Good afternoon, everyone. We're gonna be kicking this call off very shortly. Hope everyone is ready for an entertaining call that will be just as good, if not better than the last one. We've just surpassed 100 listeners, so we're gonna go ahead and kick this off. Greetings and welcome to RCI Hospitality Holdings third quarter earnings call. You can find RCI's presentation on the company website. Click Company and Investor Information under the RCI logo. That will take you to the company investor info page. Scroll down and you'll find all of the necessary links. Please turn with me to slide 2 of our presentation. I'm Mark Moran, CEO of Equity Animal, and 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. Please turn with me to slide 3.
If you aren't doing so already, it's easy to participate in the call on Twitter Spaces. On Twitter, go to @RicksCEO and select the space titled $RICK 3Q22 Earnings Call. As a reminder, if you want to ask a question, you'll be needing to join Twitter Spaces on a mobile device. If you just want to listen, you can join the Twitter Spaces on a personal computer. RCI is also making this call available to listeners through a traditional landline and webcasting. At this time, all participants are in a listen-only mode. A Q&A session will follow. This conference is being recorded. Now turn with me to slide 4. I wanna remind everybody of our safe harbor statement. 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.
We disclaim any obligation to update information disclosed in this call as a result of developments that occur afterwards. Now please turn with me to slide 5. I direct you to the explanation of non-GAAP measurements that we use. I'd also like to invite everyone listening in the New York City area to join Eric, Bradley, and myself tonight at 7:00 P.M. to meet management at Rick's Cabaret, one of RCI's top revenue-generating clubs. Rick's is located at 50 West 33rd Street between Fifth Ave and Broadway, a little in from Herald Square. If you haven't RSVP'd, ask for Eric or me at the door. Now I'm pleased to introduce Eric Langan, President and CEO of RCI Hospitality.
Thank you, Mark. Thanks for joining us today. The third quarter benefited from higher sales, continued rebound in nightclub service revenues, and sequential improvements in Bombshells. Year over year, nearly all our key metrics continued to increase on a double-digit basis for both the third quarter and the first nine months. This resulted in particularly strong free cash flow and adjusted EBITDA in the third quarter. Net cash from operating activities and free cash flow were further enhanced by receipt of a tax refund I've mentioned on previous calls. We continued to execute on our growth plan and capital allocation strategies. During the third quarter, we continued to buy back shares. We acquired the Playmates Club in South Florida. We also purchased property for the thirteenth company-owned Bombshells.
To date, in fourth quarter of 2022, we bought a club in Odessa, Texas, that we have rebranded it and plan to reopen on August 18, as well as opening the rebranded Scarlett's Cabaret in San Antonio, Texas, that will also open August 18. We also bought the well-known Cheetah Gentlemen's Club in South Florida, and we continue to take advantage of market conditions to buy back shares. Now here's Bradley for a review of our financials.
Thanks, Eric, and good afternoon to all those listening. All of our comparisons in this call will be to a year ago third quarter, unless otherwise noted. It is important to note that this was the first period since the first quarter of fiscal 2020 that was not affected by COVID restrictions. Looking at the numbers, we generated a record total revenues of $70.7 million, up 22.2%. EPS increased 8% to $1.48. Non-GAAP EPS increased 18% to $1.60. Net cash from operating activities was $18.9 million, an increase of 26.2%. Free cash flow totaled $18 million, which is up 39.1%. Net income attributable to RCI common stockholders was $13.9 million, up 13%.
Adjusted EBITDA totaled $24.6 million, which is up 20.6%. Please turn to page seven. Our nightclub segment had an excellent third quarter. Revenues totaled $54.7 million, an increase of 33.3%. Operating margin was 41.1% and 42.7% non-GAAP. Operating income was $22.5 million GAAP and $23.3 million non-GAAP. Highlights included $11.8 million in sales from fiscal 2022 acquisitions and 50.8% increase in our higher margin service revenues. On a sequential quarter basis, revenues increased 13.5%. Non-GAAP operating margin expanded 321 basis points, and non-GAAP operating margin increased 22.7%. Please turn to page eight.
We created this slide to show the strong progress we've made in the nightclub segment since pre-COVID first quarter of 2020. At 77.3%, nightclub revenues as a percentage of consolidated revenues have returned to just under where they were. At 36%, service revenues as a percentage of consolidated revenues have now slightly exceeded the pre-COVID level. As you can see, nightclub revenues are closely linked to service revenues. Both of these trends reflect the combination of the rebalance and growth of existing clubs and the addition of club acquisitions against the growth of Bombshells revenue. Please turn to page 9. Bombshells also had a great third quarter. As we mentioned on our third quarter sales call, revenues declined 1.8%.
That was due to a tough year-over-year comparison against an unusually strong third quarter in fiscal 2021, which, by the way, was our record highest revenue quarter for Bombshells ever. That's when Bombshells sales and margins experienced a huge benefit from being one of the few bars and restaurants open in Texas due to the state of COVID at that time. Otherwise, Bombshells experienced typical seasonal trends in the third quarter of this year, and results were in line with expectations. I'd like to point out that operating margin came in at 19.4% GAAP and 23.6% non-GAAP. On a sequential quarter basis, revenue increased 3%. GAAP operating margin expanded 94 basis points, and non-GAAP operating income increased 7.2%. Overall, we think that we're doing a great job of managing food and labor inflation.
Now, please turn to page 10 to review our consolidated quarter, unless otherwise noted. Cost of goods sold improved 13% as compared to 15.3%. Now, this improvement reflects the increase of sales mix of high margin service revenues in the nightclub segment. Salaries and wages were slightly higher at 24.6%. This reflected the addition of employees at acquired units along with new mandates which increased minimum wage in some of the states in which we operate. SG&A totaled 2.1% as compared to a small gain. This year's third quarter reflected 32%, with non-GAAP operating partially offset by higher sales and lower weighted average interest rates. Please turn to page 11. Cash and cash equivalents were $37.5 million on June 30.
I'd like to point out that this was after utilizing more than $12 million for share buybacks during the 9 months, cash portion of the Playmates acquisition, and a down payment for our Bombshells location in Rowlett, Texas. Free cash flow for the third quarter totaled $18 million or 25.5% of consolidated revenues. This included a $2.2 million tax refund Eric mentioned. However, excluding that, free cash flow was 22.4% of consolidated revenues. That compares favorably to the 6.68% a year ago and 7.37% 5 years ago. Our refinancing enables us to smooth out our debt maturity schedule. Our amortization continues in the $7 million-$8 million annual range for the next 4 years, which is very manageable with our cash flow.
To pay off our balloons, periodic refinancings enables us to convert higher rate seller financing and other unsecured financing into lower rate commercial real estate bank debt. We currently have multiple unencumbered properties in our portfolio. Should we need additional capital, we can borrow against them. Our occupancy costs were 6.7% of revenues. This continued to be well within the 6%-9% range that we averaged when sales weren't dramatically impacted by COVID. Please turn to page 13 to look at our June 30 debt pie chart. Our debt now consists of 63% secured by real estate, 23.7% of seller financing debts. This is secured by the respective club to which it applies. 4.1% of debt secured by other assets, and 9.2% of unsecured debts.
Now let me turn the call over back to Eric, and thank you.
Thank you, Bradley. We continue to talk to new investors, so I'd like to review our capital allocation strategy. Our goal is to drive shareholder value by increasing free cash flow per share 10%-15% on a compound annual basis. Our strategy is similar to those outlined in the book The Outsiders by William Thorndike. He studied companies that focus on generating cash 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 is strategic rationale to do otherwise. One is mergers and acquisitions, specifically buying the right clubs in the right markets. We like to buy solid cash flowing clubs at 3x-5x adjusted EBITDA using seller financing and acquire real estate at market value.
So far this fiscal year, we have deployed $141.8 million in capital, $45.8 million, which was cash, $66 million, which was debt, and $30 million, which was equity to acquire 15 clubs in new and existing markets. Another strategy is growing organically, specifically expanding Bombshells to develop critical mass, market awareness and sell franchise. To date, this fiscal year, we deployed $6.8 million in capital, $2 million in cash, $4.8 million in new debt to open our 11th location, buy property for 2 more locations. The third is under contract. In addition, our first franchisee opened in San Antonio, and we signed our second one for the state of Alabama.
Our goal in both M&A and organic growth is to generate annual cash on cash returns of at least 25%-33%. Sorry. The third action is buying back shares when the yield on free cash flow per share is more than 10%. As of last Friday, we deployed $14.3 million in cash to buy back 255,962 shares this fiscal year at an average of $55.91. Excuse me. Please turn to page 15 to review our growth initiatives. We've accomplished so much already, so I'm going to focus on only the new developments since our second quarter call. In our nightclub segment, we acquired a club and its assets in Odessa, Texas, in July. We plan to rebrand it into PT's Show Club and open it up on August 18.
We think PT's will fit well with our other two clubs in that part of Texas. We also plan to reopen a reformatted club in San Antonio on August eighteenth. Also in July, we acquired the Cheetah Club in Hallandale Beach in South Florida. Cheetah is well known with a very strong following. We believe it fits well with our three other clubs in North Miami-Dade, South Broward County area, which includes Tootsie's Cabaret. These acquisitions are all part of our effort to add $20 million of adjusted EBITDA in fiscal 2023. We have a number of meetings lined up with club owners to talk about acquisitions at our Exotic Dancer Expo conference next week in Las Vegas. In our Bombshells segment during the third quarter, we acquired property in Rowlett, Texas, for our thirteenth location.
We continue to look for more locations in Dallas, Austin, Florida and Phoenix. Our first franchisee opened in San Antonio and is continuing to do very well. Our second franchisee is close to finalizing his first site in Huntsville, Alabama, and we continue to be in serious talks with other potential franchise groups. Regarding capital management, in the fourth quarter, we sold an excess parcel in Philadelphia for $6 million in cash. After paying down related debt and expenses, we received approximately $3.5 million in net proceeds. We still have two more pieces of real estate under contract for a combined sales price of approximately $3.5 million. Turning to page 16. With our new acquisitions, we wanted to give you a better picture of the geographic focus.
In third quarter 2022, our regional revenue breakdown was Texas 41%, including Bombshells, Florida 22.7%, New York 8.6%, Illinois 6.8%, Colorado 6.6%, and the other eight states combined for 14.2%. Turning to page 17, I'd like to update you on how we are harnessing new technology to drive club traffic and in particular attract the next generation of customers. Our guest benefits NFT program is in presale mode, payable with a credit card online now. We currently plan to mint at the end of the month. This will be the ultimate party pass with an annual event at Tootsie's, access to other private parties, VIP experiences, a wide range of other benefits. Response has been very good.
Admire Me, our new social media platform, we currently plan to fully launch sometime at the end of August or the beginning of September. Similar to OnlyFans, it enables entertainers to post content, receive payment from admirers. This will enable entertainers to build an internet business as well as their club business with us. This ends the formal presentation. A big thanks to all of our teams, nightclubs, Bombshells, and especially our corporate team for all their hard work and dedication. With that, Mark, let's start taking questions.
Thank you very much, Eric and Bradley. I'd like to take a moment to encourage everyone to retweet this space so we can really get the party going with this Q&A session. If you'd like to ask a question, please raise your hand in the Twitter Spaces. When you're done asking your question, please then mute your microphone to eliminate any background noise, or we will do it for you. We have a limited number of speaker spaces, so after you ask your question, we may move you back to the audience to free up space. To start things off, we'd like to take questions from Rick's equity research analysts and then some of its larger shareholders. Our three analysts that are on the call are Rob of Granite Research, Anthony of Sidoti, and then Josh, who works for Joe Gomes of Noble.
Let's start off with Rob of Granite Research.
Hey, congratulations about the quarter.
Hey, thank you.
Can you discuss the plan for Fort Worth, when you think that might be closed, and then estimates for opening and if you're gonna look to, and then rebranding the facility?
Sure. We're definitely gonna be remodeling, rebranding the facility. We're waiting on the plat. It's at the county level. Unfortunately, there's not much we can do to speed the process up. However, we have talked with the owners. They've given us keys. We have the architects in. We're starting to draw up remodel plans and get that ready. I suspect we'll probably open within three months of actually closing on the property. I believe the liquor license is in place. The adult entertainment license are already in place. Basically, it's just a matter of remodeling, rebranding, and of course, getting this plat done so that they can get a title commitment from the title policy.
Thank you. Just shifting gears, can you talk about real estate pricing in this environment? Has it backed off at all? Is it helping you in terms of Bombshells locations?
You know, I don't know that it's backed off a lot. We did recently make an offer on a property in Austin, Texas, for a Bombshells that was accepted yesterday. So we will—that we had been looking at for some time, but the, you know, the price was just crazy. They finally, you know, came down to the price that we had offered and contacted us, so we're gonna do that. We may end up with a partner or a franchisee at that particular location. I'm not sure how that's gonna go just yet. It's very early. Like I said, we just got it under contract yesterday. We are also looking at, you know, multiple other sites at this time.
Great. I'll ask one last question, and then I'll circle back in the queue. Can you just discuss the general contractor pricing trends you're seeing? Has it had any impact in terms of building out Bombshells locations? Just in general, what you're seeing in there?
Sure. I have definitely slowed down. We had the original bid that came in on Stafford location. We have done the demo there. We have not started construction. I am making two different GCs rebid. Right now, steel prices come down, lumber prices come down. The biggest problem that we're having are the subs have had so much work and so much demand that they're just demanding crazy prices. I've said, "Look, we're just. We'll wait. We're not going to overspend just to build and try to, you know, meet some. If the ROI is not there, we'll take our time. We'll build slowly.
We'll wait till, you know, certain things, maybe the roofing, you know, roofing will come down, and we'll find the right roofer who'll build it at a price that we are happy with, and we'll throw the roof on, like we did with the, you know, the tear out. We actually ended up with a company that came in well under the other bids, because they had an open space and, you know, wanted the work. We'll wait till they want the work and then build if that's what we do and piecemeal it together are very minor on these properties. You know. Not over. Sometime in mid-September or early October on that location.
The Lubbock location where we have the final zoning hearings, I believe, in early September. I can't remember the exact date, the first 15 days of September. We have worked forward on the plans, and so we should be able to apply for building permits as soon as the zoning issues are all resolved. Hopefully we'll get that one started under construction sometime December, early January. That's the current plan.
Thanks so much, Rob, for the questions.
We'll deal with those then. You know, so far, you know, the cost has been. We did have acquisition costs in here in this quarter that affected and probably raised the overall G&A a little bit as well. We may or may not see you know, more of that because we actually closed on a couple more acquisitions in this quarter, and we'll just have to see how that goes as we progress through time.
Got you. Okay. In terms of the acquisitions, so since you closed the quarter, you announced the Cheetah Gentlemen's Club, as well as the Odessa Club, just, you know, can you help us, perhaps to think about those as to how we should think about the revenue and EBITDA run rates or contributions from those?
Sure. Cheetah's is about $10 million. We expected EBITDA around $4 million. We could see some slight improvements on that. We're just gonna have to, you know, like always, you know, we'll have to get a few quarters in to figure out where we're at, but I think that's kind of where we're at right now. The Odessa Club, I'm gonna guess, if it's similar to the Rick's site location, probably $1.8 million in revenue, which would put us probably at around $600,000 a year in EBITDA on that one.
Got you. Okay. So just to circle back as far as the, you know, you mentioned, Eric, that you think that the worst of the cost pressures is over, so now that's kind of behind you. So as far as your operating margins kind of going forward, would it be reasonable to assume sequential improvement in your segment operating margins? I know the business is seasonal, but if you could just kind of speak to that'd be great.
I would say not in the next quarter for sure. I think, you know, our goal is 30% EBITDA and 20% free cash flow on revenues. That's kind of our targets. I think we can do a little better sometimes. We may do a little under sometimes. Overall, I think we'll, you know, if you take over, you know, a one-year period, I think we're gonna be very close to those numbers. This season or this quarter, July, August, September is always our seasonal quarter where we turn to a more normality is what I'm seeing now that, you know, all the COVID restrictions are gone. People are traveling for holidays.
We're seeing our typical summer slowdown versus our, you know, prime season October to May, which to me is very exciting because that tells me if people are going back to a more normal lifestyle, we're going to see, you know, nice jumps come October, November, December, and basically running through May. I think this year, our first quarter of fiscal 2023 is gonna be a record quarter for us, as New York City goes from 45% office occupancy, and people working, you know, in the office to 85% in October, November is, I believe, the trends I've been reading about and hearing that are expected, which will help our service revenues in New York City even more.
I think we're gonna see that in other markets as well, as people, like I said, just return to a normal life and normal patterns again. I'm very excited about how that's going to play out for us, you know, during our prime season of fiscal 2023.
That's great to hear. Well, thank you, and best of luck.
Yeah. Thank you.
Thanks so much for the questions, Anthony. Next up, we have Josh of Noble Capital Markets. Josh, take it away.
Hey, good afternoon, everybody. Thanks for taking my questions.
Yes.
Hey. I just kind of wanna start off with the Bombshells. I know that you're talking to a few just franchising groups. Can you talk about just kind of how the talks are progressing? Is one group kind of further along than others?
Yeah. They're definitely all in different stages. The farthest along group has three sites picked out for us. On the way back from Vegas, I'm going to stop in with David Simmons. We're gonna fly back from Vegas together and stop in. They've got three sites picked out. We're gonna look at those locations and give them approvals or declines on our opinions on those three locations. If we approve a location, we'll probably get into a, you know, get the contract, the franchisee contract done. All franchise contracts have to be tied to a specific location on the first one before we can, you know, create the franchise agreement.
Hopefully, we find one of their 3 locations we'll be able to approve and get them signed up, which will give us our third franchise. At this time, I know the San Antonio group is looking for their second location right now as well. Hopefully we'll have some more information as we you know progress through the quarter on franchisees for Bombshells. Like I said, we have a few others we're talking. Some are in vetting process, some are you know basically trying to figure out where they wanna locate at and to get us locations for approval. We'll just have to see how that you know plays out over the next couple months.
I know that, you know, recessionary fears have some people, you know, spooked a little bit. I know that, you know, interest rate increases are gonna be a common concern if interest rates continue to climb. We're just gonna take it day by day and just keep working every day toward our goal.
Perfect. You kinda led me to my next question. Obviously, you got, you know, recessionary fears are out there, at least amongst some people, just the general public. Kind of that leads me to the question of, like, are you seeing a drop in visits to your clubs just due to this economic environment we're in?
I mean, obviously a typical summer slowdown. I wouldn't call it drops in visits. I don't think the customer spend has changed hugely at this point. As you can see from the last quarter, you know, through June thirtieth, at least, our VIP spend has been fantastic. I've talked to you know, to different club managers and our upper management guys, and they say the VIP spend is still fairly strong. The biggest thing we're hearing, you know, is that, you know, people are on vacations. And so that's interfering with, you know, their normal, you know, flow schedules to the clubs and whatnot. But not in a huge way. We're just gonna have to.
I don't think we're gonna really know if the recession's gonna cause any problems till October, November, December. I think any recession hit will be offset or more than offset by people's returning to work and returning to the offices. It'll pick up our happy hours, it'll pick up our daytime lunchtime business. As people return to the office, I think business travel will increase again. We have certain locations that will benefit from that. I think overall we'll be in great shape, and the rest we'll make up with acquisitions. I don't think we'll see, you know, much slippage at all. If we do, you know, I'm watching Mondays and Wednesdays, like I say all the time, watching them very closely.
You know, I see a weak Monday one week, and then it's strong the next, or you know, I see a very strong Wednesday, but then it's weak the next, and vice versa on the Monday. I'm watching. The weekends have been strong. Right now I don't have an answer as to, you know, what we're gonna see or if we're gonna see or when we're gonna see a recessionary effect. As of right now, I'm very happy with. I know that, you know, I've been on Twitter a lot, and I have seen some entertainers, you know, complaining about customer spend on the entertainers. We're not seeing that in our dance dollar sales at our clubs.
However, you know, I don't know about, you know, the overall spend on dancers if it's paid in cash. Maybe some of their cash customers have slowed down a little bit and we don't know about it. The girls that I talk to have been very happy. They're making money, and we're printing money, as you can see from our financials.
Yeah. That's fantastic. I just have one last one before I go back in the queue. I kinda wanna get just an update on AdmireMe. You know, obviously it's, you guys were having talks with a soft launch last quarter. I might as well just want to hear if there's anything, you know, just related to the traffic on it, if, you know, if it's been going as you guys expected or it's been just surpassing you guys' expectation. Thank you.
No, right now we're not really focused on. We're trying to get it working correctly, and getting. We've got a couple of bug fixes that are going out right now in the next update. We've finally getting the referral program put together. We thought we could do without a referral program, but we've now realized, you know, the more we learn, the more we do, the more we learn. The beta was good because it helped us get, you know, like, the operational bugs worked out.
As we talk to influencers, you know, some of the larger people on OnlyFans or, you know, entertainers and workers on OnlyFans, we realized some of the things we must have and how we have to set certain things up. Those are almost all programmed in and should be completed by the end of August, and then we'll start our launch because we'll have all the tools in place to do it right. It's like a nightclub on the internet. It's a chicken and egg. I can't get the girls if I don't have the guys. I can't get the guys if I don't have the girls. On the nightclub business, we have to get everyone there at the same time.
We've decided, you know, the soft launch. The site's still up and operating, but there's been no marketing, no push because a soft launch will not, we don't believe in that space. Like a nightclub will not create the traffic we need on either side for the entertainers or for the admirers, you know, the content providers or the admirers to make it work. That's why we're gonna do a much harder push, sometime, probably the first couple weeks of September.
Josh, thanks so much. I know we're all looking forward to seeing the launch of AdmireMe go from soft to hard very soon. Next up, we have Adam Wyden of ADW Capital.
Yeah, guys, look, you know, I've been saying this, like, you know, you know, I think, you know, in the past, Eric, you know, you never really had the balance sheet to support, you know, $15 million-$20 million EBITDA transactions. I think, you know, combination of Bombshells, Lowrie, you know, you taking the time and building this kind of free cash flow machine, you know, we've got now a better year of free cash. You know, you can buy, you know, a couple, you know, if you wanted to, you could buy, you know, a few Lowries a year. I mean, you know, you're obviously slowing down Bombshells growth because the ROIs are not there. I don't like that. I love that. I mean, it's so perfect, right?
It shows the flexibility of mind, you know, that the reality is materials costs are up, inflation is up, labor is up. Like, you know, why not be a buyer of these clubs at lower multiples? You own the real estate. In fact, you know, these are the best inflation-adjusted assets, and you're the only owners of them. I mean, I would be. You know, I think it's amazing that you've transitioned to focusing on clubs again. It shows a flexible mind. I mean, do you think that we can take this from 100 to, you know, a couple hundred over the next, you know, couple years? Because the math I'm doing is you guys can support about $50 million of EBITDA acquisitions through cash flow and balance sheet, you know, until you really start hitting walls.
You know, obviously with the stock you can do more. I mean, you know, what's stopping you from ramping things up right now? Like, and I'm not just talking about 20 a year, I'm talking about 50 a year.
Yeah. I mean, Nothing's stopping us other than we have to find the acquisitions, do the deals, do the legal work, the due diligence. I'm talking with lots of owners. We're going to expo this year. We're going to put it out there everywhere. You know, our goal is to I think we can add about $200 million in purchases a year right now for the next three years straight, and still stay under using about 65% of our free cash flow and still keeping our debt to EBITDA ratio under 3x . I'm very excited about that.
If we need to, you know, if the right deal comes along and we can step it up a little bit and push a little faster, we're going to continue to do that. You are absolutely right in that our focus is, you know, about 95% on clubs and about 5% on Bombshells right now. Because I do think in the next, you know, 3 months that there's gonna be some great opportunities for us on the club side based on some of my conversations with guys right now. You know, we paid 3 x forever or less for a long time, many years.
We're starting to pay 4x-5 x right now, for the big guys, for the limited clubs, for the right licenses, in the right markets and buying that market share up. It has got a lot of guys talking to us right now. I think we'll bring some of those guys, you know, onto our side of the equation soon, rolling up, you know, additional dollar amounts of EBITDA. I know we've been saying $20 million increase for 2023. If the talks go well, and everything goes well by the end of the quarter, by December when we do the K, we may have a much higher, larger target, based on deals in the pipeline.
I'll let everyone know at that time, you know, where I think we're actually gonna be at and how that 2023 is gonna go. I'll tell you, I pushed my personal goal. I know we're 10%-15%. We've been doing about 20%. I think 2022 will end at over 30% free cash flow growth. I think that right now, 2023 is headed to be another 30%+ year as well. It's very exciting right now.
Well, it should be higher than that, right? I mean, if you know, you're not gonna get the full. I mean, if you can just do the math, right? Right now you're run-rate about $100. I don't know the exact math. You'll probably clear $85 of EBITDA for the full year. I don't know what the free cash flow will be. If you exit the year at $105 and you buy, you know, call it, you know, if you buy $30, you're at $135. I mean, you're gonna be compounding EBITDA obviously at a much higher rate than 30% in 2023.
Presumably, you know, free cash flow, you know, faster, you know, because of, you know, how it's financed and all the rest and leveraging what you've got. So, you know, again, you know, leveraging corporate overhead and what have you. So like, you know, it. I mean, again, like, you know, 30% free cash flow growth would imply a much lower EBITDA growth. I mean, again, you know, I feel like we have the same conversation every conference call, but it's like, you know, you put up these great numbers, you destroy margins, you generate cash, and we trade at the same multiple. I mean, how do you guys think about, you know, getting the multiple to a point where you can, you know, actually grow, you know, more, right?
Like you made a comment, you're like, well, $200 million a year, but why not $500 million? I mean, the only thing is the equity, right? You know, how do you think about kind of getting to a point where, you know, you can get this thing properly valued?
Well, I think I can take advantage of the tools the market gives me. You know, it's up to you guys on this call. You guys have to decide if it's worth giving us those tools, you know, paying the price for the stock for the current cash flow and the future generation of cash flow. I think one of the biggest problems with RICK's, especially, you know, through COVID and so is nobody wants to value us on a go-forward basis. Everybody wants to value us on a past run basis and give us no value for the growth. As you always say, they give us no value for the real estate or very little value for the real estate, when that's a huge advantage for us.
You know, if you look at typical restaurant stocks out there paying 8%-14% occupancy costs. In other words, the cost of use of their real estate to generate their cash flow, they're paying 8%-14% for. We are now at 6.7%, one of our all-time lows. You know, those are the things that our capital allocation strategy has done for us. We are so focused on our cash-on-cash returns, on creating the value for our shareholders and really keeping all of our costs in line. Now, COVID taught us so much. The systems that Bradley put in place in the corporate office for our accounting systems give us information and tools in seconds instead of hours or days.
We're able to just monitor these things, watch these things, and continuously work to, you know, to increase that. I do believe that the market at some point is going to recognize. They're going to pay, you know, a premium for that future growth, instead of just the past growth. If not, then we'll just continue. The beauty is we can do this either way. One way, we're gonna do it a lot quicker, and one way, it's just gonna take longer. I guess it's just, you know, we're all here for the ride, and hopefully we can, you know.
Right now, I think we're driving like a, you know, a Toyota Camry, and I'd love to be in a Ferrari or a Lamborghini and, you know, really drive this thing at a much faster pace. Or, as I know your favorite cars are Porsches, we'll even take a Porsche.
Yeah. I mean, look, it's sort of unfathomable. I mean, you know, when you think about the spaces we did with Edwin, and we go back and we look at, you know, the stock is effectively with the exception of, you know, 2007 and 2008, where the stock went up ahead of Vegas and, you know, you guys used the equity intelligently, but then went and bought back stock, whatever. I mean, there's effectively been, you know. I mean, with a few select moments in time, the stock has effectively traded 5x or 6x EBITDA for basically the whole time the company's been public.
Like, you've been able to, and I mean, look, maybe you can comment a little bit about Lowrie, but like, you know, you've been able to buy businesses at 5x or 6x , right? Drive it down to 4x . Like, in the absence of a currency, you've been able to use the cash on the balance sheet and your operating abilities to basically make deals work. It's just incredible where you would be if, you know, hey, you know, the stock was trading at 10x . You bought a business, you know, with, you know, some percentage of stock, and you bought it at 5 and took it to 3. I mean, you know, this business would be $500 million of EBITDA in a heartbeat. Like, it's just,
You know, look, I obviously, you know, in the absence of multiple expansion, right? You can look at the returns, and you can say, "Okay, you know, I'm buying this thing with, you know, I don't know, 105 EBITDA. You know, maybe that's 9 or, you know, $9 a share free cash flow," whatever it is. You know, you're buying this thing at, you know, nearly a 20% or whatever, $60. I guess it'll be a fifteen, you know, 15, 16% free cash flow yield. And if you can grow, you know, 30% free cash flow, you know you're still getting a 45% total return without multiple expansion. I mean, if you can get multiple expansion, I mean, the whole machine, like you said, it just, it's a Porsche, not.
I mean, this isn't even a Toyota Camry. It's a Pinto.
Well, Adam, let me be honest. I'll be completely honest. We didn't deserve it before 2016, okay? We were young. I was learning. I'd never ran a public company. I was an operator of adult nightclubs. A damn good one, I think. As we moved, as we grew into 2016, things changed for us. We figured out capital allocation strategy. We figured out the compounding. We figured out ROI. We figured out cash-on-cash returns. We became a financial machine that wasn't in the strip club business anymore. We're in the free cash flow business. I say that a lot. Now, what I would say to the market is, if you wanna keep punishing us for pre-2016, then, you know, you have that right.
I would ask you to forgive our past sins, look at 2016 on. Can't control what COVID did and slowed us down a little bit. If you look 2016, 2017, 2018, 2019, you know, to go from 2016 forward and start valuing us and take us and compare us to other companies with that type of growth rate from 2016 on and say, "Are we being fairly valued compared to those companies?" I think you'll find we're not being fairly valued, as you continuously, you know, tell everybody. Like I said, I think that the part of that is we have to get everybody to understand that there was a transformation of this company after 2016 or starting in 2016.
You know, I've been in some debates on Twitter with various, you know, people and tried to explain that, you know, when you look at a 30-year run or 20-year run, I am not the guy I was in 2012, 2013, 1999 when I took over the company. We've grown, we have learned, and I think we have executed to a T or even better than we said we would execute from 2016 on.
I would just ask the market to take a look at that and value the company based on those things and imagine if you can where we're going to take this company over the next 3 years, the next 5 years, the next 10 years, and be a part of it. We're looking for long-term shareholders. We're looking for guys that want to partner with us over the next decade and make lots of money and wealth and create lots of wealth. You know, our interests are aligned with shareholders. You know, my majority of my wealth is in my Rick's stock. You know, it took me a long time to learn that the investment bankers that were leading me in my younger days were basically taking advantage of us.
They were having us use our equity at super high cost of capital, with the premise that a lot of companies use. Well, at least we don't have to pay that back. You know, it's not debt. Well, guess what? You're always paying it back because you're paying it back with a reduction in free cash flow, and you're diluting your existing shareholder base. I was a big portion of that shareholder base.
Yeah. No.
So, uh-
Yeah. No, look, it's
Going forward, I think we're ready to go.
Yeah. No, I mean, look, I think, you know, your comment around 2016 is a good one. I mean, again, I don't have my numbers in front of me, but as I recall, the business was probably on the measure of 12 or 13 of EBITDA. You know, I think we're, you know, certainly in excess of 100 now. If you think about that, you know, it's talking about 2017, 2018, 2019, 2020, 2021, 2022. I mean, in six years you've, you know, more than, you know, 8x the business on an EBITDA basis and more importantly, as you said, on a free cash flow per share basis, it's meaningfully more.
Yeah, look, I don't think that those types of companies trade at, you know, whatever, 5x or 6x free cash flow. You know, 15% yield growing 30% doesn't deserve the thing. I mean, look, to be perfectly honest, a business growing free cash flow 30% a year should trade at 30x free cash flow, not at, you know, 6x free cash flow. You know, look, I would encourage you to continue to find creative ways as you have done in the past, whether it's deals like Lowrie, where you buy them, you know, at 5x or 6x and you find creative ways to get them down to 3x.
I mean, look, you know, look, it's, you've definitely been guilty until proven innocent. You know, I personally know a lot about that. You know, look, you got to keep punching them in the face, and eventually they're gonna bleed, right?
Well, you know, we're gonna keep doing what we do.
Keep punching them in the face. Eventually they're gonna get a bloody nose. That's what I say.
All right.
Exactly. Thank you so much, Adam, for the question. Next, we're gonna have Tara Bolt. But I just wanted to throw this out there for anyone in the New York City area to stop by and meet management at Rick's after. I wanna extend a special invitation to Tara. Tara, take it away.
Hey, guys. I really hope I don't get disconnected. My phone is dying rapidly. I just wanted to say thank you, number one, for doing this, on, you know, Twitter Spaces as your platform for your earnings. I think that is a really good marketing decision. As you know, we can interact with you, Eric, the CEO of Rick's, which I think is just a really good marketing strategy. Yeah, I'm long on Rick, and I'm excited for, you know, the future of the company and the things that you guys have touched on here. I was wondering if you could elaborate a little bit on your, future, I guess, endeavors as far as, competing with, OnlyFans.
Sure. The original idea was never to compete with OnlyFans. It was more to create a web-based business for our entertainers, so that they could draw customers into our brick-and-mortar, which would let the customers meet new girls, which would hopefully they would follow on Admire Me, which would bring them into our brick-and-mortar business, right? So we get a circular feed there, of business. However, I've had a lot of, I would call influencers, OnlyFans, I don't know what the word is for the, I call them whales in the casino business.
Like the whales of OnlyFans, we've had a lot of them say, you know, "Hey, look, we would like to be on a site. We would like to talk to you about, you know, having meet and greets for our followers at some of your clubs, and do those types of things where we'd have a safe environment, where we'd have security, and we'd be, you know, protected basically if we wanted to do those types of things." We're talking with some of those girls now. Or I say girls, I should say ladies or women, I think. They're all over eighteen. You know, we're very interested and very curious as to, you know, can we create this? Can we make this work?
Especially in markets like New York, Miami, Denver, Chicago, where a lot of these big influencers seem to live and have reached out to us from. We gotta get the site up and running. I think we're to do some very creative stuff as we move forward. Porn stars in the industry, with some, you know, combination of brick-and-mortar performances at some of our nightclubs around the country, as well as through AdmireMe and different social media deals as well. It's gonna be a lot of fun, I think. I'm very excited about it. It was kind of a letdown because, you know, when the Ukrainian war broke out, it put us months behind on this.
I really thought we'd have this thing going at a much better pace right now. You know, all of our programmers were in the Ukraine. You know, we finally, you know, they finally got situated in places where they could get back to work and get this project done. You know, we're very happy for them in that regard, and that they're safe. We're ready to build this thing. We just. It's gotta be right. We gotta be able to. You know, one of the biggest things that we had, we were having issues with the private sale through the private messaging.
That is all fixed and up and operating now, which we were told is a very huge part of, you know, their revenue is selling private videos and private photos and those types of things through DM. We're happy to get all that done. If you can answer anything else, just let me know.
That is perfect. Thank you so much, Eric, for answering so clear and concisely. Yeah, like I said, I think, you know, doing what you guys are doing, Mark, and yourself and coming to Twitter where you can interact with shareholders and have this open dialogue in regard to the future of the company is, you know, not only very transparent, but also, I think it's just extremely bullish because you're just opening yourself up to that many more, you know, potential investors. Again, I really appreciate it. I appreciate your time and letting me ask a question.
You're welcome. Thanks. I love it because it puts me in a position where I feel like I'm operating the nightclubs again. One of the things I loved about the nightclub business was I threw the party every day. I was talking to people every single day. As I moved into corporate world, I kinda lost that. Twitter for me, especially in the last 3 or 4 months and recently, it's just gotten so fun. It's so exciting. I get to interact with end users. I get to interact with investors. As you've seen on some of my Twitter feeds, I'll spontaneously go, "I'm going to the club tonight. Come see me." It's great because, you know, 7, 10, 15 people show up.
We have some drinks, we'll talk, and I get direct feedback of exactly where we're at, what we're doing right, what we're doing wrong. I get to get the ideas. The reason we always, you know, I think one of the things that made us, you know, our company so great is we're able to talk, you know, upper management was involved in the club operations. They still are, just at my level, it's been harder. Twitter's given that back to me, so I'm very excited about that.
Amazing.
Thank you. Thank you so much for the question, Tara. We appreciate it. Next up, we're gonna bring Eric Rodewig to speak. Eric, take it away.
Hey, thanks, Mark, and thanks, Eric, for taking my questions today. Just wanted to get some clarity on the Cheetah acquisition so we can kinda understand exactly how these acquisitions are valued. I know in the press release that you said that you expected $4 million of adjusted EBITDA for the club with $25 million of total purchase price for both the club and the real estate. So that's a bit over a 6x multiple. I don't know if the club is being valued at 3x-5x and there's some rent paid to the building, or there's something else going on there, or maybe it's $4 million now, but you expect a higher run rate. Just helping understand the underwriting of that acquisition would be really helpful.
Sure. Let me give you the basics. What I look at is we have a 10-year 6% promissory note at $15 million. If you take that and divide it out, you get the payments. It's basically our cash-on-cash return is gonna be about 33%. Maybe it's a little more, maybe it's a little less, depending on how much savings we get. I know we're gonna save on their insurance. Their insurance costs were much higher than ours. We looked at a couple other things where we save. You know, we think we can shave a few points off of cost of goods and this and that. Hopefully overall, you know, maybe that $4 million becomes $5, $4.8, something like that.
You pay out the two something. Basically, we need to make a little over 3.3 million a year to get that 33% return. I think we'll do that. The rest is just basically, you know, the rent. I always call it manage to own, right? We're gonna take owner financing. We're going to pay the owner, you know, 60% of his free cash flow or 40% of his free cash flow, and then we're gonna take the rest, give him cash for and then earn that cash back in basically less than 3 years so that we come up with 33. In a worst case scenario, it takes us 4 years and it's a 25% return. I'll do deals like that all day long.
You know, the real estate was a very big portion of this. I don't know if you're familiar with the property. It's 2.2 acres on Hallandale Beach Boulevard, right off of 95. Unbelievable access, both to the beach and the freeway. You can't beat it. To give you an idea, we bought the Scarlett's property across the street. I think Scarlett's is only 1.9 acres and we paid $7 million for that property. We didn't really value these things separate. We did it as a global package because the financing that the owner offered was so great for us that we really weren't overly concerned with getting to a multiple, but more of a cash-on-cash return. That's how this one particular one was valued.
It's rare because we don't normally. You know, a lot of the owners don't want those, you know, don't wanna carry that much paper or whatnot, but Joe was fantastic in agreeing, and he, you know, he's 82 or 83 years old. I can't remember how old Joe is. He's in his 80s. You know, for him, he's got a big monthly payment coming every single month, guaranteed for the next 10 years. He knows our reputation. He trusts our management team. He knows Ed Anakar very, very well.
Ed and him have talked many times over the last five years and had a good personal relationship and you know, we're able to harness that trust and that you know what we've done in the industry and use that to you know to a great deal for us and a great deal for Joe. I just think it was a win-win transaction all the way around.
Okay, thanks. Appreciate that. That's very helpful. One more question, kinda following up a little bit on Adam's comments. You know, maybe five years ago on these earnings calls, you would talk about how, you know, banks, you know, risk wasn't at the point where banks would finance it. You know, cost of capital was so much higher. Obviously, you just said that the cost of occupancy is the lowest it's ever been. RCI eventually got to the point where banks would finance, you know, lowering that cost of capital and obviously making everything that much better. Are there any other, you know, over the next five years as you try and, you know, get a larger shareholder base, are there other tangible benefits like that you see, you know, as the company continues to grow and mature?
I mean, I think the next is our equity. If our equity becomes our cheapest cost of capital, then we're able to grow at a much higher rate. We keep these, you know, these top ROIs that we're doing at 25%-30% cash on cash. The difference is it'll go up even higher because we won't be having those huge interest expense payments, if we're able to use the equity. Obviously we're gonna be very cautious. We're not gonna. You know, we don't wanna go out and dilute our shareholders anytime. We're not gonna take undue risk just because our, you know, our capital is cheaper. We're gonna treat it just like cash. We're gonna treat it just like bank note. It's just gonna be.
We would use equity because that's the cheapest cost of capital to the company. If you look, we use debt more than cash because debt typically has been very cheap for us on a relative basis after taxes. You know, we just use the equation. It's all fifth-grade simple math in my book. You know, I think Adam has you know really pushed me hard on you know if you had equity, how much faster could you grow? We've started doing things.
If our cost of capital right now, which is between, you know, 6% and 12%, drop to 4% or 5%, you know, because we traded at a 20 or 25 multiple, I mean, how great would that look and how would the ROI on that become over time, especially as you compound year after year with that type of capital cost?
Okay, thanks. Appreciate the answers.
Yeah. Thanks.
Wait, Eric, can I just clarify one thing for a minute? You said 6%-12% equity cost of capital, but I don't. Like, if your shares are at $60 and you're doing $9 share free cash flow, then your equity cost of capital would be more like 16%. Now, I'm. You know, I agree with you. Like, in general, if you think about how Warren Buffett values securities, right? He basically values securities as, so what is the in-place free cash flow yield and what is the organic earnings growth, right? You know, in this specific case, you have a 16% free cash flow yield. Your earnings growth is probably at least in the, you know, for now, at least 15%, right?
Because you're gonna grow volumes, you're gonna grow price, you know, maybe build some Bombshells, you know. In that specific, you know, thing, you know, at the very least, right, you should be trading at a 16x multiple or a 15x multiple of what your in-place free cash flow is, right? That your multiple is equal to your organic free cash flow growth and giving yourself zero credit for M&A or capital allocation. If you look at See's Candies, for example, you know, Warren Buffett bought it. He said, "Okay, this is the appraised free cash flow. What's it gonna grow organically? That's gonna be my return." I mean.
I mean, even in a world where you had zero M&A or zero thoughtful capital allocation, like at the very least, it should approximate what your organic free cash flow growth is, right? We know that you can grow 30-40% with M&A. Like, you know, I don't know. I agree with you. Like, you know, a four percent free cash flow yield would be, you know, would be a 25x, you know, multiple of free cash flow and, you know, that would be a substantial spread to what you're buying, right? If you're buying assets at 5x EBITDA, you know, whatever, call it, you know, after, you know, you get tax advantages, whatever, maybe it's a 16% or 17% free cash flow yield when you factor in the depreciation, what have you. I mean, you're.
I'm curious how you're getting the 6-12, or is my analysis making sense?
I mean, you're always like 15 steps ahead of me. I have to sit down and write it down and do the math, get back to you. As we were talking the other day, and I told you, I go, "All my stuff is napkin math." I mean, it makes sense. Yes, I understand that, you know. I agree with you that I think we're trading much lower, but I think the market's gonna have to set, you know. I call it the reward system, right? The market rewards us for performance. I don't know what the market wants for. You know, reward us with on what kind of multiple basis. You know, everybody says sin discount, and the reality is we should get a sin bonus. Our businesses are moated. Our cash flow is solid year after year after year.
You know, it's like we own the only bubble gum machine in town that you can get a, you know, a ball of bubble gum from. If we wanna charge a quarter, we charge a quarter. If we wanna charge 35 cents, we charge 35 cents. We just can't charge so much that nobody wants to have bubble gum. You know, I think at some point, the market's gonna realize that. You know, as we've talked in the past, you know, I said, you know, we could be 50 clubs, we could be 100 clubs, we could be 200 clubs. At some point, like Waste Management, you know, like other roll-up stories, we're going to get a premium. I don't know when that'll be. I hope sooner rather than later because, as I've said, it makes everything faster.
It seems to me like the market, the industry is ready to be rolled up more now after COVID than ever before in history. I've been doing this since 1989. You know, rolling these things up since, you know, 1999. I just think that the market's more ready than it's ever been, and the industry's more ready than it's ever been, and we just need the tools. That's what we're asking for. On these calls, that's why we host the Twitter Spaces. You know, we've asked institutional investors. Everybody talks about ESG. I don't need institutional investors. I need 1 million-2 million of retail investors to go buy 10 shares of stock. Go buy 20 shares of stock, 50 shares of stock.
Help us create the momentum we need, give us the tools, and we'll build this thing, and we'll grow with it. You can become part of our community. You buy our NFT. You can, you know, come into our clubs, come to the Discord. You know, management's made themselves accessible. I've made myself accessible. You're never gonna guess. You're always gonna know exactly where we're at, what we're doing. You know, as I say many times, what you see is what you get. You know, when things are bad, you know, I'll tell you things are bad. You know, I've said this quarter's been a little slower. It's summertime, but that's, you know, a return to normal. I think that's how we're gonna continue to do things forever.
Like I said, I think at some point we'll reach the right people. We're not for everyone. Not everybody should own our stock. Hopefully we can find the right people that can and will create those long-term holders that'll build this into a corporation and real company, as you always preach.
Thanks so much for the question, Adam. Next up, we're gonna be bringing the Blonde Broker to the stage. Erin, take it away.
Hi, guys. Yeah, I just had a quick question. I noticed you mentioned y'all were going to a conven-
I think that, you know, Mark will do what Mark always does and capture the essence of Expo. You know, one of the things we're really gonna work on out there is we're gonna have about 300+ of RCI employees out there. You know, we're gonna be doing some interviews. I think you'll see some as we move forward, you're gonna see Equity Animal put some of those interviews on Spaces and let you get to know some of our top executives around the country. I think one of the things that's missed in RCI's story is that, you know, everybody thinks it's a one-man show or, you know, it's a couple of guys that own this.
You know, we're a company with 3,000 plus employees. We have 20,000 plus independent contractors. We're actually a, you know, very large company, and growing at a very rapid rate. I want to get that message out there, and I want, you know, more people behind the scenes exposed to the marketplace so that people realize just how big and how important and how dedicated our employees are. You know, the number of employees that we have that have been with this company for 20 years, the number of companies, you know, 15 years, 10 years, it's just an amazing number of people. You know, I want.
You know, I've told Mark and told him I want him to ask, you know, "How many more years do you think you're gonna be with this company? What plans do you have to leave, or what other things do you wanna do?" I think everybody's gonna be surprised at how much people love the company they work for. RCI strong is actually, you know, it's real. It's ingrained in all of us. You're gonna get to see part of that. I think that's some of the stuff that's missing.
I think that the empowerment of women that our industry gives, we're gonna highlight several of our key female employees around the country from host to club management to corporate office staff, and we're gonna get their stories out there and let you hear it from their own words, without you know, without any guidance. You know Mark. It's all raw with Mark. He's just gonna go in. He's gonna ask you crazy stuff. He's gonna get you talking. You know, there's gonna be a lot of fun and a lot of jokes in it. But at the same time, you're gonna get you know, serious information on the company. That's what I hope to get at Expo this year.
Awesome. I'm excited.
We gotta get you out there. You gotta come visit with us, so.
Definitely. Please come to Vegas with us. We're looking forward to it. Now, next question, is gonna be coming from Howard W. Penney. Howard of Hedgeye, take it away.
Hey, thanks very much. First time I've listened to your call. Thank you for doing it. How big is the opportunity for you? Meaning, like, how many clubs are out there that you could roll up over time?
Well, there's about 2,200 clubs in the U.S. based on, you know, past magazine articles and Barron's and Fortune and whatnot. I think 500 are key clubs for us. Right now we have about 50, so we're about 10%. I'd like to get us to, you know, 200 clubs or about a 40% market share of the clubs, what I call our premium clubs, the ones we're very interested in. At that point, you know, we'd be basically 4x the size we are today. Based on our current market cap, we'd have a market cap somewhere between $2-$3 billion. You know, a free cash flow range of $400-$500 million.
If our free cash flow is as you know margin stays at 20%, you know, we'd be somewhere between what $800 million in free cash flow. I mean, that would be very exciting for us.
How many clubs do you have to look at to get?
I'm sorry. I'm sorry.
In that quick.
$400 million in free cash flow. Yeah. Oops. I tried to get too much money.
I don't think you can ever have too much. Anyway, how many clubs
You never can.
How many clubs do you look at before you, like, is it 20? You look at 20 to get one? Or is it 10 to get one? Like, how often, how, what's the. I don't know if I'm making sense asking that question.
No, no. Exactly. I'm trying to think of how. We've had so many calls lately. I've got clubs we haven't even been able to go look at yet. We're looking at numbers. We're pulling numbers. Basically what we do, we try to get financials first. We look at financials before we even look at properties. If the financials aren't there for us, I'm not looking for clubs that I have to go upgrade and fix. I wanna buy cash flow. I'm in the free cash flow business. I wanna buy free cash flow. I want, you know, a track record of, you know, 5, 10 years plus. I wanna see, you know, solid cash flow for the trailing 2 years.
I just wanna acquire it, bring it in, put it under the umbrella, you know, put our synergies in with cost controls and POS and security, you know, the things we do, brand it or keep the brand depending on how good their current brand is and then move on to the next one. I would say we probably look at three or four a week at this point right now.
Okay.
In various ways. You know, we do pass on a lot of the smaller ones. We pass on clubs that we just, you know, aren't confident in the market or in the competitive level of certain markets. Overall we're pushing very hard. I call it, we're building our pipeline up, so we have, you know, several lined up over the next, you know, period of years. We're gonna be meeting with owners in Vegas. You know, some guys aren't ready to get out yet, but they're, you know, they talk about, "Well, probably in a year or two, you know, I'm 67.
By the time I'm 70, I don't wanna do this," or, "I'm 63, I don't wanna do this after 65," or, you know, stuff like that. We're talking with those. We're getting the numbers in and putting you know just putting some offers out there. We've got some offers out there right now that haven't been accepted yet, but the guys are looking, and I'm sure they're shopping. They're trying to find other buyers that'll pay them more, or whatnot. But eventually they're gonna come back to realize that a buyer that'll pay them more is gonna give them a whole lot less cash down. They're gonna want more financing. Their risk is gonna be higher. They may get more pay, they may get more money, but they never collect the money.
With us they are guaranteed, you know, to get their money. We've been doing this for a long time. We've got an unbelievable track record. Our track record is, you know, filed with the Securities and Exchange Commission since 1995. You can see our track record and what we've done as far as, you know, making all our bank payments. We've never defaulted on loans. We've paid everybody. I think that gives us a lot of credibility, and guys get there. It takes time. Plus they got, you know, it's like letting go of your baby. A lot of these guys have been doing this for 30 years, and they've been in that same club. They've got employees that they care about. They're like their family.
They don't just wanna sell to somebody who is gonna come in and fire all their employees. It takes time for them to get comfortable that we're not gonna come in and just fire everybody. In fact, we're buying your cash flow. We want the same people to operate it because that they're the ones that have built that cash flow business. It just takes time to get to that point. But like I said, I think it's accelerated as we're getting more calls than ever and the pipeline is great right now.
I'll know even more after, you know, I get back from Vegas and the weeks following Vegas as we, you know, plant the seeds of, hey, this is what we could do or this is some. You know, we're paying a higher multiple now, and guys start doing their math, and they start coming back with numbers and, you know, they start realizing, "Well, gee, I could live in Florida or I could retire to the islands or, you know, I can go to a ranch in Montana," and those types of things. That's what I think that's what really gets, you know, gets the train rolling with certain owners.
Appreciate your time. Thank you.
Thank you.
Thanks so much for the question, Howard. Just noting, Eric's doing all this without M&A bankers because no one knows the business better than this management team. Next up, we are gonna have an international caller, Matthias from Germany. Please take it away.
Thanks very much. Justice, I might have to apologize maybe for my silly questions because it's the first call of you I'm hearing. Maybe I may ask first. I just don't understand what's the difference between a nightclub and a Bombshells. I simply, is it simply a kind of brand for a special type of nightclub, or is it a restaurant, only a restaurant and bar? I couldn't understand that. First question. Second question is, you mentioned that you are able to buy new clubs at 3-5x EBITDA. Why is someone selling at that low price? Doesn't really make sense in my eyes. So what's the main reason for sellers to sell? You already mentioned that a little bit in your last answer.
Why do they especially sell to you and not make a kind of auction if someone pays more on that? As you also mentioned that you're buying a really lot of new clubs, what about management resources? Is there a natural limit of clubs that you're able to manage, let's say, 500, 1,000 or something like that? Is there a limit that you think would not be clever to go over to still keep the margins? Thanks.
Sure. I'll start at the top. What's the difference between Bombshells and nightclubs? Bombshells are a typical restaurant sports bar. They're, you know, there's no lap dancing. There's no really fraternizing with independent contractors. It's more of a typical waitress, you know, more like a Twin Peaks and more like a Yardh ouse at the same time, you know, a darker Yardh ouse or dinner, traditional lunch crowd in the daytime, traditional dinner crowd in the evening time. You know, the guys that hang out at the bar, watch TV, flirt with the girls in the afternoons.
Then late night, we convert into, we bring in live DJs, we can crank up the music, it gets loud, and we become more of a meet-and-greet place for 20- to 35-year-olds to come on their way out to the nightclubs to have a little cheaper drink, maybe grab some food, you know, get into the vibe, get into the mood. The nice thing is they, you know, a group of girls come, a group of guys come, all of a sudden they're, you know, they're flirting with each other, talking to each other, and the next thing you know, they never made it to the nightclub. They spend all night, you know, drinking and partying at Bombshells, which gives us great margins. Now, the nightclub business, we're a typical, you know, strip club, gentleman's club, whatever term.
I don't know what the term is in Germany. Basically, you know, we have, you know, nudity, topless dancing or full nude dancing, lap dancing, VIP room, champagne rooms, that type of stuff. Why do guys sell for 3x-5x EBITDA? Because private equity and banks do not lend money for the acquisition of adult-related businesses, or very few in the United States. Other operators do not have access to capital and the capital structure that RCI has. Because of our large real estate holdings, we're able to borrow money from banks against our real estate, pull out equity, use that equity to buy and pay cash down in large sums, anywhere from, you know, $10 million in this last transaction.
We paid out, you know, $5 million a transaction, up to $30-some million in the Lowrie transaction. We're able to use $30 million of equity in that transaction as well. You say, why us? That's the same answer. We have the ability, we have the capital, we have the track record. What's our limit of managing clubs? Right now, our internal goal, I want to get to 200 clubs. I'd like to do in 3 years. If it takes 5, it takes 5. You know, if it takes a little longer, it takes a little longer. I think at that point we'll you know our systems are in place. We're completely scalable.
The amount of management talent, you know, we bring a lot of our talent up from our existing operations, bring guys up. A lot of times we buy the talent. When we buy the club, it's already well managed. It already has great cash flows. Why are we gonna change anything? We're going to leave that current management in place. You know, when we bought Scarlett's, the same general manager had been there for 15 years. He's been there since, I think, 2017 for us. You know, he has no desire to retire. He's doing a great job, prints out cash. So a lot of times we don't make hardly any management changes, and we just actually grow our team that way.
We grow it organically, or, you know, through bringing people up in our clubs, or we do it through acquisitions, where we, you know, we not only get the club and the land, the property, but we get great employees that have worked in that location for years and years. I don't know that there's a limit at this point. I'm sure it, you know, at some point we might reach that limit, but I think, you know, I know operators of Burger King that own 1,100 of them. If you put the formulas and you put the systems in place, there is no limit, I don't think.
Thank you. Are there other companies similar to Rick? For example, non-listed companies with which are maybe much bigger?
You know, it's hard to tell with the private companies. There's two major private companies, I would say, in the U.S. There's lots of mid-sized. As revenue size of RICK's, I don't know. I don't know Déjà Vu 's numbers, but Déjà Vu is a very large chain. Spearmint Rhino is another fairly large chain, but they're more West Coast and international than in the markets that we operate in at this time. But I don't know. You know, I don't know their capital structures, I don't know their access to capital. But I can tell you that both of those companies, when I started in 1999, were much, much larger than us. We have. If we haven't passed them, we have definitely closed in. Probably Déjà Vu is.
It has the most locations. If there's one that's revenue-wise as large as us, that would be them. I don't think Spearmint Rhino is anywhere near our revenue size.
Okay. One last question, if you allow me. What about the moat of a single restaurant, a single nightclub? Isn't it quite easy to get a new competitor just down the road? How stable is the restaurant or nightclub business on the long term concerning a single restaurant or a single nightclub? Because as I have the impression in Germany, restaurants come and go, and also clubs come and go. Often maybe as you told, the general manager is going to another club, well, the business sometimes collapses. Is that a real risk concerning the single club, or don't you see that?
In the nightclub, on our nightclub side, we're adult nightclubs, so we have nudity, which requires special licenses, adult entertainment license, sex-oriented business licenses, whatever the local government put, has put in place or states have put in place. Those licenses are mainly grandfathered. There were many, many court cases throughout the last 25 years. The existing locations are basically the only locations that can operate now in those markets. If anybody else tries to open, they're basically not allowed in what I call economically viable locations, or they have operating restrictions that are much, much different. They can't operate at the same level or same manner that we do. That gives us a huge moat in the nightclub business. That's why we own our property. The property is tie...
The licenses are tied to a specific property address or zoning. That's why we buy our property in the nightclubs. As far as the Bombshells, sure, other people can open Bombshells. There's been a lot of, you know, other types of sports bars, restaurants, nightclubs that do similar things to Bombshells. But Bombshells, we buy our property for the most part, we're super high traffic, high flow areas, and the population growth in our areas are all strong where we're at right now. It's very expensive to build a Bombshells. It's not a, you know, typical small hole-in-the-wall place that is easy to open and compete at the same level.
I think that you know, we have certain operational advantages with our history of being in the business for so many years that you know, we've been fortunate and very strong that all of our locations are profitable. They all continue to be profitable, and we haven't had any real competition that comes in and affects our revenues. Our oldest location has been there for over 10 years. Most of our locations are going on, you know, 4-7 years old right now, and we're just starting to you know, expand over the next 3 years, hopefully another 18 locations. If you ask me the biggest risk you know, Bombshells would probably be what I consider the you know, higher risk than the nightclubs, but I still think it's relatively pretty low.
I mean, anybody can go knock off Chili's or Olive Garden or, you know, any other major Texas Roadhouse, any other major Ruth's Chris Steak House, yet they all seem to have their brand, their branding, their concept, and they have their followers that like that brand, you know, are patrons of that brand and support that brand. I think Bombshells has done and created the same type of atmosphere. We've proven the concept works for over 10 years now.
Thanks. Wish you luck in the next quarters. We will be happy to follow following earnings calls. Thank you.
Thanks so much. We appreciate it. Now, Eric, one question that was submitted to me by Hot Girl Capital is, do you plan to open a Nashville location, maybe a Naughty Honky Tonk in the future?
Well, you know, Nashville is a very tough market. We actually were working on a partnership club up there. We kind of stayed out of that market. The liquor laws combined with the adult entertainment laws are very different in Nashville. They want to be the bachelorette capital of the world, and I don't think they really want all the guys there, so I don't know. It seems like they're not very favorable to our industry in that market. You know, I'm a never say never guy, so we're always looking, we're always trying, and you know, hopefully someday we find something that makes sense.
Fantastic. Now, we just hit 90 minutes, so would love to encourage everyone to retweet and share this to get some more people in here. For our next question, we're gonna be going to Cesar. Cesar, have at it.
Hi. Yeah. Thank you, Mark. I have a question, Eric. Okay, you're telling us that you think that the expansion will be 3-5 years, but that's U.S.-based. So when will be the time that you think, the management thinks that you can go with RCI Hospitality abroad? You know, I'm talking Europe, Amsterdam, Paris, Milano, Mexico, a Latin American country, Los Cabos, Cancún, Monterrey, Mexico City. When will be the time for RCI Hospitality to go, you know, abroad to expand the business abroad?
Yeah, sure. That's easy. When we run out of opportunity in the U.S., you know, one of the biggest things is we have to learn those markets. We have to learn the legalities, the laws. We have to find legal counsel. There's a lot of homework and a lot of legwork to expanding international right now. We've done some of that legwork in Canada. We've done some of that legwork in Mexico in the past. It's not our. And of course, Argentina. Of five even. It's been a while. Since then we've decided to stay focused in the U.S. When we, you know, like I said, when we run out of growth here and run out of expansion plans here. You know, I'm not against international travel and international markets.
I think it would be great to create a conglomerate of that size in a basically a branding that would exceed continents. It's just gonna take time. Right now I think we've got enough. Like I said, the next 3-5 years, I think we're pretty wrapped up here in the US. As we continue to roll up this industry and complete here, then we'll have to keep looking at other markets. Now, Bombshells may expand in some of those markets through franchising much faster. You know, it's just early in the stage of Bombshells, but we'll see as our expansion grows through franchise.
Okay. Thank you. Thank you for your answer.
Great. Thank you so much for the question. Just wanna take a moment to encourage everyone to follow Eric, Equity Animal, and most importantly, Bradley on Twitter. We wanna get his follower count into the four digits or else he's not gonna be allowed home once he returns to Houston. Next up, let's bring Ice to the floor. Ice, you're up.
All right. Thank you for having me. I'll try to make this pretty quick. My question is kind of about Bombshells. You've been pretty methodical about growing Bombshells. I'm pretty sure you have, like, 11 locations over the last 10 years. Right now you really seem to wanna be ramping that up with both kinda having franchisees and company-owned locations. I know you have to slow down now due to inflation concerns, but I guess what about the concept now, makes you really positive about Bombshells? Is it just, like, the size of the location, the patio spacing? Your newer locations seem to be performing a lot stronger than your older locations. I guess if you could just kinda touch on that'd be great. Thank you.
Sure. You know, it took us time to learn. You know, our first few years were massive learning experiences for us. We didn't understand the demographics of our customer base. We didn't understand a lot of things. Restaurant was new to us. We knew the nightclub business. We know the liquor business very, very well. But you know, the lunch crowd, the dinner crowd, the different day parts of the business. We brought in an expert. The big thing is just growing the team and the support staff. We've grown that so you know so much now. We opened 6 clubs or 6 locations in 18 months in the past, and from 4 to 10 locations. The growth was very rapid.
We stretched management very thin, and we realized we needed to take some time and build up. Right as we were, you know, getting to the end of that, COVID hit us. We're right ready to go, you know, all right, let's go do six more locations, and then COVID hit, so we had to take some, you know, break from that. We are working on six locations. Like I said, we have two bought, one under contract. Well, actually two under contract. We entered the other contract yesterday. It's still very early on that. There's a lot of due diligence to do. It's you know, we have time on that one to figure out just in case something doesn't work.
Right now, they, you know, the architects, engineers are working full time to get that location up. We're not too far off on Stafford. We're starting construction there. Like I said, we've got the demo all done. We're gonna start putting the restaurant back together, start doing some of the work. We're waiting for certain things like concrete costs. You know, the steel's come down, so we're probably getting the steel ordered here very soon. The roofing costs are coming down. We found a roofer who's looking for some work.
You know, the biggest part is, like I said, the subs just, they have so much work that they're, you know, it's like, "Oh, yeah, I'll do it for you, but, you know, the $100,000 job is gonna be $180,000." Well, when you have 20 contractors or subs telling you it's $80,000 more dollars, you're spending another $1.6 million to build a location, and I'm just not prepared to do that. We'll wait. We'll take our time. We'll wait till the subs need the work. We'll negotiate down, and we'll build them at the cost they're supposed to cost.
You know, maybe we pay a little bit more here and there, but not to the tune of additional basically 70% of cost of what we paid to build the Arlington store. Like I said, those costs are coming down. We're getting more in line. We're kind of, I wouldn't say GC, but we're doing some of the sub search ourselves. Same thing for Rowlett, Texas. We're waiting for building permits there. The bid sets, we'll get those bids out. It's a new construction project. Typically, you know, a new construction project will have an easier job for the GC because you'll end up going with a
You know, they'll go with a group that will do 90% of the build out, the building, land, the concrete, all that stuff themselves. They tend to, if they're gonna bid it, they're gonna tend to give us a barely, you know, market rate bid versus, you know, "Oh, I'll do this job if I get paid a lot of money." I think we're on the course of that. We just will see as the next few months go by. I think September, October, November, you know, we're gonna watch inflation and watch, you know, commodity costs, and we'll just kind of see where it goes. If at some point it doesn't work, like I said, we're sitting on the land.
We've got the land financed, so most of it's you know 4.99%, 5.25%, 5.4%, stuff like that. We can sit on it and wait, pay a little interest. You know, it's a lot cheaper to pay you know a little more interest cost than an extra $1.6 million per build. That's just kind of where we're at on it.
All right. Perfect. Thank you so much.
Yeah. Thank you.
Thanks for the question, Ice. Next up, let's bring Johnny Shen to the floor. Johnny, you're up.
Hey, guys. Thanks for taking it. Good job on the quarter and all that. Yeah, I kind of wanted to go back to the Cheetah's deal just 'cause, you know, it's new, it's interesting, it's a decent size. It sounds like you didn't quite say this, Eric, but it sounds like you were kind of saying this was a unique deal, but this wasn't exactly that we wouldn't, it wouldn't be appropriate. Would it be inappropriate to sort of try to model future M&A off too closely off this deal? Is that a fair interpretation?
Very fair. It's definitely a very unique situation. I'm not saying we won't get more unique situations, but you know, the BCGH deal or Lowrie deal, as most people call it, for the Denver club, the eleventh club acquisition, the Playmates acquisition, if you look at the Playmates acquisition in May, if you go back you know, a few years and look at Scarlett's acquisition, you know, those are more typical acquisitions for us, which basically you know, be about 4x EBITDA for the business plus the real estate, which typically will make the deal at the overall 5x deal.
We typically will go in and improve everything by about 20%, which turns around and makes it basically a 3x for the club and the 1x EBITDA. We end up taking it from a 5x EBITDA deal down to a 4x. You'll see us put about anywhere from 30%-40% cash down and finance the rest. Maybe some of them are all cash deals, but we use a third-party financing group, so we give 30%-40% of our company cash, and then we finance. Even on Scarlett's, for example, we borrowed 100% of the money.
The whole entire down payment was borrowed from a third party, or a group of third parties, basically. It's almost infinite cash-on-cash returns because anything we made over the interest expense on that transaction was all additional free cash flow for our shareholders. It just depends on our leverage at the time. I'm comfortable to 3x leverage. The highest leverage ratio I think we've ever been at was 3.14x trailing twelve-month EBITDA to debt ratio. Currently, we have $188 million in debt. We're probably at most 2x, probably under 2x, debt-to-EBITDA ratios right now. We've got a lot of room to grow through debt.
We've got $37 and a half million in cash. We're generating $1 million+ a week in cash, I think, right now. We've got plenty of capital available, and then. It looks like plenty of runway out there with the acquisitions that we're working on. Obviously, the more cash we have to put down, the better the and bigger the deals we can do because, you know, you're making $14 million in cash and I offer you a $20 million down payment, or you can wait 16 months, you make the same $20 million, you really gotta wanna be a seller.
When I can walk in and offer you $40 million cash down, so now you've got almost three years' worth of cash in advance, and then you're getting big monthly payments every month, the guys are more inclined to do the larger deals and sell me $14 million plus in EBITDA at a single time. Those are kind of things we're running up against.
Awesome. Thanks.
On the Cheetah's deal, the other thing is, you know, our current bank, the current bank after all the interest rate raises is quoting us 6.39%, you know, on a five-year interest rate adjustments, and we locked in 10 years at 6% for the entire length of the note on Cheetah. Like I said, it was a very favorable financing deal for us, and it just an overall great deal for us as you'll see on the cash-on-cash returns as those numbers come in over the next 3 years.
Yeah. That definitely seems likely. On that sort of note, or I guess maybe if you don't wanna talk specifically about this, because I'm really curious more generally. When we look at seller notes, I'm guessing the company doesn't tend to prepay these, does it? I mean, is prepayment usually something that's completely off-limits based on the structure of the notes? Is there anything that can accelerate payments? Like, for example, when you have retirement seller notes, if it moves into an estate situation. Sort of the model framework.
No. There's no prepayment penalties. There's no acceleration in any of our seller notes. That's a capitalist. Obviously, if I can save 4 points, sure, I'm gonna go to the bank, borrow the money, and save 4 points of interest on a, you know, $15 million note. Sellers are realizing that, and we're seeing, as you're seeing in our deals, 6% notes, 7% notes because they don't want those notes paid off. These sellers really wanna create an annuity for their family.
You know, they're older and they want that monthly cash flow so that they know that you know that they're gonna be taken care of, their family's gonna be taken care of or whatever as that money comes in every single month over the period of a note.
Okay. That's cool. Yeah, that makes sense. Now you mentioned having a couple offers out and, you know, obviously it's reasonable to expect, you know, they're kind of being shopped around. Do you kind of get a good amount of visibility or intel on, you know, when deals don't happen? Obviously, when deals don't happen, you end up finding out no matter what, usually who the buyer is. I mean, does it feel like you're mostly dealing in these situations with one-offs or do you kinda see the same names pop up regularly?
Typically, if we don't buy, it doesn't sell. That's what we find. It's like, oh, you know, I need more money than that, and you're not gonna pay me more money, and no one else is gonna pay me more money. You know, if you listen to other industry buyers out on the street, you'll hear them complain, RCI pays too much. You know, RCI pays too much, you know. No, RCI makes fair and good deals. In the past, especially in our industry, it's all been about, you know, only buying people when they're in forms of desperation. You've seen super low prices, and that's what guys are used to.
When you have a retiring seller who understands the value of his business, who, you know, you have to give them a fair price, or why would they sell? You know, as the caller said earlier, why would somebody sell it 3x-5x EBITDA? Well, there's multiple reasons. Typically, you know, why. 5x is a very, you know, very high offer in our industry right now. It's a. It's. I think it's a very fair offer, due to the risk and uncertainties of our industry, the state of our industry, and the fact that there's just no one else that at this point can deliver. And everybody says, "Why can't. Why doesn't anybody. You know, people buy restaurants all the time. They buy nightclubs all the time. Why don't they buy?
The adult entertainment is a very specific and unique management capability that you have to have. There's regulations that people aren't used to. There's you know all types of situations that you have to deal with or you know be aware of or block. You have you know cash handling. There's just a lot of complexity to the overall industry. You know we have the issues ourselves where you know people won't do business with us and they won't lease to us or they don't wanna sell property to us because we're in the adult entertainment business. You gotta be willing to deal with those things as well. Maybe you're
You know, if you're fairly wealthy, come up with the kind of money and do the deals we're doing, you're talking about fairly wealthy people. Maybe they're big in their community. They're big in their church. You know, they're big in their country clubs, and they don't want that stigma of adult entertainment. You know, we just embrace and move forward. You know, we are what we are, and we know we are, but we're trying to change the perception of what the industry is as a whole.
You know, the biggest problem with our industry is, you know, as I've learned through, you know, most 25-35-year-olds, as we've moved into Twitter, as we've moved into the NFT space, their concept of a, of an adult nightclub is Ozark. You know, I don't know if you watch the Ozark, but, you know, they see the, they see the dingy strip club where they, you know, the people are, you know, all thugs or, you know, gangs or drug dealers, and that, you know. You know, Rick's is the exact polar opposite of that. It's very, you know, corporate America, very structured, you know, very rule-oriented, very, you know. Our cash handling systems are comparable or equal to casinos. That's, you know, it's just a different business model.
You know, that age group that hasn't been to the club, that hasn't seen firsthand, you know, our industry doesn't know any better. That's why we embrace Twitter, and that's why, you know, our NFT project is about building the future and building that, you know, 20-35-year-old customer base, and you know, giving that life experience of the fun and excitement of our industry.
Great. Sorry, just one more, it is back to Cheetah's. It just kind of popped into my head when I heard you talking about it earlier, because you know, I remember the press release saying $4 million, kind of an expected EBITDA. Then it sounded like kind of when you were freewheeling, you were starting to use some like synergy add-ons. So is that $4 million EBITDA figure in the press release a sort of pre-synergy, pre-operational improvement number? Like, where is that coming from?
Yeah. That's simply based on the existing business as it is at the time we purchased.
Okay. Since it's Florida, are you just looking at, like, the last year, or are you still doing like kind of a pre-COVID interpolation there?
We kind of do a current year, past year, and 2019 still right now.
Okay. You're still kind of.
It's kind of what we look at. Yeah. We wanna see where they were in 2019 versus where they are, you know, in the last two years.
Because I mean, for Florida, it could be that this is actually a banner year for them, right?
Yes.
'Cause it's Florida. Yeah, yeah.
Exactly. Which is why
Okay.
They made more money in 2021 than they're going to make in 2023. 2021 was the banner year. You gotta remember the last.
Right
The last big stimulus checks went out in March of 2021, and they rocked through September.
Right.
Six months. They lasted about six months, everything was kind of blown up. That's why I'm really excited. You know, everybody says your comps get harder. Yeah, the comps are probably harder for July, August, September this year because nobody traveled last year. They had the stimulus money. Not a lot of it was left, but some of it was left. Nobody traveled. That's what you forget.
Yeah.
Nobody went to Europe. Nobody went to Mexico. You know, this year, you know, Europe's complaining, everybody's complaining. All the airlines are complaining about all the people flying. You know, you go to Florida, look at the tourist market in Florida right now. I mean, it's insane. You know, like I said, last year, I just remembered. I went to Gulf Shores, Alabama, because it was the only thing open. You couldn't even rent a Vrbo last year in Florida. So we ended up in Gulf Shores, Alabama, which is actually very nice, great white sand beaches. I highly recommend it, especially for a family-type vacation. You can't beat the lower cost, and it's actually really nice and, you know, it's not.
It's in the middle of Florida and Texas, so.
Yeah, thanks. I'll tell my wife. I was on the call to figure out where to take her and the kids for a vacation.
There you go.
Okay. Yeah. Thanks. I just want to say, I mean, not for nothing, but you mentioned that kind of how much stimulus would have been left. I mean, I think people are undercounting stimulus because there's a lot of things that weren't officially stimulus that are, like the student loan repayment pause is essentially for a lot of high earners. Like, if you're a doctor with student loans, it's not materially different from just getting a check $2,000 a month from the feds right now for however long that goes. But thank you so much for the answers. That really helps kind of firm up how we're thinking about it. Thanks.
Okay. Thank you.
Thanks so much, Johnny. We're gonna take questions from two more individuals, but just happy to know I'm taking my ex-wife to Gulf Shores, Alabama, for our next vacation. Next up, we are gonna have Hot Girl Capital of BTT Long Short Equity Partners. Hot Girl, you're up.
Hey, thank you so much. This space has been great. I was just curious, does RCI Hospitality or any of the specific clubs have merchandise for sale?
Yes, we do. Especially, Tootsie's has. You know, it's just different from market to market, but yeah, Tootsie's is probably our biggest marketing club. I think Diamond Cabaret has some stuff. Basically, we have stuff everywhere. What we probably really need is a strong online presence. It's something we've never developed. We've always been kind of small. That's one of the things we should probably look into as we move forward, especially for the Bombshells brand. Bombshells has tons of merchandise. Every store has a big merchandise display case in the front, whatnot. There are some things you can buy online right now, like Rick's hats and different products through some of our websites. You know, expanding that and trying to, you know.
I always joke we need to be like, you know, Hard Rock Café and Planet Hollywood and, you know, have a lot of cool little neat things that people could collect and go to all the different clubs and try to collect all the different shot glasses or key chains and, you know, stuff like that. Glad you bring that up. It's something I'm gonna put on the vice president's calendar to start putting together and see what it looks like.
Great. Thank you so much.
Looks like we'll be adding that to Zero Tango Tango's to-do list. Hot Girl Capital, it's those hard-hitting questions that we really appreciate over here, so thank you for that. Last, but certainly not least, we have Dime Square Holdings. Dime Square, you're up.
Hey, thanks, Mark, and thanks everyone else for hosting this. You know, congrats on the quarter and all that. I was talking to my friend, a Solus analyst, and we're wondering maybe why or why not it would be a good idea for you guys to do a sale-leaseback when you're doing acquisitions.
You know, we've looked at sale-leasebacks up front, but the reality is I pay higher interest rates. Why lose all of the amortization, depreciation, just to report higher EPS, but have lower free cash flow per share? To us, it just. We're not worried about EPS. We're worried about free cash flow per share, and it's our overall free cash flow. That's the reason we've kind of. You know, we also looked at a REIT in the past, to do a real estate investment trust. The problem is our licenses are tied to the real estate, and at any point we lose control of the real estate, we have a basically an uninvited partner.
Because every time a lease runs out, the rents go up, and they go up more and more based on how much money we make. The better we do our job, the more they try to take from us. You know, after many, many years in this industry. In fact, we just passed on a really nice acquisition I would have loved to have because the owner won't sell us the property. He goes, "No, I want to keep the property." You know, we told him to do a 1031 tax-free exchange. We told him everything.
You know, the reality is he wants to be our landlord so that, you know, 10 years from now, his family can raise the rent on us again, and 10 years after that, he can raise it again. You know, we're just not. It's just not what we do. We own our real estate basically for the control of the licensing.
All right, great. Thanks.
Fantastic question. Dime Square Holdings to finish this up. I want to thank everyone for tuning in and encourage everyone to follow Eric, Bradley, Zero Tango Tango and Equity Animal on this. For those who joined us late, I want to say that you can meet up with management and myself tonight at 7:00 P.M. at Rick's Cabaret, one of RCI's top revenue generating clubs. Rick's is located at 50 West 33rd Street between Fifth Ave and Broadway, a little in from Herald Square. If you haven't RSVP'd yet, ask for Eric Langan or me at the door. On behalf of Eric, Bradley, who will be offering free complimentary Fireball shots, the company and our subsidiaries, thank you and good night. As always, please visit one of our clubs or restaurants. Actually, we are gonna take one more question. Let's bring you up. Add as a speaker.
All right. This will be our last one, and once we connect, we'll go from here. What's that? Well, if you can hear, she can go ahead and start your question for a second. Okay. Given that, just wanted to thank everyone again. Encourage everyone to come out to Rick's, 50 West 33rd Street tonight. We'll be there. We're heading there.