Greetings, and welcome to RCI Hospitality Holdings Conference Call and Webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Gary Fishman, who handles Investor Relations for RCI.

Thank you, John. For those of you listening on the phone, you can find our presentation on the RCI website. Click Company and Investor Information under the RCI logo. That will take you to the Company & Investor Information page. Scroll down and you’ll find all the necessary links. Please turn to Page 2. I want to remind everybody of our safe harbor statement that 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. We disclaim any obligation to update information disclosed in this call as a result of developments that occur afterward. Please turn to Page 3. I also direct you to the explanation of non-GAAP measurements that we use. And I’d like to invite everyone listening in the New York City area to join us tonight at 6 o’clock to meet management at Rick’s Cabaret New York, Manhattan’s number one gentleman’s club. You can also tour its sister club, Hoops Cabaret and Sports Bar next door. RICK is located at 50 West 33rd Street between Fifth Avenue and Broadway, around the corner from the Empire State Building. If you haven’t RSVP-ed ask for Eric Langan or me at the door. And now, I’m pleased to introduce Eric Langan, President and CEO of RCI Hospitality. Eric?

Thanks, Gary. Thanks for joining us today. I’m here with our CFO, Bradley Chhay. And after the market closed, we reported our first quarter results. We want to thank our teams for delivering another strong quarter. Nightclubs and Bombshells continued to perform well. All 12 recent club acquisitions and our new company-owned Bombshells in Arlington, Texas also contributed results for part of the quarter. We didn’t experience any noticeable impact until December from the Omicron virus. Today, it has cycled quickly through our markets. We are continuing to execute on all aspects of our growth plan for fiscal 2022. We expect to achieve further progress with our recent club acquisitions. Our first Bombshells’ franchisee should open in San Antonio this quarter or early next quarter, and our AdmireMe website should do a soft launch during the same timeframe. We are actively pursuing new club acquisitions as well as Bombshells company-owned locations and new franchisees, helping us implement our capital allocation strategy as our recently announced bank loans. Now here’s Bradley to review the financials.

Thanks, Eric, and good afternoon to all those listening. All of our comparisons in this call will be to a year ago first quarter unless otherwise noted. We generated total revenues of $61.8 million, that is up 61% year-over-year and up 28% compared to the pre-pandemic first quarter and fiscal 2020. GAAP EPS totaled $1.12, with non GAAP EPS at $1.10. In the year-ago quarter, we reported GAAP EPS of $1.07, that included a $4.9 million pre-tax gain equaled to $0.55 per share from the debt extinguishment of our PPP loan. Excluding debt and other standard items, non-GAAP EPS was $0.39 a year ago. Net cash from operating activities was $16.3 million, an increase of 159%. Free cash flow totaled $15.3 million, which was up 169%. Net income increased 11.1% to $10.6 million. Now on a non-GAAP basis, net income was up 193% and adjusted EBITDA increased 107% to $18 million. Please turn to Page 5. Nightclubs segment revenues, the operating margin and income from operations were up significantly from the year-ago quarter. Revenues grew 86% year-over-year to $46.8 million, operating margin was 40.1% compared to 33.7%, and the income from operations increased 121% to $18.7 million. This includes the benefit of our recent addition of 11 clubs since the acquisition in mid-October, and another club acquired in early November. They contributed approximately 29% of the increase in revenues and approximately 17% of the increase in operating income. The segment also reflects strong performance from all of our other clubs, which were still heavily impacted by government-related COVID restrictions in the year-ago quarter. Same-store sales were up 31% compared to the year-ago quarter and up 8% compared to the first quarter two years ago. Revenues and operating margin also benefited from 107% year-over-year increase in high-margin service revenue. This primarily…

Thanks, Bradley. Please turn to Slide 11. We’re continuing to talk to new investors. This is a result of our meetings through the ICR and Sidoti Conferences in January, Noble’s Capital Markets Initiation Coverage. So I’d like to review our capital allocation strategy. Our goal is to drive shareholder value by increasing free cash flow per share, 10% to 15% on a compounded annual basis. Our strategy is similar to those outlined in the book, The Outsiders by William Thorndike. He studied companies that focus on generating cash per share and allocating that cash effectively to generate more cash. We have been applying those strategies since fiscal 2016 with three different actions subject, of course, to whether there is strategic rationale to do otherwise. One is mergers and acquisitions, specifically buying the right clubs in the right markets. We like to buy good solid cash flowing clubs at a three to five times adjusted EBITDA, using seller financing and acquire the real estate at market value. Another strategy is using cash to grow organically, specifically expanding Bombshells to develop critical mass, market awareness and sell franchises. Our goal in both M&A and organic growth is to generate annual cash on cash returns of at least 25% to 33%. The third action is buying back shares when the yield on our – of our free cash flow per share is more than 10%. Please turn to Slide 12. Regarding Nightclubs, we are making important progress with the clubs we acquired in the first quarter. As I mentioned on the last call, this is a COVID rebuilding effort. And as this materialize, we expect to see improving revenue and margin run rates. We anticipate reopening our rebuilt and rebranded club in Louisiana this quarter, and our remodeled and rebranding club in San…

Thank you. Ladies and gentlemen, the floor is now open for questions. And the first question is coming from Joe Gomes from Noble Capital. Your line is live.

Good evening. Can you hear me?

Yes.

Great. Excellent quarter, guys. Just a quick question first here on the acquired Nightclubs, it looks at some doing the math real quick on the back of the envelope that for the weeks that you had acquired them, they were generating a little over $6 million of revenue. Is that kind of where you’re – we’re expecting better or worse, maybe just give us a little more color detail about how the integration of the acquired clubs is progressing?

Sure. I mean, we knew it was going to be a challenge. They were short staffed. They weren’t open full hours yet, when we took over on October 18. So we knew there’s going to be some issue – issues there. As we brought some people in from around the country from our other clubs, we were able to fill some spaces, get some stuff going, start building momentum. We did have an issue with some of the existing staff that were very corporate, and they were not used to that. So we have some turnover, and existing staff as well. So that added to the – so compounded to the problem. Then by late December, going into early January, we had COVID hit certain locations throughout the country. And so we’ve been dealing with that. But as of now, I’m very excited about going forward. The numbers are getting better and better at the locations. Some of the locations are exceeding 2019 numbers, and some are still at about 60%. So we’ll continue to push and grow on those locations to get the right things. We have to remodeling the CapEx done. So we’re waiting, most of that is done. Now we suspect that the majority, if not 100%, of that will be done by March 1. There only be one major project left that we haven’t started yet, and we’re still working on approvals through the landlord. It’s one of the rental properties, but we want to change that property to a Rick’s Cabaret and remodel and make it look more like our New York City storefront in downtown Denver. So hopefully that will get done here as well in the next few months. It’s right across the street from the convention center. So it should be a really great look and definitely help increase that property revenues and income. But overall, I’m – we’re very excited about about the growth potential still at the existing clubs that we just purchased. And I think that as far as our schedule is going, we’re on schedule. We think it could take from be somewhere between March and May to get these locations back to 100%, 110%, which is where we want to see them in. Other than that, everything else has been great with those locations.

Okay, thanks for the color. And obviously, awesome contribution this quarter from the service revenues, partly, as you mentioned, the northern clubs getting back to the VIP business. Do you think there’s much more upside in that? Or is that kind of played out in terms of the people are back to the full extent we won’t see that type of growth going forward?

I think we’re going to see more growth in that. You’re going to see it return more to the mean – service revenue used to be over 40% of our revenues. I think we’re still down the 20s right now. So I think there’s considerable bandwidth there. A lot of it could have to do with weather, as the weather gets nicer. I think March, April, May is going to be one of our strongest periods. I know March is part of the second quarter and April, May will be part of the third quarter. But I still think those three months as a whole are going to be very, very strong for the company. And we’re going to get a very good sense of what we’re going to be looking like on a go-forward basis as – at some of our primetime. I think that hopefully this last wave of COVID Omicron will be kind of gone. Hopefully, there’s nothing new that comes out. It seems to be weakening, so it should just hopefully go away as they’re saying. And that’s going to give us a very, very strong. We got a great sports lineup coming with March Madness coming up, and some of the other bands baseball, we started back up in April, which would be good, great for us basketball season will be coming to an to a prime spot. And I’m just, I think, a very exciting time for us during those three months. And hopefully, the weather gets a little better, this big storm last week all across the Northeast, freezing down all the way into Texas and some freezing rain and snow actually in the Dallas market, again going to coincide. So last year hit us in the second and third week of February, which is our primetime. This time it’s hitting our first week of February. So I’m hoping that’ll kind of blow past and we’ll get a nice six-week run as we run into the last six weeks of this quarter, the last two weeks of February, and then in the four weeks in March. So maybe even seven week, nice seven week run. So this quarter is still good. January was still a very solid quarter for us. I was thinking we would come in closer to $22 million, we’re a little over $20 million in sales for January. So that will be still better than we did in October. So this quarter still ahead of last quarter on a going forward run rate for first quarter, second quarter. And we’ll just have to see how these next nine weeks play out, hopefully very strong for us.

Right, right. And speaking of sporting events, I know when you get some – a Super Bowl in a location, it can really have a nice uptick. And I know the Formula 1 race is coming into Miami in April. Outside of that, are there any other big one-time events like that, that you see that will be coming this year towards where any – your club locations are?

I mean, I think there’s some big like Bitcoin and NFT Conferences that are coming to some of our areas. We’re in the process of accepting Bitcoin at our location, some of our locations, which I think will help dramatically starting in Miami with the big Bitcoin conference coming up there in April. We’re hoping to have that in place by then. We’re working on some other cool things like a helicopter landing pad tootsies in Miami, because we’ve had several requests from some big VIPs. They want to land their helicopter at the club. We’re like, well, we work that out, I think. So we’re in the process of doing stuff like that. I mean, that location is just phenomenal right now. The numbers is doing – or I mean, we’re still running record numbers that we never even dreamed up pre-COVID that we could do the volume that that club is doing now. The race is going to be incredible for us. I think it brings a lot of big money in to the area of Formula 1’s various ways. We know from Austin, which our clubs are still 60 to 70 miles from the track and we still get business in Austin, Texas when Formula 1 is there. So this, I think, I’m not 100% sure of the track, but I know it’s just blocks, the tracks literally blocks from tootsies there. So should be a really big draw for us as well.

One more if I may and then I’ll get back in queue. Just you’re talking about a soft launch of the AdmireMe site in the second quarter, maybe early third quarter. What kind of the metrics are you looking for in the soft launch?

I want to get 1,000 girls or creators on the site that, that is our initial goal. To put 1,000 creators – new creators on the site from our clubs and our partners’ clubs. So combined, there’s about 70 – about 77 clubs around the country that are going to be involved in the initial launch. Hopefully, we’ll add other clubs as time goes on through our acquisitions through their expansion and through maybe partnerships with other club owners as well to continue to build the site. But I think our first metric has to be hitting the goal of 1,000 creators. At 1,000 creators, I think that it has enough momentum on its own that we can just let it build on its own from there with – then we can convert to a – more of a promotion mode where we’re really trying to bring in more customers and guests for those creators. And then, of course, then we’ll need more creators and then we’ll need more customers and just the the chicken and egg effect and just balance and build and balance and build. Try not to let either get ahead of ourselves where we have too many customers, and not enough creators or too many creators and not enough customers. I think that’s the delicate balance for us. So I think we’ll have a really good handle on that. How that’s looking by the May call is what my personal thoughts on that.

Okay, great. Thanks for all that, Eric. Appreciate again. Great quarter. I’ll let someone else ask some questions. Thank you.

All right. Thank you.

The next question is coming from Anthony Lebiedzinski from Sidoti. Anthony, your line is live.

Thank you. Good afternoon, and thank you for taking the questions. Certainly a very impressive start to the fiscal year even with some headwinds with Omicron. Eric, is there any way you can perhaps take a shot at the estimating what the impact of Omicron was on sales for the quarter?

For the quarter, it’s difficult. But I would say, it probably affected us around 10% in December. In January, probably about the same. I don’t think we’ll see any effect in February from. And I think February – I think it’s kind of its course in our markets, for the most part, at least our major markets. Texas was – Texas, it’s kind of done now. I mean, it wiped out our corporate office. I mean, we were very skeleton staff, getting this queue finished up and we were actually a little worried about it. A couple of points. Like are we going to be able to get all this work done? Because every other day somebody else was, “Oh, I’m positive, I can’t come in now.” So rally did a great job of getting that all handled and taken care of and went through the COVID himself. So he knows, I mean, they all was just, luckily, it was very short, most of them were sick, yeah, out for two to three weeks total with all the – and that’s with all the precautionary hold times. They weren’t really sick for more than about five days or so. But we did a 10-day hold before the – most of us was before they changed it to a five days. So we’re making them 10 days, get negative tests, all that type of stuff before we let people back in our offices, because we couldn’t afford to keep losing people, especially the key people that were there. We have people coming in at night to avoid each other, whatever we had to do to get this close out done for the quarter and get the queue out on time.

Gotcha. Okay, well, I’m glad that everyone is healthy. Now it sounds like in the corporate office, you guys were able to finish up the 10-Q and so on. So looking forward here, as far as the segment operating margin. So obviously, the Bombshells did take into account some of the preopening expenses for the new Arlington location. So is it safe to assume that sequentially, you should see better operating margins there? And if you could just comment on the Nightclubs as to how we should think about the segment, the op margin there?

Yeah, I mean, the Nightclubs are – I think we’re kind of maxing on the Nightclubs, I would think. But then again, I don’t know, as the service revenue continues to grow and tootsies is doing the numbers its doing. The Denver market really picks up for us, as the guys are saying they expected to between March – for the month of March. We could see a little bit better there. As far as the Bombshells, I think we’re going to stay in the 18% to 22%. And maybe occasionally, we’re going to have some big events that blow us up to that 24%, 26% margin rate. But if we say 18% to 22%, I’m going to be very very happy with Bombshells segment in that range. As a very good healthy range for Bombshells has been our target for many years, that was the target to get to. And if we can stay in that range, I’m not going to be unhappy. Obviously, I love the – the new locations running 30%-plus is nice that helps expand the margin for the – so a couple of the underperforming very older locations that we did before we really had the demographic markets figured out the way we do today. But – and as we add more of those locations – those first two locations or so three locations that are underperforming will have less and less weight on the brand as well. But I don’t see any issues with that staying in the 18% to 23% at this point. We’ve been able to pass on costs. I’ve talked to some of the guys, management there, we are – our labor issues that we were having, we’re kind of through those most – for the most part. I mean, obviously, everyone is having some short-term effect. But it was really tough when Omicron came through. We’re already short, and then you have sudden, you’re missing people. you’re missing cooks, you’re missing management, you’re missing bartenders. I think that all had a little bit of effect some in December, and some of that effect we’ll see in January. But I think March will more than make up for what January did. Our January is going to be – I mean, our March is going to be much, much stronger, I think, than our December was. And we already know that January beat the October. So it’s really see how February does against November, and then we’ll have a really good idea of where we’re going. And then that will give us our April through September kind of run rates. And we’ll kind of get an idea, I think, how close will be to between 260 and 280 and total revenues, which is our goal. And then as we add I think new projects and new clubs through acquisition. As we get through the later part of that year, we’ll have to see how all that plays into the numbers as well.

Gotcha. Okay. That’s great to hear. And then the general corporate expense was a bit higher than what we estimated here. Just wondering if there were any notable maybe non-recurring, I don’t know if it’s non-recurring. But the – any sort of items, obviously, as you were integrating the expenses. I’m sorry, the acquisitions, just wondering if there was anything meaningful to call out there? And then just how should we think about the quarterly run rate for corporate expenses going forward?

Yeah, that quarter, especially our first quarter is always impacted by the year-end audit, which requires a lot of internal control work, a lot of year-end SOX work. And you couple that with the due diligence work, as well as any third-party work for the acquisitions at the top clubs. So you’re going to see it ramp up a little bit higher there. On a normalized rate, I’m saying about $4.5 million for that segment on a normalized run rate.

Got it. Okay, thank you, and best of luck.

Yep. Thank you.

The next question is coming from Adam Wyden from ADW Capital. Your line is live.

Hey, Eric, congratulations on a great quarter. This is my favorite time of the year. I only get to do this four times here. So I won’t let all of our listeners not get a show. But look, obviously, you’ve made some real progress in terms of improving your cost of capital relative to what it was. Now, that was a very low bar, you were trading at 1 point, I don’t know, some stupid number. I mean, I remember, there were people shorting the stock during COVID. And it was $8 a share, and we were like, this thing is going to do $10 a share of free cash flow. I mean, look, you obviously are trading still at a big discount to the rest of the restaurant and hospitality space. I think it might be helpful for the new people to kind of talk about your history with Bombshells and kind of the fact that you had to tinker with it a little bit. And perhaps give people a sense of the cadence in terms of your store opening schedule beyond 2022. I mean, when I look at the business today, I say, well, you’ve got 12 locations. They’re doing $6 million or $7 million, that’s, call it, $75 million, $80 million, you say 22% margins when you give credit for the real estate, right, you’re booking real estate through that, it’s really more like 30% margins, because you’ve got like, 7% of sales on real estate. So you basically got a business, that’s like $25 million of EBIT or whatever, doing $20 million, $25 million of EBIT. I mean, if that was floated publicly, that would be worth more than the entire market cap. Now, of course, that’s a subscale public company. But I mean, that’s worth a $1 billion. And so my question is you’ve basically built this really amazing brand in Bombshells that took you some tinkering to fix it. You’re – how many – can you walk people through kind of what you think the unit cadence is over the counter of the intermediate term and what you think that could be because obviously, the strip clubs are hard for some people to invest in and we can agree or disagree on that. But I mean, I think it’d be interesting for people to really understand the long-term growth potential, the restaurant opportunity?

Well, the ideas for 2023 to open a store every two months. And by the end of 2023, be to the point where we’re actually opening a store every eight weeks, and possibly even every six weeks. And that by the end of 2024, going into 2025, if our franchising picks up the way we think it’s going to, we’re talking with people now. We’re getting more and more questions. We’re getting more solid interest from qualified people. We’ve always had the interest, it’s just getting qualified people interested, but we’re seeing that now. So we’re talking with them. I would like to see in 2025 us being able to open 12 or 16 locations a year by 2025, with two separate opening teams. So you get two separate opening teams that could do a unit every six weeks or every eight weeks. And so really do probably like a unit every 14 weeks between the opening teams.

Okay. So let’s do some math for a second…

as well. And maybe we have three opening teams, I don’t know.

So let’s do some math for all the idiots that are shorting the stock after hours. Because these guys, I mean, I don’t know, maybe they don’t have COVID anymore, because COVID is over, maybe they’re doing drugs or Bitcoins or something. But this is the back of the envelope math I’m doing. And you tell me and the rest of the viewers, if I’m on some other stuff. Okay, so you got six stores in 2023, right? And you’re talking calendar 2023, correct?

Yes, calendar. Yes.

All right. So the newer stores are running higher AUVs, because you’ve got the geographies, right? And all these new stores, I mean, some of your new stores are doing close to $10 million. But let’s just – let’s say that make the map simple and say six stores gets you $40 million of sales fully ramped and maybe it’s more than that. At a 30% operating margin with the real estate income, that’s $12 million of EBITDA organic, right, just from Bombshells fully funded off of organic, right? And then when you think about the following year, if you do one every six weeks, that’s 50% growth. That’d be another $18 million of EBITDA the following year. So you think you can grow your Bombshells cadence can basically grow 50% every year, so 12, 18…

A couple of years, I know we can do it every year. But for the next two to three, possibly, yes, that’s the plan.

Okay. So what I’m saying is, you’ve got a business, that’s 20 of EBITDA, that’ll be – that could be 32 the following year, and 50, the year after that. I mean, this is going to be a meaningful part of the operations now that precludes you growing on the Nightclub side. But I mean, you – and it is your intent, I guess, in the near-term to build a $50 million EBITDA business out of Bombshells? And…

We think that for Bombshells, it has to be taken seriously. $50 million is to us the magic number. That’s when we have the option, the two-sided Bombshells could be a standalone entity or if Bombshells continues to fit into RCI, the way it currently – the current setup is or even looking at an acquire that would be willing to pay us the big money for this fast growth restaurant chain. So there’s a lot of Bombshells that open up to us when we hit that number.

So we know Hooters is up for sale, and they’ve got that stupid wings concept puts around. Who knows if they’re going anywhere? I mean, Hooters is on the down. I mean, could this be, I mean, in the – could this be 100 locations at 7 million? I mean, the math I’m doing is if we can get to 100 locations at some point at 7 million a box, right, which is that crazy if you think about Buffalo Wild Wings and whatnot that you talked about $700 million at a 30% operating margin, including real estate, that’s $200 million…

I mean, if you look at your 6.5, you’re close. I mean, if it’s 6.5 a box, so you need a couple of extra, you need a few extra stores. So I mean, yeah, I think that’s not an issue of 100 Bombshells. Now that we’re looking at Florida, we’re looking in Arizona, I don’t think 100 locations is difficult at all.

So 100 locations is a $200 million EBITDA business.

Yes.

All right, because we’re doing 20 on 12 or 10, right? So 2025. So, if we get to 100 that means it’s a $200 million profit business?

Yeah. It’s going to be very significant question, as I said, I can’t – we can’t ignore those points.

Well the interesting thing is you look at Bitcoin. Bitcoin went from $0.03 to 1,000, and every thought it was high and went to 50,000, right? I saw – I don’t know, if you’ve ever studied Restoration Hardware and what Gary Friedman did. Have you thought about doing a massive tender offer? Or I mean, because remember, like, you’re generating so much cash flow now, have you thought about maybe doing like a big share repurchase or something to? I mean, because, I mean, look, I don’t want to quote Donald Trump. But when he said he wanted to go wash, he want to drain the swamp. I mean, we got a swamp here, and we got to drain it, because there’s all these guys sloshing around. I mean, if we’re not going to get our costs to capital, and we’re going to grow like this. Have you thought about doing something more aggressive on the capital allocation front? I mean, this is absolutely insane, this man.

I mean, we were getting prepared and stock was down in the – down to 67 again. We were preparing to start buying stock again. In the last few days, it ran up over $10 a share. I mean, we’re watching it. When it gets into our buy range, we will be buying stock. It just hasn’t hit our buy range of 65. Because – and I started saying that’s our – that’s when we – at that point, we’re going to buy stock, because it just makes sense. Even though we have enough cash on hand now again, to do the deals that we’re working on, so the cash we regenerate on each week basis, we don’t need to just continue to build it up. We have enough in the war chest to do the things we have on our plate right now at least through May or June. As we develop and get farther into some of the acquisitions, that could change, but that’s where we’re at today. And we’re generating cash. Our cash balances keep going up. This quarter, I think the second quarter, the cash flow will be a little less. We’re going to pay significant income taxes this quarter where we had a nice credit in the last quarter, we didn’t have to pay as much in taxes. So maybe our $18 million cash flow this quarter ends up only being $16 million on the same revenue. But we could also do $2 million more in revenue, $3 million more in revenue and bring it right back up. So we’ve got to watch if that goes.

The fourth quarter was a seasonally – it’s kind of not your seasonally strongest, which kind of brings me to your second question. If you think about $240 million of sales in the fourth quarter, and then you obviously had preopening costs and some other stuff that was burdening the margins, as you said. When I think about this business, I say, okay, you did 72 million of EBITDA effectively, annualized in that quarter, right? Now you didn’t have a full quarter from Lowrie. Obviously you didn’t get the synergies, obviously, you had preopening costs. So maybe you back that out, and maybe you get back up to $75 million to $80 million, right, plus or minus. And then when you layer on the next $40 million in sales from the return in New York, Lowrie getting fixed, and kind of continuing getting to where you want to be in terms of – you’re looking at another at least I mean, on the Nightclubs, you’re getting huge incremental margins, right? Bombshells is less, but most of the return on growth is going to be from Nightclubs anyway. So when you think about the extra $40 million on clubs, like his Bombshells are basically where they are. They’ve been running hard the whole way. So you say another 40 million if that’s – I don’t know, it could be as much as 80% incremental, but let’s just be conservative and say, 60%. That’s another 25 of EBITDA. I mean, this business will be in excess, assuming no additional M&A. We’re going to be well in excess of $100 million of EBITDA exiting calendar 2022. I mean, I would think by middle of this year, we’re well in excess of $100 million of run rate of EBITDA, right? I mean, that’s how…

On a forward, I – and we’re going to be close that. I think, right now we’re looking at probably I would think we’re going to be close to 82%. I think we got hit for a couple of million in this quarter, I think we’re going to get a hit in a couple of million, January, February, March, or just well, January, really is when we got hit about $2 million in December, about $2 million in January, call it 60% or 80% incremental margin. So that’s like $1 million and EBITDA in each of those. So we’re missing about two. We were at 82%. So maybe we’re at 80%. Maybe we’re at 78%. So we’re somewhere between 78% and 82% right now on a run rate type basis. But I just really don’t know for sure until we can see what March does. And we need to see what a real clean month – we shouldn’t have much weather effects. We should have. We’ve got the March Madness going on. We’ve got the spring fever type stuff going, that’s when we’re going to really see I think the demand for our product or and for the clubs and just people going out more. The Omicron scare will be over. And hopefully, the whole COVID scare is over and we can get back to a more normalized operation.

Also on the Lowrie front, I mean, you lost you had a huge amount of employee turnover. I mean, that’s – there’s going to be a huge jump up on utilizations and…

Oh, I think in December. I mean, I think by March, yes. By March, like our Denver market…

Yeah, what I’m saying, look, by the middle of the year, I don’t care about January, February, right?

By the end of May. I’m thinking by the end of may. As I said, March, April, May is going to be huge for us, because then – and that’s when we’re going to be able to see, by May, we’re going to know exactly what I think it’s going to look like for the next 12 months, that’s we’re going to get a really good feel of, okay, hey, look we’re at 80, now we’re at 110. I mean, we’re going to know that I think in the next three months, that’s when we’re going to see that come to fruition.

Well, you know me, I’m pretty consistent. I’ve been pretty good at modeling. I think, my guess is by the end of May or early June, you’ll be in excess of 100 of EBITDA that’s where I’m at. I think it’ll be 100 to 110?

Well, I’ve done everything I can do to feature numbers every time. And even when I thought they were crazy and we keep doing them. So I hope you’re right and I – it’s definitely a high possibility of probability that that’s where we’ll be at and we’re definitely going to keep working for that.

Okay. Let me shift gears. So we did Bombshells, we talked about that, that was helpful. We talked about the bridge on the sales. Okay. Can you talk about that $20 million of inorganic M&A, obviously, Lowrie was kind of a shot across the bow, right. I mean, for those of you that haven’t been on this call, you buying Lowrie was basically, I mean I wouldn’t say it was as crazy as David Tepper buying Jon Corzine’s house after Jon Corzine blew up all his money in the Hamptons. But I mean, buying Lowrie, I mean you had a lawsuit with him in OA. You bought the VCGH stock. I mean, this was really a coup for you. This is an asset you’ve been at for 15 years. I mean, you got Lowrie. It’s got great metropolitan market. You’re going to get the 20 EBITDA on that. Other large owners, obviously, see that a sophisticated owner was willing to sell to you. I mean, how do you think about these large, multi-club, multi-MSO acquisitions? And how do you think about because now you’re at scale, right? I mean as you said, the last time you had your hurrah in 2008, where you actually had some equity, equity cap. You’re only about 20 of EBITDA. But now, you’re far more diversified business geographically where you’re at $100 million of EBITDA pro forma for Lowrie. I mean, how do you think about taking on another Lowrie a year just one big deal or two big deals, I men?

I would love to do it. I mean, we’re – and we’re talking with some guys out there that have the ability to branch not 12 clubs, but four clubs, six clubs, three clubs deals that we’re working on right now. We may have to close two deals to bring in the same type of of EBITDA as we did with the Lowrie transaction. But they’re out there, and we’re working on and there’s some pretty decent one-off that we’re working on right now as well.

Yeah, I remember you were working on Boston $4 million…

$5 million in a single acquisition.

Right. Boston was a big club. I mean, that fizzle, but that was a $4 million, $5 million or $6 million EBITDA deal. I mean…

I think that would have a very, very big enforce. And it was just – COVID just killed that deal. What happened? The owners got desperate, and then they sold the real estate, and we’re not interested in the club without the real estate.

You shouldn’t be. So you think I mean, you think you could do to – I mean, look, at I mean, you can do the math on tootsies and Scarlett’s. I mean, those assets right now I don’t know what tootsies grew 20 EBITDA, I mean, 25. I mean, those are big – I mean, those are unique assets, right? I don’t know if – I mean, could there be another tootsies in the United States? That’s not in Vegas, that would be – I mean, are there other spots out there?

I recently found a club, that’s another Scarlett’s at least. another Rick’s New York that were talking with the owners on going to go take a look at it. And I was very surprised. I didn’t – the problem of the private clubs, you don’t know what their numbers are until you get under NDA and they actually really give them to you. And you get tax returns, and you go through and go, “Wow, you guys are doing that – those kinds of numbers. Now, I had no idea. And so those are the things we’re finding right now. And I’ll say on the call all the owners out there that might be listening, and we’re very interested in larger acquisitions. It takes us just as much energy and effort to buy a one club as it takes to buy 12 clubs, I mean, our team…

And I’ll send a message to all the club owners themselves, which is, I can personally attest to the fact that Eric Langan is a super talented capital allocator. And any club owners should look at Troy Lowrie and look really, really hard because the stocks still trading at a very low multiple. And there’s going to be a time hopefully in the next two to five years, where we’re going to trade at a multiple instructive of our ability to allocate capital and grow? Because look, the reality is, is that a business of this scale? I mean, look, the guys that Noble put out an interesting report. I mean, there’s 2,200 clubs in the United States. We only are 49. So we’re 2% penetrated. I mean, it’s just math, right? The other another 98% clubs, he told me, there isn’t another tootsies out there, there’s got to be. And so what – it’s an incredible opportunity. I mean because of ESG and private equity, and this and that, we are the only game in town. And I’m convinced that at some point, we are going to trade at a multiple instructive of our ability to allocate capital and growth. So, look, I encourage you to keep hitting these investor days and getting in front of people and keep doing the great work. And we’ll go from there. Oh, last thing, can you talk a little bit about the financial metrics of AdmireMe? I mean, if you get a – I almost forgot about this. If you have 1,000 people, have you guys done any work on if the average girl is $10 a month, like have you thought about kind of penciling the paper, I know, you guys get like some revenue share of the subscriptions.

I mean, the average girls are going to be a much lower number. I think with because of the fact that you can come see the girls are going to be working through the clubs to increase their presence on the Internet, through the clubs and bring children. I mean, I think the average girl maybe it’s 200, maybe it’s 2,000, I don’t know. But if it’s 200, and I get 1,000 girls on there, all of a sudden I’m doing my 200,000 a month, or 2.4 million a year to kick off. And if I can get that done in the first 60 to 90 days, and that’s my ramp-up, I’m starting – that’s where I started out on my ramp up. And the next thing I have 10,000 girls on there, I think that’s – it’s going to be a very, very powerful and significant try for us, plus it’s going to increase our brick-and-mortar, I think frequency because a lot of guys are – we have a lot of really pretty girls that work for us and guys get intimidated. But they can find them on the Internet, they can chat with them, message back and forth, maybe get a little more comfortable and then be able to come into the club. In fact, I was talking with a guy last night, he goes, Man, I’m really shy. I said, well, you want me to go get that girl talk – when we go to talk to the girl and come over to the table? Oh, no, no, no, don’t bring her over. Don’t bring her over. And I’m like, okay. So he wanted to – whatever, even if I could get to know her first, I don’t want – I want to know more about her…

Good stuff, Eric. Keep fighting the good fight, and we appreciate the hard work.

Yep. Thank you, Adam.

Are there any final questions? This is the last chance for questions.

John, this is Gary. We got a couple of questions that have been emailed while we’re waiting to see whether anybody else has any questions. Eric, what’s the significance of the $7 million acquisition of Scarlett’s Cabaret Miami property? It’s a question from Jonathan Hollander of Chesapeake Advisory.

Sure. That’s 8% cap rate based on the rent at the time of closing. The rent goes up by CPI every year. So we just had a 6% increase in January, that would have went effect into January. If you consider a 3% – if you’ve just consider a 3% CPI, over the next 10 years, it becomes a 10.74% cap rate on what the rents would be and we own the property. So now we control our destiny at that location forever. There was 30 years left on the lease. So we weren’t in a real risk. Originally, they wanted $9.5 million for that property. We told them, well, wait, we’ll stick with the lease. Last year, they came down to $8 million. This year, they came down to $7 million and we couldn’t turn down $7 million as – with an 8% cap rate and almost 11% return over the next 10 years on that property, we couldn’t turn it down, we had to buy it. The – we believe that property appraised for about $7.8 million or $7.9 million. So it’s worth probably about 10% more than we paid in cash. The main reason, the discount so quickly as we literally closed that deal in two days and then escrowed part of the money till we got actual title clearance. So it worked out very well. That deal is completely closed now. We have full title insurance and everything else. So – but it’s a significant pickup for us. And it feeds very well into – to what we pay for the real estate normally.

Great, thanks. And one last one from Antonis Protopapas in his family office. For our high-margin service revenue, is there a story behind that pop or just the reopening? What was the driver mostly cover charges, executive rooms, et cetera?

All right. It was mainly New York being back open full time, and customers coming back in. And we saw that through October and November. And then by probably the second week of December as Omicron hit New York very hard, especially in our staff and that we started to see that decline a little bit again, through about the second week of January. And since the second week of January, we’re now starting to see that, that revenue back into the club again in New York. Also Minnesota did very well through November and December. They had a slowdown at the end of December, early January, similar to Texas, where the virus hit those markets. Those markets are now recovering. We have had some weather issues this first week of February, but I’m very optimistic on – between, we have a bottle reservation system that we use, and I’ve looked at some of the numbers there, those numbers are getting better for reservations going through the end of February. So I think we’re going to see that that service revenue bounce back and get back on course where it was through October, November. And actually, in March, I think we’re going to see all that exceed I think service revenues will will grow to over 30% of revenues again in a short period of time, especially Denver comes online. Yeah.

Yeah, we just got another question in from Steve Martin. Has the competitive landscape changed in New York City post-COVID?

It’s gotten better for us. Two major 10,000 square foot club didn’t reopen. The executive club on 49th and the scores on 28th Street did not reopen. That’s 20,000 square feet of adult space that basically went away in New York City. But that’s probably good, because I think half of our hedge fund managers and stuff all moved to Florida. So two of these are doing very well in New York. New York is missing a few customers, but it’s nice when they come back to visit. When they come back to work in the city, they’re here for typically three to four days, and we’re seeing him for two or three days at the club. So it’s working out very well for us in that regard. And that’s what I think we need to see as the weather gets better and the ice and snow, we get past that in the next few weeks. I know the groundhog saw shadow, so we’re supposed to see a little more winter here. But I think by March, we’re going to be in great, great shape.

Thanks, Eric. John, it looks like we have no more questioners and we’re almost hitting an hour. So don’t we wrap up? So thank you, Eric and Bradley. For those of you who joined us late, you can meet management tonight at Rick’s Cabaret New York starting at 6 o’clock at 50 West 33rd between Fifth and Broadway. If you haven’t RSVP-ed ask for Eric or me at the door. We’d like to welcome Noble Capital Markets, which is now following RCI, along with Sidoti & Company. We’ll be at Noble Small-Cap Conference in Hollywood, Florida, April 19 through the 21. On behalf of Eric, Bradley, the company and our subsidiaries, thank you and good night. Stay safe, stay healthy. And as always, please visit one of our clubs or restaurants.

Thank you.

Thank you, ladies and gentlemen. This does conclude today’s conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.