Greetings. Welcome to RCI Hospitality Holdings Conference Call and Webcast. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Gary Fishman, who handles investor relations for RCI.
Thank you. For those of you listening 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 and you'll find all the necessary links. Please turn to page two. I want to remind everybody of our safe harbor statement. It's posted at the beginning of our conference call presentation. 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 afterward. Now please turn to page three. I 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?
Thank you, Gary. If you'll please turn to page four. Thank you for joining us today. I'm here with our CFO, Bradley Chhay. After the market closed, we reported our second-quarter numbers. Results reflected a continued rebound in financial performance through the COVID pandemic. We posted strong increases in earnings per share and free cash flow. Nightclubs had their best overall performance since the pandemic began, and Bombshells served up another strong quarter. This enabled us to keep our teams employed and generated higher levels of free cash flow and profitability. Once again, we thank our loyal customers, dedicated team members, and steadfast investors. We hope these trends continue as the COVID-19 situation continues to improve. As of today, 36 clubs and 10 Bombshells are open. Nightclub and Bombshells sales exceeded $18 million in April. Restrictive curfews, which have affected many of our northern clubs, are beginning to end.
Minneapolis, where we have three clubs, lifted its 11:00 P.M. curfew on Friday. New York, where we have three clubs, plans to eliminate the midnight curfew starting May 31st. We hope the curfew in Chicago, where we have one club, will be lifted soon. Looking forward, we are working on all fronts to grow free cash flow. I'll talk more about that when I return to the wrap-up. We'll have our question and answer session. Now here's Bradley to review the financial data.
Thanks, Eric. Good afternoon to those who tuned into the call. We reported total revenues of $44.1 million for the second quarter. That's up 9% year-over-year. This is our first year-over-year quarterly increase since the pandemic began in the year-ago quarter. GAAP EPS was $0.68 compared to a year-ago loss of $0.37. Non-GAAP EPS was $0.75 compared to $0.47 in the March 2020 quarter. Looking at cash, we had $20.2 million as of March 31st. Second-quarter net cash from operating activities was $11 million, and free cash flow was $9 million. That's the third-highest quarter in the company's history. Please turn to page five. The Nightclub segment continued to rebound. Revenues of $30.8 million were up 22.2% from the December quarter and down only 1.8% from the year-ago quarter.
The sequential increase reflected more locations open on a more consistent basis and strong demand. Same-store sales increased 3.6% based on clubs that were open enough days to qualify in the March 2021 quarter and the year-ago quarter. During the March 2021 quarter, 29 of the 38 clubs were open the full period. Thirty-seven were open by quarter-end. Twenty-one were closed for several days in mid-February due to the Texas freeze. This compares to the December 2020 quarter when 24 clubs were open through most of the period, and 26 were open by the quarter-end. As you may recall, after a strong performance in January and February last year, all 38 clubs closed in mid-March when local and state pandemic restrictions went into effect. While March 2021 quarter sales were a little bit below a year ago, operating income and margins bounced back to pre-pandemic levels.
Cost of goods sold was 12.3% of segment revenue compared to 11.3% due to a lower proportion of service revenues. Other expenses in aggregate also declined. Profitability increased to $10.5 million from $2.3 million. GAAP operating margin expanded to 34% of segment revenues from 7.3%. There was an impairment of $1.4 million when we moved one property to held for sale in this year's second quarter, while the year-ago quarter included $8 million worth of COVID-related impairments. On a non-GAAP basis, profitability increased by 16.1% to $12 million from $10.3 million. Non-GAAP operating margin expanded to 38.8% from 32.8%. This is the segment's best performance since the year-ago quarter. Please turn to page six. The Bombshells segment generated another quarter of strong performance due to the continued popularity of the concept. Revenues of $13.1 million increased 49.2% year-over-year. Same-store sales rose 48.7%.
During the second quarter, all 10 Bombshells were open with the exception of several days due to the Texas freeze. Capacity also increased from 75% to 100% in mid-March. This compares to the year-ago quarter when the nine existing Bombshells and a new location, which opened in late January 2020, closed in mid-March. Second-quarter operating income and margins also performed well. Cost of goods sold was 22.8% of segment revenue, compared to 24.7%, due to higher revenue and lower cost of goods. Other expenses in aggregate as a percentage of revenue also declined. As a result, profitability was $3.1 million, an increase of 356.7% year-over-year. GAAP operating margin expanded to 23.9% of segment revenues from 7.8%. On a non-GAAP basis, profitability increased by 240.7% to $3.2 million from $939,000 as non-GAAP operating margin expanded to 24.3% from 10.6%.
Please turn to page seven to review a few remaining items in our second-quarter consolidated statement of operations. Salaries and wages improved to 25.4% of revenues compared to 30.2%. We believe our normal run rate is approximately 28%. SG&A as a percentage of revenue also improved to 28.6% compared to 35.7%. Both of these cost centers reflected better Nightclubs and Bombshells segment margins, cost savings initiatives, and lower audit and legal fees as compared to the year-ago quarter. Depreciation and amortization fell to 4.8% from 5.6%. This reflected the full depreciation of certain real estate and software. Interest expense was 3.9% lower year-over-year. This was due to debt paydowns prior to and during the second quarter. There was a non-operating gain of $431,000 pre-tax. This was primarily due to the extinguishment of one of our two remaining SBA loans.
Income taxes were an expense of $1.9 million compared to a benefit of $1.4 million. Please turn to page eight. We ended the quarter with $20.2 million of cash on hand, a two-year high. During the second quarter, free cash flow continued to recover sequentially to $9 million. We have continued to stay free cash flow positive since the pandemic began. As a percentage of revenues, free cash flow also improved sequentially. It was 12% in the fourth quarter of 2020, 14.8% in the first quarter of this fiscal year, and now it's 20.4% this quarter. We use free cash flow as a percentage of revenue to measure how well we're doing converting revenue dollars to cash. Debt declined $2.4 million from December 30th and $9 million from our year-end at September 30th. This reflected debt extinguishment and scheduled paydowns.
We are now at our lowest debt level in almost two years. We continue to be current on all of our debt. At $34.4 million, current liabilities continue to be in the general range for the last two years. Please turn to page nine for our debt pie chart. We continue to see decreases in many of the categories since December 30th. Secured debt now consists of 65.4% of debt secured by real estate, 16.9% listed as seller financing. This is secured by the respective club to which it applies. 6.3% secured by other assets and 1.2% represented by the Texas Comptroller settlement. This is secured by business and assets of the club related to the settlement. Our unsecured debt consists of 10.1% that is listed as unsecured and 0.1% representing our one remaining SBA loan. Please turn to page 10 to review our debt manageability.
Occupancy costs returned to pre-COVID levels in the second quarter. As a percentage of revenue, they were 7.6% compared to 8.6% in the year-ago period. This was primarily due to higher sales and a reduction of actual costs to $3.3 million from $3.5 million. Occupancy costs as a percentage of revenue sprang up in 3Q20 due to COVID. We have continued to reduce our weighted average interest rate. Over the last five years, it has come down from 7.58% in the second quarter of fiscal 2016 to 6.66% in the second quarter of this fiscal year. As we've discussed, one of our strategic initiatives is refinancing our real estate debt. Our objectives include eliminating $8.2 million of balloon debt currently coming due over the next two and a half years, and another objective is reducing our interest expense by $1.8 million annually.
Now, let me turn the call back over to Eric. Thank you.
Thanks, Bradley. Please turn to slide 11. We've continued to talk to a lot of new investors. 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 compounded annual basis. Our strategy is similar to those outlined in the book "The Outsiders." The author, William Thorndike, whom I spoke to recently, studied companies that focus on generating cash per share and allocating that cash to generate more cash. We have been applying these strategies since fiscal 2016 with three different actions, subject of course to whether there is a strategic rationale to do otherwise. The first is mergers and acquisitions, specifically buying the right clubs in the right markets.
We like to buy good, solid, cash-flowing clubs at three to four times adjusted EBITDA, using seller financing and acquiring the real estate at market value. Our goal is to generate annual cash-on-cash returns of at least 25%-33%. Since we can't always buy the clubs we want, our second strategy is using cash to grow organically, specifically expanding Bombshells to develop critical mass and market awareness to sell franchises. Similar to acquiring clubs, we like to see at least a 25%-33% cash-on-cash return. The third is buying back shares when the yield on free cash flow per share is more than 10%. During the first quarter that ended in December, we purchased and retired approximately 75,000 common shares at a cost of approximately $1.8 million. Please turn to slide 12.
We continue to execute on our capital allocation strategy in order to grow free cash flow. We continue to make progress on our effort to refinance our real estate debt, and our goal is to lower our rate, increase our term, and convert some higher interest unsecured debt into real estate debt. Construction is underway at our first planned next 10 Bombshells in Arlington, Texas, and our franchisee's location in San Antonio. We are continuing to do due diligence on other potential company-owned locations and franchisees. Our goal is to build 10 new subsidiary-owned locations over the next 33 months and sign additional franchisees. We are also looking forward to meeting club owners interested in exploring opportunities at Expo, the industry convention, May 23rd through May 26th in Miami. With that, let's open the question and answer section. Operator?
Thank you. Our first question comes from Greg Pendy with Sidoti. Please go ahead.
Hey, thanks for taking my questions.
Yes
I just want to dig into the salaries and wages. I think you mentioned they came in at 25.4%. Obviously, it's a big topic. There might be difficulty finding people to come back to work. Can you explain why you did so well on that metric this quarter, and what the pathway is? You said normalization is expected to kind of get back to 28%, but can you kind of walk us through? Is that over the next couple of quarters? Is it going to creep back up to 28%, or is that immediately? What is the environment right now concerning salaries and wages, and is that likely going to be a headwind going forward?
I think it'll be a little headwind going forward, and there are a couple of reasons. First, let's start with your first question, why we did so well this quarter. I think we did so well this quarter because we have very loyal employees. Our revenues increased very rapidly, and our employees worked through it. We have a lot of staff. We kind of froze wages when COVID hit. We're reviewing a lot of people, a lot of our employees right now, a lot of our management teams, corporate staff, and whatnot. We're probably a little below market. We're going to have to step that up. I would say you're going to see it increase a little bit quarter by quarter for the next couple of quarters, maybe three. It depends on how quickly we react and what we need to do.
We're also a little short-staffed in some places right now, so we are trying to hire. It is very difficult. It's a very difficult employment market right now. I think that because of the loyalty of our current employees, and their willingness to put in the extra work, willing to do what needs to be done to make sure the company's successful, that's helping. It's helping that they're out recruiting for us as well because they know we need staff. I don't see any long-term problems. I think it's a very short-term deal. I think we definitely have to unlock our salary cap that we've had, and we're going to have to look at being competitive in the marketplace and taking care of the employees that have taken care of us for the last 18 months.
That is a process we're going to be going through this quarter, next quarter. That's why when we've seen this, I was speaking with Brad, I said, "I think we need to make sure people understand that 25.4 is not going to be the new norm." Our typical average for the last five years is about 28%. I think we'll get back to that. I think we have to stay at that level in order to be competitive in the marketplace.
Okay. That's helpful. Then, just on New York lifting the caps and Minnesota, I'm trying to understand if that's going to be a big positive or if people are kind of going to the clubs. Are you kind of getting more business because people know about the midnight curfew? How should we be thinking about it? How much incremental business do you think that's going to drive?
The curfews are killing us. To give you an idea, when the curfews were lifted in other states, we typically do 40% of our business in the last four hours of the night. In New York, where we're open until 4:00 A.M., you're talking about the full 40% being gone. In markets where we're open until 2:00 A.M., we're still getting a little bit of that business, but not the prime business. The biggest problem we have is that the main cities may be closed down, but people can just go someplace else. For example, in New York City, we close at midnight, but if you go across the bridge, you can party until 4:00 in the morning. What happens is the customer who would normally go out at 11:30 at night just doesn't come to our place. They go someplace else.
I think it's going to be very big for us. To put it in numbers, I think right now, Pittsburgh opened about a month ago to regular hours. Their numbers are returning to normal and actually increasing year over year. I think we're going to see that in New York at the end of May. Minneapolis started Friday night. We've already seen a huge increase, the best night we've had in ages, by just being open normal hours. I think you're talking between the Minneapolis, New York, and Chicago clubs, somewhere between $600,000 and $800,000 a week in revenues. If you take our $18 million in April, it's about $4.4 million per week in sales. You can kind of see where we're more than likely headed as we roll through the end of May and into June, July, August, September. We haven't seen a slowdown.
I call it consumer exuberance. We're seeing that right now. They're going to run out of gas at some point, but when? Who knows? For all we have seen is it continue to increase. It's like going out and partying and having a good time and just getting out of the house and being around people is more addictive and more contagious than COVID was. People want to be out now, and they want to stay out, and they'll spend the money to be out. Like I said, week after week, we're seeing it increase, not decrease right now. Until that consumer exuberance kind of caps out, I just don't really know.
Okay. Then just one more, if you can, just real quickly, just trying to understand the margins at Bombshells.
Any kind of just conceptual color on average check? Is that something that just kind of ballooned? I'm just trying to get a better sense of the margins there and maybe what was driving that.
I don't think the average checks really ballooned. I just think the pure number of people and the number of hours we have busy, that we're busy and we have waits, have increased. I think that's a lot of what we're seeing.
Okay, you think it's traffic driven then, versus-?
It's definitely traffic-driven. I've been there a few times. It's traffic-driven. There may be some big spenders as well, but Bombshells isn't like the clubs where we get a VIP customer who comes in and goes upstairs and spends $5,000 on champagne. This is just a place you go to hang out and have a few drinks. If its average ticket is up, it's up one or two drinks, so it's up $6, $8, or $10 a ticket or something. It might have something to do with it, but it's really just the number of tickets. It's the pure volume that's driving Bombshells right now.
That's helpful. Thanks a lot.
You bet.
Next question, Yaron Naymark with 1 Main Capital. Please go ahead.
Hey, guys. Awesome quarter. I guess I want to follow up a little bit on the Bombshells commentary. I'm trying to internalize how much of it you think is sustainable, all this recent strength. Once all the local restaurants and bars and whatnot reopen, which I think a lot of them have already been open in Texas, where do you think this eventually levels out? I know it's a hard question, but I don't know if you have a view on that.
They are open in Texas. I think we peaked in the fourth quarter of last year, and the last two quarters have been very consistent at $13 million. I think that's where we're at. I've been talking with the management team, been looking at the numbers. Like I said, I've been eating at some of the Bombshells to kind of see what's going on. I think this is where we're at now. I think this is the normal for that brand right now. Will it slow down a little bit? I guess maybe if people stop eating out as much or something. Right now, for the next, I think 12, 18, 24 months, I think this is probably pretty much the range we're going to be at. I don't see any reason for it to slow down from here.
I don't know that we'll do the big quarters that we did in that fourth quarter of last year, but we did $15-something. I think $13 is pretty sustainable right now.
Got it. If you take the April number and you add kind of the $600,000 or so you were talking about for the restrictions lifting in Minnesota, New York, and Chicago, you're looking at a business that's probably run-rating like $250 million-plus of revenue. If you just annualize it, I know there's some seasonality, but does that.
Well, if you say $5 million a week, we could be close to $5 million a week. There's some seasonality. I think $220 million-$230 million is very safe. I think $240 million, $250 million is possible. If you said $260 million, I wouldn't say it's out of the question on a forward run rate. Once everything's open and running, at what we're seeing right now today. You've got to remember, Minneapolis and N.Y. are big VIP spend clubs. That's their service revenue. All the service revenue you see missing right now, that's where it comes from. As we see this service revenue spike up in N.Y. and spike up in Minneapolis, and Chicago gets back open, that's when I think we'll see some of the margin expansion as well. We're seeing it in Florida. I was just looking at Tootsie's numbers. It's crazy. $879,000 last week.
It's big numbers. People are out, and they're spending money. I guess it slows down at some point, but if everything's open and we're at $5 million a week and it slows down 20%, we're still at $4 million a week, right? We're still doing some pretty heavy numbers at that point, and I just don't see it slowing down 20% anytime in the next 12 to 18 months. Maybe that's two years from now, but this next year is going to be a huge year for us.
Yes.
Very confident.
On that basis, you guys are doing some massive free cash flow numbers. You could be doing $50 million, $60 million plus of free cash flow, maybe even more than that if you hit the higher end of those revenue numbers. If you're generating that much free cash flow, the club acquisitions, you typically use a decent amount of debt to acquire them, seller financing. If you're generating $50 million or $60 million of free cash flow, or even the pre-pandemic numbers, which were closer to $40 million.
Right
You could be deploying $75 million, $80 million, $90 million, $100 million potentially in growth CapEx, assuming you're doing acquisitions and/or Bombshells. How are you going to deploy that much capital?
Multi-club acquisitions. That's how we're going to do it. We're going to buy one of the big boys or two of the big boys, who knows? We're at the point right now where we may have to pay five times, right? Instead of three to five, we go to five times. We go to a couple of the big boys and say, "We're going to give you five times right now. Are you guys interested?" We've never done that, so I can't say they're not interested. I think they're going to be interested. I think that number's going to be very difficult for someone to resist. We're starting to talk to guys right now. We have some meetings set up at the end of this month at EXPO, and a couple of guys that can't come to EXPO, I'm going to go meet in the second week of June.
I've got a couple of meetings I'm working on right now. We're going to see about it. This may be the year that we start wrapping these things up. We've talked about it. We've pushed for it. We've gotten really close a couple of times. In 2008, we really got close there when our stock took off, and we got that multiple where you could pay a little bit higher prices without it affecting the model too much. I think that's probably what we're going to see as we move forward. For the right acquisition only, our typical acquisition is going to stay in that 3x, 4x range. For the right acquisition, I think we would be prepared to make a 5x offer, obviously with some terms. We're going to see that.
It's going to be more cash, right? We're going to start using $20 million, $25 million, $35 million cash down payments because we're going to have the cash to do that.
Yep. How's the single club M&A pipeline looking? Is Boston back on track? Are there any other big cities with single clubs that you're looking at?
Boston is off again. It's on, off. It's a love-hate relationship with the two partners up there, I think. I can't truly figure that out, what their thinking is at this point. The club's still not even open. There are several other single club things we're looking at. My real focus right now and probably through the next three months is going to be a large acquisition. We've got to land a pretty large acquisition. Like you said, that's what we need to make the needle move, right?
Yeah.
We're generating a ton of cash. We've got a ton of cash. I have no problem with it sitting on the books and just building up in the bank. It's not a problem for me. I can deal with that until I find the right acquisition at the right price. At the same time, we've never had that cash before. I've talked to guys before in the past, and they said, "Oh, for me to even think about it, you'd have to have $30 million cash down." We were just like, "Well, we're not going to do that deal." Now we have the cash. We're going to go out and start looking, start kicking tires, and hopefully maybe somebody's listening on this call, and I'll get a call tomorrow from one of the big guys that's interested.
We're definitely interested and definitely going to be very aggressive at finding the right large acquisition.
Yep. On the refi timing, I know it's a high priority for you guys. How long do you think these things typically take?
Well, once we can agree on the terms of the commitment letter, we're two terms away from negotiating two different terms in the commitment letter, which hopefully, I think they're going to committee on Wednesday. Hopefully, we'll get an agreement on these last two things that we need, which is freedom for large acquisitions without somebody looking over our shoulder, and the debt coverage ratios that allow us to pay dividends. Because we're somewhat of a dividend company, we don't want our dividend to be at any risk at any time. Once those two items are fixed, I think we'd probably sign the commitment letter the day we get the terms that we can agree to. I think we can close three weeks later. If everything's agreed upon on Wednesday, we'd probably close the first week of June, would be my guess.
Correct. Okay, awesome. Last one from me. On the patron tax in Texas, can you give us the latest on what's going on there?
Right.
I forget, are you guys paying that tax today still until its final resolution is reached, or have you guys stopped paying it for now?
We are paying under protest. We don't want to build up a big liability on the balance sheet again, like we did in the past. We're paying under protest, which means we have the right to claim it back if the case is ongoing. Right now, the case is sitting in the courts and waiting on a ruling. We'll just have to sit and wait, basically.
How much is that per quarter or per year again?
Oh, gosh. I'd have to go back and look. It's fluctuated so much with COVID because things have been open and closed, and in times, I just don't know off the top of my head. If I had to guess, it's.
One-
maybe a million and a half, $2 million a quarter. I mean, a year.
A year.
A year, yeah.
Three, $400,000, correct?
Yeah. About $300,000-$400,000 a quarter right now is what Riley says. Yeah.
All right. That's all from me. Great job, guys. Thank you. Keep it coming.
Thank you.
Yeah.
Next question, Jonathan Abeniam with ADW Capital. Please go ahead.
Hey, Eric. Good job on the quarter. If I just annualize what you guys are doing in free cash flow, that's more than sell-side consensus in 2023. Obviously, doing $60 million of free cash would be double what sell-side has looking out two years. Can you just help us think about the M&A pipeline? I know you spoke about this with Yaron. Are mom-and-pops coming to market now with cap gains law changing? How are you thinking about this year in terms of M&A? Do you think this is going to be a blockbuster year?
I think the next 12 months are going to be very big. I don't think they'll get a capital gains tax passed prior to the midterm elections. I think we have a little bit of time. Yes, guys are very interested in figuring out whether, if you're planning on selling in the next three to five years, you need to sell this year so that you can lock your capital gains tax rate in now at these lower rates, if they're going to be raised. I think there's pretty much a consensus on both parties that there will be a raise in the capital gains tax over a certain dollar amount. All the deals we're looking at are going to have more capital gains than whatever that dollar amount is going to be. We are getting interest. We are talking to people.
I think we'll have a big year this year with club acquisitions, for sure. I'll know a lot more in the next three to four weeks. Like I said, we're putting it out there now. We're spreading the word with the brokers. We're spreading the word with everybody that we're looking for a very multi-club acquisition. A $40 million, $30 million down payment doesn't scare us if you need a bunch of cash. We're building the cash, we're sitting on the cash, or can have access to the cash, so come talk to us.
And then just-
I have talked with a few, and like I said, I think we'll get more calls over the next four weeks.
Got it. Just on M&A, have any of them expressed interest in joining the RCI family and taking stock in the company? Last one for me would be how franchise conversations with interested parties are going for Bombshells.
We have two people we're working with on Bombshells right now. I have talked to sub-club owners about equity because now everybody wants the stock. Nobody wants it when it's $15; everybody wants it when it's $70, which is fine by us because we wouldn't issue it at $15. I don't know that we'll issue it at $70 or $60 or whatever. We'd have to be very comfortable with the deal to still use equity because we still think equity is cheap. We're going to kind of lay out as we move through May and June. I think we're going to get a much better idea with everything open so that by the July-September quarter, we will hopefully have a good idea of at least a 12-month run rate. I'm getting more and more confident. I kind of thought Bombshells could slow down a little bit.
It did after the big quarter. Now it's slowed down a little bit. We had two quarters in a row where we're sitting here at this $13 million run rate. I thought maybe Texas would slow down or Florida would slow down. They're not slowing down, and they're just getting busier. I'm getting very confident about the numbers, that the numbers will continue to stay high for this 12 to 18-month period, and maybe forever. I just don't know. It's hard to see past that point right now, because it's so early, right? It's kind of early in this recovery, and so on. We're also seeing inflation kick in. We're going to have some wage inflation, I think. Chicken has gone up tremendously. You're seeing certain shortages, ketchup, mustard shortages.
When does all this kind of steady out, get back to a deal where we can project going forward? That's the hard part right now: projecting going forward. In the meantime, we can safely say, I think we've got $52 million-$54 million in revenue for April, May, June in the bag. If we have a huge June, we open May 31st, we have a huge June in N.Y. Typically, it's taken three weeks from the time a curfew ends to the build-up of business. New York gave us a 30-day window on when the curfew. Minneapolis was completely a surprise. On Wednesday afternoon, they came out and said, "Starting Friday, you can stay open." That location will take a little bit of time to build up, right?
The employees didn't know ahead of time. Now we've got to make calls; we've got to get people in. Those locations typically take three weeks to get back to what I call pre-2019 numbers. Within three weeks, we're out-grossing what we were doing in 2019. In N.Y., I think we could start out June 1 beating 2019 numbers because we have 30 days to advertise and market, to bring the girls back in, to let the customers know, "Hey, you can party all night again." I think the N.Y. numbers will happen very quickly, and maybe day one. Like I said, we've got a few things we've got to kind of work through there. If everything hits right, it could be $55 million, $56 million.
If you look at the cash flow generation of 20.4% for this quarter, if it's a lot of VIP spend, it could be a little higher. Maybe the free cash flow generation percentage goes up a little bit, so we generate a little higher free cash flow. We're definitely, at least short term, on free cash flow that we've never seen before. I think we will have record free cash flow this quarter, probably in the July through September quarter, and then we hit our prime season, October to May. It could be a very good year for the next 12 months, 18 months, for sure.
Very exciting. Thank you very much.
Thank you.
Once again, if you would like to ask a question, please press star one on your telephone keypad. Our next question comes from Darren McCammon with Cash Flow Kingdom. Please go ahead.
Hi, guys. Congrats on another strong quarter and really on excellent capital management and capital allocation for the last few years. You've done a great management job here.
Well, we just keep following the program. That's the name of the game right now.
Well, you've got it dialed, and I think if you ever get a chance, thank the author of that book for me, too.
You got it.
Okay. We've talked about free cash flow a lot here, and we're hearing numbers thrown around by other analysts of $60 million, et cetera. Are you prepared at this point to give us some free cash flow guidance?
Like I said, I can tell you what I think for April, May, and June right now. I'm very confident in the next three months. I think it'll carry through July, August, September. Then we hit our prime season. You see the percentage this month went to 20.4%. If we continue to increase, and a lot of that is service revenues, it's going to increase that 20.4 to a higher number. On top-line revenues to $52-$54, if everything goes right, could be a little bit higher. You can do the math. I don't really want to give the guidance, but I think those are kind of the ranges that we're looking at right now.
If that carries into the next quarter, then our prime season, like I said, we hit October through May is our prime season for us, and we continue to see increases. This consumer exuberance continues. I can't tell you how high we get. I just don't know. We will peak at some point. Like I said, I think Bombshells peaked. The restaurants kind of peaked in basically their third calendar quarter, our fourth quarter, our fiscal fourth quarter of last year. Now, if this is the new average, we'll take it. You're talking about basically $52 million a year, $5.2 million per unit on average. Some of our top units are much higher. Some of the early units aren't doing the big numbers. As we open up Arlington location, we're going to get another idea. That location should open. Excuse me.
The plan is to open it for the weekend of the first Dallas Cowboys home game. It'll be late August, late September. I mean, early September. We're working on a couple of other locations, company-owned locations as well, and we're looking. We're out shopping real estate right now and trying to find the right locations. I'm not in a hurry. People say, "Oh, you need to hurry. You need to hurry." I'm not going to hurry. I'm sorry if you want me to hurry, I apologize, but I'm going to make the right calls. We want the right locations, the right investments, because we can only spend the cash once, and we got to get a return on it. It can sit in the bank for a month or two. It's not going to kill the overall return for having a little cash sit in the bank.
We're generating cash at a very rapid rate right now. We ended the quarter with over $20 million. I think at the end of April, we're close to $24 million. I think at this rate, we'll end the quarter at $30 million in cash if we don't do anything at all with it. If we find the right deals, we'll put it to work. I think we need to keep about $15 million cash on hand. I don't think we need to keep $18 million or $19 million or $20 million cash anymore. Business is solid enough right now that I'd be willing to invest that extra capital instead of having it sit for the right deal. That's just, we go from here, right? We just wait. Every day, we get up, we pound the pavement, and we try to find the right deals.
We'll start finding them, and we'll start getting them announced, and we'll see the cash continue to grow.
Okay. Well, from my point of view, I guess I'm looking at a minimum of $1 per share in cash flow going forward and seeing that as really the low end of things. It's funny, it used to be the expectation, but now it's looking like the low end in my eyes.
You're talking about per quarter, correct?
Yeah. Per quarter.
Yes. Okay. Yeah. I just want to make sure. Okay. Yeah.
That's about $36 million over a year, which pre-COVID used to be our forecast, and now it's looking at the low end.
It is. I would definitely say that would be the low end. After this quarter, the way things are running through early April, you've got to remember February was not a good month. January was okay. March was the first solid month, then April backed right up to it, right back to that $18 million. Now we're bringing New York back online. We're bringing Minneapolis back online. We're going to bring Chicago online at some point in this quarter, I believe. I don't think they can keep Chicago closed through June 30th. I don't know how they keep it closed through May 31st. I'm not a politician. I don't know what their thinking is up there. Judging by the rest of the country, they're way behind the times. It will be back open as well.
Those are big revenue-generating clubs and very profitable clubs, especially our N.Y. clubs. That will continue to add to the numbers. I don't see the current numbers slipping off for at least the next 3 to 6 months. If $4.4 million is the new normal range for the next 3 to 6 months for the existing stuff, we bring those other clubs online, I think they add $600,000 to $800,000. Maybe there's $200,000 or $300,000 there I'm off. Even if I'm off by half a million bucks, we're still at $4.5 million, $4.6 million per week. Those are going to generate some pretty decent cash numbers.
Okay. Just this is more comment than anything else, Texas Roadhouse also just came off of one of its biggest quarters ever. You're not the only guys that are selling a lot of restaurant food and stuff.
We're actually looking at properties next to two different Texas Roadhouses right now for that exact reason. I've been following them very closely. We've got a friend that's very high up in Texas Roadhouse, and they're doing very great location picks right now as well, building for their new stores. I'm very excited for one of the locations that we're putting under contract. Hopefully, I'm supposed to have it back by the end of the day today. I haven't checked my email because we've been busy working on the call, but should have another property that's very close to them, right next door to one of their locations under contract, hopefully by the end of the day. Definitely working on it.
Good. Glad to hear that. Along those lines, a nice problem to have to be floating in cash. I know you talk a lot about what to do with it, but you and I both know there's a very large potential purchase out there hanging, where they use up all this cash and more, frankly. I guess any progress or anything to say there, and would you consider using shares or selling shares to fund a bigger cash chunk to them or anything you can share?
If we need to and at the right price, yes. Look, when we do any acquisition or anything we do, we're going to look for the cheapest possible cost of capital that we can find. Obviously, nothing's cheaper than cash we already have on hand. We already have it. It doesn't cost us anything. We put it to work; we get return. Debt would be next, and equity would be our last at this point. Now, depending on what the equity does, as the equity moves up in value, and we calculate our cash flow multiple, we'll put that against debt and against the cost of debt and whatnot. I'm not excited about issuing $60 or $70 equity. If this thing runs to some of the charts, I've talked to different chart guys, and they say, "Oh, it could go to $90. It could go to $130."
What are you going to do then? Well, I'm going to do my calculations, and if that's where it's at, then yes, we might heavily consider using equity at those points. We're only going to issue what we have to issue. I don't think it's something I'm going to run out and just sell a bunch of equity all of a sudden because the stock price ran up. We're going to be very smart about how we do things going forward, especially with our equity.
Understandable. I just put one qualification on there for you from my point of view. You don't get to issue equity when you need it. You get to issue equity when you don't need it. Right?
Oh, that much. Sure.
When the market loves you is when you issue equity, not when you're out there needing it.
Understood
That's.
If they love us enough, we'll give them some. How's that?
Okay. That's what I wanted to hear. Along those lines, if you had a very major purchase.
Yeah
We know who we're talking about. We're talking about Asia.
Equity and a leak-up lockout agreement, we would consider. Yes, definitely.
Okay.
We have considered. We have considered that.
Okay. Are there any talks going on there, or have there been?
There are many discussions happening right now. We're talking with a lot of people. There are many solid groups out there. I want to acquire large groups; that's the current focus. We're speaking with some smaller operators. I truly believe now is the time, with the changing tax laws, the current state of equity, the available cash, and once the refinance is complete, our ability to borrow additional funds without needing to use extra monthly cash. We're going to save almost $5 million a year with this new note in equity and interest costs. We have that money. We could borrow against it and use that same $5 million to have more capital to acquire more cash flow. It's going to make a lot of sense to pursue a large acquisition. We are definitely working towards that.
Could we do something in the next 30 days? It's possible. It could be in the next 90 days. I think we'll definitely do something in the next six months. I would say before our fiscal year-end or definitely in the first quarter of next year, I think we'll have a very sizable acquisition locked in definitive agreements by that point.
Okay.
My goal.
As far as other.
Whether I can make it happen, I don't know, but that is my goal for sure.
Okay. As far as other means of soaking up cash, I agree with you that that's the best choice. I would say that paying other than a token dividend increase makes no sense to me, not with the other opportunities that you have.
Yeah.
Although you should do a token because it just gets you on the growing dividend list.
We just did one this year. The first time we need to look at a dividend increase, I think, would be December or March. We were kind of reviewing that earlier. We've got consecutive dividend growth. We're going on five years now. Yeah, another penny here, another penny there, something irrelevant in the overall cash flow screen, but it keeps us on those screens. We understand the screening, it's something we're not ruling out. We're not looking to do it either at this point, as we've got six, seven months where we even need to think about it. We don't need a dividend increase until fiscal 2022. We've got the $0.16 that we did in 2021 with the December raise. We've got a year to think about that.
Okay. On some of your debt, you've got seller financing, and I know you kind of made a deal there, and some of those guys don't want you to pay them off early. Are there any that might want you to or might welcome it?
There's only one that we're not paying off early. When we consolidate this debt, everyone will be paid off except for one seller note.
Okay.
The note against other assets, the debt against other assets, and the Texas Comptroller. Everything else will be consolidated into a single loan at that point of about $105 million. It was a lot higher than that, but we've been paying it down, because we've been working on it for a while.
When do you think that's going to go through?
Well, they're going to committee with our last two comments to the letter on this Wednesday. If we can get agreement on the terms with the banks board, I think we'll move very quickly. Three weeks, four weeks from Wednesday.
Fantastic.
The appraisals are done. Everything's done. All we're working on is final terms.
Okay.
Basically, we just have to put it all together if we can come to an agreement on those final terms. If we don't, then we're just going to wait. We can't do a loan that would tie our hands on a go-forward basis. It's just not something we're interested in or willing to do. We're going to have similar terms to what we did on the 2017 loans. If we can get that, which is what we're negotiating right now, then we'll move forward very quickly.
Okay. Then can you talk a little bit more about inflation, not just wage inflation, but also drinks and supplies. What kind of inflation are you looking at there?
The beauty right now is we have no menus. Everything's QR codes. If our prices are raised, we can raise our menu prices in 15 minutes. To give you an idea, chicken was $65 for a 45-pound box of chicken wings. It is now $148, and we're told it's going to $158 next week.
Wow
Those are the kinds of things you're seeing. We got word our ketchup was going to be out, so we ordered a ton of ketchup. Our ketchup inflation will be zero because we planned ahead of time. We're told beef and seafood are getting ready to go up a little bit. Overall, you can see there's not really an effect because our cost of goods has stayed pretty steady. We've been able to manage everything properly. It's just about knowing and reacting fast enough. We were getting ready to print menus again and go back to print menus, and after a meeting with staff, we just decided that, A, we don't really need them. Everybody has their phone with them, and everybody's so used to just pulling up the menu on their phones now that that may actually be the new norm.
We may never have menus again. It's just easier, and then they pull up the thing, and you can advertise whatever special you want. It's a really interesting way of doing it. We may stay with that. I'm not 100% sure yet, but that's made it very simple for us.
Yeah, you could also do a chalkboard for those people that don't have phones. Or a video display on one of the TVs or something like that.
Yeah. Those are remedial. That doesn't matter. We're good there.
Okay. What about alcohol inflation?
I haven't really seen much of that.
Okay
hold steady right now. You can't get things, like there's no Hennessy, but other than that, it's not a big deal. They'll ramp back up. Everything will be back. I'm not worried about that. The beauty of demand is it creates supply.
Okay. Thanks a lot. That's my last question.
All right. Thanks, Darren.
Next question, Adam Wilk with Greystone Capital Management, please go ahead.
Hey, guys. Thanks for taking my questions. I guess the downside of going toward the end here is that most of my questions were already asked, which is great. A lot of really good discussion on the M&A environment and kind of what you guys are looking to do, which is really where the bulk of my questions were coming from. I guess I can ask, you mentioned something interesting a few minutes ago, about potentially putting down like a $30 million-$40 million down payment on a potential acquisition. Did I hear that correctly?
Sure
Are you talking about acquiring? Is this like a huge deal or huge deals you're looking at potentially? Is that something sort of in the pipeline?
Yeah, I think that would be Typically, we put down 30%-40%, so think of it in those type of terms.
Okay. All right.
No, I want to do an acquisition that is enough clubs and enough EBITDA that we would be comfortable to pay in the $80 million-$120 million range, because I think that's what we need. A, number one, our systems we put in place, the ERP system's ready for it, our staff is ready for it, can easily absorb an acquisition of that size. Somewhere between eight and 15 clubs in a single acquisition. It gives us a significant size of growth, and it's going to put us in markets we're not in already. That's the real key, I think. For the future, we've got to expand our footprint and our pure size. By doing something that large, it gives us economies of scale. We'll be able to tweak it, pick up another one or two, three points, four points, six points on the deal.
It may look like we paid X amount of dollars for it, but then a year later, you'll go, "Oh, wow, look what they've done. Look at the money they saved. Look at the cost savings we put in with our national pricing, with taking our staff and putting it toward more revenue and more locations." We'll get a much better return on it than it originally looked like at the beginning. That's what we've seen in Chicago. We just ran the numbers on our last few locations. Pittsburgh was the only location where, after a full year of operations, we actually ran on an EBITDA multiple a little less than we had.
For example, we paid 3.45 times, and we actually afterwards worked out to be in only 2.79 times, or in Pittsburgh, I cannot remember the exact, but it was like a 0.2 more, right? Pittsburgh was the only one that was not in our favor. We just had some issues up there in the first year. I think as we move forward, it will start looking better as well. With a new market, of course. We get into a new market, sometimes we got a little learning curve with a single location. That is why I want to go in and do these multi-club locations where you just buy a whole market, and it is going to be much easier.
Yeah
More profitable for us.
Right. Yeah, I understand. Thanks. You mentioned where the cost savings are coming from, that was helpful, or would potentially be coming from, so that was helpful. Thanks. When you're looking at different markets, is this just all over the country, or you have clusters of places that you like to look? Because aside from multi-unit acquisitions, I can't imagine there's many single or even one or two clubs doing the numbers you just said.
Oh, no, these are multi-club for sure. Yeah. These would be multi-club for sure. We could just go out and do five or 10 single club operators and put the same amount of money to work just $3 million or $4 million at a time, right? That's a lot of work. It's easier to buy one multi-operator than it's going to be to go out and try to buy 10 individual clubs. We'll do it if we have to.
Right.
We're looking at both ways. We're just out there. We're pounding pavement right now. That's what I call it, knocking doors. Knocking doors and pounding pavement. Back in my old days when I was 13 years old, going door to door sales.
Right. I appreciate the way you're thinking about spending the money to do these things. I'm very confused why the previous person would talk about the need to raise equity. There is absolutely no need unless, again, like you've mentioned, it's the lowest cost of capital. That was kind of confusing to me. I appreciate how you're thinking about that.
Yeah, no problem. I think everybody just wants more float. They want more float so they can buy more stock, I guess, but without paying more for it. That's not going to happen, not if we can keep from it. I learned all those days back when I made those mistakes in 2008, 2009, all the way into 2012, and it's like, you know what? I'm done with that. Our equity is gold. If we have other ways to pay for things, we're going to pay for them. The equity will just stay valuable, right? That's the way I look at it.
Yeah. I love to hear it. Thanks.
Yeah.
That's it for me. I appreciate it, and great job. Thanks again.
Thank you.
Next question, Doug Weiss with DSW Investment. Please go ahead.
Hey, thanks. I just wanted to ask about Bombshells a little bit more, specifically on the expansion. I mean, obviously, you have a lot on your plate in terms of M&A on the club side. I was curious if you sort of siloed things enough that the expansion of Bombshells can run independent of that. If that's the case, I wondered if there was the possibility of accelerating that rollout if things continue to go well.
We're definitely trying to accelerate the Bombshells expansion if we can find the right locations. We were trying to go into Miami very heavily. We have found that with all the New Yorkers who have moved to Florida, that market is on fire right now. Something goes on the market, we start calling on it, they're getting 50 calls on vacant property down there right now. It's absolutely crazy. We had two locations. One got bought out from underneath us by Chick-fil-A. Another property condo developer is now looking at buying the entire retail center, tearing it down, and building a 38-story condominium project on it. They only want to give us a 3-year lease, and so we're like, "We can't do that." We are having difficulties getting into the Miami market.
We do have one property that we're fairly certain that we're not going to have issues with. We're going to get that one done. We have come back to Texas because, A, we know it, we love it. We've got the Arlington location going in. I am working on a location in a West Dallas suburb right now. I don't want to mention it yet because I don't have the signed contract in my email. We're getting there. We're looking at another Houston location right now as well. We're looking at two franchisees outside of Texas that we're talking with as well.
What's the thought as far as beginning to look at other markets? I think you've mentioned Las Vegas a couple of years ago.
For Bombshells?
Yeah.
Phoenix, we've considered the Phoenix market very heavily. That's probably one of the markets we will head to at some point in the future for company-owned stores if we don't end up with a franchisee there first. We've been talking about going down there in the next few weeks and just kind of refamiliarizing ourselves and seeing what's available in that marketplace, if we don't get something solid in Miami on a couple of the properties we're working on there right now.
Okay.
Okay.
Just a couple of bookkeeping questions. The land for sale, I think this was the first quarter that came up on the balance sheet. What's that related to?
Contracts that are signed.
For the assets held for sale.
Yeah. Those are signed contracts. We don't move it into assets held for sale because we'll lease it. The way that GAAP works, if you lease a property, you can't put it as an asset held for sale, even though it's for sale or lease. We have everything basically for sale or lease until the day it's put under contract. We had three properties under contract. One closed—
Friday
Friday. Yeah, one closed Friday. That leaves two. We have two properties left. One is at $3.25 million. We will seller finance that property. We're taking a $500,000 down payment. They're going to do about a $2 million remodel on the property and construction project on the property. They're getting a five-year balloon note for the $2.75 million. Another property we have under contract at $2.15 million, all cash. They have, I think, about 30 days left on feasibility, they have 30 or 40 days to close the transaction.
Mm-hmm. Okay.
They have rights to extend the feasibility for a monthly fee.
Just to follow up on the patron tax court case, if you were able to recover retroactively some of your past payments, how many years back are you trying to claim?
I have no earthly idea at this point. Right now, we just want to stop paying it going forward. That's really what we're pushing for. The lawyers will work all the rest of that. Our big motivation is to stop paying it going forward.
Got it. Okay. All right. Thanks. Talk to you soon.
Thank you. Yep.
Next question, Adam Wyden with ADW Capital. Please go ahead.
Hey, Eric. Sorry I'm a little late here.
Hey
I won't disappoint. Look, I'm just doing the same back-of-the-envelope math that everybody else is doing, or perhaps no one's doing. I look at these numbers and I say, "Okay, I can back into New York and these later curfews in Minnesota." I keep coming back to that number I keep throwing out there, which is $100 plus the EBITDA. When I look at your refinance, that's coming. I don't know, I wasn't on the early part of the call if you guys were talking about it, but I know it's coming, and I look at the maintenance capital, and I look at kind of the tax loss carryforwards and some of this other stuff, and the depreciation from the real estate. I'm getting to free cash flow numbers that are effectively double kind of what our run rate is.
I guess my question is, there seems to be a very large dichotomy between the cash flow that multiple people are willing to ascribe to something like Bombshells versus the Nightclubs. I guess I'm just trying to understand, what are you guys doing in terms of getting the market to do with some of the parts in that evaluation or getting different sell-side coverage or raising money at the subsidiary level? Look, the performance is remarkable, but we're not anywhere close to being able to use our equity. I think part of the big reason why we invested in this company is because private equity can't actually buy these things. You've got this capital gains thing coming up and people don't necessarily want to pay 100% tax, or maybe they want to pay a little bit of tax on part of their stake.
You are the acquirer of choice in the Nightclubs business. Look, everyone says, "Oh, it's up so much," but I look at it much longer, and I look at where we were pre 2007 and all the rest. The total return hasn't been that great, and you're starting to get institutional sponsorship. How do you think about the next level in terms of research coverage, institutional investors, cost of capital, so we can accelerate kind of the inorganic growth trajectory?
I think the reality is we have to do the first big acquisition. That's going to get a lot more attention. We're going to continue to put out the cash flow numbers. I think this quarter is kind of a wake-up call, like, "Oh, hey, the cash flow is really coming back." $9 million is a big number. Most of that money was made in March. I think as we move forward and you see April, May, June, we get that quarter out, we get this acquisition, it's kind of rolling where we get some definitive documents, we kind of see the terms, we see how we're setting stuff up. I think that's when we're going to wake up some of these other banks. The problem with investment banking today is they need a deal in order to make it worth their time.
And since we're not really-
They also need.
at a point where we're going to sell equity. I think hopefully there's some investment bankers out there listening to this call, and they'll understand that we're relationship guys, and you need to build a relationship with us now so that when it's time for us to raise equity, we're interested in using your bank. The banks only want me when I don't need them, or when I need them, to raise money. That's tough for us because I'm not going to spit out cheap equity. It's just never going to happen.
Sure. Yeah. I mean.
You know. That's why you invest with me, because you talked to me back in the day, and you were asking about the equity, and I said, "Look, I'm not issuing any equity." I'm not interested in throwing out cheap equity. Yeah, people think, oh, it's at $70, it's high.
Yeah.
As you said, when you do the math, it's not. Let's say that the margin increases from 20.4% this quarter to only 22%, and we end up doing $54 million. All right? Now we're at $11 million, plus almost $12 million in free cash flow, between $11 million and $12 million free cash flow in the next quarter. As we roll forward, we get New York open fully, we get a deal, and we get to that point where we're at $60 million in a quarter. New York, Chicago, and Minnesota are our service revenues, which as we all know, is much more profitable, and that margin moves up some more. Maybe we're $15 million plus in free cash flow a quarter. I'm not selling my stock at $70 with $60 million in free cash flow. I just don't think I am.
I think the number's higher.
I know you do. I know you think the number's higher, and you've surprised me because you've been right more than I have lately. I get it.
I guess the question is, I feel like every business is at an inflection point, right?
Right.
You've got a growth vehicle in Bombshells that people can accept. You've got a government that wants to take all your money, right? You have individuals that are sunsetting and gray trailing; they don't necessarily have children to run their businesses, right? Why not sell to you, participate in the upside? Because as far as I can tell, I don't know—we've talked in the past about the TAM and the market position—but I don't think it's unreasonable to think, now putting the restaurants aside, but look, you know how many strip clubs and nightclubs there are in the U.S. If you're at $100 of EBITDA, is there anything stopping you from building a business in nightclubs of $500 of EBITDA? I mean, look, I think it's very fragmented.
There's definitely that much out there to buy. Like I said, it's about convincing these sellers. And we've been paying-
The bigger you get, the more likely they're going to sell to you, because that means that they're selling to somebody who, A, will be a good steward of their business, B, they can take equity and flexible capital solutions from you because you're safe. Right.
Yeah.
The bigger you get, the more stable you become, the more likely they're going to sell. Not to mention that, what is the probability.
We're pitching this now to a couple of different people. I think, like I said, it could be 30 days, it could be 90 days, but I think definitely within the next six months, we're going to land one, maybe more, of these larger-type acquisitions. That's our goal. That's what we're pushing towards. All the things that you've just mentioned are the reasons these guys are talking to us now, and we're able to go talk to them. I couldn't go talk to a guy who needed $30 or $40 million cash down a year ago, or two years ago. Even three years ago, I couldn't talk to these guys.
I could talk to them, but it wasn't realistic that I was going to go out and raise $30 million or $40 million. I couldn't afford the debt yet. I didn't have the bank financing in place for the existing real estate. We weren't going to issue equity. We just weren't in a position to come up with $30 million or $40 million in cash. Now we can have $30 million in cash on our own books by the end of June at the rate we're going. We're in the position now. This is the first time we've been in the position. Now we're out there. Now we're out knocking the doors.
Well, look, I didn't invest for this to be a $100 million EBITDA biz.
Yeah.
I invest with rockstar CEOs who want to build generational wealth companies. I firmly believe this can be a generational wealth creation opportunity for both yourself and myself.
Yeah.
The sooner we can get our cost of capital online, and the sooner this story becomes pervasive in the marketplace such that we can accelerate the inorganic opportunities, the sooner that becomes a reality for all of us. Look, these are great numbers. I hope that we place greater emphasis going forward, both on the execution and on the business that we're building. I think you and I and everyone else on this call know what this could be. I think we need other people around the world to know what you're doing so we can make that a viable thing. Congratulations on a great quarter. I think it's a testament to your operational excellence and execution. I'm obviously continuously frustrated at the market's need to discount what we're building.
Haters are going to hate all the way up. The sooner you can continue to execute on this stuff. Look, obviously we have the cost of capital to buy any clubs with real estate at 3x, 4x, or 5x EBITDA. The real mother lode is buying businesses with 30 and 40 and 50 of EBITDA at 8x-10x. In order to do that, you've got to have the capital. Obviously.
Agreed
we're going to keep punching. I look forward to the jabs. As much as I love the jabs, I like haymakers. I look forward to us getting to a point where we can start landing haymakers.
Well, I want to land one in the next six months. That's the goal. We're going to find a big one in the next six months. That's what we've got to get done.
Well, we need haymakers for $500 of EBITDA. To land a haymaker, we need a real stock. Look, I'm not going anywhere. I'm your biggest shareholder. I'm always truly impressed at your ability to execute, and I look forward to trying to find some more people to kind of accelerate the market realization plan. I'll leave you with that, and we'll talk more, all right?
Yeah. All right. Appreciate it. Thanks, Adam.
Next question, Jason Scherer, private investor. Please go ahead.
Hey, guys. I guess Ben in cleanup, like everyone else says, a lot of these questions have been already answered. The only thing I really have is just pointing out the fact that as we're going to have inflationary pressures, that's not even up for discussion. The question being is, how much is this going to affect your business lines across the board as it is, versus the other industries that are out there? No different than the Texas Roadhouse that somebody had brought up in the past. You might be talking about a box of chicken, but that's not really where the money's coming from, is it? What percentage are we really looking at in terms of how much of this really alcohol, and how much of this really is just service?
We do have food, and we have to be concerned with those costs because they creep up, and all of a sudden, our margins get shrank of one, two, three%. The point is, we look at all those things. I think that's what people miss about our company, is they think, "Oh, this is a strip club company," or this is that, and it's not. We're a cash flow company, and we watch and monitor anything and everything that we can that affects our cash flow, down to a box of chicken wings. The reality is, yes. That's why I say I'm very excited that New York is coming back online. Minneapolis is back online. I can't wait for Chicago to be back online as well, and everything up and running back how it was. You can see our service revenue are 20% or 30%.
They used to be 40%, 45% of our revenue. I'm excited for the days when that happens again, because that's the margins. When Adam's talking about the margins, you're going to do better margins, you're going to do better this and that, and that's because he's calculating this service revenue coming in, which has no cost of goods associated with it. We pay some sales tax on it, and it's just, I always call it the free money. A VIP room costs me I could remodel the entire VIP room for $15,000, $20,000 of new furniture and some carpet, and I've got a brand-new room that's going to sit there and generate me hundreds of dollars per hour in rentals.
Well, that's great. I guess I'll leave it at that. The main thing for me is just you guys had another great quarter, and it seems like if you can get this big club acquisition and the debt redone, we're well on our way of up $100 a share. Thanks a lot for your time.
All right. Thank you.
Next question, Alex Hardman, private investor. Please go ahead.
Hey, Eric. I just had a quick question on, with states taking away occupancy restrictions and things like that, getting back up to 100%, and last quarter, you had mentioned something about Miami doing 70% occupancy. I was just wondering, are you seeing the 100% occupancy rates come back? Are you seeing the sales growth that you had against 2019 with the lower occupancy rates maintaining itself, or are you getting some diminishing return on that?
I think in the south, we're at 100% occupancy. Texas is back to 100%. I think Florida's back to 100%. Yes, we're seeing big numbers. You see them. As you've seen in the last quarter, and as we've said, over $18 million in revenue in April. As the occupancies are going up, the numbers are going up.
I was thinking that maybe when the occupancy went up, the numbers would go down, but that has not happened at all. In the last call, I was much more cautious as far as about saying how we were going to do over the next three or four months. I'm not as cautious now. I'm very confident in the numbers over the next three to six months. I really believe that we're talking 12 to 18 months. I like to see trends, I like to see patterns, and I can see a two-month trend, a three-month trend. It starts my thinking, but when I get to a six-month trend, then that's when I start really gaining confidence and that a trend is real. That's why I think the Bombshells, we've now seen we have nine months of numbers.
We had the big quarter. We've seen two quarters here in a row now, which is a six-month period of Bombshells in this nice, steady, $13 million revenue from the 10 stores. I think that's going to be something that we can do very consistently for the time being. Until something changes, I think we're going to be very consistent at Bombshells in that range. I don't have a consistency on the nightclub range because I just don't have enough data. I'm very confident, like I said, I know where we're at through five or six weeks of this quarter. I think those numbers only go up from where we're at in April as we open up more stuff in May and June. Extended hours, I say, and less curfews, higher occupancies.
I think it runs all the way through September with no problem. We enter our prime season. I think the numbers could go even higher. Maybe this consumer exuberance slows down a little bit and we start seeing a normalize, okay, now we're going to normalize around here. The growth is going to stop, but we're going to level off and hold steady at X number per week. We'll have that idea, like I said, as we go from quarter to quarter and we get more data.
Okay. Yeah. On Bombshells, you said you're comfortable with the $13 million figure. They just went from 75% to 100% in March. It seems like the growth you had in March probably covered your losses in February. Wouldn't you be doing at least a little bit more than $13 million going forward then?
We might.
I get the question.
I know that we set a record Saturday with the fight. I got an email from our operations guy saying they didn't break the total sales number they were shooting for, but they still hold the record for Saturday night. This was the Saturday before Mother's Day, which should have been a very slow weekend for us. The Canelo fight definitely ensured that didn't happen because it was a very big fight and very profitable for us around the country, at the locations where we showed the fight. Everything is going so well; I get scared sometimes when everything goes too perfectly. That's really where we're at right now. Everything is just flowing perfectly.
Okay. Appreciate it. Yeah, I guess it's just getting New York and those laggard cities back up and running and service revenues will follow.
Yep. We should continue to see the cash flow increase. That's what we've got to stick with right now and push for.
Yeah, appreciate it. Thanks.
Thank you.
Are there any final questions? This is the last chance for questions. Next question comes from Greg Pendy with Sidoti. Please go ahead.
Hey, guys. One quick final one. Can you just give us a little bit of guidance on the CapEx, how to think about it? It got lean, obviously, for obvious reasons as you right-sized on the downturn. Is there any kind of pent-up spend that will be coming?
It's not really the pent-up spend; it's that we're going to be expanding a couple of locations. I would say that typically, I think we've been saying $4 million-$5 million. I would probably raise that a little bit in the next 6 months. Let's say we were going to say $2 million-$2.5 million; I'd probably say we're probably going to spend maybe another $1 million over the next 6 months. I know we're expanding Tootsie's right now, and we're going to add some square footage to the upstairs VIP room. We're going to convert some upstairs offices into more private VIP space there. We're redoing a club in San Antonio and converting one of our BYOB clubs into a high-end liquor club in San Antonio, so there'll be some spend there. We had a lot of flood damage. I say flood damage; it's actually ice damage.
The ice froze the pipes, the pipes broke, clubs flooded. You're going to see some expense there. Some of that will be reimbursed through insurance, but I think we do maintenance CapEx and insurance comes in on a separate line.
Right.
You're going to have a gain on insurance that'll offset some of that CapEx. The way that we do our free cash flow, I don't know how that washes or not. That's a Bradley question, but there will be some of that. That's going to add some expense to maintenance CapEx as well. I think we had nine locations that were affected at the club side and two or three of the Bombshells that were affected. I think the Bombshells were already fixed and probably expensed in this quarter, whereas the clubs are more insurance claims, and there were some larger damage clubs that'll be affected.
Okay. That's helpful.
Yep.
Thank you. I would like to turn the floor over to Gary Fishman for closing remarks.
Thank you, Eric and Bradley. On behalf of Eric, Bradley, the company, and all 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 teleconference. You may disconnect your lines at this time. Thank you for your participation.