Greetings and welcome to RCI Hospitality Holdings’ Fiscal 2016 Fourth Quarter and Year End Conference Call and Webcast. [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 begin.

Thank you, Tim. Please, everybody, let’s start by turning to Slide 2. Thank you. I want to remind everybody of our Safe Harbor statement posted at the beginning of our conference call presentation. Mind 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 and we disclaim any obligation to update information disclosed in this call as a result of developments, which occur afterwards. Please turn to Slide 3. I also direct you to the explanation of non-GAAP measurements that we use and that are included in our presentation and news release. Finally, I would like to invite everyone in the New York City area to join us at Rick’s Cabaret New York, tonight at 6 o’clock to meet management at the Manhattan’s #1 Gentlemen’s Club and then to tour our new sister club, Rick’s Cabaret and Sports Bar next door. Rick’s Cabaret New York is at the 50 West 33rd Street, that’s between Fifth Avenue and Broadway, around the corner from the Empire State Building. If you haven’t RSVP-ed, ask for me at the door. Now, I am pleased to introduce Eric Langan, President and CEO of RCI Hospitality.

Thank you and thanks for joining us today. Good afternoon everyone. Please turn to Slide 4. After the market closed, we announced fourth quarter and year end results. On a GAAP basis for the quarter, we earned $0.04 per share. For the year, we earned $1.10 compared to $0.90 last year. Keep in mind, that these results include a number of fourth quarter net charges, most of which are related to the expansion of our capital allocation strategy as we had announced in October. Adjusting our results for these and other items, on a non-GAAP basis, we experienced a strong fourth quarter performance. EPS came in at $0.31 per share, approximately 47% higher than the $0.21 we did last year. For the year, we earned $1.32 per share compared to $1.35 last year. This reflects lower comparisons in the first half of fiscal year 2016 and a rebound in the second half. Even more important, we exceeded our free cash flow target for the year, generating $3.8 million in the fourth quarter and $20.5 million for the year. As a result, of the first full year implementation of our capital allocation strategy, we ended fiscal 2016 in great shape. We are on track for improved revenues, margins and profits in fiscal 2017, as well as baseline free cash flow run rate of $18 million. In addition, we continue to apply our capital allocation strategy as evidenced by ongoing share buybacks in the first quarter of fiscal 2017. If you please turn to Slide 5. Our focus at RCI is growing free cash flow per share, thus, our capitalization is critical. For those of you new to RCI, I would like to take a minute to review the capital allocation strategy we put in place a year ago. We have updated…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Frank Camma with Sidoti & Company. Please proceed with your question.

Good afternoon guys and congratulations on what you achieved so far.

Thank you.

A couple of questions here, let’s start with of course the Bombshells, you said three, obviously you slated for the second half of fiscal ‘17, I know a couple of those are well underway, could you just get a little more granular to the timing, opening of those if you can?

Sure, currently we are hoping for April, June and August. But it’s really the – we started construction on the one that’s supposed to open in April. So provided weather doesn’t cause us too much delay, April should be a very reasonable assumption. With June, the June opening, we go to the city with the initial set of plans, hopefully by the December 19. So then it’s just a matter of how quickly they review it. We answer their questions, get it back and get the final permits approved and then once the permit is approved, securing the bank financing for the construction. All that should come within our timeframe for June. And then the third location, which will open on the east side of Houston, is in the preliminary drawing plans right now. We are prototyping the Pearland location. The June location is going to be our prototype store. So we are using a very similar deal, but because of the different city, there some minor adjustments to the plans that are in the process of being made and hopefully in January, we will submit those plans to the City of Houston for review and get that on track.

Great. And hopefully, you spoke about Shannon, obviously just getting up to speed here, but you have got all the licensing in place that you can do franchising in all 50 states, is that correct?

Yes, we are licensed in all 50 states.

Okay. So it’s sort of a matter of timing and obviously it takes time to sign agreements and everything, would – is there a frame of – you have and I am sure you have in your head sort of how long it takes from when you start soliciting or that might now be the right term, but when you start talking to potential franchisers and when you actually open the restaurant?

Well, we have got several meetings setup in January. We have actually met with an operator in December already. Because of the holidays, we have kind of had to push a few, everybody’s schedules has been in place, so we have kind of moved everything to January. You know it really varies. Once we start negotiations, I would estimate two months to three months time period and then time for the lawyers to get everything front up. So I am hoping maybe in the next quarter or the following quarter, we might be able to come up with our first agreement, so sometime in the next 3 to 6 months.

Great. And can you talk a little bit about the go forward tax rate since obviously you had some charges here, but going forward, should we expect you to be a full taxpayer and therefore potentially benefit from any reduction in U.S federal reduction in taxes?

Yes, so we go back to the 35% or 36% this year. Is that your estimate?

Yes.

I think the answer is that will go – we will have some cash credits that we didn’t use to have, but we are going to have some New York City taxes that we didn’t used to have. So we will probably offset each other and we will still be at 34%, 35%.

Okay, great. And one more and then I will hop off. It’s probably the occupancy costs obviously you made a lot of improvements there. What can then get to over time as you scale up? Are you kind of...

Well, we pay off all of our debt it would be about 3%. I mean, I think we are going to see it...

Sort of modified.

Lot of room, I don’t think at this point, for reduction we do have the $9.9 million or 12% that’s now amortizing, so that will start going down a little quicker. As we pay off some of this higher interest debt, you are going to see our overall weighted rate come down, which will bring down the occupancy cost.

Okay, great. Thanks guys.

Our next question comes from the line of Mike Mork of Mork Capital Management. Please proceed with your question.

Hi. Yes, I got two questions. One, hoped into the Hoops and Foxy’s Cabaret, your stocks at $15, that would mean that you have to get a 25% return on that and how accurate have you been, say, when you open a unit and what the return is?

Well, Foxy’s was a unit that we have purchased that we had not met the returns on that we converted and now we are doing very well with it. Hoops is really still too new. We opened, I think the last day of September. So, it really only got October and November’s numbers here. Next quarter, I can probably give you an idea in the first quarter. I know that our gross revenues are ahead of what we thought they would be, but I don’t know where our costs are at the same time, still waiting as we move through this quarter. We get November numbers. I have a little better idea, but we have pre-opening costs in October and then we did a big promotion for the first UFC deal here too. So, I am going to see how that equated, what our return was on the investment we made on that as well. Like I say, I do know the gross revenues at Hoops are above what we anticipated, though.

Okay, that sounds good. And then the unemployment rate overall in the country is low. In the past when the oil prices collapsed, some of your Joe Sixpack guys got hurt there working on the oil rigs and whatnot. Has that stabilized now with the oil price coming back up and are they coming back in the units?

We are seeing Odessa and Longview. We were sort of basically the only two markets that were really affected by oil. We are seeing a little rebound in there. We are seeing some – compared to last year, we kind of bottomed out and now we are seeing a slow increase in the revenues in those markets, but I think we are still a far cry from where we are. I think, from what I hear from the people out there, a $60 to $70 oil price will put those markets back in full swing now. So that’s kind of what we are watching for to see what happens with this OPEC cut and whatnot. We will see where oil prices head here. So we see oil prices up and I think those two markets come back, but you’ve got to remember, those are very small portions of our revenues. I think they were 3.8% or something of revenues at their peak, so they are even less than that now.

Okay, sounds good. Thank you.

[Operator Instructions] Our next question comes from the line of Jeffrey Benton of Fairfield Advisors. Please proceed with your question.

Hey, congratulations on another great quarter.

Thank you.

My question is political Republicans from the top-down to local election seemed to have done really well. That’s a double-edged sword, isn’t it? They are probably going to be a lot friendlier to business, but perhaps a little more prudish. I mean, how do you see this all playing out? Is it you said….

I think the nice thing is – I mean, yes, there are some Supreme Court issues, but there is not really a lot of cases in front of the Supreme Court right now affecting like zoning and operations. So I am not too overly worried there. What we are more worried about and where we are very excited about is the secretary of labor, definitely a good benefit for restaurants. And some of the other appointees, I think are very strong, very positive for us. And of course, as a 35% taxpayer, as we were just discussing, if I get a 15% or 20% rate, I am going to be a lot happier with that. I think that the pros are going to outweigh the cons. The medical – I mean, the Obamacare costs were significant when we had to initiate that. And for all of our executive employees that we provide full insurance coverages for are, costs are skyrocketing. So it will be interesting to see how all that plays out. But I think overall the election is turning out to be very, very positive for us so far. We will have to see. The first 100 days are going to be very important for the whole country.

That’s great. Thank you. And just one other question is have you seen any penalty at Rick’s from having Hoops right next door. Do you sense any...

No, we have seen benefits. I am sorry, go ahead.

You are not seeing the customer might have been at Rick’s at Hoops instead?

No, what we are seeing is – Hoops is – we have been doing some promotions, like we had Nick Diaz at Hoops for UFC. The place was so packed that Rick’s got overflow from Hoops, same thing with some of the other weekend nights. Hoops, is not a very large play, so when there is big games and stuff, if they get too busy, Rick’s is actually getting the benefit from it, so far so good.

Great. And congratulations, I will let somebody else get on.

Our next question comes from the line of Bill Brown, a Private Investor. Please proceed with your question.

Yes, great quarter. I just wanted to get a little more color, if you will, in terms of the tax rate just to get a sense of the difference between if you know what is – next year they dropped it to 20% or 25%, approximately what would that translate into in terms of cash?

Phil, you got that handy?

No, but I mean, you can probably say pre-tax income and take that 10% difference and assume that’s going to turn into cash.

Yes, okay, okay. And that’s how much? What is the pre-tax income for the year for ‘16?

This year it’s around $14 million.

Okay, okay, great. So it could be $1.5 million or so plus next year. Okay, great. Thank you.

Our next question comes from the line of Evan Tindell of Bireme Capital. Please proceed with your question.

Hi, how is it going, guys?

Good. How are you?

I am good. So in Q4, Bombshells had I think it was an extra $500,000 or $600,000 of revenue, but operating income, adjusted operating income was flatter. I think it was down a tiny bit, down $100,000. Do you guys expect Bombshells – as it continues to grow, you guys have seen a lot of operating leverage in the past. I know it’s just one quarter, but do you guys expect to have more operating leverage there?

Yes, Webster was a big hit in that quarter, because of the – we knew we are closing it. We – once it was rumored, the sales got even worse. We tried to reduce ours first to try to make it work, but that didn’t help either. And so we finally just closed the location. I think you will see in this quarter, the October, November, December quarter, you are going to see a much better run-rate of the Bombshells. The Webster location was a drag from day 1. We didn’t make money there. So, we probably should have closed that location much sooner. We tried to be location now that it was our destination location that for restaurants, that just doesn’t work.

Okay. And for your capital expenditure plan, so you guys – obviously, your maintenance CapEx is only a small fraction of the overall capital that you guys have spent the last few years. I think last year, you guys acquired $22 million of real estate, I know that was a lot. A lot of that was just one or twp clubs.

Right.

But my question is going forward, do you guys see yourself making that kind of big acquisition of real estate, where you chunk off $10 million or – $8 million or $10 million or…?

It depends on if we do an acquisition of clubs, yes. Whenever as we do a multi-club acquisition, where we buy six or seven locations from another operator and we combine that underlying real estate, we will buy that underlying real estate as well. So you will see that. But as far as from of our own locations, I mean we do lease two of our locations in New York City still. They are very long-term leases, but if for the right price – excuse me, we would buy either of those locations. You may see a difference, but overall I think we would be like Tootsie’s transactions and the New York transaction. You will see that through those our overall costs will actually decline. And because of our access to bank financing, we can actually – 5% money, we can actually get the – can typically buy it and basically own it cheaper than we can rent it right now.

Okay. And then with $5.4 million, I think the 10-K said of general corporate CapEx, was that all related to the headquarters move or was there anything else in there?

I believe that was all of the corporate office is that correct Phil?

Yes.

Yes. I don’t think we did anything else this year. We didn’t buy anything else this year other than our own stock.

Okay, great, alright. That’s all I got. Thanks guys.

Thank you.

We have no further questions over the audio portion of the conference. I would now like to turn the conference back over to management for closing remarks.

Thank you, Eric. Thank you, Tim. Please everybody, turn to Slide 17. Here is our reporting calendar for the balance of this year. Again tonight, you can meet the management at Rick’s Cabaret in New York from 6 o’clock to 8 o’clock. If you haven’t RSVP-ed, ask for me at the door. Also, we will be giving tours of our Hoops that we talked about on the call. We currently planned to announce first quarter club and restaurant sales on January 10 and first quarter results on February 9. On behalf of Eric the company and our subsidiaries, thank you and good night. We would also like to say a special thanks for our growing number of retail and institutional investors. And as always, celebrate the holidays by visiting one of our clubs or restaurants. Thank you.