Good afternoon, ladies and gentlemen. Greetings and welcome to RCI Hospitality Holdings' second quarter earnings call, the first ever earnings call by a publicly traded company hosted on the Twitter Spaces platform. You can find today's presentation pinned to the top of this Spaces page. Now, please turn with me to slide number 2 of our presentation. I'm Mark Moran, Head of Business Development and Operations at Litquidity, a Wall Street communications and media firm. I'll be the host of our call today. I'm here with Eric Langan, President and CEO of RCI Hospitality, and Bradley Chhay, CFO of the company. Now, please turn to slide 3. If you aren't doing so already, it's easy to participate on this Twitter Space. On Twitter, search @RICCEO and click the pinned tweet.
We want to remind you that if you would like to ask a question through Twitter Spaces, you'll need to be joining the Twitter Space with a mobile device. In addition to Twitter Spaces, RCI is making this call available through traditional landline and webcasting. At this time, all participants are in a listen-only mode, and question and answer session will follow the formal presentation. With this being the first ever earnings call on Spaces, we're gonna be doing this a bit differently. For our Q&A portion, we'll start off with equity research analysts and selected shareholders, then move into a fireside chat format for all to have the opportunity to participate. Be sure to reshare this and engage. Now please turn with me to page four. I want to remind everybody of our safe harbor statement.
It is posted at the beginning of this presentation, and it reminds you that you may hear or see forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those currently anticipated, and we disclaim any obligation to update information disclosed in this call as a result of developments that occur after the call. Now please turn with me to slide five. I also direct to you an explanation of non-GAAP measurements that we use. As a reminder, this conference is being recorded. I'd also like to invite everyone listening in the South Florida area to join Eric and me tonight at 8:00 P.M. to meet management at Tootsie's Cabaret in Miami, one of the top adult clubs in the country and RCI's top revenue-generating club. Tootsie's is located at 150 Northwest 183rd Street.
If you haven't RSVP'd, just ask for Eric or me at the door. Now, it's my pleasure and my privilege to introduce Eric Langan, President and CEO of RCI Hospitality.
Thank you, Mark and thanks for joining us today, everyone. We had an outstanding quarter across the board. Nearly all of our key metrics were up double digits year-over-year for the second quarter and the first half. Nightclubs and Bombshells continued to perform well. That includes our 12 recent club acquisitions and our new company-owned Bombshells in Arlington, Texas. High-margin service revenues continued to rebound, especially in our New York market, and favorable trends are continuing. Total revenues in April exceeded March. We are also executing well on our growth plan. In nightclubs, we made one acquisition, and we have a second under contract. For Bombshells, we acquired real estate for another company-owned location, and we have two other locations under contract.
Our first franchisee is very close to opening their first location in San Antonio, and we've announced a second franchisee with plans to open their first location in Huntsville, Alabama. Our efforts to harness new technologies to drive club traffic are all moving ahead as planned. We have also continued to take advantage of market conditions to buy back shares. Now here's Bradley to re-review the financials for the quarter.
Thanks, Eric and good afternoon to all those listening. All of our comparisons in this call will be to the year ago second quarter, unless otherwise noted. The second quarter marks the second anniversary since COVID hit in March 2020. With that in mind, I'm pleased to report we generated record revenues of $63.7 million, up 44.6% year-over-year. Omicron affected the first four-six weeks of the quarter. We estimate it reduced revenue by close to $2 million. Since then, sales have been strong and even growing stronger. Nonetheless, EPS increased 69.1% to $1.15. Non-GAAP EPS was $1.19, up 58%. Net cash from operating activities was $11.6 million, an increase of 5.7%.
Free cash flow totaled $11.1 million, which was up 23.3%. Net income attributed to RCI Hospitality Holdings was $11 million, up 79.8%. Lastly, adjusted EBITDA totaled $19.9 million, which is up 46.8%. Please turn to page seven. The second quarter nightclub segment revenues, operating margin, and income from operations were all up significantly from a year-ago quarter once again. Revenues totaled $48.2 million and grew 56.5% year-over-year. Operating margin was 39.7%, up from 34% last year. Non-GAAP operating margin was 39.5%, up from 38.8% last year. Segment operating profit totaled $19.1 million.
That's up 82.7% year-over-year. Non-GAAP segment operating profit was $19 million for a 58.9% increase year-over-year. Revenues grew $17.4 million year-over-year, attributed to some factors. Newly acquired clubs accounted for about 50% of that. Clubs that were open enough days to qualify for same-store sales accounted for 20% of that. Eight northern clubs, not including any of our recent acquisitions, accounted for about 30% of that. These clubs, which do substantial VIP business, were not included in the same-store sales as they were not open enough days in the year ago quarter. Segment operating margin was also benefited from high margin service revenues, which were up 87.8% year-over-year.
We look forward to continued progress with our acquisitions and our northern clubs as they continue to rebuild their businesses. We also look forward to continued strong performance from our other clubs. Now please turn to page eight. Bombshells also had a good second quarter. Revenues totaled $15.3 million. That's up 16.7% year-over-year. Operating margin was 22.6% compared to 23.9%. Revenues grew $2.2 million year-over-year. 85% of that came from Bombshells Arlington, which opened up in early December. Another 14% came from an increase in same-store sales. Our operating margin came in at 22.6% and significantly improved from 19% in the first quarter.
Now if you recall, our first quarter operating margin was affected by more than two months of pre-opening costs without sales for our newest location, Bombshells Arlington. As a result, segment operating profit was $3.5 million in the second quarter. That represents an increase of 10.4% year-over-year and 23.8% from the preceding quarter. Overall, we believe that we're doing a great job at managing the impact and food inflation. We look forward to continued progress in this segment as well. Please turn to page nine to review our second quarter consolidated statement of operations. Cost of goods sold as a percentage of revenue improved to 13.8% as compared to 15.4% a year ago. This is the best performance since fourth quarter of 2019.
Margin improvement primarily reflected the increase in the sales mix to higher margin service revenues within the nightclub segment. Service revenues represented 33.8% of sales in the second quarter compared to 26.1% in the year-ago quarter. Small price increases in the nightclub and Bombshells segment also contributed to a strong margin performance. Salaries and wages and SG&A were approximately level from a year-ago quarter as a percentage of revenue. Salaries and wages reflected the addition of new employees at acquired units along with new mandates which increased the minimum wage as of January 1st in some of our states in which we operate. SG&A reflected increased variable expenses related to those sales. As sales at acquired units continue to grow, related salary and SG&A costs should decline as a percentage of revenue.
Consolidated operating margin was 26.8% of revenues compared to 22.3%. Non-GAAP operating margin was 26.9% compared to 25.9%. Interest expense declined as a percentage of revenues, although the dollar amount was slightly higher. This reflects higher sales and lower weighted average interest rate, partially offset by higher debt related to financing club acquisitions in the first quarter and the real estate in the second quarter. Now please turn to page 10. Cash and cash equivalents were a record $38.1 million on March 31st. I already went over our numbers of free cash flow and adjusted EBITDA for the quarter, so I'd like to take this time to actually focus on the six-month trends.
Free cash flow for the first half of the year was $26.3 million, which was up 79.8% year-over-year. As a percentage of revenue, free cash flow for the first half was 21%, in line with our expectation. Maintenance CapEx was a little low in the second quarter but it will return to a more normalized number for the second half of the year. We expect it to be about $6 million for the year. Adjusted EBITDA was $37.9 million, which was up 70.2% year-over-year. As a percentage of revenues, it was 30.2%, also in line with our expectations. Please turn to page 11 to review our debt and debt manageability.
Debt net of loan costs was $178.1 million at March 31st. That's an increase of $16.2 million from December 31st. The increase primarily reflected the January 2022 real estate loan. We continue to reduce our weighted average interest rate. Our second quarter rate was 6.14%. That compares favorably to 6.66% a year ago and 7.23% five years ago. Our periodic refinancings enables us to convert higher rate seller financing and other unsecured financing used in club acquisitions into lower rate commercial real estate bank debt. We currently have multiple unencumbered properties in our portfolio. We can borrow against them should we need additional capital.
Our refinancings enables us to smooth out debt maturity schedules, and currently, our amortization is about $7 million-$8 million range a year for the next five years, which is very manageable with our cash flows. Occupancy costs were 7% of revenues. This is well within our 6%-9% range we've averaged when sales weren't dramatically impacted by COVID. Now please turn to page 12 to look at our March 31st debt pie chart. Our debt primarily consists of 66.5% of our debt, which is secured by real estate. 19.3% of that is seller financing debt. This is secured by respective clubs to which it applies to. 4.4% of that debt is secured by other assets. Unsecured asset consists of less than 10% of our total debt.
As we mentioned on our last call, we have reached the end of our Texas Comptroller settlement. This has been costing us about $1.3 million a year in cash flow, which is great news. Now, let me turn the call over back to Eric. Thank you.
All right. Thank you, Bradley. Please turn to page 13 of the presentation. We're continually talking to new investors and have several on this Twitter Spaces. I'd like to go over our capital allocation strategy. Our goal is to drive shareholder value by increasing free cash flow per share 10%-15% on a compounded annual basis. Our strategy is similar to those outlined in the book, The Outsiders by William Thorndike. He studied companies that focused on generating cash flow per share and allocating that cash effectively to generate more cash. We have been applying these strategies since fiscal 2016 with three different actions, subject of course, to whether there's strategic rationale to do otherwise. One is mergers and acquisitions, specifically buying the right clubs in the right markets.
We like to buy good, solid cash flowing clubs at 3x-5x adjusted EBITDA. We use a combination of cash, seller financing, and acquire the real estate at market value. Another strategy is using cash to grow organically, specifically expanding Bombshells to develop critical mass, market awareness, and sell franchisees. Our goal in both M&A and organic growth is to generate annual cash on cash returns of at least 25%-33%. The third action is buying back shares of our stock when the yield on free cash flow per share is more than 10%. For fiscal 2022, as of last Friday, we bought back 83,343 shares for a total of $5.3 million or an average price of $62.37. Please turn to page 14 for a review of our growth initiatives.
In our nightclub segment, we are making good progress with the clubs we acquired in the first quarter. At the end of March, we reopened our rebranded club in Louisiana at Scarlett's Cabaret. In May, we opened Rick's Steakhouse and Lounge in the same building as Scarlett's in Miami. We expect to open another reformed or reformatted club this quarter in San Antonio. In May, we acquired a club in South Florida. We have a club in Fort Worth under contract, and we are in active discussions with a number of other club owners. These acquisitions are part of our efforts to add $20 million of adjusted EBITDA in fiscal 2023. In our Bombshells segment, the new Arlington store is doing very well.
During the second quarter, we acquired property in Stafford, Texas, a suburb of Houston, for our 12th location, and we are under contract to purchase two more locations, one in Rowlett, a suburb of Dallas, and one in Lubbock, Texas. We continue to look for more locations in Dallas, Austin, Florida, and Arizona. Our first franchisee expects to open its first location soon in San Antonio, and the agreement with our second franchisee calls for three locations over five years in Alabama, the first to be in Huntsville. We are in serious talks with three potential franchise groups. Regarding capital management, as we previously reported, we acquired the Scarlett's property for $7 million in cash at the end of the first quarter.
Our $18.7 million bank loan in January provided us with more resources to implement our capital allocation strategy, and we sold an excess parcel of real estate for $2.1 million in the second quarter. We have two more pieces of real estate currently under contract for sale for a total of more than $7.7 million, and these transactions are expected to close by the end of the fiscal year. Please turn to page 15. I'd like to take another minute to review how we are harnessing new technology to drive club traffic and in particular, attract the next generation of customers. In early March, we began rolling out Bitcoin as a method of payment at our clubs, starting right here in South Florida at our flagship Tootsie's and Scarlett's clubs.
Acceptance has been really good, particularly in light of all the crypto-related investment conferences taking place in Miami. Our new Rick's Steakhouse & Lounge in Miami also is accepting Bitcoin. In April, we announced a guest benefits NFT program called Tip-N-Strip. We expect it to go on sale sometime later this quarter. This will be the ultimate party pass with an annual party at Tootsie's, access to other private parties, VIP experiences, and a wide range of other benefits. The reaction has been particularly good, and we expect to mint it by the end of June. AdmireMe, our new social media platform, is now in full beta testing with a soft launch plan for later this quarter. Similar to OnlyFans, it enables entertainers at our clubs to post content and receive payment from their admirers so they can build an internet business as well as their club business.
That ends the formal presentation. With a big thanks to all of our teams, nightclubs, Bombshells, and our corporate staff for all your hard work and dedication. With that, Mark, let's open the line for questions.
Thank you, Eric and Bradley. The floor is now gonna be open for questions. If you would like to ask a question, please raise your hand in the Twitter Spaces. When you're done asking your question, please mute your microphone to eliminate the background noise. We will now take our first question from the audience. We're gonna have Joe Gomes of Noble Capital Markets.
Hello, this is Joe Gomes. Can you hear me?
Hey, Joe. Loud and clear.
Oh, perfect. This is Twitter stuff is actually working. Fantastic. Great quarter. Thanks for taking the questions. The first one I wanted to jump in with is you mentioned the club acquisitions, one in South Florida, one in Fort Worth under contract. Can you provide any details about them, you know, the cost or the multiples that you're paying, what you expect them to add to the top line? You know, you had that goal of adding $20 million of EBITDA. How far along do they get you to that goal? Go that one first, and I've got a couple follow-ups.
Sure. Well, the South Florida acquisition, we filed the 8-K on Friday. You see it's a $16 million acquisition. It includes the real estate. We estimate it'll add about $3 million in EBITDA. The price is about $13 million, so just over 4x, plus the real estate is $3 million. As far as the Fort Worth location, this is a location that basically the owner had passed away. His family, the club was closed at this time, and his family had the property and licenses available for sale. So we basically purchased them for the value of the real estate, and we'll build the club out. We'll probably do a full remodel of the location.
We also are talking with several other operators around the country right now to line up additional acquisitions, including one significant size, probably around $8 million in EBITDA on a multi-club acquisition. We're waiting for, you know, various stages of waiting for financials, reviewing financials, other due diligence as well. I suspect that, by the end of, you know, by definitely through fiscal 2023, we'll be able to add the $20 million without too much problem at all. I'll take the next question.
Hey, Joe, you're gonna need to unmute yourself to speak again for the follow-up.
Sorry about that. On the events side, you know, one of the big events for this year was the F1 race, t hat was yesterday in Miami. Just, you know, Eric, maybe give us a little impression of how that went for the clubs, the Scarlett's and Tootsie's, in that area, how the F1 race helped them?
Yeah, sure. To give you an idea, Miami, Tootsie's did its first a million dollar week without a Super Bowl in town, which was fantastic for us. Overall, company sales exceeded $6 million for the first time last week, so we did very well. We also had the Kentucky Derby in Louisville which is great for the Louisville location. Just overall, a lot of our locations are, you know, performing at super high levels right now.
Great. If I could just sneak in one more here. Just wanted to talk a little bit about the NFTs. You know, will the mining of those generate a new source of high-margin revenue for Rick's? Do you think the NFT program will help generate more revenue for the clubs on an ongoing basis?
Sure. The NFT itself is not about raising a bunch of money for, you know, or creating a big revenue stream. It's about creating a community of end users for our products and creating basically a benefits program for those users, including an annual party. I think over the long run, it will increase revenues at the clubs by creating, you know, like I said, a loyalty following of those users. I don't think the NFT itself is really made to be a revenue generator.
Okay, great, Eric. Thanks for taking the questions. I'll jump back in queue.
All right. Thanks.
Thanks for the question, Joe. Joe, can you go on mute, please? There we go. One thing I will add is speaking of the utility of Tip-N-Strip, you can go to Eric's profile to see a video of his birthday a few weeks ago. Now, for our next question, we're gonna be going to Anthony of Sidoti & Company. Anthony, you're up. Anthony, we're ready when you are.
Oh, sorry about that. Yeah, my apologies. I just didn't hear you for a few seconds. Yeah. Congrats on the quarter. Can you talk a little bit about the momentum that you're seeing? Kind of, you know, just go into like, you know, April you said was better than March. Can you just talk about what's driving that momentum? Give us, you know, a little bit more details about that.
I mean, I just think that, our teams are operating on, you know, all eight cylinders. We're having an exciting time. The clubs are very fun. I think, you know, spending more and more time and energy on social media, bringing in lots of new guests, as well as our VIP spend is coming back in the north as you saw from the increase, as a percentage of total revenues from our service revenues. You know, moving back up to 30-some% of revenues and hopefully, we'll see that heading closer to 40% where it traditionally used to be, especially as Minnesota comes online. We have a major convention, 19th to 22nd of May in Minneapolis.
It'll be one of the first major conventions. It's gonna be U.S. Bank Stadium for VeeCon for NFT collectors. They'll know that very well from Gary Vee. I think that's gonna be great for business. Two of our clubs are basically right on the path to the stadium. Our team will be up there also promoting our NFT and bringing guests in from that conference into the clubs so they can kind of see firsthand the you know some of the utility benefits of owning our NFT. But I think that will help sales and hopefully bring you know help bring the Minneapolis market back. It's come back pretty strong in April, but it's still lagging other markets at this time.
I'm hoping that this convention will be the turnaround point for that. Basically I think, like I said, it's just been strong, you know, basically across the board. The only thing I noticed in this last week is, you know, a couple of our smaller blue-collar college towns clubs had a little bit of minor weakness, but that's very typical for the first week of the month. I'm not worried about it. I'll be watching that over the next, you know, few weeks to figure out if we have to go into any type of discounting or we have to really start pushing for, you know, to put more quantity of customers through the door than quality of customers.
Those are the kind of things we do if we start seeing any type of downturn or a recession coming in. I see no signs at all of any type of recession at this point. I mean, every week we just keep getting stronger.
Gotcha. Okay. Thanks for that. You know, hypothetically speaking, right? I mean, if there was a recession, do you think this would enable you to buy more clubs at better prices?
Well, certainly when things turn down, certain guys don't catch it soon enough, don't make the change fast enough. You know, in the past, we've made some pretty good acquisitions in down markets. We'll definitely be taking advantage of that. I think the fear of a downturn has got a lot of people. I mean, I had like 11 calls last week from different brokers and club owners and stuff. I mean, I think that I think there's some fear out there for sure that's starting, especially with the market downturn and whatnot. We're getting the calls. We're gonna be looking at everything. We're gonna find what we believe are the absolute best acquisitions for us and put our capital to use.
As you see, we ended the quarter with about $38 million. I think prior to last week, at the end of April, we were in about the $43 million range. We spent $5 million down payment on the Miami acquisition last week. I think we're probably sitting on $38 million. I suspect by next Tuesday, by tomorrow's cash counts, we'll be closer to $40 million in cash again. We're generating a you know tremendous amount of cash every week right now. We're putting only about, you know, $500,000 a week into our stock buyback right now, because I wanna hold about $40 million cash on hand as we do these acquisitions. If we start getting significantly over or the stock gets significantly cheaper where the yield's much higher, you know, we may change that philosophy. But that's kind of the philosophy right now as the stock holds under $65.
Got you. Okay. Just to follow up about the Miami club acquisition. When you looked at the valuation, did you look at pre-COVID 2019 revenue, adjusted EBITDA or 2021 results? Just wanted to get a better understanding as to how you came up with the valuation for that Miami club.
Sure. What we're using right now is 2019 full year and trailing 12 months. We're looking at those two versus, you know, normally we'd look at like 2021, but 2020 isn't really viable. Basically what we decided is trailing 12 months plus 2019 is kind of our gauge, and we're kind of, you know, seeing what the difference is, whether way up, way down, and coming up with what we think is a fair market valuation based on, based on that. That's why this one we've, you know, basically worked out to, about 4.1x-4.2 x EBITDA.
Terrific. Okay, the last question from me. Can you just give us some sense as to what you've seen thus far from the beta launch of Admire Me?
Well, bugs obviously. You know, the biggest problem we had is our developers were from the Ukraine. Of course, with the Ukrainian war, that set us back considerably. We're still working with a few of those developers who have gotten out of Ukraine. Some are still in Ukraine. We've also set up a backup team in Brazil who's helping program some of the newer items. We've worked through those. We recently put a performance enhancement that they just went live with, which has drastically increased the speed of loading pictures and changing pages. I'm very happy with that. We're starting to add a few more girls, get more content. We're starting to get more guys and on the site as well who are buying tokens and starting to spend a little money on the girls. Right now it's that delicate balance of, you know, chicken and egg.
We need enough customers to keep the girls happy. We need enough girls to keep the customers happy. Just trying to keep a nice balance between the two, while we're in this beta mode. Hopefully be able to, you know, full-out launch and really push the site, through keyword buys, through the clubs themselves, and through the entertainers at the clubs, through their social media and their influence, as well. I think we're probably. I'd say another 60 days before we really start a really hard push on that. Right towards the end of this quarter.
Got it. Okay. Well, thank you, and best of luck.
All right. Thank you.
Wonderful. Joe and Anthony, thank you for that. Now, we're gonna move on to our next individual who normally needs no introduction, but for this call, some of you may not know who Adam Wyden is. He is the 9.999% shareholder of RCI. Adam, we're gonna add you up. Let's take it away.
Can you guys hear me?
We can, yeah.
Yeah, sorry. I'd be with you guys celebrating at Tootsie, but as you and Eric know, I got COVID, so I'm quarantining over here. I don't think I'm actually a 9.99% shareholder anymore. I think the 84,000 share buyback put us over 10%, so I suspect my CFO will have to be amending our filing. You know, I just wanted to go over a couple housekeeping things. You know, Eric has been talking about, you know, Omicron affecting January and February and, you know, March. I think you comment that March was a record month, and April was even better than that.
You know, given the operating leverage in the business and, you know, Eric basically commenting that that he thought that, you know, by May or June or July, he'd be at a $100 million EBITDA run rate. Maybe Bradley could step in here and kinda comment on kinda, you know, if we are able to sustain the March, you know, revenue productivity that, you know, what that would imply for run rate EBITDA as a starting point.
Hey, Adam. What's going on?
Hey.
Yeah, theoretically speaking, if we're looking at $24 million in March, and then, you know, April beat that, if we had a $75 million quarter in revenue, you know, and everybody knows what I just said on the call, which was our adjusted EBITDA to revenue ratio is about 30%, you know. You marginalize that, multiply it 4x , you can almost get there, yes, theoretically, right? I don't wanna make any full commitments given the macroeconomics of the environment. What we've seen in our industry, it's not recession-proof, but definitely recession-resistant.
That's helpful as a starting point. You know, maybe it might be helpful to talk about your mix. You know, when you kind of back into Bombshells at, like, 30% margins, including real estate, you know, and you kind of look at what your gentlemen's clubs are doing, I mean, you know, each incremental dollar. I mean, again, you know, if a well-run nightclub like a Tootsie's or a Scarlett's does a 50% or 60% operating margin, including real estate to itself, you know, if you drive a 10% comp in Tootsie's or in Scarlett's, and you know, that's because you raise prices on booze and you own your own real estate, I mean, it is theoretically possible for margins to keep going up.
I mean, that's the idea, right? Like, as you drop that service margin in New York, as you drive, you know, incremental sales at Tootsie's and Scarlett's, I mean, less so on Bombshells because, you know, your food costs are higher. Like, on the gentlemen's clubs, you know, alcohol is 90%, right? Your cover charges for people are 100% margin. You know, the fees for the girls to dance is 100% margin. I mean, all of the. On the nightclub side, many of your revenue drivers are 100% margin. Like, in theory, right, like, you know, the incremental margins on the nightclub side could be very, very high.
Yeah. Just, I mean, you're kind of hitting it on the head right there. When I look at 2017, 2018, 2019, right? Just looking at the nightclub segment in particular, I'm seeing the service revenues used to be in the high 30s, sometimes it hitting the 40% of our sales mix, right? You know, when you look at the first and second quarter of this year, it's in the low 30s, you know? Then I go look at the northern states, like Minneapolis, New York, I see that there's still definitely runway in the high service margin revenue business. If we got that back to the pre-COVID levels, yeah. It would. All that service revenue margin, which includes cover charge, room rentals, you know, dance dollars, all would drop to the bottom line.
Right. Just kind of, you know, working backwards for a minute, right? You know, clearly margins aren't going lower on higher sales. If, you know, you kind of back into it and you say, you know, March basically implies a $100 million EBITDA run rate, and that doesn't include the new club that you bought in Florida or anything else. I mean, is it fair to assume that, you know, that we're kind of on path, assuming we complete our $20 million EBITDA M&A, that, you know, we could exit, you know, call it calendar or fiscal year at $120 million EBITDA?
It's hard for me to say, Adam. I can't use two months as a trend. I can just say that favorable trends are continuing, which means, like, you know, April's doing better than March. What I've seen in May, I mean, with Kentucky Derby and Formula 1, I mean, we're on that path, but there's also seasonality, as I mentioned earlier. You know, macroeconomics with recessions and stuff like that, discretionary spending. I'd like to be able to predict it through Q3 and Q4, but, you know, we'd have to wait to see what the summer brings.
Do you?
Hey, Adam, give me a second. I'll answer your question, an easy one. If we were to do a quarter of Marches, if we had three Marches in the same quarter, basically our margins would increase to about 35%, and our free cash flow would or, I mean, our EBITDA would increase to EBITDA, not free cash. Our EBITDA would increase to about $25.1 million. Basically, if you had three Marches in a row, that's where we would be setting.
Right, in April, and April was better than March. Right now we got two in a row, we just need a couple more.
Yep.
Let me ask you.
Exactly, which is why I've said all along, once we get through May and June, we will have a very, very good idea of exactly, you know, what our run rate is.
Let me ask you.
Because it's the first time we've not been affected by COVID.
Let me ask you something else. I mean, a lot of guys on Twitter are talking about, you know, that this is a super pro-cyclical business. You know, look, me as a stock analyst and kind of a historian, you know, I go back and look at what Rick's looked like in 2008, and it looks very different now than it was then, right? You had Vegas that you bought, which was, you know, that was, you know, micro and, you know, Vegas got hit in 2008. You had a lot of New York, and you had the great financial crisis, and the Wall Street guys weren't going, and you didn't have as much Florida or Texas.
You know, now when you look at the business, and on some level, you can look to COVID and say, "Look at how Bombshells did during COVID. Look at how the nightclubs did during COVID." I mean, you know, can you speak a little bit about kind of your confidence and kind of you know, kind of or maybe kind of the counter-cyclical or perhaps, you know, resistant elements of this business that give you confidence that even if we go into a consumer-led recession, that you guys are gonna do pretty well?
Well, it looks like if there's any type of recession coming, we're lagging it, because we are not seeing any slowdown. In fact, like I said, we've seen increases month after month, week after week. We've been very excited about the way it's looking. May doesn't seem to be any different right now. Like I said, we've got the big convention. We've got some great conventions coming up in June, as we move into early summer. I mean, I don't see anything negatively affecting us at this point. I don't think 1 or 2 points in the mortgage rate is changing anybody's decisions right now.
I think demand's too high and I think that the reality is that a lot of this inflation is supply-side driven and as soon as the supply comes in, the prices will come back down some, especially with oil, especially with, you know, cars, furniture, some of the big-ticket items. I think that once supply is available, and eventually, I mean, it's got a come off the boats eventually, right? It can't sit out on the ports forever. We'll see some of that. I just don't see like I said, I don't really see it affecting the majority of our customer base right now.
In fact, I don't really see it affecting any of our customer base other than, like I said, the blue collar clubs have seemed to go back to a normal trend where they do very, very well week three of the month, and then, and week four of the month, and then week one, they slow down a little bit. Week two, it comes back. Week three, week four, they're big again. That is very, very typical of that customer base. So there's nothing out of the ordinary. Even with that, what was out of the ordinary was we weren't seeing any slowdown. Every single first week, it didn't matter if it was the first week or the third week of the month, we, you know, those clubs were still doing fantastic.
We've seen a little bit of trend to normal on those clubs but not any type of downward trend, just a trend back to normal. As far as the high-end clubs, I mean, we're just seeing, you know, continuous growth and continuous spend at the high-end clubs.
All right. This is the last question from me and then I'm gonna get out and maybe I'll come back later. You know, look, for those of you who have been following this company for many years, I mean, this has been a labor of love for you, Eric. I mean, you sold your baseball card collection. You ventured in a few clubs into this, you know, Rick's from Robert Waters. Well, you had the previous thing and then you merged that with Rick's. I mean, this has been a labor of love. You've gone from $1 million of EBITDA to $100 million. You know, you wanted to buy Lowrie, you know, whatever. I think it was like in 2007 or 2010. I can't remember. Many, many years ago, he took it private.
You know, you wanted Lowrie, you got him, right? I mean, you just bought a business that's, you know, pro forma $20 million of EBITDA. If I go back and look at when I first looked at RCI Hospitality, I don't even think you were doing $20 million of EBITDA. Now you're doing single transactions that are larger than your entire business was eight years ago. I mean, you know, look, you've been at it a long time, and you've basically gotten no love from anyone, right? Your cost of capital is probably one of the lowest it's been since you've been public. I mean, you know, maybe it might be helpful to talk about, you know, what Lowrie symbolizes in terms of the scope of the transactions? You know, I saw Jerry on the phone. You know, Jerry's doing Bombshells.
He owns a bunch of clubs. I mean, are there people coming to you and saying, "Hey, Eric, like I see what you're building. I wanna own stock in it. I wanna be part of this business going from 100 to 500 of EBITDA"? I mean, I'm really interested in, you know, you've invested 20 years of your life to go from one to 100. I would think that over the next five years, you'd wanna go from 100 to 500. I mean, I'm just, I wanna know kind of what the sentiment is, the momentum, the energy. Like, you know, are people coming to you and saying, "I finally wanna jump on this train"?
I mean, I don't think everybody's ready to just jump on yet, but especially with the market as weak as it is right now. We're definitely getting attention. You know, we're talking with guys that we haven't talked to. We're getting, like I said, lots of phone calls right now, you know, "What would you pay for my clubs? What are my clubs worth?" You know, "I wanna sell," or, "I wanna get out. I'm ready to be done with this." We're talking with these guys. We'll continue to roll it up. Whether it's 500, I don't know. I mean, if I get a double every five years, I'm happy. If we can get 5x , I mean, we get some more big transactions, like Lowrie transaction, of course.
I mean, it would grow exponentially for sure, as those type of transactions present themselves. You know, the hardest part of roll-up stories is finding people to sell to you. That's why we created the Bombshells concept to steady out the growth. I do believe that, you know, we're in a phase right now that we've never seen before. We have the lowest debt to EBITDA ratios that we've had in a long, long time. Our interest rates, our average interest rate's like, what? 6.18%. It. I couldn't even borrow money at 6% five years ago, right? You know, everybody's like, "Well, interest rates are so low. Why do you pay so much?" I said, "Because that's what people loan me money at."
You know, we borrow the money as cheap as we possibly can. But at the same time, you know, we don't want super cheap money that ties our hands and doesn't let us run and grow our business. We do wanna have the freedom to make decisions and to move quickly when the right acquisitions come along, without having to have 15 other people who aren't in the business just tell us how to run our business. That's why, you know, we've done some of our unsecured debt the way we've done it in the past. We pay a little more interest sometimes, but we get freedom. That freedom is well worth the, you know, the 1 or 2 points of interest.
I mean, look. If you just take.
Definitely we can get.
If you just take your M&A schedule that you presented at Noble, the $20 million in calendar 2022 and we're halfway through the year now, so $20 million in 2022, $24 million in 2023, and $28 million. If I just add up those numbers, you know, you're increasing your EBITDA from $100 million base by 75% over the next three years, not including Bombshells. I mean, if you just-
Well, you move me forward a year. It's actually 2023, 2024, 2025 but that's what we gave everybody then.
Well, your fiscal years. I'm doing calendar years.
Got it. Gotcha. Okay.
You're fiscal year, I do calendar. I'm giving you-
Yeah
an extra quarter to do it. I'm just saying, if you were just to do it and say, "Okay, I'm at 100 right now," you know, you're basically, just based on your acquisition schedule, you're gonna basically be double, you know, in two and half years, not including Bombshells. you know, look, I think it can be done. I think Lowrie to me is a kind of the watershed moment because, you know, you never really had the cash or the stock to kind of put it all together, and you got it done. we'd all like to see the stock higher because it's gonna make the the deals cheaper.
I mean, look, you know, I think, you know, this is kind of what I've been waiting for, you know, getting these $20 million deals and getting an $8 million deal and, you know, look, at a 200 of EBITDA, they're gonna be able to ignore us less than 100, and at 400 they'll ignore us even less. You know, thank you.
For sure.
Thank you again and sorry I'm not with you tonight at Tootsie's.
Oh, that's all right. Hope you get better, buddy. Take care.
Wonderful. Thanks so much, Adam. Definitely just feel free to raise your hand if you have a question in the future, and we'll remove you as a speaker. Now, part of the uniqueness of this is we're gonna start to embrace the FinTwit community. If people are looking, you can see we have Dr. Parik Patel here, WOLF Financial, Stock Market News, John W. Rich , among many others, including Litquidity. We're gonna start off with WOLF, who is very, very appropriately raising their hand. WOLF, kick it off, and then we're just gonna kind of keep rolling with people as we embrace this fireside chat format.
Perfect. Appreciate the introduction there, Mark. Yeah, great to be on here. Excited to be a part of making history with the RCI team here. I've got two questions. The first one is regarding forward-looking guidance. We've seen this just kind of trash companies over the last couple of months as they come out and have beat on top and bottom line, but unfortunately can't give the targets that the consensus wants or that, you know, Wall Street wants ultimately. Because they are lowering guidance and other things like that, we are ultimately seeing a huge fall-off in these stock prices. I'm curious, you know, going into this next quarter or really, you know, for year-over-year, whatever it is that you are projecting here, are there a few specific key items that are being factored in?
I know that, you know, moving out of the COVID era is one of them. The new acquisitions is another. Perhaps, you know, the Tip-N-Strip and the apps that you're doing with that end. Essentially just what went into that formula where you were analyzing, you know, those future-looking projections in an effort to make sure that you know, you want them to obviously be solid and show continued growth but not be overzealous and suffer the stock reduction or stock price reduction that a lot of these companies are seeing now.
Yeah. If you look back, we have stayed away from any type of predictions, and I've said for over nine months now that I didn't feel that until I have full quarters without COVID, you know. We got hit by COVID in January. I mean, we had six weeks, the end of December, for all four weeks of January, and almost the first week of February, were at some place or another around the country were affected by COVID. Two weeks in New York. It basically, it hit each location for about two weeks, and it affected between 40%-60% of the staff. I don't know how much of the customer base, right? 'Cause if the staff is affected, the customer base is affected. That was kind of the, you know, the premise.
Like I think we would've beat all of the numbers that the analysts had out for us had we had that $2 million in revenue because that's why I estimate we lost about $2 million in revenues. On a go-forward basis, you know, everybody keeps pushing, "Well, are you gonna do this? You're gonna do $25 million. Are you gonna do this?" Like I don't know for sure. I can tell you what the run rates are for March because we know that now. We can take March and say, "Okay, we did that 3x . What we would be doing would be at $25 million in revenues or $25 million in EBITDA." The reality is we stick to cash flow. Free cash flow is to me the only thing that matters. The other numbers are gauges.
They're nice but at the end of the day I can only spend the free cash. We've stuck hard to free cash flow. Our goal is 10%-15% growth. I've said with the acquisition that we're going to definitely exceed the 10%-15% growth rate. If you take $33 million that we did last year and you know, and you added 20%, you'd add 6.6, you'd be at $39.9 million. We're at $26 million and change already for the first six months of this year, so we're definitely gonna blast through our typical 10%-15% growth rate for this fiscal year. We did have COVID, you know, you did have some COVID issues and stuff from last year that affected the free cash flow.
I still think if you took basically, it's calculated the COVID effect from last year and get the free cash flow, and you take the free cash flow, you are still gonna be well over 20%+ free cash flow per share growth for this year even though we issued another 500,000 shares. If you look, we've already bought back 16% of those shares at an average price of $62 and $30 some cents which if you take that and figure it out, basically, we borrowed, you know, $30 million. I look at it as the stock is a $30 million loan, right? That pays no interest, and the interest is whatever we buy that stock back for over $60.
So far, we've bought back 16% of that stock at the average annualized interest rate of about 1%. That's why I'm, you know, I get excited about the stock buybacks. I don't get carried away and get crazy because I want to use the cash for acquisitions because the deals we can find are way better than 10%-13% free cash flow yield that we have on our stock right now, depending on where you're at in the range of free cash flow per share for the year. If I can get 25%-33%, some of the deals we're doing are 50%, 70% cash on cash returns right now. It gets very difficult to just go, "Oh, well, we should just use all of our cash to buy back stock," when these other deals are out there right now. I'm sorry, what was your second question? I know you asked something else.
Yep. Yep.
I lost my train of thought.
No, no, you're all good. I hadn't asked it yet. I wanted to get that first question.
That makes sense. All right. That's why I forgot. I just knew you said two questions. Okay.
All good. Okay. The second question is more around the marketing schematic. We're seeing you take to a new format here with Twitter Spaces where we get to engage. You know, this is something that we do pretty regularly, all day, every day, and we love this style. We find, you know, so many companies are now interested in utilizing this for marketing product, for building, you know, brand recognition. Recently we saw the RCI account get verified. I know that, you know, you've been active on social media. I've also seen that the Tootsie's account has a strategy there.
How much does social media fit into your marketing strategy for the clubs here and utilizing, you know, this really rare content and a company which, you know, this genre of companies have typically not been, I would say, great with their social media presence and utilizing it to drive customers to it. I'm just wondering if there's any more plans that you have for continuing to innovate with social media.
Absolutely. I mean, we've used Twitter. I mean, we've used Facebook quite a bit. We've used Instagram. We've used TikTok. Twitter's very, you know, new for the corporate side. I mean, the clubs have used it a little bit, but I think they've really focused more on TikTok and Instagram to drive traffic. You know, the definition of insanity is doing the same thing over and over again, expecting different results. We've done several in-person and on Zoom conference calls or investor meetings this year, conventions with the Noble here in Miami recently, LD Micro out in L.A.. We've done the Sidoti online. I find that, like, every time we do those, we're reaching about, you know, 30-50 potential investors.
Then with the presentation section that we, you know, we usually videotape it gets replayed, you know, we get a few hundred people that watch that as well. I started doing Twitter Spaces, and I've been in your space a couple times and I sat there and noticed, I was like, "Man, they got 800 people. They got 1,400 people. How do they get so many people?" You know, we do these, we spend all this money to do these big conventions, and we reach, you know, 30-50, maybe 150 potential investors. That's what really got me excited about Twitter.
You know, when I met with Mark and he started talking about Litquidity and what they could do, and if we would do a Twitter Spaces, and I said, "Let's do it. Let's move our call to Twitter Spaces. Let's let everyone that wants to listen. Let's let people that want to ask questions, ask questions. You know, if the call goes all night, you know, Tootsie's is open till 6 A.M..
I'd like to get out on the floor at some point tonight, but if we have to be here, then we'll be here because I want to make sure that we're able to speak with the shareholders, speak with potential shareholders and get people interested in our company. That's really what this is about, you know, getting our story out there, letting our story travel with the retweets. In fact, everybody, if you retweet this room right now, it would be great. Let's let everybody know we're in here, that we're in the Q&A session, and maybe people have more questions. But that's really, to me, that's what this space is all about. The nice thing is it's building the clubs too.
As you'll see, I did a birthday party with the NFT deal. That's been going around, you know, pretty wild out on the internet right now with Twitter and even in a few other places. I think they put it on some Instagram and some other social media. Social media is amazing because it's very low cost and it's super effective and it's immediately effective. I posted I was gonna be at the Denver club and, you know, like six people said, "Oh, I'm in Denver. I'm gonna come by and see you tonight." You know, those are the kind of things that I think is just fantastic, as far as immediate reach and being able to, you know, to basically embrace shareholders, in a way that you just. It's never happened before. At least not that I'm aware of.
Awesome. Appreciate that, Eric. Sorry, Eric the CEO. I know it's not the name, but it just kind of rolls off the tongue.
I understand. I answered them all. Don't worry.
Wonderful. Thanks, WOLF. Appreciate that. You know, I'm getting a lot of participation in my DMs from the community, from FinTwit, people like Snowman LLC, Garland, BTT, Longshore Capital Advisors. We appreciate that. Wanna encourage everyone to raise their hand if you have a question. We're next gonna go to Stock Market News. You're up
Awesome. Appreciate you having me. Super fantastic quarter. Make sure, first of all, I like to always add this in on the spaces. Make sure you're also checking out and giving all of the accounts up here a follow. Huge shout out to the RCI account, Eric, CEO, all posting a lot of great content, and Mark Moran also hosting the space. Huge shout out to you. I wanted to kind of dig in. You guys mentioned a little bit at the start about the franchisees, that you are launching your first one, and you're kind of in the works on your second one. I wanted to hear a little bit more about that side of the business. Is that something that's more of a one-off, two-off thing, or is that kind of an exciting area for you guys looking forward?
No, I'm very excited about it. First of all, royalty revenue gets a higher premium, right? Higher multiple. Second, it's very little investment on our side, almost no investment because the franchisee basically, you know, pays our fees. We use those fees to get them open, get their people trained, get them done. They pay for the majority of the training. You know, we've had a few little travel expenses. At a 5.5%, you know, gross royalty, it'll create, I figure that the average franchisee will do about $5 million in sales which will create, you know, basically after cost for us, I think about $250,000 in revenue. Basically, you know, there's no cost against that, so other than taxes.
Basically it's gonna be, you know, go right to the bottom line. Basically, our typical stores, you know, we're investing up to $6 million in. We can do some remodels in the $3 million range with leases but we prefer to own our property. I think that owning the property is a lot less risk for us, just because of the way we are able to leverage the cash on cash returns with bank financing at, you know, 4% and 5% that we've been doing so far. The franchise model to me is fantastic. It gets us in markets that we're, you know, not even looking at right now. It gets us there much quicker. It's gonna grow the brand much faster which will help increase brand recognition.
We have an advertising national advertising program at 1.9% of gross that at some point. You know, right now we're gonna return that to the franchisee to spend in their local markets. We want everybody spending in their local markets. Eventually we'll run that into a national, you know, national deal, campaign. We'll be able to do national ads and really help build the brand even stronger. I'm very excited about the franchise model. We're talking with three other potential franchisees right now. We've got to get them, you know. I think we've got two approved that we're working on site selection, and we're in the process of vetting the third.
The way the franchising works, you can't sign a contract with a franchisee until they have a specific location because the contract has to be tied to that specific location. That's kind of the, you know, part of the timing process because we want to get, you know, some feasibility done, due diligence on the property, make sure that they meet all the zoning requirements and the licensing requirements to build the Bombshells there. Those are kind of the steps we have to go through. I would love to see us to the point where you know, we're gonna open six company stores every year. That's my plan right now.
I'd love to get to the point we're opening up an additional six franchisees a year, so we're opening 12 stores a year, six and six, and then, you know, we'll grow from there. We'll see as we bring on more franchisees set up a separate team. I mean, maybe we get to the point where at some point we're opening, you know, 24 stores a year and, you know, they could be, you know, 12 and 12, or maybe we're doing eight and we're opening, you know, 16 franchisees. It's just really gonna depend on how it goes, and, you know, and grows over the next few years. We're gonna be prepared for it however it turns out.
Awesome. Thank you. I appreciate answering the question.
Awesome. Thanks so much. Who do we have with the next question? Please raise your hand. Gurgavin, you're up.
Yeah, what's up, Eric? Congrats on the good quarter. Took a stake in the company last week and already the top 20 of shareholder. My question is about Bombshells. Due to the nature of your business, Bombshells gets a way lower multiple than it should. In the future, do you have any plans to grow it and spin it off or sell it out to someone else for a higher multiple than your entire business?
Well, you know, we've been offered by a group to roll into a SPAC about eight months ago at about a 14 x multiple. We looked at that and said, "Okay, so we're doing 20. You're gonna give us $280 million in value for this." We're gonna grow this over the next three years to over 50 which would be $700 million, so where else can we earn $420 million in the next three years almost guaranteed in value? We've decided that we would keep Bombshells in-house right now and the parent company. One of the things we do, as we reach $50 million in EBITDA for Bombshells, we could spin it off into a separate public company.
We could go back and look at private equity groups again. In the next three years, we may see multiple expansion in RCI, which if we do, maybe we just keep it in RCI. You know, we don't rule out anything. I think people get confused on what business we're in. I say this a lot, we're not in the real estate business, we're not in the restaurant business, we're not even in the strip club business. We're in the free cash flow business. At the end of the day, all those are tools that we use to generate that free cash flow, and we're going to continue to use our capital allocation strategy, create the most value we can, and we're gonna monopolize on that value, as opportunities, you know, present themselves.
We love the Bombshells concept. We love what it's doing for the company. We love the attention it gets. I think we've gotten some multiple expansion because of Bombshells on the strip club revenue. It's kind of working how we wanted. I mean, the market's kind of weak right now, so it's hard to tell. In the early part of this year, you know, the stock went up to $95 or $94 and, you know, I thought we were kind of on our way, you know, to getting that multiple and holding it. You know, we saw some weakness and the stock kind of sold off a bit.
You know, I think we're gonna get the realization of it, especially now that we're with Twitter Spaces and you know, opening ourselves up to more and more investors and getting the story out there and using social media to tell that story. I'm hoping we're gonna continue to see multiple expansion for the company. The reality is we're gonna do whatever is best for our shareholders and creating value for our shareholders over the long term.
I have one more question. This is about AdmireMe. If I'm not wrong, I think you mentioned more, I think, collabing with the clubs and using those same people that work there to put them on the platform. Could you talk about that a bit?
Sure. If you go on the platform now, you'll see there's several entertainers, not only from our clubs, but from our partner. Our partner has about 30 clubs around the country. He owns 15% of the site. We own 65% of the site. You'll see some girls on there. Those are the test kind of our beta test girls. We're starting to add a few more here and there as time goes on. Eventually, we've got a few influencers in mind that work in the industry or work in some of our clubs that will be added to the site that typically are on OnlyFans or similar sites right now that we're gonna try to move them and their customer bases over to AdmireMe.
I'm very excited about the long-term prospects of it. It is taking a little longer than originally anticipated because of the Ukrainian war. It's probably one of the only things that's really affected. The Ukrainian war has really affected our company, and that's because our, you know, our programmers were based there. I think we're getting there, and I think that, you know, to push forward on that.
Fantastic. Now, for our next question, we do have a special guest here, Susanna, who wrote a phenomenal article in Forbes earlier today. Wanted to reach out to you to see if you wanted to ask any questions. I'll invite you to speak. You don't have to, but just wanted to throw that out there. If not, no worries. Next, let's bring up Stanford Sam. That's Stanford_Sam, which now will be recorded on this transcript when people read in the future. Let's have you up next. You with us, Stanford Sam?
Yeah. Sorry. I had some Twitter Spaces technical difficulties there. Yeah. Anyway, I've done some reading of the past few Ks, past few Qs. I see some chatter here about this material weakness that I believe originated in 2020. It was discussed in the K that there would be provisions put in place, and they used the wording saying that something along the lines of, I'm paraphrasing here, but that, we believe this will get resolved sometime soon. I see that it's popped up in your most recent Q. Could you possibly give us some additional color on what that revolves around and sort of how the process is on correcting that issue?
Yeah, sure. I mean.
Sure. This is Brad. Go ahead.
Oh, go ahead, Bradley. Go ahead.
Are you talking about the tax provision material weakness?
Yes.
Yeah. It started off, as you say, in 2020. We took a stance, and our auditors took a stance on it. At that time, Congress and IRS couldn't agree on whether the PPP should be deemed as a discrete item or a non-discrete ite, whether it was should be counted as forgiveness item or not. That being said, it was just a material weakness on a difference of opinion. As you fast forward it, we had another material weakness because we had to make an adjustment to our tax provision entry. All of these are just non-cash estimates that come up as accrual entries. I mean, we have instilled more of a review process. We have hired more CPAs and we're going to be doing, you know, a lot more reviews with a fine-tooth comb.
Okay. Sure. Was the switch of auditors in regards to this, or is that completely independent?
No, completely independent.
Okay. Cool. Thank you.
Was that the only question?
Great. Yeah, yeah. I'm not a tough guy.
Hey.
I hope that answers your question.
Amazing. Next, we have Adam coming back in from ADW Capital. Adam.
Yeah. No, I mean, look, I've just been, you know, commenting, you know, looking at some of the stuff on Twitter and I think a lot of the, you know, the diehard value investors are like, you know, "The stock should, you know, let the stock trade at some crazy low level, and he can buy it all back," and blah, blah, blah. You know, that's all good in theory, but I mean, I think it might be important to explain to folks that, you know, you know that, you know, part of The Outsiders is, yes, being able to buy back stock when it's cheap but also being able to create a multiple arbitrage. I mean, what we saw with Lowrie is that, you know, you were able to do a transaction.
You know, I think Troy took 500,000 shares at $60, i t's $30 million. I mean, you would not have been able to execute on that transaction if the stock did not trade at a multiple higher than what you're acquiring. As I recall, you know, you paid this money, $88 million, whatever the number was. You somewhere announced some debt and, you know, the idea was you'd buy it and pro forma would be 20x EBITDA. You know, I think it might just be important to clarify the fact that, you know, part of the strategy, you know, and part of becoming a corporation and getting from 100 to 200 to 400 without being able to have that capital available to you.
That, like, obviously, you know, in the absence of having your cost of capital, you're gonna, you know, grow accordingly. You'll buy back stock if it gets cheap and you'll do things intelligently. You know, your goal is to get, you know, a cost of capital that's different than what you're acquiring. Because, you know, at the end of the day, if you're trading at 5x EBITDA and a business that you're buying is a fraction. Like you buy one business with $16 million in sales and, you know, or $16 million bucks and $3 million of EBITDA, why should one club and one geography be worth less, you know, on a multiple basis than 50 clubs and a restaurant business? I mean, I think it's just important to clarify that like you guys aren't doing this to.
I think Stanford asked on one of the other, you know, things. He said, "Well, you know, will you commit to not selling the stock?" I mean, I think a lot of people think that this is like some sort of promotion thing. I think this is, you know, an effort to educate the market about where this asset should trade so you guys can execute on your strategy. I mean, I think it'd be helpful for you and Bradley to speak on that.
I mean, definitely. I mean, we don't sell stock cheap. We use the $60 value. The stock was, I think when we priced the $60, the stock was in the mid-50s. We said, "Look, you're gonna get a bump from this, from the deal," so we got a little bit of upside on it. I said, "We just wouldn't issue the stock any cheaper than that." We finally cut the deal on it. The stock ran to the 90s at one point and I thought we were. Like I said, I thought we were on our way to a fair valuation that would give us the opportunity to maybe, you know, pick up that arbitrage between the multiple our stock trades at and the multiple of that we're able to purchase assets at.
We don't want to issue cheap stock, but we do wanna issue stock if it's the cheapest form of capital we can use. That's really, you know, what this is about. This is about. It's not about me being able to sell stock or the company being able to sell stock. It's about creating a fair value for our current assets that we can leverage those current assets into buying other assets at a much lower valuation and picking up that arbitrage between the two.
You know, this is. I've been in this business for many years. I've been with Rick since 1999. You know, I haven't sold shares. There's been many times when the stock was, you know. I mean, in 2008 at one point, our market capitalization was higher than Playboy's. Everybody was saying, "Well, you should sell some stock. You should sell some stock." I said, "I'm a long-term player. I don't need the money. I need to create more wealth." I'm trying to create, you know, more wealth for myself, more wealth for our shareholders, more wealth for our employees who are shareholders. , that's really what this is about. I think that our company's very misunderstood in certain Wall Street circles.
Basically I'm trying to circumvent those circles by going directly to the individual investors and saying, "Hey, look at our company, take a look at our financials, take a look at our cash flow, and, you know, what do you think is a fair value for our stock?" Create a fair value, create the arbitrage, and then we'll take that capital and use it to expand our company even higher or even faster and create more and more free cash flow per share. You know, it's not about just free cash flow, it's on a per share basis. We wanna make sure that everything we do is creating more and more value for our shareholders, especially since I'm one of the largest shareholders. You know, that's where the focus is at.
Fantastic. Adam added you back as a speaker if you have any follow-up on that. If not, then Jack Reins, can you please step up to the plate and request to be a speaker for this?
Hey Mark.
Okay. Oh, I'm back. Sorry.
I think either you or somebody already granted me speaker on here. Eric, thank you and Bradley and the whole team for coming on and doing this. It's been really cool getting to like hear you guys speak on Twitter Spaces. I had one question about revenue. For revenue that comes from like ATM withdrawal and transaction fees within the clubs, do the clubs themselves like is that revenue realized by you guys or by the ATM companies? Do you think that by accepting crypto at some of these, will that affect how much revenue you get from those ATM transactions?
It's recorded in the segment that it's redeemed at. For example, we have ATMs in Bombshells, we have ATMs in the nightclubs, right? We get a commission for all of the ATM that is processed through the machines, right? Because they're in our facilities, we own most of our own ATMs, and we're getting a commission cut from the processor. Is that what you're asking?
Yeah. Yeah, it was. I'm sorry. I've been driving during the call, so I wasn't able to look at the presentation, but appreciate it.
No problem. To answer your question on the Bitcoin, I think people misunderstand. We accept Bitcoin as form of payment. That doesn't mean that we take the Bitcoin. It's just like Visa, Mastercard, American Express. We get paid in U.S. dollars. When we accept Bitcoin, the processor buys the Bitcoin from us at the exact time of the transaction, so the Bitcoin never actually is in our possession. Basically, the transaction is processed, the Bitcoin is collected from the processor, the processor pays us U.S. dollars for the Bitcoin at the time of transaction. So it allows us to accept Bitcoin as a form of payment but not actually have any of the exposure to the market conditions of Bitcoin or any, you know, or any other.
Hopefully at some point we'll be able to accept other cryptocurrencies as forms of payment and we'll do it the same way. It'll all be through the processor and they'll be the ones that are taking the market risk, not the company.
Got it. Thanks. One follow-up question on the ATMs. How much revenue did you guys realize from those ATM fees last year or last quarter?
This most recent quarter, about $1.5 million in the nightclub segment. Bombshells is significantly less. It's probably about, you know, somewhere in the double-digit thousands. I don't know the number off the top of my head, but I know in the nightclub, I saw that number the other day. It's about $1.5 million.
Got it.
per quarter.
Thank you.
Thanks, Jack. Now, for our next question, I'm gonna call up Tiger Grand Capital and that is gonna be the handle Grand Cub T with a picture of a tiger. So let's give you room to ask a question. Here we go.
Hello, Mr. Langan, and thank you for taking my question. My question is, why does Adam Wyden suck so much cock?
That one, we knew that was gonna happen. That is gonna be an interesting one for the transcript. For our next question, can we have someone raise their hand and we'll call you up? We're gonna have Bullish Studio next. Bullish, you're good to go.
Hey, guys. How are you? Eric, thank you very much for this very insightful call. I wanted to ask, can you give us a sense for how big the gentlemen's club, strip club market is in the U.S. and how big you guys are of a player in that category, and how much of the category you guys are aspiring to take over or acquire or partner with in some way?
Sure. I mean, basically, we look at it as 2,200 clubs in the U.S.. If you look at, there's predictions anywhere from $2 billion-$8 billion dollar industry. I'm unsure because there's so many private and it's so mom and pop, it's really hard to tell what the total dollar amount value is of the industry. We own basically right now, you know, 50 clubs. There's about 500 that we've targeted as potential acquisition targets. It leaves us 450, you know, pretty active clubs that we would like to purchase. Basically purchase nine for every one we own, so there's plenty of room for growth right now.
I don't think we have to have any stress on, you know, having too much of the market share for the roll-up strategy for at least another five-10 years. I think there'll be plenty of clubs to buy over the next five-10 years. At that point, we might have to really consider, you know, what else we're gonna do. Right now, I think we've got plenty of opportunity out there available to us.
Is that growing at like a top line or are you seeing more clubs open up now than in the past, or is it relatively flat?
It basically stays pretty flat because of the licensing and, you know, it's very difficult to get new clubs and new licenses. I mean, you do see some here and there, and then you see a few clubs close here and there. I think overall, it's remained pretty flat over the last few years. That's what we love about it. You know, it's a big moat, right? It's the moat that's most exciting about our industry is that we buy these, you know, cash flow machines and they just sit there and operate. There's not a lot of competition that's gonna come into the market and make any major change to the cash flow.
You know, there's more people, you know, especially in Florida and Texas right now. So many more people moving to Florida and Texas. I think that's why we're seeing, you know, very nice increases in revenue in our key clubs in those markets, is because there's so many more people in those markets. So there's more demand and less supply which is, you know, basically always good for business, right? We're gonna continue to, you know, to buy clubs throughout the country. We're basically looking at our existing markets. If we have a competitor that, you know, we can buy out, we always like to pick them up first, and gain control, you know, more market share in the existing markets.
We're also looking in new markets, as we did with the Lowrie transaction. We picked up Denver. We bought, you know, two of the clubs in St. Louis that we didn't own or control. We've got several other markets, Raleigh, North Carolina, in that transaction, Louisville, Kentucky, Portland, Maine. We have the only club in Portland, Maine. Those are the kind of things we really like to do is pick up locations with limited competition. Fantastic. Thank you very much, Bullish. Now, for our next question, we're gonna go to Ryan James Invest. Ryan James Invest, you're up.
Hi, thank you. What are your innovation targets for this fiscal quarter and fiscal year 2022?
I'm confused what you mean by innovation targets. I mean, our new projects are obviously our NFT project, creating a loyalty program, reaching into the Web3 space. Really what that involves is we're trying to reach that 25 to 40-year-old crowd and introduce them to our products, our services, our clubs, in ways that they understand, in ways they communicate. I think the biggest problem with a lot of companies right now, especially as your company, you know, matures and you get older and your industry matures, is you rely on doing the same things you've always done, and that doesn't work.
You have to innovate and adapt to the changing, you know, wishes of your clientele, and the communication vehicles that your clientele uses, your potential clientele uses. That's what, you know, Twitter's been about. It's what, you know, what Instagram, TikTok, all those types of things is reaching this younger crowd. NFT space, web, you know, Web3 space is about that. The AdmireMe space is also a, you know, it's a. I think it's a Web2 space but I think it's a way to, you know, basically take Web2 customers and draw them into our brick and mortar. Shoot. Sorry about that. My AirPod fell out. Draw them into our, you know, our brick and mortar business. That's about. If that's what you mean. I'm not sure if that answers your question.
Yeah. Also it's kind of that idea of you're taking the Web 3.0 stuff, bringing people to Web 2.0, and then pushing them into brick and mortar is kind of, you know, outside in my view with it. For the next person we have, we're gonna have Zypysy_ Capital. Zypy, let's get you up here and hopefully you're not a troll.
Hello, can you hear me?
There we go.
Okay. Sorry about that. Eric and Bradley, thanks for doing this. Really appreciate it. You know, I've pitched the stock to other investors, and a common pushback I get is that, you know, folks don't wanna invest in an adult entertainment industry because it feels dirty to them. I guess, could you just talk about how a Rick's-run club is better than kinda your average mom-and-pop gentleman's club? What kinda, you know, standard operating procedures do you have in place that are different than the rest of the industry? Because, you know, my kind of view on this is that a club run by you guys is actually better for society and safer for the girls and customers 'cause you have a strong, high level of, you know, standards and procedures that the other clubs may not have. Would love to get your take on this.
Yeah, sure. I mean, I would tell you, I don't know what market you're in, but, you know, go to some of our clubs and you can talk to the entertainers, you can talk to our waitstaff, you can talk to our bartenders, our management teams. Our staff stays with us for long periods of time. We have managers started out as entertainers, worked up the ladder. We have, you know, people that work in our clubs that moved into our corporate staff, went to college, went to school. One of our top controllers worked, you know, in the cage at one of the clubs for many years and then moved into our corporate office, went and got her CPA. We helped pay for her way through college, and she's fantastic.
I think people misunderstand our industry, when they say, you know, they think that, you know, our industry's all about the exploitation of women. I'll say it, and I think you can talk to a lot of the women in our industry and they'll say the same thing. It's about empowering them. When you have no money, you have no power, period. You know, they're in, you know, maybe bad relationships, or they just broke up. They may have a young child. They have no way how they're gonna pay for themselves.
Oh, I gotta move back in with my parents, they're gonna take control of my life again." We give them independence and financial independence, 'cause financial independence is how you create, you know, other independence in your life. They're able to get their own apartments, they're able to get their own cars, they're able to, you know, basically pay their own way and not have to rely on somebody else or the conditions somebody else puts on any kind of help that they give them. I think that's the biggest misconception of our industry. If you look at, you know, you can Google Walmart and drugs and see there's drugs in Walmart. There's drugs in lots of places. It's not strictly clubs.
We have zero tolerance policies here. If we catch people selling drugs on our premises or having drugs on our premises, I mean, we've had them arrested. I was recently involved in a deal with a district attorney and they were like, "Well, you've had 14 drug arrests." I said, "Yeah. If you look, that 14 x we made the phone call. Right? We called you and told you, 'Come get these drug dealers off our property.' We're not gonna put them back in the street because they'll just sell their drugs to somebody else. We want them off the streets. We want them out of our businesses." Those are the kind of things I think that, you know, over long periods of time that, you know, that's the differences we make. We have best practices.
We try to do, you know, the best we can do. I'm not saying we're perfect, because we're not. There's mistakes we've made in the past and we try to learn from them and grow. You know, we're constantly updating our policies, updating our procedures, and trying to create a best practices at all times, whether it's, you know, from an accounting standpoint or an operational standpoint. I hope that answers your question.
Yep. Thanks, Eric. Really appreciate it. You know, I don't think your company's really gonna be a ESG kinda stock but I think your answer helps some folks that are, you know, wrestling with, I guess, some of the ethical and moral questions, so thank you.
Thank you.
Fantastic. All right. For our next participant, we are gonna pull up Josh Kaplan, who is JK Value Investor. Josh, with two followers, let's go. Josh, you're on mute, so you're gonna have to unmute.
Can you guys hear me?
We can. Go for it.
Awesome. Hey, thanks for doing this. I'm a new investor and really excited about the direction of the company. Eric, as you touched on, obviously the point of this Twitter Spaces is to get the individual investors excited and one of the things for me, a little disconcerting is such low trading volume. Just one small thing that came to mind is there any way without kinda crossing boundaries to get club-goers potentially interested in becoming investors and some sort of a, I don't know, maybe like a loyalty program or something like that? Any thoughts?
Well, we're doing our NFT, you know, which is our Tip-N-Strip, but we also had a program back in the early 1990s called Own a Piece of the Action. We advertised that we were a Nasdaq-traded company in all the clubs. We've been talking recently about bringing that promotion back as well, and putting that back out into the clubs, since so many individual investors, you know, are also, you know, customers and or guests of our locations. That's one of the things we do. To remind all of our employees. I mean, I think majority of our employees know that we're a publicly traded company. We push that pretty heavily, especially at management meetings and staff meetings and whatnot.
Certainly it can't hurt to bring back that part of the outreach as well to the retail investor. I think that's what we have to do. As you can see, I mean, like I said, we've done the same things over and over again on the institutional side of things, and we keep getting the same valuations and the same, you know, the same cycles and trends over and over again, where we get up to a fair value, then we come back down and, you know, then we're buying back our stock. It's. I think we just wanna reach a much broader audience. I think we wanna reach an audience that has a, you know, a long timeframe to give us that three-five years that we need to really grow this company, you know, the way we wanna grow it over the next three-five years.
Do you see any sort of risk that you'd be taking on as far as accepting crypto as payment?
Well, like I said, earlier, we accept it as payment just like we accept Visa or Mastercard. You know, the beauty of crypto, there's no chargebacks. And second, we don't have any market risk on the crypto because we never actually possess or own the crypto. The crypto is just a form of payment. We immediately sell the crypto at the point of transaction, for U.S. dollars at the then price of the crypto at the time we accept it. So we're paid exactly in US dollars what that transaction would be worth if they paid with Visa, Mastercard, or cash. It makes no difference to us.
Awesome. Perfect. Thank you very much.
Great. Thanks so much, Josh. For our next question, we're gonna bring up BBQ, Brendan_Q2. You're up. Please remember to just unmute before you start talking, and let's hear it. BBQ, how we doing? Okay, I do not think that's working. Next up, we're gonna bring Midwestern, someone who is now no longer asking a question. Bullish Studio, you're up again with another question. Bullish, are you with us?
Yeah. Hey, I wanted to ask a follow-up question to the chargebacks. How bad of a problem is credit card chargebacks for the business, people calling up the next day being like, "It wasn't me that signed the bill"? Is that a material threat to the business, or how do you guys approach that?
No. Actually, it's very small now with the new EMV chip reader cards. Before the chip reader cards, as they were in the transition, it was becoming pretty bad. I think we got up to about a quarter of a million dollars in chargebacks in a year. Now I think I don't even know if we're in five figures. It's very small now. The nice thing is on large transactions we have you know some unbelievable protocols, very similar to casinos, including you know fingerprints. All high transactions are signed under a camera, so their transactions recorded by video. So it's eliminated the majority of those.
There's been time in the past, you know, different cycles of credit cards where there's been issues, but today it's not really an issue at all. Zero is a whole lot better than even $1 as far as I'm concerned. That's why I like crypto.
Great. Thanks so much. Next we have JP who's connecting, and the handle is FreeShkreli6, as in Martin Shkreli. JP, please have at it.
Hey, thanks for taking my question. I have a question, so it's kind of as Adam said. Eric, you've taken this company from $1 million EBITDA to now $100 million. You've been through the ups and downs. Does this create some kind of key man risk where, you know, is there someone else within the company that could step in tomorrow and fulfill your responsibilities, or are you the single guy that could? Thank you.
No, there's many people in our company. We have 2,900 employees now. Our corporate staff in our corporate office is over 60-some people. You know, we have an executive vice president who's been with me since 1992. Our director of operations has been with us since 2003. His vice president has been with us for only a few years, maybe 10 years or eight years now, I think he's been with us. But he's been in the industry for a long time. You know, I always say I work myself out of a job, so you know, I used to do everything. We have a full legal department. I used to be the legal department.
I have a CFO and a full accounting staff. I used to be the CFO with one secretary back in the early days, you know, when we were doing $5 million, $6 million in revenue. My goal every day is to, you know, work myself out of a job, create people that can do everything that I do. While there's no one person, there's enough people combined. I'm not one person. Everybody thinks I'm the one person that does everything, but I'm the face, but the reality of it is there's many people behind me. As I, you know, say in every call, you know, I wanna thank all the staff. I wanna thank all the, you know, the different people.
The restaurant division is completely separate from the club division, so there's a whole another group of people on that side. I'm not worried at all if something was to happen to me. I mean, you gonna remember about probably 90%-95% of my wealth is in the stock of this company. I have six children. I want to make sure that they're very well taken care of if anything did happen to me. I trust the staff that's below me with that. I haven't done anything to, you know, sell stock, leverage stock, leave vest from this company in any form at this point. I don't see myself doing that in the near future. Now, obviously, if we have an AMC run, that might be a different story.
You know, I think as long as we're staying in fair valuations, I'm here for the long haul. It is. Is there a risk? I guess there's always some risk anytime a key man at a company goes away, you have a little bit of risk. With Ed Anakar as Director of Operations and Travis Reese on board, I'm not worried about it at all. Bradley here now. Bradley's been with us for going on, I think eight years now or six years. My son is now been working our corporate office for some time, so he thinks like me a lot. He's still young. He's come a long way.
I think the team would figure it out very quickly. I'm not overly worried about that. Everything I do, somebody else has been involved many times in the process, every process, whether it's legal process, whether it's acquisition process, accounting, reviewing financials. There's just a full team behind us now. We're a very large company behind the scenes versus the public side of the company.
Fantastic. Now for our next participant. We're gonna have Dime Square Holdings LP. RVC330 is the handle. You're up.
Hey, can you guys hear me?
We can. Go for it.
Thanks for having me, Mark. Big fan. So I guess my question is if you are trying to, you know, appeal to retail investors and whatnot, like AMC and other companies are, why would you not want to hold on to the Bitcoin that customers are paying for stuff in? I feel like that would. You know, if you're doing the whole, you know, other crypto things, why not do that?
I can answer that in three letters, SEC. Right now the SEC has very strict rules. It's not very clear. You know, the guidance on it is not very good. At this point, we just feel that the least amount of crypto that we have, the better off we will be in that regard. Give them the time to catch up. We need the laws and all the regulations and all the accounting guidance, you know, to catch up with the technology. That's the biggest reason. It's not really the fear of the market. We could play the market and would play the market with that, like we've done in the past with other things, real estate, you know, investments, other investments we've made in the past. It's just really not worth the outside risk of the SEC at this point for our company.
Cool. Thank you.
Great. Thanks very much, Dime Square. Next, we're gonna bring up Value Hunter. Valuehunter7, you are now up. Value Hunter is still connecting. In the meantime, I'm gonna bring up Quantitative Tightening with the handle WageyKG. Quantitative Tightening, please step up. Then Value Hunter, we will call on you afterwards. Quantitative, you're gonna have to unmute.
Hey, sorry about that. Real quick, within your clubs, have you ever considered digital art, QR codes, OnlyFans, stuff like that?
We use QR codes for many things, especially our menus. Even our bottle service menus at our clubs are now all QR codes. We love the QR codes. You know, as far as digital art, I mean, we have plenty of things that we you know broadcast across our TVs, more so it's marketing in all of our locations. You know, we're doing our NFT. That's gonna be our first real stab at you know the digital art and keeping. You know, the real appeal for me was to create. I'm sorry. My volume won't stay in.
Oh, go ahead.
The real thing for me was to create, you know, the utility for the NFT. In keeping with, you know, the nature of NFTs, the more I was in the, you know, in the communities and such communities, it's all about the artist. The artist really started the, you know, the NFT demand. Corporate world, I think, is gonna move into Web3. I think we have to recognize that the artist created this Web3 and created the, you know, the trading of NFTs. We've, you know, hired some artists and we're, you know, bringing artists in and really trying to have a unique art part of our project as well. I mean, it's kind of all just plays together, right?
Yeah, I like it. Anyway, thanks for answering my question. Furthermore, I've seen performers and people of that nature actually using their streams and taking payments with NFTs and such. Didn't know if that could be put physically into clubs, but that's all I got. Thank you today.
Sure.
Thanks so much. Now, for our next individual, do we have Quantitative Tightening there anymore? No. Okay. Let's move on to What's EBITDA? This is incoming IB analyst. Given our history on the internet, be very careful about the line you're about to walk, 'cause I'll mute you real quick. You're up. Let's go. While you are coming up, I just wanna encourage everyone to retweet this and to put the $RICK out there so more people can see it. We will be going as long as we can with questions on this. Feel free to add in and do not be shy. Incoming, are you gonna be speaking with us? There we go. Incoming, I'll give it a few more seconds if this is gonna work.
If not, we're gonna be moving on to Value Hunter again. Okay, so those two are still connecting. I'm adding Bullish back into this. If you connect first, then you can ask the question.
Hey, can you guys hear me?
Yes, we can.
Great. In New York, there's a lot of conversations about cannabis coming towards the end of the year, early next. I know obviously, in New York, there's gonna be a consumption license opportunity. Obviously you guys have the liquor license, so there's gonna be some challenges there. Is cannabis something that is exciting to you? Either that or with sports betting becoming legalized, is that another opportunity with either of those two categories as they grow and become more legalized and you know, how those industries shake out?
I mean, definitely. I think we have a club in Colorado that has an on-premise cannabis consumption permit in Denver, Colorado, that we purchased with the last acquisition. Until federal law legalizes cannabis everywhere, I don't see the company looking or doing anything in that part, basically. But as far as sports betting, if sports betting becomes legal, yes, we would move into sports betting very rapidly, especially with our Bombshells sports bars. We could have kiosks, sports betting in those locations with a revenue share with a major casino operator. Yeah, we would jump on that very quickly. They're definitely not against the gaming. We have gaming in Louisiana at our club in Louisiana, just some video poker machines.
We're in the process of adding machines. We're approved. We're waiting for the license to actually be issued for our gaming at five of our locations in the state of Illinois. We should start seeing more gaming revenue at some of our locations as time progresses.
Thanks for the question, Bullish. Next, we have incoming IB analyst. What's EBITDA? Has the handle up here, so feel free to unmute.
Yeah, great quarter, guys. Again, Eric, thank you for being so proactive within the community. I really appreciate it. As a younger guy experienced in these type of clubs, I wonder if the team has looked into acquiring talent through venues like Twitch and YouTube. I'm not sure if you've heard of the names of up-and-comers like Adin Ross and iShowSpeed, but any detail on that to kind of get the best talent through the door?
Well, we use features at some of our major clubs. Most of them have very large followings because they travel around the country and, you know, build up their presence. We have looked at some influencers. We've been talking about that. I think that's one of the things the big annual party with the NFTs will be about. I think we will be reaching out to influencers, obviously, and, you know, trying to get some of the bigger names and some of the celebrities at the party for our users. It's gonna be a lot of fun.
I've been talking with, you know, a couple of our big DJs, and they're all very excited about the potential large featured entertainers, potential porn stars, potential influencers that could be the possible host or co-hosts of the actual party. As far as you know, putting on the entertainment for the party as well, including some music groups and some other stuff that are very excited about, you know, about being part of our party. It's gonna be interesting. Like I said, we're kind of dipping our toes in right now. I don't. I'm not good at dipping my toes in the shallow end of the pool. I like to jump right into the deep end.
We're gonna go all out with it, you know, pretty quickly. We just gotta, like I said, we've gotta get the launch done here. The artwork's in the process of being done. We're promoting the NFT now. We'll see how the mint goes at the end of June. We're gonna be at VeeCon. We're gonna be at NYC, New York. I think we might be adding in a convention in Austin, Texas, first week of June for the team to go out and promote there as well. We're building.
Wow, that's crazy. Thank you for the response. Just one more question. We've seen like BNPL really take off. For me personally, I'm not getting that investment banking money now, but in a few months I will. Is there any way we could integrate or is the team looking to integrate BNPL into any of your services? Like could I get a dance in installments? Like what's the deal with that?
Hey, hey, incoming. No one knows what BNPL is, so we're just gonna move on past you. But, you know, your first question was great, and it's been a pleasure to watch your maturity grow on the timeline. Thank you so much for joining us. Next, we're gonna have Brendan Blackman. Brendan, you're up. Incoming, I'm gonna remove you. Thank you.
Hi there. I'm very, very thankful for being able to talk to you guys. I guess my only question there, being a Canadian investor here and not being able to experience any of these clubs, is there any plans, and not just within kind of the next 12 months there, but forward-looking to expand internationally and kind of more specifically into Canada where the laws for clubs may be closer in line with those of Canada? Thank you.
Yeah. We've looked at clubs in Vancouver in the past, a couple clubs in Toronto. We're definitely not adverse to moving into Canada and the Canadian markets. There's some decent clubs there. Definitely interesting. You know, obviously a little different than U.S. operations but nothing that we can't figure out. It's just really gonna depend on the you know the availability of clubs to purchase.
Awesome. Thank you and great quarter.
All right. Thank you.
Fantastic. Thanks a lot. Now we're gonna try bringing up ValueHunter7 for the third time. Let's see if this one works while you connect. We are almost approaching on two hours, which is fantastic. ValueHunter, you're connected.
Yes, I'm connected.
Feel free to unmute.
Thank you very much, guys. I'm sorry for the technical issue before. My question is regarding the partnership that you guys have on the AdmireMe platform with this other operator of, I'm not, if I'm not mistaken, you said 30 clubs. Has there ever been a conversation about potentially acquiring that partner? If not, any reason why we can't go for even bigger acquisitions?
Yeah, a lot of his clubs are in smaller markets and not really our cup of tea. However, we have been talking with him about certain markets. He's not ready to sell yet. He's still, you know, in our industry, relatively young, in his fifties. It is something that I think at some point in the future, we will be sitting down having serious talks about as we continue to move forward, and he warms up to the idea and understands the, you know, the multiple that we can pay is higher than, you know, he's gonna get anyplace else. It, you know, everybody has times in this industry where you love the industry and everybody have times they hate the industry. We just gotta be patient and wait for these guys to go, "Oh, I don't wanna be here anymore," and then we will pick them up.
If I could have a second question very quickly. Which markets that you're not present in you would be interested in being? You don't need to be specific about the city, but maybe the states. That would be interesting to know. Thank you.
Yeah, sure. Very East Coast. We love East Coast much more than the West Coast. You know, we've stayed out of California. We'd love additional expansion in Arizona, you know, Colorado, Texas, of course, where we're already at. But anywhere in the Midwest. We bought five clubs in Illinois. We just got a recent club in Indiana and Kentucky, so those markets would be good if we can find locations. Wisconsin, Michigan, Minneapolis or Minnesota, we're always looking in those markets as well. But really, you know, anywhere. We like stuff that's close or in our current markets because it's obviously easier to manage. We already have regional management teams set up. We don't like anything too far away.
As we did with Denver, if we buy enough clubs in a market, it's fantastic for us because then we can, you know, set up a regional manager for that area, and then expand out outside of that area, from that area into the smaller markets, excuse me, that surround that area. We're, you know, looking at some stuff in Colorado right now that would expand our presence in that state. Like I said, in Phoenix, we have a single club in Phoenix, but with the club in Colorado now, we've got, you know, a bigger base in that area, so we're able to really look around more in those markets.
Thank you very much and continue the great work.
Thank you.
Thank you so much, Value Hunter. Now with our next question, we're gonna have Sin Stock Poppy up. You are able to unmute yourself, and please ask a question.
I guess just my only question is, you know, how do you think about the cyclicality of this business as we enter a downturn? Is the, you know, gentlemen's club industry as cyclical as other hospitality and leisure businesses? And then I guess my follow-up to that would be, you know, how many of the marginal dollars that are spent at these clubs are coming out of, you know, these, you know, bubble categories like crypto or NFTs? Thank you.
Well, I think the NFT market and crypto market's kind of in a bear market, more you know, bigger than the regular market, so I don't know that the money's coming from there. When everybody keeps saying this slowdown, we're not seeing it. I can tell you that right now. We have seen no slowdown anywhere at this point. Not saying we won't, but I mean, if you look at April numbers, every category was up. It doesn't matter if it's retail, doesn't matter if it was cars, doesn't matter if it's. Every category was up. I think that we're seeing you know I think people are trying to predict a recession and in fact trying to cause the recession by predicting a recession, right? We're gonna be ready.
I mean, we're watching our numbers. The beauty of our new ERP system is we get data in real time. You know, we report our clubs, we follow our trends.
No, thank you.
If we see trends, if we see something trending down, we will immediately switch to, you know, our basically what I call our recessionary mode where we instead of shooting for high quality of customer, we start shooting for higher quantities of customers. We'll take our slower nights, we'll do more specials, we'll do, you know, maybe we do bottle service to fill VIP rooms if the VIP rooms aren't full.
Like the other night, I had a customer come over and complain to me because we were sitting at basically booth one, which is right in front of the VIP room deal, and he come over and said, "Man, they're telling me 45 minutes to get a VIP room tonight." I'm like, "Yeah, we're a little busy tonight." When every single VIP room is full, you know, we don't have to worry about that right now. Like I said, if we start seeing, you know, those rooms not filling up or not that, you know, we can always discount. We can keep our numbers running, keep our numbers going.
Our margins might squeeze a little bit, but we'll keep our revenues high. Keep our people working, keep our people making money, and then it basically flips the cycle. It's typically about a six-month cycle for us. If you look in the past, you can look back in the '90s, you can look at, you know, 2009. In 2010, you'll see that we had like two quarters where earnings declined. Revenue stayed pretty strong, earnings declined for about two quarters and then boom, bounced back up. I don't worry too much about it. The difference now is back then we didn't have the technology that we have today to see those trends early enough. Basically back then, we had to have it happen at, you know.
Say we had 30 clubs. Well, we didn't notice it till about he was hitting about 20 of them. You know, now we can do each club individually, and we see in real time, real time trends over a four-six week period at each individual location. We can say, "Why is this location down?" You know, "What percentage is it down? Okay, is it management? Is it, you know? What's causing it?" We can basically evaluate and then immediately respond so that we're turning those trends around on an individual club basis within weeks of any type of downturn and getting them back on course, whether it's through discounting, whether it's through changing management, or you know, whatever outside sources are causing the issue at that club, we're adjusting to it. It's much quicker.
Gotcha. Thank you so much. I'm gonna switch to listening now.
Great. Thanks for the question. Now for our next question, we're gonna bring Pixie up, and I think this is gonna be an interesting one because I'm reading your bio and it says from stripper pole to podcaster. So I believe it's our first female speaker and question asker. And given that Twitter bio, let's have you up, and feel free to unmute whenever you want and ask a question.
Well, thank you for reading my Twitter bio. I am a retired adult entertainer from Denver, Colorado, so I am familiar with the brand of, you know, La Boheme, of PT's Gold, and a lot of those things. It has always been a brand standard. I did work at a couple of different clubs. I prefer smaller clubs. As you guys are branching out and buying other clubs in different locations, how are you going to mark up the revenue, the excitement for new dancers to come in and understand possibly the market that you've already built, say in Denver, in a different location. Are you reaching out to past entertainers maybe?
Are you- I only just jumped into the room because of my friend, but I wanna know more about the one-to-one ratio with the adult entertainers that you're bringing on to the company in these new districts, in these new states. Thank you.
Sure. Well, we use social media. Obviously, our brand is very well-known around the country. Our company is very well-known as we're very big in the industry. As we make announcements that we bought clubs, some of our girls that already work for us will be like, "Oh, I used to live in Denver, I wanna go back," or, "My parents live in Denver, I'm gonna move back there now that you guys have a club there." That helps. Like I said, social media's been fantastic for us. We're hoping that, you know, hopefully AdmireMe. We also use a third-party app called Pole Position, and our clubs are all listed on Pole Position.
A lot of new entertainers, they do a lot of marketing for new entertainers. They have some classes in schools and pole dancing and advice columns and tax columns and stuff that they offer to new entertainers and help with the industry. We use that so that any entertainer that's using that app can also find our clubs on that app. We're very excited about that for future entertainer growth. Luckily, we've been very fortunate. Like I said, our brand has a very good reputation, and a lot of girls find us. We don't have to really go out too much and seek new entertainers. They tend to come straight to our clubs.
Thank you for your answer.
Yeah, thank you. I'm glad you got on the call. Thank you.
Thanks for that question, Pixie. We appreciate it. Now, for our next question, we're gonna have Andy P. coming up with the handle andyprepassos. Please step on up and unmute when you're ready.
Hello. Can you guys hear me?
We can hear you.
All right. Phenomenal. Thanks so much for doing this, and thanks for bringing me up here. Just thinking about your balance sheet here, I'm seeing about $17 million of cash and about $200 million of debt. How do you foresee the debt payoff? Is this a heavy debt load because you guys own some of the real estate that you operate out of? Do you own some real estate, or is this all on leases? Because if you do, then the debt is understandable, but if you and you can unlock value.
Yeah. You must be looking at an old one. Our current Q we just filed today, we have $38 million+ in cash. We have about $180 million in debt. The majority of our debt is real estate-backed debt. It's all long-term loans, 20-year amortizations, about 5%-5.5% interest rates on that. Most of those loans were done in the last year, so we still have at least four years plus on all the on the two major loans, real estate loans. We probably own 85% plus of our real estate around the country right now. Hope that helps you a little bit. You know, our real estate costs us about a-t he equity side of it is about $7 million a year in debt reduction that we pay right now on those loans.
Oh, that's fantastic. Do you know if there are air rights in some of the properties that you own? 'Cause I know that you obviously can't place a strip club near a school, so you gotta be in one of those zoning areas where there's air rights or you could potentially build industrial, and I know industrial has heavy demand, so you can unlock value there by selling off some real estate.
Yeah. A lot of our real estate is freeway-based real estate. We do have a few pieces here and there with air rights. Some of our air rights we have sold to local developers in the area for a very large sums of money, which we're happy to do in making our property best use for adult entertainment. Right now, I think the majority of our clubs, their best use is adult entertainment.
If at any time in the future, that changes and developing that into, you know, some other type of real estate use, would exceed the free cash flow that we generate from the clubs or give us a large amount of cash that we can, excuse me, that we could then allocate for our capital allocation strategy to higher returns, you know, we would explore and look at that. We get offers a lot on a lot of our real estate because we have some very good pieces of real estate, especially like Tootsie's here in Miami that's, you know, right in the heart here of 441-95, the Florida Turnpike. You know, Amazon has been trying to buy this property for some time.
We had AutoZone wanted to put a distribution center here. This was the old BJ's Wholesale Southeast Distribution Center. There's 385,000 sq ft under roof here, of which the club uses about 47,000 sq ft footprint with two stories which we have about seventy. For the new build, I think we're a little over 78,000 sq ft. We have 83,000 sq ft of indoor parking. And the other 200,000+ sq ft is retail or warehouse space that's leased to third parties. But you know, even when they offer us, you know, $3 million-$4 million over an appraised value, they can't replace the $25 million that Tootsie's is gonna make this year.
I keep telling them, "Add another zero, and we can talk." That tends to make them go away on this property. We have lots of properties like that where you know there's a lot of other uses. Our real estate value is solid.
What would you say?
Considering our bank financing, so.
Well, thank you for that. That's awesome color. What would you say the average LTV is on some of the real estate? 50%?
No. Our bank loans were recent. We do be about 65% LTV. I think on one we did 72.3% LTV-
Okay.
on a short period. We paid additional principal for the first year to knock that back down to 65%. I'd say right now the loans are fairly new. I think we got really bad appraisals on some of our stuff because we did the appraisals during the COVID shutdown and so some of our appraisals came back very bad. I'd say we're probably between 50%-60% LTV if we were to do you know new appraisals today with everything, with the economy fully back open again. Of course with inflation going, with the real estate inflation going, could get some higher appraisals. We'll probably wait.
We probably won't look to refinance those loans for at least three-four years. We build up enough equity to make it worthwhile. It just depends on if we have an acquisition that we need to pull capital out for. That's technically when we will refinance our real estate, pull out our equity to basically buy more real estate, more and more EBITDA.
All right. That's awesome. Thank you so much.
Wonderful. Thanks so much for the question, Andy. You know, it's funny, in one of the group chats I'm in right now, in my DMs, Spooky John is saying, "It's seriously impressive how well this guy knows the numbers of his business." I'm sitting next to Eric, who I'm looking at just drawing aimlessly on a piece of paper with nothing else in front of him. So it is very impressive, and I think this phone call has been very unique, very insightful into this company, and one that, you know, we're very fortunate for everyone who joined us, who took the time to do this. I think one interesting data point for this is, previously for RCI, their highest attended call on the traditional method was around 178 people.
With this, at one point, I think we were hitting 600. You know, it's a very different method, very enjoyable to be doing with everyone, and something that was truly unique. Thank you Eric and Bradley and everyone else who asked a question. For those of you who joined us late, you can meet management tonight at Tootsie's Cabaret in Miami, one of the top adult clubs in the country and RCI's top revenue-generating club. Tootsie's is located at 150 Northwest 183rd Street. If you haven't RSVP'd, ask for Eric or me at the door. This is the Tootsie's that is mentioned in the Drake song, "Second floor Tootsie's getting shoulder rubs," and now that's in the transcript of this. Thank you everyone.
On behalf of Eric, Bradley, the company, and all our subsidiaries, thank you, and have a good night. Stay safe, stay healthy, and as always, please visit one of our clubs or restaurants.