Greetings, and welcome to the Rick's Cabaret International Second Quarter 2012 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Allan Priaulx, Investor Relations for Rick's Cabaret. Thank you. Mr. Priaulx, you may begin.

Thanks, Doug. Good afternoon, everyone. I'm Allan Priaulx, Investor Relations Officer for Rick’s Cabaret, and welcome to our Second Quarter 2012 Conference Call and Webcast. In a moment, I'll turn the call over to Eric Langan; and Phil Marshall, our CFO, who will present results from the quarter ended March 31 and then answer any questions you might have. Before we begin, I'd like to call your attention to our Safe Harbor statement, which is included on Slide 2 of our PowerPoint presentation, available on our website, www.ricksinvestor.com, and at the Precision IR or investor calendar website. Please take a good look at that statement, as this conference call may contain forward-looking information within the meaning of section 21 E of the SEC Act of 1934. In addition, I want to call your attention to adjusted EBITDA, it's a term you will hear during this call. And for your convenience, we've included the definition of adjusted EBITDA in our PowerPoint. I'd also like to remind you that Rick's Cabaret files reports and other documents with the SEC, and all of them are available on our IR website, www.ricksinvestor.com. It's our discrete Investor Relations Web address. A transcript of this call will be available later in the week at rickinvestor.com. For those of you in the New York City area, I invite you to our popular Due Diligence Ball this evening at Rick's Cabaret from 6:00 p.m. to 8:00 p.m. We hope you'll come to the club, meet Eric and myself and perform your own due diligence on Rick's Cabaret. You'll have a great time doing so. And now, I'm turning call over to Eric Langan and Phil Marshall.

All right. Thank you, Allan. Begin with a quick overview, we will discuss the summary of our second quarter, talk about the drivers and increase in revenues, earnings and EBITDA and talk about our cash flow for the quarter. I wanted to discuss our acquisition program and our plans to move forward on that. We'll take a look at some of our debt and some of our plans there. And then discuss the outlook for the remainder of 2012 and end the call with a question-and-answer session. Beginning Quarter 2, 2012 revenues was a record $25.4 million versus $21.6 million in 2011, a 17.8% increase. We had a very nice increase in same-store sales of 8.1% to $22.6 million. Net income, without our legal settlement, would have been $3.3 million versus $2.9 million in 2011. Q2 2012 adjusted EBITDA, $7.5 million without the legal settlement versus $6.9 million. Net cash provided by operating activities in the 6 months ended March 31, 2012, was $12 million compared to $8.5 million. Expenses include a onetime $1.8 million reserve to settle a shareholder lawsuit. Exclusive of the legal settlement, operating margins improved to 22.2% versus 19.8% in the previous quarter. To give a quick update of where we're at with some of our existing acquisitions, the Rick's Cabaret DFW location at the -- near the airport here in Dallas-Fort Worth got its liquor license in February. We'll be having a grand opening party this weekend to really kick things off. We had a nice soft opening through February. We had a very good month in March and we think that in April. And we think that the -- having the grand opening at this time will further push those sales up at that location, and help cement this location as a premier location at the -- in the Dallas-Fort Worth market. We also purchased Silver City Cabaret around that same time in February and have been doing very, very well with that, a very strong presence in Dallas market now with that location. Across the board, our basketball crowds are back, not only on an NBA level but on the college levels, with very good tournaments in New York. The tournament at Charlotte was very big this year for us, as well as some of our other markets. So we've been very happy with that turnout. We also were able to implement minor price increases in recent weeks that are also helping to drive our top line and hopefully cover some of the margin creep that we had lost in previous quarters. Try to get our margins back up. Our current debt is sitting at $47 million, $27.9 million which is real estate-related debt, which we look at as basically a rent expense on some of our nightclubs, leaving our actual debt at around $19 million, which we believe is very manageable based on our free cash flow right now and the cash flow generated from our operations of almost $2 million a month. We have $9.4 million of that 14% from the Tootsie's transaction. This month, we have decided that we are going to accelerate some of those payments. We're making additional principal payments on that. We've looked at cash we've been setting aside to put into our stock repurchase plan. And with the stock between $9 and $10, we've decided that we will pay off this 14% debt at this point with that cash we've been setting aside for that. So we're going to start paying that down a little bit quicker. Also we had several balloon payments that are going to be coming due in 2013, including one that we were -- extended to this quarter that had $1 million due that we pushed now until February of 2014. And we are in the process of -- also about $9 million in additional balloon payments that'll come due to 2013, in negotiations and extending most of those notes out anywhere from an additional 3 to 5 years on those notes. So that should help free up cash flow going through 2013. We've reduced our debt by $2.9 million in the 3 months ended March 31, 2013. And we currently have about $4.5 million left on the convertible debentures that we issued back in June of 2011 -- or 2010. I can't remember when we actually issued those -- '10, yes. In 2010. So that will be about 4 more payments, I believe, on those, and that debt will be taken care of. So basically we'll pay about $6 million in additional debt over the next 12 months. Our going-forward growth strategy. We're starting to focus on search for multi-club operators and multi-club operations. We want to buy a group of clubs rather than a single mega-club that will give us an additional $10 million to $20 million in additional revenues but spread the risk over multiple locations instead of a single location like we did in Las Vegas. We do believe the economy's getting better. We're seeing a return of customers. Our customer counts are up. Our entertainer counts are strong. And so we're gaining the confidence to make these larger acquisitions. But I'm just not sure that a single market acquisition is the right move as we did in Vegas, because we've seen, if the market does turn negative again, how quickly a single location can be affected. We're going to continue emphasis on organic growth and cash generation. As you can see from our cash flow statements, we are doing a very good job at creating cash. We're trying to eliminate our taxes as much as possible, and generate -- keep as much of our cash as we can so we can reinvest or pay down debt with that cash. Our goal is accretive acquisition, adding quickly to our bottom line performance. We've done very well with that with the Silver City acquisition, and we're looking for other similar type of single, one-off acquisitions we can do, where we can -- where we believe we can get very quick results just like that. Our outlook going forward is, as you can see -- our idea, or plan is to produce solid and consistent numbers. With that in mind, we had a very good quarter at $25.4 million, which was helped by Super Bowl and several college basketball tournaments that increased revenues. I think our going forward number for the following quarter for April, May and June will fall somewhere between $23.4 million and $24.1 million in nightclub revenues. You see our legal costs were still a little high in this quarter due to the acquisitions that we've made, 2 different acquisitions, one, a land acquisition and the land and club acquisition on Silver City. Some are legal costs that'll be going down. We still have some high legal costs due to the New York labor dispute. We are doing several depositions in that case as part of the craft members. And so, therefore, I believe costs probably remain high through the end of May. But I think after May, a lot of the -- we're getting close the end of the discovery period there. And so those costs will drop considerably moving forward into June, July and moving forward until we actually get to a trial date. We will watch our expenses closely. We're really -- a lot more attention to the bottom line now that we've got the top line under control. And we're not as worried about new customer spending, so we're really starting to watch with price increases and negotiation on national purchasing with different liquor [ph] distributors and trying to pull our costs down and keep our costs down. We're currently examining several opportunities out there from multi-club to single club operations, and partnerships where we can use our capital and other multi-club operators to operate the clubs for us. And we would also look at purchasing the real estate in those transactions and being the landlord, as well as owning a percentage of the clubs. As you can see, the clubs that we have acquired in past years are meeting and exceeding our expectations. We always thought the Silver City location would be a $5 million plus location. We just thought it would take us 6 to 18 months to get there. And the management team that we put in there and because of our strength and power in the DFW market with -- we bring in entertainers and staff. We were able to take that location to the near $5 million run rate in about 4 weeks. So we've been very, very happy with that location. We remain highly confident in our management and our business model. And we think that sticking with the program that we've put in place is our best bet, so we're not going to look a whole lot outside the box. We're going to keep doing what we're doing and continue to grow the top line and manage our expenses to keep our margins growing as well at the bottom line. So that concludes the formal presentation. If anyone has any questions, we'll be happy to take those questions and answer them at this time.

[Operator Instructions] Our first question comes from the line of David Mau from Montgomery Street Research.

I was curious what EPS would have been including the tax ramifications from excluding the...

It would have added $0.12, basically. So instead of $0.22, we would have been at $0.34.

$0.34. And so that puts you on track for the, what, the $1.22 that's in the [indiscernible]?

It will put us at about $0.58 on a -- income from operations, and about $0.56 on a net income -- on an annualized [ph] basis. So as you see, we did exactly the same for the next 2 quarters. Of course, we had acquisitions that we've had that will add to earnings going forward. So I think we're pretty close, $1.12 to $1.20.

Our next question comes from the line of Danielle McCoy from Brean Murray.

I was wondering if you could explain a little bit more about the different pricing strategies and marketing programs that you guys have been doing?

Sure. We take some [ph] our locations, especially our high-volume locations -- we have some very large clubs. In the larger clubs, what we've gone is we've gone to a much lower pricing, specials like $2 Tuesdays, $1 beer on Wednesdays, and those type of things. What we've been able to do now with the market actually improving is going to -- instead of $1 a beer, we're doing $1.75, which doesn't seem like a lot but when you add $0.75, you're really helping, a, lower your cost basis and gradually increasing revenues when you're selling 300 cases of beer in a single night at a location. So that's helping. We're also been able to increase certain shot specials. Where we've done $3.75, now maybe we're doing $5 premium shot specials instead of $3.75 conquering the shot special. So we're -- and generating more revenues in those ways. We're also being able to pass along $0.25 to $0.75 overall price increases in a lot of our markets. And that does help to increase our revenues. And what we're hoping to do is get our cost of goods -- another reason, or 2 reasons the cost of goods has actually increased our percentage a point or so. Say, when we buy liquor-type clubs like Silver City and we take the DFW Air location, put liquor in here, the liquor locations have a much higher cost of goods sold than our -- what we call our B.Y.O.B clubs. When we have B.Y.O.B clubs, that helps bring the cost down because there's a lot less cost associated there, so it brings the overall cost of goods down a little bit. But we -- as we add more local liquor clubs, we get closer. We -- most of our liquor clubs run about a 14% cost of goods where our B.Y.O.B clubs cost of goods will be closer to 9% or 10% range. And when you get the mix in there, you're getting that 12%, 13%, which is where we've been coming in at. Also, the liquor cost costs are up a little bit because of the increased bottle sales. We've been doing a lot of bottle promotions and a lot of bottle specials to anchor people into our clubs. If you sell a bottle of vodka by the drink at $8 apiece, and then you find you're pouring out of liter bottles that cost you $27, you're ringing up $250, $260 out of one bottle versus selling that bottle to someone in a fifth size, which actually have 6 less ounces of liquor in it, but we're able to -- but it costs us about $3 or $4 less, but we're selling for $175. So you can see you're getting $175 and getting a $23 cost versus $27 against the $256 cost. So your percentages are fudged a little there for that 1%, 2%, based on how many more bottles you're selling versus how many single shot drinks you're selling, so.

Okay, great. And do you have any update on the Texas Patron Tax?

Well, we're currently waiting the legislators out this session so nothing's going on with the legislature [ph]. The courts, we're basically back at square 1 with the state court issue, or the state constitutionality issues. I don't even -- I'm not even sure offhand when the hearing's going to be set. I know that the judges have been selected and they're moving forward on it, but it's really just a matter -- the way we were explained to it, we're back at square 1, so we're looking an entire process of another 3-plus years to go from this court to the appeals court to the Supreme Court again. And we'll just have to wait that out. In the meantime, there's talk with -- of certain legislators that are making changes and trying to make a constitutional -- maybe working out a compromise between all the parties to come up with something that's affordable for the clubs to pay and more -- and a constitutional tax that's just a -- more of a percentage-based tax, a counter attack [ph] and make it an occupational tax versus what they try to do in this last one and make it an actual fee. And so basically, I think we're just kind of in limbo, at least until the legislature's back in session in January and maybe even 3 years still. We just don't know where that's going to go at this point. We do believe that it's an unconstitutional tax and not a fee as they explained it in the ordinance.

Okay. And in with regards to the acquisitions, is there any particular market you guys are looking in?

I mean, we're looking everywhere, of course. I mean obviously, Texas is home base for us, so we're always looking to increase our presence in Texas and we also look then for a very, very [Audio Gap] are at New York. We'd love to get additional in New York, but basically any major metropolitan area with sports teams, we're looking right now. And we're starting to look maybe for a more West Coast presence as well, expanding on towards west, so...

Our next question comes from the line of Dan Smith, a private investor.

A few questions for you. First, on the hard case in New York, it seems like clubs all over the country keep losing these cases or end up settling. Can you talk about why we haven't just converted all the independent contractors over to employees and made the economics work?

Well, I mean no, not -- the other clubs have not -- around the country -- have not necessarily lost these cases. There's been a lot of settlement in these cases. But there haven't been very many of these cases actually tried. A lot of people are taking the easy route out and settling with their current base and [Audio Gap] putting in new contracts that Rick's, of course put in at all of our clubs except the New York location shortly after the lawsuit was filed here that basically stopped the class actions and force arbitration if an independent contractor decides that she should've -- should be an employee. It's our belief they are independent contractors. We treat them as such. They file their taxes based as such. It remains to be seen. We have not really considered settling this case. We want to see what happens as we move this case forward. And I really can't talk about a lot of the fundamentals, of course, because it's ongoing litigation, which makes it difficult in the public realm to discuss all of our beliefs. But at this time, we believe that we are right. We believe we will prevail. And at some point, they're -- we've got -- that may change, it make may not. We're watching. We're watching what other clubs are doing. We're watching what other -- what else is going on out there in the country. We've -- we're on the ACE national boards [ph], so very in tune with a lot of other club owners, talk to them a lot. And I say we're watching it, we'll just have to wait and see exactly where this goes. But I can tell you, the entertainer's not one of the employees. You've got a handful of old entertainers who do not entertain in the industry anymore who think they're going to get a big payday. These claimant's lawyers have contended [ph] of that. The only one that's gotten the big payday in any of these settlements that I've seen are the lawyers. Most of the cases -- the girls are getting tip credits, so they're getting free house fee credits, they're getting food and beverage certificates, they're getting very, very small amounts of cash. Nothing -- but -- and the lawyers are getting millions of dollars in fees. So this is just a typical class action deal where the attorneys don't care really what's best for the client there. They care how to get the biggest paycheck they can get, and we care about our entertainers. We've always taken very well -- good care of our entertainers. And that the majority that work for us right now are very happy and prefer the arrangement that we currently have with them. They don't want to see that arrangement changed, so that's -- it means we're not really interested in changing.

Okay, that makes sense. And then on the full text again, that $8 million liability's getting pretty big. Do we have any plans to set aside cash for it or are we just going to wait and see? And the second, can you talk about how it would play out? Would it put our competitors out of business if they went after them for these back taxes? Can't imagine they're setting aside the money.

We just really don't know. We don't really believe that the comptroller has any plan on how they would turn around and collect this tax. Obvious that they said all of a sudden we all owe all this money and nobody has it. They're going to have to work out some type of payment plans. There's going to be some type of settlement deal. If they just come in and take our clubs and play indigo [ph], seize a bunch of operating assets that they can't operate. So we don't see that happening. Putting a bunch of people out of work in this economy is not going to be a good idea for them. So -- and that's all assuming they win, which they've only won in one court so far on an issue that wasn't the main issue that we -- when we originally filed this case, the issue that we won on with the U.S. Constitutional issue -- this is state courts. We were in state courts. We've never expected the courts to even rule on the U.S. Constitution issue. That was there for the appeals if we lost in the state court level. And the strange thing happens, we won on the U.S. Supreme Court issues and the judge didn't make any rulings on the state court issues because he said they were mute because it was unconstitutional under the U.S. Constitution. So as it moves up through the courts through the years, and they, Texas Supreme Court came back and said well, maybe it's not unconstitutional on the course because you get this and this and this, and they really kind of stretched. And, of course, the U.S. Supreme Court didn't want to hear the case because there's still state court issues. So it will go back to the state courts, it will run back up and it'll go to the Texas Supreme Court. And then if for some chance, whichever party loses they will -- it will go back to the U.S. Supreme Court. And at that point, when there's no other issues then maybe the U.S. Supreme Court will hear the issues so -- and we're looking at 3 to 5 years. So we're not really setting that money aside because it doesn't make any sense to, at this point. We're using it. We're growing the company. If they come in and decide that we -- however they're going to try to collect it. They're going to certain things then we will deal with that time. There was legislation that was -- tried to be pushed through in the last session that would've basically fixed the ordinance and gotten rid of all taxes owed under the old deal. We expect to see bills put through the legislature again this session that would do those same things. That will try to fix the tax, take the constitutionality issues out of it, and basically eliminate all past liability and trade a occupational tax going forward. While we can't guarantee any of those things will happen, those are the talks and all we can do is basically wait -- play the wait and see game, but 3 to 5 years. If -- I think if they try to collect it yes, there's not very many operators that are going to have the money to pay all this tax at one time, for sure.

Okay. And then on the K you guys disclosed a $750,000 loan from an employee. It didn't seem like there's all that cheap [ph] of money from us paying a 10% plus option. Can you guys talk about the rationale on that?

Well, as I said, it was a 10% loan to our -- from our director of operations. We needed some cash for something at the time. He had it. We grabbed it from him, and it ties into the company marketing, so I was in favor of it at that point. 10% money's not cheap money, but it's not expensive money for us either. It's about in line with where we are on unsecured debt that we borrowed. So basically, that's the thought of it at the time.

Okay. And then just last one, real quick. In the Q just filed now, it says we received $6.2 million and settled financing from real estate and an aircraft. Does that mean we bought them from the same person?

No. There were no [indiscernible]. The aircraft was bought from Cessna.

Our next question comes from the line of Harry Burns, a private investor.

Yes, I -- question's kind of like a -- maybe a philosophical question, Eric, for you, both wearing all your hats in terms of President, board member, but also as a significant shareholder. I've been a shareholder for -- since probably around 2007. And it's -- obviously it's frustrating to all of us in terms of sometimes seeing the growth that we have and how the company's doing and yet the multiples on the stock, it's -- seems like there's much less than any type of comparable companies in our industry. And I was wondering is -- just in terms of thought of -- we've been going through this strategy, obviously, of generating increasing cash flows through organic growth and acquisitions. We're buying more earnings and yet obviously, you get more earnings, you would've -- you would hope to have increased stock price, looking at it from an owner's standpoint, right? Yet we're not, we're not getting that. So we haven't at this point. And so the question, I guess is, is that has there been any thought to maybe saying, "Well, if we're not getting as much of a pop in terms of, from an owner's standpoint, from buying, essentially buying more earnings, would we consider taking some of our increasing cash flow and just paying it out in terms of starting a dividend?" And maybe individual owners can do better with the money in terms of that, or maybe we attract a different type of investor. I mean we're getting such nice cash flow, we certainly have -- we could cover certain things. I just wonder in terms of if that's been broached at all, and again I know you -- like I say, you have a management hat and a board hat, but obviously you're a significant shareholder yourself.

Well, the way I look at it, I'm not keen on double taxation, #1. At the end of this year, that -- the dividend tax benefit goes away, unless Congress acts. I'm not holding my breath, I hope you aren't, to see what happens there. And second, we're a growth company. We need our capital to grow. We have significant amount of 14% debt that we can do. And when our stock is cheap, we buy it back, which basically dividends tax-free to all of our existing shareholders a larger percentage of the company. And I think those are the best uses for our cash right now. Continue to grow, reduce high interest debt, and at opportune times, make purchases of the company's stock back. A dividend, I don't think, is really the answer in returning -- and the best way to return cash back to our shareholders at this point. I'm not saying it will never be. I'm just saying that this time, I just don't think it's the best move.

Okay. And lastly, I'm sorry. Did you have any -- I appreciate in terms of the guidance for the quarter and revenues. For the fiscal year, would you have -- do you have a range in terms of thinking, in terms of income numbers, profits per share?

I think we're trying to stay without, of course without the one time -- I think we're going to stay pretty close to the -- to that $1.20 range. Probably see how this quarter goes. We'll have a much better idea of course, but we just really haven't may given out any guidance at this point. We're seeing what the economy does. We're seeing where things are going. We're happy with the way things are going, and we've got analysts that -- that's their expertise is to judge and guess how we're going to do going forward, and we're kind of just sticking with them right now.

Our next question comes from the line of Jim Lewis, a private investor.

Eric, we were excited about the grand opening here at Rick's DFW, at the south end of the airport. I just was wondering, what do you feel like the projected run rate on that facility will be now that the club has a liquor license?

Well, we're currently a little over $50,000, between about $50,000 and $60,000.

A week?

A week, yes. A week. Weekly. Our weekly run rate. I've always said it's a $5 million a year location which is just under $100,000 a week. And I believe that if we can get the popularity and the proper entertainers and that at the location and draw the locals from the north down there -- instead of having them go and hit 114, they can hit Northwest Highway over there, and they can come to the airport and figure [ph] our location's set [ph], that the 125 [ph] is probably a very, very reasonable number for that location on a weekly run rate.

[indiscernible] developing into a late or after-hours club like some of the other clubs in the DFW area?

Well, you mean -- on Friday and Saturday, we will stay open until 4:00 a.m. But keep in mind that location's in the city limits of Fort Worth, not the city limits of Dallas. And Dallas has different operating terms. In the city of Fort Worth, we can only be open until 2, Sunday through Thursday, and until 4 on Friday and Saturday.

Okay. Management seems to be a pretty good -- doing a very good job in that location. What are you going to do to deal with what could turn into perhaps a taxicab bounty on the taxi guys coming out of the DFW airport?

Well we're the closest to the hotels. Really, guys coming out of the airport in cabs, they typically go to their hotel first, and then go out. We don't get too many people -- because they're not going to show up with their luggage and whatnot. So that hasn't been a real issue as far as coming out of the airport. We are working with some of the rental car operators over there, trying to do some promotion with them. We do a lot of stuff with the -- obviously the hotels there in Center Point, hotels in the North Arlington area and of course in Irving there. And as well as Las Colinas. And we're seeing [indiscernible] there, as well as -- in the downtown Dallas area of course, we're doing a similar thing with the Silver City location. And it's been very, very good for us. As well as working with the limo drivers and those types of guys. Mainly they know, the difference is, all the clubs pay the same amount. None of the clubs are paying different amounts. I don't see a cab war starting in Dallas-Fort Worth. There's just no reason for it. And it's just not enough -- biggest part of your business that people are going to get into a big spend war on that like they did in Vegas. But it is definitely -- with the limo companies, you work with them. They want their guests to have a good time. That's their biggest concern is that if they're bringing their guests and their guests are having a good time. And when they leave their guests they're going to feel like they were taken advantage of. And that's one of the things that Rick's has as a reputation of taking care of our guests. And I think that will continue and that definitely helps us with the limo companies and the hotel companies and those type of things as far as recommending our location.

Any plans on the horizon for the Inwood [ph] property?

Not at this time. At this time, we have not -- we haven't purchased that property at this time. We've been in talks with them still. In fact, I need to get back with them shortly and make a plan on what we're actually going to do down there. We've just been so busy with everything else, we just haven't got around to it. And it's going to be a ground-up. It's an 18-to-24-month project for us. And so we haven't really put a lot of high pressure on it because we've been -- we have 2 locations in that market that we're currently building with the DFW location and the Silver City location, that we just haven't really pursued it at this point. I'm sure we will at some point in the future.

[Operator Instructions] It appears there are no other questions in the queue. I'd like to hand the call back over to management for closing comments.

Thank you, Doug, and thank you, everyone, for participating in the call. And I want to remind everyone again, once again, in the New York City area, to please visit Rick's Cabaret on West 33rd Street this afternoon, this evening for our Due Diligence event. You'll have a great time. Again, thanks very much.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.