	0.97	$	0.78	$	0.79
Diluted earnings (loss) per share attributable to Rick's shareholders:
Income from continuing operations	$	0.98	$	0.80	$	1.01
Loss from discontinued operations		(0.01)		(0.02)		(0.22)
Net income	$	0.96	$	0.78	$	0.79

Weighted average number of common shares outstanding:
Basic		9,518		9,691		9,930
Diluted		9,615		9,697		9,932

RICK'S CABARET INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF INCOME Quarter Ended September 30

	Quarter Ended September 30,
(in thousands, except per share data)	2013	2012

Revenues:
Sales of alcoholic beverages	$ 10,635	$ 9,654
Sales of food and merchandise	3,505	2,191
Service revenues	11,885	10,199
Other	2,006	1,823
Total revenues	28,031	23,867

Operating expenses:
Cost of goods sold	3,591	3,043
Salaries and wages	6,545	5,429
Stock-based compensation	2	282
Other general and administrative:
Taxes and permits	4,538	3,621
Charge card fees	356	310
Rent	1,443	722
Legal and professional	851	3,428
Advertising and marketing	1,159	1,052
Depreciation and amortization	1,345	1,213
Insurance	566	412
Utilities	677	498
Loss on sale of property and other	16	-
Other	2,589	2,235

Total operating expenses	23,678	20,214
Income from operations	4,353	3,653
Other income (expense):
Interest income	3	17
Interest expense	(1,804)	(1,255)
Gain on change in fair value of derivative instruments	(1)	117
Gain on settlement of debt	-	-
Income from continuing operations before income taxes	2,551	2,532
Income taxes	893	1,008
Income from continuing operations	1,658	1,524
Loss from discontinued operations, net of income taxes	(2)	(17)
Net income	1,656	1,507
Less: net income attributable to non-controlling interests	(52)	(53)
Net income attributable to Rick's Cabaret International, Inc.	$ 1,604	$ 1,454
Basic earnings (loss) per share attributable to Rick's shareholders:
Income from continuing operations	$ 0.17	$ 0.15
Loss from discontinued operations	-	-
Net income	$ 0.17	$ 0.15
Diluted earnings (loss) per share attributable to Rick's shareholders:
Income from continuing operations	$ 0.17	$ 0.15
Loss from discontinued operations	-	-
Net income	$ 0.17	$ 0.15

Weighted average number of common shares outstanding:
Basic	9,504	9,633
Diluted	9,603	9,636

RICK'S CABARET INTERNATIONAL, INC.
*NON-GAAP MEASURES FOR YEAR ENDING SEPTEMBER 30**

The following tables present our non-GAAP measures for the periods indicated (in thousands, except per share amounts):

	For the Year Ended
	September 30,

(in thousands)	2013	2012	2011
Reconciliation of GAAP net income to
Adjusted EBITDA
GAAP net income	$ 9,191	$ 7,578	$ 7,846
Income tax expense	5,501	4,374	5,403
Interest expense and income and gain on derivative	7,067	4,177	4,042
Litigation and other one-time settlements	707	2,533	-
Acquisition costs	166	-	119
Loss from discontinued operations	143	172	2,195
Depreciation and amortization	5,314	4,921	3,904
Adjusted EBITDA **	$ 28,089	$ 23,755	$ 23,509

Reconciliation of GAAP net income (loss) to
non-GAAP net income
GAAP net income	$ 9,191	$ 7,578	$ 7,846
Patron tax	3,236	3,019	2,875
Amortization of intangibles	409	463	459
(Gain) loss on change in fair value of derivative instruments	(1)	(117)	(129)
Stock-based compensation	847	315	8
Litigation and other one-time settlements	707	2,533	-
Income tax expense	5,501	4,374	5,403

Acquisition costs	166	462	100
Loss from discontinued operations, net of income taxes	143	172	2,195
Non-GAAP provision for income taxes	(6,773)	(6,469)	(6,562)
Non-GAAP net income	$ 13,426	$ 12,330	$ 12,195

Reconciliation of GAAP diluted net income
per share to non-GAAP diluted net income per share
Fully diluted shares	9,615	9,697	9,932
GAAP net income	$ 0.96	$ 0.78	$ 0.79
Patron tax	0.34	0.31	0.29
Amortization of intangibles	0.04	0.05	0.05
(Gain) loss on change in fair value of derivative instruments	(0.00)	(0.01)	(0.01)
Stock-based compensation	0.09	0.03	0.00
Litigation and other one-time settlements	0.07	0.26	-
Income tax expense	0.57	0.45	0.54

Acquisition costs	0.02	0.05	0.01
Loss from discontinued operations, net of income taxes	0.01	0.02	0.22
Non-GAAP provision for income taxes	(0.70)	(0.67)	(0.66)
Non-GAAP diluted net income per share	$ 1.40	$ 1.27	$ 1.23

Reconciliation of GAAP operating income to
non-GAAP operating income
GAAP operating income	$22,113	$16,513	$ 18,794
Patron tax	3,236	3,019	2,875
Amortization of intangibles	409	463	459
Stock-based compensation	847	315	8
Litigation and other one-time settlements	707	2,533	-

Acquisition costs	166	462	100
Non-GAAP operating income	$27,478	$23,305	$ 22,236

Reconciliation of GAAP operating margin to
non-GAAP operating margin
GAAP operating income	19.7%	17.3%	22.5%
Patron tax	2.9%	3.2%	3.4%
Amortization of intangibles	0.4%	0.5%	0.5%
Stock-based compensation	0.8%	0.3%	0.0%
Litigation and other one-time settlements	0.6%	2.7%	0.0%
Acquisition costs	0.1%	0.5%	0.1%
Non-GAAP operating margin	24.5%	24.5%	26.6%

*Explanation of 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 GAAP operating income and GAAP operating margin amortization of intangibles, patron taxes, 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.

Non-GAAP Net Income and Non-GAAP Net Income per Basic Share and per Diluted Share. We exclude from GAAP net income and GAAP net income per diluted share and per basic 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.

About Rick's Cabaret: Rick's Cabaret International, Inc. (NASDAQ: RICK) is home to restaurants and upscale adult nightclubs serving primarily businessmen and professionals that offer live entertainment, dining and bar operations. Nightclubs in New York City, Los Angeles, Miami, Philadelphia, Charlotte, Dallas/Ft. Worth, Houston, Minneapolis, Indianapolis and other cities operate as "Rick's Cabaret," "XTC," "Club Onyx," "Vivid Cabaret," "Jaguars" and "Tootsie's Cabaret" and other brand names. Restaurants include "Bombshells" and "Ricky Bobby Sports Saloon." Sexual contact is not permitted at any locations. Rick's Cabaret also operates a media division, ED Publications. Rick's Cabaret common stock is traded on NASDAQ under the symbol RICK. For further information contact [email protected] or visit www.ricksinvestor.com. Twitter: @rickscabaret; Facebook: http://www.facebook.com/rickscabaretintl.

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. Rick's has no obligation to update or revise the forward-looking statements to reflect the occurrence of future events or circumstances. For further information visit www.ricksinvestor.com.

SOURCE Rick's Cabaret International, Inc.