RCI Hospitality Holdings, Inc. (RICK) Q4 2015 Earnings Report, Transcript and Summary

Greetings and welcome to the RCI Hospitality Holdings Fiscal 2015 Fourth Quarter and Year-End 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 Mr. Gary Fishman who handles Investor Relations for RCI. Thank you Mr. Fishman, you may now begin.

Hi, please turn to slide two. Thank you, everybody. I wanted to remind you of our Safe Harbor statement; it’s posted at the beginning of our conference call presentation to remind you that you may hear or see forward-looking statements that involve 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 afterward. Please turn to slide three. I also direct you 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 Rick's Cabaret in New York tonight at 6 o’clock to get a firsthand look at one of our flagship clubs. Rick's Cabaret New York is located at 50 West 33rd Street between Fifth Avenue and Broadway, around the corner from the Empire State building. If you haven’t RSVPed, please ask for me at the door. 1 Now I am pleased to introduce Eric Langan, President and CEO of RCI Hospitality. Eric?

Thank you, Gary. Good afternoon, everyone. Please turn to slide four. We ended fiscal 2015 in great shape. Non-GAAP EPS came in at a record $1.39. We finalized our two major legal issues as well as a number of smaller ones, now there should be no overhang from this going forward. In addition, we implemented a number of new measures to expand margin, EPS, cash flow in fiscal 2016 and beyond. These measures will immediately benefit us this year. We have no club acquisitions or restaurant openings on the immediate horizon so we are looking at flattish revenues for 2016. As I said on the last call, we put our stock buy back on hold in the fourth quarter pinning final resolution of the New York Fair Labor Standard Acts Case. Now that that issue is over, we are aggressively pursuing our capital allocation strategy. To date, in the first quarter -- that has translated into us significantly stepping up the pace of share repurchases. I’d also like to note that some of our slides today incorporate our new investor presentation. We used it earlier this month at the LD Micro Investor Conference in Los Angeles. We had a highly productive and encouraging 2.5 days build with long ones. We then concluded with our formal presentation, and we believe the reaction has been very favourable. Please turn to slide five. Here’s a summary of our fourth quarter and year-end results. The fourth quarter revenues were up 4.4% and revenues for the year were up 12%. From a profit point of view, year-over-year comparisons for the fourth quarter are a little difficult. Income from operations included approximately $2.9 million in non-recurring items. There was the final $800,000 payment related to the Fair Labor Standard Act settlement. We had $300,000 in other legal settlements. This was to remove any ongoing overhang from those issues. There were $1 million in final, legal and professional cost related to resolving these issues and others, and we had $800,000 expense for leasehold improvements for the perspective Bombshell space that is now in legal dispute in Houston. Looking at the year ago fourth quarter, it benefitted from a $5.6 million gain from a contractual reduction of debt. Even with all this on a GAAP and for the most part on a non-GAAP basis, operating margins for 2015 was about level with the previous year. Please turn to slide six. One of the main things I want to communicate today is that we have put our two major legal issues behind us. The final cost of Fair Label Standard Act Settlement came in at $11.1 million. Although this was a little higher than our original reserve, it was still much lower than the maximum $15 million we had negotiated. I’d also like to note that since 2011 our contracts contain clauses related to no class action participation and the use of arbitration agreements. Earlier in fiscal 2015, we settled our dispute involving the Texas Patron Tax. We had been expensing the tax since the issue first arose and it included more than $17 million. We settled for a $10 million or about 40% less. We are paying this reduced amount over the course of 84 months. And as previously reported the settlement resulted in an $8.2 million pre-tax gain. Please turn to slide seven. The second major item I want to communicate today is how we have aggressively been implementing our capital allocation strategy. In recent years we have consistently generated annual free cash flow of approximately $15 million. By buying back our own shares, we generate an after tax yield on free cash flow of 14.5% at $10 per share and 13% at up to $11 per share. We consider this yield risk free since we are buying our own assets which we know very well. Right now the yield is much higher than the risk adjusted return of buying new clubs, opening new restaurants or paying down debt ahead of schedule. Consequently, we have stepped up the pace of our share acquisitions efforts. We plan to continue buying back shares and so our stock in our view is more fully valued. While there is always a possibility you might come across or develop a compelling opportunity, for now we continue to return value to shareholders in this manner. Then when our stock is higher, it will make better sense to think about buying clubs or opening new restaurants in a more aggressive manner. Please turn to slide eight. As many of our loyal shareholders, we have been impressed really with the performance of our stock. As you can see on this slide for many years our stock rose in line with company’s performance. In 2013 however, stock began to drift lower while revenues and profits continue to grow. We wanted to find a way to reward our long term investors. At this time we believe share buybacks are the most are the most -- manner of returning capital to shareholders. Through our stock buyback and margin expansion, our goal is to close the gap you see on this chart and then rise above it. Please turn to slide nine. You can see we have significantly increased share buyback since September 30. To date we have acquired $1.6 million in shares compared with $2.3 million for all of fiscal 2015. Right now, I’m comfortable saying the amount you expect to spend in 2016 could easily complete the $6.6 million remaining in our plans. Please turn to slide 10. A third major item I want to communicate is how margins and cash flows are expected to grow in fiscal 2016 and beyond. With the resolution of major legal issues, legal and professional cost should decline. This would reverse the trend we’ve experienced. These expenses have grown from 2.3% of revenues in fiscal 2013 to 2.6% in fiscal 2014 and 3.2% in fiscal 2015. Also, our new insurance with major firms is also resulting in cost reductions, down to 2.3% of revenues in fiscal 2015 from 3.1% in fiscal 2014. Access to bank financing as reducing our interest expense. This has reversed the trend in RCIs cost of occupancy. We calculate this metric as a combination of rent plus interest. This fall into 7.9% in fiscal 2015 from 9.7% in fiscal year 2014. In addition, the new bank debt is coming with extended amortization. We estimate this will expand free cash flow by approximately $2.3 million in fiscal 2016. Over the last year we have eliminated six units not meeting the expectations. Based on the individual performance in the last year of operation, they collectively cost the company approximately $2.2 million. In October, we initiated our Bombshell franchising program. If this is successful as we anticipate, it should play a major role in expanding the segments margins beginning in fiscal 2017. With annual revenues of about $145 million the cost have reduced by an amount equal to 1% of revenue, that reduction will equate to approximately $0.09 per share and after tax profits using the September 30 share count. Please turn to slide 11. This slide updates recent and pending financing from the last conference call. Last call we told you how we had completed the acquisition of Miami Gardens Square Mall. This is a property where Tootsie’s Cabaret Miami, our largest unit is located. The acquisition will generate $600,000 in annual profit generating 15% cash on cash returned. We have since completed the refinancing the selected Dallas-Fort worth properties. We refinanced them for $4.5 million at 5% interest at Cabaret, interest payment level that enabled us to pull $2 million in equity out. In another update, we expect to close on the acquisition of Rick’s Cabaret New York real estate in January. This will reduce our expenses by more than $700,000 a year over the term of the loan. With bank financing more economical and our balance sheet strong a lot of change for us. Going forward, we look to finance acquisitions through cash and debt without any equity component. Please turn to slide 12, this slides shows the drastic decline in our cost of occupancy. As you can see it has come down from 11.6% of revenue in the fourth quarter of 2013 to 7.6% in the fourth quarter of 2015. With the Rick’s Cabaret in New York, real estate acquisition we believe this should further decline to about 7.4%. Turn to slide 13, a fourth major item I want to communicate is how our balance sheet has improved, in particular there has been a major reduction in current liabilities, this is largely due to the Texas Patron Tax Settlement and I am pleased to show that we generated more than 13% increase in shareholders’ equity. Turn to slide 14; I’ll walk you through some fourth quarter and year end numbers. In the fourth quarter, our total revenues were up. New units added $4.1 million more than offsetting the 5.6% reduction and thanks to our sales. I will explain what we are doing about things for sales on a later slide. For the year, revenues were up double digit, mainly from new units, thanks to our sales we are about level. Certain units are performing particularly well in fiscal 2015 such as the Temptations of Beaumont and the Onyx Houston. Turning to slide 15, looking at the fourth quarter the main difference between our non-GAAP margins compared to a year ago is the increase in legal and professional cost. Our customary non-GAAP analyses have not excluded these expenses. Looking at the year and addition to the factors that affected the fourth quarter there were two other things that I want to mention. One was our success at Bombshell due to the greater percentage of its revenues, due to a greater percentage of its revenues and in sales makes overall margins a little lower, in turn this was particularly offset by improved performance at our nightclub segment. Please turn to slide 16, as I noted in the past we view adjusted EBITDA as a proxy for our cash generating power, which we can use to buy back stock and finance growth. That was up more than 6% in fiscal 2015 to a record $34.6 million. Turning to slide 17, now lets look at our two segments. Night club revenues were down only slightly in the fourth quarter even though there was a 5% in units. With the elimination of underperforming units and other factors non-GAAP operating margins expanded for both the quarter and the year. As a result, non-GAAP operating income was about level for a year ago quarter and up nicely for the year. Now I know a lot of you are concerned about the decline and thanks to our sales that we have a Texas oil problem. I want you to know that I have personally visited many locations in Texas in the last quarter, yet some of the oil and gas factors have seen revenue declines, but they are still nicely profitable. Keep in mind, Texas is the big diversified state economically. Other clubs are up benefitting in part from more money in people’s pocket as a result of paying less at the pump. In general however, we’ve noticed that the big spenders are spending a little less. For those of you familiar with RCI this is a cycle we go through from time to time. In response, we are adjusting our marketing and for example we are moving more our advertising to social media and away from radio. Based on past cycles, we hope to show improvement as the year progresses and especially by the second half of 2016. Please turn to slide 18, looking at the Bombshells segment, the segment also had a good quarter. This was mainly because we had five units in operation versus four in the year ago period. Bombshells and Dallas performed particularly well in 2015. According to state wide liquor [ph] sales, our Bombshells in the South Houston area is one of the top bars of its type in all of Texas. In fiscal 2016, we’ll be comparing our five units against their performance from the year before. That means we are going up against large initial sales when the Bombshells and Spring in South Houston had their first full quarter in fiscal 2016 during the honeymoon period. In fiscal 2016 we’ll also be rolling out our franchising program. Keep in mind this is a step by step process, right now we are close to completing the legal process for franchising in more state. Our goal is to begin finding our first franchise that we can generate revenue from them in fiscal 2017. Turning to slide 19, to wrap up we ended 2015 in great shape. Our two big legal issues as well as others are behind us. While we expect flattish revenue in fiscal 2016 as a whole, we have implemented measures to expand margins, EPS and cash flow. Revenue continued to aggressively acquire new clubs and open new restaurants and we are focussing our resource on generating cash and buying back our shares. The program is to return capital to long term investors and take advantage of what we consider to be a very favourable risk free after tax yield on our free cash flow. We can already see evidence of this with a stepped up pace of our share buybacks. Speaking on behalf of all of RCIs management and that of our subsidiaries, I would like to thank our loyal shareholders for their continued support. And with that, let’s open the line for questions. Operator?

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from John Rolfe of Argand Capital. Please go ahead.

Hey guys. [Indiscernible] was just filed and I’ve tried to pull a few things out of there, but so I apologize if these questions were duplicative. But in terms of both the New York on a class action settlement as well as the core pact, can you give me some detail in terms of what has gone out from a cash perspective as of the balance sheet at September 30, 2015?

Sure. We’re making monthly payments of about $110; I think around $110,000 $120,000 of these amounts per month on the patron tax settlement. As far as the -- standard equity paid $1,833,000 to the attorney and we deposited into the account, little over $6.9 million almost $7 million for the class, for the class checks to be sent out.

Okay. So the debt and cash balances as of September 30, effectively were flat most of the cash that you are expecting to go out the door or….

Well that’s all the cash that could possibly go out the door. We also know that now obviously because we have the final settlement that we got about $1.24 million of that cash back in this quarter, in December, which that’s where you got your total. We had reserved $10.3 million, the actual cost ended up being right around $11.2 million if I’m correct. Is that right, Phil?

Yes, $11.1.

$11.1, okay thank you, a little over $11.1. So, right between $11.1 million, $11.2 million is our total actual cost of the settlement.

Okay. And the…

We still owe basically two more payments. One next year and one the following year to the attorneys at $1.83 million of these actual cash, but we’ve expensed all that -- we’ve got balance sheet, but when you are talking cash and when you pack [ph] the natural cost or trying to get you what we actually paid out in cash for that through September 30 and then we got some of that cash back this year but whilst you have to pay another $1.8 million out at the end of next year or the end of this…

Okay, so basically you’ve got, actually if I’m looking at the balance sheet as of September 30, subsequent to that you’ve gotten 1.2 back in but another 1.8 will go out at year end for the attorney’s and then in fiscal 2017 there will be an additional 1.8 going out for the attorneys.

Correct.

Okay. And then with respect to the pulled pacts how many month -- what would [Indiscernible]

I think we started paying with the April quarter, Phil or did we start paying with the April, May, June quarter to be paid out or do we start paying the following quarter?

We started in the June quarter.

I’m sorry…

We started in the June quarter.

So we paid April, May, June we paid, correct.

I think it actually started in May.

Correct. That’s the monthly, but then we also actually paid the tax as well.

We paid the tax as of May, we paid as of March 31.

As of March 31, okay so we are -- so we basically have been paying the tax for since last January and we have started making the payments starting May 1st.

Okay, got it. And I think you mentioned in the press release that the interest rate at fiscal yearend was I think it was 7.8% but then you also mentioned that there is some other refinance activities going on currently. What’s the good blended rate to use for fiscal 2016 as a whole and again, I know we’re getting a little far out here but given that you’ve got some favourable dynamics on the refinancings I mean as we look forward past 2016, would you expect that rate to continue coming down?

I think there’s not a lot of room for it to come down more, but yes there is definitely some additional. I think we’re going to be probably blended about 7.5% for 2016 and we could see you know a little bit of that in 2017 and of course heavily some of the loans have actually pay off in those time periods, some of the amortizations will end which will lower our budget, but those are small amounts of the interest. So I don’t know what they will actually pay through in percentage base, maybe 0.1, 1.2. Now we are talking with the bank right now. Actually two different banks, about having some additional real estate equity and paying off all of our debt over 10%. If we do that, then that could be significant, but I believe there’s about $8 million or $8.5 million in debt over 10% that we could eliminate if we do something like that and that could take us under 7% probably.

And lastly, has there been any progress on what’s being going on with Robust. I think on the last call you talked about the possibility of the national rollout some point in 2016, has there been any progress there?

We launched in November in Florida, state of Florida with Southern Wine & Spirits we are launching in the state of Minnesota in January in the state of Nevada in March and as those two goes, if they go as well as Florida then I would suspect that they will step up the launches in addition states at a much quicker pace, that’s our hope. We are also launching a new product with Robust by putting in a third form that will be selling you know they call it bag in a box. We’ll be selling it in a box of drawing Minnesota down and that product will launch early January, and we are very excited about the prospects of that product as well.

Okay, great thanks very much.

You’re welcome.

Thank you. The next question is from [Indiscernible], please go ahead.

Yes, good afternoon and thanks for taking the question. You mentioned the overall same store sales in Texas really did fall in Q4. I mean how is Texas trending so far in Q1 compared to Q4?

Through November very similar but from about June through November we are seeing at the first week of December with our first positive we are getting through the end of this week now, so depending on how the night goes we’ll know how the second week of December is going to trend for us, but it seems like atleast right now we are get a little balance, just a holiday balance that could be maybe some of the trends are changing and it’s really going to depend on the high end standards. Our total visits are good. What we are not seeing is the high dollar spender is not spending the money; we’re spending prior to June.

Okay and you gave an example on how certain cost savings combined with the $145 million in revenues would result in about $0.09 and additional EPS. Is this meant as your EPS guidance or this for illustrative purpose only?

No. That just for illustrated purposes, but basically what we’re saying is, as you can see some of these – we told you all the rates were going to reduce our cost. Then we wanted to show you that basically for every 1% of revenue, total revenue cost will reduce it will equate to about $0.09, so we kind of do some of the math based on some of the examples.

Yes. Okay, makes sense. And what are you planning for 2016 in terms of free cash flow?

Right now, its really tough to say, but I’m going to guess, what you think they are be between 15 million and 18 million based on – just depending on how same-store sales recover.

Yes. I think with the reductions we’ve made in the clubs, I think will be over 15 for sure.

And we’ve been pretty steady 15, but I don’t think we’ll have any problem with 15. We’re based in everything on our buyback margin and everything at 15. As we get through the quarters that number start it look like it’s going to increase than where we do our capital allocation slide based on the new amount. We’re very comfortable with 15 million.

Okay. Thank you.

Okay.

Thank you. The next question is from Mike Mork of Mork Capital Management.

Hi, just two quick questions. Given kind of a standing view right now, what price would your stock have to be for you to say okay, we are going to start expanding again, just a quick like 16, 17 some more on there?

I mean, I think if we find select hot-notch locations, basically we’re looking at a three-year cash on cash payback. I think we were looking – start getting looking at 12 to 14. I think once we get over 15 we’ll get a little more -- less aggressive with the stock buyback and more aggressive on expansion with our cash. As far as using any kind of equity I don’t think we’re going to look at using equity under $20, I just don’t see that company doing any type of equity, using any kind of equity under $20 at this time.

Okay. Well that makes sense. The other thing with the Bombshells, once you get that all the regulatory ops and what not, do you think you’d hope to franchise you know five or six a year and let’s assume you did have then are we talking like a 5% royalty on sales?

Our royalty to 5.5%, plus I think 1.5 or 1.9 I can’t remember what we finally decide. I need to go back with the documents. For advertising, for national advertising funds, I think we sell – our wholesaler to sell to six, eight unit, territory, that actually will be a territorial unit, hopefully encompassing three stores over certain time period over say, three years, and sell six to eight in 2016, sell addition six to eight in 2017 with six to eight opening in 2017 from the first contract and then in 2018 you’d have the six, eight, number two stores open plus the new contract six, eight more stores there. And of course in the third year you get that ramp up, which will basically put us somewhere between 70 and 100 stores in five to seven years.

Okay. It sounds good. Thank you.

Thank you.

Thank you. The next question is from Norman Sarafian of RBC Wealth Management. Please go ahead.

Yes. Eric, Congratulations on the success with Bombshells, that’s kind of exciting.

Yes. We’re enjoying it. It’s a really – two of our stores are really doing fantastic right now, in fact, it’s number one and number five in their ranking among the peers, so very exciting.

I had one question. You put real estate on hold, I just wondered, is that like ly to be going for good or how do you see that going in the future?

Are you talking about the real estate investment trust?

Yes.

Yes. We actually formed it. We’re ready to go. But the money is more expensive than the bank financing we’re getting right now. So we just sit and see the benefits to our shareholders, pay higher interest and higher rents longer-term and we just didn’t make economic sense when we were promised – our rates will run in 9% to 13%. We were promised, we would get rates in the 5% to 6% range. When that actually [Indiscernible] form, we started raising the money. We started getting the bank financing at 5 to 5.25 and REIT rates that were being quoted at that time started becoming 7%, 8%, 9%, 10% some of even 11%, 12% money relate – hold on a second, this doesn’t make any sense. And so, with the bank financing going so strong, it just – it didn’t make economic sense for our shareholders.

Fantastic, I like the answer. Thank you. Thank you.

Thank you. The next question is from [Indiscernible]. Please go ahead.

Hi. Good afternoon guys. I was wondering if you could breakdown what percentage of the Bombshell revenue was alcohol sales for the year.

We’re running approximately 50% [Indiscernible]. We run -- our goal is to say between 40% and 60%, some stores are close to 40%, some close stores are actually – our southeastern store can even run and certain ones that’s run as high as 65%. So, our goal is 50% and I think overall we’re right at that number.

Okay. Is there any reason to not expect that in the retail or the franchise locations?

No. I think that -- they follow our business plan, that’s where you’re going to come in at.

All right. Thanks and I’d like the buybacks. Appreciate that.

You bet. Thank you.

Thank you. The next question is from Nate Rusbosin of DePrince, Race & Zollo. Please go ahead.

Hey, guys, how you’re going?

Nate, how you’re doing?

Doing pretty well, thanks. You know, couple of different questions here. First, I just want to talk a little bit about the cost savings, whether your debt facility was $125 million revenues and 4% of revenues, its $0.09 earnings. You go through on the press release and talked about the legal cost, the new insurance coming down. What type of opportunities do you see there? You talk about the leverage, but I’m just curious, can we see 2%, 3% of that coming out?

Nate, if you look at the total there we’re right into 3% to 4% range. So, the truth that we say improved this year and I think we continue to – but obviously in 2016 that’s going to drop off, because of with the interest will continue, I think it will decrease a little bit not a lot, because I think we’re starting to kind of squeeze that out as much as we can, but we’re going to keep working on it. The legal, I think the legal is where you’re going to see a huge difference in legal. We just have so much legal expense. We had 40 some cases that were left over from the insurance company. We’ve gotten rid of a lot of those. We had the Patron Tax which was training us in very expensive legal fight. You had the [Indiscernible] standard act and multiple other off shoots of that as well. In Florida we had Case threes, since in the Court. In Texas, we had cases with the -- court to enforce our arbitration agreement, our non-class participation agreement which we’ve won in Minnesota. We won in Texas. We won in Florida, in the Carolinas. We don’t think we had a case still in Philadelphia, but I think we got the lawyers to agree there not even file the cases on arbitration. We’re in process on that. And we settled a lot of those early cases that were filed before all the changes and before the court’s caught up with all the changes we have made. And the lawyers have realize now that they’re not going to get a joined class action case and so we’ve gotten -- got more reasonable, we’ve got rid of most of that and that was a lot of cost in our last quarter, plus you have the cost of the week, you have the cost of franchising – the franchising work for Bombshells, all on this last year. And there’s a lot of legal in the last year that we’re going to see disappear going forward.

So what’s a normalized level that you’re thinking? You mentioned in the press release up from…?

Hey, its really tough because we haven’t had a normalized level in so many years. I really don’t know. I’m hoping we’ll get it under 2% beyond of where we are. I just don’t really know, I mean, we’re trying to go through and that’s one of the things I’ve got on my mind [ph] as we get through this October, November, December quarter. Unfortunately there is still a little bit of overhanging because the class actually finished December 5th and there still hearing for the judges, I think they got to do what not, closing it all out. And like those we still got a couple of little things that are in this quarter. I think by March we’ll be normalized, a 100% normalized, I’m hoping by March. We still had a couple of other cases out there that we kind of work through in this October, November, December quarter and probably looking at my mediation schedules we’ve got a couple of more coming up in the next quarter as well, but they are much smaller cases than what we’ve looked at in the past.

Okay. And then maybe if you’d back to the buyback little bit. I know [Indiscernible] well on page 2 you use $6.6 million this year?

Well, I mean, we were at $1.6 million through last Friday and I don’t see it’s slowing down in December. It must have slacked all of sudden. So it’s crazy and jumps up $4 a share or something we might slowdown, but I mean at this point I don’t see it slowing down in the buyback. Basically we’re generating $15 million in cash flow which if you figure $3 million, $3.5 million a quarter. We had some stuff this quarter we had to pay, we had to wait for them -- wait to get the money back from the lawsuit because we kind of really squeezed ourselves at the end of September as you see on the cash standpoint. We typically keep $8 million to $10 million cash on hand. We’re getting under that $8 million, right at that $8 million. So, we get to the bottom end of that. We kind of tighten up a little bit, but as of right now, we have $8 million or more, we’re transferring money to broker and buying back stock. We’ve been pretty steady on that. I don’t see that changing unless price of the stock jumps up $4, $5 a share and we’ll sit down and re-evaluate based on our capital allocation. The beauty is, we put into a mathematical formula. It’s no guess word. You want to know what I’m doing with the company’s cash, Just write there on paper. Do the math. Do what my return is. If risk free return is X, we’re going to be out there buying back stock. If the risk free return drops to a low enough number we can payback debt and we might payback debt or we can then go take risk adjusted returns on new operations or new acquisitions. We’re going to value those. I’m going to do the math on the return and say, okay, this return is 22.7% versus risk free return of 11.7. Okay, it’s more than double. Right now, we maybe go take some risk. That’s how we’re doing.

Yes. Well, I know we certainly like to see the aggressiveness so far. Keep it up. What I was going to ask is that we do start bumping up against that feeling, is that likely that they will extend that buyback?

Well, absolutely. Yes, the board is very committed to our allocation strategy at this time. If we were run out – we have some big win follow ups and we bought $6 million into the stock by end the March. You will see us putting new plan in place. Definitely we’d be asking for one and I don’t see why the board wouldn’t approve it.

Certainly. And then finally, I noticed something we talked about a lot, but you’re planning to get more institutional investors involved in the name. Just whether you can update on that and Wall Street coverage, I think that would obviously do a lot for your stock price in any stock on how that could be developed, how that could be extended upon maybe?

Sure. Coverage is very difficult and must be paid for it. We’re not raising capital and these small investment firms, if they can’t get transactional work out of you, how do they justify the coverage and the cost on the coverage, so that’s been real difficult for us. As far as expanding our institutional share [ph] we’re going to be out there and we were out. I mean, I’m staying in New York for a couple days. We got some meetings up here. The LD Micro Cap Conference was really good for us. We’re going to continue to look for those types of opportunities where we can pay a small fee and get in and talk to hundreds of investors and just really keep questioning to increase our institutional ownership. I think we’re up to 32%. So, we have increased it. Though you not see in the stock price, I do believe as we move forward and as the company continues to buy back stock and we increase an institutional ownership we’ll start to see more fair value for the stock. And I think that the story is just not getting out of them. This is a first K [ph] we are really starting to see, the difference in the balance sheet from the small fee settlement, for the patron tax settlement, and I think it’s a next quarter it comes out in February which is relatively soon and I definitely expect to see a nice jump in May in our stock price. In reality as -- even if we sit here and buy back a million shares of stock a year with the $15 million in cash flow and the stock grows from $10 to $12, we’re still getting 20% return to our existing shareholders and the guys stayed here with us. And then following year we get more. However, I do think if stock got to catch up. I mean, if you look at the chart showing 2013, how the stock went down while revenue and earnings continue to grow, we got to get some expansion of our multiple at some point. We’re just trading too cheap. I mean, we’re trading cheaper than we can go purchase assets for, which to me just doesn’t make a lot of sense. And I don’t see how the market can continue as we execute on this strategy and stay disciplined in our capital allocation we’re going to get some multiple expansions at some point.

Yes. And I think someone probably argued that there is most recoveries can help that, but I…?

And I agree with you and if you can come up with a way to help us.

I…

But I’m talking with people. We’re talking with different banks, I mean, basically we want to start writing checks for 150, 230,000 a year, we can get coverage, but its paid coverage and I don’t know that it helps us really.

Yes. Exactly.

So we need to get this. But now, as our stocks moves up and we start getting more fair value in our stock maybe there’ll be some banking transaction business out there for some of these banks and we’ll get some coverage. I think right now we just stick with our capital allocation strategy, which almost guarantees, I mean, we’re going to from – if we go from 10 million and 9 million shares outstanding, the stock should keep the same multiple. We have now the stock that moved to $12 price which is 20% return to our holders. And that we’ve got to do. We’ve got to see our long term shareholders seeing some appreciation in the stock price. We’ve talked with our shareholders, I mean, you know more than anybody when we sat here for years and years and traded $10 a share, its not good for anyone. Especially, we created this cash cow, it is just sitting here spitting out 15 million in cash here.

Exactly. Okay. I appreciate it.

Thanks for your time.

Thank you. The next question is from Steven Martin of Slater. Please go ahead.

Hi, there.

Steve, how are you?

Good, good. Could you talk about some of other expense lines, you are operating fewer units because you closed some of the non-performing units. So when I go down like cost of goods sold, salary and wages, advertising and marketing, what kind of trend should we see in food and beverage costs, salaries etcetera?

I think you’re going to see pretty flat for 2016 on most of those items, simply because while we close unit we’ve also bought two new units and the new units were larger units than some of the ones we’ve closed. While you’re going to see a slight reduction in some items, my salary and wages is obviously the salary and wages for two larger stores is not the same as six smaller stores. You still going to see a reduction in probably management and wage staff you don’t need as much wage staff for two locations as you do say. But we kind of have to – we’ve been so focused on selling everything and getting all this behind us that were now moving and really focusing on some of the other stuff. Your food costs you’ve seeing some climb because you had more Bombshells locations. And even the Bombshells there liquor cost are still higher than our Nightclub. Nightclub costs, because they don’t sell drinks, of course high as marked up as we do it at the Nightclubs. But overall, I think we’ll start seeing some of those costs decline from the closed units.

And what about advertising and marketing, is that something that is going to stay you know, gross stay the same or decline?

I think we’re going to see the marketing decline because we really are starting to get away from some of the radio ads, and radio spots that we ran in the past and we’re spending money on social media and marketing, which we hadn’t done in the past, but the new social media cost are not as high as the past radio cost. But that’s why you’re seeing some of the same store sales come down as well. Take a club that spend 8,000 on radio, just to breakeven on that radio, we’re going to have to do 16,000, 18,000 sales between the markup on the radio and the cost and the taxes and whatnot just to make that profit. So, when you take that 8,000 radio out and sales drop $12,000 at that location, we still make more money at the bottom line, even though we lost the sales from that radio. And that is really what we kind of focused on and we’re taking that and taking say 2500 of that 8,000, putting into social media and we’re getting 7,000 or 8,000 of those sales back and that’s what we’re starting to see right now. So when we had clubs decline, we’re getting little bit of that back through a lesser expense and probably making money on the 2500 invested in social media versus the money we were losing on the 8,000 invest in radio. It’s new for us, I mean it’s something we’re going through in this last quarter and we’re going to probably expand on more going into January, February and March. The restaurants have been very successful for the restaurants. I know a lot of people have talked about our social media presence on the restaurants and some of the – you got all the negative complaints out there, because everybody does negative at restaurants will always go out of their way to post 50 messages on it, but people have a great experience may or may not post at all unless they are engaged and so we basically are now working through our restaurants and through a third party vendor in engaging our satisfied customers as well on social media.

The other line item is the biggest, was one of the biggest expense line. Does that evolve settlements on that one? If you look at the other operating expense line can you talk about what’s in there and which is – it is such a big number for the quarter and for the year?

It is, but it has so many different things. Phil, do you have a grasp on exactly what’s in that other.

It just a direct operating expenses [Indiscernible].

We’re probably going to have a look at that again and maybe and break out a couple of the largers again. During our last SEC review they commented on the size of the other, and I think it’s crept up again because of so much stuff is going in there, we’re going to have to look at and maybe breaking out one or few of those items.

I’ll look at that.

I guess, I’ll get to see you at some point this week. We can talk about some of those.

Yes, yes, definitely, I’ll take a look at again and kind of go through it. I noticed it kind of crept up a little bit this year as well. And I’ve been talking with Phil about what it is, and the problems is just so many little things because of way it’s – that was just the way the system works.

Okay. All right. We’ll speak to you soon.

Thank you.

Thank you. I would now like to turn the conference back over to management for any additional comments.

Thank you, Eric. Everybody, please turn to slide 20. Here is our initial reporting calendar for fiscal 2015. So you know when we’d be issuing sales and earnings news release and holding our calls. And for anybody who joined us little late, I want to remind you that we have a Due Diligence event at Rick Cabaret New York from 6 to 8 o’clock tonight. That’s at 50 West 33rd street between Fifth and Broadway, and if you haven’t RSVPed, just ask for me at the door. Thank you everybody and good night. Thank you for joining us. And on behalf of Eric, the company and all our subsidiaries, best wishes for happy holiday season. And please celebrate by going to one of our clubs or restaurants. Thank you.

Thank you. Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. And thank you for your participation.