RCI Hospitality Holdings, Inc. (RICK) Earnings Call Transcript & Summary

Greetings, and welcome to RCI Hospitality Holdings Third Quarter Sales Twitter Spaces call. We have a short presentation that you can find on the RCI Twitter feed or the company's website. On the website, click the Company and Investor Relations information tab under the RCI logo. That will take you to the company and investor info page. Scroll down and you'll find the link. Now turn with me please to Slide 2 of our presentation. Today's speakers from management are Eric Langan, President and CEO of RCI Hospitality; Travis Reese, Executive Vice President; and Bradley Chhay, CFO. Turn with me to Slide 3. I'm Mark Moran, Head of Business Development and Operations of Litquidity, a Wall Street communications and media firm. I'm co-host of today's call along with Litquidity and WOLF Financial. WOLF is the #1 Twitter spaces host for investors. It provides daily live audio education to more than 75,000 investors. WOLF's CEO, Gav Blaxberg will moderate the Q&A. Gav hosts and moderates more than 20 engaging finance-focused Twitter spaces for free every week. Now turn with me to Slide 4, please. [Operator Instructions] Turn with me to Slide 5. I want to remind everyone of our safe harbor statement. It is posted at the beginning of our conference call presentation. 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, and we disclaim any obligation to update information disclosed in this call as a result of developments that occur afterwards. Now turn with me to Slide 6, please. I'd like to also direct you to the explanation of non-GAAP measurements that we may use. As a reminder, this conference call is being recorded. Now it is my pleasure and privilege to introduce Eric Langan, President and CEO of RCI Hospitality. Eric, take it away.

Thank you, Mark, and thanks, everyone, for joining us today. What a quarter, $70.1 million in total sales from our Nightclubs and Bombshells. I'll remind everybody that does not include other revenues, and those will be updated and final numbers will be posted August 9 is our current plan. This is our first quarter with no major disruptions in our business, our employees and I think our customer base from COVID. So it's nice to kind of get back to what I would consider a normal run for the company and normal operations. Our first quarter '21 club purchase was fantastic operations for us this quarter. As I had discussed a little bit in the last quarter, March -- we thought it would be May before those clubs were major contributors, but we actually did very well in March, and that continued to grow and do very well for us in April, May and June as well. And you'll see that in our Nightclub revenues up 33.8% year-over-year to $54.3 million. There were still COVID effects and COVID restrictions last year. So some of that increases from that as well, and same-store sales up 4.8%. And that is -- I think that 4.8% is kind of what you're seeing from the operations restrictions going away in the North, mainly New York, Chicago, that type of -- those types of restrictions on both having to get COVID cards, having everyone to have to wear masks and some very limited, but some hours of operations as well, restrictions were still around last year. You'll see our fiscal '22 acquisitions added $11.8 million in sales. So very excited about that. We've kind of continued rebound in our northern clubs, mainly the New York market, where our VIP spend is returning and has continued to increase. And we've benefited from traffic created from major sporting events being visited again and really conventions in key markets like Minneapolis, New York. Miami has been a great benefit for us in this quarter and helped us reach that $70 million number. I'd like to remind everybody that when we we've been saying that we think our normalized run rate will be somewhere between $260 million and $280 million. So $70.1 million will put us at the high end of that trend. Bombshells, $15.8 million, down about 1.9%. Bombshells is the kind of the opposite of the clubs where everything -- where all the Bombshells were actually open. Our patios were doing very, very well last year due to COVID. The Delta variant was out, and we were doing very well at Bombshells, in fact, better than we've ever done. Same-store sales down 12.3%. That's because all of our competitors are actually open this year versus last year. A lot of those places were closed. A lot of places to drink, especially in the state of Texas, we're closed or had very limited access last year, or this year, that was not the case. But I will remind you that it's $15.8 million in revenues for the quarter. We had 11 stores, which puts our annualized -- if you annualize that, we divide it by 11, annualize it, we're about $5.475 million per unit, which is fantastic for us. We're very excited about those run rates. And that's about $1 million over our 2019 average unit volumes. So we're still doing very, very well compared to pre COVID. Bombshells is also experiencing basically our normal operating trends, seasonal trends, where we start slowing down in the summer. In Texas, it gets very, very hot. In fact, we're in a heat wave right now about 107 every day right now. Humidity is very high in Houston. And so that slows our patio business down a little bit. Arlington added $1.7 million in sales. The store is still doing very, very well for us. Like everybody in [indiscernible] -- like I said, the key point here is that our run rate is at the higher end of our $260 million to $280 million run rate. Maybe if you turn to Slide 8. This gives you the idea of what the growth looks like from '21 to '22 and breaks down the clubs for you. And turning to Slide 9, you'll see that we ended the quarter with $37.5 million in cash. We still have a considerable amount of cash. Our high cash balances allowed us to take advantage of some opportunities. We made a club acquisition. About $5 million in cash was used for that. And we used $9.2 million of our cash to repurchase shares. For the quarter, average price $0.5481. Very excited to get those shares bought back. In fact, we've been buying about $100,000 worth of stock a day. As I've said multiple times, I see us continuing to do that for the time being. And we made a very -- we had a week where we did a very large -- about 3 or 4 days of large purchases when the stock dipped down to about $47. So that -- we -- like I said, if the stock goes under $50, we would get more aggressive. It did that. We got more aggressive. So we'll watch as the market trades the stock and act accordingly based on our current cash positions. You'll see that for the 9 months, we have bought back 213,000 shares. About $12.1 million of our free cash this year has been used to repurchase shares at an average price of $56.42, which is about a 6% discount from the stock we issued -- the 500,000 shares we issued in November or October for the 11 club acquisition. So we're already retiring basically not those exact shares, but a similar amount of shares. And with that, I'll hand it off to Gav, and we can start the Q&A.

Thank you Eric. This is Gav Blaxberg of WOLF Financial. [Operator Instructions] To start things off we would like to take questions from RCI's analysts and then some of it's larger holders. Let's starts things off with Rob McGuire of Granite Research.

Congratulations on the quarter.

Thanks, Rob.

Can you kind of give us a breakdown of revenues by month? And were there any unique events this year that drove revenues that may not be there in future years?

I don't think so. I don't know by month. I know that April was strong. May was a little stronger than April. And of course, June was probably the weakest month of the 3, which is very typical for our seasonality. I can't think -- I mean, yes, there were some NFT events, there were some conventions, but we typically have those events or something similar to those in different markets every quarter. So I don't think there's any onetime events that really affected this quarter. I think this is pretty solid for a run rate for this quarter. Our typically top season quarters are October through March, those 6 months. And then in this quarter weakens a little from those. But of course, this year, it was up because we had COVID effects in the last quarter and, of course, in the first quarter. And the fourth quarter is typically our seasonally weakest quarter for revenues.

And then can you talk about Bombshells, Arlington? What do you think the 12-month revenue run rate would be by September 30?

I think we're getting pretty close to it. So about -- so we did 1.7 times 4, you'd be at about 6.8. So I think the run rate is probably somewhere between $6.5 million and $7 million for that location, a little bit higher than our average of 4.475.

Let's go over to Anthony Lebiedzinski of Sidoti & Company.

Certainly nice quarter as well. So in terms of the clubs that were acquired back in October, are they performing at pre-COVID levels or above? I mean, can you give us a sense as to where those trends are, please? .

Sure. Combined, they're running right at or a little over. We have several clubs that are running above the 2019 numbers, and we have a couple that are still catching up with those 2019 numbers. The nice thing is that the management teams are in place. As far as the top level management, we're now building their teams around the leaders that we've put in, and we're seeing very significant growth amongst the team, and that's translating into revenue and market share as well. So it's been a process. This is one of the first major acquisitions that we've done where we turned so much of the existing management and existing staff at the clubs. Typically, when we buy, we only turn about 20%. And we turned much, much higher level. That top management levels were as high like [ 80% ] on this acquisition. So it's taken a little longer basically to put all of our processes in place because in order to do that, you have to have the right management teams. But Ed and Dean have done an unbelievable job of making that happen, and we're starting to see the results of that. And I think we'll see continued increase from those locations, especially as we hit the prime season running October through March.

[Operator Instructions]

Sorry about that. I didn't realize that I was put on mute again. So just a follow-up in regards to -- Eric, your comment in regards to the VIP spending, you said it was returning. Was that across the board? Or is that -- were you referring more or less to the northern clubs? I just wanted to get a better sense as to whether -- what you're seeing as far as the service revenue as a component of total revenue.

Yes. I mean, mainly, we're seeing that in New York, and Minneapolis is returned. We have normalized a little bit more in the southern markets all along for a while now. So really, I'm speaking of like New York and Minneapolis. Those are the 2 markets that were kind of lagging in that VIP spend. And New York is a huge VIP market for us, enough that -- you're talking about percentage points in service revenues from the New York clubs alone.

Got it. Okay. And if I could just kind of squeeze one more question. And so as far as just what's going on with inflation, any sort of commentary that you could guys could share about segment operating margins for the quarter or so as we kind of fine-tune our models? I just wanted to see if you guys could provide an update on that.

It's a little early for that. As you know, we had the July 4th weekend in there. We lost a Monday. Everybody came back to work that Tuesday on the 5th, and we had a lot of closeouts to catch up just to get the revenue numbers out for today. And they have not even -- they're just starting closing. So I don't have any color at all on margins or income or any cash flow or anything at this point. We're -- it's just way too early in the closeout for us to have anything like that. Sorry.

Let's go over to Joe Gomes of NOBLE Capital Markets.

Eric, I was wondering maybe you could kind of give us how the quarter kind of went, if you could take us through the quarter, maybe we could get somewhat of an answer to the previous question. How strong was it in April? Did you see any fall off as you went towards June more than normal seasonality with kind of you would kind of expect? Any kind of insight you can give us there would be appreciated.

I'd say no. April and May were unbelievable, very, very good quarter, very good months. June was a very strong month, but yes, we did see typical seasonal slowdowns. I think when school got out, end of May, early June, I expected to see a drop. It was very minor. It was almost a blip, not even really a drop until about the third week of June. And I think that's when vacations really -- people started traveling abroad, people started doing a lot more vacationing and whatnot. And so kind of a little bit weaker. I think gas prices started going up a little bit. So some of our blue collar clubs may have seen the spend down a little bit. The visits are still there. And so that's exciting for me. As long as the visits are there, I'm very happy. If our number -- if the visits and club number of patrons start to go down at the clubs, that will be a little more concerning for me. But we're not seeing that as of yet. The first 2 weeks of July are always -- July 4 is probably the weakest week of the whole year on a normalized basis. So we did see that July -- first week of July slowdown. And then now the second week, we're seeing a little recovery from that. And I think we'll continue to return to basically a normal summer run, which, to me, is very exciting. If we can get back to normalized runs, then we can make predictions. Then we can say this is what we're going to do and be very certain or fairly certain that that's our run rate, that's the cash flow. And it's a lot easier for us to project and make acquisitions and invest our free cash, knowing exactly kind of where the future is going for us. This is very exciting for me because that means as it starts getting darker, as people starting to come back and the spend will return from people that are on vacations and those types of things, we'll start seeing that come back into the clubs mid-September, early October and then run basically through May again.

Okay. So last time we spoke, you talked about on the acquisition pipeline, you were getting -- handling a lot more inbound calls. Wondering if that was still what you're kind of seeing. You had mentioned also that you had been in some discussions with a multi-unit operator. I'm wondering if you could give us a little update on that. .

On the multiunit operator, we're still discussing. I think the earliest we would probably see anything of that type of size would probably be the December -- between December and March based on where we're at in the process right now. If we could get anything done with that particular operator. We are talking with lots of other people as well. I think we'll probably see some acquisition news by mid-August, if not sooner. We've got 2 under contract, as we've said, in Fort Worth and Odessa, Texas. Both of those were just waiting for licenses to close those transactions. So they won't be far away. We've got the 2 San Antonio clubs, which we've closed and remodeled and in the process 3 concepting. Both of those clubs should reopen by the middle of August, if not by the end of July as well. We're very close on both of those locations. So that will add a little revenue back and that's missing right now as well as several other operators we're talking to. We've got the Expo coming up in August, on August 14. We'll be out in Las Vegas with the adult club owners Expo. We're going to be meeting with a lot of people out there. I've set up a few meetings already. And I'm sure that I will have many, many impromptu meetings that we're running to, and we're going to put the word out there that we're -- we really need to spend between $80 million and $100 million in acquisitions in 2023 by buying $20 million plus of EBITDA. So we're going to get that with that out there, let people know that we're looking at it now. It's a very good time for them to talk to us.

Great. And one more, if I may. You talked a little bit about the events, how they contributed in the quarter. As you look out over the rest of the year, any particularly big events that you see that would be particularly meaningful going forward for the rest of the year? .

Yes, sure, Joe. Football. We're ready for football. So we've got -- football starts in August. So we've got about another month of just baseball, then football will start back up. Then you'll have the NBA start back up. And football was pretty weak the last couple of years due to their the politics of it. I think the Super Bowl this year was just a great Super Bowl out in -- at [ SoFi ] Stadium. And I think that from talking to people out there, NFL has gotten less political at the moment. Hopefully, it stays that way because politics has no place in sports. And if they -- if that can continue, I do think that football will be very, very big for us this year. There were some exciting trades. There's some great talent that's come up through the combine. And I think that it will be good for us. And the NBA is actually -- like it could be pretty interesting for us as well. So I'm looking -- I'm very excited for both of those sporting events and games to be started back up I think it will be great for Bombshells and it's always great for Rick's and some of the other clubs that are located close to the stadiums.

Rob, do you have a question?

You mentioned higher gas prices, are you seeing any slowing in the consumer demand either in blue or white collar in the night clubs or the restaurants, any evidence at all?

I mean, it's really hard to tell because it's hitting right at our typical summer slowdown. So it's really hard to tell. Is it the gas? Is it the slowdown? Is it people vacationing more, it's very minor, I would say, maximum from our peaks in April. March, April, May, our numbers are off maybe 8% to 10% at certain locations. So it's nothing that -- it's abnormal. It's pretty nice. Like I said, it's nice to get back to some normal type flows. I think it's just -- it's a contribution of everything. I think it's a little bit gas. It's a little bit food cost or inflationary costs, as you would call it. And I think it's a little bit vacation. And I think a lot of it -- maybe some of it is even some fear out there. So people are kind of wait and see -- kind of wait-and-see type deal. I personally haven't changed my habits much. And most of the people I talk to -- even people when I talk to them at the clubs. I'll be in Miami this Saturday night, so I'm going to get -- going to be throwing a party there, and I will be talking to a lot of guests and hopefully get a feel for how that market is. I know in Texas, it's been pretty much a nonevent for Texas, as I can tell so far, except for maybe like a very, very -- like our college-based clubs, our lowering clubs. But the colleges, the kids are in their towns right now. So those college towns always slow down this time of year. And so it's -- to me, it's -- I can't put a finger on any one particular cause. I think it's just a combination of everything that's -- which is the return to normal, right? That's -- this is typical game. Year-over-year, we're still strong. And that's really what I'm kind of watching, not as much sequential as year-over-year. But this June was basically better than last June and I think on the club side. And I think that in July, we're going to see the same thing. We're going to see a stronger July. We're going to see stronger August regardless of what happens in the market.

And then with regards to San Antonio and the opening of Bombshells, certainly, it can't hurt to have a patriotic theme restaurant open on July 4. But can you talk about how that went? And are there any differences in opening a franchise location relative to a company-owned store?

Well, the opening is the same. I will tell you they beat our record by I think $53,000 or something. It was the biggest opening week of a Bombshells ever, just beat Arlington. Arlington was our old -- was the old record, the last one that opened. The team is fantastic. We've actually had to bring in extra kitchen managers from some of our other clubs to help them because they went through 2,000 pounds of wings in 2.5 days. So it was a little overwhelming to the team. I've talked to them. They're still there. In fact, the franchisee has asked them to stay an extra week. We normally would do a 2-week deal, but because the numbers are just so high and so overwhelming, they've asked the team to stay for another week. So the team is going to stay -- the opening team is going to stay there another week. And it's just a very exciting location. It's a great location there on 151 on the way to SeaWorld, right by the base, one of the big bases there. The military has been very supportive in San Antonio. And we're just very excited to see our franchisee doing so well. They are looking for a second store already. And it's got our Huntsville franchisee, very excited. He's monitored and watched how San Antonio opening has gone. He's very excited and really pushing to get his store under construction and started. And another franchisee that we've been negotiating with has now sent us some site selections, and we're going to be going out there over the next week or two into their market and looking at those locations. And hopefully, we can settle in on one of the locations that they've picked out and get them signed up. So we may have our third franchisee here very soon as well.

Can I ask a question? I think I got added as a speaker. .

[indiscernible] Adam.

Okay. Very good. A couple of questions here. One is on the buyback. You guys accelerated the buyback meaningfully and acquired approximately 2% of the company this quarter. It seems to be, at least based on the revenues, $70 million x the other, maybe we're at $71 million, $72 million. Seems like we're right on track to hit that $24 million, $25 million of EBITDA if your margins come in okay. I kind of work off of a $25 million EBITDA number run rate. That's about $8 a share of free cash flow. So I kind of do the math, I say $8 a share of free cash flow, 9 million shares, plus or minus, about $72 million. So you basically acquired about -- well, a little less than half of your free cash flow in the buyback. Do you think that, that's a sustainable rate of repurchase I mean, absent something changing with M&A? I mean, obviously, if you can buy a business at 4x EBITDA 25% cash flow yield that might be better. But the cash on cash, probably even better with the leverage. But my question is, in the absence of sort of the M&A pipeline just exploding and having to buy $40 million of EBITDA, do you think you can continue to buy a couple of percent of the company a quarter?

We've earmarked the $6.5 million of our cash for buyback for this quarter at this time. We are working on the closing. So we have $37.5 million cash at the end of the quarter. We are currently working on closing a property. It should close today. Actually, in Philadelphia, we finally sold that property to the Port Authority up there or should be closing today, which will give us several million dollars in cash, I think about $3.75 million in additional cash or $3.65 million additional cash, which puts us back over our $40 million. So if the stock goes under $50 again, we could get -- we could -- we have the cash to be aggressive again in this quarter. So -- but right now, we've earmarked about $6.5 million, about $100,000 a day for the 65 trading days basically.

Right. Okay. So $6.5 million, which is a little bit less than last quarter, but if free cash flow is sustainable at these levels, that could increase as well. .

Like I said, it could, it's going to be on the market. Like I said, if it goes -- if the stock goes under $50, we tend to get a little more aggressive. I think it was the third week of June, the stock dropped down to 46 or 52-week low -- and that week is when we stepped up. I want to say we bought about $3 million worth of stock that particular week. So we're on $100,000, $100,000, $100,000. And then when we saw that opportunity, we knew we had the Philly property under contract was going to close in July at some point. And I say, well, we don't need to end the quarter at $40 million. We can end just under because we're going to have that cash come in right after. Let's take that $3 million in buyback stock this week. It's just the stock is just too cheap at $46.

Right. So if you can make -- basically, what you're saying is if you can sustain around a $40 million cash balance, right, that the -- any excess cash flow beyond that you could add towards the incremental buyback in the absence of more accretive M&A.

Yes, I said that all along. Look, I'm keeping $40 million because that is where the incremental accretive M&A. So I don't need -- we need maybe $20 million cash on hand. So I'm keeping about $20 million for what I call opportunistic acquisitions. We have one of those coming up very soon. As I said earlier, I'm hoping we'll get some type of announcement by mid-August and get that deal in here. We're very, very close on working out the final details of that acquisition and licensing and due diligence and all that type of stuff. So providing no issues with due diligence, I think that's our time line right now.

Yes. I mean I think, obviously, you guys have been doing these spaces and calls. And I think trying to educate investors on the -- on kind of the nuances and perhaps the less understood qualities of the businesses. Obviously, I think Bombshells had a tough comp this quarter. But I mean, in general, the sports bar business, we were shareholders of Buffalo Wild Wings in the '06, '07, '08 context, and the business actually performed very well. And we saw that the people, as they went to sporting events less, perhaps traveled less. They spent more money on alcohol and going to the bar and getting drunk. And so I sort of understand the resiliency around Bombshells, obviously, a tough comp. Like I understand kind of the business case of Bombshells relative to Buffalo Wild Wings in a downturn. But it might be helpful to talk about like your history of managing the Nightclubs business and talking about the variable cost structure, your ability to drive traffic through cover versus table and how these businesses tend to perform through a downturn and while you're really confident that you can grow through a downturn.

Well, I mean, we've done some of our best growth when the economy gets bad or right as we -- especially as we came out the other side of 2009, 2010, we made a major acquisition in 2012 with 9 clubs and a single acquisition. That was our largest acquisition before the Lowrie acquisition this past October, November. And I just think that the reality is we understand the bar business. And what happens -- I call it trade-down, right? So New York's best time, the highest numbers New York had ever done was during the worst part of 2009 and early 2010 right there. And that's because people traded down. So all the guys that used to go to Atlantic City and blow $10,000, $20,000 on a weekend, they stayed in the city. And they still need an escape. So they come in instead of drop $20,000 or $10,000 in Atlantic City, they dropped $3,000 to $5,000 at Rick's is what we saw. And I think we'll see that same type of trade-off if there's a slowdown. I'm not 100% sure there's a slowdown yet. I also believe that by September, October, if there's a slowdown, and we see what trends, we're going to see everybody back in the office. And for us, that's a great -- especially for Manhattan, Minneapolis, Chicago, where our clubs are in those downtown areas, the major work areas, that's going to be fantastic for those northern locations. And even some of our Dallas clubs and other clubs around the country, where we're centered in that central business district, people going back to work. And I think New York estimates there, what, 45% or 50% return to office right now. And the numbers we're doing up there are fantastic. I mean, can you imagine if they return back to 95% or 85% people back in the office, that's going to be huge. That's going to be huge for us. And 2 major clubs didn't reopen. We lost 20,000 square feet of adult space in New York City with the scores and executive clubs not reopening both 10,000 foot location. So that's going to be very promising for us in that New York market, especially.

Yes, I was going to ask you about that, that obviously, the scores, I don't know who owns the real estate, but I mean obviously, in the context of Vivid and Hoops and Rick's, I mean, if those don't reopen as clubs, I mean, that should be massively transformational for your business. I mean, because if you look at the productivity of New York [ Tri-Lehman ] Brothers. I mean, as you said, there was a lot of VIP that started to come back, but it's still well below what it was before. And then when you compound the fact that like maybe these scores clubs because they're in viable real estate. If that gets repurposed as you know condo buildings and stuff. I mean those clubs are gone, no more licenses are being given in New York. So like that's a permanent -- you're a permanent beneficiary of that if those don't reopen, correct?

I believe so, yes. I mean you could find locations, but I mean everything we've looked at has been what I call cost [indiscernible]. It's not the best use for the real estate, right? I mean if you can build a a 50-foot condominium project on the property, operating strip clubs probably not the best use for that real estate.

Right. That's interesting. Yes. No. I mean, look, I was reading in the New York Post about the scores and the people buying the real estate and there was all that stuff with the owners. And I said, well, hey, maybe there's an opportunity for us to buy these things cheaply, but I didn't even really consider the fact that if we don't buy them, right, or they're not bought or whatever, then and they don't get reopened to strip clubs, like that revenue has to go somewhere.

Yes. I'm guessing that real estate, the scores property now 27, 28 Street used to be a little more ran down, but it's gotten [ RC ] over there a little bit. They've built some high-rise projects over there. I'm betting that properties for $25 million, $35 million and maybe more, I don't know. I don't know that -- I don't -- just don't know that side of town very well. We don't have anything on the west side of town. I know our area of Midtown and that. But like even our property, if we had not sold our air rights are -- I don't know that -- Rick's with the cash flow we're doing there would still be the best use for that particular property. It might have been worth building a high-rise building, but luckily, our neighbor built it. So Rick's will be there for a long, long time. That was kind of the plan when we sold our air rights is. Look, let's make this -- this property will always be small. We'll keep developers from chasing after it and trying to run the club out of there because we make so much money out of there as a club.

I'll leave you with this last question. So I mean, look, high level, you navigated this business through 2000, 2008, a bunch of downturns. I mean what I'm hearing from you is that, obviously, there are still puts and takes, things in some markets that -- whether it's oil in Texas or scores closing in New York that even in a downturn, we might not see the full brunt of it on an organic basis. And then on compounding that, you think you'll be able to grow through M&A. So this is -- I think a lot of people that we talk to on the stock, they're like, "Oh, well, we don't want to own a strip club or restaurants business is kind of tip of the spear, and we don't want to own that into a consumer downturn." But the reality is that you guys have some things unique to your markets that are probably going to be longer lasting and you know how to balance that, and you probably will do M&A on top of that. I mean, Is that a fair characterization of the situation? .

That's very fair. And I'll let our records speak for itself. If you look, when I took over this company in 1999 as CEO, and we grew revenue every single year except 2017. 2017 was the only year that we had declining revenue. And the reason we had declining revenue is we switched to our capital allocation strategy in 2016. And I realized look, we have all these, what I call anchors. We had all these locations that weren't performing. The -- we had a real estate worth $3 million or $4 million that had a club in it that was making $150,000 a year. So $150,000 a year on a $4 million capital investment is not very good, right? You would be kicking me right now if I owned anything like that. And I said -- as we said, "Look, we've got to divest." So 2017 was our divestment year. We started getting rid of all the underperforming assets and taking and said, "Okay, look, this is worth $4 million. Let's take that $4 million, and let's sell that asset, whether for developers or to another club operator, who cares? Get rid of it. Bring our $4 million back in and redeploy that $4 million under our capital allocation strategy, where we're going to earn 25% to 30% -- 33% plus cash-on-cash returns on that $4 million. And then you started -- as we did that 2017, you started to see the explosion happening in '18 and then in '19, and you would have seen in '20, but COVID got us. Now COVID's gone, and I think you're seeing it this year. '21 was better, 22 is better, '23 is going to be one of our best years ever, I think.

Yes. I mean, look, I think one of the most misunderstood components of this business is I think people tend to think that it is more economically sensitive than it actually is. And whether it's our work on Buffalo Wild Wings or regional gaming and casinos outside of Vegas, we tend to find that these -- kind of -- these businesses kind of provide an escape, whether the economy is good or bad. And so I think one of the things I would encourage you to focus on is communicating to investors that this doesn't have the economic sensitivity that people perceive it to. .

Yes. And I just go back and look at our 2008, we had 2 quarters where our revenues were -- and then our earnings were hit. And then right, we were at one level, we dropped down for about 2 quarters. And then we're right back to that level, and then we started exceeding that level. I think our worst case is -- and that was a big [ blast ]. I mean you're talking about a financial meltdown in the country that based -- and we made money both quarters, right? We just dropped down to $0.08 a quarter instead of -- I think we were at like $0.19 to $0.22 or something, and we dropped down to $0.08 for 2 quarters, and then we were right back into the 20s. So I don't think that anything's going to happen like that again. I think that -- I think our max downturn right now is probably 8% to 10%. If it's really bad, maybe we might see a month or a quarter of 15% drop. But I just don't even see that happen right now. The acquisitions are going to come online. We've got new stuff in the works. And so I think in a worst-case scenario for us, we would see -- we would basically be flat or down very, very, very little because we'll just grow through that with new stuff. And then as we come out the other side of that, the existing stuff where we turn back to normal and all the new stuff will be added, and we'll just see that double balance like we did in 2010 and going into 2011.

Perfect. Thank you Adam. Yes, we've got a couple of people come up in the meantime. I also see David requesting. So David, please if you can hang on for another minute. I'll just make sure we have enough spots for everybody. We can go -- if -- I'll just check real quick. We can go to [ Orchard ] and then I'll check back on if any analysts have any other questions.

Quick question for you, Eric. After going through the entire Lowrie thing from start to finish now that you're running, let's just say, where we -- with the lights on, so to speak, and at full capacity, what was the total time frame for a deal like that? .

Are you talking about from the time we...

Yes, like you sit down 1 day and go, "Hey, guess what, you know what, I want to sell my club to you, not just going back and forth, just you just say, "Hey, yes, you know what, let's do this

Well, I'll do both. So the first time we ever talked Lowrie or was in 2007. So we went through -- we tried to buy clubs or merge the clubs 2 different times in the past, both times failed. This time, I would say we talked for the first time. From the time we first sat down and said, "Hey, look, I think it's trying to revisit this again to the time we closed the transaction was about 4.5 months would be my guess. And then obviously, integrating into our systems, which normally we would do in about 90 days, this time took about 5 months. So it took us about 60 days extra. A lot of that was just management turn. And of course, you got to remember at that time, the labor market was super tight. It was very hard to get people to come to work and want to work, and so we had some other obstacles this time. A typical acquisition from start to finish can be as little as 60 days and typically as probably 4 to 6 months. From the time -- the first time we talk, say, Hey, I want to sell my club to the time we actually closed the transaction," that includes -- you got to remember, we have to get licensing approvals, you have state approvals, you have city approvals. -- sometimes county. So we got to go through those processes. But typically, I would say, start to finish within 6 months.

Okay. And then now that, obviously, interest rates have gone up, you've got obviously people thinking about this recession idea. Do you feel like you hear like from 6 months ago, so we have better pricing power in terms of your negotiations with people now?

I think the price is pretty much the same. We -- I think we pay 3x to 5x, and we base that based on the markets that you're in. We'll pay higher for markets that have limited competition. We'll pay higher -- the higher end of that range if you've got a grandfathered license that was court ordered and court protected. So I don't have to worry about politicians messing with the business at some point in the future. That adds value, right? So it's taking all these things that add value or subtract value. So say you started a par of 4 and say the average place is 4 that I would pay. And then like I said, there's -- how long have you been there, how long have you operated, what type of liabilities and competitiveness, what's the political atmosphere at the time, how easy -- the ease of the transaction, those types of things, all way into basically pricing things.

Okay. And then do you think on this earnings statement that you guys are going to give an update as to like what your buyback thresholds are going to be? Or are you going to wait until the end of the year?

Yes. I mean, right now, I think we'll have a better idea in August, Let's see. I think right now, we probably be ready to know. Worst case October, when we do the October sales, not for sure by then where we're at.

Yes. I mean I just love your asset allocation chart. I'm just [ strolling ] that out there. I mean I thank you for clearing up the part about, though, that like what you think the sales numbers may or may not be off in any of these downturns because it seems like, essentially, everything that's going on right now is this is a battle over sentiment. Not -- it has absolutely nothing to do with financials with what you guys are putting out right now. And it's just that, again, that battle of everybody thinks like this is COVID again, and somehow everything is going to close down that has to do with the consumer, which is completely false. So thank you for that, and I look forward to hearing news again after you guys come back from the Las Vegas as to, hopefully, you can find more people to scoop up and integrate into the company.

Orchard Wealth. Really good stuff. All right. We're going to keep it rolling here, and I see a hand up from David.

Going a bit on what Orchard was going on and the economical situations and the potentials of global recessions. I was questioning -- my question is actually threefold. One, what is your strategies towards short-term debt obligations and long-term debt obligations? And a bit more elaborations on to your variable rates in the last 2 years and/or if you have a formal ratio between your variable rates and/or long-term debt allocations in terms -- just to give you an example, as we know with Wayfair, Wayfair has a $300 million debt recall because, in the last 5 years, they improperly calculated their variable rates, and they are now in the interims of the largest interest rate hikes going to be getting recalls on their basis points, right? So to give you an example, they were paying 84 basis points for their rates and now they're going to be paying roughly 884 basis points for their same debt. And so in that relation, I would love to understand what your prospects between Bradley and Rick, how you're strategizing the global environment in that sense. And then essentially as well, how the potential effects towards your margins and the increase in these payments could necessarily I guess, create within your actual model. And then the actual effects of slowdowns of consumer spending, realizing that within the last 2 years. We understand that a lot of consumers have utilized debt equity and in the negotiations of like the middle class and the basic consumer, and I would assume the domestic common retailer or consumer for your product would necessarily be utilizing these forms of stimulus checks, these forms of other formal like payments. And we know that the middle class can't afford a $1000 like emergency payment fund. And so in that relation, how you would go about one, enticing more consumers and a new demographic of consumers to come into your business?

Eric, do you want to break that up to twofold? He asked about the debt schedules and maturities and our future payments and what our fixed rate loans are. And then the second piece I think he asked about was in regards to how we plan to basically handle the recession as it relates to the middle class and their reserve spending. I hope I'm trying to answer your question, but we don't see any type of debt maturities until fiscal year 2025 over the next quarter and the next 2 years in fiscal year 2023 and 2024, one off the top of my head here, I believe we have interest payments of about $10 million, $10.5 million and principal payment's about $7 million to $8 million. So we're looking at fixed rate mortgages that are backed by real estate. So we're probably not going to refinance until much later. We did the big refinancing structure, the $90 million debt about, what, September 30 in 2021. So we could hold that for 3 years and fix it. As I said, we don't have a big maturity until fiscal year 2025. I'm not sure if Eric jumped off the call or not.

I see he's having some connective issues.

Okay, is he back, Eric. I believe the second part of that question, it was very well spoken, but I just couldn't handle it all. Do you want to relay that second piece of that question again? .

Yes. So as to the consumer and the specific realities, I would assume and through my analyzation, your domestic consumer group would be considered the middle class, understanding that the middle class now has an inability to pay $1,000 emergency payments and the actual compensations between the auto loan and the actual mortgage loans and the 2 years of variable rates, I think that -- the interesting conversation is going to be had where there's going to be a lot of reduction in the consumer spending, especially in this variation or I should say, in this level of consumers, right?

Perfect. I think I know what you're stating, I just give you my perspective on that because I can't give you every man's perspective. Every time that I visit the clubs, I've noticed that it becomes... [Audio Gap]