RCI Hospitality Holdings, Inc. (RICK) Q4 2022 Earnings Report, Transcript and Summary

Good afternoon to the earnings call that you all have been waiting for. We're going to go ahead and kick this earnings call off very shortly. So, just stay tuned while we get everyone necessary into the Space and we will begin momentarily. While we wait, I want to give a little bit of a shout out to Dean there from RCI. We have Josh Brooks as well. We also have in the audience Gary over there, official money raccoon that is always an individual who asked great questions. We're going to kick this off in about 30 seconds once we've had a few more people join. While we're sitting here waiting would love if everyone could retweet this Space so that we can get as many people in here as possible coming off of the big economic data that came out. We got a lot of Spaces going and this is going to be the most important one that there is. We have Adam Wyden out there just joined, David [Indiscernible]. Let's go ahead and kick this off. Greetings, and welcome to RCI Hospitality Holdings Fourth Quarter and Fiscal 2022 Earnings Call. You can find RCI's presentation on the company's website, click Company and Investor Information under the RCI logo, that will take you to the company and investor information page, scroll down, and you'll find all the necessary links. Additionally, it will be available in the tweet that will be pinned to the top of this Space. Please turn with me to slide two of our presentation. I'm Mark Moran, CEO of Equity Animal, I'll be the host of our call today. I'm here with Eric Langan, President and CEO of RCI Hospitality as well as Bradley Chhay, CFO of the company. Please turn with me to slide three. If you aren't doing so already, it's easy to participate in the call on Twitter Spaces. On Twitter, go to @RicksCEO handle and select the space titled $RICK FY22 Earnings Call. To ask a question, you'll need to join the Twitter Space with a mobile device. To listen-only, you can join the Twitter Space on a personal computer. RCI is also making this call available for listen-only through traditional landline and webcasting. At this time, all participants are in a listen-only mode. A question-and-answer session will follow. This conference is being recorded. Now, please turn with me to slide four. I want to remind everyone our Safe Harbor statement. It reminds you that you may hear or see forward-looking statements that involve risks and uncertainties. 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 that occur afterwards. Now, please turn with me to slide five. I direct you to the explanation of non-GAAP measurements that we use. I'd also like to invite everyone listening in the Tristate Greater New York City area to join Eric, Bradley, and me tonight, 7 o'clock to meet management at Rick's Cabaret, New York, one of RCI's top revenue-generating clubs. Rick's is located at 50 West 33rd Street between Fifth Ave and Broadway, a little in from Herald Square. If you have an RSVP, ask for Eric, me or bullish intern at the door. Now I'm pleased to introduce Eric Langan, President and CEO of RCI Hospitality. Eric, take it away.

All right. Thank you, Mark. Thanks for joining us today. Please turn to page six on the slides for today's news. We had a great fiscal -- actually we got a great fiscal 2022 and look forward to a strong fiscal 2023. A big thanks goes out to our team members for making this possible. We couldn't have done it without you. Year-over-year for the fourth quarter and fiscal 2022, our key metrics continue to increase on a double-digit percentage basis. This resulted in strong growth of free cash flow, adjusted EBITDA. This is helping drive future growth. We are a much larger company now, so we have been working on much larger agenda of growth initiatives. In fiscal 2023, our Nightclub business should see a benefit -- full year benefit of the 15 clubs acquired and the two re-openings for fiscal 2022. The addition of this year's Heartbreaker acquisition, the pending acquisition of Baby Dolls and Chicas Locas chains and other possible acquisitions under consideration. We'll also be developing our exciting new Rick's’ Cabaret Steakhouse and Casino in Colorado. As for Bombshells, we have six company-owned or franchise locations in development. This should start coming -- that these should are coming online over the course of fiscal 2024. I'll be back to tell you more and answer questions later. And for now, here's Bradley to review the financials.

Thanks Eric and good afternoon everybody. There's a lot of numbers on this slide, so I'm going to focus on a few big ones. Total revenues were $71.4 million for the quarter, up 29.9%. For the year, revenues were $267.6 million, up 37.1%. Free cash flow was $14.5 million for the quarter, up 71.6%. For the year, free cash flow was $58.9 million, up 63.3%. Adjusted EBITDA was $24.2 million for the quarter, up 37.8%. For the year, it was $86.7 million, up 44%. Non-GAAP EPS for the quarter was $1.45. That's down 8.2% year-over-year, primarily due to the fact that our effective tax rate was 23.4% this year versus 11.7% last year and also because we had 2.8% more weighted average shares outstanding due to the Lowrie acquisition. For the year, non-GAAP EPS was $5.38, up nearly 32%. Please turn to page seven. With our fiscal 2022 performance, we continued our strong track record since implementing our capital allocation strategy to the benefit of our long-term shareholders. We thank you again. We initiated the strategy at the end of our fiscal 2015. Free cash flow has grown at a CAGR rate of 22%, while we reduced weighted average shares outstanding 1.5% on a compound annual basis. Our free cash flow conversion rate increased from 11% to 22% of revenues since 2015. We also survived our toughest challenge -- COVID in fiscal years 2020 and 2021. Please turn to page eight to review our fourth quarter in more detail. The Nightclub segment had another excellent quarter. Revenues totaled $56.6 million. This was our second sequential quarter, not affected by COVID. Operating margin was 39.7%, 41.6% non-GAAP. Operating income was $22.5 million GAAP and $23.6 million non-GAAP. Our new acquisitions added $14.9 million in sales. Same-store sales were up, reflecting strong growth in New York, Illinois, and Florida and high-margin service revenues increased 53.6%. Please turn to page nine. The Bombshells segment also held its own during the fourth quarter. Revenues totaled $14 million. Operating margin was 15.5%. Operating income was $2.2 million. Same-store sales were down for the quarter, but total sales improved sequentially through the period and were up 7.4% year-over-year in September. Bombshells Arlington, which opened in December of 2021, added $1.4 million in sales. The San Antonio franchise added more than $100,000 in royalties since its opening in June 27th. It also incurred $300,000 in start-up expenses as part of our franchising agreements. Now, excluding those expenses, operating margin would have been about 18%, which is in line with our target range and operating profit would have been about $2.5 million. Please turn to page 10 to review our consolidated statement of operations. All comps are as a percentage of revenues as compared to a year ago fourth quarter, unless otherwise noted. Cost of goods sold declined to12.9%. This reflected the increased mix of higher-margin service revenues of 36.5%. Our salaries and wages were approximately level at 25.3%. Now, SG&A was 31.3%. This reflected newly acquired and reopened locations and around $2.4 million of non-cash stock-based compensation. This relates to previously announced $100 per share options granted to a limited number of top executives and management team members. Excluding those stock-based compensation, SG&A would have been approximately 28%, about the same as a year ago quarter. Depreciation and amortization were 6.7%, reflecting non-cash amortization of intangible assets on newly acquired lease locations. Other charges reflected a $1.7 million gain on the sale of businesses and assets in the Nightclub segment compared to $11.9 million impairment in the segment last year. Operating margin was 25.2%, 30% non-GAAP. Interest expense was 4.8% versus 5.3%. This was a function of higher sales in the fourth quarter, partially offset by higher debt from Club and Bombshells site acquisitions over the course of the fiscal year. Please turn to page 11. We ended the year with cash and cash equivalents of $36 million, a little higher than a year ago. Free cash flow was 20% of revenues for the fourth quarter and 22% of revenues for the year. Adjusted EBITDA was 34% of revenues for the quarter and 32% for the year. Both of these metrics exceed our target performance of 20% of revenues for free cash flow and 30% for adjusted EBITDA. Now, if you will, please turn to page 12 to review our debt and related metrics. Net of loan cost, debt was approximately $202.5 million at year-end. That's an increase of $14.5 million from June 30th. The increase primarily reflected seller financing used in the July 2022 Cheetah's acquisition. Our weighted average interest rate for the fourth quarter was 6.35%. This compares to 5.64% a year ago, and 6.73% five years ago. Our amortization continues in the $9 million to $10 million annual range, which is very manageable with our cash flow. Now, to pay off our balloons, our periodic refinancing enables us to convert higher rate seller financing and other unsecured financing into lower rate commercial real estate bank debt. We continue to have multiple unencumbered properties in our portfolio that we can borrow again, if need be. And occupancy costs were 7.3% of revenues. This continued to be well within our 6% to 9% range we've averaged when sales weren't dramatically affected by COVID. Please turn to page 13 and to look at our September 30th debt pie chart. Our debt now consists of 59.8% secured by real estate, 26.7% secured by seller finance debt secured by the respective clubs, and/or real-estate to which it applies to. 5.1% of our debt is secured by other assets and 8.4% is unsecured debt. Please turn to page 14. We continue to talk to new investors, so I'd like to take time to review our capital allocation strategy. Our goal is to drive shareholder value by increasing free cash flow per share 10% or 15% on a compound annual basis. Our strategy is similar to those outlined in the book, The Outsiders by William Thorndike. We have been applying these strategies since fiscal 2016 with three different actions subject to whether there is other strategic rationale to do otherwise. One is M&A, specifically buying the right clubs in the right markets. We like to buy solid cash flowing night clubs at three to five times adjusted EBITDA, use seller financing and acquired the real estate at market value. In fiscal year 2022, we deployed $141.8 million in capital to acquire 15 clubs in new and existing markets. Another strategy is grown organically, specifically expanding Bombshells to develop critical mass, market awareness, and sell franchises. In fiscal 2022, we deployed $10 million in capital to open up our 11th location and buy property at five more locations. We also signed a second franchisee. Our goal in both M&A and organic growth is to generate cash-on-cash annual returns of at least 25% to 33%. Now, the third action is buying back shares when the yield on our free cash flow per share is more than 10%. In fiscal year 2022, we deployed $15.1 million in cash to buy back 268,185 shares. Now, let me turn the call over back to Eric to review our growth plan.

Thank you, Bradley. Yesterday, we announced the signing of definitive agreements to acquire two Baby Doll and three Chicas Locas, adult night clubs and their real estate in the Dallas Fort Worth and Houston markets. Closing is expected in January. This will be our second largest acquisition after 11 clubs we bought in October of 2021. The price of $66.5 million, consisting of $25 million in cash, $25.5 million in 10-year 7% seller financing, and 200,000 restricted shares of common stock valued upon closing at $80 per share. We expect to generate $11 million of EBITDA in the first year before locations are open with the fifth being remodeled, and RCI anticipates expanding operations of two of the locations. Once modeling expansions are complete, EBITDA is expected to grow to $14 million to $16 million annually. This is a group of well-established, well-run classic Texas Gentleman's clubs that are proven cash generators. We look forward to bringing them as part of our family and our portfolio and welcome their management teams to the RCI family. They are some of the best in the industry and will enable us to continue to grow at an increased rate from 2023 and beyond. Please turn to 16. During fiscal 2023, we'll be working on the Rick's Cabaret Steakhouse Casino. This is a great opportunity and a great market. We bought a four-story 30,000 square foot building in downtown Central City for $2.4 million in available cash. Central City is one of the only three Colorado towns with legalized gambling. Last year, $1 billion was wagered in slot machines in Central City, generating more than $80 million in adjusted gross proceeds. We see this Rick's as a club with a casino component. Our plan is to feature Classic Rick's Cabaret entertainment, fine dining as well as casino and sports betting. We've applied for a license to operate 175 slot machines and seven tables. We already have approved gaming license for machines in clubs in Illinois and Louisiana. Please turn to 17. Fiscal 2023 will also benefit from the 15 club acquisitions and three clubs and club-related restaurant openings we made last year and the first quarter acquisition of Heartbreakers. We are also reformatting a club in San Antonio that should be opening December 28th, and we are continuing to look at other potential acquisitions. Please turn to 18. We received a building permit for our Stafford location and construction has started. Stafford is in the Greater Houston market. We own land for three other locations in Texas, one in Rowlett, Texas; Lubbock, Texas; and Austin. We're in the process of getting building permits and expect to start construction soon. Bombshells is also coming to Colorado. We have purchased land in Aurora, Colorado, which is in the Greater Denver market. We will begin the permitting process in January. We are also targeting three more locations in the Denver after the first of the year. We want to continue to expand the brand in that market. Nearly a quarter of diverse population of millennials making it one of the best cities for this demographic in the country and it's also become another tech hub with a new nickname of Silicon Mountain. We expect our franchise in Huntsville, Alabama to receive their building permits very soon. All of these locations will be ready to open starting nine to 12 months from now. Please turn to slide 19. In the fourth quarter of 2022, our regional revenue breakdown was Texas 38%, including Bombshells, Florida 25%, New York 8%, and Illinois and Colorado, each at 7% each with the other eight states combined for 14%. This demonstrates our geographic diversification, our exposure to growth state by Texas, Florida, and Colorado, and how we develop business clusters in key areas. For example, with our five clubs in Denver, our Bombshells Aurora and our Rick's Cabaret Steakhouse Casino in Central City, the Greater Denver area will become a major and new cluster for the company. Thanks and now here's Mark.

Thank you very much, Eric and Bradley. I'd like to take a moment to encourage everyone to retweet this Space before we get into our most anticipated section, the Q&A section. [Operator Instructions] To start things off, we'd like to take questions from Rick's analysts, and then we're going to move into some of our larger shareholders and hopefully be able to answer all questions from everyone in the audience. We have Scott from H.C. Wainwright, Lynne from Water Tower Research, Rob of Granite Research, and Anthony of Sidoti. First off, let's bring Scott up to the mic.

Hi, good afternoon guys. Thank you for taking my question. Eric, first, can you remind us where your comfort level is around leverage. I'm trying to judge what the capacity is for additional transactions in calendar 2023 beyond yesterday's announcement.

Yes. Typically, [Technical Difficulty] is my comfort zone. Some analysis shows that because of so much of our real estate is owned, we could actually push closer to four times, but historically kept us around three. I think the highest we've ever been is about 3.14 times EBITDA. So, we're right now, I would guess, in the two and 2.25 range. So, we still be in pretty good shape at this point.

Great, that's helpful. And then what's the time line on Rick's Steakhouse Casino opening. And what's the scope of kind of renovation required there and then there's a timeline on regulatory approval?

Yes, sure. So, the total investment will include probably around $1.5 million to $2 million worth of remodeling and updating like security systems and stuff like that. An additional about $5 million for the actual slot machines. We'll probably own the majority of our machines instead of doing profit sharing or leases as well as the table games. And then I figure it may be another $1 million or so. So, about $10 million total overall type investment is what I think we'll be at some point. The licensing process in Colorado can take between nine and 18 months typically. Right now, we believe they 'rerunning about 12 months. So, we're hoping to be open by this time next year. And we'll start doing some of that build-out and remodeling as soon as the state -- the first step is the background check. Those are supposed to take about 90 days. So, we turned our license in on November 28th. I'm guessing with holidays; we may lose a week or two. So, hopefully, sometime in April, especially if the weather starts warming back up out there because it gets very cold at -- in the mountain area out there at about 8,900 feet of altitude. So, most of our construction and set up, I think, will start in April, May, June quarter and then hopefully finish everything out to get it all pre-set-up by the end of September once we can get a temporary license allows us to buy the game, put it in set everything up, get the inspections done. And then all we wait for is the final license to be approved to basically flip on the switch and be open.

Fantastic. Next up we're going to be bringing the star of the 2022 Gentleman Club Owners Expo. Rob McGuire of Granite Research. Rob, you're up.

Thank you, Mark. Eric, can you just look at Central City in terms of -- do you have goals in terms of revenue and EBITDA, how long that might take to ramp from day one after you open the facility?

Yes, I mean I think we're going to open -- I think it's going to be more like a typical Bombshell-like opening where we do very, very well in the first three to six months. And then we'll kind of settle into a little group type deal settled down a little bit as we're not the new kid on the block anymore, and then we'll re-ramp back up. That's all. I see it happening. To give you an idea, the average machine -- slot machine in Central City is doing about approximately $150 in revenue. So, they have 1,700 machines that took in a little over $1 billion. If you take that and say we're 10%of that, I think we could come up with -- say we do $100 million in -- I'm sorry, about 175 machines, yes. So, basically 10% of $1 billion will be about $100 million in total wagers. And you take 8% of that, which put about $8 million in slot revenue. Add in the table game revenue and then, of course, the nightclub and bar and the Steakhouse. I mean I think we could start out somewhere in the range of $10 million to $14 million in revenue to start. Hopefully, the margins are typically 30% to 40%. And the reality is if we can do some of the casinos in Black Hawk, which is basically the town right next door, they're really kind of connected and one is like the old downtown, one's like the new area. The casino -- some of the casinos over there reporting as high as $400 per machine daily and wagers. So, I figure somewhere in between this. So, we can do anywhere from $12 million to $14 million to maybe as high as $35 million to $45 million in total revenue. You just don't have enough -- it's too new. We have to get in there and see how it goes. See if we can keep the people in there during the late hours. Right now, there's almost no entertainment in that market. So, we're going to be like some of the first entertainment in that market, which I think is going to be a fantastic advantage for us. We've got a great location. Right as you come up the casino parkway, you're coming down the hill, you're looking right at our building. It's just an unbelievable location. So, I think that the -- those kind of the ranges and we just won't know until we get in there and get going. Very little risk with a total investment of about $10 million. If we only do $10 million and we do 30% margin, we're still looking at $3 million in EBITDA a year, which puts us well within our hurdle range. So, -- and it could really exceed all of our expectations as well.

Thank you. I've got one more question, and then I'll circle back in the queue with more. But what do you think the extent of entertainment will be in Central City?

Well, we're going to start out -- the adult entertainment license not passed by City Council yet. We did get it through the planning commission or the zoning commission, whatever they call it, was approved through them on a 4:1 vote. It has not gone through City Council. So, I don't know if we'll have top with entertainment there or not. But if not, we'll do more like circa in Las Vegas, where the entertainers will dance in bikini or latex where -- stuff like that. The main thing I think is just having entertainment period in a city that basically has almost no entertainment, it's hard to find a place to eat after 11 o'clock at night out there. On the weekends, maybe you can keep some of the snack bars open until 1 o'clock. The weekends, Thursday, Friday, Saturday, Sunday, are very, very busy out there. Sunday, Monday, Tuesday are much slower in that market, you get hotel rooms very, very cheap during the week, and they get very expensive on the weekends. So, I think it will be more weekend-driven business, especially in the beginning. But I think over time, as we become known, we'll get more business. We'll also cater to the other casino employees when they get off work, they have to wait for buses and stuff to get home. So, maybe we can get them to come over for a little while and hang out and eat and drink in our place is we're going to see -- we're going to stay open late, probably 24 hours a day with everything. So, that's our current plan.

Thanks so much, Rob. And before I bring up Anthony of Sidoti & Co., I'd like to encourage Lynn of Water Tower Research to accept the request to come up as a speaker to be able to ask any questions that you may have. Next up, Anthony, please take it away.

Yes, good afternoon and thank you for taking the question. So, Eric, I would love to get your take as to what you're seeing thus far in this current quarter, given that you're only a couple of weeks away from closing the first quarter. Can you just give us an update as to what you're seeing in terms of traffic or same-store sales, both for the clubs and Bombshells?

Yes, I mean it's definitely a tough market right now. What we're seeing is a kind of a small drop off of what I would call the blue collar customer, basically our lower-margin customers but most of that is being made up by our high-margin customers and VIP spend at this time. So, the numbers have been very steady as far as revenue-wise with the previous quarter. I was kind of hoping we'd get an increase. We'll kind of see how the next couple of weeks so we've got a lot of Christmas parties that happen between now and the 24th or 23rd really. So, we'll see how those Christmas parties go, how much business they bring in and what that looks like. But so far, I think we're going to be pretty close on revenue-wise with analyst expectations. And I think that because of the higher in spend, hopefully, our margins will stay steady as well.

Okay. Yes. Thanks for that. And then in terms of Bombshells' operating margins, even excluding some of those non-recurring items. I mean, they were in the mid-teens, I would say. I think in the past; you've talked about the operating margins for Bombshells. You wanted them to be in the 20% range. So, how should we think about segment profitability going forward for Bombshells?

Yes, sure. I mean, I've always said 18% to 22% was our target. And I think that's what they'll basically come in it when -- as they mature, we'll be in that 18% to 22%. We're kind of on the bottom end, but that is our worst quarter, that quarter. Fourth quarter is always our weakest quarter if you look historically. And so we'll see how they look in this October, November, December quarter. We have been talking, we are working on some changes, doing some more drink specials, some higher-margin appetizer specials where we can discount stuff without hitting the margins or profitability as much. And so that is starting -- we're starting to do some of that in some of our blue collar clubs around the country as well, where we're going to start driving more traffic. The one thing about Bombshells is we really don't spend any money on marketing. It's basically social media marketing, stuff like that. So, we are looking at some possible marketing partnerships and some other things with Bombshells that would help drive traffic as well. And I think I say we're going into a little bit of a different economy that we've had in the past. And so we're going to have to be creative and do the things we do. And -- but I think even the worst case, we're going to stay in this 18% to 22% range. It's nice when we can have some big months and big events that drive that up into the 20%, 24%, 25%, 26%. But I do think overall that the average is going to be in the 18% to 22% range.

All right. That's very helpful color. And then I guess my last question before I jump back in the queue. So, you will be spending certain money on the Central City and some other initiatives. Can you give us a sense as to how much you look at the spend for CapEx and if you have a maintenance CapEx number for fiscal 2023, that would be very helpful?

I don't really have a CapEx number. I know that we want to invest $200 million a year for the next three years. So, our goal will be to try to get close to the $200 million. I think last year was $141-something million, I think we got invested. CapEx is around $6 million -- $5 million, $6 million a year, I think. Maintenance CapEx, I'm sorry, maintenance CapEx, yes. I don't think that's going to change a whole lot for this year over last year. Should be the same.

Got it. Thanks and best of luck.

All right. Thank you.

Thanks so much for the question. Next up, we are going to bring Lynne from Water Tower Research. Lynne, please take it away.

Thank you. I just have a question about casino opportunities in Colorado. Are there any additional opportunities?

I mean there's other stuff we've looked at. Obviously, we're not a casino company. So, we would have to have some type of entertainment, restaurant-type component that would be the driving force for the business and the gaming would be just something to create extra revenue of up. We want to have a business as a standalone that has gaming added to it versus just a straight-out casino. But yes, we're definitely looking at other things out there. I think that what people don't realize, I think, in Colorado is the -- they used to have $5 limits, those limits were removed in September of 2021. And because of COVID, I think that some of your casino operators have just been behind the ball on that. I know Tilman Fertitta of Golden Nugget just recently bought a casino in Cripple Creek which is one of the other three towns out there that have some great opportunities for about $43 million for the casino he just purchased out there. And I'm sure based on the license applications, there's several other applications, mainly smaller casinos in Central City or applications are being applied for. So, I think it's coming. I think we're just -- we got kind of got lucky and got ahead of the curve with the changes and just happen to be out there because of the acquisition we did, the five clubs in Denver really gave us the opportunity to get out there early and get ahead of things. So, we're looking at other opportunities out there to bring more entertainment to that market and hopefully make Central City, the entertainment capital along with gaming and then with the main gaming casinos where the big boys are out over in Black Hawk, let them bring the people out and then we'll entertain them and send them back to Black Hawk. That's kind of the thought process right now.

That sounds great. I have just one more question about Bombshells in Colorado. Will you have to change the prototype less patio. Is there -- are there any adjustments to be made for Bombshells when you go into a colder weather market?

Absolutely. What we'll do with the patio, we'll still have the patio but it will be more covered. Right now, we only cover about 60%. We'll cover 100% of the patio. And we'll put in basically their glass folding walls. I don't know if you've kind of seeing some of the -- excuse me, the big stadiums like in Minnesota, where they have the walls, the whole wall just holds up and you got 40-foot of wall that basically folds up into about a two and a half-foot column. We'll be using stuff like that type of design of glass work in that. It raises the cost about $300,000, but still well within the ROI that we need to build the location.

I just have one more question. Can you talk about the demographic draw of the two new night clubs that you just bought?

The two brands? Is that--

Yes. The demographic -- Baby Dolls and Chicas Locas?

Sure. Obviously, Chicas Locas is a very Hispanic-based. It's crazy girls, it's the translation. And so it's very Hispanic-based. Those three clubs are in really nice markets for that. And then the Baby Dolls is very traditional. It's hard to explain without actually seeing it. So, it's a very -- I call it -- if anything would be a middle class strip club. That's how -- that's kind of Gentlemen's Club, very Texas based. So, there's country music, there's a lot of more classical rock 90s, 80s, 90s, early 2000s music played there. And it's very -- I think the Baby Dolls and Dallas is a very large building, super high ceilings and just a great fun atmosphere. The easiest way to explain it.

Thank you, Eric. I think I'm good. Thank you.

Fantastic. Thank you so much, Lynne. And Eric, as you were saying, I'm a big fan of Baby Dolls, so I was very happy to see that acquisition. Now, I want to take a moment to do two things. First off, I would like to encourage everyone to retweet this Space for us to be able to get as many people here as possible and to follow the example of 90s random consultant who had a nice retweet of this space recently. I would now like to open the floor to everyone who would like to ask a question, and we would encourage you to do so by raising your hand so that we can be made aware and we'll bring you up. First off, we're going to bring the largest shareholder of RCI, Adam Wyden from ADW Capital. Adam take it away. Hey, Adam, you're on mute.

Can you hear me now?

We can hear you now.

Okay, great. Wow, it's been a harrowing three years. I remember in March of 2020, driving my [Indiscernible] and seen the lines out the door and my bonehead analysts telling me that the company was going to go bankrupt and I should sell the stock. Well, I'm happy he doesn't work with me anymore, and I'm still a shareholder. So, look, it's been an amazing run and you guys have continued to sort of raise the bar. I thought Lowrie was sort of special and now you've got Baby Doll and you did Cheetah and Playmates. And look, anyone who knows me knows that I'm also trying to raise the bar. So, I sort of point the question back, which is you sort of had this sort of side with Lowrie. You wanted the business a long time ago. He took a private, you sort of got that. You'd integrated. Lowrie's making money. Now, you got this other guy. I mean what's the next thing? I mean, I know you got the casino, but like are there groups that are doing 30, 40, 50 of EBITDA. We know about [Indiscernible] with a very, very big business. What's the sort of the next thing? I mean, you obviously have invested so much time and energy to build this platform and get the scale. Now, you're sort of getting affirmation by the marketplace, the sellers are taking paper. You've now got this cash flow to make down payments on businesses. You used to save three years and have M&A this unsecured money. And now with $120 million of EBITDA and $9, $10 a share, $9, $10, whatever a share of free cash flow. I mean, you can fund the cash component of these M&As from internally generated free cash flow. I mean --where are we in terms of sort of getting to that next level of club group size and sort of building that sort of corporation?

I mean there's a lot of acquisitions out there. We're talking with a lot of owners. Some are small, some are large. It's really about the seller being ready to sell. I've been doing this for a long time. I meet with a lot of owners. Some say they want to sell, but after meeting with or a while, I can tell that they're just not ready to let go. Some of these guys have been running these clubs for 30 years and their babies. So, it's difficult for them to make that final decision to go ahead and sell, but they're coming around. And part of it is the it's more convincing that you're joining the RCI family versus selling your club and retiring. Those some of them are, but of course, they're concerned with the people that have worked with them and been with them for 20 and 30 years. They want to make sure they have opportunities. And I think it's convincing as they see the deal we do with [ Lowrie and now this studio and some of the other deals that we've done in the past where they see the employees and the staff have done very well with RCI and moved up and moved up in our ranks and become better for themselves, even better for those people. The opportunities are there for them. I think that's starting to have some effect. It definitely did in the Baby Dolls. I know they're very worried about their management team because they have a great management team there. And we don't -- we want to bring that management team and we don't want to lose that management team. We want that management team to stay with us because we need those types of people to continue to grow, especially as we've accelerated our growth rate. Typically, our goal is 10% to 15% but we're actually pushing to grow at 30%-plus for at least a three-year period here, and then we'll revamp and see where we're at. I think 2023's growth is pretty much in the bag. We've been working very hard on 2024 with new stuff, with the new Bombshells, with the new Rick's Cabaret Steakhouse Casino. But we're also still lining up acquisitions. We're talking with the operators of all sizes from $1 million EBITDA deals to $30 million EBITDA deals that we're talking with guys on right now and there's a lot of guys in between. A lot of smaller $3 million, $5 million, $6 million, $8 million, $10 million, $12 million guys that are out there. And so we're trying to reach out to some of them. Some of them are reaching out to us, and we'll find the right deals as we need them and continue to grow so.

Yes, I mean, look, on our model, absent any incremental M&A from here, I mean, you guys will be compounding cash earnings per share at about 40%. I mean I don't know very many companies that are trading under a 10% -- or saying over a 10% free cash flow yield growing 40%. So, it sort of brings me to my next question, which is I know you're not buying back stock because the returns are very good. I don't think people really understand how good they are, obviously, buying this business at four times EBITDA, is incredible and the way you finance it. But I mean, we've sort of done some of our back of the envelope math on the casino. And based on sort of participation rates and size and stuff, I mean, you're talking about a $10 million, I think you said roughly $10 million of investment. There's online concessions in some states. If you guys -- if you think about a casino, you don't just have slot machines. You have table games, you have liquor. I mean -- or back to the envelope map is this thing could be as much as $20 million, $30 million of EBITDA and probably on the low end, probably high single-digits. Can you sort of sharpen your pencil a little bit on it? I know you're new to the casino industry, so you don't want to sort of create high expectations for folks. But I mean, the returns, if you guys have some success here, the returns can be really, really meaningful. I mean can you give people a little bit more color around what the casino could look like and the range of outcomes? I know you're new and it's early, but I mean it's -- can you give us a little bit more color on this casino?

Yes, I mean as I was telling, Scott, we've kind of got the range of $10 million if we -- $10 million to $14 million of revenue, up to as much as $40 million in revenue. And it really depends on what our average slot play is that's going to really adjust that to most.

That's just gaming. That's not liquor, that's not liquor and the other stuff. That's just the gaming right?

Well, that's just a slot element.

Yes, slot. Per slot.

And the rest of it is just impossible for me to really see it this time -- is I just don't have enough -- I mean, the club side, I think -- the reality is for the club side. The liquor will be cheaper because there's gaming. We're not going to give away free liquor, but we'll have discounted liquor. So, the liquor prices will be cheaper than a typical club would be because really, we're trying to not only entice you to come in and see the girls, were come in and gamble as well. So, there will be components of that, that we've got to get -- I got to fill out and learn and figure out, but we'll be spending some time on that. We're bringing in some casino experts. We've got a great firm that we're in negotiations with the consult with us on not only the casino setup, but all of our system setups and those types of things. But the beauty is it's not a -- it's not a new industry, right? There's plenty of experts and plenty of people out there that know how to do it very, very well. And we'll put together a team and that will do it well and do it our way and complement our business model. There's a lot of excitement around it right now that -- with what we have planned out there and I think there's other opportunities at some point out there as well. So, I don't know where that's going to go. It's a small part, it's a small investment for us. $10 million is not a huge investment anymore and the risk well outweighs the potential rewards. And so I think we have to --have always said, look, acquisitions are difficult because you don't know -- we can't time them, right? It's hard to time them. And so we're always looking for opportunities to expand and grow in areas where we can time the closing. So, if we can't get an acquisition done, we know well, we can open this business and we can open this business, and therefore, we can keep our growth consistent and never let our growth dip below our10% to 15% planned rates. And then if we are successful and we can land acquisitions like maybe to like Lowrie's acquisition, now we can see 40% growth. We can see 30% growth or maybe even higher depending on size and frequency of the acquisitions, combined with the openings. I mean, I'm very excited about 2024. Basically, we have our growth built in with new -- six new Bombshells, The Steakhouse Casino. Our growth is kind of built in, right? So, any acquisition we do is really going to boost growth in 2024. I think 2023, we've got some great growth factors in that. The 15 locations that we bought, especially the 11 that we bought from Lowrie had just come out of COVID openings. I mean they didn't even -- some of them didn't even open until September of 2021. They only been up less than two months when we bought them. And so we had a huge step-up in revenues, and we're seeing that. In the first five months, we had a very difficult time because you have the job market, you had COVID stuff still hitting and bothering different markets and -- so it was very difficult for those first five or six months, we actually picked up in March and then we had the unbelievable month with Lowrie's clubs in May. So, we've got some pretty easy comps on those clubs as they move into same-store sales in January, February, March. And I think we're going to see really nice growth year-over-year growth with those 15 locations as well as now the new acquisition coming in. So, basically, our 2023 growth is there, 2024 growth could just be off the charts depending on how acquisitions go in 2024. And I think by the end of 2023, we'll be focusing on 2025 growth. So, I said, I think we got three years here of really solid growth. We can take on probably another $100 million plus of debt. We've got about $5 million of debt that's going to be -- they'll probably be paid off in the next quarter too, as we sell some -- we've got some raw land assets that we're selling, and an airplane that we'll be selling in the next quarter that we'll get rid of some debt there. So, our debt level is probably about $5 million less, we'll drop about $5 million just from not counting the normal amortization. So, our debt is still very manageable. Even if you say -- I know you try to say $120 million EBITDA, but I'm saying even if we're only at $100 million in run rate EBITDA right now, we're at $200 million of debt that's only 2x EBITDA debt ratio. So, we've got at least another $100 million in debt we can take on. We're generating well over $1 million a week in cash flow right now. So, we take that and put that back to work. And then any equity component of these big acquisitions just give us even more buying power for these deals. No, of course, now I don't -- once we do this deal at 80, I don't think I would do another deal at $80 million because with all the new EBITDA coming on line, I think the stock is going to be worth more than that. And so we probably wouldn't use it and an immediate -- another deal at that price, but maybe the next deal is at $90 million, maybe the next deal or $100 million, $110 million, $120 million. I guess that's up to the market to price that in for us. And if they gives -- we get to the multiples we need and we can buy the deals at the right price, we could use an equity component in them as well. But if we just have to use debt and cash. As I just showed you, there's plenty of runway, at least for the next year to two years to use this debt and cash that we're generating to make plenty of acquisitions with.

Yes, I mean you mentioned something about that you were -- I mean, part of what attracted us to this investment early on is that you are spending a lot of time with getting the SEC reporting right and sort of getting the IT and broadly and the infrastructure. I mean most of the sort of the public company costs and IT stuff is behind you. So, your legacy free cash flow growth rate of 10% to 15% was really also concurrent with the fact that you were also boosting your sort of corporate G&A function, IT, and this and that. I mean so for all intents and purposes, for the same amount of revenue, right, you're going to have really high disproportionate margin growth because you're not adding those incremental costs to the same degree, right? So, part of the increase in free cash flow, I think this year? And I guess, last year was you were adding revenue without the concurrent sort of corporate nonrevenue-generating G&A. I mean -- so I mean, look, we're super excited about it. And look, the casino to us is very interesting only because it provides another avenue for you to monetize your brand. And you had Scarlett in Florida, you were able to bring Scarlett to Colorado. And to the extent that you can sort of monetize Rick's as a casino and continue to sort of monetize your brand at high returns on invested capital, that's super interesting. And obviously, any opportunity [Technical Difficulty]

Thanks so much for that, Adam. And next, we're going to bring up [Indiscernible] to ask a question. [Indiscernible] please take it away.

Hi, thank you so much for giving me the floor. Is my sound coming through, okay?

You're sounding great.

Great. So, I noticed just from some searching on Twitter that there's some dancers that you find who are saying that they noticed that the recession is here from the sharp reduction in customer spend, they're seeing in the clubs that they work at. Obviously, it's very kind of anecdotal and is only based on a few examples. But I did find a few people saying that. Maybe these are people -- girls working in clubs in locations that you would avoid as part of your screening process. But could you speak a little bit to what extent that matches with anything you're seeing at any of your locations and if there are any patterns and kind of how, I don't know, your behavior might change if that such evidence became gradually more pronounced, how it would influence your decisions on capital allocation? I have one follow-up if you have time, but I'm also happy to pass on.

No, let me answer that for you. So, basically, I have been watching our blue collar -- some of the blue collar clubs have had some minor issues. And it's very sporadic. It's two weeks here, then we have two good weeks and then we have an off week and then two good weeks. Our VIP clubs or higher-end clubs have been doing very, very well. New York, for example, Chicago, Tootsie's in Miami, their sales are still growing and doing very well. I ran a three-month deal on basically credit card spend, right? I can see what the credit card spend is on the money that goes to entertainers. And I did that, and then we compare that to the prior three months and we're seeing increases. So, I feel for the girls that are out there that are having -- they're struggling here and there. I would say, maybe we need to try some other clubs. Maybe I don't know the region you're in, the reasons these girls are in or where they are. I mean certain regions are definitely being affected different than other regions. I think a lot of them are in California. I think California has had some talking to some girls that come from Las Vegas and come from California to some of our clubs. They have complained a little bit that this customer spend in those markets isn't what it used to be. And it makes sense that Vegas on the weekends, especially is very California-driven and so maybe there's some issues in those markets from what I'm hearing. And like I said, in our markets, I'm seeing some off-spend, slowdown in spend and basically customer visits [Indiscernible]. Somebody got me echo there. Sorry. And so that's basically what I've seen so far. You got another question you said?

Yes, yes. Thank you so much, Eric. And so I guess my other question is around some of your new projects. The -- I gather that -- I'm sure they're not like moving the needle and to be focused on too much yet. But I gather you have an NFT project, another project called Miami, which I believe is trying to create a sort of full circle between being able to interact with some of the entertainers both in real life and kind of through social media. Do you think that either of those projects could introduce kind of elements of risk that could damage a reputation, I don't know, like in -- for example, in the case of the NFT thing, if there was some kind of hack or security problem? And in the case of Miami, I guess it occurred to me that it could potentially threaten an entertainer's safety if they were sort of interact -- I don't know if it was making them more easily contactable by customers.

I mean, basically, the -- there we go. Okay. Sorry. Sorry, the echo was just too much. Basically, it's not any more risk than any other business or any other deal out there. The entertainers are basically other than telling them what club they work at. Their information is still private. They're not getting private information. As far as the hacking -- I mean, we have that risk on credit cards. We have that risk on employee data. We have that risk, you carry insurance for it and you follow the guidelines, and you do everything you can do to keep the information safe. But I don't think there's any other risk on those products than any other product that we have. There's very small investments, not a lot of money invested in those -- either of those projects. We did have some issues with, of course, the Ukraine war with our programmers being based in Ukraine became an issue. Weave switched to a different group. And hopefully, we'll get the final bugs and everything worked out. It's actually the site dysfunctioning, -- you can actually use the site. It's just it's not at the point we're ready to market and really push and spend the marketing dollars. We're going to need to spend to get the site until we get everything working exactly the way we want it and have the page layout and features on the site that we want to add. But to answer your question, I mean, I don't think there's any liability there that isn't any place else.

Thanks. That's really helpful. And sorry to ask two kind of negative questions, but it's just interesting to focus on some of the things that could be risk factors. But generally, congratulations on all your achievements. It seems to be going great, and I wish you the best of luck.

Thanks so much [Indiscernible]. We appreciate the questions. I want to give a special shout out to Dr. Parik Patel who is in the audience. We have no idea what that doctorate is in, but we love it. I'd like to encourage everyone to retweet this space. And additionally, I wanted to mention one thing for Dr. Parik Patel. We're going to be sending you a custom Rick hoodie that was designed by Bradley Chhay, who took a few years of graphic design lessons, and we're going to be giving some of these limited addition items out at the reception tonight as well. Next up, we have Johnny Shen [ph]. Johnny, please take it away.

Hey thanks Mark. How are you guys? Can you hear me? Am I coming in okay?

Loud and clear.

Beautiful. All right. So, nice to -- you got an awesome quarter again. Nice so you guys kind of talk about this one more time. I'm going to ask you a couple of questions if I can, about the big deal, the Baby Dolls, Chicas Locas, just I know you have one location under -- it's currently being re-modeled, I believe. And then you've got two expansion plans. Can you give me an idea just very roughly, however rough you want to be about it? Just kind of what are we looking at, like how many square foot speed are you looking to add, kind of roughly what kind of CapEx budget are we looking at kind of roughly is this like an end of 2023 thing? And in the 2024 thing, like when do you expect that to all kind of be as you envision it?

I'm sorry, I forgot I'm on mute. Basically, the club is actually open as being remodeled. It just isn't really contributing to EBITDA at this time. So -- but it is ready to -- the remodel is done, they're going to basically reopen in a full capacity. They're opened at a very limited capacity at the moment. So, open full capacity, probably right after closing. As far as the -- so there will be very little CapEx or no CapEx on that location, the two expansions are to expand -- they actually had the extra space open at one of the clubs pre-COVID and did not reopen the extra space post-COVID because it needs to be remodeled. They did a partial club remodel, but not the entire building. We're going to finish that remodel. And then the other club would be actually adding -- they have some empty warehouse space that we would basically expand and do a new concept. So, we'd have two concepts in the same building. And so that space would be more expensive. I think total CapEx expenditure to do all this is probably between $2 million and $3 million max. Not a lot, but -- and I think that between the two, we would add probably $4 million in EBITDA, so you get the club that's limited capacity open and get it back up to a run rate of about $2 million add that to the $11 million you're at $13 million. And I say $4 million, maybe it's $3 million. So, I gave myself a $1 million. When I say $14 million to $16 million range, I gave myself a $1 million range. I mean, so I think $14 million to $16 million is pretty easy to do. I mean I think we can do all of it within the first 12 months of operations. Probably the remodel on the one club that's pretty much existing. I would get back to 90-day to 120-day remodel and the actual build, that's probably almost nine months, 12 months to build out. So, I hope that answered your question.

Yes, that's beautiful. And I can see why you didn't go in depth on it. I mean those are very small items compared to the acquisition. So, that's cool. The 66.5 is that including land? Or is that kind of exclusive of the lay like so think of is a separate deal?

No, that includes everything. That includes the land. That's the land, the clubs, the ATMs sector company is the ATM company, and it's all the intellectual property.

Fantastic. Thanks so much for that question. And in the same vein of real estate, we're going to bring up to Jesse [Indiscernible] next. And Jesse writes number one REIT newsletter on Seeking Alpha with 56,000 followers. I would encourage you to check out his profile. You've had some great threads on Rick. So, Jesse take it away.

Thank you very much, Mark. I appreciate it. Congrats on the great quarter. Johnny asked the question that I had in mind, but I'll ask about the buyback you said. Eric, you've previously talked about this $65 figure as a threshold for your buybacks, but your cash flow has grown quite considerably since then, have you thought of updating it?

I haven't -- we haven't because right now, we have such great opportunities, as you can see, of buying and building things well above the 10% free cash flow yield. It is something we're going to have to look at again soon, probably wait until after the 15th of January or so. Let's get this acquisition close, kind of get a feel for where we're at. Let's see if this recession is going to get any deeper or just a slowdown. And I don't even know what it is. I don't like to call a recession because I'm not really seeing a recession. I'm seeing some certain demographic -- economic demographic affected by high gas prices and food inflation and those types of things and maybe getting a little more less frivolous with their cash or their disposable income. And so they're tightening a little bit, maybe we're getting a little bit of West Club visit or a little less spend when they're in at the blue collar level. But I just don't know what to -- I don't know what it is yet. And then it could end tomorrow, maybe they're just maybe school started and Christmas is coming up. And so that's pending. But maybe by February, March, things go back to normal. I just -- or maybe they get worse. We just don't know, I think is the problem with that demographic and the current economy and situation. The Fed raced 0.5 today, which was expected. So, obviously, they believe the economy has slowed down a little bit, hopefully, inflation peaked and we'll see the inflation numbers come back down a little bit. And we can get back to a more normalized economy where we don't have free money, but it's not -- doesn't get so expensive that people can't do anything either. And I think that remains to be seen. But like I said, it's not affecting our high-end customer at all at this point, our high-end spend at least in our high-end clubs. So we just have to kind of watch. We'll make some shifts and maybe discount maybe bring those people, give them a reason to come back in and make a little less expensive for them to visit, but keep our revenues and margins in line at the same time. That's the plan.

Got it. Thank you. On the club acquisition front, would you say that all this uncertainty, the talks of a recession, the high inflation, the rising interest rates? Could it be that this is one of the driving forces why you have so many club acquisition opportunities right now? Do you think that it's pushing a lot of the owners to try to sell right now before perhaps we go into a recession and their clubs suffer some declining growth from that?

Sure it is. I mean that's what I would do if I was them, and I was in that situation. I think the risk is higher when you have small operations versus a large company like ours and the geographic diversity that we have. But we've also -- as you'll see, we're moving these things to about a four times multiple. So, we're giving ourselves basically a 20% cushion anyway. So, it's working out well for us. And I think that as we continue to push through this and figure these things out at the end, it doesn't really matter because we're a long-term company. I think in the next three years; we're going to have tremendous growth. And then it's the economic cycle turns, and then we'll just reread those words even better in the future. We're doing this with taking as minimal risk as we can. We've gotten, I think, very good at that part of the acquisitions through seller financing through using cash and now equity in these last two deals, which has, I think, been fantastic for the company, and it will be great for our ROI.

Sounds good. That’s all I had. Thank you very much.

Fantastic. Thank you so much, Jesse. And as we head into our 69th minute of this call, I'm going to bring up Hunter SPX Thompson of DTT [ph] Long/Short Capital Advisors. Hunter, please take it away.

Thanks, Mark. Hey Eric, congrats on the quarter. Love to hear that you're not seeing much regarding a recession and really appreciate the specific call-outs within your customer demographics. That said, kind of wondering if we can hear any more color around your view on the strength of the consumer? Do you see any qualitative shifts in spending habits to your clubs? And then just a quick follow-up on that. Regarding linearity in the quarter, do you see this trend grading 4Q? Thanks.

We have -- what we are seeing right now, like I said, is a little bit of a slowdown and it's inconsistent. It's not a consistent slowdown. I mean 1 we will be off a little bit. 10% the next week will be up 4%. So, it's kind of a mixed bag of nuts right now. And in the high-end customer base, we're not seeing much slowdown at all, if any. People are still party and there are certain demographics, certain groups are not changing their habits at all. Others have changed a little bit. But like I said, with our geographic diversity, it's a non-issue for us. What I look at right now, I think is most important is not the year-over-year numbers because there was so much free money last year. There were so many factors that affected things last year. And so I'm more of a sequential guy, what are we doing on a weekly basis sequentially from like the last six months, last 26 weeks. How have our numbers are? Our numbers declining on a sequential basis. And we're not seeing that. Like I said, we're seeing it in certain markets for a while and then maybe it changes. But we're adjusting -- our teams are adjusting. We see the numbers stripping. We step up marketing, we step up social media presence. We do the things we need to do to t bring the business into our businesses. And so that's why when the guy earlier saying there are certain entertainers are saying they're not making as much money and -- so I mean, I'm aware of those things. I'm watching those things closely to see if they will affect us. But I think right now, we just continue to figure out how to get our share of the market, better our share of the market if we're seeing any declines. And so that's how we've covered that. And I'm sorry, what was your second question, I should have wrote it down.

I was just asking about linearity in the quarter. So, did you see things that are going through Q4?

I don't. And in fact, December is actually increasing over November right now. And I expect the big parties that we have really starting yesterday starting yesterday and through the 23rd, we'll have to see how these parties, there's a lot of parties, and I think there's a lot of Christmas shoppers that go out and shop for a little while and then come by the club for a few drinks and stuff like that. So, I think we're seeing a lot of that, and we'll see how that goes over the next eight days, nine days. Hopefully, we'll have a really big week next week. This week has been great. And I think the only data set that's been off so far was Saturday, and it was off very minutely. And we are up so much on Friday that for the week we did we're not even going to notice it.

Appreciate taking the questions. That’s it for me. Thanks.

Thank you.

Thanks so much Hunter. We appreciate the questions. Next up, we're going to bring Orchard [Indiscernible] Europe. You have to unmute. There we go.

Hey guys, I just want to get a couple of things out of the way just to kind of understand things. There's about 2,200 clubs, 500 of which you guys think are candidates that you would be looking at. Can you ever see yourself like thinking about actually opening a new club from the ground up or that's just pretty much the world or the universe that you live in?

I mean there's areas we might be able to do that. It's not really our forte right now, right? I mean our forte is buying existing cash flow, making that cash flow stronger through our unit economics, through our best practices, through our national buying power and that model works very, very well for us right now. We do have the Bombshells for ground-up builds. I'm not saying we wouldn't, but it's not something that we're definitely looking at. I mean we are doing a ground-up build in Lubbock, Texas, where our property was taken by the state of Texas to expand the highways, and we bought five acres on another down the highway or across town or whatever, I'm not exactly sure how far away it is, but from our club, but it's very close and we're building the ground-up building there, but I don't really consider that new we were able to do a licensing deal and move the license or type deal because of the intimate domain, gave us some opportunity to do things that we normally probably couldn't do. But as far as granted, it's just not something I'm really into on the club side at this time. But I could say, I never say never guy. We'll see what it develops over time. And somebody was to grant us with a great location that we thought was very economically viable and the risk was minimal to us. I think we might take that chance. But it just doesn't really fit our business model at the current time to build new quotes.

Okay. So, I'm assuming at this point, I'm saying your buyback price is going to be $80 because that's what you did in the current deal and anything below that would basically make the overall rate of return cheaper. I'm looking forward to your update in February. The other thing is, what do you think is your new cash comfort level given the increased cash that you guys are going to be bringing in?

I mean we've been keeping our cash under $40 million we've been trying to put it to work where we get closer to $40 million. I think we pay to $42 million or $44 million and we bought a couple of properties. And I think our minimum on the minimum side, we probably want between $15 million and $20 million. Obviously, we're going to put $25 million out of this deal. I think I have a check; I think we're around $40 million. We've got some other stuff we're looking at right now. We've got some CapEx expenditure. But we're taking in a little over $1 million a week. So, it builds really fast. And what we may look at the bank, we used to have a line of credit -- a $5 million line of credit. We may try to bring that $5 million line of credit back after the first of the year with this $25 million going out. So, we don't have to borrow any money do the deal. The only debt we want to as we do these new deals is we're trying to do all sell in finance debt, no unsecured high interest debt. Staying away from the 12% money we've had to borrow in the past. Even though it's not so bad with the bank rates at 8%, 12% what so bad today as it did when we bought it when bank rates were 4%, but still it's expensive money. Not really expensive for us because our returns are 33% or so, 25% out of the worst case. But -- so we're still making double the money on the spread. But I just think that -- from a market standpoint, we're trying to keep our debt manageable and keep our interest rates as low as possible. So, once we pay off that 12% debt, I think our weighted average will probably be back under 6%. So, we're not hurry to pay it back, but we could. Yes.

And just one other thing. Can you give me an idea of like this five club deal that you just did, how long ago did the process really seriously begin?

Typically, six months is what it's taken on these things. But from the time we start talking to the time we work these out amongst the principles and then get the lawyers involved and get the legal stuff done. Then you've got permitting. So, right now, we're at the permitting process, it was about 30 days. So we signed the deal on the 12, which 30 days from there would put us somewhere around January 12th, January 16th, something like that. I think that was probably the most likely closing dates at this point.

But I mean like the seller basically was saying, look, sometime around May or June, hey, I'd like to sell my club, let's make this happen.

Yes, I mean, yes, it's just -- like I said, it really varies. I mean if you look at the BCG deal, for example, I mean, we tried to buy them in 2010, we tried to buy them in 2015, and then finally got the deal done the third time's the charm. That deal, I would say, from a timing call to the time we got seriously done with less than 90 days. And then the rest was just, I mean, 11 states, lots of licensing. The other three months was, I mean look, if you've got a willing seller, we can do a deal and like, for example, the Heartbreakers transaction. That entire negotiation, the entire thing was less than 45 days from the time of first met of the time we owned the club was probably 45 days. So, this really varies and the complexity of the deal, the dollar amounts, those types of things.

Well, I mean, my general consensus is with the way things are going right now, even if you have some sort of slowdown at all in same-store sales, it doesn't mean anything because you guys just keep buying and adding new clubs that would completely offset anything that any recession that happens. And at the same time, you guys are able to just buy clubs cheaper.

Yes, I think I look at this downside risk, right? If you buy my stock today, what's your downside risk, right? That's always been kind of my thought process. And if I was an investor, well, I am an investor in other companies and other stocks. And my thesis is always what's my downside risk, right? And if my downside risk outweighs my upside risk and I'm not interested. But I think you have very limited downside risk with RCI right now. You got us buying back stock, the stock at certain levels. You've got unbelievable -- like you said, even if we have a 10% turndown in same-store sales, which should be very high for us, especially at the club level, the EBITDA drop would not be much more than that. We have -- we find ways to control costs, which we did during COVID, we know how to keep our cost in line, keep our margins up. We would do all those things, but we're going to grow right through it. We're going to still grow faster. So, the out of us earning less free cash flow six months from now than we did a year ago in that same period, is to slip, I just -- I don't see that happen.

You're in the advanced part of the S curve right now with the growth.

Thanks again guys.

Thank you,

Fantastic. Thanks for the question. Next up, we're going to bring [Indiscernible]. You're up.

Thanks, Mark. Eric and team, congrats on the great quarter and also the recent club acquisitions. I mean I looked through it and chatted with you guys over Adam wins post yesterday. I think it makes a lot of sense to lay out some equity there. Looks like returns would be great. I have a question going back to the Lowrie's acquisitions. It's been maybe about a year, a little over a year since that deal closed. Obviously, it takes some time to get the management teams integrated and just training for the rest of the staff there. You guys see room for more efficiencies in the Lowrie's clubs or revenue growth there or how are the Lowrie's clubs operating today?

Yes, I mean, give you a kind of a statistic I look at November was the first month that we had a full month of operations previous year and this year. So basically, it's -- we're going into our 14th month of operations with December. Typically, I think the worst location year-over-year was about to 2.89% increase. And the best location, those two locations that were over 60% year-over-year growth with the Lowrie's clubs. And I think the rest were all in the 20s to mid-20s. So, very good growth year-over-year what we've done. I think we're continuing to see certain of those clubs are still growing as we move forward. So, we'll get some nice growth out of that. And you'll see that the $88 million price seemed at the top end of our scale when we made the acquisitions. But I think you're going to see it more right in line. As we see the EBITDA from those clubs this year, I think you're going to see it's more right in line with our four, four and a half times including real estate that we normally come in on these deals. So, it's going to be a very nice acquisition for us over the long haul.

Yes, great. I love how you mind things at five times and get the efficiencies in the business, then will be four times. So, that's great. Thanks for the color on Lowrie's. And then just one more question, I guess, on the Central City opportunity. obviously early to tell and probably about a year, 18 months out, like you said before fully operational with licensing and everything. Do you guys see that as a space you guys can expand into? I know mainly capital allocations on buybacks, buying of clubs and the Bombshells organic growth. But is that something you guys think you'd have an appetite if the results are good?

The results are going, absolutely, right? I mean, at the end of the day, I've said this, I don't know, for several years now as I'm not in the strip club business. I'm not in the real estate business, I'm not in the restaurant business. I'm in the free cash flow business. And if I can create free cash flow or buy free cash flow in that market and we have -- it's within our wheelhouse of operations, I don't think slot machines are pretty easy to operate, right? You plug them in, they work. If they break, you call somebody, they fix them, then you plug them back in again. Seems pretty simple. The trick is getting people in there to play them. One thing we're very good at is through our entertainment and our marketing and of our clubs, we're very good at getting large amounts of people into our buildings. So, I think it's pretty -- right in our wheel house is very similar to the Bombshells where we have the waitress are part of the entertainment of the business. And then you had good food and drinks and good music and DJs and we trade a fun atmosphere where people want to come and hang out and drink and eat and have a goodtime. I think the casino business is -- the way we're going to do it is very similar in that regard is it's just we're going to take our entertainment factor, and we're just adding another component to it. So, I think we'll do very well, then I think we'll definitely look to expand that if we require success. I mean if we can find success with it and do it right. There's, I don't know, what, 38 states with some form of gaming now. So, they're small states with small casinos all over the place that we can go in and transform from a least traditionally, there's a big market with everybody is doing exactly the same thing, and we can come in and do something just a little bit different than everybody else and do very well with it. I think we definitely would look at that as going on a go-forward basis, provided we can be successful in Central City.

That's great. It sounds like a great opportunity. I know some people at first were a little critical of you guys trying to get in an area that you don't have experience in yet, but I love it like your free cash flow business quote. Maybe we need to get that quote on a hoodie for next time, not to be able to make it to New York today, so I missed out on that, but when you guys grand open in Central City, I'll come on see you. Congrats again on the results and thanks for a chance to ask question.

Sounds great. Thank you.

We'll make sure to bring a sweatshirt for you when we see you then. Now, before we bring up our next two and final question askers, I want to shout out VCs congratulating themselves, who's out in the audience. I think someone needs to make a deep value investors, congratulating themselves account to for those invested in Rick and speaking of investors in Rick, let's bring up Adam Wyden for a follow-up question.

Hey. It just occurred to me, I was texting with somebody while the call was going on, and they said, you know, Rick is really interesting. Eric is such a talented capital allocator. He's really been at it a long time. It trades at a good yield. But he's in his early 50s, it's taken them 20 years to get from $1 million of EBITDA to $100 million. You obviously have done what are $120 million what other number is. I sort of, in my head, sort of had you at like $60 million pre-COVID. So, you can sort of say, over three years, you sort of doubled the annualized earnings power from sort of like $60 million to $120 million. How should we -- I think it would be helpful for investors as it relates to sort of establishing what your cost of capital is because you sort of said, well, what should we trade at? And you sort of put on Twitter. And I think it might be helpful in terms of sort of the more you grow the sort of the higher the multiple the company sort of trades at based on sort of the expectation of growth and sort of what you plan on doing. Maybe it would just be helpful for you to sort of explain to people that you obviously -- your minimum is 10% to 15%, but I mean maybe talk about sort of the scope and the quantum of what you're building here and if the next 10 years, does that look like $120 million to $1 billion? Does that look like $120 million to $600 million? Like how big are you trying to make this thing? And I think obviously, I have a front row seat to it, but it might be helpful for all the other investors to really understand what you're going for here and the 20 years is really backlog for the next, call it, five to 10?

Well, I mean, when you talk about the first 20 years, I had no experience. I was a strip club operator like literally running the clubs. I was bartending, I was the security. I was the bartender. I was the front doorperson. I was the valet driver sometimes. And had to evolve into a public company, I went public in 1997 -- didn't like it, merged with Rick in 1998 thinking, all right. I'm back to running clubs. I went back to running club, moved Minnesota, written in the club for three months, turned that club from a $70,000 a month loss to a $40,000 gain in the first 30 days I was there. When I left, I think we were making about $60,000 a month after three months of me being there. Everything was great. The founder had gone on vacation to France. He comes back my team -- my team took over the Houston clubs. We took -- his original team sent down to New Orleans. They turned to New Orleans club, did a great job there. Houston was not making money. So, when he left, we were basically, we had seven clubs that were net losing about $15,000 a month and when he came back, we had clubs that were making over $300,000 a month. And it's first thing when he comes to the club is the door girl tries to charge him cover charge. He says, no I am the owner. He says, yes, we're a public company. Everybody is an owner. It's still going to cost you $15 to get in the door. And he says, no, I'm really the owner I'm Robert, she goes, okay, hold on let me call somebody. She calls manager up. Manager says, how can I help you? and he says, well, I'm Robert, I'm the owner. He says, okay, we'll -- let me call Eric. And of course, that I think was a little bit of ego bruise so he decide to fire me and that didn't work out for him because while he was going, we had bought a bunch of stock in the company, the stock went from $5.30 and so we basically worked out, I ended up buying him out taking over a public company. And now here I was back to running a public company in 1999. Work through that, got through that. We had no capital, banks would loan us money, banks won't even talk to us. So, we could barely get checking accounts at banks, right? We got through all that process. We grew that company. We kept growing, kept growing a few years in 2017 -- 2016 we did [ph] our capital allocation strategy; 2017, we got our first big bank loan, a $90 million real estate consolidation loan, which really solidified financing for us. Then we got -- now we've got capital, we learned capital, so we couldn't use our stock for any deals because there's no way we're paying 20% capital like we were doing in 2008 using equity when the cap rate on our existing cash flow was 20%. So, we got past that. We got everything going. We built to where we are today and you say, what can we do? I mean look what we've done in the last five years with -- actually, since 2017 since we got bank financing. Now, the market is rewarding us. Market has given us a multiple on our stock that we can turn around and buy cheaper in the private market and bring it into the public company, get that arbitrage and we're able to buy great quality assets, great quality clubs, licensers and properties that we couldn't have even thought about buying before. And more of those opportunities, the more the stock has moved up, the more of those opportunities are coming up on line for us. If you look at the acquisitions we're making in Dallas, those are -- that's a great -- you can go to the Texas Alcoholic Beverage Commission and see that Baby Dolls is the adult club in the state of Texas has been--

Sorry to interrupt you. But I think Mark's getting tired. I think you guys need to get to Rick's to do your meet and greet. I think what I'm getting at here is it took you 20 years to get from $1 million to $100 million. Some of it was capital allocation somewhere it was operational. But like given the machine that you and Bradley and Dean and Ed and Josh and all these great -- Darcy, I don't -- but all of these guys, you built the machine now and you've got a machine and you're feeding the machine. I'm really hungry. I've lost 50 pounds. I'm really hungry. I know you're hungry too, because you spent 20 years building the machine, how much food can we put in the machine over the next five to seven years? How big -- how much bigger can we sort of make this machine now, like order of magnitude?

I don't know what the total size is. I mean, we can -- my goal is world domination, right? I mean that everybody's goal in business. What we've done is we've gone from a linear growth and we're entering our accidental growth stages, right, because of our capital allocation strategy. If you look -- it's kind of -- if you look over the last five years, it's kind of been on a steady growth, but you're starting to see that curve, curve up. And it's because we're able to make these big acquisitions. We couldn’t even dream of doing an $88 million acquisition in 2016, 2017. But last year, we did an $88 million acquisition. We're doing a $66.5 million acquisition. At the same time, we're doing those acquisitions, where also -- we bought six pieces of property to build Bombshells on. We bought a piece of property to build a steakhouse and casino in and we're looking at multiple other locations. We bought it -- we did a $9 million acquisition with a $5 million down payment. And by the time the time we started, right, 45 days from starting to finish, the $5 million payment was generated in that 45 days. So the day we started, we said we're going to have as much cash. So, that will drop our cash over this. But by the time we close the acquisition, 45 days later, we actually had more cash on our balance sheet, than we started 45 days earlier with after we spent $5 million in acquisitions. That's the kind of power that we have today that we just didn't have in the past and we're putting that to use. And the beauty is we have the formula and we have the knowledge of our capital allocation strategy to do the fifth grade math to make sure we make the right deals. So, how fast can we grow, as fast as we can find the deals, close deals and manage them. If you ask anything actually what our weakest link would be. And I think it's our strongest part of our company right now is our management teams, our people, stronger than it's ever been. But that's still, at the end of the day, going to -- money and capital used to be our weakest link. And now that -- our strongest part of our company is probably still our weakest link because you still have to manage these things as you buy them and those take time. We got to put systems in [Indiscernible]. But we're getting really good at it, we kept really fast. We've got a lot of guys that have now been involved in acquisitions and takeovers versus -- it started out with me and Ed and a couple of other guys were starting. And now we buy a club, and we can send a regional manager. We don't -- myself and Ed don't even have to go to the club. We have a regional manager now knows, okay, I know how to put the PR system in. I know how to -- we got to get our security system. We got to get at these. This is how we're going to operate it. This is the way the bar needs to be set up. This is the way these things have to go. So, we're getting much faster at it Adam, for sure. And I think we can see that exponential growth over the next three years. I mean I told you a year ago that I wanted to put $600 million to work over the next three years and we're well into that process. Maybe it took us 14 months to put the first $200 million to work, but hopefully, we put the next $200 million to work in 12 -- in the next 12 months and see how that goes, keep the growth going.

There are a lot of companies that I'm sure people on this conference call have followed whether it's Watsco or PoolCorp or many, many great companies that have basically offered a very simple capital allocation strategy M&A and organic growth in sort of simple and mundane companies. So, if you can sort of join that group, you'll be in highest team and high company. Thank you again.

All right. Thank you so much, Adam, for the phenomenal question. Adam's hungry. He's down 50 pounds. He's looking great and we're all ready to eat. Eric, Bradley, Ed, Dean, Josh, David, and the rest of the phenomenal Rick's team are leading the charge to world domination. And speaking of world domination, it starts tonight. For those of you who joined us late, you can meet management tonight at 7 o'clock at Rick's Cabaret New York, one of RCI's top revenue-generating clubs. Rick's is located at 50 West 33rd Street between Fifth Avenue and Broadway, a little in from Herald Square. If you have an RSVP'd, ask for Eric Langan or me at the door. I will be busy using my own capital allocation strategy after 9 P.M. On behalf of Eric, Bradley, and the company as well as our subsidiaries, thank you and good night. As always, please visit one of our clubs or Bombshells Restaurants to have fun.