Greetings, and welcome to the Rick's Cabaret International Second Quarter 2012 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Allan Priaulx, Investor Relations for Rick's Cabaret. Thank you. Mr. Priaulx, you may begin.

Thanks, Doug. Good afternoon, everyone. I'm Allan Priaulx, Investor Relations Officer for Rick’s Cabaret, and welcome to our Second Quarter 2012 Conference Call and Webcast. In a moment, I'll turn the call over to Eric Langan; and Phil Marshall, our CFO, who will present results from the quarter ended March 31 and then answer any questions you might have. Before we begin, I'd like to call your attention to our Safe Harbor statement, which is included on Slide 2 of our PowerPoint presentation, available on our website, www.ricksinvestor.com, and at the Precision IR or investor calendar website. Please take a good look at that statement, as this conference call may contain forward-looking information within the meaning of section 21 E of the SEC Act of 1934. In addition, I want to call your attention to adjusted EBITDA, it's a term you will hear during this call. And for your convenience, we've included the definition of adjusted EBITDA in our PowerPoint. I'd also like to remind you that Rick's Cabaret files reports and other documents with the SEC, and all of them are available on our IR website, www.ricksinvestor.com. It's our discrete Investor Relations Web address. A transcript of this call will be available later in the week at rickinvestor.com. For those of you in the New York City area, I invite you to our popular Due Diligence Ball this evening at Rick's Cabaret from 6:00 p.m. to 8:00 p.m. We hope you'll come to the club, meet Eric and myself and perform your own due diligence on Rick's Cabaret. You'll have a great time doing so. And now, I'm turning call over to Eric Langan and Phil Marshall.

All right. Thank you, Allan. Begin with a quick overview, we will discuss the summary of our second quarter, talk about the drivers and increase in revenues, earnings and EBITDA and talk about our cash flow for the quarter. I wanted to discuss our acquisition program and our plans to move forward on that. We'll take a look at some of our debt and some of our plans there. And then discuss the outlook for the remainder of 2012 and end the call with a question-and-answer session. Beginning Quarter 2, 2012 revenues was a record $25.4 million versus $21.6 million in 2011, a 17.8% increase. We had a very nice increase in same-store sales of 8.1% to $22.6 million. Net income, without our legal settlement, would have been $3.3 million versus $2.9 million in 2011. Q2 2012 adjusted EBITDA, $7.5 million without the legal settlement versus $6.9 million. Net cash provided by operating activities in the 6 months ended March 31, 2012, was $12 million compared to $8.5 million. Expenses include a onetime $1.8 million reserve to settle a shareholder lawsuit. Exclusive of the legal settlement, operating margins improved to 22.2% versus 19.8% in the previous quarter. To give a quick update of where we're at with some of our existing acquisitions, the Rick's Cabaret DFW location at the -- near the airport here in Dallas-Fort Worth got its liquor license in February. We'll be having a grand opening party this weekend to really kick things off. We had a nice soft opening through February. We had a very good month in March and we think that in April. And we think that the -- having the grand opening at this time will further push those sales up at that location, and help cement this location as a premier location…

[Operator Instructions] Our first question comes from the line of David Mau from Montgomery Street Research.

I was curious what EPS would have been including the tax ramifications from excluding the...

It would have added $0.12, basically. So instead of $0.22, we would have been at $0.34.

$0.34. And so that puts you on track for the, what, the $1.22 that's in the [indiscernible]?

It will put us at about $0.58 on a -- income from operations, and about $0.56 on a net income -- on an annualized [ph] basis. So as you see, we did exactly the same for the next 2 quarters. Of course, we had acquisitions that we've had that will add to earnings going forward. So I think we're pretty close, $1.12 to $1.20.

Our next question comes from the line of Danielle McCoy from Brean Murray.

I was wondering if you could explain a little bit more about the different pricing strategies and marketing programs that you guys have been doing?

Sure. We take some [ph] our locations, especially our high-volume locations -- we have some very large clubs. In the larger clubs, what we've gone is we've gone to a much lower pricing, specials like $2 Tuesdays, $1 beer on Wednesdays, and those type of things. What we've been able to do now with the market actually improving is going to -- instead of $1 a beer, we're doing $1.75, which doesn't seem like a lot but when you add $0.75, you're really helping, a, lower your cost basis and gradually increasing revenues when you're selling 300 cases of beer in a single night at a location. So that's helping. We're also been able to increase certain shot specials. Where we've done $3.75, now maybe we're doing $5 premium shot specials instead of $3.75 conquering the shot special. So we're -- and generating more revenues in those ways. We're also being able to pass along $0.25 to $0.75 overall price increases in a lot of our markets. And that does help to increase our revenues. And what we're hoping to do is get our cost of goods -- another reason, or 2 reasons the cost of goods has actually increased our percentage a point or so. Say, when we buy liquor-type clubs like Silver City and we take the DFW Air location, put liquor in here, the liquor locations have a much higher cost of goods sold than our -- what we call our B.Y.O.B clubs. When we have B.Y.O.B clubs, that helps bring the cost down because there's a lot less cost associated there, so it brings the overall cost of goods down a little bit. But we -- as we add more local liquor clubs, we get closer. We -- most of our liquor clubs run about a 14% cost of goods where our B.Y.O.B clubs cost of goods will be closer to 9% or 10% range. And when you get the mix in there, you're getting that 12%, 13%, which is where we've been coming in at. Also, the liquor cost costs are up a little bit because of the increased bottle sales. We've been doing a lot of bottle promotions and a lot of bottle specials to anchor people into our clubs. If you sell a bottle of vodka by the drink at $8 apiece, and then you find you're pouring out of liter bottles that cost you $27, you're ringing up $250, $260 out of one bottle versus selling that bottle to someone in a fifth size, which actually have 6 less ounces of liquor in it, but we're able to -- but it costs us about $3 or $4 less, but we're selling for $175. So you can see you're getting $175 and getting a $23 cost versus $27 against the $256 cost. So your percentages are fudged a little there for that 1%, 2%, based on how many more bottles you're selling versus how many single shot drinks you're selling, so.

Okay, great. And do you have any update on the Texas Patron Tax?

Well, we're currently waiting the legislators out this session so nothing's going on with the legislature [ph]. The courts, we're basically back at square 1 with the state court issue, or the state constitutionality issues. I don't even -- I'm not even sure offhand when the hearing's going to be set. I know that the judges have been selected and they're moving forward on it, but it's really just a matter -- the way we were explained to it, we're back at square 1, so we're looking an entire process of another 3-plus years to go from this court to the appeals court to the Supreme Court again. And we'll just have to wait that out. In the meantime, there's talk with -- of certain legislators that are making changes and trying to make a constitutional -- maybe working out a compromise between all the parties to come up with something that's affordable for the clubs to pay and more -- and a constitutional tax that's just a -- more of a percentage-based tax, a counter attack [ph] and make it an occupational tax versus what they try to do in this last one and make it an actual fee. And so basically, I think we're just kind of in limbo, at least until the legislature's back in session in January and maybe even 3 years still. We just don't know where that's going to go at this point. We do believe that it's an unconstitutional tax and not a fee as they explained it in the ordinance.

Okay. And in with regards to the acquisitions, is there any particular market you guys are looking in?

I mean, we're looking everywhere, of course. I mean obviously, Texas is home base for us, so we're always looking to increase our presence in Texas and we also look then for a very, very [Audio Gap] are at New York. We'd love to get additional in New York, but basically any major metropolitan area with sports teams, we're looking right now. And we're starting to look maybe for a more West Coast presence as well, expanding on towards west, so...

Our next question comes from the line of Dan Smith, a private investor.

A few questions for you. First, on the hard case in New York, it seems like clubs all over the country keep losing these cases or end up settling. Can you talk about why we haven't just converted all the independent contractors over to employees and made the economics work?

Well, I mean no, not -- the other clubs have not -- around the country -- have not necessarily lost these cases. There's been a lot of settlement in these cases. But there haven't been very many of these cases actually tried. A lot of people are taking the easy route out and settling with their current base and [Audio Gap] putting in new contracts that Rick's, of course put in at all of our clubs except the New York location shortly after the lawsuit was filed here that basically stopped the class actions and force arbitration if an independent contractor decides that she should've -- should be an employee. It's our belief they are independent contractors. We treat them as such. They file their taxes based as such. It remains to be seen. We have not really considered settling this case. We want to see what happens as we move this case forward. And I really can't talk about a lot of the fundamentals, of course, because it's ongoing litigation, which makes it difficult in the public realm to discuss all of our beliefs. But at this time, we believe that we are right. We believe we will prevail. And at some point, they're -- we've got -- that may change, it make may not. We're watching. We're watching what other clubs are doing. We're watching what other -- what else is going on out there in the country. We've -- we're on the ACE national boards [ph], so very in tune with a lot of other club owners, talk to them a lot. And I say we're watching it, we'll just have to wait and see exactly where this goes. But I can tell you, the entertainer's not one of the employees. You've got a handful of old entertainers who do not entertain in the industry anymore who think they're going to get a big payday. These claimant's lawyers have contended [ph] of that. The only one that's gotten the big payday in any of these settlements that I've seen are the lawyers. Most of the cases -- the girls are getting tip credits, so they're getting free house fee credits, they're getting food and beverage certificates, they're getting very, very small amounts of cash. Nothing -- but -- and the lawyers are getting millions of dollars in fees. So this is just a typical class action deal where the attorneys don't care really what's best for the client there. They care how to get the biggest paycheck they can get, and we care about our entertainers. We've always taken very well -- good care of our entertainers. And that the majority that work for us right now are very happy and prefer the arrangement that we currently have with them. They don't want to see that arrangement changed, so that's -- it means we're not really interested in changing.

Okay, that makes sense. And then on the full text again, that $8 million liability's getting pretty big. Do we have any plans to set aside cash for it or are we just going to wait and see? And the second, can you talk about how it would play out? Would it put our competitors out of business if they went after them for these back taxes? Can't imagine they're setting aside the money.

We just really don't know. We don't really believe that the comptroller has any plan on how they would turn around and collect this tax. Obvious that they said all of a sudden we all owe all this money and nobody has it. They're going to have to work out some type of payment plans. There's going to be some type of settlement deal. If they just come in and take our clubs and play indigo [ph], seize a bunch of operating assets that they can't operate. So we don't see that happening. Putting a bunch of people out of work in this economy is not going to be a good idea for them. So -- and that's all assuming they win, which they've only won in one court so far on an issue that wasn't the main issue that we -- when we originally filed this case, the issue that we won on with the U.S. Constitutional issue -- this is state courts. We were in state courts. We've never expected the courts to even rule on the U.S. Constitution issue. That was there for the appeals if we lost in the state court level. And the strange thing happens, we won on the U.S. Supreme Court issues and the judge didn't make any rulings on the state court issues because he said they were mute because it was unconstitutional under the U.S. Constitution. So as it moves up through the courts through the years, and they, Texas Supreme Court came back and said well, maybe it's not unconstitutional on the course because you get this and this and this, and they really kind of stretched. And, of course, the U.S. Supreme Court didn't want to hear the case because there's still state court issues. So it will go…

Okay. And then on the K you guys disclosed a $750,000 loan from an employee. It didn't seem like there's all that cheap [ph] of money from us paying a 10% plus option. Can you guys talk about the rationale on that?

Well, as I said, it was a 10% loan to our -- from our director of operations. We needed some cash for something at the time. He had it. We grabbed it from him, and it ties into the company marketing, so I was in favor of it at that point. 10% money's not cheap money, but it's not expensive money for us either. It's about in line with where we are on unsecured debt that we borrowed. So basically, that's the thought of it at the time.

Okay. And then just last one, real quick. In the Q just filed now, it says we received $6.2 million and settled financing from real estate and an aircraft. Does that mean we bought them from the same person?

No. There were no [indiscernible]. The aircraft was bought from Cessna.

Our next question comes from the line of Harry Burns, a private investor.

Yes, I -- question's kind of like a -- maybe a philosophical question, Eric, for you, both wearing all your hats in terms of President, board member, but also as a significant shareholder. I've been a shareholder for -- since probably around 2007. And it's -- obviously it's frustrating to all of us in terms of sometimes seeing the growth that we have and how the company's doing and yet the multiples on the stock, it's -- seems like there's much less than any type of comparable companies in our industry. And I was wondering is -- just in terms of thought of -- we've been going through this strategy, obviously, of generating increasing cash flows through organic growth and acquisitions. We're buying more earnings and yet obviously, you get more earnings, you would've -- you would hope to have increased stock price, looking at it from an owner's standpoint, right? Yet we're not, we're not getting that. So we haven't at this point. And so the question, I guess is, is that has there been any thought to maybe saying, "Well, if we're not getting as much of a pop in terms of, from an owner's standpoint, from buying, essentially buying more earnings, would we consider taking some of our increasing cash flow and just paying it out in terms of starting a dividend?" And maybe individual owners can do better with the money in terms of that, or maybe we attract a different type of investor. I mean we're getting such nice cash flow, we certainly have -- we could cover certain things. I just wonder in terms of if that's been broached at all, and again I know you -- like I say, you have a management hat and a board hat, but obviously you're a significant shareholder yourself.

Well, the way I look at it, I'm not keen on double taxation, #1. At the end of this year, that -- the dividend tax benefit goes away, unless Congress acts. I'm not holding my breath, I hope you aren't, to see what happens there. And second, we're a growth company. We need our capital to grow. We have significant amount of 14% debt that we can do. And when our stock is cheap, we buy it back, which basically dividends tax-free to all of our existing shareholders a larger percentage of the company. And I think those are the best uses for our cash right now. Continue to grow, reduce high interest debt, and at opportune times, make purchases of the company's stock back. A dividend, I don't think, is really the answer in returning -- and the best way to return cash back to our shareholders at this point. I'm not saying it will never be. I'm just saying that this time, I just don't think it's the best move.

Okay. And lastly, I'm sorry. Did you have any -- I appreciate in terms of the guidance for the quarter and revenues. For the fiscal year, would you have -- do you have a range in terms of thinking, in terms of income numbers, profits per share?

I think we're trying to stay without, of course without the one time -- I think we're going to stay pretty close to the -- to that $1.20 range. Probably see how this quarter goes. We'll have a much better idea of course, but we just really haven't may given out any guidance at this point. We're seeing what the economy does. We're seeing where things are going. We're happy with the way things are going, and we've got analysts that -- that's their expertise is to judge and guess how we're going to do going forward, and we're kind of just sticking with them right now.

Our next question comes from the line of Jim Lewis, a private investor.

Eric, we were excited about the grand opening here at Rick's DFW, at the south end of the airport. I just was wondering, what do you feel like the projected run rate on that facility will be now that the club has a liquor license?

Well, we're currently a little over $50,000, between about $50,000 and $60,000.

A week?

A week, yes. A week. Weekly. Our weekly run rate. I've always said it's a $5 million a year location which is just under $100,000 a week. And I believe that if we can get the popularity and the proper entertainers and that at the location and draw the locals from the north down there -- instead of having them go and hit 114, they can hit Northwest Highway over there, and they can come to the airport and figure [ph] our location's set [ph], that the 125 [ph] is probably a very, very reasonable number for that location on a weekly run rate.

[indiscernible] developing into a late or after-hours club like some of the other clubs in the DFW area?

Well, you mean -- on Friday and Saturday, we will stay open until 4:00 a.m. But keep in mind that location's in the city limits of Fort Worth, not the city limits of Dallas. And Dallas has different operating terms. In the city of Fort Worth, we can only be open until 2, Sunday through Thursday, and until 4 on Friday and Saturday.

Okay. Management seems to be a pretty good -- doing a very good job in that location. What are you going to do to deal with what could turn into perhaps a taxicab bounty on the taxi guys coming out of the DFW airport?

Well we're the closest to the hotels. Really, guys coming out of the airport in cabs, they typically go to their hotel first, and then go out. We don't get too many people -- because they're not going to show up with their luggage and whatnot. So that hasn't been a real issue as far as coming out of the airport. We are working with some of the rental car operators over there, trying to do some promotion with them. We do a lot of stuff with the -- obviously the hotels there in Center Point, hotels in the North Arlington area and of course in Irving there. And as well as Las Colinas. And we're seeing [indiscernible] there, as well as -- in the downtown Dallas area of course, we're doing a similar thing with the Silver City location. And it's been very, very good for us. As well as working with the limo drivers and those types of guys. Mainly they know, the difference is, all the clubs pay the same amount. None of the clubs are paying different amounts. I don't see a cab war starting in Dallas-Fort Worth. There's just no reason for it. And it's just not enough -- biggest part of your business that people are going to get into a big spend war on that like they did in Vegas. But it is definitely -- with the limo companies, you work with them. They want their guests to have a good time. That's their biggest concern is that if they're bringing their guests and their guests are having a good time. And when they leave their guests they're going to feel like they were taken advantage of. And that's one of the things that Rick's has as a reputation of taking care of our guests. And I think that will continue and that definitely helps us with the limo companies and the hotel companies and those type of things as far as recommending our location.

Any plans on the horizon for the Inwood [ph] property?

Not at this time. At this time, we have not -- we haven't purchased that property at this time. We've been in talks with them still. In fact, I need to get back with them shortly and make a plan on what we're actually going to do down there. We've just been so busy with everything else, we just haven't got around to it. And it's going to be a ground-up. It's an 18-to-24-month project for us. And so we haven't really put a lot of high pressure on it because we've been -- we have 2 locations in that market that we're currently building with the DFW location and the Silver City location, that we just haven't really pursued it at this point. I'm sure we will at some point in the future.

[Operator Instructions] It appears there are no other questions in the queue. I'd like to hand the call back over to management for closing comments.

Thank you, Doug, and thank you, everyone, for participating in the call. And I want to remind everyone again, once again, in the New York City area, to please visit Rick's Cabaret on West 33rd Street this afternoon, this evening for our Due Diligence event. You'll have a great time. Again, thanks very much.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.