RCI Reports 1Q24 Results; X Spaces Call at 4:30 PM ET Today

HOUSTON – February 8, 2024 – RCI Hospitality Holdings, Inc. (Nasdaq: RICK) today reported results for the fiscal 2024 first quarter ended December 31, 2023. The company also filed its Form 10-Q today.

Summary Financials (in millions except EPS)

	1Q24	1Q23
Total revenues	$73.9	$70.0
EPS	$0.77	$1.11
Non-GAAP EPS1	$0.87	$1.19
Net cash from operating activities	$13.6	$14.9
Free cash flow1	$12.7	$13.0
Net income attributable to RCIHH common stockholders	$7.2	$10.2
Adjusted EBITDA1	$17.5	$20.5
Weighted average shares used in computing EPS – basic and diluted	9.37	9.23

¹ See "Non-GAAP Financial Measures" below

CEO Comment

Eric Langan, President and CEO, said: "Net cash from operating activities and free cash flow held up well, declining only 8% and 3%, respectively, despite previously reported macro uncertainty that negatively affected same-store sales."

"Nightclubs performed generally in line with expectations. Bombshells did not perform as well. We are in the process of making major structural management changes to the Bombshells team and are considering any and all options to improve performance, including potentially seeking an operational partner or selling the business."

"Separately, we continued to make progress with our growth plans based on opening new casinos, clubs and restaurants; acquiring more clubs; and buying back shares when appropriate. To add to our war chest, we are in the process of completing an approximately $20 million cash-out bank loan, using an estimated $30 million of unencumbered real estate."

Conference Call at 4:30 PM ET Today

• X Spaces: https://x.com/i/spaces/1ypKdknPlaqxW (to ask questions during Q&A, you need to use a mobile phone)
• Live, listen-only participant phone: Toll Free 888-506-0062, International 973-528-0011, Passcode: 156390
• Live, listen-only webcast, slides, and replay: https://www.webcaster4.com/Webcast/Page/2209/49818

1Q24 Results

(Comparisons are to the year-ago period unless indicated otherwise)

• Nightclubs segment: Revenues were $61.0 million compared to $56.3 million. The $4.7 million increase primarily reflected the benefit of newly acquired and remodeled clubs, which more than offset the decline in same-store sales.² By revenue type, alcoholic beverages increased 18.7% and food, merchandise and other increased 11.3%, while service declined 1.6%. The differing growth rates primarily reflected a higher alcohol and lower service sales mix from the newly acquired Baby Dolls-Chicas Locas clubs. Operating income was $20.4 million (33.4% of revenues) compared to $22.7 million (40.4% of revenues). On a Non-GAAP basis, operating income was $21.0 million (34.3% of revenues) compared to $22.8 million (40.4% of revenues). The margin decline primarily reflected lower service revenues, wage inflation, and an increase in the Texas patron tax to $10 from $5.
• Bombshells segment: Revenues were $12.7 million compared to $13.4 million. The $700 thousand decline primarily reflected lower same-store sales, partially offset by increases from FY23 acquisitions not in same-store sales and the opening of a new location.² Operating income was $86 thousand (0.7% of revenues) compared to $1.8 million (13.8% of revenues). On a Non-GAAP basis, operating income was $149 thousand (1.2% of revenues) compared to $1.8 million (13.8% of revenues). The decline in profitability primarily reflected lower same-store sales.
• Corporate segment: Expenses totaled $7.1 million (9.6% of total revenues) compared to $7.5 million (10.7% of total revenues). On a non-GAAP basis, expenses totaled $6.6 million (9.0% of total revenues) compared to $6.6 million (9.4% of total revenues).
• Interest expense was 5.7% of revenues compared to 5.3%. The increase reflected higher average debt mostly from seller-financed promissory notes related to FY23 acquisitions.
• Effective tax rate was 19.9% and 22.8%. The rate is affected by state taxes, permanent differences, and tax credits, including the FICA tip credit.
• Weighted average shares outstanding increased 1.5% year over year due to shares used in the 2Q23 Baby Dolls-Chicas Locas acquisition, partially offset by subsequent share buybacks.
• Share repurchases totaled 37,954 common shares for $2.1 million or an average of $54.59 per share, with $14.6 million in remaining stock repurchase authorization at 12/31/23.
• Debt was $234.1 million at 12/31/23 compared to $239.8 million at 9/30/23. The reduction reflected scheduled paydowns.

² See our January 9, 2024 news release on 1Q24 sales for more details

Non-GAAP Financial Measures

In addition to our financial information presented in accordance with GAAP, management uses certain non-GAAP financial measures, within the meaning of the SEC Regulation G, to clarify and enhance understanding of past performance and prospects for the future. Generally, a non-GAAP financial measure is a numerical measure of a company's operating performance, financial position or cash flows that excludes or includes amounts that are included in or excluded from the most directly comparable measure calculated and presented in accordance with GAAP. We monitor non-GAAP financial measures because it describes the operating performance of the Company and helps management and investors gauge our ability to generate cash flow, excluding (or including) some items that management believes are not representative of the ongoing business operations of the Company, but are included in (or excluded from) the most directly comparable measures calculated and presented in accordance with GAAP. Relative to each of the non-GAAP financial measures, we further set forth our rationale as follows:

• Non-GAAP Operating Income and Non-GAAP Operating Margin. We calculate non-GAAP operating income and non-GAAP operating margin by excluding the following items from income from operations and operating margin: (a) amortization of intangibles, (b) gains or losses on sale of businesses and assets, (c) gains or losses on insurance, and (d) stock-based compensation. We believe that excluding these items assists investors in evaluating period-over-period changes in our operating income and operating margin without the impact of items that are not a result of our day-to-day business and operations.
• Non-GAAP Net Income and Non-GAAP Net Income per Diluted Share. We calculate non-GAAP net income and non-GAAP net income per diluted share by excluding or including certain items to net income attributable to RCIHH common stockholders and diluted earnings per share. Adjustment items are: (a) amortization of intangibles, (b) gains or losses on sale of businesses and assets, (c) gains or losses on insurance, (d) stock-based compensation, and (e) the income tax effect of the above-described adjustments. Included in the income tax effect of the above adjustments is the net effect of the non-GAAP provision for income taxes, calculated at 19.9% and 22.7% effective tax rate of the pre-tax non-GAAP income before taxes for the three months ended December 31, 2023 and 2022, respectively, and the GAAP income tax expense (benefit). We believe that excluding and including such items help management and investors better understand our operating activities.
• Adjusted EBITDA. We calculate adjusted EBITDA by excluding the following items from net income attributable to RCIHH common stockholders: (a) depreciation and amortization, (b) income tax expense (benefit), (c) net interest expense, (d) gains or losses on sale of businesses and assets, (e) gains or losses on insurance, and (f) stock-based compensation. We believe that adjusting for such items helps management and investors better understand our operating activities. Adjusted EBITDA provides a core operational performance measurement that compares results without the need to adjust for federal, state and local taxes which have considerable variation between domestic jurisdictions. The results are, therefore, without consideration of financing alternatives of capital employed. We use adjusted EBITDA as one guideline to assess our unleveraged performance return on our investments. Adjusted EBITDA is also the target benchmark for our acquisitions of nightclubs.
• We also use certain non-GAAP cash flow measures such as free cash flow. Free cash flow is derived from net cash provided by operating activities less maintenance capital expenditures. We use free cash flow as the baseline for the implementation of our capital allocation strategy.

Forward-Looking Statements

This press release may contain forward-looking statements that involve a number of risks and uncertainties that could cause the company's actual results to differ materially from those indicated, including, but not limited to, the risks and uncertainties associated with (i) operating and managing an adult entertainment or restaurant business, (ii) the business climates in cities where it operates, (iii) the success or lack thereof in launching and building the company's businesses, (iv) cyber security, (v) conditions relevant to real estate transactions, (vi) the impact of the COVID-19 pandemic, and (vii) numerous other factors such as laws governing the operation of adult entertainment or restaurant businesses, competition and dependence on key personnel. For more detailed discussion of such factors and certain risks and uncertainties, see RCI's annual report on Form 10-K for the year ended September 30, 2023, as well as its other filings with the U.S. Securities and Exchange Commission. The company has no obligation to update or revise the forward-looking statements to reflect the occurrence of future events or circumstances.

About RCI Hospitality Holdings, Inc. (Nasdaq: RICK) (Twitter: @RCIHHinc)

With more than 60 locations, RCI Hospitality Holdings, Inc., through its subsidiaries, is the country's leading company in adult nightclubs and sports bars/restaurants. See all our brands at www.rcihospitality.com.

Media & Investor Contacts

Gary Fishman and Michael Wichman at 212-883-0655 or gary.fishman@anreder.com and michael.wichman@anreder.com