The Innovator in Bar-Restaurant-Entertainment Themed Hospitality NASDAQ: RICK Investor Presentation October 2016 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 36 clubs featuring beautiful 4 sports bars/restaurants 87 sports bars/restaurants 1,660 casual dining Chili’s dancers/entertainers featuring attractive with large arcades (US and and Maggiano’s with no waitresses in uniform and Canada)* entertainment (domestic and live music international)** * Source: Dave & Buster’s Fall 2016 Investor Presentation ** Source: Brinker International June 9, 2016 Investor Presentation 4
Leader in Gentlemen’s Clubs Subsidiaries own/operate 36 venues throughout the US Elegant clubs with • Powerful brands attract different market segments restaurants • Quality environments, beautiful entertainers, excellent restaurants High-end, high-energy club for young professionals • Larger units in big cities; smaller ones in Texas Licensing Limits Favor Acquisitions Nation’s mega club with • We acquired ~80% of clubs we own 74,000 square feet • Most municipal licenses tied to physical location • Few municipalities issuing new licenses High-end clubs for African- American professionals Goal: Acquire More of the Industry’s Best • 3,500 clubs in the US / 500 meet our qualifications Lively BYOB clubs for blue • Most long-term owners interested in selling collar patrons and the college crowd • 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 (8,000 sq. ft.+2,400 sq. ft. patio), full bar, scratch kitchen, big flat screen TVs, DJs/live music Company Owned Units • 4 Current: Houston (2), Dallas (1), Austin (1) • 3 in the works in Houston 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 & Bank Financing Industry Makeup • Most clubs individual owner operated with little access to bank financing RCI: Nationwide Scale, Resources and Efficiencies • Sophisticated systems, purchasing, best practices, training, and innovation • Ability to maximize management, marketing and profitability • Implementing easy “plug and play” platform for expansion RCI: More Banks Offering Traditional Commercial Loans • Finance real estate acquisitions at conventional rates • Refinance higher rate mortgages at better rates • Our real estate is now a major source of collateral to help finance growth • Makes RCI the industry acquirer of choice 7
Strong Free Cash Flow ($ in millions) Significant Feature of Clubs • High gross margin business (86% in FY15) • Low capex • Inventory turns quickly $19-$21 RCI’s FCF Performance • Averaged 16% of revenues 2011-2015 $14.9 • Defined as operating cash flow less maintenance capex FY16 Target* • $19-$21M (revised upward 2 nd time) 2015 2016 Target 8 * For GAAP reconciliation, see the company’s news release announcing 3Q16 results, dated August 4, 2016, on the company’s website at www.rcihospitality.com
History Timeline • 1983: Founded by Robert Watters as Rick’s Cabaret International • 1995: NASDAQ Initial Public Offering • 1998: Merged with Eric Langan’s publicly traded company of smaller clubs • 1999: Langan named President and CEO • 2014: Name change reflected transformation to hospitality company • 2015: 20th year as a publicly traded company Financial Snapshot • FY98: Revenues of $8 million with breakeven results • FY15: Revenues of $135 million with $15 million FCF • FY16: Implemented Disciplined Capital Allocation Strategy to maximize shareholder value 9
Disciplined Capital Allocation Strategy Required Return Using FCF 1. Use FCF to buy back shares 50% to Open / Acquire New Unit – Compelling after tax yield of 15-17% At Least 2X Return to Risk with shares in $11-12 range Adjust vs. Stock Buy Back 41% 40% 37% 2. Buy / open new units only if: 33% After Tax Yield 30% – Risk adjusted return rivals buying our 28% assets in the market 30% 26% – There is a significant strategic 20% rationale 18% 20% 17% 15% 14% 13% 3. Take action if units not performing in line with strategy Return Using FCF to Buy Back Shares 10% 4. Higher after tax yield buying back stock vs. paying off debt 0% – Only at much higher stock prices $9 $10 $11 $12 $13 $14 does it make sense on a tax Stock Price adjusted basis to pay down our most expensive (currently 12%) debt at an Notes accelerated rate (assuming no pre- payment penalty) • Based on annual FCF of $18M • Based on fully diluted shares outstanding of 9.8M at 9/30/16 10
Share Buy Backs & Dividend Capital Returned via Buy Backs ($M) Shares Retired via Buy Backs Shares Outstanding (M) $7.3 747,081 10.3 9.8 $2.3 225,280 FY15 FY16 FY15 FY16 9/30/15 9/30/16 Highlights Quarter Shares Bought Average Price Total ($M) 1Q16 282,762 $9.88 $2.8 • FY16: Largest annual buy back in RCI’s history 2Q16 218,140 $8.76 1.9 • Reduced shares outstanding: ~5% YoY 3Q16 106,093 $10.14 1.1 • Remaining authorization: $4.7M @ 9/30/16 4Q16 140,086 $10.92 1.5 • Initiated cash dividend: $0.12 per common annually ($0.03 per quarter) Total 747,081 $9.79 $7.3 • Total capital return: $7.3M buy backs+$890K dividends=$8.2M 11
Expanding Cash Flow Use Bank Financing to Reduce Costs • Refinance high cost debt at lower rates • Buy properties to reduce occupancy costs Develop Brands that Attract Millennials • 3Q16: Foxy’s Cabaret • 4Q16: Hoops Cabaret and Sports Bar Open New Units with Higher Potential Return • Late 4Q16: Hoops (Manhattan) • 2H17: Three new Bombshells (Houston) Sell or Close Under-Performing Units Faster • 4Q16: Sold two clubs • 4Q16: Closed only non-profitable Bombshells 12
FY17 Strong Sports Lineup • NFL: Vikings have returned to downtown Minneapolis (3 clubs) • NFL: “Big Game” in Houston (5 restaurants and clubs) • MMA: Comes to Madison Square Garden (3 clubs) 13
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