Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

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

F2Q09 (Qtr End 3/31/09) Earnings Call Transcript

May 12, 2009 4:30 pm ET

Executives

Allan Priaulx – Investor & Corporate Communications

Eric Langan –President & Chief Executive Officer

Phil Marshall – Chief Financial Officer

Analysts

Eric Wold – Merriman Curhan Ford

Jamie Clement – Sidoti & Co.

David Fore – Montgomery Street Research

David Cooper - Private Investor

Ben Lichtenberg - Noble Financial

William [Stepacher] – Private Investor

Operator

Welcome to the conference call and Web cast for the second quarter of fiscal 2009 of Rick’s Cabaret International. (Operator instructions) As a reminder, this conference is being recorded.

Your call today is being hosted by Mr. Eric Langan, President and CEO of Rick's Cabaret. Also on the call is Phil Marshall, CFO of Rick's Cabaret. Here to introduce Mr. Langan is Allan Priaulx, head of Investor Relations for Rick’s Cabaret.

Allan Priaulx

Good afternoon. I’m Allan Priaulx, Investor Relations Counsel for Rick’s Cabaret. Welcome to our second quarter 2009 conference call and Web Cast.

In a moment, I will turn the call over to Eric Langan and Phil Marshall, who will present our second quarter results and then answer any questions you might have.

Before we begin I would like to call your attention to our Safe Harbor Statement, which is included on Slide 2 of our PowerPoint presentation available on our Web site and at PrecisionIR.com. Please take a good look at the statement as this conference call may contain forward-looking information within the meaning of Section 21E of the Securities Exchange Act of 1934.

Later this week a complete transcript of this call will be available on SeekingAlpha.com. I would also like to remind you that Rick's Cabaret files reports and other documents with the Securities and Exchange Commission and all of them are available on our Web site at www.Ricks.com.

And now, I’ll turn the call over to Eric Langan.

Eric Langan

Good afternoon everyone and thanks for joining us tonight. I will begin the presentation with a quick overview of what we're going to be talking about. We are going to review our second quarter 2009 performance, we're going to discuss the impact from discontinued operations on net income, we're going to update you on our steps to improve our performance, including our focus on Las Vegas. I want to discuss the renegotiation process that we went through on the put options and how we think that's going to help the company going forward, give a slight outlook for the remainder of the year on how we think things are heading with the current economy, and then end the call with a question and answer session to allow you to ask questions on anything I don't touch on.

The second quarter versus our first quarter, we had total revenues of $18.36 million this quarter versus $17.1 million last quarter, or up about 7.9%. A lot of that increase was due to the last couple of weeks in Las Vegas, when we started a very aggressive marketing program around March 17.

Our income from continuing operations rose to $1.51 million versus $1.31 million, or up 33.5%. Our net income rose to $839,000 versus $790,000 in the first quarter, so what we're seeing is quarter-over-quarter improvements and that's really what we're focused on more right now that year-over-year simply because it's just a different economy now than it was a year ago.

Our same store sales were still down for the quarter but we are starting to see them trend up a little bit, as you've seen from our April revenue numbers that we put out a week ago, and our cash flow continues to be strong.

The highlight of our second quarter was Miami is still our powerhouse. Miami is doing good numbers. It was a little off for the quarter, year-over-year, but a very little amount. It was almost flat. And in April we did see a slight improvement; still almost flat but actually a little better than the previous year's April. We are hoping to see through May that strength continue.

New York City continues to be a very strong performer for us. We have seen no slowdown really at that location; the numbers continue to be strong and our visits are up there. Our entertainer count is up and things are going very well there.

The Philadelphia Club Onyx, really took in this last quarter after being re-concepted. We expect to see even strong results as we move into the quarter. Philadelphia had a lot of very, very cold nights and a lot of bad weather and yet we still had 100+ people standing in line on Friday and Saturday nights waiting to get in. I wouldn't even stand in those lines in that weather, so it's going to be a very good summer, we believe, at that location.

We also converted the Rick's in Dallas into an XTC Cabaret and that conversion has done very well for us as we're seeing increase in revenues and a profitability out of that location.

And our marketing program that we kicked off in Las Vegas has been very, very strong for us as you have seen from the April numbers of $1.86 million in sales. Though the marketing costs are very expensive right now, we do believe that eventually we will bring those numbers down without bringing the sales numbers down as much and we will see that club return to profitability.

Speaking on Las Vegas, the club lost approximately $633,000 in the second quarter. We have cut costs, we have launched the marketing campaign. We have also formed a marketing partnership with the Hard Rock Hotel and Casino to put the Rick's Cabaret Rock Star Suite in. We are hoping that the build-out on that will be done soon and that will launch.

And we are working on them with some other promotions, including we've done two poker tournaments with them and we are talking with some other partners out there that we could use to work together with towards increasing Rick's visibility and increasing our market share.

We expect further improvements as the economy rebounds in Vegas. Been out there since March and we're starting to see a pretty nice turn around. If you look at the hotel occupancy rates it looks like they're starting to creep up a little bit. Some of the conventions have still been week. Hopefully as we get through the summer we'll start seeing that. Especially I think by October, November, December, we'll start seeing a better increase in that. But I guess that remains to be seen on what the economy does.

At the Philly Club, like I said, the concept has been very fantastic for us. We're drawing in top athletes, top hip-hop artists, and they are customer magnets so whenever they show up the cell phones and text messages go crazy and the club fills up immediately. We also have been able to bring in certain porn stars and other acts that are increasing our brand there and building the club's reputation. That concept has been very, very profitable for us. As you can see in the Q, we discuss in full detail exactly the turn around on those locations.

In Dallas we have had the Club Onyx location which didn't have a liquor license in the last quarter and now has a liquor license and is now profitable. And the XTC format is continuing to be profitable for us.

The New York City's continued strength, our positive impact from Howard Stern, from ESPN, from the New York Post, and other media exposure that we've been able to get from New York; our $10 gourmet lunch is still building, helping our day shift sales, which is increasing our monthly sales volume and we are continuing to build at that location.

Tootsie's in Miami has been unbelievably strong through all this, even though the Miami market, like the Las Vegas market, was one of the hardest hit on the real estate. Our club has continued to do very, very well there and we are continuing to build that flight to quality and that flight to brand where when people want to go out they want to go to a place where they know they're going to have a good time, and Tootsie's has been that place. We're still seeing strong sales and great margins at that location.

We will also be presenting at a conference in Miami in June, around the 8th or 9th, and we will be having a due diligence at the club on June 9 for anyone that's in the Miami area at that time.

I want to talk about some of the put changes. What the put changes effectively did for us is deferred a lot of cash that would have gone out over the next 12 months and by deferring that cash we will then start paying that cash in months 13 through 24 and months 24 through 36 going forward. Some of them are just extended out for term periods for 5, 6, 8, or 10 months, depending on how we negotiate them.

But in effect, those give us interest-free loans because the company would have paid that cash out and now we're going to get to hold on to that cash and buy those shares back at a slower rate.

It also gives us a chance that if the market rebounds and the stock goes back to previous levels between $20 and $30 that we used to trade in, that we may not have to put any of that cash out and it gives us a much longer period of time for the market to come back.

The other thing is, all the shares that have been put back to us, starting in April, the company has bought those shares back. We did not put those shares into the market. And we just basically wrote checks and are retiring those shares back in the treasury.

We have also, in our stock buyback, as you will see in the 10-Q, we bought back 162,041 shares of stock so far in the last six months at an average price buyback of about $3.615 a share, so our current outstanding shares—I believe it was as of May 4—were basically down to 9.215 million shares. If you look at our average sort of earnings per share calculation, the basic count was 9,313,000 and the diluted count was 9,487,000. So as you see, our share count is actually coming down a little bit.

One other thing I want to touch on is the patron tax. And the patron tax in Texas is $5 per customer fee that the clubs so we are having to pay for everyone that enters our building. Our business was in Texas. There was a bill to put before that House to have changed that to a 10% sales tax. It has passed the House, went to committee in Senate, is now passed in the Senate committee on a 5 to 0 vote and we hope to see that on the Senate floor sometime in the future.

Should that bill pass as written, it will allow us to get a credit back for all the patron taxes that we paid in the past, which would be—I would have to go back to the Q—but about $2.4 million in tax credit that the company would receive back on that, that we could apply toward future payments of that 10% tax. So that will be a nice boost when we get that passed and done.

Our strategy going forward is we are going to continue to look at our core competencies, clubs that we are doing well in, focus on those clubs. We are going to continue to market until the economy recovers so you are going to see higher marketing costs. We believe that that brings in market share and then when the economy recovers we will be able to lower those costs down and increase our sales at the same time, which will have a doubling effect on our earnings.

We are going to continue the battle in Las Vegas. I can't tell you how long that battle will last and I can't tell you in the end what it's going to cost us but what I can tell you is that we are winning the battle. And to give you an idea, I know there's a million rumors going around about what this is costing us and how it's going to play out and whatnot, but let me tell you what I've seen so far.

In the month of February we did about $250,000 in sales. In the month of March we did about $1.25 million in sales. We lost less money in March than we lost in April, even though we paid out over a million dollars in marketing. In April we grossed even more money; we did $1.866 million in April and we paid out a considerable amount of money but we've lost less money in April than we lost in March.

So sequentially from February, we're we only lose a quarter million in sales and the losses were ahead a certain level; in March we did a lot more sales and the losses came down even though our advertising and marketing costs were higher and in April we've seen the same thing. Our advertising and marketing cost were much higher, our revenues were much higher, but our losses were narrowing.

We're hoping as we move forward, as we moved into May, we've cut back the marketing expenses somewhat and there is talk with the other clubs in bringing those marketing expenses down even more and if we're able to do that then I think we'll see a return to profitability at that Las Vegas location. I don't know if it will happen this month, next month or six months from now, but eventually at some point all the clubs are not going to continue to sit there and operate at losses forever.

I do know that we have taken a huge market share. Our revenues are there. Our entertainer count is higher than it's ever been. Some of the numbers we are doing are exceeding the revenues from before we bought the location. Now it's just a matter of getting those costs in line and keeping those revenues up.

Looking for acquisition growth, we are looking again. We are starting to look around to see what we can find, see what's available out there. As the stock continues to come back we will get more aggressive. If our stock price gets back to a level we're comfortable with, we would consider using equity again, otherwise we will use company cash and debt.

The main reason we were so excited about lowering our cash outlays on the put options was because by keeping that cash in the company we will have a much larger pool of cash to go after acquisitions with. There are a large portfolio of potential acquisitions out there right now so we're being very selective. We are looking for locations that will help build our brand and expand the Rick's name and also something that is immediately profitable for us so that we don't have to go in and have a ramp-up period.

We are also looking at locations that we can re-concept similar to the XTC or the Club Onyx brand in certain markets that we feel are underserved in that and we believe would be immediately profitable for us.

To recap our second quarter, our first half is behind us now. Our total revenues for the six months were $35.0 million compared to about $25.0 million the previous year. Our operating income is becoming much stronger. Our losing clubs are turned around. We continue to cut costs where we can, which is helping lead to better operating efficiencies. We are now in the process of trying to bring down some of our other cost of goods sold and some other things through national buying programs.

Our aggressive marketing packets are paying off. We are gaining market share in some of our locations, especially in Las Vegas, and I think that we are posed for exceptional growth, once this recession ends. I think we will see an increase in same store sales again, soon, provided the economy continues to come out of this.

So at this time I will end the presentation and take any questions that you might have.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Eric Wold – Merriman Curhan Ford.

Eric Wold – Merriman Curhan Ford

I guess two questions on your comments toward the end. One on Vegas, you talked about what experience you've seen in the past when there has been cab wars in the past and you've had some market shares shift and then you kind of revert back to maybe more normalized cab [inaudible] what happens to market shares after that? Do customers return back to where they were before or do they tend to stay to where they are going to now?

Eric Langan

Well, you've got to remember, in our industry it's all about the girls. So he who has the girls can have customers and he who has customers have the girls, so it's really a chicken and egg and which came first. So the trick is, of course, keeping the girls and the customers on a platform.

So as the marketing costs come down, some of the customer count may come down initially, but it's just really more of a matter of keeping the girls happy and keeping the girls there and then the customer base will always return. The guys go where the girls are.

Eric Wold – Merriman Curhan Ford

What's happened with the payments the girls are making to work at the clubs during this trip in Vegas?

Eric Langan

They are probably some of the highest levels they've been.

Eric Wold – Merriman Curhan Ford

Do you think that's sustainable? Once the war ends.

Eric Langan

We're still below everyone else so I think our numbers are sustainable. I don't know if some of the other clubs are. Some of the other clubs offset have gone to like $50 to get in the club, 2 drink minimums, they have raised the house fees on the girls $50. They've done a lot of things that’s hard to offset those expenses. We've just kind of kept right on eating the losses that we had been sustaining before. We are happy.

When I set out to do this I really thought that we would increase our losses by about $250,000 a month. And I figured they would last about three or four months. What has been amazing to me is not only have I not seen those losses, I have actually lost less money than I was losing before. And when I went out there and we talked about doing this and we did all the numbers and I crunched everything, I could not foresee how rapidly the change would be.

I'll give you an idea. The week of March 10 to March 17, we probably did $120,000 in sales. The week of March 17, the day we started the program, through March 24, we did $400,000 in sales. The next week we did $500,000+ in sales. So you want to talk about something that is immediate, I don't know any place in the world you can spend marketing like that and the response be so rapid.

And we were running 60 girls. We had 8 waitresses on the first Friday night trying to serve 1,400 guests. I mean, we were just underprepared for how quickly it happened that I don't know how we didn't lose more money. Everything I know about the business says we should have lost more money, not less.

But when we sit down and crunch the numbers and you see the sales, it's amazing. You go to nightclubs and you walk in and they're completely dead and you go, wow, this is a very nice place. You would think that's where people would want to go party. But no, they'll go down the street to a place where they're standing shoulder-to-shoulder and they can't move in the place, and spend more money. And that's just the nightclub business. And that's what we're seeing in Vegas.

The busier that we are, the more people want to be there and the more people stay and the longer they stay, and the higher and higher average per head goes up.

Eric Wold – Merriman Curhan Ford

On the M&A side, once you start getting back in the M&A picture is it likely to be in the kind of flagship type stores, like Miami, like Vegas, or are you going to go to more smaller locations and maybe more price—

Eric Langan

Right now I'm looking, to be honest with you, because of where our equity is, we're not going to be using equity even at $7 a share, probably not even at $10 a share would we be looking to do anything with equity. So I think really what we're going to be looking at is more Ft. Worth-type locations. Locations we can go in and buy for anywhere from $3.0 million to $5.0 million and that are making $1.0 million a year.

And we can go in and buy two or three of those with $1.0 million, $2.0 million, $3.0 million cash down, finance the rest through the owner, and make the acquisitions easy and just basically sit there and continuously add to our cash flow.

Operator

Your next question comes from Jamie Clement – Sidoti & Co.

Jamie Clement – Sidoti & Co.

The year-over-year increase in advertising and marketing, I think some of that probably had a little something to do with Dallas and Philly. Can you give us a sense of roughly how much the year-over-year increase was specifically related to Vegas?

Eric Langan

About $1.0 million. We did about $470,000 last year and about 1.67 this year. So I would say about $1.0 dollars, that's about $200,000 of that is probably associated with Dallas and Philly with the bulk of that in Dallas. Dallas is where we spent the real advertising dollars.

Jamie Clement – Sidoti & Co.

A lot of consumer companies noticed a seemingly scary period of time in February. There was a lot of bad news headlining the newspapers and that sort of thing. Did you guys see the same thing and since that time have you seen—it seems like you've seen some sense of stabilization.

Eric Langan

To be honest with you, December was like we thought we were in a black hole. January it looked like there was a light at the end of that tunnel. And that light was the Super Bowl. Super Bowl came we saw our numbers getting better. In December and January it was like it was almost un-American to go out and party or go out and have any fun. Like the media had everyone convinced that it was wrong to go have any fun or go party or go spend money drinking and partying.

When the Super Bowl came it's like everybody let out a big sigh and said, hey, it's Super Bowl, we can party again. So that's really where we started seeing it. And then right as that was wearing off, about three or four weeks into February, at the end of February, then March Madness hit. And then all of a sudden all the college basketball got everybody crazy again and all of a sudden it was okay to party again. So that's what we've seen. And that has not slowed down.

It's been pretty steady because I think the media out there is now picking up and the government has kind of changed their tune to things are getting better. And if things are getting better then it's okay to have that occasional drink, it's okay to go out and have that, you know, that one blow-out night. Maybe not as much as you would as you did last year, but you're still going out a little bit. And I think that's what we're seeing.

Jamie Clement – Sidoti & Co.

Can you talk a little bit more about the partnership with the Hard Rock. Obviously I saw the press release about it this week, but what other forms is that going to take?

Eric Langan

Like I said, we have done two corporate tournaments with them. The first corporate tournament was one of their biggest nights in their poker room it had since it opened. This last turnout was completely sold out. In fact, we even had people that wanted to play that couldn't. So it's been a great deal for them. They added like seven more table to the tournament. So it's been a great turnout. It's been a lot of fun.

We're doing some parties at their pool. On Monday we take a bunch of the girls out to Relaxed Mondays now and the girls hang out at the poolside. So it's just a lot of fun stuff, get their name out there, and it has benefits to the girls. The girls got to play in the poker tournament and they got a little excitement and they got on VegasTV.com and a few other things.

So it's just exposure really is what it is. It's building the brand and letting people know that not only is Rick's in Vegas but how Rick's is different. You know, what our customer service is and the things that we care about and the things we do for the girls and with the entertainers out there.

Jamie Clement – Sidoti & Co.

Is having a club on the strip at one of the casinos still an achievable long-term goal?

Eric Langan

It's definitely a goal. Whether it will ever happen is unknown. There's a lot of pressure out there right now. There's a lot of the regular night clubs that have some major problems and some law suits out there because of those problems and they are getting a little bit of backlash I think from the gaming board on who's liable and who's responsible for these types of things and there's talk in the newspapers of trying to make the gaming license holder responsible for some of those things.

So depending on how that plays out will probably have an effect on that. It's just hard to say. If they're found that they are actual tenants and not part of the gaming licensee, then I think we could do it tomorrow. Otherwise, if they start ruling in the other direction like they are responsible for the nightclubs that are on their premises, then I think we could be farther away. So it's just really difficult to tell at this time if and when that will ever happen.

Operator

Your next question comes from David Fore – Montgomery Street Research.

David Fore – Montgomery Street Research

Do you have a close date for the Austin club right now for us?

Eric Langan

We don't have a date yet. It could be any day. It could be tomorrow, it could be next Friday, it could be a week from now. We just don't know at this time. All of our stuff is done, we are waiting on the other side to finish up some of their last licensing stuff and what not and once all that's done I hope we will get that done.

David Fore – Montgomery Street Research

And back on the M&A front, are you seeing more of an uptick in private owners approaching you now in this current market?

Eric Langan

What we are getting is, everyone knows we are a serious buyer and so we are starting to get calls from brokers when they first get a property. So it's nice because we're starting to get a lot of first looks. So I guess we'll go out, we'll see if they're just using us to test the waters or if they're serious about selling their clubs. I believe that there are two or three guys that we are dealing with right now and stuff that we are looking at right now that could become very serious in the next 60 to 90 days.

David Fore – Montgomery Street Research

On a larger scale, are you seeing M&A among some of the larger private guys out there, looking to buy clubs as well in this current environment.

Eric Langan

You know, there are guys out there that are talking but it's like the old days, everybody wants to steal your clubs. I don't think there's a lot of real serious guys out there right now. If you owner finance you could probably—like for example, the Austin club, when we tried to sell it, first we wanted to do an all-cash deal, the problem is people are having too much difficulty coming up with large amount of cash, so we went ahead and carried some paper on it. We got a very significant down payment and we will carry the paper on the rest of it.

David Fore – Montgomery Street Research

It may be too soon for this, but are you giving some type of outlook for the June quarter right now?

Eric Langan

No, we haven't. You know, April is gone, we put out the sales numbers for April. I think we're definitely starting to do better and I think that we will continue to see that happen.

I just got something handed to me and I don't know if it's—it looks like the Senate passed the repeal of the patron tax today. So that might be really good news for us. I'll have to look into it. It goes to the governor so it will just depend on if the governor signs it or not. Someone just handed me an article from the Houston Chronicle that came out today.

That will be big for us. That's a huge amount of revenue for us. It's been set there in limbo. We've been expensing it out the whole time. So if enacted, we will income that back in and have a credit here. We'll have to talk to the auditors how we list that, but basically it will show up on our balance sheet as some type of prepaid tax asset.

Operator

Your next question comes from David Cooper - Private Investor.

David Cooper - Private Investor

I have several questions and some comments regarding the Las Vegas club in particular. Specifically relating to the marketing campaign, as it were. I haven't seen anything in sent to me, in any press releases delineating or explaining exactly what that marketing campaign is or how it works.

But as I understand it, and I'm involved in this industry, I've heard some inaccuracies in things you've described as far as what's happening industry-wide with house keys going up and different things. I know those things are inaccurate and clubs have increase their cover, not the $50 with the two-drink minimum on top of that, but that's $30 plus two-drink minimum—

Eric Langan

Correct. That's $50 to get in.

David Cooper - Private Investor

What the marketing campaign really is, is a cab pay out war. It's diversionary by state law which is by definition illegal, but it's been going on so long, there's a lot of litigation. I've never heard Rick's talk about anything on that. There is serious litigation happening now with respect to that. But I was shocked when I saw Rick's elevate this cab war up to previously unknown levels—

Eric Langan

I guess you work for one of our competitors, I take it.

David Cooper - Private Investor

No, I don't. I'm a shareholder.

Eric Langan

Oh, okay.

David Cooper - Private Investor

At any rate—and you would know that if you look through your rolls. I have an interest in what's going here because $100 payout—my concern is you're supposed to go down to $30 with these clubs on the 15th

Eric Langan

I don't know anything about that.

David Cooper - Private Investor

Well, it's out there so we'll see if it happens on the 15th, but the market share is going to drop significantly when that occurs because it's not a chicken and egg theory in Las Vegas about who has got the girls, who has the customers, it's who has dominion over drivers. Drivers bring people, divers influence people, people staying on the strip don't read magazines, they don't see billboards, they don't listen to radio, but they do listen to drivers and that's why I think when it goes down to $30 I think we'll see returns largely to [inaudible] retaining, and treasurers, retaining large market shares on so I'm very interested in what we'll see at Rick's.

A couple of more questions I have are regarding—

Eric Langan

That's more than of an opinion than a question, but go ahead.

David Cooper - Private Investor

I have a question concerning the payout.

Eric Langan

Okay.

David Cooper - Private Investor

What can you tell me, for instance, about this payout?

Eric Langan

I won't discuss on an open line our marketing program. I'm sorry, it's not going to happen.

David Cooper - Private Investor

Well, I'm glad you said that. Let's move on. Is there any plan to 1099 these drivers that are getting paid all this money?

Eric Langan

I am not going to discuss our marketing program in any form or fashion about Las Vegas on an open line. It's not going to happen.

David Cooper - Private Investor

Okay. Another question I have for you is are the entertainers still being charged in addition to their house fee a 15% to 20% of their earnings nightly?

Eric Langan

A what? I don't know what you're talking about.

David Cooper - Private Investor

Do you want me to repeat the question.

Eric Langan

I know, but I don't know what you're talking about. No, we don't charge entertainers 15% or 20% of anything.

David Cooper - Private Investor

Well, okay, that should be looked into but largely what—

Eric Langan

Are you from Minnesota?

David Cooper - Private Investor

No.

Eric Langan

You sound like Plaintiff's counsel.

David Cooper - Private Investor

At any rate, what I'm looking at here is I wouldn't call that an aggressive marketing campaign if it's just paying cabs because anybody can do that.

Eric Langan

Okay.

David Cooper - Private Investor

In other words, anybody can come along and pay $100 or $110 or $150 per head, charging a $30 to $50 cover, if that was what they wanted to do, and get the market share—

Eric Langan

Anybody can rent a billboard, anybody can put an ad in the newspaper.

David Cooper - Private Investor

Right.

Eric Langan

Anybody can stand on a street corner and pass out flyers. I mean, I don't understand your point.

David Cooper - Private Investor

Well, the point is this is not nearly—I don't even know that—I'm going to be curious to see how this whole thing gets written off. The reason I ask, or the reason I comment is I read your article in Forbes magazine going back to—maybe it was, I don't know if it was the fourth quarter or somewhere in the first quarter, but there was a real decidedly aggressive stance in that article against cab drivers and paying out and say they were gauging and I come to find out that that's entirely the opposite of what's actually transpired since that article came out.

So I think you should be more forthcoming and have transparency with respect to questions you refuse to answer, you should answer.

Eric Langan

I think that's trade secrets I don't think that's—

David Cooper - Private Investor

I don't think it's trade secrets. But I think this is how you're doing business and I think it needs to be disclosed. And I think there is likely some—

Eric Langan

I think you can see exactly how we disclose what we do.

David Cooper - Private Investor

I think you are inflating stock prices and I think something is going to happen with this.

Eric Langan

You think I'm what?

David Cooper - Private Investor

I said I think you are manipulating stock price by what you're doing in Las Vegas and I don't think there is any transparency here. I think people deserve to know where the money is going.

Eric Langan

Well, I'm sorry you feel that way. And I'll take the next call operator. I'm not going to argue over that with you. I appreciate your time. Thank you.

Operator

Your next question comes from Ben Lichtenberg - Noble Financial.

Ben Lichtenberg - Noble Financial

Just one quick question. It looks like you restructured your put options and a more favorable outcome to the company. What incentivized the holders to actually do that?

Eric Langan

What incentivized them? I guess my kind voice and pretty face—the reality is they had no obligation to do it whatsoever. You know, we called, we asked, we had purchased their clubs from them, we had built relationships with these individuals over time and said, look, here's the deal.

I guess the biggest incentive is of course, if the stock trades for $29 a share, they make more money on it. So it's just a matter of if the stock was—if they believed when we did all this and we merged our company in that the combined assets were going to create more value and then you believe that this is just a recession and the markets will return to a more normal period at some time in the future, obviously the longer they have on those put options the better chance they have of getting more money for them than the $20 per share. So that's one of their motivations.

But I think the biggest motivation is I called and said, hey, can you help me out.

Ben Lichtenberg - Noble Financial

Got it. Okay. Obviously it's a favorable transaction to the company.

Eric Langan

Yes.

Ben Lichtenberg - Noble Financial

It sound like—

Eric Langan

I mean, you know, when you look at it on an individual base it really wasn't that much from each individual. Yet once you add up all the individual changes up, then it becomes a big deal. For example, you take the Dallas one that we just did, there are three parties involved in that. So each one of those parties basically deferred $200,000 in payouts to themselves, so each one of those individuals gets $200,000 less over the next year that they're going to get back over the next year and the next year, however, the company as an aggregate takes $600,000 in tax layouts back this year.

Same thing in the Las Vegas deal, where we deferred some of that. It's two different individuals so it's not all one person that did it.

Ben Lichtenberg - Noble Financial

So they went because they got the same deal and it was a handful of different people and even though it seems pretty of a decent dollar size in the whole, individually it was probably less so.

Eric Langan

Right. It was less money to each individual but when you add up all the different individuals from the four different transactions. Of course, you take the Philadelphia transaction, that was all one person. I just asked can you help me out and he said yes. And he owns half the real estate with us, we're making the rent payments with him. He's getting his income off of his half of the real estate so for the club to be successful is important to him as well, and for the company to be successful long term is important for him as well.

So those are some of the motivations. I mean, you would have to talk to the individuals and find out exactly why, but did we give anything? We gave, on the Dallas transaction, the lawyers had originally messed up one of the collateral documents and we corrected that collateral document for them. Other than that, on the other deals, we just basic amendments to the original purchase agreement. The only thing that really changed was how many shares they could put to us and when.

Operator

Your next question comes from William [Stepacher] – Private Investor.

William [Stepacher] – Private Investor

I like the how you handled that short investor.

Eric Langan

Is that what he is? He's short? I thought he was one of the other club owners that have didn't get picked by this program out there. Let's face it, we didn't increase our business from $200,000 to $1.8 million basically in six weeks time without some enemies out there and we knew that was going to happen.

And we tried for six months, in the first six months we were there to get everyone to make an agreement to bring the payouts down, to play fair, to not pay doormen cash on the side, to not do all these things that go on in Vegas, and say let's all play on the same playing field, and nobody wanted to do it. And Rick's took the brunt of the hits for six months and after six months we got tired of it and said okay, you want to play this way, we can play this way, too. And that's just basically how it ended.

William [Stepacher] – Private Investor

And the cab drivers I spoke with will actually—they actually prefer the payments to be lower.

Eric Langan

Of course, there is no doubt the cab drivers would prefer a $20 payment because then the line guys at the hotels and casinos don't pull people out of line and put them in limos, they just put them in the cabs and the cabs get the rides.

I stand out in front of the clubs. I've been there since March 24 and I've been out there almost every day. I was there 17 days straight, from 7:00 p.m. at night to 7:00 a.m. in the morning. I went home for the weekend, I went back out there for 11 more days. I will be back there Friday for the shopping center convention. Probably through Friday of next week because it's going to be one of the biggest weeks in Vegas.

That guy had inside information that only six people know about that he was asking questions about on private negotiations. Believe me, he was calling from one of the other clubs. I know he was. Or he's been talking with one of the other club owners and was put up to the call. Which is fine by me. They don't need to know what Rick's is going to do. They'll find out when I do it. That's the way I look at it.

William [Stepacher] – Private Investor

My question is about the tax in Texas. Did you say they are proposing a 10% sales tax?

Eric Langan

Right it will be a 10% sales tax on the cover in lieu of the $5 fee.

William [Stepacher] – Private Investor

So is that something that can be passed on or, well I notice you said you are going to put the proceeds that will be returned towards that tax.

Eric Langan

Well, they won't be returned, what we will do is we'll get a credit. The bill calls for a credit to be issued against all future taxes that would be collected and it allows them to immediately release those funds to the victims through the victims' organizations. Which is fine by us as long as we get the credit. I mean so it takes us, you know, we'd pay the money over the next year or two years, or three years anyway, whatever the time frame may be.

I'm sorry, we didn't get your name. Could you identify yourself again?

William [Stepacher] – Private Investor

William [Stepacher.]

Eric Langan

Thank you.

Operator

There are no further questions in the queue.

Eric Langan

If there are no further questions we can end the call. I would like to invite everyone out, I'll be heading over to 50 West 33rd Street here in New York. Anyone who wants to come out to the due diligence ball, I'll be more than happy to discuss any questions that you might have there.

Operator

This concludes today’s conference call.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Rick's Cabaret International, Inc. F2Q09 (Qtr End 03/31/09) Earnings Call Transcript
This Transcript
All Transcripts