RCI Hospitality Holdings, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2021. The filing is dated May 10, 2021. Unless otherwise noted, amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions.
Business context
RCI operates adult nightclubs, Bombshells restaurants and bars, and smaller other businesses. At March 31, 2021, it operated 48 establishments, including one club undergoing hurricane-damage renovation. Its reportable segments are Nightclubs and Bombshells. The quarter’s results continued to reflect changing COVID-19 closures, capacity limits, and operating restrictions.
Financial performance
| Metric | Three months ended March 31, 2021 | Six months ended March 31, 2021 |
|---|---|---|
| Revenue | $44.1 million, up 9.0% | $82.5 million, down 7.2% |
| Operating income | $9.8 million; 22.3% margin | $16.4 million; 19.9% margin |
| Net income attributable to RCIHH common stockholders | $6.1 million; diluted EPS $0.68 | $15.7 million; diluted EPS $1.75 |
| Operating cash flow | Company-reported $11.0 million | $17.2 million |
| Adjusted EBITDA (non-GAAP) | $13.6 million | $22.3 million |
| Free cash flow (non-GAAP) | Company-reported $9.0 million | $14.7 million |
Second-quarter same-store sales rose 26.3% overall: 3.6% for Nightclubs and 48.7% for Bombshells. Bombshells revenue increased 49.2% to $13.1 million, while Nightclubs revenue declined 1.8% to $30.8 million. For the six-month period, Bombshells revenue rose 36.5% and Nightclubs revenue fell 19.1%.
Quarterly revenue growth included stronger Bombshells same-store sales and two new locations. Six-month revenue was lower chiefly because of pandemic-related closures and reduced Nightclubs service revenue. The prior-year quarter and six-month periods included $8.2 million of impairment charges, compared with $1.4 million in the current periods, materially affecting year-over-year operating comparisons. Current six-month net income also included a $5.3 million gain from PPP loan forgiveness.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $20.2 million at March 31, 2021, up from $15.6 million at September 30, 2020.
- Total debt, net of discounts and issuance costs, was $132.4 million, down from $141.4 million at fiscal year-end. Debt maturities include $16.6 million in the 12 months ending March 31, 2022 and $80.4 million thereafter; the filing identifies substantial balloon payments, including $42.3 million thereafter.
- Management reported $175,000 of positive working capital after excluding assets held for sale and associated liabilities; the comparable measure was negative $5.9 million at September 30, 2020.
- Six-month investing cash outflow was $6.4 million, including $6.7 million of property, equipment, and intangible-asset spending. Financing cash outflow was $6.3 million, including $6.0 million of debt payments, $1.8 million of share repurchases, and $720,000 of dividends.
Outlook, risks and notable matters
- Management said it expects adequate operating cash flows for the next 12 months. It also noted uncertainty about COVID-19’s future effects and the availability and terms of additional financing, and said it may consider refinancing debt.
- Eleven of 12 PPP loans had received full forgiveness notices, generating $5.3 million in principal and interest forgiveness for the six months. Forgiveness of the remaining loan was not assured.
- Three real estate properties were classified as held for sale at March 31, with a carrying value of $7.4 million after a $1.4 million impairment. One was sold on May 7 for $3.1 million; the company said it used $2.0 million of proceeds to repay related debt.
- RCI signed its first Bombshells franchise development agreement for three San Antonio locations over five years, with rights of first refusal for three additional Texas locations. The filing highlights franchisee execution and brand-reputation risks.
- Significant disclosed legal matters include a securities class action that survived a motion to dismiss, a shareholder derivative action, and other litigation. The company said potential loss in the securities class action and derivative action could not yet be estimated.
- Disclosure controls were deemed ineffective as of March 31, 2021, due to a previously reported material weakness in review controls over the income tax provision. Management described enhanced review procedures and use of a third-party tax consultant as remediation steps.
Key facts for investors to verify
- Confirm current status and operating impact of COVID-related restrictions, including whether reported same-store sales trends persisted.
- Review the debt maturity schedule, balloon-payment obligations, refinancing plans, and available borrowing capacity.
- Track forgiveness status of the remaining PPP loan and distinguish recurring earnings and cash generation from the $5.3 million forgiveness gain.
- Check the final proceeds, debt repayment, and any realized gain or loss on the held-for-sale properties.
- Monitor litigation developments, potential exposures, and progress in remediating the income-tax control weakness.