RCI Hospitality Holdings, Inc. (RICK) Q3 2009 Earnings Report, Transcript and Summary

Greetings and welcome to the Rick’s Cabaret International third quarter conference call. (Operator instructions) On the call today we have Mr. Eric Langan, Chief Executive Officer and Mr. Phil Marshall, Chief Financial Officer for Rick's Cabaret International. To start the call I’ll hand the floor over to Mr. Allan Priaulx, Investor Relations Counsel. Mr. Priaulx, you may now begin.

This is Allan Priaulx, I am the Investor Relations Counsel for Rick’s Cabaret. I want to remind you that on page two our the presentation which is on the Vcall website and also accessible through the www.ricks.com website, is our Safe Harbor Statement and we call your attention to it. It contains all of our forward-looking statements information. I also want to remind you before I turn the floor over to Eric Langan and Phil Marshall, that tonight at Rick’s Cabaret in New York City, at 50 West 33rd Street, we are having a Due Diligence Ball and anybody is invited to come down to that. Eric will be there and be able to answer any further questions that you might have and you’ll get a chance to see the club and see how we really operate. So without further adieu, I will hand the phone to Eric Langan.

Thanks Allan and thank you everyone for taking your time this afternoon to call in or listen on the internet. I’ll begin with a third quarter overview in the presentation, we’re going to review our third quarter results, we’re going to talk about highlighting some of our significant improvements that we’ve done at some of our locations, what we’re going to do to continue our ongoing performance of those improvements, talk about our acquisition strategy, the outlook for the remainder of the year, and then we’ll get to a question-and-answer session where you can ask any questions that you might have. Our third quarter snapshot, we decided to go with our third quarter versus the second quarter rather than year over year due to the current economic times. We just don’t think its relevant as much on the year over year as it is to show you how its getting better in sequential quarters for us right now. With our total revenue of $20.9 million versus $18.3 million in the last quarter, we’re up 14%. A lot of that was the Las Vegas location as most of you know. Our income from continuing operations of about $1.9 million versus $1.5 million in the second quarter, up 26% and the most importantly our net income of $1.8 million versus the third quarter of $840,000 or up about 113%. Our same store sales were still slightly off for the quarter, though we were up in June by 0.25%, for a total for the quarter off by 0.9%, so about 1% versus a 6.9% decline in the second quarter. However our cash flow still continued strong and continues to remain strong. Our powerhouse clubs in Miami and New York were both up around 7% for the quarter and we had some nice turnarounds…

(Operator Instructions) Your first question comes from the line of [Steven Garp – John Locke] [Steven Garp – John Locke]: Two quick questions, if you could a little more granularity in what you’re seeing in Vegas, I guess if you were to take the last couple of weeks and compare it to a couple of months ago, what you’re seeing in the scope of number of customers, average spend, just general sense of the climate there. And then two, on the Philly club, I’m curious what you think a fresh Eagles season brings, if that impacts the club anymore with it being Onyx now or if that doesn’t really matter.

I’ll do your second question first, the Philly location, yes the football season will definitely that location as well as will basketball season when it starts up in November. We expect that this is going to be a very big deal for Philadelphia when the sports seasons come up. The summer has been okay but of course, a big manufacturing town and all, Philly has been effected by the recession a little harder than some cities but business has been good. And we’re making money there and that’s what’s important and we’re going to continue to see that but I think we will see as we move forward and as the economy starts to come back that that location will get a lot better. And I think that the sporting events will bring people out and give them a reason to come out and once they’re out we think we can get them into the club because the club is right down the street from the stadium. So it should be very good, plus all the visiting teams tend to visit the location when we have big parties or events going on if they don’t have something to do right after the game. As far as Vegas, in Vegas its summertime. So our numbers, our revenue numbers are definitely are down for July and I believe they will be for August as well, but at the end of August with the convention season kind of starts up and it really heats up at the end of September going into October and I do expect that the numbers will get much better there. We have lowered the cost a lot as you can see, $300,000 this quarter versus $700,000 last quarter and over $200,000 of that $300,000 loss was lost in the month of April. So we’ve gotten a good handle on things out there. We understand the market much, much better than we did six months ago and I think that as we move forward into the next six months, if the economy comes back out there, we are poised to take advantage of it 100%. The nice thing is is that we’re on the map. Everyone knows where Rick’s location is now. There’s no more, that place, where is that, what is that, everyone knows its there. It’s not the old [Scores] anymore, it is Rick’s Cabaret and everyone knows Rick’s Cabaret which is really part of what all of our marketing was about was just getting our brand and our name out there and making sure that people knew that we were there. And that we have one of the nicest clubs in the city and one of the best locations, and easiest to get to from the strip.

Your next question comes from the line of Jamie Clement - Sidoti & Company Jamie Clement - Sidoti & Company: I was wondering if I could just ask a question about the month of July, your press release the other day showing same club sales increases a little bit in excess of 5%, what are the locations organically that are starting to do better in the month of July.

Like we said in the release, of course New York and Miami are strong. Minnesota picked up and our San Antonio location surprisingly has picked up quite a bit. And then the rest of the locations, are doing better then they were three months ago. We’re starting to see that build come and I really think like I said, as we move into October where there’s not as much competition for the entertainment dollar where its dark at 7:00 and 6:00 and 5:00 at night instead of 9:00 and 10:00 at night, so we have more hours of people actually being out in a nighttime party mode that we’re going to continue to see that build. Jamie Clement - Sidoti & Company: And I don’t know if you want to handle this or you want to turn this one over to Phil, but is the loss on the change in fair value of the derivatives, is that [inaudible] option related.

I can explain it because I’ve gone over it with Phil about a hundred times, basically when we changed [inaudible] whatever the stock price was the day we signed the deal is basically the day we had the fair market value of that derivative. If the stock price goes down, we lose money on that derivative. So we have to take an expense on it. If the stock price goes up we gain money on that derivative. So even though it’s a non-cash, it’s a non-cash deal so for example we lost $120,000 in the last quarter but now at the end of end of July our stock is up so in July you’re going to see an income on that derivative. Jamie Clement - Sidoti & Company: Okay so an income of, okay so that’s just, the $122,000, that’s not the difference between the original price and what it was—

There’s a formula and Phil can— Jamie Clement - Sidoti & Company: That’s on the end of quarter mark-to-market.

Right. Jamie Clement - Sidoti & Company: Okay, fair enough.

There are no additional questions at this time; I would like to turn it back over to management for any additional or closing comments.

Okay, I guess the main thing I want to go over is of course the Due Diligence Party tonight. Please come on out if you’re in New York and you can make it by the city. We would appreciate it. And the other thing I will touch on, I really thought I was going to get some questions about it, is the patron tax and how we’re handling that now. We are still expensing that patron tax however it is going into our payables, our current liabilities because we’re not actually paying the tax right now. So I just want to let everybody know that if you look at our accrued liabilities at the end of June 30, you’ll see $3,731,000 in accrued liabilities there. That number about, $760,000 of that is part of that patron tax. We expect that we will not pay that tax and we also expect that of the about $2.6 million we paid in, that we will get the majority of that money back at some point once the tax is completely ruled unconstitutional. The Lower Court and the Third Circuit Appeals Court in Texas have both ruled that unconstitutional. Its currently appealed to the Texas Supreme Court and we expect if a, [hear it] that will prevail but there’s still a chance they may not even hear the case and we just want to make people aware of that. And that will do it. I really appreciate everybody calling in and we look forward to talking to you again on our next call. Thank you.