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

Q2 2014 Earnings Conference Call

May 12, 2014 4:30 PM ET

Executives

Gary Fishman – Investor Relations

Eric S. Langan – President and Chief Executive Officer

Analysts

Steven Martin – Slater Capital Management LLC

Operator

Greetings, and welcome to the Rick’s Cabaret International Second Quarter 2014 Conference Call and Webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host Gary Fishman, Investor and Media Relations for Rick’s Cabaret International. Please go ahead.

Gary Fishman

Thank you, [Sachi] (ph). I just want to remind everybody that our Safe Harbor statement is posted at the beginning of our conference call presentation. It reminds you that you may hear or see forward-looking statements that involve a number of risks and uncertainties, I urge you to read it. Actual results may differ materially from those currently anticipated. We disclaim any obligation to update information disclosed on this call as a result of developments, which occur afterwards. I also urge you to read the explanation of non-GAAP and adjusted EBITDA measurements that we use and that are included in our presentation and news release.

Finally, I’d like to invite everyone in the New York City area to stop by Vivid Cabaret in New York tonight at 6 O' Clock. for a – look at one of our newest clubs. The Vivid Cabaret in New York, is located at 61 West 37 Street between Fifth and Sixth Avenues. If you have an RSVP already ask for my name at the door.

Now here is Eric Langan, President and CEO of Rick’s. Eric?

Eric S. Langan

Thank you for joining us today. Also on the line with me is Phil Marsh, our CFO. To get started, please turn to Slide number 4.

We are pleased to report record results for the second quarter ended March 31 with GAAP EPS fully diluted of $0.37 per share up 27.6% year-over-year. Non-GAAP EPS was $0.45 up 12.5% year-over-year. Results were driven by revenues of $32.9 million up 14.4% year-over-year and an operating margin of 22.7% versus 21.5% in the year ago quarter.

Cash generating power of the company was very strong as reflected by our adjusted EBITDA. It reached $9.2 million up 23.1% year-over-year. This quarter we also introduced a new disclosure item called pre-opening costs, and this will include all expenses incurred before a new club or restaurant opens for business so that investors can get a better understanding of our core operating profitability.

This was a turnaround quarter for us. Everything we’ve been working on this year is starting to come together with the opening of the Vivid Cabaret in New York and the Bombshells in Webster, Texas and the other new clubs and restaurants launched or acquired over the past year we have reached the higher level of revenues.

In turn this has expanded operating margins and profitability to record levels. The pro-football championship game in New York City certainly benefited us, but our organic performance countrywide excluding our Club Onyx units was more significant. We are already seen improvements in the Club Onyx brand as a result of steps we’ve taken and we expect to continue to see strong revenue numbers for the clubs and restaurants going forward.

For the balance of the call, I’m going to go into more detail on the second quarter, and then we’ve got a number of updates on the new clubs and restaurants the Club O acquisition, the private REIT that’s been set up, how our Board of Directors approved stock repurchase program and expanded and how we’re also exploring a dividend possibly in the future. And of course we’ll update you on our fiscal 2014 guidance.

Please turn to Slide number 5. Total revenue for the quarter reached a record $32.9 million. This improved markedly over the $27 million to $29 million quarterly revenue range that existed since the first quarter of 2013 we began benefiting from the Jaguars acquisition. 2014 second quarter revenues included $5.6 million from new adult clubs and restaurant/sports bars. This includes approximately two months of both Vivid Cabaret in New York and the second Bombshells in Webster Texas, a suburb of Houston.

Same store sales were $27 million or down 1.1% year-over-year. Major brands showed year-over-year improvement despite severe weather, winter weather particularly in Texas, with the exception of our four Club Onyx units. Excluding Club Onyx unit same-store sales were up 3.8% reflecting initial benefits of our post recession strategy of increases patronage from bigger ticket, higher margin customers.

Clubs and restaurants, in particular Rick’s Cabaret New York and Vivid Cabaret in New York benefited from the Big game in early February and to a lesser extent, the Big East College Basketball Tournament. Nonetheless, both New York clubs built momentum during February with Vivid Cabaret New York’s March sale higher in March than they were in February and Rick’s Cabaret New York’s March sales representing 35% of the unit’s quarterly take.

Please turn to Slide number 6. Operating margins reached a quarterly high of 22.7%, that’s up from 21.5% a year ago and a quarterly average of 19.6% since the first quarter of 2013. Compared to the second quarter of 2013 margins primarily reflected increased operating leverage. Salary and wages fell to 20.9% of revenue versus 21.4% in the year ago quarter, and legal and professional fees felled to 1.3% from 3.4%.

In turn this was partially offset by insurance, which increased up to 3% of revenues from 2%. Insurance cost increased due to the company’s growth and of course industry factors. Rent and interest combined, which is how we evaluate our true cost of occupancy was 9.4% versus 8.8%, with the rent portion 3.5% versus 2.7% of interest down to 5.9% versus 6.1% a year earlier. Rent reflects the addition of the Vivid Cabaret in New York and the Bombshells in Webster, and the previously disclosed increase in the Rick’s Cabaret in New York.

Turn to Slide number 7. Operating income hit a record $7.5 million in the second quarter of 2014 that’s up from $6.2 million in the second quarter of 2013 and up from the quarterly average of $5.5 million since the first quarter of 2013. This help to drive adjusted EBTIDA to a record $9.2 million compared with $7.5 million a year ago and a quarterly average of $7.1 million since the first quarter of 2013.

Just turn to Slide number 8, for a review of our balance sheet. You will see we’ve reduced our debt by $4.7 million, $3.6 million of which was cash and $1.1 million that was converted into stock. Our debt pay down included another $800,000 of Tootsie’s related note which are most expensive at 14%. We have paid down $1.6 million of Tootsie’s debt year-to-date and we have $3.7 million remaining on that debt. Shareholders equity hit a record $105.3 million up from $100.1 million at December 31. This primarily reflects an increase in retained earnings and our total assets also rose.

Look at Slide number 9, as you can see we are adding a number of new units both adult clubs and restaurant/sports bars. For the balance of fiscal 2014, we have at least four sites in active development; all as it happens in Texas and one acquisition that’s been announced.

We have one gentlemen’s club in active development, which is Rick’s Cabaret in Odessa. It is expected to open once the new water well permit is received. I just like to point out that Odessa is the capital of fracking in Texas. It has been ranked as the country’s second fastest growing metropolitan area in personal income for the past three years up 6.98%. Once it is up and running, we anticipate Rick Odessa will be one of our top clubs.

We have the Club O acquisitions which I'll go into more detail in a minute. And we have three Bombshells sports bars and restaurants in active development, one in Austin, Texas which is expected to open in the third quarter of 2014, South Houston which is targeted to open in the fourth quarter of 2014, and the Spring Texas location which is suburb of Houston just out of the Woodlands. This is slated for the fall and this unit replace this one that was originally planned for Beaumont, Texas.

We are currently working on additional restaurant/sports bar locations and our objective is to have 10 locations open on in development by the end of calendar year 2014, principally clustered in Texas, but others possibly in select cities that have significant tourist and convention traffic.

We’ll turn to Slide number 10. We’ve been in the sports bar/restaurant business for about a year now and we have two in Dallas and one in Houston two of which are Bombshells. Bombshells is getting good reviews. Recently it was named the number one restaurant of its kind by a top young men site. We are continuing to refine the concept and evolve the model and we are now looking at an approximate investment of $1.2 million to $1.8 million per unit, a $3 million to $4 million in annualized revenues per unit and operating margins that we expect to expand as we continue the number of units to 15% to 25% of revenues.

The newest Bombshells in Houston is performing very strongly since it opened in late January and its revenues have been rivaling many of our adult clubs. As warmer weather hits the Dallas, Fort Worth market, we’re able to get the paddios back open and those two units there should be generating similar revenues to the Houston store.

We’ll turn to Slide number 11, we also want to update you on the Club O acquisition. Club O will be a major entry point into the Chicago market. We are in the process of transferring licenses and once this is complete, we expect to close the transaction. As we have disclosed the cost will be $11.06 million, including a $2 million for the real estate.

Let me give you some background on Club O. It's in a suburb just out of Chicago, and its highly visible just off the exit of the Interstate 294 and Highway 80 or Interstate 80. The actual club itself only occupied 25% of its 56,000 square foot building, and this is where we got the ideas of fully utilizing the facility by converting into our highly successful 50 Cabaret mega club format, which is our largest and most profitable club. During the construction phase and expansion phase this Club O is expected to remain open generating revenues.

We’ll turn to Slide number 12. As many of you know we like to own our real estate for many of our adult clubs. Rules often required the life to be physically tie to the location and owning this real estate makes our balance – makes our income statement, balance sheet look different than many other fast growing restaurants and bar chains. To solve this problem we’ve explained the concept of developing a private real estate investment trust.

I’m pleased to report that a private real estate investor trust has been legally formed and the company is in the process of moving forward expeditiously with it. The potential benefit of the REIT could include a major favorable liquidity event for RICK’s, cash for making acquisitions, funding restaurant developments or paying down higher price debt, Rick’s becoming more of an operating company with a significantly higher return on equity and would make us much more comparable to other publicly traded restaurant bar chains.

We’ll turn to Slide 13, we are pleased to report that the Board of Directors have approved an increase in available repurchase authorization to bring our total available for repurchase up to $10 million. In addition, the Board has began exploring the feasibility of a dividend and here is our thinking. With our new higher level of sales, we believe we are going to generate much higher levels of cash, this will enable us to pay off our higher price debt as mentioned earlier, only $3.7 million of debt remains and those will give us a much more cash flow.

Turning to Slide 14, to wrap up we want to update our guidance. Based on the first half performance and expectations for the balance of the year excluding acquisitions we continued to target fiscal 2014 revenues of approximately $130 million. The level of second quarter 2014 quarterly revenues is anticipated to rise in the second half due to five major factors, improved weather compared to second quarter 2014 adverse conditions, and this effected sales particularly in Texas. The major sporting events, we had a nice boost from the college basketball in early April Final Four championship in the Dallas Fort Worth Metropolitan area, where we have 14 adult clubs and restaurants.

In July Major League baseball All-Star game will be played in Minneapolis, home of two of our major top clubs. Full quarters of operations for Vivid Cabaret, New York and Bombshell in Webster, and improvement already underway in the Club Onyx units. April same-store sales including Club Onyx were up 4% compared to a year ago.

Opening of the Rick’s Cabaret in Odessa in at least one or two more Bombshells in this fiscal year. With the first six months of 2014 behind us, we now have a better hand along what we are planning in terms of pre-opening costs and expect them to be higher in the second half.

We also anticipate additional one time legal expenses in the second half. In total, we anticipate that margins will be affected by approximately $2 million to $3 million in higher pre-opening and legal costs in the second half. As a result we are refining our guidance for fiscal 2014, the EPS GAAP moves to $1.10 from a $1.20 versus $0.96 in fiscal 2013 and the EPS non-GAAP moves to a $1.60 from a $1.70 versus $1.40 in fiscal 2013.

All together this will result in good double digit growth access the Board. Revenues will be up 16%, GAAP EPS up 15%, and non-GAAP EPS would be up 14%. I would like to note that this guidance does not include the acquisition of any adult clubs such a Club O, although such acquisitions are part of our longer term 20% to 30% annual growth target.

With that let's open the line for questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions). There are currently no questions. I’ll turn the call over to Gary Fishman. Pardon me, there is one question now from (indiscernible). Please go ahead.

Unidentified Analyst

Hey Eric.

Eric S. Langan

Hey Nate, how are you?

Unidentified Analyst

Good, how are yourself?

Eric S. Langan

Good, good.

Unidentified Analyst

Thanks and congrats on the quarter. Things looked pretty good. I hadn’t had a chance to go through the press release yet but was just curious regarding the pre-opening expenses and the legal expenses. Can you break out the $2 million to $3 million higher, which ones are one time, which ones are pre-open on yet? Which ones are legal, which ones are pre-open and if you can kind of discuss why those are a little bit higher as well? Thank you.

Eric S. Langan

Sure. Well in the pre-opening are one time expenses as far as for those particular units. I’m not leasing more units, they wouldn’t repeat them in another quarter, but basically we’re looking at several of the lawsuits that we have had out there and we’ve been trying – where we want to try to wrap some of those up at the end of – by the end of this year. Now, I can’t of course guarantee that we’ll settle anything, but we’re looking to and so I just wanted to be prepared for it.

We’ve also, we’re going to have a little bit higher legal cost while we sort out this insurance, these insurance claims with IDC or IDEC, but as we work those out, so that’s going to add a little bit of a legal cost as well, so we want to be prepared for that. And I just want to be very accurate on our numbers and our guidance. This is the first year we’ve really brought guidance back. Probably in the next quarter we’ll try to get guidance for 2015 out there going forward.

And in fact we just want to be very accurate on our numbers and with these expenses coming and our model show us that by adding these expenses that we’ll need to – our earnings will come in line with the numbers that we put out today.

Unidentified Analyst

Okay. And as far as the, maybe and it’s probably too early to tell, but having the new Chicago Club and the openings of these additional restaurants the Club Onyx as well I would imagine we can – you’re seeing pretty good leverage with margin expansion. I recognize we’ll see 2015 earnings growth possible higher than 2014?

Eric S. Langan

Well, I believe definitely. We’re definitely going to continue to see earnings growth and you are going to have clubs that won’t even open a full year they are get full year’s worth of revenues and earnings, you are getting the growth of Vivid in New York City as well. So we’re definitely going to see much higher numbers I think in 2015. I think our run rate is expanding each quarter. So we’re going to try to continue to keep that growth rate going and we just want to be as open to investors as we can on exactly where we as management believe our earnings are going to come in.

Unidentified Analyst

Thank you. I’ll go back in the queue. Thank you very much.

Eric S. Langan

Thank you.

Operator

The next question is from Bill Brown a Private Investor. Please go ahead.

Unidentified Analyst

Hi, just a few question. First of all just want to be clear the – did you say at the end that the $1.10 is for this year does not including closing on club on the Chicago Club. is that right?

Eric S. Langan

That is correct, we never include acquisitions in our guidance and so we could actually close.

Unidentified Analyst

Okay. And would you anticipate assuming that we do close. Would you anticipate at the time of that closing updating guidance or would you all just wait for the next quarter?

Eric S. Langan

We’ll probably wait for the next quarter to do any kind of a guidance update.

Unidentified Analyst

Okay. Just had a couple of more, anything in terms of getting any traction in LA?

Eric S. Langan

You know we’re starting up to pick up. Our guy from Phoenix is overseeing the club now. We’ve changed the format up a little bit and the number are getting better. It’s not a home run, but it’s not a strike out any more either, so we’re kind of in the middle right and we’ll -- as we go for the next three to six months we’ll start getting a better feel for exactly where it’s headed, but its going in the direction, going in a better direction I should say than where it was. So we’re happy with it.

Unidentified Analyst

Okay. Also you mentioned Bombshells nothing on Ricky, on the Ricky Bobby, are we holding off on that pending what’s going in terms of litigation or is that just coincidental?

Eric S. Langan

Now the litigation is we’ve reached a settlement agreement in the litigation. We’re waiting for the final draft to get it all complete. We’re going to end up change the name Ricky Bobby’s to another name just avoid the legal hassle. Out of the two concepts the Bombshells concept worked much better for us. We like that concept a lot more. It appeals to a much broader customer base than the Ricky Bobby’s did anyway. We’ll probably change the name of Ricky Bobby’s to another race type name and keep that one. It will just be a one-off for it basically and then Bombshells locations -- locations that we continue to expand.

Unidentified Analyst

Okay. And last question, in terms of visibility and going forward, the question in terms is in the last conference call, it looks like we were tracking also close to the 4% and then we ended up the quarter being down and I guess there is Club Onyx was such a drag. Is there anything difference from last quarter to this quarter that you say well, that was the reason why it wouldn’t necessarily. In other words at time all speakers saying that we’re tracking so far on 4% on same-store midway through the quarter. Why do you think last quarter was any different than this quarter?

Eric S. Langan

Sure. The NBA All-Star Game within Houston was a big effect on the Club Onyx brand as well the Club Onyx brand has a really, really rough March over overall. And even in February, Philadelphia was affected by severe weather, Charlotte had some weather even Dallas and Houston had a little bit of weather, but the Onyx in itself had some other issues, management issues that we’ve now worked on and are changing and in the process and we’re seeing in fact a pretty strong April. I think we’ll continue to see the Onyx brand continue to improve through May and June and then run pretty good through the rest of the year.

Unidentified Analyst

Okay.

Eric S. Langan

I think well same-store sales will continue to see grow. I don’t see anything. June-over-June numbers, looking at last June and this June there is nothing surprising in June, there is nothing surprising in May. There is no big one-time event last year to affect them, but I think now we’re going to see on that 4% growth rate. I hope we can continue that still.

Unidentified Analyst

Okay great thank you.

Eric S. Langan

You bet.

Operator

The next question is from Steven Martin of Slater Capital. Please go ahead.

Steven Martin – Slater Capital Management LLC

Hi guys. Am I doing something wrong. I have been unable to find the slide presentation?

Eric S. Langan

That I don’t know. You’re the first one who told me you can’t find the slide presentation so hopefully they have it up there. We’ll email it over to you Steve.

Steven Martin – Slater Capital Management LLC

Okay.

Eric S. Langan

Gary is going to do that.

Steven Martin – Slater Capital Management LLC

Can we’ll go back to Club O and to new how, what’s the financing going to look like and what would you expect the run rate to be prior to getting it converted?

Eric S. Langan

Sure. I think the run rate is probably around between 80,000 and 100,000 a week in sales right now.

Steven Martin – Slater Capital Management LLC

Right.

Eric S. Langan

We hope to increase that considerably when we first takeover by of course with our branding and the excitement of us coming in. The club has been owned by the same owners for a long, long time. They are read to retire and get out, so hopefully that will bring some excitement.

We’ll bring in some fresh faces along with all the staff that there now, so we’ll just complement what’s already existing and keep it going. I’ve very excited about that. The financing for example is $4 million in cash. We’ve got cash in the bank, that we can finance out of our own cash. The shares are restricted to stock. It’s got a one year hold on it after six month. The hold on I mean after six months, one sixth a month can be sold into market or sold back to the company depending on the stock price at the time. And the rest is a long term 4% note, a 5% note I can’t remember, but very favorable interest rate for us on the remaining balance.

Steven Martin – Slater Capital Management LLC

Can you talk about, you’ve made some comment about the Vivid New York Club. Can you talk about where the run rate is headed and what it looks like? If you had to guess what’s it’s going to be on an annualized basis. Is it too soon or do you have some idea?

Eric S. Langan

It’s pretty early, it’s pretty early. I mean typically it takes these clubs about six to 18 months to ramp up to figure what their run rates are going to be. We’re doing in excess of $500,000 a month in sales already so we’re already over $6 million run rate. I’m going to guess the first year is going to coming close to $8 million which is pretty close to where we thought it would come at. I think we would be coming closer to six, but it looks like we’re coming closer to $8 million for the first 12 months. As we get into month 18, hopefully we’ll start seeing like Rick’s in New York, I noticed about 40% ahead of where Rick’s New York opened up in 2005 when we first opened it. So very excited to see that we’ve opened up with so much more potential than even the Rick’s location did when we opened it back up in 2005.

Steven Martin – Slater Capital Management LLC

Now have you seen any impacts on the Rick’s Club from the Vivid Club, so if Vivid has a good night does that mean Rick’s didn’t?

Eric S. Langan

No, actually it’s exactly opposite. Vivid does the better, Rick seems to do. We always said that people like the club hot so the reason they pass all these ordinances to hurt the above, to keep the business apart is because basically the more clubs that are in a congested area the more and more business that comes to that area so the area gets congested with adult business and we’re seeing that in this case too. Vivid did very, very well in March and Rick’s did even better. We’ve seen no slowdown at Rick’s at all and I don’t anticipate that Vivid will slow Rick’s down at all. First of all it’s a little bit of different customer demographic. We probably only share about 25% maybe 20% to 25% customer demographics between the two locations and you go to Rick’s for a different experience than you go to Vivid for.

Steven Martin – Slater Capital Management LLC

And the Vivid Club and obviously it’s up even though it’s sort of shaping out, but how do you think the operating margin is going to look?

Eric S. Langan

It’s going to be very similar to Rick’s. They are going to run in close to the 50% range.

Steven Martin – Slater Capital Management LLC

Okay. The note pay down in Tootsie’s. You’re paying that down pretty aggressive. How soon do you expect that to go away?

Eric S. Langan

Well if we continue on the current course and we don’t increase and we don’t make any additional payment other than what we’re making right now, we’re paying an additional 170,000 a month for 540,000 a quarter and additional principal right now. So it’s at 800,000, if you’re looking at four quarters. Just depending on how everything goes. We may speed that up a little bit if we don’t have other things to do with cash. If we find other things to do with the cash as far as additional acquisitions or what not, we will probably stay right on course with what we are doing right now, so I would say it will be paid off in the next 12 months for sure.

Steven Martin – Slater Capital Management LLC

Okay. Thank you very much.

Eric S. Langan

Yeah.

Operator

The next question is from (indiscernible). Please go ahead.

Unidentified Analyst

Hi. I was wondering what your thoughts are in terms of the timing of any possible conversion to the REIT?

Eric S. Langan

Actually, it will actually be as a sale to the REIT. The Rick itself will stay an operating company, a publicly traded operating company and what we’re going to do is we will sell the existing real estate into a privately owned REIT that will then enter into a management agreement with a subsidiary of Rick to manage the asset of the REIT as well as entering to long term leases with the operating entities, so that the operating entity continues to control the property through the lease.

Unidentified Analyst

So what you are saying is the Rick’s public shares will stay as it is?

Eric S. Langan

Yes, yes the Rick’s public shares will stay as if and what we will do is we’ll get a large influx of cash. We estimate we have somewhere between $90 million and $100 million in real estate with about $40 million to $45 million in debt against that real estate. So basically about a $40 million equity that we would like to basically cash out and bring that $40 million plus and $40 million to $50 million in cash into Rick’s so that we can do expansions, pay off of high interest debt and look at our – and fund the stock buyback possibly.

Unidentified Analyst

What’s your general feeling about the price of the stock, it’s kind of 44 right now.

Eric S. Langan

My personal feeling is it is extremely cheap. I mean if you look at the – if you look at our EBITDA numbers and you look at the multiples of EBITDA we trade at, you look at any other restaurant company out there, you look at any private transaction of restaurant companies out there, nothing trades as cheap as cheap as we trade right now.

Unidentified Analyst

Or disclose that is.

Eric S. Langan

I think we’ve been misunderstood for a long time. I think the people -- we went from an acquisition growth to a build growth and we’re kind of now, we’re kind of mixed where we’re buying existing and building new. And I think we just haven’t gotten the -- before the recession we were at basically pretty high plan, had a pretty high multiple and we just never recovered from that. So I guess it’s just a matter of getting out there, keeping the story going, keeping the growth going. As they say eventually the stock is going to trade on the numbers, so I don’t think it’s stays this cheap forever.

Unidentified Analyst

Yeah. Was that opinion just gave – what it would take to do some of the buyback. You said we’re considering to do some buybacks of the stock?

Eric S. Langan

Yeah. We just recently had the Board increase the buyback to $10 million as we roll some of this real estate out and bring the cash into the company and that cash starts to buildup on the balance sheet. I want the ability to buy the cheaper assets out there and to buy stock with the cheapest asset out so we can buy that, so we’re going to be buying.

Unidentified Analyst

That’s sounds good. Also have you done anything or made any attempts to get some more. I know there is coverage stock. I mean its over $10, in my experience over 40 to 50 years actually has been that the companies that do well and are not noticed the stocks languish and it take something a recommendation or some sort of, I don’t know what to describe it, but how to describe it, but it would seem to me that the stock is way-way undervalued and has risks. And did management tried to get any more Wall Street coverage of the stock?

Eric S. Langan

We’re talking with people. The problem is the system is broke right now for a small cap company in that the way that they’re compensated for suing stuff, for providing analyst coverage in that. They also want to do banking business with us and with Ricks generating so much cash flow, we’re not a typical company where we need to go out and raise capital all the time which makes it very difficult to grade that banking relationship.

We’ve looked at paid analyst coverage and we don’t really see the true value in paying somebody to recommend our stock. So we’ve basically avoided that at this point. We go out, we do road shows, we’re doing some presentations throughout the year, but basically I think we’ve had a couple of quarters where expectations were a little higher.

We were in a growth mode getting Vivid New York open. I think now that the numbers are going to start increasing they start seeing the sequential increase in revenues quarter after quarter and the bottom-line margins continue to expand. I think that will the way the people up to the value of the stock.

Unidentified Analyst

Yeah true. And my experience is mainly with these small cap companies which have done very well have and another investors will pretty much follow what I say in terms of recommendations and I think we need talk very positively about it , because I know back what you’re saying on the conference call was a number of areas. I will say that once the stock is discovered all the years that have languished within a month is laid up for, so hoping that?

Eric S. Langan

I certainly hope so. We’ve been waiting a long time this time. We had a few. I had been with Rick since 1999, so we had a few cycles up and down cycles and this was in a long stretch this time. So I’m hoping I mean I guess we keep – we keep putting results out, we keep doing what we’re doing. We run the company first, we operate and then we run the stocks back in. I mean when we make decisions we’re more interested in the long-term growth of the company and what’s going to continue to generate more cash flow and more dollars for the company, because that’s. I’m a long-term stockholder. I never really sold a share. Even when I’ve had stack times, I’ve always had net gains on any options I have exercised. I believe in this company for the long-haul and then I’ll continue to do so.

Unidentified Analyst

Thanks very much for the answering the questions. I appreciate it.\

Eric S. Langan

Any time.

Operator

The next question is from [John Roche] (ph) of Argon Capital. Please go ahead.

Unidentified Analyst

Hey, there was a story out last week at the control over there in Texas was starting to push for some of the club owners to start making payments on the crude pullbacks. Could you give any color around whether from your perspective there has been any change in terms of the status quo or the states aggressiveness in going after those tax payment or is it, was it just sort of been business as usual with respect to the pullback and the request for payment?

Eric S. Langan

Sure I’ll take that. We have a letter stating that we need to pay back sometime in July. We are talking with our attorneys. The Third Court of Appeals I believe has issued a ruling two days ago. It’s been reviewed by the attorneys now. Obviously we can’t comment too much on ongoing litigation. I can tell you we’ve made no payments other than first three quarters or five quarter or whatever we pay. The $2.6 million we paid in originally.

We’re going to be meeting with the attorneys over the next month or so. I believe that one way or the other, we’ve already dispensed it all, so it’s strictly a cash flow issue for us. It has nothing to. It’s not going to affect our earnings per share, it’s not going to affect our guidance or anything like that if we start paying this deal. There has already been talk of payment plans and ways to safely collect the money, but they only want us to collect the money.

They don’t want to put really out of business. And we’ll just, we would have to wait and see. I don’t know where we’re going from here, if we’re going back to the same court for a full panel court or we’re going to the Supreme Court or what not, but if I know more, we’ll try to get the news out to everybody.

Unidentified Analyst

Okay, okay, great, thanks.

Eric S. Langan

Thank you.

Operator

(Operator Instructions) The next question is a follow up from [Bill Brown] (ph), a Private Investor. Please go ahead.

Unidentified Analyst

Yeah, first off of all on the REIT, sorry I didn’t catch. Can you help us understand maybe some next milestone we should be looking for and timing on how you see it going down?

Eric S. Langan

For Rick’s basically -- the next step for Rick’s would be, we’ll start announcing sale of assets. Obviously it’s got to get real estate appraisal and that kind of stuff. The REIT itself will have to be funded or start being funded. So once those things start happening. I would say probably in the next conference call, we’re going to have a pretty decent update on the REIT and where we are going and you may see if the REITs, certain amount of money start coming into the REIT and we start moving some of the assets from the Rick’s balance sheet to the REIT and we will see that.

I think the first step is going to be probably to close on the New York, try to get the New York club real estate purchase so we can get out of that lease that we’re in now and have the REIT be our current landlord instead of the current landlord there. And then probably from there we’ll take a couple of fully owned, wholly owned properties that Rick owns where have -- we own the property at 100% of the property right now with no debt on it.

Probably move a couple of those pieces into the REIT so that we can pull some large chunks of cash into Rick’s and pay off, first probably pay off the long-term debt that’s got a much higher interest rate, so we’d actually lower our expense on that. And that’s what we’re looking is do is with a good a REIT is actually lower our cost. We would like to see the REIT be able to pay about an 8% yield which will basically mean Rick’s will pay about 8% on all of our stuff.

Unidentified Analyst

The rent.

Eric S. Langan

Right it will be rent extension for us, right.

Unidentified Analyst

And then as far the liquor license associated with each of the property they would just transfer over to the REIT

Eric S. Langan

No actually not, they stay, all the operating companies will stay. The only thing that will transfer is actual real estate. Real estate investment trust has to have 85% of its assets as true real restate so the operating companies will stay with Rick. So all the licensing, all the adult licenses, the liquor license everything will all stay with Rick’s. Only the real estate the dirt and the building and basically permanent fixtures will transfer to the REIT.

Unidentified Analyst

That’s great and thanks for the highlight, for sure that’s great. And last question also just a timing question. Any idea in terms of the -- you said the Board is starting to explore about a dividend, I mean its again something I strongly support. Any ideas in terms of what you are thinking in terms of timing so at least to think about and/or make a decision.

Eric S. Langan

Yeah, I think we’re going to see how the next quarter goes. We’re going to keep talking about it. We’re looking at our long term debt and what we can do to reduce some of that long-term debt, especially the high-interest debt. I think once our high interest debt is paid down and as we take in, depending on how quickly the REIT growth cash into the company, whether the stock price – what the stock price is, whether we should, rather it is better to buyback stock or dividend out the cash. Those are the kinds of things we’re going to weigh out and probably take it on a quarter-by-quarter a base here for the next couple of quarters and try to figure out what’s the best deployment of that capital.

Unidentified Analyst

Okay, great thank you.

Eric S. Langan

Thank you.

Operator

The next question is from [Max Ellis] (ph), a Private Investor. Please go ahead.

Unidentified Analyst

Eric, congratulations on another great quarter, happy to hear forward progress dividend REIT. A lot of my previous questions have already been answered, but one of the questions I do have is I know a lot the countries have seen some adverse weather over the past quarter. How do you see that effecting or does that affect any of the quarterly earnings?

Eric S. Langan

The weather, in Texas it was pretty rough. I don’t want to put a number to it, because it’s really hard to say, because we have days where people stayed and may be we did a little bit better on weekend, but we had a really rough week overall. We did lose, the one quarterly we lost the whole weekend and that was pretty easy to monetize when you have no business for Thursday, Friday, Saturday and a Sunday it’s pretty easy to monetize what that cost.

It is really hard to say overall because and of course different areas of the country were affected at different times by the weather. So it’s really tough to say. I think overall it hurt us and I think we’ve seen that in April when the weather was kind of straightened out everywhere and we had a really, really strong April across the board. Of course the first week of May was good.

This weekend is Mother’s Day weekend so it’s always an off weekend as far as we are looking it, but a year-over-year it was a decent weekend still, so we’re still excited about our year-over-year numbers continuing to grow. I think we should get back to that 4% same store sales growth which has truly has become has internal target. We’re going to continue to try to keep that 4% number going and just keep adding new location.

Unidentified Analyst

Okay good to hear. Sorry to hear about the planning?

Eric S. Langan

Yeah. We got out of it first. Basically we’re going to turn over the trademark rights and what not. We’ve given them a – I call it a token payment for some of that legal fees. It’s a very small amount of money. We could fight it, we could probably win it. We possess enough trade mark attorneys that we probably could win it, but we do not need the battle. The Bombshell brand is our brand. If that was our brand that we were going to grow 50 of them, okay I would say we would stand and buy, but it just doesn’t make a sense when it’s not going to the brand that we’re going to us. The Bombshell brand was so much more popular, so much more profitable and much more well perceived that’s we are going to put our time and energy.

Unidentified Analyst

Got it. I just have one – one final question for you. I know you’re considering issuing a dividend. Is that more to return capital to shareholders that we don’t see the market for acquiring new clubs as undervalued at

Eric S. Langan

We’re going to be generating so much cash and again we’ve got a huge influx of cash from the REIT right now to do expansions with. The highest as that’s started to get paid. It may another six months or 12 months before we actually start paying a dividend but I want to exploring it, I want to getting feedback of course from shareholders as well as from my Board and it’s one of thing that brought at the last two Board meeting that we’ve had, we’ve been talking about what’s the right thing to do on dividends and cash deployment.

One of the things obviously, look our stock go cheap let’s talk about buying our stock back and actually we ended up with a $10 million in the stock buyback. We’re bringing $40 million in cash from this real estate in a quick time. We just don’t know how quickly the REIT is going to fully fund. And the other thing we want to do with the REIT of course is buy additional club owners real estate so it’s not going to own Rick’s real estate at some point, it will own real estate of other golf club owners as well and the other nice thing is to take off a lot of the debt off of our balance sheet.

Unidentified Analyst

Got it, thank you again and congratulations on a solid quarter.

Eric S. Langan

Thank you.

Operator

There are no further questions at this time. I would like to hand the call back over to Gary Fishman for any closing comments.

Gary Fishman

Thank you, operator and thank you Eric. I just wanted to remind everybody again that we do have a due diligence event at Vivid Cabaret in New York a later from 6 to 8 o’clock. The address is 61 West 37th Street 25th and 26th Avenue. If you have an RSVP ask for me at the door. Until then we look forward to reporting our 2014 third quarter sales in July and our third quarter results in August. Thank you and good night everybody and thank you also for listening.

Operator

This concludes today’s conference. Thank you for your participation. You may disconnect your lines at this time.

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