Gary Fischman is having some technical difficulties. This is Bradley.

I just wanted to say welcome to the RCI Hospitality Holdings fourth quarter and year-end earnings conference call. My name is Bradley Chhay.

You can find the company's presentation on the RCI website. Go to Investor Relations section.

All the links are on the top of the page. Please turn to slide 2 of our presentation.

Our speakers today are Travis Reese, interim President and CEO, and Albert Molina, interim CFO. Please turn to slide 3.

RCI is making this call exclusively on X Spaces. To ask a question, you will need to join the space with a mobile device.

To listen only, you can join the space on a personal computer. At this time, all participants are on listen-only mode.

A Q&A session will follow after the call. The conference is being recorded.

Please turn to page 4. I want to remind everyone of our safe harbor statement.

You may hear or see forward-looking statements that involve risk and uncertainties. Actual results may differ materially from those currently anticipated.

We disclaim any obligation to update information disclosed in this call as a result of developments that occur afterwards. Please turn to page 5.

Now, I'm pleased to introduce Travis Reese, interim President and CEO. Take it away, Travis.

Thank you, Bradley, and thank you all for joining us. Please turn to slide 6.

I'm pleased to report that we filed our 10-K today and announced our fourth quarter and year-end results. All comparisons are year-over-year, unless otherwise noted.

Looking at the fourth quarter, Nightclub revenues were nearly level despite continued economic uncertainty. Bombshells revenues primarily reflected the previously announced divestiture or closure of five underperforming locations.

Profitability primarily reflected higher non-cash legal accrual, increased income taxes, and lower impairments. We also continue to make progress with our back-to-basics 5-year capital allocation plan.

Since we initiated the plan in 4Q '24, we divested of four Bombshells and leased locations, acquired three Nightclubs, opened four new clubs and a Bombshells, attracted outside investment in one Nightclub, sold two small underperforming clubs, and continued to buy back shares. As of March 13th, we've reduced the share count to approximately 7.7 million, about 14% lower than at year-end September 30th, 2024.

Now, here's Albert to review our performance in more detail.

Thanks, Travis. Turning to slide 7, I'll start with a review of our fourth quarter results.

All comparisons are year-over-year for the quarter, unless otherwise noted. Total revenues were $70.9 million compared to $73.2 million.

The difference of $2.3 million primarily reflected five fewer Bombshells-related locations, partially offset by new Nightclub locations. Corporate expenses totaled $15.4 million compared to $7.1 million.

The difference of approximately $8.3 million primarily reflected the establishment of a legal reserve. Impairments and other charges were $3.7 million compared to $10.1 million, a difference of 6.

$6.4 million. Income tax was a $1 million expense compared to a $0.8 benefit.

Net income attributable to this RCIHH common shareholders was a loss of $5.5 million compared to a profit of $244,000. Loss per share was 63 cents compared to a positive EPS of 3 cents.

While net cash provided by operating activities was $13.7 million compared to $15.7 million, free cash flow was level at $13.1 million due to lower maintenance capex in the current quarter. Adjusted EBITDA was 7.4 compared to $17.9 million.

Non-GAAP loss per share was 12 cents compared to a profit of $1.63. Moving to slide 8, I will now cover our fourth quarter results by segment, beginning with Nightclubs.

Again, all comparisons are year-over-year for the quarter, unless otherwise noted. Revenues totaled $60.9 million, up 0.4%.

Key factors included contributions from four new clubs acquired or opened in the second and third quarters, and sales from two small rebranded and/or reformatted Texas clubs not in same-store sales base. This was partially offset by the decline in same-store sales, and reduced sales from closing Dallas Showclub in the fourth quarter of '25 for reformatting, and from temporary loss Fort Worth due to the fire.

By revenue type, food, merchandise, and other increased 4.3%, service increased 1.5%, and LBW declined 2%. I'd like to point out that some clubs stood out, such as Rick's Cabaret in Fort Worth, one of the star locations of the Landman TV series, Rick's Cabaret and Hoops Sports Bar in New York City, Rick's Cabaret in Pittsburgh, and Jaguars Club in Phoenix.

Other net charges totaled $2.1 million compared to $6.9 million. This primarily reflected impairments in both periods.

Operating income was $16.3 million compared to $13 million, and margin was 26.8% of segment revenues compared to 21.5%. Non-GAAP operating income, which excludes other net charges, was $19.1 million compared to $20.5 million.

Margin was 31.3% of segment revenues compared to 33.8%. On slide 9, I'll discuss the Bombshells segment.

Revenues totaled $9.4 million, a decrease of $2.6 million. Key factors included fewer locations and the decline in same-store sales.

This was partially offset by the opening of new locations in Denver, Colorado in January of '25, and Lubbock, Texas in early July '25. Other net charges totaled $1.6 million compared to $3.2 million, which primarily reflected impairments in both periods.

There was an operating loss of $1.6 million compared to a loss of $2.6 million. On a non-GAAP basis, which excludes impairments, there was an operating income of $29,000 compared to $649,000.

I'd like to point out the focus for Bombshells is profitability, not sales. While same-store sales are down, profitability is improving.

Moving to slide 10, you will see a summary of our corporate expenses. As I mentioned, GAAP expenses totaled $15.4 million, with non-GAAP slightly less.

Both reflected the non-cash legal accrual. GAAP corporate expense margin was 21.8 of revenue.

Excluding legal accrual, it was about 9%. Please turn to slide 11.

We have slides coming up to discuss free cash flow and adjusted EBITDA, which are non-GAAP. In advance of that, we wanted to present the closest GAAP equivalents, which are operating income, net cash provided by operations, and net income.

Slide 12, please. We ended the fourth quarter with cash and cash equivalents of $33.7 million, up $4.4 million from June 30th.

During the quarter, we used $2.7 million to buy back shares. Free cash flow continued in the 13s for the second quarter in a row.

As a percentage of revenue, free cash flow margin was 18.5%, virtually level in the year-ago quarter. Adjusted EBITDA margin was 10% of revenues.

Excluding legal accrual, it was about 23%. Turn to slide 13.

Debt decreased $5.5 million from June 30th, primarily reflecting scheduled paydowns. We continued to control the rate paid on our debt, with weighted average interest rate of 6.64% compared to 6.67% in the year-ago quarter.

Total occupancy cost was 8.1% of revenues, virtually the same as a year ago. Debt to trailing 12-months adjusted EBITDA was 4.40 48x, mainly reflecting the impact of the fourth quarter legal accrual, but excluding that, it was about 3.88x.

Debt matures continue to remain reasonable and manageable, particularly in our plans to sell non-income producing properties. Note that the first quarter of fiscal '26 will include $22 million in 2-year seller financing note from the ADW transaction.

Now back to Travis.

Thank you, Albert. Please turn to slides 14 and 15 to review our capital allocation strategy and 5-year plan.

Our plan remains the same. We allocate approximately 40% of free cash flow to club acquisitions, and 60% to share buybacks, debt reduction, and dividends.

Our goal is to grow free cash flow per share by 10% to 15% annually. Operationally, we're focusing on our core Nightclub business.

We review every club regularly to increase same-store sales. Underperformers will be rebranded, reformatted, or divested.

We're currently generating about 70% of our income from 20% of our clubs, there's significant opportunity to optimize our portfolio. Divesting underperformers will help us increase margins, and we can use sales proceeds to repurchase stock, acquire higher-quality locations, or reduce debt.

Our goal is to add an average of about $6 million of adjusted EBITDA each year through acquisitions. We want to target strong clubs, with an occasional strong group of clubs.

Acquisition target metrics remain 3 to 5 times adjusted EBITDA for clubs, fair market value for real estate, and 100% cash-on-cash return in 3 to 5 years. Purchases may use bank financing, cash, or seller notes.

We may also use stock when our valuation improves. For Bombshells, we aim to improve existing locations, target 15% operating margins, and return to same-store sales growth.

We plan to finish the one location still under development. We'd like to sell the chain as a whole, but the market isn't right at the moment.

Finally, we'll continue buying back stock, flexing up when prices look undervalued, and increasing dividends modestly. Over the 5 years, we plan to generate more than $250 million in free cash flow and repurchase a significant quantity of shares.

By fiscal '29, our target is $400 million in revenue, $75 million in free cash flow, and 7.5 million shares outstanding. This would cash flow per share to about $10 versus fiscal '24.

Please turn to slide 16 for an update on our progress. Some of these we've already reported: Divesting or closing underperforming Bombshells locations, acquiring three Nightclubs, opening two new Bombshells and two new Nightclubs, outside investment in Rick's Cabaret Austin, and selling a club in Harlingen.

To date in fiscal '26, club in Edinburg, Texas for $1.1 million, recognizing a small loss and paying down debt. Excluding the ADW transaction, we bought back approximately 153,000 shares in the open market since fiscal '25 year-end through March 13th, 2026.

Currently, we're marketing three small non-performing clubs and their real estate. They have a combined estimated value of $7.5 million and associated debt of $3 million.

We're also marketing eight non-income producing properties. This group has a combined estimated value of $24.2 million and associated debt of $13.2 million.

We're working to finish or build three more locations in the greater Dallas area, including a Bombshells in Rowlett, a new Baby Dolls Fort Worth, and a rebuilt Baby Dolls Fort Worth. Please turn to slide 17 to review our long-term performance.

Since we implemented our capital allocation strategy at the end of fiscal '15, we believe we've generated above-average performance for a mature, publicly-traded company. Standout is free cash flow compounding annually at about 11.8%, combined with buybacks that have reduced shares outstanding by approximately 1.6% on a compounded annual basis.

Now that we've filed our 10-K, we hope to file our 10-Q relatively soon. Our agenda this year is continuing with our capital allocation plan, improving club and restaurant operations, selling excess real estate and underperforming locations, and deploying our cash to acquire additional clubs, reduce debt, or repurchase shares.

I'd like to thank our dedicated team members for their efforts and hard work, and all of our shareholders who believe in us and make our success possible. Now back to Bradley.

Thank you, Travis and Albert. If you would like to ask a question, please raise your hand in the X Space.

When you are finished, mute your microphone to eliminate background noise. We have a limited number of speaker spaces.

After your question, we may move you back to the audience to free up space. Eric Langan, RCI's founder and head of M&A, will also be available on the Q&A.

Please understand that we cannot discuss the legal situation in New York other than to reiterate that the company's statement that RCI, the individuals involved, and the three clubs have pled not guilty to all of the charges, are taking all necessary actions to defend themselves against the charges. On behalf of Travis, Albert, and Eric, the company, and our subsidiaries, good night.

Oh, sorry.

We might want to do some Q&A first before you tell everybody good night, Bradley.

Right, exactly. Hold on.

I'm bringing on Orchard Wealth as a speaker. You'll have to unmute your microphone.

Hey guys, how are you? Hey, obviously, it's been a long time since I've spoken to you guys.

Question for you guys is, when do you think you'll be able to give us a ballpark when you'll be able to file the next quarterly for the first quarter?

We want to file as soon as possible. We were obviously waiting on auditors.

They're in their prime season. If you have a 12/31 year-end, their 75-day and 90-day filers are all coming up right now.

They're in their prime work season. I'm going to guess sometime in April, we will hopefully file the 10-Q.

I think most of our work is done, but we have to get their work done as well.

For April, we've got the first quarter numbers will come out plus the sales numbers for the second quarter will be announced at some point during the month.

Yes, that should be the case. We hope.

Obviously, I can't guarantee the 10-Q will be filed, but yes. I believe at this point that that's a good outline.

We'll definitely get the sales numbers out though.

Okay. Then your overall feeling in the space right now with just the environment as it is right now, what's your read on the clubs and on Bombshells?

All right, we've been doing very well. March Madness starts up today, there's some games going on.

We've had a pretty solid January and February so far. Obviously, last quarter, we only did 70.3 million revenue, I believe, and we were drastically affected by the 42-day closedown.

The closedown is starting to hurt us now, though. We have a lot of business travelers, but at the same time, some business travelers are getting stuck in cities and they're ending up at our clubs cuz they're stuck overnight cuz their planes or flights got cancelled or they can't get through security in time.

It's unknown how that's going to play out if this continues long-term. Hopefully, our government will become functional again at some period and get these TSA agents paid and back to work.

Overall, it's been good. There might be a little concern with oil prices, but oil's great for a lot of our markets, especially in Texas.

That's kind of, I think, almost a zero-sum game for us. It's not going to change a lot in that regard.

We are seeing prices come down on some food items and what not. The liquor companies are getting more competitive because less people are drinking, they're getting more competitive.

That's always good for our business and our costs. As you see, our costs fell down to 13.1%, I think, cost of goods

for this past quarter, and I'm hoping we'll continue to see that as we move into the next 6 months cuz this data is a little bit old, but it has continued.

Okay. Then the auditors made you guys do some minor impairments, and then obviously you have a large set aside in reserves for this legal thing.

There's—

I think if you want, if you give me a second, I'd like to talk about the reserves because the reserves drastically affected numbers for this quarter. I'd like to keep everybody's focus, if you remember, we always say our focus needs to be on free cash flow cuz we think that's the best metric for how we're performing.

Our free cash flow was $45.4 million approximately. Legal reserves about $9 million, but I'd like to remind everybody also, we had no insurance last year, we had to do all these reserves for insurance, which we don't normally do.

Normally insurance costs us about $5.5 million a year, and we reserved $9.5 million for last year. Total reserves in 2025 were $18.5 million.

Compared to costs last year five about $5.5 million or the previous year for $5.5 million for the insurance for the G&L and liquor liability insurances. There's significant room there.

If these reserves aren't used, we'll see that add-back in future quarters as well, so. If they are expensed, then, if expenses do come out, then they're already reserved for, they won't negatively affect forward going earnings.

So

The idea basically is the reserves that you put aside in this quarter, we're not probably going to see any sort of or at least it doesn't look like we'll see any surprises that will come in 2026, so that's kind of in the background now.

I think so. I don't know.

A $9 million legal reserve is a huge number to me, but that's the estimates that everybody gave. Then I think that's going to go through trial and everything, so.

I don't disagree with the number. I think it's strong.

Like you said, it will eliminate, I think, any possible surprises in legal expenses or insurance costs for 2025 and the future.

Cool. Thank you.

Yep.

All right, next up, we're going to take Maxwell Ellis, handle bar @Apath65. Make sure you unmute your microphone.

You should be on the speaker now, Maxwell. You just have to unmute.

First off, I'd like to say I think we're all wishing you guys the best of luck in your trial case. I think we're all crossing our fingers and rooting for you.

Got two questions. The first one is on the capital allocation strategy.

Just given where the current share price is, how do you guys balance between acquiring clubs, paying down debt, and buying back shares given in today's environment, I think buying back shares might make a little bit more sense than acquiring clubs or paying down debt?

As you can see from Albert's announcement that since the end of the fiscal year, we've bought another 153,000 shares in addition to buying back 820,000 shares in the ADW capital transaction. We're using 100% of our free cash flow to buy back our shares, because why set aside 40% to make club acquisitions at a higher valuation than we can buy back our existing is kind of my philosophy on it.

We are pouring our cash into the stock buyback when it's down here at these levels, anything under what we paid ADW Capital, I think we just buy stock. We had a fairness opinion done on that ADW Capital transaction and so that's a fair value for the company.

Though why would we go out and buy other stuff? We'll just use all of our cash we can to buy.

Fantastic, that was exactly what I was hoping you'd say. I'm using all my cash too.

I think we're in the same boat. All right.

I think in the long run, we're both going to come out way, way ahead, so.

Second question. Last earnings call, I believe some figures were discussed in between, call it, $65 to $85 million of real estate value.

I know you guys have had a couple press releases on the real estate transactions. Is the total number to think about still in that $65 to $85 million range, or is it, "Hey, this year it's going to be closer to $32 to $34 million"?

I think that you're confusing the non-income producing assets with the Bombshells sales. We have somewhere between I think it was in there they listed $24 million left in real estate and about $7 million in underperforming clubs that we have for sale, call that $30 million on the round side.

The $65 to $85 million is the valuation for the entirety of the Bombshells operations, real estate that we've been shopping with certain private equity groups in that $65 to $85 million range, yeah.

That really helps. I really appreciate it.

Thank you guys, and best of luck.

Yep, thank you.

This is Bradley. If you would like to speak, raise your hand, and I'll pull you up.

Let's give it a few seconds. We got nobody else.

Eric, do you want to say anything in closing?

Just one final thing. I'd just like to bring up that if you look at our nightclub mix, it's been fairly consistent between alcohol sales.

I know there's been a lot of articles out there that people aren't drinking anymore. I would beg to differ with those things.

They may be spending less on alcohol, but they are still fairly consistent at our clubs in alcohol between 40% and 43% alcohol sales, with the about 17%, 18% for food and other, and service revenues in the 40%, 42% range as well. I'm not too worried.

I've been getting a lot of questions and calls recently about, "Are people drinking? Are people drinking?"

because of all the media. I would add that we've also added mocktails.

We've added a lot of specialty not as high alcohol content, like one-third alcohol content drinks and stuff like that to our menus and to some of the clubs, and we're doing very well in that regards with it. Also on the Bombshells, we've made some major changes January, February, March, and I think you're going to see some of those results as we get the May financials out, but definitely in the April, May, June after we open Rowlett, which will be a flagship location for us.

I call it the conversion because for about last 3 years, the Bombshells management team really turn Bombshells from a sports bar and restaurant into a restaurant that had a sports bar in it. Our concept now is going back to its roots where we are a sports bar that has good food, not a restaurant that has a mediocre sports bar.

With that focus, when our percent of alcohol sales increase in Bombshells back to where it used to be, around 60% to 65%, up from I think this year was 52%, and so I think we're going to see that continue to increase. My internal goal is to get that to at least 40 split and the ultimate goal would be a 65/35 for Bombshells.

At that point, they become very highly profitable again. As I've studied and got into this, especially as we started looking to sell the concept, the biggest change in net incomes and in operating till and in the times of sales, going into the POS data, is that we've really lost our bar business.

That's what we do best. We're in the bar business, and so we're going to be back focused on that.

That focus started in mid-January, and we're seeing some pretty good results at the two locations that we started the kind of change the concept in. As of the first week of March, we're now pushing all of those changes across the entire chain.

I'm very hopeful that when we put some numbers out and we talk in May, that we're going to have some pretty good news for everybody on that front. That's all I got, Bradley.

On behalf of Travis, Albert, and Eric, the company, and our subsidiaries, thank you, and good night. Please visit one of our clubs or restaurants and have a great time.

Thank you so much.