Core Viewpoint - RCI Hospitality (RICK) has been upgraded to a Zacks Rank 1 (Strong Buy), indicating a positive trend in earnings estimates which is a significant factor influencing stock prices [1][2]. Earnings Estimates and Stock Price Impact - The Zacks rating system is based on changes in earnings estimates, which are strongly correlated with near-term stock price movements [3][5]. - Institutional investors utilize earnings estimates to determine the fair value of stocks, leading to buying or selling actions that affect stock prices [3]. Company Performance and Outlook - The upgrade for RCI Hospitality reflects an improvement in the company's underlying business, suggesting that investor sentiment may drive the stock price higher [4]. - For the fiscal year ending September 2025, RCI Hospitality is projected to earn $4.55 per share, representing a 1278.8% increase from the previous year [7]. Zacks Rank System - The Zacks Rank system classifies stocks into five groups based on earnings estimates, with Zacks Rank 1 stocks historically generating an average annual return of +25% since 1988 [6]. - RCI Hospitality's upgrade places it in the top 5% of Zacks-covered stocks, indicating strong potential for market-beating returns in the near term [9].

Building a portfolio of well-managed, high cash-flowing nightclubs and sports-bar restaurants NASDAQ: RICK | 1Q25 Conference Call | February 10, 2025 | www.rcihospitality.com | @RCIHHinc Today's Speakers Eric Langan President & CEO RCI Hospitality Holdings, Inc. @RicksCEO Bradley Chhay Chief Financial Officer RCI Hospitality Holdings, Inc. @BradleyChhay Mark Moran CEO Equity Animal @itsmarkmoran 2 X Spaces Instructions Or 3 • Log in to: X (formerly Twitter) • Select this X Space: https://x.com/i/spaces/1zqK ...

Financial Data and Key Metrics Changes - In Q1 2025, total sales for the Nightclub segment increased, while Bombshells segment sales declined due to the closure of underperforming locations [9][10] - Net income attributed to common shareholders was $9.0 million, with GAAP EPS at $1.01 and non-GAAP EPS at $0.80 [13][14] - Net cash provided by operating activities was $13.3 million, and free cash flow was $12.1 million, nearly matching year-ago levels [10][16] - Adjusted EBITDA was reported at $15.7 million [16] Business Line Data and Key Metrics Changes - Nightclub revenues increased by $0.7 million or 1.1%, driven by a 3.7% increase in same-store sales and the addition of three new or reformatted clubs [17][19] - Bombshells revenues declined by $3.1 million or 24.7%, attributed to the closure of five underperforming locations and a 7.5% decline in same-store sales [20][21] - Operating income for Nightclubs was $20.9 million with a margin of 33.8%, while Bombshells saw an operating income increase to $1.9 million with a margin of 20.6% [19][21] Market Data and Key Metrics Changes - The company reported no weather-related closures for Nightclubs and Bombshells during Q1, but faced 14 days of closures for Nightclubs and seven days for Bombshells in the second quarter [22][23] - The weighted average interest rate on debt was 6.65%, slightly up from 6.61% a year ago [24] Company Strategy and Development Direction - The company aims to allocate 40% of capital to club acquisitions and 60% to share buybacks, dividends, and debt repayment, targeting a 10% to 15% annual growth in free cash flow per share [26][27] - The focus remains on improving the performance of existing Bombshells locations, with a near-term target of 15% operating margins and returning to same-store sales growth [29] - The company anticipates generating over $250 million in free cash over the next five years and plans to buy back a significant amount of stock [30][31] Management's Comments on Operating Environment and Future Outlook - Management noted that while the two largest contributors to revenue were down, many midsize clubs showed improvement, indicating a shift towards increasing customer volume [50][51] - The company is confident in its pricing power to maintain margins and aims for a steady same-store sales growth of around 3% as part of its five-year plan [52][53] - There are plans to address approximately $23 million to $28 million in non-income producing assets to enhance cash flow [53][54] Other Important Information - The company sold or closed four underperforming locations in the Bombshells segment during the first quarter, totaling five closures since September 2024 [10][11] - The acquisition of the Flight Club in Detroit for $8 million is expected to generate about $2 million in annually adjusted EBITDA [11][12] Q&A Session All Questions and Answers Question: Is the $1.7 million for the self-insurance reserve a cash expense or non-cash? - Management clarified that it is a one-time non-cash expense related to self-insurance setup [35][36] Question: Can the EBITDA margins for the Detroit club improve over time? - Management indicated it is too early to tell but expressed optimism for better performance as operations stabilize [40][41] Question: Are there any residual cash outlays for the closed Bombshells locations? - Management stated there are no current cash outlays, although there is a lawsuit from a landlord [44][45] Question: What is the outlook for the operating environment in early 2025? - Management noted mixed performance, with larger clubs down slightly but midsize clubs performing better, indicating a focus on increasing customer volume [49][50]

Company Performance - RCI Hospitality reported quarterly earnings of $1.01 per share, exceeding the Zacks Consensus Estimate of $0.52 per share, and up from $0.77 per share a year ago, representing an earnings surprise of 94.23% [1] - The company posted revenues of $71.48 million for the quarter ended December 2024, surpassing the Zacks Consensus Estimate by 0.51%, but down from $73.91 million year-over-year [2] - Over the last four quarters, RCI Hospitality has surpassed consensus revenue estimates four times, but has only beaten EPS estimates once [2] Stock Outlook - RCI Hospitality shares have declined approximately 9.6% since the beginning of the year, contrasting with the S&P 500's gain of 2.5% [3] - The current consensus EPS estimate for the upcoming quarter is $0.72 on revenues of $71.73 million, and for the current fiscal year, it is $3.98 on revenues of $302.52 million [7] - The estimate revisions trend for RCI Hospitality is currently unfavorable, resulting in a Zacks Rank 5 (Strong Sell), indicating expected underperformance in the near future [6] Industry Context - The Leisure and Recreation Services industry, to which RCI Hospitality belongs, is currently ranked in the top 32% of over 250 Zacks industries, suggesting a favorable industry outlook [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact RCI Hospitality's stock performance [5]

Financial Performance - RCI Hospitality Holdings, Inc. announced sales at nightclubs and restaurants for the first fiscal quarter ended December 31, 2024[4]. - The press release detailing the financial results was issued on January 8, 2025[4]. - The financial statements and exhibits related to the earnings report are included in the filing[6]. Company Information - The company is listed on The Nasdaq Global Market under the trading symbol RICK[2]. - RCI Hospitality Holdings, Inc. is classified as an emerging growth company[3].

Financial Performance - Total revenues for the three months ended December 31, 2024, were $71,483,000, a decrease of 3.2% from $73,907,000 in the same period of 2023[14] - Net income for the three months ended December 31, 2024, was $9,065,000, representing an increase of 25.3% compared to $7,244,000 in the prior year[14] - Earnings per share for the three months ended December 31, 2024, were $1.01, up from $0.77 in the same period of 2023, reflecting a 31.2% increase[14] - Nightclubs segment revenues increased to $61.724 million in Q4 2024 from $61.033 million in Q4 2023, while Bombshells segment revenues decreased to $9.587 million from $12.731 million[35] - Income from operations for the Nightclubs segment was $20.882 million in Q4 2024, compared to $20.369 million in Q4 2023, indicating a growth of 2.5%[35] - Consolidated revenues for the first quarter decreased by $2.4 million, or 3.3%, primarily due to the $4.4 million impact of closed locations[85] - Nightclubs revenue increased by 1.1% to $61.7 million, driven by a $2.1 million increase in same-store sales, partially offset by a $1.8 million impact from closed clubs[88] - Bombshells revenue decreased by 24.7% to $9.6 million, with a 7.5% decline in same-store sales and $2.6 million from recently closed locations[89] - Basic and diluted earnings per share (EPS) for the quarter were $1.01, compared to $0.77 in the prior-year quarter[87] - For the three months ended December 31, 2024, the consolidated operating margin improved to 19.5% from 17.8% in the same period of 2023[97] Cash and Assets - Cash and cash equivalents increased to $34,718,000 as of December 31, 2024, from $32,350,000 at the end of September 2024, marking a 7.3% increase[12] - Total assets as of December 31, 2024, were $586,218,000, up from $584,364,000 as of September 30, 2024, indicating a growth of 0.3%[12] - The company reported a net receivables balance of $3.519 million as of December 31, 2024, down from $5.832 million as of September 30, 2024[40] - The company’s retained earnings increased to $210,160,000 as of December 31, 2024, from $201,759,000 at the end of September 2024, reflecting a growth of 4.9%[12] - Free cash flow for Q4 2024 was $12.068 million, a decrease of 4.6% from $12.650 million in Q4 2023[117] Expenses and Liabilities - Operating expenses for the three months ended December 31, 2024, totaled $57,577,000, down from $60,742,000 in the same period of 2023, a decrease of 5.3%[14] - Total liabilities decreased to $317,447,000 as of December 31, 2024, from $321,254,000 as of September 30, 2024, a reduction of 1.2%[12] - Selling, general and administrative expenses rose from $25,201,000 for the three months ended December 31, 2023, to $26,207,000 for the same period in 2024, an increase of approximately 4.0%[44] - Total accrued liabilities increased from $20,280,000 as of September 30, 2024, to $20,514,000 as of December 31, 2024, an increase of approximately 1.2%[42] - Depreciation and amortization expenses for the three months ended December 31, 2024, were $3.569 million, compared to $3.853 million in the same period of 2023[35] Tax and Legal Matters - The effective income tax rate decreased from 19.9% in 2023 to 16.9% in 2024, reflecting a reduction in tax burden[45] - The company recorded a lawsuit settlement of $179,000 for the three months ended December 31, 2024, compared to $0 in the same period of 2023[61] - The company recorded an assessment of $2.8 million from the New York State Department of Labor for state unemployment tax matters for the years 2009-2022[57] Strategic Initiatives - The company completed the acquisition of a club in Detroit for a total purchase price of $11.0 million, including $3.0 million in cash and a seller-financed note[72] - The growth strategy includes opening new units and acquiring existing units in high growth potential markets, with a new Bombshells location opened in Denver, Colorado, in January 2025[125] - The company is evaluating opportunities to acquire new nightclubs and anticipates acquiring locations that fit its business model, potentially requiring additional debt or stock issuance[126] - The company aims for a minimum cash on cash return of 25%-33% for new club or restaurant acquisitions, absent strategic rationale[126] - The company is considering disposing of underperforming units to free up capital for more productive uses[126] Internal Controls and Compliance - The company identified material weaknesses in internal control over financial reporting as of September 30, 2024, related to IT general controls and management review controls[130] - Remediation efforts are underway to address the identified material weaknesses, with expected completion prior to the end of fiscal 2025[134] - The company will engage third-party consultants to assist in the valuation and accounting for intangible assets acquired in business combinations[131] - The company maintains disclosure controls and procedures designed to ensure timely and accurate reporting to the SEC[128]

Core Viewpoint - Wall Street anticipates a year-over-year decline in earnings for RCI Hospitality, with a focus on how actual results compare to estimates impacting stock price [1][2]. Earnings Expectations - RCI Hospitality is expected to report quarterly earnings of $0.52 per share, reflecting a year-over-year decrease of 32.5% [3]. - Revenue projections stand at $71.12 million, down 3.8% from the previous year [3]. Estimate Revisions - The consensus EPS estimate has remained unchanged over the last 30 days, indicating stability in analyst assessments [4]. - The Most Accurate Estimate aligns with the Zacks Consensus Estimate, resulting in an Earnings ESP of 0% [10]. Earnings Surprise Prediction - The Zacks Earnings ESP model suggests that a positive or negative reading indicates potential deviations from consensus estimates, with positive readings being more predictive of earnings beats [6][7]. - A positive Earnings ESP combined with a strong Zacks Rank increases the likelihood of a positive surprise, with a success rate of nearly 70% [8]. Historical Performance - RCI Hospitality has not surpassed consensus EPS estimates in the last four quarters, with a significant miss of 91.89% in the last reported quarter [12][13]. Overall Assessment - The combination of a Zacks Rank of 5 and an Earnings ESP of 0% suggests that RCI Hospitality is not a strong candidate for an earnings beat [11][16]. - Investors are advised to consider other factors beyond earnings results when evaluating the stock [14][15].

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Acquisition Details - RCI Hospitality Holdings Inc acquired Flight Club, a premier gentlemen's club in Detroit, for a total purchase price of $11 0 million, including $3 0 million cash and $5 0 million seller financing at 8 0% for the club, and $3 0 million cash for associated real estate [2] - The acquisition is expected to contribute an estimated $2 0 million in annualized adjusted EBITDA [2] - Flight Club is a two-story, 10,000-square foot establishment located at 29709 Michigan Avenue, Inkster, MI, established in 1997 and recently renovated [2] Strategic Fit and Management Commentary - The acquisition aligns with RCI Hospitality's portfolio of high-end clubs with restaurants in major cities and is the first club purchase since the launch of the company's 5-Year 'Back to Basics' Capital Allocation Plan [2] - Eric Langan, President and CEO of RCI Hospitality Holdings Inc, stated that Flight Club is a well-established business that should benefit from the company's marketing, purchasing, and systems expertise [2] Company Overview - RCI Hospitality Holdings Inc, through its subsidiaries, operates more than 60 locations and is the leading company in adult nightclubs and sports bars-restaurants in the country [3] - The company's brands can be viewed at www rcihospitality com [3]

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