RCI Hospitality Holdings, Inc. (RICK) Q3 2015 Earnings Report, Transcript and Summary

Greetings and welcome to the RCI Hospitality Holdings Fiscal 2015 Third Quarter Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Gary Fishman who handles Investor Relations for RCI. Please go ahead, sir.

Please turn to slide two. Thank you, operator. I want to remind everybody our Safe Harbor statement is posted at the beginning of our conference call presentation. It reminds you that you may hear or see forward-looking statements that involve a number of risks and uncertainties. I urge you to read it. Actual results may differ materially from those currently anticipated. We disclaim any obligation to update information disclosed in this call as a result of developments which occur afterwards. Please turn to slide three. I also direct your attention to the explanation of non-GAAP and adjusted EBITDA measurements that we use and that are included in our presentation and news release. Finally, I’d like to invite everyone in the New York City area to join us at Vivid Cabaret New York tonight at 6 pm for a firsthand look at one of our flagship clubs. Vivid Cabaret New York is located at 61 West 37th Street between Fifth and Sixth Avenue. If you haven’t RSVPed, please ask for me at the door. Now I am pleased to introduce Eric Langan, President and CEO of RCI Hospitality.

Thank you, Gary. Good afternoon, everyone. Please turn to slide four. We had a good quarter considering the bad weather, especially in Texas that affected our nightclub sales. Revenues increased more than 7% to $35.8 million. Non-GAAP EPS came in at $0.32, up close to 7%. Non-GAAP EPS came in $0.78. The big upside came from the gain on the Texas Patron Tax settlement that we had previously announced. Nightclub sales and margins were affected by the weather but the Bombshells sales and margins continue to show year-over-year improvement in spite of the weather that affected most of those locations. Adjusted EBITDA which demonstrates our cash generating power was up more than 6% to more than $8 million. And year-to-date, we have bought back stock worth $2.3 million in the open market. Please turn to slide five. We continue to be on track for a solid fiscal 2015. As we mentioned in the past, we target a core run rate, growth rate of around 15% for revenues and adjusted EBITDA. Year-to-date, revenues are running right in line with that. Adjusted EBITDA is a little higher and close to 17% and GAAP and non-GAAP EPS are both up more than 23%. Turning to slide six, as we anticipated on our last call, third quarter revenues were lower than the first and second quarters but above the year ago quarter. Total revenues were up more than 7% on a 7% year-over-year increase in units. Revenues from new clubs and restaurants add more than $5 million in revenue. This came from the new Rick’s Cabaret Odessa, the acquisition of the Down in Texas Saloon in Austin, Texas and the Seville Club in Minneapolis, Minnesota and new Bombshells in Austin, Spring and Houston, Texas. The more we made -- this more than made up for the decline in same-store sales. They were affected by severe rains and flooding in Texas, they were also affected by the lack of geographically relevant teams in major sporting events as opposed to last year. I am pleased to add that July sales show that our same-store sales are starting to rebound. Turning to slide seven, non-GAAP operating margin held up well compared to the year ago quarter. Let me run through some items of note. Cost of goods was higher as it has been -- cost of goods was higher as it has been the fiscal year because of the higher proportion of Bombshells restaurant food sales. Depreciation and amortization were also higher, as it has been throughout the fiscal year because of restaurant openings and acquisitions. Rent plus interest, which is how we measure our cost of occupancy, continued to trend down, this is because of last year’s fourth quarter reduction in debt; the pay down of the high Tootsies debt in the second quarter and the lower average rate on our -- all of our new borrowings. Legal is lower, now that we are getting our major settlements behind us. We also settled a number of minor cases over the last 9 to 12 months at a far less than it would have cost us if we went to court. And insurance continued to be lower because of the new contract we signed late last year with a new provider. I’d also like to note we are about enter and to renew that contract at even better rates. During this quarter, we settled our issues regarding the Texas Patron Tax. We had accrued more than $17 million in current liabilities for this over the years. To cover taxes out, we will pay $10 million in equal installments over a course of 84 months at no interest. This amounts to less than $360,000 a quarter which is easily manageable for us. And remember, this has already been expensed. We have begun to pay the current tax at a rate of $5 per person and we have already incorporated this into our new pricing. Net-net, we had a pre-tax gain of $8.2 million which benefited our GAAP operating results. Turning to slide eight, as I mentioned, we continue to grow our adjusted EBITDA year-over-year. For the quarter, it was up more than 6%, but year-to-date, we are up close to 17%. Please turn to slide nine. We have significantly strengthened our balance sheet with the Texas Patron Tax settlement. Let me take you through some major changes from the last quarter. Looking to asset side of the balance sheet, current assets declined slightly, that’s because there was a decline in our deferred tax asset as a result of the settlement. Property, plant and equipment increased due to Seville Club real estate acquisition. The increase in other assets reflects goodwill from the Seville Club business and licenses. Looking at the other side of the balance sheet, current liabilities have come way down because of the Texas Patron Tax settlement. Current liabilities should come down even more in the fourth quarter or in the first quarter of fiscal 2016, depending on when we pay the New York labor settlement’s first payment. Long-term debt is up a little, reflecting the future pay down of patron taxes out. And shareholders’ equity is up more than $8 million. This is due to the after-tax effect of the gain on the patron tax settlement and core earnings. Please turn to slide 10. We plan to continue to strengthen our balance sheet. We are seeing financing and refinancing opportunities with commercial banks and other lenders. These are at rate significantly lower than what we have been paying in the past. And as I mentioned on the last call, this has totally changed our need for doing a real estate investment trust. Let’s look at our recent acquisition of the Miami Gardens Square Mall. This was announced last week. Tootsie’s Cabaret is the largest tenant. As you know, it is prudent for us to eventually control club properties for licensing purposes. But this investment was also accretive. And while it’s income producing, it has experienced management; recently it re-upped the second largest tenant, a giant home flooring wholesale store with a new lease. We paid about 4 million cash and we financed more than $11 million via Centennial Bank of Florida at 5.45%. We estimate between the mall income, no rent [ph] proceeds the cost of the money; we will make about $600,000 pre-tax. This gives us a cash-on-cash return of about 15% above what we’ve been generating. We anticipate closing on the acquisition of the Rick’s Cabaret New York real estate. We are currently paying $1.2 million in rent a year and we own more than $9 million under the agreement to pay -- to buy the property. We expect to obtain a conventional loan for $10 million at 5% to complete this acquisition. We grow from paying an effective interest rate of 13.15% only paying 5%, which will also free up $700,000 in cash flow with this. We also have some properties in Dallas-Fort worth area, the balance on the loans are about $2.5 million at an 8% year rate and we anticipate refinancing this at around 5%. With bank financing so economical and our strong balance sheet, everything has changed for us. Going forward, we look to finance acquisitions through cash and debt without any equity component and then we’ll be able to use our excess cash to continue to buy back shares. Turning to slide 11, this slide will give you an idea of what’s happening. It shows our costs of rent and interest as percentage of total revenue over the last eight quarters. You will see how we have begun to noticeably reduce these costs. Turning to slide 12, we have no formal plans for any club acquisitions or restaurants at this time. We have planned the Bombshell in the Willowbrook section of Houston for the fourth quarter but we couldn’t work out the lease contract. In general, looking ahead to fiscal 2016, we’re looking at a number of club acquisition opportunities and we would expect to open up a few more company owned Bombshells, but we will not be buying any new clubs or opening any new restaurants unless they fit our capital allocation strategy. This is as a general rule any investment must drive rise risk free adjusted returns of buying back our own assets in the stock market either that or it must provide compelling strategic rationale. Turning to slide 13, during the quarter, GAAP operating margin for the Nightclubs segment was way up due to the patron tax settlement. Setting that aside and other non-recurring items, adjusted operating margins for the year-to-date was close to 32%, pretty close to what it was a year ago. This reflects the improvements we have made in the nightclub margins over the last 9 to 12 months. Turning to slide 14, we are proud to report Bombshells third quarter as a segment. Revenues increased three-fold to close to $5 million. This reflects the five units we have today versus the two in the year ago quarter. Overall, our target continues to be an average of about 60,000 per store per week, or a little more than $3 million annually. Operating margins expanded close to 8% in the second quarter, that’s way up compared to the negative 11% operating margin in the year ago quarter. The result was a swing in profitability of more than $530,000. As revenues continue to build and training costs subside, we anticipate continued margin expansion. We are also getting close to finalizing the appropriate legal material, so that we can start marketing the Bombshells concept as a franchise. Turning to slide 15, because of our confidence in our business as well as significant under evaluation of our shares, we have continued to buy back stock in the open market. Over the nine months of the year, we have spent $2.3 million to buy back more than 225,000 shares. We have also close to $6.6 million remaining in Board authorization. We will continue to focus cash flow on buying back shares. As I explained last year, RCI has generated approximately $15 million in free cash flow annually in each of the past few years. That operating cash flow less CapEx and patron tax excluding onetime items, this represents about 13% free cash flow yield at our current market cap before any upside from organic growth. This is significantly above after-tax yields on any of our debt and we think is a compelling value. By buying back our own shares, shareholders get to own more of the assets that we already know in light without any additional risk. Based on that, it perfectly makes sense to buy back shares until we reach a high of $15 a share, which will represent about 10% free cash flow yield. I want to emphasize, we are not abandoning future acquisitions of restaurants, however to justify doing anything new, the returns or strategic value must be significantly above what we get from simply buying back our own shares. As market conditions dictate however, there may be times when we deviate from this capital allocation plan as we deem appropriate. Please see slide 16. To sum up, we’re very pleased with our progress to-date. We are on track for a solid fiscal 2015 and look forward to another year of growth in fiscal 2016. We have put a number of major issues behind us which should help pave the way for next year. In the third quarter, we settled the patron tax issue for a gain; in the second quarter we settled the New York labor case; the third quarter gain should cover a good portion of that cost. With these and other settlements behind us, our legal cost should continue to go down. Also in the second quarter, we paid off our highest price Tootsie’s debt well ahead of schedule. We have begun to obtain attractive conventional bank financing for both acquisitions and refinancing. We anticipate this will lower our cost, free up cash and eliminate the need to use equity in making acquisitions. Last year, we signed our new insurance contract with a major and reputable carrier and we’re actually [ph] new at even lower cost. Looking ahead in the fourth quarter, we will be celebrating the 20th anniversary as a publicly traded company and the 10th anniversary of Rick’s Cabaret in New York City. We are very proud of our track record of the two decades of innovation in the adult club segment of the hospitality industry. Speaking on behalf of RCI’s management and that of our subsidiaries, I’d like to thank our shareholders for their support. With that, let’s open the line for questions. Operator?

At this time, we will conduct a question-and-answer session. [Operator Instructions] Our first question comes from Peter Kane with Kane Capital Management. [Ph] Please proceed with your question.

A couple of questions. First off, you talked about weather and its impacts on same-store sales, particularly in Texas. And I know weather -- I don’t have another meteorologist, but we’re talking about the range in Texas I presume.

And the flooding, we have severe flooding in the Dallas-Fort Worth area; we lost two weekends. We have severe flooding in the Austin area, both on weekends. When you lose those weekends, Fridays and Saturdays are hard to make up for.

Right. So, if you extract that, if you extract the two weekends or the three weekends whatever it was, how did the rest of the quarter look? And how does -- you said July same-store sales have rebounded…

Without the weather, I would say we’re probably down 3% range, 2% to 3% range. We also had the college -- I call college is too old, I guess the play-offs were in April of last year in the Dallas-Fort Worth market which affected their April and then we didn’t have the Miami Heat in the play-offs which was really big for Miami last year and affected Miami same-store sales as well as some other supporting teams and markets that didn’t do it well this year that they had in previous years. And we were up against some very strong comps for that quarter from last year as well. So, when you put it altogether, still pretty happy with the way would bring cost down and still increase our numbers.

And July is comping up at this point?

It’s not up, but it’s much better than we were in the last quarter. We’re still down a little bit, I don’t know what the cause of it is, maybe just getting people back out and getting people back into the clubs. But we’re doing some marketing and we’re seeing that as we move through the month, the month has got stronger and stronger.

And you mentioned -- I don’t have the slides in front of me, so forgive me if I am asking questions that readily answered there, but you talk a bit about the reduced cost of capital. You’re starting to enjoy that already. How should we look at all things if nothing changes, if you make no new acquisitions, what should we model in terms of run rate for interest expense going forward? And similarly what -- I know there is moving parts, but what should we model or…

Let me give you a little bit of idea on the chart. If you look at fourth quarter 2013, our rent plus interest was up to 11.6% of our gross revenues. In this current quarter, we’re down to 7.9%. I think with some of the refinancing and as we change the New York rents when that come down, I think we could even get down to 7.5% -- we hit 7.5% in the first quarter of ‘15, we might even get down as low as 7% as we pay-off some of the higher stuff. So, I’m very excited about the 5% money for us. I mean we always talked to you and joked and if we could ever borrow 5% money that would be we could get going bank rate and we’re getting bank rate on all of our stuff right now. We’ve talked with several banks; everybody is being competitively, three bids on one of our last deal. And two of the ones didn’t get it -- one of those few banks said what else do you have and that’s how we’re starting to refinance the Dallas property, the 8% property in Dallas is we’ve submitted those properties to them to refinance.

That’s not legal, but can you give a rough sense of what legal should be…

Down 3.6% of revenue this quarter. I think once the New York settlement is done, we’ve got few more insurance cases out there that’s cost us little bit of money. But I think we can maybe get it down to 2% of revenue. So, there is definitely more savings there. And we could get back down, I think in old days we were at about 1%, 1.5% of revenue. So, if we can keep pushing forward and keep our cost down, we have great insurance companies now, most A rated on our assets covered and our standard coverage. We’ve been able to negotiate pretty good overall terms on that. We’re very excited about that insurance market going forward. And I hope over the next few years, as we keep our claims down and control our internal risk management of our cases, we will see even lower rates as we move forward on the insurance.

One last question on -- you mentioned the bank stocking to you that a property in Dallas, you also mentioned during the presentation New York…

Yes. We have a commitment letter from a bank. We are currently in the process of activating our option to purchase the property and opening title. And hopefully in the next 30 to 45 days that property would close; that loan will close.

So, help walk me through the New York property, I gather the risk property as and late Miami, you didn’t own the property. So, give me the before and after and...

Sure. We’re paying $1.2 million in rent right now. The new loan will be $10 million at 5% on a 25 year AM, it’s 10 year term 25 year AM and it’s got a 5 year interest rate adjustment.

And that’s on how much loan balance?

$10 million.

$10 million, okay. So if you’re paying $1 million of interest a year, you’re paying $1.2 million in rents.

We’ll be paying 500,000 interest a year. 5%

500,000 is pretty simple math there, and so that outright own the property and the cost related to it declined significantly. Now, is this the route that you’re looking at across the portfolio right now and how many...

Obviously we have some -- we don’t bank relationships in every city where we have clubs but we are in the process of -- where we have loans at higher interest rates, we’re in the process of now working on those banking relationships. I feel that any acquisitions we do in the future, most of the real estate, when we buy the real estate will be done through the bank financing. I don’t think we’re going to have any problem getting bank financing anymore.

And you think you can get bank financing somewhere in that 5% range?

At current rate, I think it will 5 and plus, 5 and plus to get us through around the 5% to 5.5% rate right now as the Fed rate its rate, obviously time will go up and it will be little bit quarter higher half point higher as we move forward. But overall, we’re going to be paying basically commercial real estate lending rate, bank rate.

Our next question comes from John Rolfe with Argand Capital. Please proceed with your question.

Couple of questions. One, could you just confirm, I think you had said that you felt over time you could get to sort of 7% blended rate for your debt. Could you confirm that as what you said sort of over -- as you sort of go through this refinance process, over what kind of timeframe you think that might be achievable?

I am hoping over the next 12 months, we can get it down. We got some 13% debt out there, we can pay off, once we make this payment on the lawsuit settlement, we really have a lot of free cash flow coming in. Depending on where our stock price is whether it makes more sense to buyback the stock or pay down the higher debt. As we pay down that 13% debt, I think we have 1.5 million at 13% add 12, so we pay off, there is about 6.5 million in total debt that’s above 11%; pay that off; we might be down at 7 already. You’re bringing the rest of refinances, some of the 8% and 9% stuff and bringing down in the 5% and 6% range, we will be at 7% pretty quick.

Okay, that’s great news. A couple of other questions, one, any update on robust and any sort of further progress there?

We’re working with Southern Wine & Spirits out of Florida; we’ve launched in the Miami market; we’re currently launching in North Florida right now. We anticipate basically launching in the entire state of Florida by the end of the year and have those launches. So, everything’s gone great so far. They anticipate early next year rolling about as a national distribution for them. That’s our current -- if we’re sticking with that right now, we’ve talked with the other couple of other groups out there to have the national exposure for us and where it’s working. Before we can do a real push on it, we have to have a distribution. And so that we’re working on right now, getting the distribution in place, then we’ll go out do the full corporate.

Okay, and at some point in the first half of 2016?

I believe so, yes.

And last of all, can you walk through just sort of what some of the milestones are? And I don’t know sort of realistic timeframe on getting the Bombshells properties franchised over time? I mean what sort of are the steps that you need to go through and what will be realistic in terms of getting through the steps?

We are in the final stages right now. Basically we’ve got our disclosure documents put together; we’ve got our manuals all done; we’ve got some final review with the attorneys. I anticipate that we can probably get filed probably by the end of the month and then it’s just a process. I am not really sure how the long process takes, but I don’t believe it’s a long process. I am hoping by the end of fiscal year, end of September, maybe early October we’ll be ready to actually start marketing the franchise.

And would your expectation -- maybe it’s a little early for this but at that point be as is that something you do the marketing yourself, you use brokers, have you not really sort of crossed that bridge in terms of making these sorts of positions yet?

We’re going to hire somebody in-house in the beginning. I believe we’re doing -- where we’re setting up is a territorial type deal. So, it should -- we’re kind of following basically what some of the competitors have done and following their lead into this phase. And hopefully we’ll be able to catch up and pass them up our -- our concept is doing very, very well, we’re happy with it. I think as we bring franchisees on and grow the concept and start more marketing it’s just going to pick up and build form there.

Our next question comes from Adam Adam Mikkelsen with Cooper Capital. [Ph] Please proceed with your question.

I just wanted to chime in with these settlements behind you and this lower cost of bank debt, the story is looking really clean now. And you guys have made a lot of progress in the past 12 months. So, I just want to say congratulations on that because a lot of these big issues which have been clouding the company for some time are now behind you and you should see them coming out in the results the next 12 months.

We definitely believe so. And with sticking to the capital allocation strategy has kept us very tight on things; it’s bringing prices down. So, guys keep calling me all the time, will you buy my club, I sell for this, I’ll sell -- we’re going to sit and wait right now. It’s just not making sense for us to get this New York deal behind us, but we’re very excited about the prospects going forward. And I think at some point here the stock is going to have to refund, if not, there will be less, and less and less of it out there. So the price will just go up naturally.

So, you say, you’re happy to brought $15 a share?

Yes, I think so. Based on everything we’re looking at, looking at some of the deals that are out there, unless of course all of a sudden we start getting some two times, two and a half times even deals that are just, we can’t wrap up, [ph] I think the stock is a best buy right now. We’re buying what we know. We know what our assets are; we know that we put protections in place with insurance and we own our real estate, our rent is getting cheaper and cheaper every quarter just makes a lot of sense for us right now t own our own assets.

Just a quick follow-up on that question on franchising. So, in deal -- what would be your goals over the 8 to 12 months to ground franchisees by the end of next year?

I would like to see us have 6 to 10 franchisees signed up with three to five store contracts. If we do that I think that be very successful. It could go better, it could go little slower. But we’ve had a lot of interest, we just have not been able to talk to people; legally we can’t even talk to them about franchising. So, right now, we take the numbers, we say when we’re able to, we’ll call you back. So we don’t really know how much pent up interest is out there or not at this point.

Our next question comes from Mike Moore with Moore Capital Management. [Ph] Please proceed with your question.

You talked about the this last quarter is down, so you had weather problems and you’re comparing against some sporting events last year. How about the price of oil and gas probably from $145; so that in Texas, did that affect your clients?

It is only effect that our Odessa clubs in July. The July was the first month we’ve actually seen really a downturn that we can relate directly to the oil and that a lot of layoffs down in the fracing field out there. We’re still doing good. It’s just we’re seeing a slowdown in that Odessa market. It will probably end up affecting well [ph] at some point. But as far as the rest of the markets, we haven’t it really and as affect, we haven’t really seen a whole lot of other decline at this at point.

Just to get us -- it’s been covered somewhat, but you’re going to kind of use your cash flow to buy back stock, pay off your high cost debt. What would it take for you to do a strategic acquisition? The price would have be right but also the geographic areas or something like that would come into place also?

The geographic is definitely a weighing factor, little competition in the market is the factor that -- licensing, whether the license -- how protected the license is against the competition, those types of things all weigh in. But right now, really it’s total price, where are we paying; how we’re paying for it. Obviously we’re not giving up any equity in any deals that we’re doing right now. We don’t receive doing any more convertibles. Anything that’s going to give up our equity at these prices, we’re just not interested in doing. We’ll just sit and wait, we’re pull our cash flow in and continue to stand the company through our own cash flow through bank financing and even private financing if we can get the right rates on it.

Our next question comes from Eric Roderick, [ph] private investor. Please proceed with your question.

Couple of questions, first on Miami Gardens purchase, what was the cap rate of the mall acquired and what was the rents that you have been paying?

So, this pays about $68,000 a month in rent. I don’t know all of the other the rent rose off the top of my head, but I do know that basically all the other rents, we have to put these -- have about $12,000 a month to cover the monthly payment on the new mortgage which leaves us $56,000 a month left over time to 12, which gets us to little over 600,000 a year in our cash on cash return versus the $3.89 million that we put on the property. And that’s when we weigh that out, that made the sense that was as good of acquisition as buying back our own stock, plus we end up with control of the shopping center where our number one site location is.

And then can I continue on the refinancing discussion. Do you guys think you will be able to refinance the Foster note? That seems that that’s kind of…

If I remember that note was a special owner finance deal where we took over basically $38 million of assets with $4 million cash. It has a prepayment penalty that doesn’t make sense to refinance for over 60 months. I believe we’re little over three years into it, so probably won’t look at refinancing that in the next year and half; we’ll just pay the 9.5% and write it out.

Our next question comes from George Carino, [ph] a private investor. Please proceed with your question.

Your club’s adjusted operating income was 30% this year versus 37% last year. Could you explain that? Thank you.

Phil, are you on the call?

I am here.

That’s one of your calculations; can you explain that right there? I thought it was 32 to 31, but -- I guess the biggest would be that we have the lower same-store revenue. There is a lot of profits in each dollar at the top end of each club because the fixed costs are already in there. So that’s probably where the percentage, the biggest percentage of decline would come from based on my knowledge of it.

I think it’s not any one thing.

It’s just got to be the back of the -- so we just get less revenue existing stores.

Our next question comes from Alex Harman, [ph] a private investor. Please proceed with your question.

My question is about, so you guys have been in Minneapolis for awhile now with a comp [ph] prior the employee model versus how you see [ph] and just what the costs that you incurred losses [ph] that you settled cost over the time just to play alone in the thin margin of [indiscernible] Supreme Court on the attribution cost lasting. I was just wondering if it is more employee model or if you still think it’s just way to go going forward assuming risk, adjusting risks for the future and so?

Well, there is a lot of factors take into that. And without getting in to all the legalities of it, I would say yes, there is still continued risk that we could end up in arbitration with certain entertainers throughout time without the employee model. But we’ve been -- our employees have through this under Fair Standard Act as well and try to, we’ve been able to force arbitration notes. So far, all tests of our arbitration agreements we have won, both in Minnesota, Florida, Texas, North Carolina. So far, we’re pretty confident that we’ve set things up that we’re following along, we’re doing the right things, we’re tracking information on our entertainers to prove minimum wage requirements and what not. So, I think we’re okay on it. We’re looking at the model in other markets. Two of our clubs in Minneapolis are independent contractors, only the original Rick’s Cabaret location is using the employee model. We have the model, we know the model. It’s just a fact of we need to be competitive in every market and we don’t want to give our competitors an advantage by switching to a model that isn’t competitive against them in those marketplaces.

I understand. It’s we’ve seen what you’ve gone through with the -- in the past, employee models and whatnot. [ph] And I guess the other question is there is very few like IRS and Department of Labor kind of look at this little bit more detail, I mean IRS…

We meet their requirements as independent contractor. The Fair Labor Standard Act has a real arbitrage kind of what is an independent contractors versus an employee that the other institutions don’t use. And so, I think we’re fine with the IRS, I think we’ve been fine with the most state departments of labor. Obviously there is a issue in New York where we’ve been working with for I don’t know since 2007 or something that’s still pending now there. But it’s all minor; it’s all about them collecting state unemployment tax which is very small amount, only up to like $7000 in income or something. So it’s a no relevant number overall but we’re deal with that issue and have been for many years. It’s all part of the cost of doing business.

I understand.

And we have to talk to our lawyers, we kind of have to list to our lawyers recommendations and use their recommendations and current law and kind of court do it all. And I would say it’s a frontline on that. And I think that we protected our self pretty well so far. We’ve been very successful I’d say in any challenges at this point we’ve been very successful.

Our next question comes from Nate Rusbosin with DePrince, Race & Zollo. Please proceed with your question.

Just a real quick one and you just touched based on -- you said kind of wanting to buy back stock upto $15, you just were talking about the pace that you guys are going at and would it take maybe accelerate that pace going forward?

Well, we’ve got to pay up this lawsuit, to be honest with you. I mean we’re going to have a very large chunk of cash go out here at sometime at end of September, early October. And so especially today I think the price today, I thought man, this is really getting attractive; it’s hard not to do it. But I want to make sure that we have enough cash on hand and we have enough cash to pay to -- we should have the final, final number next week, I believe on that. And it’s so far -- it’s right in line with exactly where we thought it would be. Obviously, we’ll have to put the money. We’re going to get some of that money back because there is a portion of it check that won’t be cash which we don’t know what that number is at this point. But we’ve got to be prepared to at least put that money in upfront and then wait for the 60 days to get it back. I think over the first year, the stock stays where it’s at, especially today or even decline from here. You’re going to see us be very, very aggressive in probably December and definitely in that January, February, March quarters.

At this time, I would like to turn the call back over to management for closing comments.

Thank you, Eric. Please everybody turn to slide 17. I want to remind you again that we have a Due Diligence event at Vivid Cabaret New York from 6 to 8 o’clock tonight. If you haven’t RSVPed, ask for me at the door. We also have a number of events in weeks and months ahead. August 23rd through 26th are ED Publications subsidiary holds its Annual Gentlemen’s Club and Expo in New Orleans to save money and take advantage of management being in New Orleans; RCI will hold its Annual Meeting on August 24th at our licensee Rick’s Cabaret in the French quarter. On October 7th, in New York City, management will ring the closing bell of the NASDAQ MarketSite in Times Square in honor of the 20th Anniversary of the Company’s IPO. Afterwards from 5:00 to 8:00 pm, we will hold the 20th anniversary party of Rick’s Cabaret in New York. Shareholders are invited, please RSVP to ir@ricks.com with your name and phone number. The following morning, we’re scheduled to announce fourth quarter sales and on December 14th, we’ll hold our fourth quarter and year-end conference call. Until our next call, thank you for joining us. And everybody have a good night.

Thank you. This does conclude today’s teleconference. You may disconnect your lines at this time. And have a great day.