Allan Priaulx – IR Officer Eric Langan – Chairman, CEO and President

Eric Beder – Brean, Murray David Mau – Montgomery Street Research David Kasorowski Heshy Dubrowski

Greetings, and welcome to the Rick’s Cabaret International Third Quarter 2012 Earnings 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. It is now my pleasure to introduce your host, Allan Priaulx. Thank you, Mr. Priaulx, you may begin.

Thanks, Doug. Good afternoon, everyone. I’m Allan Priaulx, the Investor Relations Officer for Rick’s Cabaret and I want to welcome you to our third quarter 2012 conference call and webcast. In a moment, I’ll turn the call over to Eric Langan and to Phil Marshall, our CFO, who will present the results from the quarter that ended June 30, 2012 and then we will answer any questions you might have. Before we begin, I need to call your attention to our Safe Harbor statement, which is included on slide two of our PowerPoint presentation, that’s available also on our website, www.ricksinvestor.com, and at the 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. In addition, I would like you to note 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 presentation. Finally I’d 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, again that’s www.ricksinvestor.com. A transcript of this call will be available later this week at ricksinvestor.com. For those of you in the New York area, please come to our popular Due Diligence Ball at Rick’s Cabaret today at 50 West 33rd Street from 6:00 P.M. till 8:00 P.M. We hope, you’ll come to the club, meet Eric and myself, perform your own due diligence on Rick’s Cabaret. You’ll have a great time. And now I’ll turn the call over to Eric Langan and Phil Marshall.

Thank you, Allan. We’ll begin the conference call with an overview redoing a summary of our third quarter talking about the chief drivers for the quarter, discussing the new acquisition announcements and joint venture that we’re entering into, talk about the outlook for the remainder of 2012 and then end the call with a question-and-answer session to answer any questions that you may have. Quick snapshot of the third quarter. Total revenue rose 15% to $23.9 million versus $20.8 million in the third quarter last year. Same-store sales rose 5% to a total of $21.3 million for the quarter. Third quarter 2012 income from continuing operations without our legal settlement and loss from the sale of assets would have been $2.2 million versus the $2.5 million in the third quarter and we’ll discuss later in the call what those one-time charges were. Adjusted EBITDA for the quarter $5.7 million without the legal settlement and the loss on the sale of assets versus $6 million last year. Third quarter ‘12 expenses include one-time costs of a $200,000 settlement of a lawsuit and the sale of assets of $32,000 and we also had some very high legal expenses that for the quarter that we’ll discuss later on as well. Exclusive of the legal settlement and the asset sale, operating margins were 19.1% versus 21.1% in the previous quarter. The majority of that decrease is from the increased legal fees and then other minor costs. Nine months snapshot, revenue rose 15% for the first nine months in line with this quarter to $71.4 million versus $62 million in 2011. Cash flow from operations for the first nine months were $14.1 million versus $13.8 million. So, while our earnings have not been as consistent, our cash flows definitely have, while they have to do with the GAAP accounting. EPS for the first nine months $0.63 versus $0.59 year-over-year. We have strong growth at our biggest club in Miami, Tootsie’s had actually a fantastic order, we hope to see that strength carry on through the remainder of the year. The Rick’s Cabaret at the DFW Airport is continuing to build, we got the liquor license there in February as most of you know and we’re seeing consistent build every single month since February. Club lines in Phili and Charlotte are both resuming growth and Onyx concept in those markets is starting to do very well again. Our debt update, to give you a current update, we have $43.5 million in debt, of which $27.5 million is real estate related. We reduced debt by $3.6 million in the quarter ended June 30, 2012. The Jaguars transaction will add $32 million in total debt, $10 million of which will be for real estate and we believe it will be more than covered by the added cash flow which we base the payments on about 60% of the EBITDA number versus the $7 million I am going to take in. The impact of the Jaguars deal, the Jaguars transaction had 11 clubs to our existing 24, should add immediately $15 million in revenue and $7 million in adjusted EBITDA. We have two additional locations that will be opened; one will be opened at closing the liquor license and all permits are already for the club, but they were in the process of opening it. We asked them to go ahead and hold off till we close on the transaction so we can open it originally as a Rick’s Cabaret. These should be quickly integrated as most of them are in Texas. Ten of the locations are in Texas and one is in Phoenix, Arizona. We have strong management strength and experiences in Texas and these locations should be very easy to manage from our DFW base. Exploring new concepts, another thing that we’re looking at right now is because we have such great cash flow and our cash has been building up on our balance sheet, we’ve had a lot of call from investors to put that cash to work, so we started looking at what I consider the breastaurant category, which were basically a Hooters type, Twin Peaks, Tilted Kilt. There’s several concepts going around right now. We’re going to look at opening two concept restaurant in the Dallas-Fort Worth market as well as some other nightclub concepts that aren’t necessarily adult entertainment-related and don’t require adult entertainment licenses. We plan to invest $4 million of our cash in the next 2 years into these locations, including building from the ground up for one of these locations on some property the company already owns. We will also start to look for acquisition candidates in this restaurant niche as we increase our expertise and ability to operate these locations. We’re bringing on some new management talent that has experience with this concept and we look forward to introducing you to that management team as time progresses. Our four growth strategy, we’re going to focus on the integration of the Jaguars. We’re going to continue our emphasis on organic growth and cash generation. We believe free cash flow is the most important measure of how successful we’re operating our businesses. We’re going to continue to explore acquisitions that are accretive to profit and shareholder value. The Los Angeles joint venture will be operated by our joint venture partner. They have 19 other locations around the country and one existing location in LA at this time. The new location will have full liquor and topless entertainment and it will be one of the only locations that serves liquor in LA County that’s not located in the downtown LA area. We’re going to continue to look for joint venture partners with the right groups to enter markets that we don’t currently serve or that we believe that a joint venture will give us strength in that market. Our outlook for the rest of the year and going forward is going to be focused on generating positive cash flow. Our goal for the next 3 years will be to achieve a 30% growth rate, and while we’ve had trouble in the past achieving this growth rate due to the fact that acquisitions are sometimes unable to be closed when we think – and we’ve invested our time in those acquisitions, we believe that with the restaurant concept and the nightclub concepts that we’re looking at that we’ll be able to easily achieve that goal by branching into those markets and opening up new locations in those markets when we’re unable to find the proper acquisitions. We’re also going to be reviewing the best use of our $60 million plus in real estate that we currently own to maximize income potential in that, including billboard leases with billboard companies, developing any of their property that’s undeveloped as we are with one of our breastaurant concepts where we own 4 acres of raw land that’s actually a parking – overflow parking lot for one of our nightclubs by building a restaurant in there. We’re still going to use the parking for overflow parking for our nightclub and generate additional revenue from that property. We remain highly confident in our management and our business model on a go-forward basis and we’ll really be focused on growth over the next three years. We believe that things are turning around, the economy is steady enough for us to take these risks and move forward, and our cash flow is strong enough that we’re not concerned with any of that. Our debt is very manageable. So on a go-forward basis, we’re ready to resume our growth patterns. At this time, that’ll end the formal presentation of the call and I will take any questions that anyone may have at this time.

Thank you. (Operator Instructions) Our first question comes from the line of Eric Beder from Brean, Murray. Please proceed with your question. Eric Beder – Brean, Murray: Good afternoon. Congratulations on the deal and a solid quarter.

Thank you. We had a lot of extra legal expense in this quarter with the acquisition. We’ve been working on this acquisition for several months and we also – I really wanted to try to wrap up all, what I call, non-insured lawsuits, basically any lawsuits that the company is paying for in this quarter. Since we are wrapping up – the discovery on the New York case is now complete. And so we think the expenses in that New York case will go down a little bit on a go-forward basis. We got some summary judgment motions and some other stuff and then we’ll just be awaiting trial. So those fees should go down. So we’re really trying to get any non-insured lawsuits under deal. We settled one of the text messaging cases in this quarter and the other text messaging case, that’s a class action, so it’s being submitted to the judge by the end of this month for approval and it will be settled on similar terms to the one we settled, which was pretty negligible from a cash point or – expense point for the company, so... Eric Beder – Brean, Murray: Okay. So this acquisition, when is it supposed to close?

Well, we plan to close sometime between August 31 and the end of September. We’re going to do everything in our power to close on August 31. We want to open the new Lubbock location on that day, on August 31. And I believe that most of the clubs – we should have all the license and everything back on the majority of the transaction. We may have to close on a huge portion of the transaction and actually close certain parts of it into an escrow, so to speak, to get it all done if we don’t have a permit back and then we may get the permit back two or three days later and then we’ll close that part of it, until the entire acquisition is closed. Eric Beder – Brean, Murray: So we should expect the $50 million and the $7 million to be basically next year’s fiscal?

I believe so. I mean, we may get a month of it or – it’s basically September, we may get – or part of it in September, but yeah, the majority of it will definitely be closed, the entire transaction should definitely closed by September 30. Eric Beder – Brean, Murray: Okay. If I look at this, where are the opportunities when you look at these clubs because obviously you already have many clubs in these areas to get further synergies in terms of liquor and other things to drive these numbers even higher?

Yes, we plan that. What we also plan as well is the two new locations where basically the big bonus in the transaction is that in the two markets, Lubbock and Odessa the Jaguars Clubs are the only clubs operating and their BYOB Clubs. By putting liquor licenses in the other two buildings that they have and opening those up as liquor clubs, we believe it will be two different customer basis and we’ll share a small percentage maybe 20% or 30% of the customer base will be shared. But basically creating another market and additional income and EBITDA, revenue and EBITDA from those two new clubs which will increase the $15 million to what we hope somewhere between $19 million and $20 million and the EBITDA from $7 million to as much as $9 million. Eric Beder – Brean, Murray: Okay. How is the New York club doing?

The New York club is doing fantastic, nice numbers in New York. I was at the club last night, it was very, very busy last night, and it’s been very strong. Our major clubs are doing very well, some of our smaller market clubs are having their July August slowdown so which is typical. However we’re staying steady with our same-store sales growth of about 5%. Eric Beder – Brean, Murray: When you look at the comp, is it a function of the high rollers coming in, is it a function of bread and butter or is it everything working out really well?

Actually it’s more volume these days. In the summer time, we’ve noticed that some of the bigger spenders are slowing down or I think our same-store sales growth would be even higher. We’ll see as we move into daylight savings as we get into September, October. We’re seeing them return to a more typical summer environment last year and of course this year, which is the two previous years we didn’t really see the slowdown in the summer, because the economy was kind of crazy; people were not really following patterns. But it appears to me, especially this year that we’re seeing that typical summer pattern of business and I think in the long run that’s going to be a really good thing because what happened is we slowed down a little bit in the summer and then around mid-September business really starts to pick up and then we shoot right through May. Eric Beder – Brean, Murray: I think this is your first Phoenix club, is that a market you want to expand in or is that just part of the deal? How do you think about that market and let’s do LA too because you’re doing the joint venture there.

We’ve always wanted to get to the West Coast. We’ve got East Coast locations, we’ve always wanted to get to the West Coast. We want to become a more nationwide, so as business travelers travel they know our brands, they know our locations and I think both these locations are a step in that direction, so... Eric Beder – Brean, Murray: I know you probably can’t talk about this, but the ones with that lawsuit, how should we think about that?

Yeah. We have no comment on at this time other than to say that we do carry insurance and the insurance company is currently waiting for us to be served, we have not been served yet, we’re waiting for service and then we’ll turn it over to the insurance company and their lawyers and they’ll do what they do. Eric Beder – Brean, Murray: Okay, great, congratulations.

Thank you.

Our next question comes from the line of David Mau from Montgomery Street Research. Please proceed with your question. David Mau – Montgomery Street Research: Hi Eric and Phil congratulations on the acquisition.

Thanks, sir. David Mau – Montgomery Street Research: I have a couple of qualitative questions about the new concepts. I am curious as to is there anything out there today that you are looking to directly compete against or I mean is this going to be maybe like a Hooters style of operation or..?

We try to consider more of an upscale Hooters-type locations. Our menu will be a little different of course than Hooters, we’re not just going to be chicken wings and beer, we’re going to have full service bars in these locations. We’re going to use the eating times where most restaurants have downtime from 10 A.M. to 2 A.M. so your liquor license allow you to serve liquor till 2 A.M. except to try to serve food to people at 1 o’clock or 2 o’clock in the morning doesn’t make a lot of sense so. So we’re doing outdoor patio type concepts. We’re going to bringing live bands from 10 P.M. to 2 A.M. and basically be more of a night club bar type deal in the evening times as well as a restaurant from lunch time on. So, we’ll get our full service, liquor license service hour from basically 11 o’clock in the morning, 10.30, 11 o’clock in the morning all the way through 2 P.M. at these locations. David Mau – Montgomery Street Research: Okay. As I understand, you’re planning to open four of these types of operations two in the Dallas-Fort Worth area?

We’re going to open two immediately, we’re opening two immediately, we hope to have the first location in Dallas, we’re hoping to have opened sometime in October. We’re waiting for building permits to come back once the building permits come back in and then we’ll have a more definite timeframe when those locations will open. Our total investment in that location is going to be about $0.5 million because we already own the building through the Silver City acquisition. The other location we hope to open in January could be as late as March, so sometimes during January and March. It is a ground up construction, we’re building the building, we’re developing and designing the entire concept for that particular location and that’s something that we hope as we create the success there and put together the plan for it that we’ll be able to maybe franchise those types of locations in the future. David Mau – Montgomery Street Research: Okay. And the other two that you’re talking about, is that a different concept?

Well, the one will be – the one concept we’re probably not going to really even try till next summer, we want to get the bombshell location open, going and then the stuff that’s right next to that will start working on that concept which is basically just a nightclub concept. And then we have another concept that we’re doing in Downtown, Fort Worth that is going to be basically a restaurant nightclub concept not the upper patio type concept, but an actual indoor nightclub concept, we’ll bring live DJ’s in and more of a tapas restaurant, so there will be a lot of appetizers, tapas, stuff like that, that will do basically for happy hour and running into the nightclubs – nightclub into the evening. David Mau – Montgomery Street Research: Okay, very good. And then I have some questions about the new Los Angeles joint venture. I’m wondering, what are your expectations out there if you can talk about that?

Yeah, I mean, I’ve talked with Jerry a lot on the deal. We believe the locations probably will do around 60,000 at least, or about $3 million a year. Our investments in the location currently is about $600,000, if it does a $3 million, $60,000 a week, we should probably at a 50% ownership in the property – or in the building – in the business, we’ll probably make our money back cash-on-cash return of a 100% in about 12 to 18 months. It just depends on the ramp up period – the ramp period is immediate. We’re going to do some grand opening stuff. Obviously, we’re going to bring some girls from some of our clubs out; he’s going to bring girls from some of his clubs out. So we have a pool now with the Jaguars acquisition of about 54 locations around the country to pull girls from when we open a new location and let girls know that a new location is opening. So the grand opening should be bigger and they should be much easier to start. The ramp up period should be lower and so I think we’ll get our return much quicker. David Mau – Montgomery Street Research: And you haven’t talked about the location yet, have you?

The actual location? No. All we have announced so far is it is in LA County and we want to wait till we have basically every permit and everything, all constructions included, all inspections done before we announce the location so that we don’t run into any political problems or anything like that. We want to be ready to go day one and then we’ll let everybody know where it’s at and what’s going on, but it’s a fantastic very high traffic location. David Mau – Montgomery Street Research: Yes. I mean LA is a very crowded area of course.

Yes, it is. David Mau – Montgomery Street Research: And so I am curious as to what are the big things that may draw people, is it near the airport for instance or is it near where the new STAPLES Center?

Yes. I am sorry, Dave we just – based on our agreements with our partners... David Mau – Montgomery Street Research: Okay.

We’re not allowed to really discuss that location as far as the location of the location. David Mau – Montgomery Street Research: Okay, well, very good. I appreciate what you’ve given me so far.

No problem. David Mau – Montgomery Street Research: And that should do it for me.

All right. Thank you very much. David Mau – Montgomery Street Research: Thank you.

(Operator Instructions) Our next question comes from the line of David Kasorowski, a private investor. Please proceed with your question.

Hi, folks. Thanks for taking my question. Good job on the quarter. As far as the new concepts that you’re talking about, do you think there is opportunity for cross-branding along with your Rick’s core product?

Well, with the bombshells, obviously we’re building the Silver City building. It’s kind of hard to explain Silver City’s property, but it’s an L-shaped building and the L runs down, the long part of the L runs down the freeway. So in the front corner at the top of the L basically is where we’re going to put the Bombshells location and the Silver City is actually in the L in the back of the building, not actually facing the freeway but facing towards Carpenter Freeway because we’re kind of on a little V right there between the two freeways and we have about 6 acres there that we own. And so what we’re hoping is the Bombshells will draw much – will draw lots of people and basically in the men’s restroom we’ll be able to advertise the Silver City location, of course, and in any of our other Rick’s location that we want to advertise, as well as on the bottom of all the receipts we’ll print out a little deal on the bottom receipts that let’s everyone know with their receipt that if they present their receipt at the door they can get free cover charge at Silver City. So we think we’ll able do a lot of cross promotion in that sense, as well as marketing in the parking lot with free passes and different things. It really depends on – a lot of these breastaurants have become very family-oriented and family-friendly and we intend to follow that same model. So while we want to cross promote our other clubs, we at the same time don’t want to offend any potential customers. So we’ll have to watch that. There’ll be a delicate balance that we’ll have to figure out as we progress. And, of course, the live band – the live band can – once it gets to late evening, of course, the live bands will – we can have promotions in between band sets and whatnot of the clubs and maybe run some ads, some high-end classy ads on the televisions that basically promote our other locations.

Okay.

We’ll definitely believe there will be some cross promotion there. And then we can advertise. The thing is, a lot of the gentlemen’s clubs we can’t advertise on certain radio stations in certain markets and certain billboards. However, the restaurant concepts we’ll be able to advertise in all of those venues. And – so we can draw people to the property through those other marketing venues that we can actually reach and then turnaround and teach that customer that our other location is there as well. So there’ll definitely be some positives from that standpoint.

Okay. That sounds good. And as far as looking into the new concepts and also you mentioned earlier in the call about expansion nationwide, would you say that those are two different agendas that you’re looking at or do you think you would be doing them together or what’s your overall strategy in terms of that?

I think our overall strategy is 30% growth, and we’re going to be focused and concentrating on 30% growth. We want to grow this company at a growth rate of at least 30% on a go-forward basis for the next 3 years, so that basically we take us from just under $100 million we’re at today close to $250 million by the end of 2015. And – so we’re going to be very focused on that, and in that sense, if we can find adult clubs that we can operate because we love the margins and what we do, we’re going to do those locations first. And when we can’t find locations or when the opportunity arrives and we have – and the cash is there, we’re going to continue to look for what I call very high traffic in select breastaurant-type locations, because everyone knows the restaurant, it’s location, location, location. 90% of your success is from the traffic you have and then, of course, your food and service has to be great as well, but we just consider that a given with the Rick’s format that we’re going to carryover into those restaurants. So really it’s really about the location. And – so as we find the proper location, the right locations, high traffic locations, that’s where we’re going to be looking for.

Okay. And can you go into a little bit more detail about this financing on the Jaguars deal?

Sure. I mean it’s seller financing, so basically what we did is we looked at the cash flow from the businesses and we worked out a deal where we put up some cash down, so we have some skin in the game, and the sellers basically – you know, about – keeping about 60% of its cash flow for the next 12 years is about how it works out right now. And then our kids are bonus in the deal, as I like to call it. I call it the kids on the deal is that we have two new locations that aren’t generating any EBITDA at this point that are our bonus on the deal. So we open those locations up there. They do very successful, and we – that’s our added bonus on the transaction. But basically, we’re going to operate his clubs for – and keep 40% of the EBITDA for the next 12 years and let him keep 60% of it. And after we do that for 12 years, we get to keep 100%.

All right.

And that includes, of course, buying all the real estate because the real estate’s included in that total payment number.

All right. Okay, great. Thank you.

Yeah.

Our next question comes from the line of Heshy Dubrowski, a private investor. Please with your question.

Hi. Thanks for taking my questions. It’s very basic and very simple, with all the uncertainties going forward in the economy where there’s a fiscal cliff, taxes, election. The company, basically, your company high-end clubs, which is a novelty not a necessity and you sound very confident on this call. How are you so confident that consumer confidence will be strong over the next quarter, at least for me, for example, to stay – and many other investors to stay in this company? You got a great quarter, this past quarter. But there’s so many more uncertainties coming forward in the next quarter. So where does this confidence come from because people don’t go out and pay, especially at the high-end nightclubs when their cash flow is hurt.

Well, if you look at our quarter, you’ll see that our percentage of alcoholic beverage sales increased as a percentage of total revenues which means our higher-end clubs are still doing very, very well. We’ve raised some prices over the last six months, slowly, in certain markets and they stuck. We’ve been able to keep those price increases and not had any real decline or any problems or complaints from customers. So, we can always discount again. And what we’ve learned in 2008, 2009, mainly 2009 is that when the economy gets really bad, we only do bad for a short period of time because we have to switch modes from catering to the high-end customer to catering to the masses. I think we’ve learned that very well and we’ve learned at this point to cater not to only the masses but to cater to the high-end customer at the same time, and which is why we’ve seen very steady cash flow. If you look at our cash flow year-over-year, it was $5.5 million year-over-year in both quarters. We’re being very steady on cash flow. Our cash flow for this year has actually increased to $14.1 million, so we’ve had more cash flow this year than last year.

And you’re confident that the growth, like you mentioned to the previous investor, 30% will continue even with the – because I believe as an economist going forward the next three months of this next quarter will be even harder for consumer confidence because all the uncertainties are coming more now than it was before and you’re still confident of 30% growth.

And we tend to be there. I mean we tend to slowdown in this next quarter. The June, July, August quarters – or I mean the quarter ending June 30 is a little slower than a quarter before. This next quarter is our slowest quarter of the year, typically. And then October, November, December is a good quarter. We start increasing again, have a big quarter, October. And then January, February, March is our blowout quarter. And then we slowdown a little bit, but we’re still year-over-year on our same-store sales up 5% for the nine months.

Okay. So final question, do you see as possible that you might raise your view of things as things continue to go strong or just stay the way it is now, a lowball or maybe possibly raise (inaudible)?

I mean obviously, the better the economy does the better we’ll do, our margins will increase more as the economy does better. We get the masses – we can keep the masses in our club which we’re doing very well at and we keep the big spenders in our club at the same time and that’s of course always we want to make the most amount of money.

All right. Thank you very much.

There are no further questions in the queue. I’d like to hand the call back over to management for closing comments.

All right. We’d like to thank everybody for being on the call. And I – we invite you to come down to the club we’ll be there from 6 P.M. to 8 P.M. this evening and you can talk to anyone and that you do some due diligence at the club. All right, and I’ll turn the call over to Allan to see if he has any questions...

Thank you very much and everyone knows how to reach me. If you need me for any further questions at ir@ricks.com and thank you all for attending this conference call.

Ladies and gentlemen, this does conclude today’s conference call and webcast. You may disconnect your lines at this time and have a wonderful day.