Rick's Cabaret International, Inc. (NASDAQ: RICK) Investor - - PowerPoint PPT Presentation

Rick's Cabaret International, Inc. (NASDAQ: RICK)

Investor Presentation

January 2014

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Forward Looking Statements

Certain statements contained in this presentation regarding Rick's Cabaret 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 possible, the words "believe," "expect," "anticipate," "intent," "would," "will," "planned," "estimated," "potential," "goal," "outlook," 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 (i) operating and managing an adult business, (ii) the business climates in cities where the company operates, (iii) the success or lack thereof in launching and building the company’s businesses, (iv) the operational and financial results of the company's adult nightclubs, (v) conditions relevant to real estate transactions, (vi) the loss of key personnel, (vii) laws governing the operation of adult entertainment businesses, and (viii) the inability to open and operate our restaurants at a profit. 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.ricksinvestor.com or on the SEC's internet website at www.sec.gov. Unless required by law, Rick's Cabaret does not undertake any obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. January 2014 Investor Presentation

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Explanation of Non-GAAP Terms

Non-GAAP Net Income and Non-GAAP Net Income per Diluted Share (referred to as “Non- GAAP EPS” herein). We exclude from GAAP net income and GAAP net income per diluted share amortization of intangibles, patron taxes, income tax expense, impairment charges, gains and losses from asset sales, stock-based compensation, litigation, loss from discontinued operations, and other

• ne-time legal settlements and acquisition costs, and include the Non-GAAP provision for income

taxes, calculated as the tax effect at 35% effective tax rate of the pre-tax non-GAAP income before taxes less stock-based compensation, because we believe that excluding such measures helps management and investors better understand our operating activities. Adjusted EBITDA. We exclude from GAAP net income depreciation expense, amortization of intangibles, income tax, interest expense, interest income, gains and losses from asset sales, acquisition costs, litigation and other one-time legal settlements and impairment charges because we believe that adjusting for such items helps management and investors better understand operating

• activities. Adjusted EBITDA provides a core operational performance measurement that compares

results without the need to adjust for Federal, state and local taxes which have considerable variation between domestic jurisdictions. Also, we exclude interest cost in our calculation of Adjusted EBITDA. The results are, therefore, without consideration of financing alternatives of capital employed. We use Adjusted EBITDA as one guideline to assess our unleveraged performance return on our investments. Adjusted EBITDA is also the target benchmark for our acquisitions of nightclubs. Our Form 10-K for the year ended September 30, 2013 and our press release dated December 16, 2013 contain additional details relative to the non-GAAP financial measures and are posted on our website at www.ricksinvestor.com. January 2014 Investor Presentation

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Investor Snapshot

• Nation’s leading hospitality company in adult gentlemen’s clubs and

sports bars/restaurants

• Customers: Focus on friendly, entertaining, quality experience
• Shareholders: Focus revenue growth and cash generation

January 2014 Investor Presentation – Overview

Key Statistics (FY ends September 30th) Amount FY13 Total Revenue $112.2 M, up 18% FY13 Adjusted EBITDA $28.1 M, up 18% FY13 Fully diluted income from continuing operations $0.98 per share, up 23% Units at 1-16-14 42, in 10 States Shares Outstanding 9.6 M Shares in Public Float 7.8 M Market Cap at 1-16-14 $106 M Enterprise Value at 1-16-14 $173 M Stock Performance at 1-16-14 vs. year ago 36%

Quick Facts

• Founded 1994
• Based in Houston
• NASDAQ listed

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Investment Thesis

Adult Clubs

• Consolidation and growth of a classic

American form of entertainment into a national, professionally managed chain

• $2 B revenue, fragmented industry (3,800-

4,000 clubs)

• Limited number of licenses, typically tied to

real estate

• We are the primary exit strategy for sellers
• Clubs typically generate higher margins and

cash flow than traditional bar/restaurants

• Enables us to fuel growth
• Industry awareness similar to gaming in the

1980s

Bar/Restaurants

• Leverages core expertise and infrastructure
• Enables us to maximize revenues and

profits per unit

• Complements acquisition of adult clubs
• Can lease vs. own
• Better understood by investors

Texas

• 76% of units, generating 50% of adult club

and sports bar/restaurant revenues (1Q14)

• Benefiting from strong job and population

growth

• In-migration of corporate offices and

revitalization of domestic energy industry

January 2014 Investor Presentation – Overview

• Demonstrated ability to consummate and integrate acquisitions successfully
• 2008 to date, this team has opened or acquired 32 units
• Management and Directors own 15% of shares outstanding

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Seasoned Management Team

Name Title Years With Rick’s Background

Eric S. Langan Chairman, CEO & President 15

• 20+ years industry experience as
• wner/operator
• Founder / Director of Adult Club

Executives (ACE) Phillip K. Marshall Chief Financial Officer 6

• Audit Partner, KPMG
• CFO of CDT Systems, Inc. (CDTN)

Ed Anakar Director of Operations 13

• 20+ years hospitality industry

management experience Travis Reese Director, Executive Vice President 15

• IT executive
• Director of Internet Division

January 2014 Investor Presentation – Overview

EBITDA Growing Faster than Revenues ($ in millions)

$15 $18 $24 $24 $28

$10 $15 $20 $25 $30 FY09 FY10 FY11 FY12 FY13

EBITDA

16.7% CAGR

$76 $83 $83 $95 $112

$40 $60 $80 $100 $120 FY09 FY10 FY11 FY12 FY13

Revenues

10.3% CAGR

• Generates cash for acquisitions and bar/restaurant development
• Permits accelerated payoff of higher priced debt
• Allows buy-back of common stock when price is right

January 2014 Investor Presentation – Overview

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But Significantly Undervalued vs. Industry

Source: Interactive Data, accessed 01-16-14

January 2014 Investor Presentation – Overview

RICK Leisure Industry (includes Restaurants) Difference Growth & Profitability Sales - 5 Yr Growth Rate (%) 11.6 4.3 172% Gross Margin (TTM) (%) 87.5 36.5 140% EBITD Margin (TTM) (%) 33.3 21.2 57% Valuation P/E Ratio (TTM) 11.6 22.9

• 49%

Price to Sales (TTM) 1.0 2.2

• 59%

Price to Free Cash Flow (TTM) 15.9 93.0

• 83%

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Operating Strengths

Key Factor Comment

• 1. Efficiencies of scale
• Buy liquor, food, advertising and other

services at increasingly lower unit costs

• 2. Multiple brands and formats
• Expands market by reaching wider,

more varied types of customers

• Facilitates “clustering”
• Maximizes a license’s potential
• 3. Las Vegas style cash / credit card

security

• Very low shrinkage
• Overnight cash register and inventory

reconciliation

• Webcams pointed at every register
• 4. Friendly, entertaining, quality

experience

• Encourages regular customer visits
• 5. Zero tolerance to illegal conduct
• Attracts the best managers, staff and

entertainers

• 6. Critical mass and credibility
• Typically provides first access to deals
• Ability to use seller financing

January 2014 Investor Presentation – The Business

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High Gross Margins (FY13)

Category Comment % of Revenue Gross Margin Service

• Cover charges
• Patron charges
• Dancers
• Room rentals

44.0% Approaching 100% Alcohol

• Liquor
• Beer
• Wine

40.6% 78.5% Food & Merchandise

• Food
• Non-alcoholic drinks
• Merchandise
• Cigars, cigarettes

9.3% 54.0% Other

• Internet and media revenue
• ATM commissions
• Valet income
• Video games / vending

6.1% 95.4% 100% 86.7%

January 2014 Investor Presentation – The Business

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Multiple Adult Club Brands

Rick’s Cabaret Club Onyx XTC and Temptations Tootsies Jaguars Vivid

• Flagship brand
• High-end clubs

with restaurants

• Upscale

nightclubs

• Casual

atmosphere

• BYOB clubs
• Unique facility
• 74,000 sq. ft.
• Four clubs in one
• Lively clubs
• Our newest
• Leverages

leading brand in adult video

• High energy party

atmosphere

• Higher net worth,

mature patrons

• 35-55 years
• African-American

professionals

• Younger and

blue-collar patrons

• 18-35 years
• Higher net worth,

mature patrons

• Younger patrons

(tourists, college students)

• Primarily workers

in booming Texas energy industry

• Younger patrons
• 18-35 years

11 Units

• Texas (7)
• Minneapolis (2)
• NYC
• Indianapolis

4 Units

• Texas (2)
• Charlotte
• Philadelphia

9 Units

• Texas (8)
• Sulphur, LA

1 Unit

• Miami, FL

10 Units

• Texas (9)
• Phoenix

2 Units

• Los Angeles
• NYC

January 2014 Investor Presentation – The Business

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New Sports Bar/Restaurant Brands

Bombshells Restaurant & Bar Ricky Bobby Sports Saloon

• Military themed
• Looking for sites near bases
• Motorsports themed
• Looking for sites where NASCAR is popular
• Great food
• Big TVs for sports
• Live entertainment
• Large outdoor patios
• Attracts lunch crowd
• Family friendly during dining hours
• Fun atmosphere for younger singles and couples later hours
• #1 Opened in Dallas in March 2013
• #1 Opened in Fort Worth in July 2013

Restaurant Model

• $1.2 M start up costs
• $3 M annual revenues
• 15-25% operating

margins

• Multiple locations in a

single market

• Lease vs. own

January 2014 Investor Presentation – The Business

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• Clustering of adult clubs and restaurants in Texas
• Select adult clubs in major metro areas, many with big tourist businesses

Notes

• 1. The map above details Rick’s locations as of September 2013
• 2. Shaded areas indicate states the Company maintains clubs
• 3. New Orleans is a licensed venue

New York City Minneapolis Indianapolis New Orleans Austin Houston (HQ) San Antonio Miami Charlotte Philadelphia Dallas Phoenix Los Angeles

Geographic Strategy

Real Estate

• Company owns real

estate for 85% of its facilities

• Adult club licenses

typically tied to the physical location

January 2014 Investor Presentation – The Business

4 5 7 9 10 14 16 18 22 34 39

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

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Creating Company/Shareholder Value

• Maximize existing club licenses and

properties

• Acquire new adult clubs
• Continue to look at several targets
• Not indiscriminate buyers
• 500 clubs in our target market
• Roll out our restaurant concepts
• Initial target: 10 open or in

development by 12/31/14

• Pay down higher priced debt
• Unlock real estate value

January 2014 Investor Presentation – The Future Units Open at End of Each Fiscal Year 26% CAGR, FY2003-2013

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New & Planned Locations

Quarter Brand Location

4Q13-Opened Temptations (AC) Beaumont, TX 4Q13-Opened Vivid Cabaret (AC) Los Angeles, CA 1Q14-Opened Jaguars (AC) Houston, TX 1Q14-Acquired Black Orchid (AC) Dallas, TX 2Q14-Just Opened Vivid Cabaret (AC) New York, NY 2Q14-Opens January Bombshells #2 (R) Webster, TX Planned for FY14 Rick’s Cabaret (AC) Odessa, TX Planned for FY14 Bombshells #3 (R) Austin, TX Planned for FY14 Bombshells #4 (R) Beaumont, TX Considering Bombshells Houston, TX Miami, FL San Diego, CA

Key: (R) Restaurant, (AC) Adult Club

Current Status

• 42 adult club and

bar/restaurant locations

• 4 in various stages
• f development
• 3 under active

consideration, not including acquisitions

January 2014 Investor Presentation – The Future

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Unlocking Real Estate Value

• New York Transaction
• Contract to buy 50 W33rd Street location for $10M over next 5 years
• Sold residential air rights to third party for $8 M, enabling us to reduce

monthly lease to $100K for next 5 years vs. $180K

• REIT
• Intend to form privately-held REIT or similar investment vehicle
• Rick’s will hold a minority equity interest
• Rick subsidiary will manage the REIT’s asset portfolio

January 2014 Investor Presentation – The Future

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Balance Sheet Update

(9-30-13 vs. 9-30-12, $ in millions)

• Cash: Nearly doubled to $10.7
• LT Debt: $78.6
• $38.7 real estate debt
• $29.2 sub level debt from acquisitions
• $7.2 parent company level debt
• Current portion of LT Debt: $8.8
• Paying off ~$2 per quarter
• Tootsies Debt: $5.3
• Our most expensive debt
• Paying down as fast as possible

$87.6 $97.1

$0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 9-30-12 9-30-13

Total Permanent Stockholders’ Equity January 2014 Investor Presentation – The Future

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FY14 Guidance

• Revenues
• Continuing to target 20% to 30% annual growth
• Growth from existing clubs and restaurants, and ones expected to
• pen in 2014
• Potential upside from major sporting events
• Operating Margin
• Continued expansion
• Benefit from recovery strategies at adult clubs
• Operating efficiencies through improved purchasing on larger base
• f clubs and restaurants
• EPS
• Non-GAAP of ~$1.70
• GAAP of ~$1.20

January 2014 Investor Presentation – The Future Event Location

Pro Football’s Big Game (February) NYC Big East (March) NYC Final Four (April) DFW NHL (Full Season) NYC DFW Minneapolis

Big Sports Events 2014

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Principal Corporate Office 10959 Cutten Road Houston, TX 77066 Phone: (281) 397-6730 Investor Relations Gary Fishman Steven Anreder Phone: (212) 532-3232 IR Website www.ricksinvestor.com NasdaqGM: RICK

Contact Information

January 2014 Investor Presentation – Investor Relations