RCI Hospitality Holdings, Inc. (identified in filing as Rick’s Cabaret International, Inc.) — FY2013 Form 10-K
Reporting period: Fiscal year ended September 30, 2013. This is an annual report, not a standalone fourth-quarter filing; quarterly figures below are for the quarter ended September 30, 2013. The company operated adult-entertainment nightclubs, bar/restaurants and an industry media division, reporting one segment: nightclubs.
Financial performance and condition
| Metric | FY2013 | FY2012 |
|---|---|---|
| Revenue | $112.2 million | $95.2 million |
| Income from operations | $22.1 million; 19.7% margin | $16.5 million; 17.3% margin |
| Net income attributable to Rick’s | $9.2 million; diluted EPS $0.96 | $7.6 million; diluted EPS $0.78 |
| Adjusted EBITDA (non-GAAP) | $28.1 million | $23.8 million |
| Cash from operating activities | $18.4 million | $18.4 million |
| Cash and cash equivalents at year-end | $10.7 million | $5.5 million |
| Total debt | $78.6 million | $63.5 million |
| Total assets | $223.1 million | $192.4 million |
- Revenue rose 17.8%, primarily from acquisitions and a full year of contribution from clubs acquired in 2012. Same-location nightclub revenue declined 1.2%; same-location operating income declined 1.1%.
- Operating margin improved, while interest expense increased to $6.5 million from $4.0 million, reflecting higher debt. Net income attributable to the company increased about 21%.
- Investing activities used $11.4 million; financing activities used $1.8 million. The company reported working capital of $4.8 million excluding the Texas patron-tax liability, versus $1.7 million a year earlier. On the balance sheet, current liabilities exceeded current assets by approximately $8.3 million.
- At September 30, 2013, current debt maturities were $8.8 million and long-term debt was $69.8 million. Contractual obligations also included $25.7 million of estimated future interest and $33.7 million of operating-lease payments.
Fourth-quarter figures and material changes
For the quarter ended September 30, 2013, revenue was $28.0 million, income from continuing operations was $1.7 million, net income was $1.6 million, and basic and diluted net income per share was $0.17. Compared with the September 2012 quarter, revenue increased from $23.9 million and net income increased from $1.5 million.
- Acquisition-led growth expanded assets and debt. FY2013 acquisitions included a Manhattan club, the remaining interest in a Los Angeles club, and club-license rights; the company also acquired real estate and continued developing new locations.
- Texas patron-tax accruals rose to $13.0 million from $9.8 million; FY2013 expense was $3.2 million. The company had stopped paying the tax after the first quarter of 2009 while litigation continued.
- The company repurchased 192,455 shares for $1.6 million during FY2013 and had $2.6 million remaining under its new $3 million authorization at year-end. It reported no history of common-stock dividends.
Outlook, risks and unusual items
- Management described the near-term outlook as strong and expected substantial operating cash flow in 2014, but provided no quantified earnings or revenue guidance. Its strategy is to grow through acquisitions, new openings, real-estate investment and selected partnerships. New locations planned or under development could entail opening costs and financing needs.
- The largest disclosed contingency is the Texas patron tax. The company’s appeal remained pending; it had accrued but not paid subsequent assessments. A favorable final outcome could result in a one-time gain, while an adverse outcome could affect the balance sheet and cash needs.
- A Nevada tax audit asserted approximately $2.1 million, including penalties and interest, for live-entertainment taxes; the company disputed the assessment and did not accrue it.
- In a New York wage-and-hour case, a court granted plaintiffs summary judgment on minimum-wage claims and held that entertainers at Rick’s NY were employees for the ruling at issue. Further proceedings and potential appeals remained. The company also disclosed multiple pending or threatened civil suits.
- The company’s former liability insurer, IIC, was declared impaired and insolvent in November 2013. Coverage for claims arising before the company changed insurers on October 25, 2013 was uncertain; lawsuits involving IIC were stayed through May 6, 2014.
- Other risks include regulation of adult-entertainment businesses and alcohol permits, competition, consumer spending and seasonality, acquisition integration, key-person dependence, and access to financing. The company reported that annual impairment testing found no impairment in FY2013.
- The financial statements received an unqualified audit opinion, and the auditor and management concluded internal control over financial reporting was effective as of September 30, 2013.
Important facts for investors to verify
- Confirm the issuer’s legal name and ticker: the supplied filing identifies the registrant as Rick’s Cabaret International, Inc. and ticker RICK, despite the request metadata naming RCI Hospitality Holdings, Inc.
- Track the outcome and payment exposure of the $13.0 million Texas patron-tax accrual, including any effect of the acquisition agreement’s tax-related debt-reduction provision.
- Assess debt service, refinancing and liquidity against debt maturities, interest costs, leases and planned expansion; distinguish management’s working-capital figure excluding patron tax from reported balance-sheet current assets and liabilities.
- Monitor the New York wage case, Nevada tax dispute, other litigation, and recovery or coverage under the insolvent former insurer.
- Separate acquisition-driven revenue growth from same-location trends and review the company’s non-GAAP adjustments when evaluating adjusted EBITDA and operating performance.