RCI Hospitality Holdings, Inc. (NASDAQ:RICK) Q4 2022 Earnings Call Transcript

RCI Hospitality Holdings, Inc. (NASDAQ:RICK) Q4 2022 Earnings Call Transcript December 15, 2022

Mark Moran: 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 . 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.

Eric Langan: 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.

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Bradley Chhay: 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.

Eric Langan: 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.

A – Mark Moran: 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. 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.

Q&A Session

Scott Buck: 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.

Eric Langan: Yes. Typically, 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.

Scott Buck: 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?

Eric Langan: 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.

Mark Moran: 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.

Rob McGuire: 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?

Eric Langan: 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.

Rob McGuire: 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?

Eric Langan: 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.

Mark Moran: 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.

Anthony Lebiedzinski: 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?

Eric Langan: 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.

Anthony Lebiedzinski: 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?

Eric Langan: 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.

Anthony Lebiedzinski: 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?

Eric Langan: 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.

Anthony Lebiedzinski: Got it. Thanks and best of luck.

Eric Langan: All right. Thank you.

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

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

Eric Langan: 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.

Lynne Collier: 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?

Eric Langan: 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.

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

Eric Langan: The two brands? Is that–

Lynne Collier: Yes. The demographic — Baby Dolls and Chicas Locas?

Eric Langan: 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.

Lynne Collier: Thank you, Eric. I think I’m good. Thank you.

Mark Moran: 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.

Adam Wyden: Can you hear me now?

Mark Moran: We can hear you now.

Adam Wyden: Okay, great. Wow, it’s been a harrowing three years. I remember in March of 2020, driving my 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 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?

Eric Langan: 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