RCI Hospitality Reports FY15 Results, FY16 Outlook & Greater Pace of Share Repurchases
HOUSTON – December 14, 2015 – RCI Hospitality Holdings, Inc. (Nasdaq: RICK) today announced results for the fiscal year ended September 30, 2015, its outlook for FY16, and a significantly increased pace of share buy backs in 1Q16.
FY15 vs. FY14
· GAAP EPS diluted of $0.90 compared to $1.13. FY15 included expenses from the previously announced NY FLSA legal settlement and others, partially offset by the previously announced gain from the Texas Patron Tax settlement. FY14 benefitted from a gain on contractual reduction of debt.
· Non-GAAP EPS* diluted of $1.39 increased 10.3% from $1.26 in FY14. Non-GAAP EPS excludes many of the above mentioned items as well as other items from both periods for comparability.
· Total revenues of $144.7 million increased 12.0% year over year from $129.2 million.
4Q15 vs. 4Q14
· GAAP EPS diluted of $0.05 compared to $0.42. 4Q15 included expenses from legal settlements and related costs, while 4Q14 benefitted from a $5.6 million gain on contractual debt reduction.
· Non-GAAP EPS diluted of $0.17 compares to $0.23 in 4Q14. As indicated, non-GAAP EPS excludes many of the above mentioned items as well as other items from both periods for comparability.
· Total revenues of $35.0 million increased 4.4% year over year from $33.5 million.
Share Buy Backs
· RCI did not repurchase any shares in 4Q15 while final resolution of the NY FLSA settlement was pending.
· For all of FY15, the company used $2.3 million to buy back 225,280 shares in the open market in FY15.
· Since then, however, RCI has spent approximately $1.6 million to buy back 159,305 shares in 1Q16 to date.
A conference call to discuss these results, outlook and related matters will be held today at 4:30 PM ET:
· Live Participant Dial In (Toll Free): 877-407-9210
· Live Participant Dial In (International): 201-689-8049
· Webcast URL: http://www.investorcalendar.com/IC/CEPage.asp?ID=174557
Eric Langan, President and CEO, invites investors for a “Due Diligence Ball” to meet, talk and tour one of the company’s top revenue generating clubs.
· When: Today, December 14, 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 [email protected]
“We are pleased to have generated record EPS on a non-GAAP basis in Fiscal 2015 as well as settling our two major outstanding legal issues and many other remaining unrelated cases,” said Mr. Langan.
“Going forward, we no longer have to conserve our superior cash generating power. Under our capital allocation strategy, we are free to use our free cash flow to buy back shares and return capital to shareholders.
“Moreover, earnings and free cash flow should benefit from expanded margins in FY16 and beyond, and from our access to conventional bank financing with lower rates and longer amortizations.
“Based on our current share price, we estimate the current risk-adjusted, after-tax, free cash flow yield of buying our own shares is far greater than the return we would realize from expanding the business.
“Consequently, we have stepped up our share acquisition effort. To date in fiscal 2016, we have acquired $1.6 million in shares compared to $2.3 million for all of FY15.
“We plan to continue buying back shares until our stock, in our view, is more fully valued. While there is always the possibility compelling opportunities may arise, for now we will continue to return value to shareholders through repurchases before acquiring new adult clubs, opening new restaurants, or paying down debt ahead of schedule.
“Enabling RCI to be able to do this is our growing cash generating power, as reflected by adjusted EBITDA, which in FY15 increased 6.1% year over year to $34.6 million."
FY16 Outlook (expenses as % of revenue)
While the company has focused on growing revenues over the last five years, RCI now is placing increased emphasis on expanding margins:
· With the resolution of major legal issues, legal costs are expected to decline, reversing the trend when they started growing from 2.3% in FY13 to 3.2% in FY15.
· New insurance with major firms is already resulting in reductions. This cost fell to 2.3% in FY15 from 3.1% in FY14.
· Access to bank financing is reducing interest costs. This has reversed the trend in RCI’s cost of occupancy, which is calculated as a combination of rent plus interest. That fell to 7.9% in FY15 from 9.7% in FY14.
· New bank debt also comes with extended amortizations. RCI estimates this will expand free cash flow by approximately $2.3 million in FY16.
· Over the last two years RCI has eliminated six units not meeting expectations. Based on each one’s performance in its last year of operation, they collectively cost the company approximately $2.2 million.
“With annual revenues of about $145 million, if costs are reduced by an amount equal to 1% of revenue, that reduction would equate to approximately $0.09 per share in after tax profit, using the September 30th share count,” Mr. Langan said.
4Q15 Analysis (all comparisons to year ago periods unless otherwise noted)
· Total revenues of $35.0 million grew 4.4% from $33.5 million.
· 43 units in operation versus 44, down 2.3%.
· Same store sales declined 5.6%. Units in Texas were mixed, but some of the largest clubs around the country did well. Marketing is being adjusted with expectations of improvement in the second half of FY16.
· Units opened less than a year added $4.1 million. This included the January acquisition of Down in Texas Saloon in Austin, TX and the May acquisition of The Seville Club of Minneapolis, plus Bombshells Houston-South, which opened in November 2014.
Operating Income & Margin
· GAAP income from operations increased 10.0% to $3.2 million (9.1% of revenues) compared to $2.9 million (8.7%).
· 4Q15 GAAP income from operations included approximately $2.9 million in non-recurring items:
o Final $0.8 million payment related to the NY FLSA legal settlement. This is in addition to the $10.3 million previously reserved in 2Q15, when agreement was reached.
o $0.3 million in other legal settlements, to remove any ongoing overhang from these issues.
o $1.0 million in final legal and professional costs related to resolving these issues and others.
o $0.8 million in leasehold improvements for a prospective Bombshells space now in legal dispute.
· 4Q15 non-GAAP operating income was $5.3 million (15.2% of revenues) compared to $5.8 million (17.3%). RCI’s standard non-GAAP operating income and margin calculations exclude some, but not all of the non-recurring expenses listed above.
· RCI’s cash generating power for the quarter, as reflected by adjusted EBITDA, amounted to $6.2 million compared to $7.4 million in the year ago quarter.
· 38 units in operation versus 40, down 5.0%.
· Sales declined 2.7%, to $29.7 million from $30.4 million.
· GAAP operating income was $5.4 million (18.3% of revenues) compared to $4.6 million (15.0%).
· Non-GAAP operating income was $6.9 million (23.2% of revenues) compared to $7.0 million (23.1%). Non-GAAP excludes litigation and other one-time settlements and impairment of assets in both periods.
· 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 an $11.325 million 5.45% bank loan.
· Five units in operation versus four, up 25.0%.
· Sales increased 80%, to $4.6 million from $2.5 million.
· GAAP operating loss was $0.4 million compared to approximately breakeven.
· Non-GAAP operating income was a profit of $0.4 million (9.1% of revenues) compared to approximately breakeven. Non-GAAP excludes the previously mentioned loss on leasehold improvements.
· Operating margin should increase as revenues continue to build and training costs subside.
Balance Sheet (September 30, 2015 compared to September 30, 2014)
· Assets increased 13.2% to $270.8 million, primarily due to the acquisition of Down in Texas Saloon in Austin, TX; The Seville Club of Minneapolis; and Miami Gardens Square.
· Current liabilities declined 41.7% to $22.9 million primarily due to the Texas Patron Tax settlement.
· Total long-term debt increased 34.9%, to $94.9 million, due to previously mentioned acquisitions offset by debt pay downs.
· Blended interest paid on long term debt fell to 7.8% at the end of FY15 from 8.5% in FY14.
· Total stockholders’ equity increased 13.4% to $128.5 million, primarily reflecting core profits and the after-tax benefit of the gain from the Patron Tax Settlement.
· Book value per share increased 17.1%, to $12.81 from $10.94.
*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 non-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, gain on settlement of patron tax issue, impairment of assets, pre-opening costs, 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, 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. 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, pre-opening costs, acquisition costs, litigation and other one-time legal settlements, gain on settlement of patron tax case, 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.
About RCI Hospitality Holdings, Inc. (Nasdaq: RICK)
With 43 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
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.
Media & Investor Contacts
Gary Fishman and Steven Anreder at 212-532-3232 or [email protected] and [email protected]