The innovator in bar-restaurant-entertainment hospitality NASDAQ: RICK Investor Presentation 2Q16 www.rcihospitality.com
Forward Looking Statements Certain statements contained in this presentation regarding RCI Hospitality future operating results or performance or business plans or prospects and any other statements not constituting historical fact are "forward-looking statements" subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. Where applicable, words such as "anticipate," "approximate, " "believe," "estimated," "expect," "goal," "intent," "outlook," "planned," "potential," "will," "would," and similar expressions, as they relate to the company or its management, have been used to identify such forward-looking statements. All forward-looking statements reflect only current beliefs and assumptions with respect to future business plans, prospects, decisions and results, and are based on information currently available to the company. Accordingly, the statements are subject to significant risks, uncertainties and contingencies, which could cause the company‘s actual operating results, performance or business plans or prospects to differ materially from those expressed in, or implied by, these statements. Such risks, uncertainties and contingencies include, but are not limited to, risks and uncertainties associated with our future operational and financial results, operating and managing adult businesses, competitive factors, conditions relevant to real estate transactions, cybersecurity, the timing of the openings of other clubs, the availability of acceptable financing to fund corporate expansion efforts, our dependence on key personnel, the ability to manage operations and the future operational strength of management, and the laws governing the operation of adult entertainment businesses. Additional factors that could cause the company’s results to differ materially from those described in the forward-looking statements are described in forms filed with the SEC from time to time and available at www.rcihospitality.com or on the SEC's internet website at www.sec.gov. Unless required by law, RCI Hospitality does not undertake any obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. 2
Overview Three Parts to Our Presentation • What do we do • Why it’s a good business • How we are growing EPS and cash flow, buying back shares and now paying a dividend 3
The Bar-Restaurant-Entertainment Spectrum DAVE & chili’s BUSTER’S Key Traffic Driver Entertainment Food RCI Hospitality RCI Hospitality Dave & Buster’s Brinker International 38 clubs featuring beautiful 5 sports bars/restaurants 81 sports bars/restaurants 1,641 casual dining Chili’s dancers/entertainers featuring attractive with large arcades* and Maggiano’s with no waitresses in uniform and entertainment** live music * Source: Dave & Buster’s March 2016 Investor Presentation ** Source: Brinker International January 12, 2016 Investor Presentation 4
Leader in Gentlemen’s Clubs Subsidiaries own/operate 38 of the best venues in the US Elegant clubs with restaurants • Powerful brands, quality environments, beautiful entertainers, excellent restaurants • Larger units in major cities High-end, high-energy club for young professionals • Smaller ones in the South/Southwest Licensing Limits Favor Acquisitions Nation’s mega club with 74,000 square feet • We acquired ~80% of clubs we own • Most municipal licenses tied to physical location High-end clubs for African- • Few municipalities issuing new licenses American professionals Goal: Acquire More of the Industry’s Best Lively BYOB clubs for blue • 3,500 clubs in the US / 500 meet our qualifications collar patrons and the college crowd • Most long-term owners interested in selling • As only public company in the space, and with access to bank financing, we are the acquirer of choice Lively BYOB clubs for blue collar patrons and the college crowd 5
Fast-Growing Bombshells Chain First Military-Themed Franchise in Sports Bar Segment • Leverages expertise in bars, restaurants and entertainment • Drives traffic through design strategy and attractive Bombshell Girls in uniforms • Large venues (7,500-10,000 sq ft), full bar, scratch kitchen, big flat screen TVs, DJs/live music, huge patio Five Company Owned Units • Houston (3), Dallas (1), Austin (1) Franchising Approved in All 50 States • Potential to develop a chain of ~100 units • Wider appeal than competitive brands • Attracts men, women, singles, couples, and families • Strong lunch, dinner and late night business 6
RCI Advantages: Nationwide Scale Industry Makeup • Most clubs individual owner operated RCI’s Advantages • Nationwide scale, resources and operating efficiencies • In business since 1983 • Sophisticated systems, purchasing, best practices, training, and innovation • Ability to maximize management, marketing and profitability • Platform for expanding along the spectrum of bar- restaurant-entertainment businesses 7
RCI Advantages: Expanded Access to Bank Financing More Banks Offering RCI Traditional Commercial Loans • Finance real estate acquisitions • Refinance higher rate mortgages RCI’s Advantages • Our real estate is now a major source of collateral • Helps finance growth along with our strong free cash flow • Reduces interest rates on loans • Enhances profitability • Makes RCI the industry acquirer of choice Recent Examples Acquisition Financing Anticipated Benefit Retail mall where Tootsie’s Cabaret is • $4.0M cash • $0.6M annual pre-tax profit located (largest club) • $11.3M, 5.45% bank loan • 15% cash on cash return Building and land where Rick’s Cabaret • $10.0M, 5.00% bank loan • Reduces expenses more than $0.7M NYC is located (2 nd largest club) annually over term of the loan 8
Unit Growth • 2011-2015: Period of major expansion • 9/30/15 units almost double from 9/30/11 • Took advantage of acquisitions and opportunities to create new clubs 43 Units 2015 Unit Mix Bombshells 5 units 23 Units Clubs 38 units 2011 2015 9
Revenue Growth ($ in millions) 2011-2015: Compound annual growth rate of ~15% $144.7 2015 Segment Mix Bombshells 13% $83.5 Other Clubs 2% (outside Texas) 44% Clubs (in Texas) 41% 2011 2015 10
Revenue Mix ($ in millions) RCI Dave & Buster’s Fiscal 2015 Last 12 Months as of Q3* Entertainment Entertainment Related & Other Related & Other 44% 53% Food & Food & Beverage Beverage 56% 47% * Source: Dave & Buster’s March 2016 Investor Presentation 11
EPS Growth ($ in millions) 2011-2015 $1.39 Non-GAAP • Non-GAAP up 34% • GAAP up 14% $1.04 2Q16 Non-GAAP • Non-GAAP of $0.40 • GAAP of $0.54 GAAP Fist Half FY16 $0.90 • Non-GAAP of $0.70 GAAP • GAAP of $0.78 $0.79 FY16 • Expect year over year growth 2011 2015 12
Strong Free Cash Flow ($ in millions) Significant Feature of Clubs • High gross margin business (86% in FY15) $16-$19 • Low capex • Inventory turns quickly $14.9 RCI’s FCF Performance • Averaged 16% of revenues 2011-2015 • Defined as operating cash flow less maintenance capex FY16 Target • $16-$19M (revised upward) 2015 2016 Target 13
Disciplined Capital Allocation Strategy Required Return Using FCF Use FCF to Buy Back Shares 40% 37% to Open / Acquire New Unit At Least 2X Return to Risk • Compelling after tax yield of 33% Adjust vs. Stock Buy Back 15% with shares in $10 range 30% 30% 27% Buy / Open New Units Only If: After Tax Yield 25% 22% • Risk adjusted return rivals 19% buying our assets in the market 20% 17% 15% • There is a significant strategic 13% 12% 11% rationale 10% Higher After Tax Yield Buying Return Using FCF to Buy Back Shares Back Stock vs. Paying Down Debt 0% $8 $9 $10 $11 $12 $13 • Only at ~$17 does it make Stock Price sense to pay down 13% debt at an accelerated rate (assuming Notes no pre-payment penalty) • Based on annual FCF of $15M • Based on fully diluted share count at 3/31/16 incorporating expected dilution from convertible securities as stock price rises • Conversion of these securities would reduce debt $2.3M 14
Share Buy Backs & Cash Dividend Capital Returned via Buybacks ($M) Shares Retired via Buybacks Shares Outstanding (M) 566,921 10.348 $5.4 9.889 $2.3 225,280 FY15 FY16 to Date as of FY15 FY16 to Date as of 4/30/15 4/30/16 4/30/16 4/30/16 Increased Share Buybacks in FY16 • $6.2 million available for buybacks as of 5/9/16 Initiated Annual Cash Dividend in 2Q16 • $0.12 per common share (payable $0.03 quarterly) • 3Q16’s $0.03 to be paid 6/27/16 • 1.2% yield on $10 per share 15
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