The innovator in bar-restaurant-entertainment hospitality. NASDAQ: RICK Investor Presentation March-April 2016

Transcription

1 The innovator in bar-restaurant-entertainment hospitality NASDAQ: RICK Investor Presentation March-April

2 Forward Looking Statements Certain statements contained in this presentation regarding RCI Hospitality future operating results or performance or business plans or prospects and any other statements not constituting historical fact are "forward-looking statements" subject to the safe harbor created by the Private Securities Litigation Reform Act of Where possible, the "anticipate," "approximate, " "believe," "estimated," "expect," "goal," "intent," "outlook," "planned," "potential," "will," "would," and similar expressions, as they relate to the company or its management have been used to identify such forward-looking statements. All forward-looking statements reflect only current beliefs and assumptions with respect to future business plans, prospects, decisions and results, and are based on information currently available to the company. Accordingly, the statements are subject to significant risks, uncertainties and contingencies, which could cause the company s actual operating results, performance or business plans or prospects to differ materially from those expressed in, or implied by, these statements. Such risks, uncertainties and contingencies include, but are not limited to, risks and uncertainties associated with (i) operating and managing an adult business, (ii) the business climates in cities where the company operates, (iii) the success or lack thereof in launching and building the company s businesses, (iv) the operational and financial results of the company's adult nightclubs, (v) conditions relevant to real estate transactions, (vi) the loss of key personnel, (vii) laws governing the operation of adult entertainment businesses, and (viii) the inability to open and operate our restaurants at a profit. Additional factors that could cause the company s results to differ materially from those described in the forward-looking statements are described in forms filed with the SEC from time to time and available at or on the SEC's internet website at Unless required by law, RCI Hospitality does not undertake any obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. 2

3 Overview Three Parts to Our Presentation What do we do Why it s a good business How we are growing EPS and cash flow, buying back shares and now paying a dividend 3

4 Leader in Gentlemen s Clubs Subsidiaries own/operate 38 of the best venues in the US Powerful brands, quality environments, beautiful entertainers, excellent restaurants Larger units in major cities Smaller ones in the South/Southwest Licensing Limits Favor Acquisitions We acquired ~80% of clubs we own Most municipal licenses tied to physical location Few municipalities issuing new licenses Elegant clubs with restaurants High-end, high-energy club for young professionals Nation s mega club with 74,000 square feet High-end clubs for African- American professionals Goal: Acquire More of the Industry s Best 3,500 clubs in the US / 500 meet our qualifications Most long-term owners interested in selling As only public company in the space, and with access to bank financing, we are the acquirer of choice Lively BYOB clubs for blue collar patrons and the college crowd Lively BYOB clubs for blue collar patrons and the college crowd 4

5 Fast-Growing Bombshells Chain First Military-Themed Franchise in Sports Bar Segment Leverages expertise in bars, restaurants and entertainment Drives traffic through design strategy and attractive Bombshell Girls in uniforms Large venues (7,500-10,000 sq ft), full bar, scratch kitchen, big flat screen TVs, live music, huge patio Five Company Owned Units Houston (3), Dallas (1), Austin (1) Franchising Approved in All 50 States Potential to develop a chain of ~100 units Wider appeal than competitive brands Attracts men, women, singles, couples, and families Strong lunch, dinner and late night business 5

6 The Bar-Restaurant-Entertainment Spectrum DAVE & BUSTER S chili s Key Traffic Driver Entertainment Food RCI Hospitality RCI Hospitality Dave & Buster s Brinker International 38 clubs featuring beautiful dancers/entertainers 5 sports bars/restaurants featuring attractive waitresses in uniform and live music 81 sports bars/restaurants with large arcades* 1,641 casual dining Chili s and Maggiano s with no entertainment** * Source: Dave & Buster s March 2016 Investor Presentation ** Source: Brinker International January 12, 2016 Investor Presentation 6

7 RCI Advantages: Nationwide Scale Industry Makeup Most clubs individual owner operated RCI s Advantages Nationwide scale, resources and operating efficiencies In business since 1983 Sophisticated systems, purchasing, best practices, training, and innovation Ability to maximize management, marketing and profitability Platform for expanding along the spectrum of barrestaurant-entertainment businesses 7

8 RCI Advantages: Expanded Access to Bank Financing More Banks Offering RCI Traditional Commercial Loans Finance real estate acquisitions Refinance higher rate mortgages RCI s Advantages Our real estate is now a major source of collateral Helps finance growth along with our strong free cash flow Reduces interest rates on loans Enhances profitability Makes RCI the industry acquirer of choice Recent Examples Acquisition Financing Anticipated Benefit Retail mall where Tootsie s Cabaret is located (largest club) Building and land where Rick s Cabaret NYC is located (2 nd largest club) $4.0M cash $11.3M, 5.45% bank loan $0.6M annual pre-tax profit 15% cash on cash return $10.0M, 5.00% bank loan Reduces expenses more than $0.7M annually over term of the loan 8

9 Unit Growth : Period of major expansion 9/30/15 units almost double from 9/30/11 Took advantage of acquisitions and opportunities to create new clubs 43 Units 2015 Unit Mix Bombshells 5 units 23 Units Clubs 38 units

10 Revenue Growth ($ in millions) : Compound annual growth rate of ~15% $144.7 Bombshells 13% 2015 Segment Mix Other 2% Clubs (outside Texas) 44% $83.5 Clubs (in Texas) 41%

11 Revenue Mix ($ in millions) RCI Fiscal 2015 Dave & Buster s Last 12 Months as of Q3* Entertainment Related & Other 44% Food & Beverage 56% Entertainment Related & Other 53% Food & Beverage 47% * Source: Dave & Buster s March 2016 Investor Presentation 11

12 EPS Growth ($ in millions) Non-GAAP up 34% GAAP up 14% 1Q16 Non-GAAP of $0.30 GAAP of $0.25 FY16 Expect year over year growth $1.04 Non-GAAP GAAP $0.79 $1.39 Non-GAAP GAAP $

13 Strong Free Cash Flow ($ in millions) Significant Feature of Clubs High gross margin business (86% in FY15) Low capex Inventory turns quickly RCI s FCF Performance Averaged 16% of revenues Defined as operating cash flow less maintenance capex FY16 Target $15-$18M 1Q16 on track with $3.9M $14.9 $15-$ Target 13

14 Disciplined Capital Allocation Strategy Use FCF to buy back shares Compelling after tax yield of 17% with shares in $9 range Buy / open new units only if: Risk adjusted return rivals buying our assets in the market There is a significant strategic rationale Higher after tax yield buying back stock vs. paying down debt After Tax Yield 40% 30% 20% 10% 37% 19% 33% 17% 30% 15% 27% 13% Return Using FCF to Buy Back Shares Required Return Using FCF to Open / Acquire New Unit At Least 2X Return to Risk Adjust vs. Stock Buy Back 24% 12% 22% 11% Only at ~$17 does it make sense to pay down 13% debt at an accelerated rate (assuming no pre-payment penalty) 0% $8 $9 $10 $11 $12 $13 Stock Price Notes Based on annual FCF of $15M Based on fully diluted share count at 12/31/15 incorporating expected dilution from convertible securities as stock price rises Conversion of these securities would reduce debt $3.8M 14

15 Share Buy Backs & Cash Dividend Capital Returned via Buybacks ($M) Shares Retired via Buybacks Shares Outstanding (M) $ , $ , FY15 FY16 to Date as of 1/31/16 FY15 FY16 to Date as of 1/31/16 1/31/15 1/31/16 Increased Share Buybacks in FY16 We have already spent and bought back more shares FY16 to date than in all of FY15 Initiated Annual Cash Dividend $0.12 per common share, payable $0.03 quarterly 1.3% yield on $9 per share Payout ratio (8% of FY15 FCF) provides room for increases 15

16 FY16 Plan to Expand Cash Flow Reduce Costs Rent Going Down (as % of revenues) Expanded access to bank financing enabling us to: 4.3% Refinance high cost debt at lower interest rates Extend amortizations Buy properties to reduce occupancy costs 3.8% 3.6% 3.3% 3.4% 3.6% 3.1% Improve Club Margins 2.8% Eliminated 6 non-performing clubs in FY14- FY15 Engaging new, lower cost social media marketing versus more expensive radio Re-launching two clubs with higher revenue generating prospects 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 Open New Units with Higher Return Potential 16

17 Open New Units with Higher Return Potential 3 rd Club in NYC To open 2 nd half of FY16 Sports themed, first of its kind in Manhattan, near Madison Square Garden Why returns should be higher joint venture with landlord contributing adult license and real estate Management and cost efficiencies with three NYC units 6 th Bombshells To open 1Q17 Demographics and location similar to No. 1 Bombshells unit in Houston Why returns should be higher We already have most of the equipment necessary Management and cost efficiencies with four Houston units 17

18 FY17 Preview Strong Sports Line Up NFL Big Game in Houston (7 units) NBA All Star Game in Charlotte (1 club) Could add $1.5-$2M in incremental, high margin sales Bombshells Expansion 6 th unit to open 1Q17 Expect to site a 7 th unit Franchise sales anticipated Reduced Debt / Property Sales $2.0M used pay off convertibles in FY16 will be available Expect to complete sales of real estate that is no longer needed 18

19 Conclusion Investment Opportunity Growing trend in bar-restaurant-entertainment Clubs generate strong free cash flow Implementing plan to grow FCF even more Can finance growth without raising capital Disciplined Capital Allocation Buying back significant number of shares Initiated meaningful dividend New units with higher return potential Long-Term Growth Multiple club acquisition opportunities Promising sports bar/restaurant franchise Entrance to Rick s Cabaret New York in Midtown Manhattan 19

20 Contact Information Corporate Office Cutten Road Houston, TX Phone: (281) Investor Relations Gary Fishman Steven Anreder Phone: (212) IR Website Nasdaq: RICK 20

21 The innovator in bar-restaurant-entertainment hospitality NASDAQ: RICK Investor Presentation Appendix March-April

22 History Timeline 1983: Founded by Robert Watters as Rick s Cabaret International 1995: NASDAQ Initial Public Offering 1998: Merged with Eric Langan s publicly traded company of smaller clubs 1999: Langan named President and CEO 2014: Name change reflected transformation to hospitality company 2015: 20th year as a publicly traded company Total Return March 1999-March % Stock Performance: March 1999-March 2016* Total return has outperformed the S&P 500 by 7x RICK: 810% with annualized return of 13.9% S&P: 116% with annualized return of 4.6% 116% S&P 500 RICK * Source: Bloomberg 22

23 Strong Management Team Executive Eric Langan Chairman, CEO, President Ed Anakar Director of Operations Phillip Marshall Chief Financial Officer Travis Reese EVP & Director of Technology Background President and CEO since 1999 Involved in nightclub/restaurant business since 1989 Acquired his first club at age 21 with proceeds from the sale of his baseball cards Merged his XTC Cabaret chain with RCI in 1998 Joined RCI 2003, Director of Operations since 2009 Grew up in the hospitality industry started at a young age as a waiter Worked his way up to district manager for a large management company that operated hotels, restaurants and nightclubs across the US Launched and operated numerous RCI venues, including Tootsie s Cabaret in Miami, Rick s Cabaret New York, Vivid Cabaret New York, and Bombshells Joined RCI 2007 as CFO Began his public accounting career with KMG and became a partner in 1980 Continued as a partner after merger with Peat Marwick Partner in charge of the audit practice at Jackson & Rhodes Chief Financial Officer of CDT Systems, Inc. (publicly traded) Joined RCI 1999 as VP-Director of Technology VP with Digital Publishing Resources, Inc Senior network administrator at St. Vincent's Hospital

24 Capital Allocation Metrics After Tax Free Cash Flow (FCF) Yield of Buying Back Shares (1) Annual Free Cash Flow (mm) $15.0 $15.0 $15.0 $15.0 $15.0 $15.0 Stock Price $8.00 $9.00 $10.00 $11.00 $12.00 $13.00 FD Shares at 12/31/15 with expected dilution from convertible securities as stock price rises (mm) (2) Market Capitalization (mm) $80.2 $90.2 $100.2 $112.4 $122.6 $135.2 After Tax Yield (FCF/Market Cap) 18.7% 16.6% 15.0% 13.3% 12.2% 11.1% After Tax Free Cash Flow (FCF) Yield of Paying Down Debt Interest Rate on Debt (interest is tax deductible) After Tax Yield (assuming 35% tax rate) 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 8.5% 7.8% 7.2% 6.5% 5.9% 5.2% Notes 1) RCI defines FCF as operating cash flow less maintenance capex 2) Conversion of these securities would result in $3.8M reduction of debt 24

25 Long-Term Debt ($ in millions) Total of $94.8 at 12/31/15 $20.3 Secured by Subsidiary Stock Average weighted rate: 10.61% Secured by three of RICK s more profitable groups of subsidiaries $60.3 Secured by Real Estate Average weighted rate: 6.78% $90.7 in net buildings and land on the balance sheet ~$50 in net real estate equity $6.8 Texas Comptroller Settlement Average weighted rate: 9.58% Imputed for accounting purposes Paid in monthly installments of $0.12 $3.8 Convertible Debt Average weighted rate: 9.02% $3.6 Secured by Other Assets Average weighted rate: 7.31% 25

26 Calendar Date / Time April 12, 2016 May 10, 2016 July 12, 2016 August 9, 2016 (tentative) October 11, 2016 December 14, 2016 Event* 2Q16 Club & Restaurant Sales 2Q16 & 6M16 Financial Results 3Q16 Club & Restaurant Sales 3Q16 & 9M16 Financial Results Date might be adjusted around 23rd Annual Gentlemen s Club EXPO in New Orleans (August 7-10) 4Q16 Club & Restaurant Sales 4Q16 & FY16 Financial Results * RICK is looking at other investor conferences where we would like to present this year 26