It is now my pleasure to introduce your host, Gary Fishman, who handles investor relations for RCI.
Thank you, Rob. Please, everybody, accept our apologies for the delay. We obviously use a third-party vendor to set up the call, and we will do our best to prevent this from ever happening again. Thank you. For those of you listening to this call on the phone, you can find our presentation on the RCI website. Click Company and Investor Information just under the RCI logo. That will take you to the Company and Investor Info page. Scroll down a little bit, and you'll find all the necessary links for this call.
Please turn to Slide two. I want to remind everybody of our safe harbor statement. It's posted at the beginning of our conference call presentation. To remind you that you may hear or see forward-looking statements that involve risks and uncertainties. I urge you to read it. Actual results may differ materially from those currently anticipated.
We disclaim any obligation to update information disclosed on this call as a result of developments that occur afterwards. Now, please turn to Slide three. I'll also direct you to the explanation of non-GAAP measurements that we use. Now I'm pleased to introduce Eric Langan, President and CEO of RCI Hospitality. Eric?
Hey, thank you for joining us today. I'm here with our CFO, Phil Marshall, and our Comptroller, Bradley Chhay. I hope that everybody and their loved ones have been able to get through this pandemic so far, and that you are following all the safety recommendations. After the market closed today, we reported our third quarter results for the period ending June 30th.
Total revenues were just under $15 million. Keep in mind, all of our locations remained closed in April and the beginning of May, and a limited number were able to stay open during the balance of the quarter. We had a net loss of $5.5 million or $0.60 per share. Looking at operating cash flow, we were slightly positive. We ended the third quarter 2020 with almost $15 million in cash and $5.5 million in accounts receivable, including a large income tax receivable.
Operationally, Bombshells was the star. The segment generated record revenue in May and June, and quarterly operating margins that exceeded our original targets for all 10 locations. Nightclubs that were open performed well considering the environment. Most of our nightclubs had to operate as restaurants with entertainment instead of our standard nightclub procedures, requiring all guests who enter to eat food in order to be able to partake in drinking or entertainment.
To give you an update on how well we're doing in the fourth quarter, we generated $7.6 million of revenue in July. We have 31 locations open today. Our subsidiaries have been able to bring back about half of their team members after those extensive furloughs in March. After more than five months, we have become more confident at how to manage our business and finances through the pandemic. We have been agile, innovative, and acted quickly.
We believe we have made the company more resilient. Though cash flows are not as we anticipated at the start of the fiscal year, the near-term outlook for our business remains strong. We expect to generate adequate cash flow from operations over the next 12 months. Please turn to Slide 5. It's important to understand the progress we have made over the course of the quarter.
We have become very adept at opening locations, closing them if necessary due to changes in state and local government regulations, and then reopening them if we can, while keeping costs as low as possible. While the number of open locations fluctuated over the course of the quarter, monthly sales went from virtually nothing in April to $5.7 million in May to $8.9 million in June.
We have achieved this performance while following all mandatory health and safety regulations, including masks, social distancing, occupancy, and hourly restrictions, and we have developed effective ways to serve our guests and our market, our business in this new environment. As a result, we have had no problems attracting customers. Lines are common to get into our locations. We are experiencing a steadier flow of business during operating hours compared to before the pandemic.
A couple of our clubs actually posted year-over-year sales increases during the months they were open. After the slower July 4th weekend, these trends have generally continued into the fourth quarter. Please turn to Slide six. The Bombshells team has done a terrific job under extraordinary circumstances. Based on our performance starting in May, we are operating at an annual revenue run rate of $40 million-$50 million.
That is in line with our goal we set out earlier this year for having all 10 locations open. I am particularly pleased to point out that our operating margin hit 22.3%. This exceeds our 18%-22% target range. I would also like to note this achievement was reached while incurring fixed costs for locations closed in April and early May.
Please turn to Slide seven. During the quarter, we were able to work on some of our longer-term strategies. I'm talking about selling excess land at our own Bombshells sites and using the proceeds to pay down debt and increase the potential return on capital invested. We completed this during the quarter for Bombshells I-10. We sold off the second of two available parcels for about $1.5 million. This is after selling the first parcel for close to $1 million.
As a result, we reduced our bank debt on I-10 nearly half and our total investment by more than a third. Please turn to Slide 8. I would like to go over a few remaining items in our statement of operations. Cost of goods as a percentage of sales were higher due to a greater proportion of food. Salaries, wages, and SG&A dropped about 50%.
This reflected cost-cutting, partially offset by a month of no sales and added cost to protect customers and staff from COVID at our subsidiaries and offices. Other charges reflected $1 million of additional non-cash COVID-related impairment. This indicates we got most of it right in the second quarter, and was partially offset by a gain on the sale of the Bombshells I-10 parcel. Bombshells had nearly $2 million in segment operating profit. Nightclubs had a $3 million segment operating loss, with about two-thirds of that non-cash.
Interest expense was lower due to debt paydowns prior and during the quarter. There was a tax benefit versus expense last year. The weighted average number of common shares outstanding declined 5% due to repurchases in the third quarter. Please turn to slide nine. As you can imagine, we are very focused on cash generation and use.
As I mentioned, we ended the quarter with $14.8 million of cash. Excluding the SBA loan, long-term debt declined to $137 million. That's the lowest it's been for some time. Current liabilities at $33 million are in line with past performance. Please turn to page 10 for our debt pie charts. The key point that I'd like to communicate is that 85% of our debt is secured by assets such as real estate, three of our clubs, and equipment. Looking at the unsecured portion, 4% of the total debt is the SBA loan.
This has a potential to be completely or partially forgiven. 2% is the Texas Comptroller's settlement. Less than 10% is unsecured in the traditional sense. Please turn to page 11. As we reported, during the first half of the fiscal year, we moved or have converted about $11 million in near-term non-royalty balloons to out-years or to amortizing loans to give us more flexibility.
We have continued this strategy in the third quarter. We deferred approximately $2 million in bank debt servicing. In July, we deferred the payment of $2.1 million in debt due in the fourth quarter. For additional flexibility under the Bombshells build strategy, we have one more parcel under contract to sell and four parcels listed to be sold. Turn to page 12. Here's our capital allocation strategy slide. Most of this is how we looked at the world pre-COVID.
We put this in here to show you that using excess cash to buy back shares is still part of our core strategy. We are currently looking to grow cash on hand to more than $15 million. We'll be able to pick up with our capital allocation strategy as we have been doing for the past five years. This will continue to be our way of allocating all excess capital for the foreseeable future.
When more locations are allowed to open, such as our larger South Florida or New York City clubs, we believe our cost structure and marketing should generate greater free cash flow even with potential COVID restrictions. Turning to slide 13. To recap, we believe we have made the company and its operating subsidiaries more resilient over the last five months. Acting quickly and with agility, we have significantly reduced our cost structure and cash burn.
We have retained key personnel and rehired many furloughed team members. We have also gained a lot of confidence and become a lot more comfortable managing our business in the age of COVID. We have learned how to safely open, close, and reopen businesses. We have developed effective ways to serve guests and market our business in a COVID-safe manner. We have achieved important sales and margin milestones with Bombshells.
Open clubs also did well given all the challenges, and we are continuing to pursue long-term strategies. In the final analysis, we ended the third quarter of 2020 with a small but positive operating cash flow and ample staying power. In closing, we would like to give a special thanks to all our team members. I know I called out Bombshells earlier, but our nightclub teams have done a terrific job also. Everyone's efforts, hard work, long hours, and dedication has been unbelievable. You are RCI's greatest assets. Operator, let's open the call to questions.
Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question comes from Greg Pendy with Sidoti. Please proceed with your question.
I know Bombshells you've been learning as the process goes along. Can you kind of give us any insight into why you think the margins were even above your expectations? Maybe some initiatives that you had put in place in the past that are paying off a little bit more, or just a little bit of color on that?
Well, we always said once we opened all the locations, and we didn't have all the pre-opening costs, that our margins were going to be much better. We never separated out pre-opening costs of the Bombshells segment because it was a small segment of the overall company. That's a part of it. The other thing that we're seeing is, with so many other locations closed, we're getting the business.
We used to have peak times and peak hours and pretty much we've got a nice flow all day long now and still have our peak times. We're seeing more customers, and they're staying longer. Bombshells was the meet and greet place. You come in in the evening and you have your food and your appetizer and a couple drinks, and then you go someplace else to finish your night and drink. Well, since the someplace else isn't open anymore, we're seeing those people stay at Bombshells and spend even more money. Bombshells is actually becoming even more popular because of it.
Great. That's helpful. Just one more. I think in the past you guys mentioned the difference in behaviors of the under 40 and over 40 crowd. Any changes going on on that?
I think with masks, I think people are feeling safe to come out again. With everyone wearing masks, I think we're seeing a much broader customer base, especially at the clubs. The clubs are doing much better with an older clientele than they were pre-everyone wearing masks. The mask mandate, especially in Texas, has been a big help for us. Of course, that's where majority of our businesses are open now, in the State of Texas. We have Texas, Illinois, and Minnesota right now, are basically the only places we're operating.
Okay, great. That's helpful. I'll give some other people another chance. Congratulations on the quarter. Thanks.
All right. Thanks.
Our next question is from Vadim Perelman, a private investor. Please proceed with your question.
Hey, guys. Great job managing through this very difficult period. I want to go back in time. When I think about your 2015, 2016 time period, which is when I think you instituted and started to implement your capital allocation policy and got aggressive in your share buybacks, the company was very different. You were doing something like $127 million in sales. EBITDA was $34 million. You were earning about $1 a share, and Bombshells was nascent. I think it made like $1.5 million. Today, it's a very different and much better business, although we have this temporary disruption. Obviously, $200 million-plus post-COVID in sales and free cash flow, earnings power of probably $4-$5.
Given that setup and given where the stock trades at a 30%, maybe even higher free cash flow yield, is there anything you can do to take advantage of it while those are the facts on the ground? When the market doesn't give you the credit for what's obviously been a very resilient and a very healthy business?
Like I said, I think if we get Florida or New York open, that's going to drastically change. If we just get some of the other cities that were open, Charlotte, Phoenix, some of our other states, Pittsburgh, Chicago, we get those locations open, that'll change our cash flow. Basically, I think our run rate right now is probably cash flow neutral at about $1.8 million or so. $90 million-$100 million is kind of cash flow neutral.
As we get to the $2 million-plus range, we start having positive cash flow, and we'll start increasing our cash on hand per week. Those are per week numbers, I'm sorry. Basically, once we can grow our cash on hand to $15 million-plus, we're going to be back to having excess capital, and we'll be applying it to our capital allocation strategy.
If our stock's trading at these prices, that's where we'll be putting it. If the stock recovers here and people start to understand that our businesses aren't going anywhere, when we open, we are immediately starting to see our customers come back. We're seeing new customers come in.
Now that I think that depending on what goes on with the unemployment situation, I think we're going to see more new hires, as we continue to grow and expand at our existing locations. It's really going to depend on who survives. I think this is definitely a survival story right now for a lot of these smaller operators out there. If they, for some reason, don't survive, restaurants, we've seen a lot of restaurant closings, and saying they're not going to reopen.
If we can be in a position to take advantage of that, maybe find properties we can lease and retrofit cheaply because they were already full service restaurants. We can expand Bombshells that way. We can also look at acquisitions from clubs that are coming online right now. I think in October, we're going out to the Gentlemen's Club Owners Expo. I've got a lot of meetings set up with a lot of club owners to talk about their future of the industry, their future in the industry, and basically how they can monetize their assets if they decide they don't want to be in the industry anymore.
along those lines.
I think you're going to see a lot of opportunities.
That's super helpful and agreed on all fronts. Along those lines, quick follow-up. How do you think about the hurdle rate for making investments like what you just mentioned, either buying distressed clubs or buying clubs cheaply or investing in growth in Bombshells to retrofit or rebuild? How do you think about that versus the opportunity cost of deploying capital through the stock at a return that you know exactly what it is?
Well, basically want at least a 2x. I think depending on high risk, I'd want a 3x cash on cash. It really is going to depend on that. That's why the franchise model for Bombshells is so appealing to us. Right now, we are talking with some different groups about franchising in different areas around the country right now.
I think as the numbers are coming out, people are going to get more excited about the Bombshells opportunities. We've had, I guess, just people that have been into Bombshells in the last couple of months here in Houston, from out of town or from wherever, and they've called up and said, "Hey, I want to see about opening one of these in my city." We are getting those calls now.
I think, like I said, as the numbers become more public, I think we're going to continue to get more calls in that regard. That'll help with us. I think we need a two to three times hurdle rate. We've always said two times, depending on the risk. I'm going to assess the risk. Risk-free investment in our own stock is at those higher returns that we're getting right now.
If we use the $30 million run rate, which I think is probably low now, if everything was open, based on what I'm seeing out there and based on some of the restaurants chains and stuff that aren't going to reopen, there's less competitive market in the overall entertainment market, right. Fans can't go to basketball games and football games and baseball games right now.
All that disposable income that was being spent on those types of entertainment is not being spent on those types of entertainment. We're seeing those people who would go down to the Astros game, come to Bombshells and watch the Astros game a lot more. I think we're going to see more of those people visiting the clubs, and hanging out at the clubs to maybe pick up the game and hang out and get some food and drink and hang out with the girls at the clubs as well.
That's kind of what we're seeing right now. If that continues as we move forward, for however long, there's less competition, there's no concerts. It's just amazing that all the entertainment choices that used to be out there that aren't out there right now. I think that's going to have a very positive effect on the company as we move forward and get open.
Thanks a lot, and hat off to the team for doing a great job navigating this. Thanks a lot.
Thank you.
Our next question comes from Douglas Weiss with DSW Investment. Please proceed with your question.
Hi. Could you talk a little bit about, as I think as was expected, the service revenues are pretty low right now? Could you just talk about kind of what has to happen before those revenues start to come back?
We have to get more locations open. That's just the reality of it. A lot of the clubs were not really charging a cover charge, were making you buy food instead. Our food revenues are going to be up, but our cover charge is going to be down. Our food revenues will be up, but service revenues will be down a little bit. It's just a different model right now in this COVID environment.
I'm not really concerned about as much where the revenues are hitting as far as the category service, food, liquor, whatever. I'm really concerned that we just have the revenues. Right now, we'll probably have to iron the rest of it out as we move forward. We've got to get our big locations open. We've got to get open in New York, we've got to get open in Florida, Chicago, Pittsburgh, Arizona. Those are the locations that are really affecting that service revenue right now.
Okay. Are you seeing any impact on a sort of day-to-day or week-to-week basis from COVID news? Obviously, Houston, I guess, would be the main market. Is there an impact there?
When the fear is rampant. Yeah, it does. Like the first two weeks of July, were very trying. You got to remember at one point in June, we had 40 locations open. A week later we had 29. I think we got down to a low of 23 or 24 locations. As of today, we have 31 locations open. Yes, we are seeing it. In fact, we've voluntarily closed a few locations. We would have an employee that reported a positive test, we'd close the location for three to five days, get all of our employees tested. We are paying for rapid testing, so that's some of our cost increase is we pay for rapid testing so we can have instant test results for our employees.
If no other employees test positive, and once we're comfortable that we have enough negative tested employees to reopen, we'll get the location reopened. We've come and gone with those types of things. Basically, we've been very quick to react anytime we've had incidences in our actual businesses. I think in the last five weeks, we're down to zero instances in our establishments.
I think the mask on both sides have really helped. I do believe the one-sided masks were an issue and only our employees wore masks from day one. We were not requiring it of all of our customers. Now that all of our locations require it of our customers, I think we've kind of put a quash on having any real issues at our locations now. Really it's about the fear, right?
If they create a big fear factor, media creates a big fear, then people start to stay home a little bit more. I'm seeing it on about a two-week cycle, news cycle, right? It's like a news cycle. The news cycle hits, business slows down a little bit. News cycle gets old, people come back. That's really what we've experienced through June.
The first week of August has been one of the biggest weeks we've had, other than the third week of June when we had 40 locations open. I'm very optimistic going forward right now, provided that people follow the safety recommendations, wear their masks, and stay away from large groups where people aren't wearing masks and aren't following social distancing and that we can keep the new cases at a low and get everything back open.
Right. Okay. Last question. What do you see happening with your competitors as far as other clubs? Are they kind of hanging in there or are some of your competitors not going to make it on the club side?
I think we're seeing a little bit of both. I think you're seeing some guys that are out there working hard, hustling, trying to get open. I think you've got guys in certain states where nothing is open or they can't get open that are struggling. I think some will make it and some won't. We're watching for that. We're going to look for opportunities that we think play right into our long-term strategy and go from there. I think October will be a real telltale sign for us as we go out to the convention and we see who's there, and we see what they're saying. I talk to a lot of guys around the country pretty regularly. Like I said, some are doing very well, some are not.
A multi-club operator that I know very well that only has five locations of his 19 locations open, and he's struggling to make ends meet. So far he's making it. I think that's in any business, not just our business. I think you're seeing it in the restaurants. I think you're seeing it in the gyms. I think you're seeing it in the hair and nail businesses. You're seeing a lot of companies that were on the border that are just going to give up. I hope that most people can survive this and do it, but we're going to be ready to do what's best for our shareholders and our company, as opportunities present themselves to us.
Okay. All right. Thanks.
Yeah.
Our next question comes from Steven Martin with Slater. Please proceed with your question.
Yeah. I know it was impossible to calculate comps for the quarter, but when you look at it on a weekly basis or a monthly basis for the units that have stayed open consistently, how would you characterize your comps?
I would say most of the Bombshells are up 30%-40% year-over-year. I can tell you a particular club in Houston is up about 100% year-over-year. It's amazing. Some of the clubs are down 20%, 30%, but they haven't been consistently open. The real trouble is very few locations have been consistently open. They've been open for three weeks, closed for two weeks, back open again, and we've had to consistently reinvent ourselves.
We opened as clubs. Oh, nope, you can't be a club. Okay, we got to close back down. We close back down. We study our licenses. We said, "Oh, wait, we have restaurant permits. Well, what if we opened as a restaurant that has entertainment? We start serving food. We make every customer buy food in order to be in the building.
You can't stand at the bars." How can we become COVID compliant, so to speak, with the new regulations? That's really what we've done, and I think that's what we've done a great job of at getting 31 locations open, is that we've looked at the rules and said, "Okay, how can we follow these rules? Can we follow these rules and be open and still make money?
At least make enough money to pay our employees and keep people working." We really, in the beginning, started out just trying to get people working again. We had 2,100 people that we laid off, plus about 4,000 entertainers that contract with the company. Some got unemployment, some didn't get unemployment. It was a mess. We tried to do our best to get people back to work first.
As we got people back to work, we said, "Okay, now how do we make money?" That's we're in the business for, is to make money. How can we do both? Those were our two kind of marching orders. Get people back to work. Okay, now let's figure out how to make money with what we have. I think as the quarter shows, we did a very successful job of that.
If we can continue this through this quarter, this is going to be a profitable quarter for us. I think as we move into October, November, December, hopefully we're open across the country and we're back to our normal deal. Typically, when we have a downfall, we have two off quarters, and then we get back to normal. I'm hoping that that's kind of what we see with this.
We have our off quarter, and then maybe next quarter's off just a little bit, and then hopefully by that first quarter of 2021, October, November, December, because we're on a fiscal, that we can get back to a more normalized run rate.
Focusing on Bombshells for a second, you said $40 million-$50 million run rate. With comps at Bombshells up as much as you said, shouldn't that be the upper end of that range?
Yeah. I think right now we're probably closer to $55 million-$60 million. If we can duplicate the last two months for a 12-month period. We included April in the run rate, but April was closed, so it had zero revenues. I think we're going to get a really good idea of what Bombshells can do if we can keep all the locations open for this 13-week period. That's really what we're trying to work for.
We do have one location that's currently closed. We have some litigation going on with the State of Texas on that location. They're saying we're a bar, that we can't operate as a restaurant. I think we have a hearing date coming up in about eight or 10 days. Hopefully, we can be successful at that hearing and get that location back open here shortly, and then we'll have all 10 locations open. Right now we're operating on nine of the Bombshells locations.
All right. With respect, I know you had put out that you want a court ruling on the Texas patron tax. Where does that stand and what are the ramifications going forward?
Right now that case is in appeal. It's on appeal. The courts, of course, with COVID, is extending 1 million months for everyone to answer. That case is going to be on appeal for quite some time. We're in the process right now. We were not paying those fees, A, because we just didn't have the money, and we didn't want to give up the money.
We have not paid several of our taxes. We're in the process right now negotiating a settlement for the two quarters that we didn't pay. We'll probably pay that tax on a go-forward basis until such time as the appeals court moves forward. Originally, the plan was to not pay it because we thought we'd have an answer from the appeals court before collections would start. Because of COVID, that just didn't happen.
The courts are not moving in a normal, timely manner, so we had to rethink our strategy there. We're going to be paying that tax on a go-forward basis until such time as the appeals court rules, and then we'll obviously try to get our money back. We're paying under protest, so we have a right to 100% refund if we're successful in the appeals court.
What's the estimated amount you are going to pay or on an annual basis that you may not have to pay in the future?
Pre-COVID, it was about $2.6 million-$3 million annually. With COVID, it's been totally inconsistent, right? Clubs are open, they're closed, they're open, they're closed. I can't tell you. I think this quarter, patron tax was $180,000 or something. Wasn't much.
Yeah, the two quarters are about $670, I think.
Yeah. Well, we were open most of the first quarter, probably $four something in the first quarter and $180 something in the second quarter.
All right. Thanks a lot.
Yep. Thank you.
Our next question comes from Adam Wyden with ADW Capital. Please proceed with your question.
Hi, Eric. Terrific quarter, look, this is not surprising. You've invested 20-plus years in your life to create a flexible platform to basically survive any environment, including a global pandemic. You should give yourself and your team a pat on the back in terms of the operating results, it looks like it's up, and away from here.
Look, we're very happy to have been able to acquire almost 10% of the company in this downturn, we look forward to what's to come. We think that there's many multiples of our money here and many years of compounding ahead. A couple housekeeping issues here. Just building on what Steve said, you had this one Bombshells closed. You're comping 30%-40%. We're reading articles that there's lines are out the door with 50% occupancy.
When I parse the numbers, you did about a 22% operating margin with nine clubs, sorry, with nine Bombshells open at the end, with the entire month of April being closed, and then some off and ons with opening and closing and kind of whack-a-mole. As it looks in Texas, the numbers are way down. It looks like you'll get the 10th Bombshells open.
When I kind of run the math, it kind of feels like with all 10 Bombshells open, you guys are running maybe $60 million of revenue or more, but more importantly, the operating margins are looking closer to 30%, not 20%. Who knows whether we can sustain 30%, but I think it's fair to assume we could probably sustain 25%, given kind of what we're seeing in the market for other types of sports bar concepts.
You've got an asset in there that's doing $15 million-$18 million of EBIT. I kind of look at this a little bit like "Forrest Gump." I don't know if you've ever seen that movie, where Forrest takes the boat out and he can't catch any shrimp, and then all the boats are crashed into the docks and he comes in with Lieutenant Dan, and he catches all the shrimp and goes and puts it into a fruit company.
You got 35% of table service restaurants and small restaurants closing. You've got the only game in town. Lots of other things are closed. It's entirely conceivable that you could have a $20 million EBIT asset out of Bombshells. Then, if you think about working capital and people to buy these things, that could easily be worth $200 million-$400 million, depending on how you think about multiples.
It's pretty incredible that the stock is trading here. You've got the highest short interest in the company's history. You have no corporate-level debt. None of the assets are cross-collateralized. What do you think is going on? It's like borderline insane. The short interest and the market valuation relative to just the sole value in Bombshells.
Adam, I think that we've always been misunderstood as a company. People just do not understand our business. They say, "Oh, you're in the strip club business. We understand the strip club business." What they don't understand is we're in the real estate business. We're in the restaurant business. We have a lot of businesses that comprise that adult entertainment business. Our real estate equity has been a huge source for us of being able to, since 2017. Now, prior to 2017, we couldn't tap that, but now we're able to.
We're setting up our next refi, where we're going to take all of our non, basically bank-financed properties and even some of our newer Bombshells properties, as we've sold off those additional properties, and roll it into another refinance, put it on a new 20-year loan, and save us another $1.4 million a year in cash on debt service.
Let me ask you a separate question. Just looking at Bombshells. If you guys can do a 25% margin, well, you're really probably doing closer to 30 on $60 million. That's before you open up any more locations, and that's before you consider franchising. You've got this mismatch between the value of the company. You've got tons of value of equity in the real estate.
You've got strip clubs, which are arguably worth a lot. Look at Tootsie's, man. You opened it up. I'm here in Florida now with my wife and son. There was a line around the block with people who used to go to Tootsie's at 9:00 P.M., and they were standing in line at 11:00 A.M. These short sellers on Twitter are saying they had this boogeyman short thesis.
There was this kid who worked at Chevron, and he was buying put option contracts and saying, "Oh my God, no one's ever going to go back to a strip club." That's horse manure. The minute you opened Tootsie's, there was a line around the block. It's ridiculous to say that these strip clubs don't have any value. Tootsie's used to be like a Costco or something. That thing's probably worth $30 million, $40 million, $50 million just as real estate. But you're not getting any value for it.
My question to you is, if I told you that you could sell a small stake in Bombshells to Aurora or to a franchise partner and say, we're going to value this at $200 million, $300 million, whatever it is, and we're going to sell you 10%, 20%," that could give you a ton of cash to go and buy back a ton of shares in the strip club.
Not only that, you could probably gain a strategic partner to help you roll out Bombshells. Think about it. There's 420 Hooters in the United States right now. How many military bases do you think there are in the United States? We could have a Bombshells on every military base. Why not get a strategic or financial partner to take Bombshells nationwide while monetizing it and allowing you to repurchase shares in the holding company?
There's so much operating flexibility that you have. You have these knuckleheads on Twitter saying that no one's ever going to come back. People are coming back. It's just a question of getting open. How do you think about doing something strategic with Bombshells?
We are always open to all options on Bombshells. It's always been, we started it, we weren't really sure what we're going to do with it. We were hoping to expand the multiple of the whole company. Like you said, I think we've created something that's worth, the Bombshells concept standalone is probably worth more than the market cap of the entire company today.
We said, at some point, if we cannot recognize that value, that we would find another way to monetize the value of Bombshells. I don't know if that's right now. We're always open. We're going to listen. If somebody had a proposal, we would sit down and look at it. We're not looking to sell it cheap. We're not looking to give it away because it's the golden goose right now. I think we're going to sign up franchisees soon.
We've been in negotiations before in the past with smaller guys, but now we're talking to what I call real operators, restaurant operators, restaurant franchisees, that not only have the capital but have the knowledge. In the past, we've got guys with capital, don't have the knowledge. We've got guys with the knowledge that didn't have the capital. I think for the first time, we're actually talking to both.
They have the capital and the knowledge. We're open. Would we take a partner to help us franchise that has done it before? Of course. We'd love to sit down and talk with somebody who can present us with a plan that's win-win for everyone. At the same time, if not, we're going to figure it on our own like we always do. It may take us a little bit longer. If we can speed the process, we're interested in that. There's actually value for our shareholders and for the company if we can speed the process up a little bit with the right partners.
Let me ask you something.
Okay.
Just looking at Hooters.
Yeah.
Is there any reason why we can't have 300, 400 Bombshells? I'm not saying you're going to go and build them yourself, but I'm saying intuitively, you've got 10 of them running at 30% margins. Maybe Twin Peaks goes out of business. Maybe Hooters goes out of business. The concepts are kind of crap. Your food is good. You've got the right concept. Every number works better.
I think people got to realize that Bombshells is not a Hooters or a Twin Peaks. We are a cross-generational, cross-gendered. Everyone comes there. People bring their kids there. We are a family-friendly restaurant. Yeah, we have some girls, but our girls don't flaunt their stuff all day long. We might get a little risque after 10:00 P.M. at night, but we're not quite so risque during the daytime.
Other than during theme weeks. We do have theme weeks in the summer and whatnot, where we get a little more risque and competitive, and we cater. Basically, our Twin Peaks, Hooters customer is only 20% or 30% of our business. The rest of our business is a completely different customer base.
In a vacuum, assuming you had the right strategic or operating partner and the right balance sheet to execute against it, is there any reason in your mind why this couldn't be 300 units?
No, I think 300 was our initial target of we could do 300 Bombshells units in the U.S. without much overlap.
You don't even have to build it, right? At this point, you've got proof of concept. You could partner with a private equity firm or someone who's got insane ability, and you can just monetize the IP and the concept that you've built. It's absolutely incredible. The fact that this thing trades where it trades, it's almost criminal.
I almost say to myself, why wouldn't you sell a 10% or 20% stake in Bombshells and buy back half the company? Why do you have these knuckleheads on Twitter shorting these things? You got kids buying put options and tweeting. It's disrespectful. You've invested 25 years of your life building this thing, and the value of your real estate equity is worth more than the entire market cap. It's insane.
I don't know if the real estate equity is that high, but it's pretty close. It's just what happens, I guess, with this COVID thing, and people just misjudged what our business model would be like after the fact. I think, hopefully, they're going to start realizing that our business model is still solid, that people are going to come back to the clubs. They may be wearing a mask, but as long as your eyes work, I think you're still in pretty good shape to come to a strip club.
Let me ask you something. You've seen Texas cases go down. You've seen Arizona go to zero effectively. With this two-sided mask marketplace, you get the two-sided mask going, you're good. No one's getting COVID with the two-sided mask, right?
Yeah.
You've got markets where indoor dining's been open, and people are wearing masks, and it's working. De Blasio is not going to be able to keep New York closed forever. You open up New York, there's $10 million in EBITDA right there. You open up Florida, there's close to almost $20 million of EBITDA. These are red states where there's low unemployment. Well, certainly Texas and Florida, we've shown that we've been able to contain it. Even Florida is sloping down. You think that this is a 2020 event. Just working forward, assume you get everything open by the end of 2020. Which I think is a reasonable expectation.
We get open by September 30, hopefully. That's been the internal goal, to get everything open by October 1st.
Elon Musk said today he thinks there's going to be zero cases by April 2021. If I just run the math that Steve's running, let's say sales are $60 million, $65 million in 2021 Bombshells, assuming no new, you're back at $200 million. You were doing $200 million at the end of the first quarter. You get the incremental growth in Bombshells.
I don't think we're looking at a $60 million EBITDA business. We're looking at something closer to $80 million. If free cash flow was $40 million on $60 million, we're looking at a business that could have probably close to $60 million of free cash on $80 million of EBITDA. Those could be the numbers with everything open in 2021. It's incredible.
Everything would have to be absolutely perfect world for that. We know there's no such thing as a perfect world. I think, somewhere in between where our original projections were and what you're talking is probably reality, where we should end up at, in my opinion. Look, one thing's for sure, we're doing better at the locations that are open than they were doing pre-COVID.
If we can keep that type of momentum going forward, everything's going to grow. As we all know, and we've seen in the past, when we do these big events, we do really high quarter sales, our margins drastically increase because the fixed costs are already all paid. Every time we do those dollars, that $0.60, $0.70 from every one of those dollars rolls all the way down to the bottom.
That's why those extra dollars are so important. That's why we focus on each location maximizing the revenue each month because that incremental revenue at the end of the month that gets us over our average is very profitable revenue for us.
Right. That's the math. Just think about it like this. If you think about it, if 35% of the table service restaurants are closing, and that manifests itself in a 10% comp just in the nightclubs. If you have $40 million in Bombshells, that's pre-COVID, and $160 million of sales in the nightclubs, and let's say you get a 10% stack comp over two years.
You have 35% of the whole, "your competition" closes. You have a 10% stack comp. On a same store basis, you're talking about, call it at least $16 million in sales. As you said, because of the nightclub margins, because you own the real estate and the variable margin, you're talking about 80%, 90% flow through because it's all liquor. It's all liquor and admittance.
The other thing that I was so impressed with all this is that when I call the clubs, people would tell, "Oh, well, we used to charge a $20 cover, and now we're charging $50 to $100, or we're making it bottle service." What business allows you to take the cover charge from $20 to $100 or make the mandate, you can't get in on 25% occupancy unless you pay $2,000 bottle service? It's incredible. That top dollar of incremental comp, it all flows to the bottom line. It's the difference between this thing being a $60 million EBITDA and a $100 million EBITDA. It's incredible.
It's definitely a way for us to control the number of people at the door, but the difference is we still have lines. You don't have to spend that kind of money. It's just if you don't want to wait in line, you have to spend that kind of money. There's people that'll spend that kind of money not to wait in line. That has been a big part of the success of the open locations on the club side for certain. The Bombshells, we haven't done any price increases or anything at Bombshells. We're just busy all day long.
Yeah. Look, it's really incredible. I'm kind of stunned that people put RCI in the same bucket as Dave & Buster's or a cruise ship. This whole boogeyman thesis of like, First of all, that's not your customer. Your customer isn't kids, and it's not senior citizens on Royal Caribbean either. Royal Caribbean, it's a walking Petri dish. Airlines are burning cash every single day.
Look, if I want to go into one of these things, I'm wearing a mask, everyone's wearing a mask. The people are up there's good social distance. Look, there's no difference between this and a restaurant. The fact that they're comparing you to these restaurants that have onerous operating leases, and you own all your real estate, and you've got this variable model, it's insane. I don't get it.
I don't think there's a single restaurant or tourism company that generated a positive operating cash flow in the quarter. No, you guys are doing a tremendous job, and I look forward to staying on a couple conference calls and seeing this thing at $50, $60, $100. It's just insane that we're down here, but that's the opportunity that the market creates. Congratulations again on a great job, and I look forward to the ride, all right? I got 9.99% of this thing.
All right.
Everybody needs to know. I'm there with you.
I appreciate it. Thank you, Adam.
You're welcome.
As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. One moment, please, while we poll for questions. Our next question is from Max Ellis, a private investor. Please proceed with your question.
Hey, Eric, congrats on the great quarter. If you had asked me two years ago, or if you had told me two years ago, that one day Bombshells would save the nightclub segment, I would've called you crazy. You really did it.
Lots of people did. Don't worry. I always believed in the concept. I wanted to prove it out to everybody, which is why we said, "Look, we're going to build these six locations." We built those six locations over an 18-month period. There was a lot of cost involved. It really hurt the margins. I understand from the outside it looks kind of crazy. Inside, our team really believed in that concept.
Look, even we're amazed at the numbers that we're able to do at those locations right now. The lines we have, sometimes at 5:00 in the afternoon, 5:30 in the afternoon, the lines start. It's pretty amazing. I went to eat there the other day, and they only had two sections open, and I said, "Look, I'll just go sit in the back up there." They're like, "Okay. Go ahead.
We're getting ready to open that section anyway." I went up there and sat down, and before I got my food, there was no seating left in that section. I was like, "Man, where'd all these people come from?" It is remarkable how well the Bombshells are doing. We are having, obviously, when you get that busy that quick, we have growing pains again. Some of our guys were laughing like, "Man, I thought we had all this down," but man, we never envisioned this many people this fast every day, all day long. That team has been really putting in a lot of hours and we really appreciate all the efforts they've done. They definitely bailed us out in this quarter.
Yeah, absolutely. The whole team deserves a big round of applause. As a shareholder, I'm very happy. My biggest concern during this COVID pandemic is liquidity. I think everybody knows the story of the six-foot-tall man who drowned in a river that was on average only five feet deep, which is, it doesn't matter how criminally underpriced the stock is right now. If you get called out by any of your debt holders, it doesn't matter if in five years it's worth $50 or $100. It matters can you maintain the liquidity to see it through to the other side?
Sure. As you'll know, we had deferments for three months. For April, May, and until June. Our first payments became due at the end of June, so we started paying our payments on June 30th. It was the first time we started making bank note payments again. We paid our June 30th payments. We paid all of our July payments. We're paying all of our payments through August 15th is our next last payment.
Our next payment becomes due after that on August 30th. We have asked for deferments from the bank but have not received deferment letters at this point. We are working on deferments starting for the end of August, so due August 30th, September, October, and their next payment will become due November 30th with the banks.
We are working on that, which would free up between $1.8 million and $2.4 million, depending on one bank or both banks give us the deferment. We'll see how that progresses over the next few weeks. Even if they don't, I think we'll manage to make the payments. Our cash could get really tight depending on what locations are open or closed at different periods of time throughout the quarter.
We've paid all of our payments. I think what's really important for people to understand is we have paid all of our payments that have been required to be paid. We've paid our vendors. We're current with our vendors. We're current with our attorneys again. We finally caught up with all the through June 30th, so we're back to within a 30- to 60-day flow with our legal teams.
Basically, everything's back to normal, if there is a normal these days. As far as our bill payments, we're all back to normal. I don't see any real issues. We haven't missed a payment yet. Before we'd have to worry about any type of liens or foreclosures or issues like that, we'd have to be late on a payment for a while first, right?
We don't even have late notices, at this point. We're in good shape there. We have plenty of cash. We have a big income tax refund coming back to us that'll probably hit either late this quarter or sometime in the December quarter. We should get that money back from the IRS from our 2019 tax returns that we finally got filed. Like I said, I think overall right now, we're in a good position.
For the first week of August, we did around just over $2 million in sales, which I think puts us at cash flow positive for the first week of August. I think July pretty much we were a little cash flow negative, but it wasn't a significant amount with the $7.6 million in sales in July. We're just going to move forward, get through September. I think, like I said, hopefully by October, school starts back up, everything starts going. Hopefully, we get more locations around the country open. We'll be good to go.
Yeah, absolutely.
Yeah.
I did not mean to imply that things were running tight. I think we all agree that.
No, no, I appreciate the question because I really wanted to make sure that not you, but everyone out there understands we're in a really good spot right now. We're very confident in our ability and where we're at right now.
Yep. Actually, to that point, have you looked into the Main Street Lending Program at all to potentially refi out some existing debt with even cheaper debt under the priority facility?
We've looked at some of the stuff, but a lot of it's very restricted for public companies, and it's just not our cup of tea. The PPP worked out for us for the Bombshells and our shared services company and, of course, the one nightclub that we own. We did not take any PPP money on any of our adult entertainment clubs at all, just because we didn't want the controversy of it. We got what we needed to be where we are today. We were able to keep a lot of our employees paid and with the PPP money. As you can see from the Bombshells results, it's paid huge dividends for us.
Oh, yeah, absolutely. Well, that's it on the questions I have. I just want to say congrats on the great quarter. For me, I think it's a great quarter. It really is a testament. Keep up the good work. Look forward to continuing to follow the progress and really happy for you and the shareholders. Thank you.
All right. Thank you so much.
Our next question is from Adam Wyden with ADW Capital. Please proceed with your question.
Hey, yeah, this is a follow-up. Look, I just wanted to point out, building on the other guy's question. Look, your business model is incredibly unique in that you don't have a revolver. You don't have any liens against your business. You can basically decide whether you want to pay people or not. The debt that you have that isn't mortgage debt is seller note financed.
All of your lenders are saying, "Shoot, pay me whenever you want." They don't want to take real estate back. They don't want to take adult nightclubs back. You don't have to pay people if you don't want to have to pay them. The reality is that you could, in theory, take your cost to zero. The fact that people are even asking about liquidity is borderline laughable, right? You have tons of cash. You have real estate that you can sell, that's not like Bombshells real estate from the parcels you can sell around. You could sell a stake in Bombshells. You're like Uncle Sam. You're floating in cash right now. You're fine.
We have many options available.
The bigger question is, what lever are you going to pull to take the cash away from it and put it up the rear end of the short sellers? Come on. You can sell a stake in Bombshells, a tiny stake in Bombshells for $20, $30 million, and you could squeeze these guys like it's going out of style. In my mind, the question shouldn't be. It's like these guys on Twitter, they don't understand your business.
They're like, "Oh, you're not going to make it. You're burning tens of millions of dollars of cash a day." This isn't American Airlines. There's no capital intensity. You own the real estate. You can shut the thing down and take costs to zero. The better question is, where are you going to find the cash so you can kill these guys? It's borderline laughable that the guy right before us was saying that you didn't have liquidity. It's a freaking joke. It's a joke.
I don't think that's what he was saying. He was just asking. Like you said, that's the concern out there. Like I said earlier when I was talking to you and this other bit, I think they just don't understand the overall company. It's more complicated than a typical restaurant company who leases all their property and doesn't own their real estate. You're right.
Because of how we've done things and how conservative we've been through all these years and the focus on owning all of our real estate so that our rent goes down every month, as I like to say, as we pay off the principal. We're able to go borrow money against it again. That's one of the things we're looking at right now in this refinance, is how much cash can we pull out? As we move forward, if the stock stays in these ranges and stays below our capitalization target price, we will be back in the markets buying back stock, and that's what we're working for every day.
I think front and center, I think Bombshells is the golden goose, and I think there's ways to monetize it and extract. Look, there are plenty of companies. Look at GM. GM sold a stake in Cruise for a huge number, and now they're talking about maybe spinning off or selling their autonomous driving division. Look, the reality is Bombshells was your brainchild, and you took a lot of heat from it for a lot of years.
I'm not asking you to sell it on the cheap. I'm saying, look, you're in this weird kind of predicament where you got a bunch of knuckleheads shorting your stock that can't do algebra or accounting and don't understand what you own. The only way they figure out what you own is when you give it to them where the sun don't shine.
The reality is that you've got a lot of levers that you can pull, whether it's subsidiary finance at Bombshells, partnering with a JV, maybe doing a master franchise deal, and you give the franchise rights, and you start selling franchise licenses. Why couldn't someone buy the master franchise rights from you and you just collect royalties, and they give you a royalty, and they give you $20 million, $30 million, $40 million up front?
You can skin this cat 67 different ways from Sunday. The reality is that you've built it. You've got the business. It's an incredible business. No one understands it. Now we need to just start counting our money because you've got the cards. The fact that the guy asked the questions right before us tells me these guys still don't get it. That's fine. You and I can count our money. I'm not worried about it.
They're going to figure it out.
They're going to figure it out.
We're going to show them.
We're going to show them. All right. Sounds good.
All right. Appreciate it. Thanks, Adam.
There are no further questions at this time. I'd like to turn the call back over to Gary Fishman for closing comments.
Thank you, everybody. Thank you, Eric, and thank you, everybody, for joining us again. We'd like to apologize for the delay that people had in signing on earlier on the call. It will not happen again. On behalf of Eric, the company, and our subsidiaries, thank you and good night. Stay safe, stay healthy, and as always, please visit one of our clubs or restaurants. Thank you.
This concludes today's conference. You may disconnect your line at this time, and we thank you for your participation.