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

Greetings, and welcome to RCI Hospitality Holdings Fourth Quarter 2024 Earnings Conference Call. You can find the company's presentation on RCI's website. Go to the Investor Relations section. All the links are at the top of the page. Please turn with me to Slide 2 of our presentation. I'm Mark Moran, CEO of Equity Animal. I'll be the host of our call today. I'm coming to you from New York City. Eric Langan, President and CEO of RCI Hospitality; and CFO, Bradley Chhay, are in Houston today. Please turn with me to Slide 3. RCI is making this call exclusively on X Spaces. [Operator Instructions] A question-and-answer session will follow and this conference is being recorded. Please turn with me to Slide 4. I want to remind everybody of our Safe harbor statement. 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 may occur afterwards. Please turn with me to Slide 5. I also direct you to the explanation of Rick's non-GAAP financial measures. Now, I'm pleased to introduce Eric Langan, President and CEO of RCI Hospitality. Eric, take it away.

Thank you, Mark, and thanks for joining us today, everyone. Key takeaways. All comparisons are year-over-year unless otherwise noted. Please turn to Slide 6. Fourth quarter Nightclub sales -- same-store sales increased for the second quarter in a row. This was the first time since the first half of fiscal 2023. But total company sales declined due to a hurricane and a fire resulting in lower EPS. However, non-GAAP EPS, net cash provided by operating activities and free cash flow all increased. We ended fiscal year '24 with 8.955 million shares outstanding, a reduction of 4.7% year-over-year. Turning to the capital allocation. We have officially launched our Back to the Basics 5-year plan. We have already made some considerable progress in implementing this plan. That includes continuing to buy back more shares in the current fiscal quarter -- first quarter of 2025. We also divested 4 underperforming Bombshells locations, closed the Denver Food Hall, reduced Bombshells-related debt and discontinued franchising. Please turn to Slide 7. RCI has grown significantly since we initiated our capital allocation strategy at the end of fiscal year 2015. Revenue has more than doubled from $135 million to $296 million, a CAGR rate of 9%. More importantly, free cash flow has more than tripled from $15 million to $48 million, a CAGR of 14%, while our share count fell by 13%. We are proud of this achievement. Thanks to all of our employees, entertainers and partners who have made this possible. Looking ahead, we plan to build on this progress through our Back to the Basics strategy. Please turn to Slide 8. Operationally, this means focusing on our core Nightclub businesses and making new acquisitions. For Bombshells, this means improving performance of existing locations and finishing the last 3 units under construction. Looking at capital allocation, we expect to generate more than $250 million of free cash flow over the next 5 years. Under our plan, we will allocate 50% of that to club acquisition, which includes the repayment of debt since most of our debt is acquisition related and we will allocate 50% to share buybacks and dividends. Our fiscal 2029 targets call for hitting $400 million in revenue, $75 million in free cash flow and reducing our share count to 7.5 million or less. This would result in a doubling of free cash flow per share from where it is today. Please turn to Slide 9 for more details. Nightclubs are our core business. For anyone new to RCI in this call, we love this business because it generates an estimated 35% plus in operating margins. There are high barriers to entry and clubs produce steady and significant cash flow. Currently, we are evaluating every club in our portfolio and we will rebrand, reformat or divest underperforming locations. As for Bombshells, our target for the segment is 15% operating margins with a return to same-store sales growth. Regarding club acquisitions, our goal is to acquire $6 million of adjusted EBITDA a year, focusing on the best clubs buying for base hits and maybe an occasional run. Our target metrics remain the same, 3 to 5x adjusted EBITDA for club business and fair market value for the real estate. We will continue to finance our deals with a combination of cash on hand, bank financing and seller notes. We will also consider using stock if and when our valuation improves. We will continue to target 100% cash-on-cash returns within a 3- to 5-year period. For the final part of our plan, as opposed to periodically buying shares, we anticipate implementing a program of regular buybacks and flexing up the stock and buyback if the stock is particularly cheap. We expect to buy a significant amount of stock if the price is right. Given where our stock is trading and our view of what the business can do over time, we believe this is a great use of capital. We are also planning small dividend increases annually. Please turn to Slide 10. Based on our track record, we believe our 5-player plan is very achievable. Since fiscal 2017, we have completed $267 million of club and related real estate acquisitions. We have stayed disciplined on price. We have improved operations and financial performance consistent with our goals, and we have been able to deploy larger amounts of capital as we've grown. We think there's a lot more runway for club acquisitions as illustrated in the pie chart. Although, we can't predict the size or timing, we think our goal of acquiring $6 million of EBITDA per year is very achievable on a 5-year average basis. Please turn to Slide 11. Here, you can see that the anticipated growth rates of some of our key financial targets are somewhat conservative based on past performance. We also do not anticipate increasing leverage to achieve our goals. Please turn to Slide 12. We have already made considerable progress on our plan. In our Nightclub business, we have generated 2 quarters of positive same-store sales growth. We are working on 3 potential acquisitions. In our Bombshells business, as I mentioned earlier, we have divested underperforming units. We closed the Denver Food Hall in early December and are marketing that real estate for sale and we also discontinued franchising. In addition, during the fourth quarter, we increased our share buyback program. We increased our cash dividend by 16.7% and we are continuing to reduce our share count. Please turn to Slide 13 for a first look of our capital -- updated capital allocation strategy. This is the path we will take to grow the company to $400 million of revenue, $75 million of free cash flow and continue to reduce our share count. Now, I'd like to turn the presentation over to Bradley to review performance for the fourth quarter.

Thank you, Eric. Please turn to Slide 15. All comparisons are year-over-year unless otherwise noted. Fourth quarter sales declined $2 million. This was largely due to hurricane-related closures and the sale of Bombshells San Antonio in early September. Net income attributable to RCIHH common shareholders declined a similar amount with EPS at $0.03. Looking at some of our other key metrics. Non-GAAP EPS increased by $1.63. Net cash provided from operating activities increased $3.5 million and free cash flow increased $2 million, while adjusted EBITDA declined $2.3 million. Please turn to Slide 16. Nightclub revenues declined $307,000. This primarily reflected a 2.2% same-store sales growth, 10 closure days at Houston area clubs due to Hurricane Beryl in July and some other changes that we were going through to improve our club lineup. Alcoholic beverage sales increased 0.3%, food, merchandise and other increased 0.9% and service declined 1.7%. The differing growth rates primarily reflected higher alcohol and food and lower service revenues. Impairment and other charges were lower by $2 million. As a result, operating income was $1 million higher, while non-GAAP was $1.1 million lower. Please turn to Slide 17. Bombshells revenues declined $1.643 million. This primarily reflected a 16.2% same-store sales decline, which was negatively affected by 26 closure days at Houston area locations due to Hurricane Beryl in July. Impairments and other charges were $3 million higher. This primarily reflected impairments, partially offset by a gain from reducing San Antonio-related debt. As a result, there was an operating loss of $2.5 million compared to an income of $1.2 million. On a non-GAAP basis, however, operating income was $701,000 compared to $1.4 million. These Bombshells impairments included locations that were divested and the Denver Food Hall, even though these events occurred in the first quarter of 2025. These divestitures and closings are anticipated to improve the segment's performance. Collectively, these 5 locations accounted for $14.6 million in sales in fiscal 2024. Excluding $10.3 million in impairment and $2.9 million in gain on the sale, they lost a collective $1.1 million. Please turn to Slide 18. Corporate expenses increased modestly by $284,000 and a little less on a non-GAAP basis. Please turn to Slide 19. We have a couple of slides coming up that will discuss free cash flow and adjusted EBITDA, which are non-GAAP. In advance of that, we wanted to present the closest GAAP equivalents on this slide, which are operating income and net cash provided by operations and net income. Please turn to Slide 20. We ended the fourth quarter with cash and cash equivalents of $32.4 million. During the quarter, we used $7.8 million to buy back shares. As a percentage of revenues, free cash flow was 18% and adjusted EBITDA was 24%. Please turn to Slide 21. Debt at September 30 declined $7.2 million from June 30. This reflected eliminations of Bombshells San Antonio debt, early paydown of $1.5 million of the Playmate note and other scheduled amortized paydowns. The weighted average interest rate was 6.67%, only 3 basis points higher than a year ago. Total occupancy cost was 8% and -- is at 8% and declined from 8.1% year-over-year. Debt to trailing 12-month adjusted EBITDA was 3.28x, similar to the third quarter. This should now further decline in fiscal year 2025, as sales grow from locations that have come online and more recently and from those anticipated to open throughout the year. Debt maturities continue to remain reasonable and manageable. Now, here's Eric.

Thank you, Bradley. Please turn to Slide 22. We have 7 remaining developments. Bombshells Denver is awaiting final inspections. We are targeting a late January opening and time for professional football championship. Chicas Locas El Paso is finished and reopening is planned for March 1. We are waiting for new electrical plan sign-off at the Rick's Cabaret in Central City. Then we have about 6 more weeks of construction. We are targeting an April opening to avoid risk of bad weather. Interior construction at Bombshells Lubbock is well underway and we are targeting an April opening. The framing and stucco work is underway at Bombshells in Rowlett and we are targeting a May opening there. I'd like to note that both Lubbock and Rowlett construction are being financed through current bank loans, construction loans rather than through free cash flow. We are still awaiting construction permits for the Baby Dolls West Fort Worth and we are waiting engineering review of our plans for the Baby Dolls Fort Worth to rebuild our club that burnt down. I'd like to say thank you to all of our loyal and dedicated teams for all their hard work and effort and to all of our shareholders who believe and make our success possible. Now, I'll open to Mark for questions and look forward to hearing what you are concerned.

Thank you very much, Eric. Before I continue, I'd like to call Scott Buck, if you could please request to speak if you're on here. [Operator Instructions] To start things off, we'd like to take questions from Scott Buck, if he is available as well as Rick's largest shareholders. So, if you're out there, please request to speak and we will add you to the docket. It's not looking like we have Scott in the audience, so I would like to open this up to anyone with questions. [Operator Instructions] We have D&D Realty. D&D Realty, please take it away.

You have to unmute yourself to speak.

Can you hear me?

I got you.

Sorry. So, you guys have about 6 to 7 properties that are currently under construction or in development. After you work through that pipeline, how do you think about development or opening new clubs organically versus purchasing them non-organically?

Probably with very high thoughts of suicide. No. I do not want to do anything else for a long time. We're going to get these open because we -- this was our way of growth outside of acquisition. I think we're going to focus strictly our growth on acquisition and try not to build anything else anytime soon. I definitely don't see us building anything else in '25. And if we don't start to look for stuff in '25, we probably won't build anything in '26. So, it will be a few years before we decide to build anything else, I believe. We're going to strictly look at acquisitions for growth from this point on.

Thank you very much D&D Realty. Next up, we have Antonio.

My question, with all the challenges that you've overcome through 2024 being an interesting year and coming out on top, what got you excited about the future of the business model with the brand-new 5-year plan?

I think that just getting back to our basic core business, really being focused on the clubs again, then digging through financials, looking at some of the performances of some of our operations, trying to figure out should we rebrand, should we eliminate some of the locations, really going through real estate offerings and saying, what's the real estate worth as another use and are we generating enough cash flow out of that unit to justify continuing to operate as a club or should we sell the real estate and take the money and do something else with it? That was really a big part of our 2017 plan as we really got into the capital allocation strategy originally. And it's just nice getting back to visiting those thoughts again and just kind of seeing where we've come and looking at how much our real estate value has actually increased. It's kind of crazy looking at some of the properties where we bought properties 15 years ago and we've used them in loans back in '21. But here we are even just a mere 4 years later and seeing the value increase, I guess, a lot due to inflation, a lot just due to some of our high freeway Class A locations that some of our properties are on.

All right. And one last question. I know that some of your locations are taking Bitcoin with Bitcoin hitting $106,000 a day. Like I mean, how is that looking? Is that something that's -- is that an interesting perspective of the business model because you've been taking it for a while now?

I'll have to actually go and look at the Miami and New York clubs and see how much is processing. I don't actually see the Bitcoin because we actually convert to U.S. dollars at the point of transaction. So, I don't really see. So, I have to actually like go look at a special program basically to see how much we're taking in, in Bitcoin. But I will do that and let everyone know. I'll see what I can find out and post on Twitter how that's going for us. I know that Bitcoin has been very integral, especially in Miami. And I think we started in New York and Chicago as well. So, I suspect that these high prices, we are probably getting more of it. And if anyone is not following Antonio, he's got a great show on stock investing. You might want to throw him a follow and see a show on Monday.

[indiscernible].

Mark?

Yes.

Scott Buck is actually on. Will you pull them up as a speaker?

Yes, he's not showing up on my request, but I'm going to bring up Jacob first and I will try adding Scott while Jacob is speaking. So Jacob, please take it away.

Hello. Do you guys hear me?

Loud and clear.

Great. Well, perhaps you mentioned this, but I mean, could you give some more color on the M&A environment? Is things heating up? Geographically, where is like the interest in objects? And I remember from a couple of quarters ago that you guys mentioned that you had put out some LOIs, but no deals has yet been occurred. So, just kind of wondering what's happened there about the climate.

Well, we have 3 that we're working on right now. We're waiting for -- they're all in different various phases of licensing approvals. And so if we get those licensing approvals, then we'll get those deals closed and announced. We're also talking with other operators out there right now. So, our core focus for growth is strictly going to be from this point forward is acquisitions. We'll be kicking a lot more tires and looking a lot harder at deals, but we will stay within our parameters and not stretch to get deals done. So, I assume that as we move forward, we'll continue to start seeing some acquisitions. We're going for some -- we have been looking for the larger ones over the past few years with the $88 million acquisition in '21 and the $66.5 million acquisition in '23. And so now we're starting to look at some much smaller acquisitions in size. A lot of acquisitions that we're looking at right now are probably between $5 million and $15 million purchase price. So, there will be a little bit smaller, but we hope to do enough accumulation to hit our target goal of $6 million per year added and we get our 20% increase and then grow our same-store sales a couple of points a year and achieve our goal of $400 million revenue and $75 million free cash flow by 2029. So, we'll be monitoring that closely each year.

Yes. So and those clubs that you're currently evaluating, are those still in the same areas that you currently operate in?

Some are in different areas, some are in the same. I mean, same states. Obviously, the same states make it easier for us. We're licensed in those states. Everything is a little bit quicker in those states. We are looking at a couple of new states, which is probably reasons taking a little more time on a couple of the ones we're working on right now. So -- but hopefully, we'll get through those hurdles relatively quickly after the first of the year and get a deal closed.

Thank you very much for that question. We are still working on bringing Scott Buck up. However, we have DJHLS. Please take it away with your question. Well, we're waiting for this to be unmuted. There we go. Take it away, please.

Yes. A shareholder from Germany. So, many of your locations are located in a region where Hurricane Ian really hit your operations. Isn't there any insurance which compensates you for those locations hit by hurricane or fire?

If there's a large enough destruction or we're closed for a long enough period of time, yes. I believe we have a claim in [indiscernible] for a few of the locations. We also have deductibles that we have to reach first. And so most of that's all being done with the accountants and the insurance adjusters now. So, there may be some payout at some point from that hurricane or there may not. I just don't have enough information on it. It wasn't -- other than the business loss days, there wasn't a lot of damage to our properties other than we just didn't have electricity, so we couldn't open. And we do carry insurance on our properties in all those markets.

Fantastic and great question. [Operator Instructions] Scott, we are currently trying to coordinate. There we go. You just sent some questions. So, since we cannot bring Scott Wright -- Scott Buck, excuse me, of H.C. Wainwright, he has messaged me his questions. And the first one is, Eric, under the Back to Basics plan, would the company consider increasing the dividend?

The dividend is not really a tax-efficient use of capital. However, I do like the dividend and many of our shareholders do like getting the dividends, especially a lot of starting to do the DRIP programs, I think, with them to buy the stock when they get their dividends. We will continue to slowly and gradually raise that on an annual basis so that we continue to have dividend growth and continue to pay our dividend. I think we're 9 years of constant dividend payments and constant dividend growth on an annualized basis. So, I see us continuing that at least for the next 5 years, along with the majority of our capital return being done through buyback.

Fantastic. And so Scott has an additional question, which is, what was the purchased real estate value of the closed Bombshells and Denver Food Hall for him to understand potential sale values?

$5.2 million for the Denver Food Hall. All of the Bombshells that we divested were leased locations and most on their third rent increases, which is why we just decided it wasn't -- they just weren't economically viable to continue to try to operate those. As Bradley pointed out, for fiscal '24, those units lost $1.1 million combined. So, we just decided to move forward, get rid of those locations, focus on the core locations that we own the property on. We have one location left that we own the property on that numbers are increasing because we closed a unit that was close to it. So, we are seeing a little bit of increase on that. And if that unit starts meeting the margin requirements that we're going to sit on it, then we'll keep it open. And if it does not, then we may divest that unit at some point and sell that property off as well. I'd have to go look. That was part of an 11.5-acre development. We actually don't have any money in it because we sold all the additional real estate around it other than the 2.3 acres our property sitting on for way more money than we paid to buy the land and build the building that we built on there. So, we are already plus on that property. So, we'll just have to see if we can get that turned around or not probably in the next 3 to 6 months, we'll make a decision on that as well.

Fantastic. Thanks so much for that. And before I bring up [ Camelway ], Eric, we have a question submitted to me from one of our larger shareholders. And he is asking about the impairments and what those specifically are, if you could speak to that.

Bradley, do you want to handle that? It's kind of your expertise.

The impairments are basically accelerated write-offs of various sets of assets, either intangible assets such as SOB license, goodwill or FF&E. They stem from basically doing an analysis of the future discounted cash flows against the book value of the assets. So, in this current quarter, we had $12.5 million. And for the fiscal year, we had $38.5 million.

Mark, I'd like to -- and from my understanding, Bradley, correct me, a lot of this is because of interest rates increasing and so the discounted free cash flow rates are increasing, us driving down the value of that free cash flow and resulting in these impairments. So, they're all non-cash. And the reality of it is they don't really affect the operations at all or the free cash flow at all.

Yes, they don't affect the free cash flow at all. That's correct, Eric.

Fantastic, guys. Very much appreciate that. [Operator Instructions] Camelway, please take it away.

I really like your work. Any plans of opening restaurants in Yuma area, Yuma County and Yuma. There's a lot of traffic. It's a $3.5 billion agriculture industry and there's a lot of traffic going on. There's a lot of activity going on. Any plans of expanding beyond Phoenix?

I mean we'll buy existing nightclub operations if we can find them in any market right now in the U.S. But as far as opening any new restaurants, no, we have no desire at this point other than the 3 that we were already well into construction on. I don't have any plans of building additional restaurants at this time.

Thanks so much, Eric. [Operator Instructions] Unless Eric or Bradley, there's anything else that you'd like to opine on or promulgate about. We have one request now. Adam Wyden, please take it away.

This is Adam Wyden. Did you guys open it up? You guys hear me?

Yes. I got you.

Perfect. I'm sorry, I missed the first part of this call. I was on another call. I got a few questions. Have you guys talked about the non-income-producing real estate that you're planning on selling and sort of what you think the value is in terms of cash on the balance sheet and how much the EBITDA is being dragged down from the property taxes and the operating expenses? Did you guys go into that at all? And the assets you're planning on selling and monetizing sort of the framework for how much value that's not on the balance sheet and how much EBITDA you could save by monetizing those pieces of real estate?

I didn't go into it in this call really, but top of my head, we probably have about, well, now that we've put the Grange up for sale, the food hall in Denver up for sale, we have the 14 -- 19 acres in Pearland plus the additional build site next to the Bombshells in Pearland. We have one of the Central City casino properties that we're going to -- that we've been meeting with some people to try to sell, probably in the neighborhood of $20 million to $25 million in value. We bought most of that real estate at very good prices. So, don't have anywhere near that in it. But as far as carrying costs, I don't know off the top of my head, but it's in the hundreds of thousands of dollars between property taxes, insurance and whatnot. And we are actively pursuing moving a considerable amount of that real estate in 2025.

Got it. Did you talk about -- I don't know if I missed this, but did you guys talk about sort of where you expect Bombshells margins to get in 2025 now that you've closed down the 3 bad ones and you're opening up the good ones? Sort of, has your expectations around margin generation for Bombshells changed in '25 and beyond? I know you're not building anymore, but like do you sort of have a sense of where you think Bombshells margins are going to settle out now that you've gotten rid of the 3 bad ones and got the 3 new ones open?

Yes. Without the new ones actually open and seeing their progress, I don't have an exact number, but we are targeting 15% on the Bombshells margins. And if we can't get there, we will start looking at what else we can do with those units. But the real core right now is returning to same-store sales growth. I think we're going to be very close in this quarter. If not positive in the December quarter, at least down single digits, not this 15%, 16% we've been doing. We've made some changes at units. We've also eliminated the stores that were the biggest drags because of the high rents and whatnot and really focused on what we need to do in those locations that we have left, strengthened our management teams. We're able to build our teams up at stores with some good managers and some bad managers. So, we were able to basically sort through all those management teams, build strong teams out of the people that we kept as we close units and I'm optimistic. We're definitely moving in the right direction. But the space is a difficult space right now. If you read the papers, the news, there's new restaurants going bankrupt every single day. Everybody is complaining about sales and margins out there, except for a few that are just very, very strong. And hopefully, we can find that magic formula that we had for about the first 10 years we operated these things and get it back. We're very focused on our late night. We're very focused on our -- making it fun, making it party again and increasing our alcohol sales as a percentage of total sales at each location as well. So, I think we're well on our way and over the next 6 months, we'll get a very good idea of if our progress is and what we've done is working well for us or not. But 15% targets are what we're shooting for right now.

Yes. So if I'm -- again, I'm just looking at the deck that you guys put together, which is pretty straightforward. I mean you guys have a thing, 40% buybacks, 50% acquisitions, dividends less than 10%. So that's pretty straightforward. Is there -- do you guys have -- I mean, I know, obviously, the comps have been lumpy. There have been periods of time when they're high, periods of time when they're low. You guys seem to be rebounding pretty nicely on the strip clubs. I mean once -- obviously, Bombshells is going to be smaller. It used to be 14 locations, you closed 3, then you got the Grange, that gets you to 10, you got the 3 new ones. You obviously...

And we sold San Antonio as well.

Yes. No, I know, but it was 14 with the Grange and then you went down to 10 and then you got the 3 new ones opening. So, you'll be back to 13, but the composition will be different.

13 or 12. I'm not sure. I think it's 12. I don't -- I'm confused...

But you have sort of -- at that point, as a percentage of sales, you're not going to have -- your Bombshells is still not going to be a huge percentage of the business. And with the Nightclub comping positively, this is -- as you do more M&A, Nightclubs will be a larger percentage of the business. Do you think you can get back to doing 3% to 5% comps in the business? I mean you're sort of there now. And I can sort of back into it. You're sort of there on Nightclubs. Bombshells is going to be flat, hopefully or close to it this year. You'll have the new ones opened. Hopefully, those can comp whatever, a few percent. I mean if the taxes on tips and sort of what Trump is doing for small, medium-sized business, maybe we get a resurgence. And as you said, there are a lot of restaurants that are suffering. Maybe you get a resurgence there and we get a little bit of a lift at Bombshells just from the macro. I mean, do you think it's unrealistic to think you guys can get like on a total company basis back to 3% to 5% comps for the long term? Is that impossible?

I mean it's not impossible. I mean I'm shooting for a minimum 2% overall growth rate right now over this 5-year plan for our 5-year plan. I would like to see it much higher. And I think if the economy does well, we will do well as well. I just think there's a lot of work on the government side. And depending on where the government spending cuts are, if they're U.S.-based, it's going to affect things in the U.S. a little more drastically. If they're more foreign-based and they spend more money in the U.S., then of course, we would see the opposite here, I think. So, I think we're just going to have to wait and see how all that plays out. I'm playing with the cards I'm dealt right now and dealing with those cards, staying focused on a much more short-term window and watching our trends and adjusting very rapidly if we need to adjust, whether it's pricing, whether it's labor, whether it's security costs, just really very focused on our -- especially our core business and the Bombshells margins and watching those things. Like I said, we've been going through financials every month, very, very hard and finding places to make cuts or to make improvements because there are some places we found as we look through things where maybe we were leaving some money on the table and we've been able to make some adjustments there and increase revenues in those markets. We've got -- if you look at everything right now with our -- I call it my 2017 eyes, where we're -- everything is on the chopping block and we lay it all out and say, okay, what's the best use of capital, how much capital we have tied up in this asset? What's the asset's ROI and return on equity? And are we -- can we sell that asset and get higher return on equity by putting the money someplace else or not? We've got about 4 clubs that we're looking very hard at, maybe a fifth one and 1 Bombshells left. So, we've got 5 or 4, 5, maybe 6 locations. We've made some adjustments, made some changes. We'll see how those go over the next 3 to 6 months and you may see us list those properties for sale or you may see us just surprise me sell those locations as we're talking with other private buyers right now on a few smaller -- they're very small locations for us. And that's another thing that I'm very focused on. Is it worth our time, effort and energy to put -- basically, I call it the machine -- to put our machine behind a club that's generating $1 million in sales and making $300,000, is that still the best use of our resources from our people side of the business? And is our return on that high enough? Or could we make more money if we put those resources into a larger location. So, there's a lot of things that we're really talking about on basically pretty much a weekly basis and trying to get to everything, so.

Did you guys talk about your -- the CapEx and how you -- like is your -- you've been spending a lot on CapEx for the Bombshells and the casinos and the renovations. I mean you would expect in 2025 your maintenance CapEx to go back to your normal level, right? Like you guys close to it.

We hit about $7.5 million or $7.8 million last year. We did the roof at Tootsie's, which was a considerable expense and we did multiple entirely new AC packages plus 4 remodels. So, maintenance CapEx was a lot higher last year. I think we'll get back to -- I think we're forecast at $6 million for 2025. And I think we'll come in pretty close there, maybe even a little under.

Right. And if most of the money has been spent on Bombshells, like if I'm just backing into it, the only deviation from $6 million of maintenance capital would probably be M&A, right? If I think about CapEx, right?

Yes, that's total CapEx, not maintenance CapEx, so.

Well, that's what I'm saying. I'm saying like if you look at the last few years, you've been spending -- you bought the casino real estate, you did this, you did that, you got Bombshells -- like if most of the money has been spent on the Bombshells already, at least from what I can tell, Denver is already done, so that's going to be open. Rowlett has mostly been spent. Lubbock, I mean, do you have a lot more capital going out the door for the Bombshells or no? They've probably mostly been spent, no?

No. As I said on the call earlier, both Bombshells, Denver is done. We're getting final inspections. I believe we had inspections all this week. We have 2 more inspections on Thursday. And then I believe the final is scheduled for Friday this week, then we have the liquor inspection the following week, hopefully, and that store will be done. So, there's not much more money to spend other than start-up costs, right? I mean we always have startups, but the start-up costs will be offset by immediate sales in January as we open. So, most of the start-up costs will start January 6. And with any luck, we'll be able to open that store somewhere on the 21st or 22nd of January. So, most of those costs will be offset in that quarter, which will be the second quarter of fiscal '25. The construction for the other 2 locations are all bank financed now. So, there's no actual cash from the company going out on those locations.

Right. But my point is that like this will be a pretty big step down for CapEx. So, you're going to have cash flow next year. If no M&A shows up, I don't know if you talked about M&A, but if no M&A shows up, you're going to have a lot of cash to buy back stock at these levels. And you bought back in '24, but you also had to do the projects. If you have $25 million of real estate going out the door and the CapEx going down, you guys are going to have a pretty big war chest to buy back stock if there's no M&A, right? I mean if the stock stays here, you're going to be pretty active on the buyback, I would think, no?

We are active every single day. We don't have a set cap at the moment that we're going to stop buying back stock. We did have -- we did get a considerable amount of extra cash and we paid about $2 million worth of additional debt off, including a big portion of some 12% debt that we had. So, we have been working on not only buying back our stock on a very regular basis, but also bringing our debt down. I want to get our debt-to-EBITDA under 3x, under 3x. That's always been our target as a high. We know we can go to 4 without stretching too far because of most of it's real estate related, but we like to keep our total debt load at 3x -- on a 3x basis.

But you should -- you're under 3x on next year. I mean, again, I don't have a...

I think so, too. When we look at a trailing, which was 3.28x at the end of September 30. So, we are definitely working on that.

Yes. I mean as -- I don't have the September balance sheet in front of me, but as of June, you had $244 million of debt, not including leases and $34 million cash.

We paid back $7.2 million debt in the quarter.

And you have -- you have -- how much cash you have, like $35 million?

$32 million and change at the end of the quarter, but yes, we're probably pretty close to $35 million right now.

So, you got $206 million, right? If I'm doing my math, if you guys have all these assets coming online, the Bloomberg consensus estimate for EBITDA is $83 million, but I suspect you're going to do a lot more than that. But even just on the consensus number, if I were to take $206 million divided by -- what did we say, your $238 million less $32 million is $206 million. So, if I were to take $206 million divided by $83 million, this is the Bloomberg number, that's 2.5x 2025. And I think that if you get these other assets up and running and you're doing some of the things you're doing in terms of cost cuts. And again, if you can comp positively on the Nightclubs, if you do 4%, 5% comp on Nightclubs on $250 million in sales, I mean, that's almost all EBITDA, right? I mean you could -- your EBITDA could be probably -- I mean, there's -- it's not unrealistic to think that you could be $100 million of EBITDA next year. It's not impossible. So I mean, in that scenario, you'd be 2x. But even if you just did the $83 million that the consensus number is you'd be at 2.5x. I mean, yes, I mean, I don't know. I think it's hard for me to look at the debt like in the context of you have $25 million or $30 million of real estate, you got these non-income-producing assets. It's sort of like, I don't know, I think it's unfair to look at your leverage because if you sell real estate, then that's not making any EBITDA, your leverage is going down. And if you're not selling the real estate, you would make the assumption that the EBITDA is going to go up. So, it's all sort of dynamic, right? If you're -- you've got real estate for the casino, for example, the one in Central City, let's say that makes $3 million of EBITDA, you've got all the debt on the balance sheet from the casino, but none of the EBITDA, right, or whatever, it's not a casino now. Now it's a Nightclub. But what I'm saying.

Of course. I mean, as we open these locations, yes, I mean, all the construction is very near completion. So yes, most of the carrying costs for all of these locations that are getting ready to open, I'd say the majority, there might be -- I have to go look at the -- what's left to draw on the bank loans, but there might be $3 million left on the bank loans for the 2 Bombshells to draw out, so that go up a little bit more. But yes, all the real estate is already owned, all the property taxes are being paid annually, insurances, all those types of things. So, all that revenue is going to help and all the EBITDA drops in is definitely going to help drop that from 3.28 to below 3x. So, I'm not concerned with the debt. I don't want to -- and that's not what I'm trying to say. I'm saying is I still like to be within our norms because if a major acquisition comes up and I want to push it to higher, I want to have that room to do so. And if I'm already at a high, then I'm going to have to go, okay, well, maybe we can't make this acquisition because I don't want to push us to very close to 4x. But if I go to 3.2x, 3.3x, 3.5x because I'm making a major acquisition as we did in March of '23 with the acquisition, I'm not really concerned.

Fantastic. Thanks so much, Eric, and thank you for the questions, Adam. We will circle back if you have any furthers. Next question comes from another one of our larger shareholders who is asking for an update on Favoritely, Eric.

I mean it's launched. You can go on the site. It's favoritely.com. We are adding girls. I think we have -- we're still in beta. I believe the last time I talked to everybody about 10 days ago, we had 5 clubs that were now being represented on the site with entertainers and other staff members. So, I'm hoping we continue to see that increase as we add additional locations and we get ready to do a full out launch of the site.

Wonderful. Now last question that I had from another shareholder who submitted this was just to give any color on the current business trends that you're seeing.

I mean, November was fantastic. Obviously, we had 5 weekends. Every weekend was strong, was strong around the holidays, which was surprising. We had 2 big fights with the Tyson-Jake Paul fight on Friday and then the big UFC fight on Saturday. So that was a great, great weekend, that third weekend of November. December started off a little slow with the December 1 being a Sunday. However, the first weekend was very strong. We had decent through the second week with this past weekend being just a little bit a little bit off, not much, a few percentage points from what I guess I would consider the number I'm looking for, I should say, not necessarily what trends have been. But as trends have been up through October, November, December, I think we're seeing some pretty decent sales. So hopefully, that will continue and we'll get through the end of December. And I think we have a couple of weeks -- last 2 weeks of January are kind of a weak phase for us and then we go into February, March. March Madness is the big kickoff. So hopefully, we have a really big March Madness. And of course, we'll have 5 weekends with 5 Saturdays and 5 Sundays in March again. So, it will be interesting as we move -- as we continue to move forward.

Fantastic. Thank you so much for that, Eric. We appreciate everyone joining this call. On behalf of Eric, Bradley, the company and our subsidiaries, thank you and have a good night. Please visit one of our clubs or restaurants to celebrate Christmas, Hanukkah, Kwanzaa, the New Year's or just to have fun. Take care and have a great time.