Rick's Cabaret International, Inc. Reports Record 2Q14 Results of $0.37 GAAP EPS and $0.45 Non-GAAP EPS - KMPH FOX 26 | Central San Joaquin Valley News Source

Rick's Cabaret International, Inc. Reports Record 2Q14 Results of $0.37 GAAP EPS and $0.45 Non-GAAP EPS

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SOURCE Rick's Cabaret International, Inc.

Company also Updates Status of New Clubs and Restaurants, Club O Acquisition, REIT, Share Repurchase Authorization, and Guidance

HOUSTON, May 12, 2014 /PRNewswire/ -- Rick's Cabaret International, Inc. (NasdaqGM: RICK) today announced record results for the 2014 second quarter ended March 31, 2014.

Rick's Cabaret International, Inc. Logo.

2Q14 Highlights

  • Rick's reported record EPS diluted of $0.37 GAAP (up 27.6% year over year) and of $0.45 Non-GAAP* (up 12.5% year over year)
  • Results were driven by a higher level of revenues ($32.9 million, up 14.4% year over year) and operating margin (22.7% vs. 21.5% in the year ago quarter)
  • The cash generating power of the Company, as reflected by adjusted EBITDA*, reached $9.2 million (up 23.1% year over year)
  • New disclosure item: Pre-opening costs, all expenses incurred before a new club or restaurant opens for business

The Company also is Providing Updates on:

  • New adult clubs and sports/bar restaurants
  • Club O acquisition
  • The Real Estate Investment Trust
  • Board of Directors exploring new buybacks and a dividend
  • Guidance

Conference Call

A conference call to discuss Rick's results for 2Q14, outlook and related matters will be held today, May 12, 2014 at 4:30 PM ET:

Meet Management

Eric Langan, President and CEO, invites investors for a "Due Diligence Ball" to meet, talk and tour one of the Company's major clubs, tonight in Manhattan.

  • When: Monday, May 12, 2014, 6:00 PM to 8:00 PM ET
  • Where: Vivid Cabaret New York, 61 W 37th St, New York, NY 10018, between 5th and 6th avenues
  • RSVP: With your contact information, to gary.fishman@anreder.com

CEO Comment

Eric Langan, President and CEO, commented, "This was a turnaround quarter for us. Everything we've been working on for Fiscal 2014 is coming together.

"With the opening of Vivid Cabaret New York and Bombshells in Webster, TX, and other new clubs and restaurants launched or acquired over the past year, we have reached a higher level of revenues. In turn, this has expanded operating margins and profitability to record levels. While the pro football championship game in the New York market benefitted the second quarter, our organic performance country wide, excluding Club Onyx units, was more significant.

"We are already seeing improvement in the Onyx clubs and expect to continue to see strong revenue numbers for clubs and restaurants overall going forward. For example, April same store sales, including Onyx, were up approximately 4% compared to a year ago."

2Q14 RESULTS

Total Revenues

  • Total revenues reached a record $32.9 million, improving markedly over the $27-$29 million quarterly revenue levels that existed since 1Q13, when Rick's began benefiting from its Jaguars acquisition.
  • 2Q14 revenues included $5.6 million from new adult clubs and sports/bar restaurants. This included approximately two months of Vivid Cabaret NYC and of the second Bombshells, in Webster, TX, a suburb of Houston.
  • Same store sales were $27.0 million, down 1.1% year over year. Major brands showed year over year improvement despite severe winter weather, particularly in Texas, with the exception of the four Club Onyx units. Excluding Onyx units, same store sales were up 3.8%, reflecting initial benefits of Rick's post-recession strategy of increasing patronage from bigger ticket, higher margin customers.
  • Clubs and restaurants, in particular Rick's Cabaret New York and Vivid Cabaret NYC, benefitted from the Big Game in early February, and, to a lesser extent, the Big East college basketball tournament. Nonetheless, both New York clubs built momentum, with Vivid Cabaret NYC's March sales higher than February and Rick's Cabaret NYC's March sales representing 35% of the unit's quarterly take.

Operating Margin


  • Operating margin reached a quarterly high of 22.7%, up from 21.5% a year ago and up from the quarterly average of 19.6% since 1Q13.
  • Compared to 2Q13, operating margins primarily reflect increased operating leverage. Salaries and wages fell to 20.9% of revenues vs. 21.4% in the year ago quarter and legal and professional fees fell to 1.3% from 3.4%. This was partially offset by insurance, which increased to 3.0% of revenues vs. 2.0%. Insurance costs are increasing due to Company growth and industry factors.
  • Rent and interest combined, which is how the Company evaluates it true cost of occupancy, was 9.4% of revenues vs. 8.8%, with rent at 3.5% vs. 2.7% and interest 5.9% vs. 6.1%. Rent reflects the addition of Vivid Cabaret NYC and Bombshells Webster, and the previously disclosed increase at Rick's Cabaret New York.

Pre-Opening Costs

  • Pre-opening costs are now being disclosed to better understand core operating profitably.
  • This totaled $122,000 in 2Q14 compared to $90,000 in 2Q13, and $416,000 in the first half of FY14 compared to $90,000 in the comparable year ago period.
  • Most of FY14's costs to date relate to Vivid Cabaret New York.

2Q14 Operating Income and Adjusted EBITDA

  • Operating income hit a record $7.5 million in 2Q14, up from $6.2 million in 2Q13 and a quarterly average of $5.5 million since 1Q13; and $4.0 million for the prior three quarters.
  • This drove adjusted EBITDA to a record $9.2 million in 2Q14, compared with $7.5 a year ago and a quarterly average of $7.1 million since 1Q13.

UPDATES

Adult Clubs in Active Development

  • Rick's has one gentlemen's club in active development – Rick's Cabaret in Odessa. It is expected to open once a local water well permit is received.
  • Odessa, considered the "capital" of fracking in Texas, has been ranked the country's second fastest growing metropolitan area in personal income for the past three years (up 6.98%).

Sports Bar/Restaurants Growth Activity

  • Rick's has three Bombshells sports bar/restaurants in active development: (1) Austin: Expected to open in 3Q14; (2) South Houston: Targeted to open in 4Q14; and (3) Spring, TX, a suburb north of Houston: Slated for fall (this unit replaces one originally planned for Beaumont, TX).
  • While the Company continues to refine the concept, the newest Bombshells is performing strongly, with revenues since opening in late January rivalling many of the Company's adult clubs.
  • Rick's expects to open or have in development 10 sports bar/restaurants by year end calendar 2014, with a cluster in Texas and others possibly outside the state in select cities having significant tourist and convention traffic.

Club O Acquisition

  • The Company signed a definitive agreement to purchase Club O, just south of Chicago, for $11.06 million, including $2.0 million in real estate, as previously announced. Rick's is in the process of transferring the license. Once complete, the Company can proceed with closing.
  • Club O was named Best in the Midwest in 2012 at the Adult Nightclub Expo in Las Vegas. It occupies about 25% of its 56,000 square foot building, has a 5:00 AM license on weekends and 4:00 AM on weekdays, and is highly visible off interstates 294 and 80.
  • Rick's plans to make more effective use of the building, converting it to Rick's highly successful Tootsie's Cabaret mega club format, in order to establish a major presence in the Chicago market. Tootsie's Cabaret in Florida is Rick's largest and most profitable club. Club O is expected to remain open during construction.

Real Estate Investment Trust (REIT) Update

  • A private REIT has been legally formed, and the Company is in the process of moving forward expeditiously with it.
  • The purpose of the independently financed REIT is to acquire adult club real estate from Rick's, to enable the Company to transform its balance sheet to that of a more traditional bar/restaurant chain. The REIT would also enable Rick's to capture real estate gains and reduce debt.

Board of Directors Explores Shareholder Equity Matters

  • The Board has approved an increase in available repurchase authorization to $10 million and has begun to explore whether Rick's should initiate a dividend.
  • The rationale is that the Company expects to generate a high level of cash, which would enable it to pay off its higher priced debt of which approximately $3.7 million remains.

FY14 Guidance

  • Rick's is refining its guidance for FY14 based on first half performance and expectations for the balance of the year, excluding acquisitions. The Company continues to target FY14 revenues of approximately $130 million. The level of 2Q14's quarterly revenues is anticipated to rise in the second half, due to the following:
    • Improved weather compared to 2Q14's adverse conditions, which affected sales, particularly in Texas
    • Major sporting events, such as early April's college basketball's Final Four championship in the Dallas-Fort Worth area, where Rick's has 14 adult clubs and restaurants; and Major League Baseball's All-Star game in July in Minneapolis, home of two of Rick's top adult clubs
    • Full quarters of Vivid Cabaret NYC and Bombshells Webster, and improvements already underway at Club Onyx units
    • Opening of Rick's Cabaret Odessa and at least 1-2 more Bombshells
  • Rick's expects operating and EBITDA margins to be affected by approximately $2-3 million in higher pre-opening and legal costs in the second half. As a result, the Company is refining its EPS guidance as follows:
    • EPS GAAP moves to $1.10 from $1.20, vs. $0.96 in FY13
    • EPS Non-GAAP moves to $1.60 from $1.70, vs. $1.40 in FY13
  • Altogether, this would result in revenues up 16%, GAAP EPS up 15%, and Non-GAAP EPS up 14%.

*EXPLANATION OF NON-GAAP FINANCIAL MEASURES

In addition to our financial information presented in accordance with GAAP, management uses certain "non-GAAP financial measures" within the meaning of the SEC Regulation G, to clarify and enhance understanding of past performance and prospects for the future. Generally, a non-GAAP financial measure is a numerical measure of a company's operating performance, financial position or cash flows that excludes or includes amounts that are included in or excluded from the most directly comparable measure calculated and presented in accordance with GAAP. We monitor non-GAAP financial measures because it describes the operating performance of the company and helps management and investors gauge our ability to generate cash flow, excluding some recurring charges that are included in the most directly comparable measures calculated and presented in accordance with GAAP. Relative to each of the non-GAAP financial measures, we further set forth our rationale as follows:

  • Non-GAAP Operating Income and Non-GAAP Operating Margin. We exclude from non-GAAP operating income and non-GAAP operating margin amortization of intangibles, patron taxes, pre-opening costs. gains and losses from asset sales, stock-based compensation charges, litigation and other one-time legal settlements and acquisition costs. We believe that excluding these items assists investors in evaluating period-over-period changes in our operating income and operating margin without the impact of items that are not a result of our day-to-day business and operations.
  • Non-GAAP Net Income and Non-GAAP Net Income per Basic Share and per Diluted Share.  We exclude from non-GAAP net income and non-GAAP net income per diluted share and per basic share amortization of intangibles, patron taxes, pre-opening costs, income tax expense, impairment charges, gains and losses from asset sales, stock-based compensation, litigation and other one-time legal settlements and acquisition costs, and include the Non-GAAP provision for income taxes, calculated as the tax-effect at 35% effective tax rate of the pre-tax non-GAAP income before taxes less stock-based compensation, because we believe that excluding such measures helps management and investors better understand our operating activities.
  • Adjusted EBITDA. We exclude from Adjusted EBITDA depreciation expense, amortization of intangibles, income tax, interest expense, interest income, gains and losses from asset sales, acquisition costs, litigation and other one-time legal settlements and impairment charges because we believe that adjusting for such items helps management and investors better understand operating activities. Adjusted EBITDA provides a core operational performance measurement that compares results without the need to adjust for Federal, state and local taxes which have considerable variation between domestic jurisdictions.  Also, we exclude interest cost in our calculation of Adjusted EBITDA. The results are, therefore, without consideration of financing alternatives of capital employed. We use Adjusted EBITDA as one guideline to assess our unleveraged performance return on our investments. Adjusted EBITDA is also the target benchmark for our acquisitions of nightclubs.

ABOUT RICK'S CABARET

With 43 units, Rick's Cabaret International, Inc. (NasdaqGM: RICK) is the leading hospitality company operating adult gentlemen's clubs and sports bar/restaurants in the US. Adult clubs in New York City, Los Angeles, Miami, Philadelphia, Charlotte, Dallas/Ft. Worth, Houston, Minneapolis, Indianapolis and other cities operate under brand names such as "Rick's Cabaret," "XTC," "Club Onyx," "Vivid Cabaret," "Jaguars" and "Tootsie's Cabaret." Sports bar/restaurants, which also feature live entertainment, operate under the brand names "Bombshells" and "Ricky Bobby Sports Saloon."

FOR MORE INFORMATION

 

RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME














(in thousands, except per share data)


FOR THE THREE MONTHS


FOR THE SIX MONTHS

ENDED MARCH 31,

ENDED MARCH 31,



2014


2013


2014


2013



(UNAUDITED)


(UNAUDITED)










Revenues:













Sales of alcoholic beverages


$

12,985


$

11,044


$

24,674


$

21,449

Sales of food and merchandise



3,979



2,878



7,402



5,456

Service revenues



14,347



13,052



27,077



25,707

Other



1,559



1,754



3,140



3,257

Total revenues



32,870



28,728



62,293



55,869














Operating expenses:













Cost of goods sold



4,041



3,495



7,788



6,881

Salaries and wages



6,854



6,149



13,431



12,187

Stock compensation



151



281



154



563

Other general and administrative:













Taxes and permits



5,142



4,573



9,557



8,772

Charge card fees



449



342



877



716

Rent



1,156



783



2,384



1,353

Legal and professional



426



980



1,214



1,656

Advertising and marketing



1,406



1,162



2,691



2,271

Insurance



972



570



1,771



1,069

Utilities



646



552



1,241



1,041

Depreciation and amortization



1,513



1,318



2,906



2,646

Gain on sale of property



(86)



-



(86)



-

Settlement of lawsuit



150



-



270



-

Other



2,591



2,353



5,022



4,631

Total operating expenses



25,411



22,558



49,220



43,786

Operating income



7,459



6,170



13,073



12,083














Other income (expense):













Interest income



35



1



112



8

Interest expense



(1,924)



(1,762)



(3,936)



(3,405)

Gain on change in fair value of derivative instruments



-



1



-



1

Income before income taxes



5,570



4,410



9,249



8,687

Income taxes



1,922



1,612



3,245



3,189

Net income



3,648



2,798



6,004



5,498

Less: net income attributable to noncontrolling  interests



74



(53)



121



(106)

Net income attributable to Rick's Cabaret International, Inc.


$

3,722


$

2,745


$

6,125


$

5,392














Basic earnings (loss) per share attributable to Rick's shareholders:












Net income


$

0.39


$

0.29


$

0.64


$

0.56

Diluted earnings (loss) per share attributable to Rick's shareholders:











Net income


$

0.37


$

0.29


$

0.62


$

0.56














Weighted average number of common  shares outstanding:













Basic



9,661



9,514



9,604



9,544

Diluted



10,853



9,988



10,763



9,871

 

 

RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES

 The following tables present our non-GAAP* measures for the periods ended March 31, 2014 and 2013:










For the Three Months 


For the Six Months 


Ended March 31,


Ended March 31,







(in thousands, except per share data)

2014


2013


2014


2013









Reconcilation of GAAP net income to 








Adjusted EBITDA 








GAAP net income

$3,722


$2,745


$6,125


$5,392

Income tax expense

1,922


1,612


3,245


3,189

Interest expense and income and gain on derivative

1,889


1,760


3,824


3,396

Litigation and other one-time legal settlements

150


-


270


-

Acquisition costs

-


34


-


89

Depreciation and amortization 

1,513


1,318


2,906


2,646

Adjusted EBITDA 

$9,196


$7,469


$16,370


$14,712









Reconciliation of GAAP net income (loss) to 








non-GAAP net income








GAAP net income

$3,722


$2,745


$6,125


$5,392

Patron tax

866


899


1,605


1,790

Amortization of intangibles

82


100


171


230

(Gain) loss on change in fair value of derivative instruments

-


(3)


-


(1)

Stock-based compensation

151


281


154


563

Litigation and other one-time settlements

150


-


270


-

Pre-opening costs

122


90


416


90

Income tax expense

1,922


1,612


3,245


3,189

Acquisition costs

18


34


18


89

Non-GAAP provision for income taxes

(2,409)


(1,917)


(4,148)


(3,773)

Non-GAAP net income

$4,624


$3,841


$7,857


$7,569









Reconciliation of GAAP diluted net income








per share to non-GAAP diluted net income per share








Fully diluted shares

10,853


9,988


10,763


9,871

GAAP net income 

$0.37


$0.29


$0.62


$0.56

Patron tax

0.08


0.09


0.15


0.18

Amortization of intangibles

0.01


0.01


0.02


0.02

(Gain) loss on change in fair value of derivative instruments

-


(0.00)


-


(0.00)

Stock-based compensation

0.01


0.03


0.01


0.06

Litigation and other one-time settlements

0.01


-


0.03


-

Pre-opening costs

0.01


0.01


0.04


0.01

Income tax expense

0.18


0.16


0.30


0.32

Acquisition costs

0.00


0.00


0.00


0.01

Non-GAAP provision for income taxes

(0.22)


(0.19)


(0.39)


(0.38)

Non-GAAP diluted net income per share

$0.45


$0.40


$0.78


$0.78









 

 

RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES

 The following tables present our non-GAAP* measures for the periods ended March 31, 2014 and 2013:










For the Three Months 


For the Six Months 


Ended March 31,


Ended March 31,







(in thousands, except per share data)

2014


2013


2014


2013









Reconciliation of GAAP operating income to 








non-GAAP operating income








GAAP operating income

$7,459


$6,170


$13,073


$12,083

Patron tax

866


899


1,605


1,790

Amortization of intangibles

82


100


171


230

Stock-based compensation

151


281


154


563

Litigation and other one-time settlements

150


-


270


-

Pre-opening costs

122


90


416


90

Acquisition costs

18


34


18


89

Non-GAAP operating income

$8,848


$7,574


$15,707


$14,845









Reconciliation of GAAP operating margin to 








non-GAAP operating margin








GAAP operating income

22.7%


21.5%


21.0%


21.6%

Patron tax

2.6%


3.1%


2.6%


3.2%

Amortization of intangibles

0.2%


0.3%


0.3%


0.4%

Stock-based compensation

0.5%


1.0%


0.2%


1.0%

Litigation and other one-time settlements

0.5%


0.0%


0.4%


0.0%

Pre-opening costs

0.4%


0.3%


0.7%


0.2%

Acquisition costs

0.1%


0.1%


0.0%


0.2%

Non-GAAP operating margin

26.9%


26.4%


25.2%


26.6%

 

 

RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES

Reconciliation of GAAP Earnings Guidance To

Non-GAAP Earnings Guidance

Fiscal Year Ending September 30, 2014






Low 


High





Reconciliation of GAAP diluted net income




per share to non-GAAP diluted net income per share




GAAP net income

$1.07


$       1.35

Patron tax

0.33


0.33

Amortization of intangibles

0.04


0.04

Income tax expense

0.37


0.47

Acquisition costs

0.01


0.01

Pre-opening costs

0.05


0.07

Litigation costs

0.25


0.31

Non-GAAP provision for income taxes

(0.74)


(0.91)

Non-GAAP diluted net income per share

$1.38


$1.67

 

FORWARD-LOOKING STATEMENTS

This press release may contain forward-looking statements that involve a number of risks and uncertainties that could cause the company's actual results to differ materially from those indicated in this press release, including the risks and uncertainties associated with operating and managing an adult business, the business climates in cities where it operates, the success or lack thereof in launching and building the company's businesses, risks and uncertainties related to the operational and financial results of our Web sites, conditions relevant to real estate transactions, and numerous other factors such as laws governing the operation of adult entertainment businesses, competition and dependence on key personnel. Rick's has no obligation to update or revise the forward-looking statements to reflect the occurrence of future events or circumstances.

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