Greetings and welcome to the RCI Hospitality Holdings 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 Gary Fishman, who handles Investor Relations for RCI.

Thank you, John. For those of you listening on the phone, you can find our presentation on the RCI website. Click Company and Investor Information under the RCI logo. That will take you to the Company & Investor Information page. Scroll down and you'll find all the necessary links. Please turn to Page 2 of our presentation. I want to remind everybody of our safe harbor statement that posted at the beginning of our conference call presentation. It reminds you that you may hear or see forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those currently anticipated and we disclaim any obligation to update information disclosed in this call as a result of developments that occur afterward. Please turn to Page 3. I also direct you to the explanation of non-GAAP measurements that we use. And I'd like to invite everyone listening in the New York City area to join us tonight at 6:00 to meet management at Rick's Cabaret New York, Manhattan's number one gentleman's club. You can also tour it's sister club, Hoops Cabaret and Sports Bar next door. It's located at 50 West 33rd Street between Fifth Avenue and Broadway, around the corner from the Empire State Building. If you haven't RSVP-ed ask for Eric Langan or me at the door. Now, I'm pleased to introduce Eric Langan, President and CEO of RCI Hospitality. Eric?

Thanks, Gary. Thanks for joining us today. I'm here with our CFO, Bradley Chhay. After the market closed, we reported our fourth quarter and year-end numbers. We had another strong performance with record fourth quarter revenues, fiscal year revenues and cash generation. As always, we thank our loyal customers, dedicated team members and steadfast investors for their support. We are continuing to work on all aspects of executing our growth plan for fiscal 2022. At the end of the quarter, we closed on our $99 million bank real estate refinancing at better rates and terms. In October and November, we closed on our big acquisition of 11 clubs in six states and The Mansion in Newburgh, New York. Last week, we opened our 11th Bombshells in Arlington, Texas in the Dallas market and our first franchise is close to opening it's first location in San Antonio. Brad and I will talk more about the growth plans later. Now, here's Bradley to review the financials.

Thanks, Eric and good afternoon to all those who are listening. During the fourth quarter, we reported total revenues of $54.9 million. That is up 91% from a year ago quarter but also up 22% from the pre-pandemic fourth quarter in fiscal 2019. GAAP EPS was $0.26 and non-GAAP EPS was $1.58. GAAP EPS was impacted by a noncash impairment charge of $11.9 million. Most clubs rebounded significantly through the year on a favorable trajectory. However, for the full year contribution, from the clubs in certain locations which had a more stringent COVID-19 restriction, did not recover as fast as previously projected. Net cash from operating activities was $9.8 million and free cash flow was $8.5 million for the fourth quarter. Net income was $2.3 million and adjusted EBITDA was $17.6 million. For the full year fiscal 2021, we reported total revenues of $195.3 million. That is up 48% from a year ago quarter but also up 8% from fiscal 2019. GAAP EPS was $3.37 and non-GAAP EPS was $4.08. GAAP EPS was impacted by a noncash impairment charge of $13.6 million for the full year. The net cash from operating activities was $42 million and the free cash flow was $36.1 million. We ended the year with $35.7 million in cash and cash equivalent. Now, if you'll turn to Page 5. Nightclubs segment revenues, operating margin and income from operations were all up significantly year-over-year. As a result, revenue rose to $40.3 million which is great for our seasonally slower fourth quarter. GAAP operating margin was 16.1% and non-GAAP operating margin was a whopping 43.2%. GAAP income from operations increased to $6.5 million and non-GAAP was $17.4 million. Our Florida clubs did particularly well and our high-margin service revenues, mainly from our Northern states clubs, grew sequentially year-over-year. Looking at results compared to pre-COVID fourth quarter of 2019, revenues were up 12%. Income from operations increased 4% on a GAAP basis and 58% on a non-GAAP basis which excludes impairments. Now, if you'll please turn to Page 6. Bombshells had a great quarter with revenues of $14.4 million, GAAP operating margin of 20.8% and income from operations of $3 million. Revenues were below the third quarter and the unusually strong year ago fourth quarter. But they were 11% of the first and second quarters of this fiscal year 2021 and 68% higher on 25% more units compared to pre-COVID fourth quarter of 2019. Operating margin was lower sequentially; there was less in the way of operating leverage. During the fourth quarter, we experienced and were heavily impacted by food and labor inflation costs. We also had preopening expenses related to Bombshells in Arlington which opened earlier this month. Please turn to Page 7. Still, fiscal year 2021 was a record year for Bombshells. I'd like to spend a moment reviewing our progress. Now over the last five years, we've grown from 5 to 10 locations. We've seen a 200% increase in revenues and an increase of 7 percentage points in GAAP operating margin. Our fiscal '21 average unit volume compares very nicely to some of the biggest and best brands in the business. We believe there are several factors that are driving the success: number one, our Bombshells team, led by restaurant pro, David Simmons. Number two, we believe that Bombshells is a great concept and we've done a really fine job at refining it. And lastly, our site selection has resulted in better locations and higher average sales per location. Now, please turn to Page 8 to a review and our fourth quarter consolidated statement of operations. Sales were higher, expenses were lower. There's a CFO analysis right there. Improvement in the margins of cost of goods sold, salaries and wages and SG&A were all attributable to higher Nightclub revenues during the quarter. In part, that's due to high-margin service revenues, growing from 23% of the total and a year ago quarter to 31% this year. Certain costs overall in general, such as insurance and legal, were significantly lower. As a result, GAAP operating margin was 6.6% and non-GAAP operating margin was 28.4%. Our interest expense also declined as a percentage of revenue. I'll talk about more of this later when I get to the debt analysis slides. Now, if you'll please turn to Page 9. As I also mentioned earlier, we ended the quarter with $35.7 million of cash on hand, while our total debt fell $2.4 million to a two-year low of $125.2 million. The debt decline reflected scheduled paydowns and a $1.2 million paydown related to a sole property. Free cash flow was $8.5 million for the quarter and a record $36.1 million for the year. As you know, we pay a lot of bills in the fourth quarter. This affects our net cash from operating activities and our free cash flow for the period. While many of our locations bounce back over the course of fiscal 2021, they were not open to their full capacity as they are now. Adjusted EBITDA for the quarter was $17.6 million and $60.2 million for the year. Now back to the debt; the next three slides show our debt as a result of the September refinance and then the new debt that we took on related to our October and November acquisitions. Let's start with our 9/30/21 debt pie chart on Page 10. Real estate debt increased $18.6 million from June 30 to $102.3 million September 30. Then using the cash that we pulled out from our real estate, we paid down $7 million in higher-rate seller financing and $12.4 million in higher-rate unsecured interest debt. Please turn to Page 11 to review the 9/30 debt manageability. Our occupancy costs continue to trend in the right direction and are well below our target range of 8% to 12%. As a percentage of revenue, they were 6% in the fourth quarter compared to 11.8% in the year ago quarter and 7.6% in the fourth quarter of 2019. This was primarily due to higher sales in the current quarter and the decline in interest expense. We've continued to reduce our weighted average interest rate. Over the last five years, it has come down from 7.23% in the fourth quarter of fiscal 2016 to 5.64% in the fourth quarter of this fiscal year. Our 9/30 weighted average interest rate was 104 basis points lower than the 6/30, primarily due to refinancing and paying down the higher-rate interest debt. As we've discussed, our periodic refinancings, like the one we just did in September, enables us to convert higher-rate seller financing and other unsecured financing used in the club acquisitions into lower-rate commercial real estate bank debt. Our periodic refinancing also enables us to smooth out our debt maturity schedule. In this case, the September refi enabled us to eliminate $4 million in balloon payments due in fiscal year 2022. Refi also enabled us to reduce principal amortization by more than $2 million annually. Now, if you'll please turn to Page 12 to look at our 11/30 debt pie chart. Now going into October and November, we're able to take on $39.2 million of new debt. This was in the form of seller financing and unsecured debt that was used to make our recent acquisition of our clubs and real estate. I'd also like to note on this slide that we have reached the end of our SBA loan through forgiveness and have a small amount of repayment left. We are also nearing the end of the Texas Comptroller Settlement. Now, let me turn over -- the call back over to Eric and thank you.

Thanks, Bradley. If you'll turn to Slide 13. We've continued to talk with new investors, so I'd like to review our capital allocation strategy. Our goal is to drive shareholder value by increasing free cash flow per share 10% to 15% on a compound annual basis. Our strategy is similar to those outlined in the book, The Outsiders by William Thorndike. He studied companies that focused on generating cash per share and allocating that cash effectively to generate more cash. We have been applying these strategies since fiscal 2016 with three different actions, subject, of course, to whether there's other strategic rationale to do otherwise. One is mergers and acquisitions, specifically buying the right clubs in the right markets. We like to buy good, solid, cash-flowing clubs at 3x to 5x adjusted EBITDA, use some seller financing and acquire the real estate at market value. Another strategy is using cash to grow organically, specifically expanding Bombshells to develop critical mass, market awareness and sell franchises. Our goal in both M&A and organic growth is to generate annual cash-on-cash returns of at least 25% to 33%. The third action is buying back shares when the yield on our free cash flow per share is more than 10%. Currently, we believe the yield is within our buy range. However, we are seeing some great opportunities to expand Bombshells as well as additional club purchases with opportunities to earn cash-on-cash returns of 25% to 50%. We have been letting our cash build. Once cash gets to a point beyond what we feel we can deploy quickly at these great returns, our plan is to use excess cash to buy stock in the open market if the stock price continues to stay in the current range of $60 to $65 per share. And we would be more aggressive the better the yield becomes, under $60 per share. For our growth initiatives, please turn to Page 14. Here is an update on our current growth initiatives. We have a lot going on. We are making important progress with the 11 clubs that we acquired in October. This is a COVID-rebuilding effort similar to what we did with our own clubs in fiscal '20 in the first half of fiscal '21. The new clubs are back up to about 80% of their pre-COVID run rate. We are continuing to staff them with the right people. As this happens, we expect to make continued progress toward the next -- over the next two quarters. Our other acquisition, The Mansion, is doing well and our new Bombshells in Arlington is off to a terrific start with a record single-week sales for Bombshells. Our first franchise location in San Antonio should open in the March quarter which is our second fiscal quarter. Also during that quarter, we expect to reopen our remodeled club in Louisiana and the club we are reformatting and rebranding in San Antonio. We are in the process of obtaining our credit card processor or admireme.com. The site is also scheduled for beta testing in the second quarter. We have two access properties under contract for sale. And as we announced last week, we are under contract for purchasing land for two new Bombshells in Dallas. This would give us four locations in that market. We are also under contract for purchasing land in Stafford, Texas which would give us nine Bombshells in the Houston market. As always, we continue to talk to owners about acquiring their clubs and we continue to look for new Bombshells locations and franchisees. Sales for our first quarter are doing well. With our acquisitions, we should have another great quarter. As always, a big thanks goes out to our teams, nightclubs, Bombshells and corporate for all your hard work and dedication. Thank you, all, and Merry Christmas. With that, let's open the lines for questions, operator.

Thank you. [Operator Instructions] And the first question is coming from Anthony Lebiedzinski from Sidoti & Company. Your line is live.

Yes, good afternoon, and thank you for taking the questions. Certainly, a terrific quarter and a terrific year as well. So just looking at the segment margins, obviously, very strong performance for both the quarter and the year. So as we think about the rise in food costs and labor costs, how should we think about segment operating margins going forward?

I mean I think we've been able to pass most of those costs on. Obviously, if the costs continue to rise and we're unable to pass those on, those margins could get squeezed a little bit. We had some considerable preopening costs, obviously, for the Bombshells as we will again this quarter. But the Arlington store will also have about just under four weeks of revenue as well. So that will help offset some of that. And so I think the Bombshells margins will probably stay within our range of 18% to 22% which has been our target. As far as the Nightclubs go, for the quarter, I think we're seeing increase -- we continue to see increase in our service revenues in our Northern markets as people come back out. We will have to see, obviously, how this new variant affects that, if it does or not. The new mask mandates in New York could become a factor as well. We're going to be watching that. They just started Monday, so there's no real -- no way to judge anything at this point on that. But other than that, everything else, I think we're very strong in our other markets. And I think with -- the club margins will hold or expand from where they're currently at.

Got it, okay. And then, as far as just a follow-up on that. As far as the preopening costs, do you have those numbers, what that was for the quarter? And what should we expect for the first fiscal quarter for preopening?

No, we don't really have it broken down because basically, we train at our existing locations. So what I can tell you is our labor costs are up in the quarter but a lot of that labor cost is training. It's not necessarily cost inflation. Some of it is cost inflation but the cost inflation, like I said, we've been able to pass most of that on in pricing increases. And so I'm not too worried about margins being hit by that at this point. And you'll see some of our existing stores, I think their margins will return to more normal labor margins as we move forward as all the employees are now employed in the new store in Arlington. So all the training for -- that we've been doing for the last six months, is -- that's been basically spread around different stores in the company, will go away.

Understood. And then you mentioned that the Q1 to date, the trends are pretty good. So is that just mostly traffic-driven? Or are you seeing also increases in average ticket as well?

We're seeing some more -- we're seeing higher VIP spend which is why I said I think we'll continue to see the service revenues as a percentage continue to grow a little bit. But -- I mean right now, we're just -- it's very solid. I don't -- what I don't really have is -- we have 12 new locations and I don't really have the full breakdown on those locations at this time. I've been watching the numbers on a much more macro level. But as we get to the end of this quarter and in the next Q, we'll have a better idea of more of the micro on those locations. But those locations are, like I said, more of a COVID rebuild set right now. Some of the locations just barely opened in October to, be fully opened. They've all had restricted hours. The previous owners didn't necessarily open for all their normal business hours, so they had limited hours. So we're in the process of basically expanding those business hours, getting everything back open full-time, staffing the locations better. And I believe that we'll be on a -- I think we'll be back to 100% 2019 run rate probably by March, in a worst-case scenario, May. And then we'll start seeing what kind of growth we can get out of those locations.

Got it. Okay. Well, thank you and best of luck going forward.

All right, thank you.

Okay. The next question is coming from Adam Wyden from AW Capital. Your line is live.

Eric, can you hear me all right?

Yes.

Perfect. I just wanted to do a little bridging math. Anthony, I think, alluded to this. But the fourth fiscal quarter is a seasonally slower quarter and it was burdened by some preopening costs or whatnot. But I mean if I just take that quarter and I annualize it, I get to about $70 million of EBITDA and perhaps the run rate is maybe $75 million or $80 million when adjusted for seasonality. When I add Lowrie which was doing $14 million or $15 million kind of before you got them up and running, I'm seeing a business that's doing nearly $100 million of EBITDA and that's kind of before the new Bombshells locations. I mean look, I don't want to sound like a broken record, although I often do. With a market cap of $564 million and -- or maybe it's a little bit more with -- another $564 million and $100 million of EBITDA, I mean, you're trading cheaper than pretty much any restaurant or hospitality company out in the marketplace. I mean what are you guys doing to kind of narrow the gap on the cost of capital in terms of getting the market to see the value? I mean maybe buying back shares at these prices makes more sense than M&A. I mean obviously, at 3x EBITDA, maybe not. But I mean at 5.5x, whatever you want to call it, that's a pretty high bar.

Yes, I agree. And that's why I said I think we're well within our buying range right now. We're looking at all the opportunities we have. But you asked what are the things we're doing. We are going to the Noble conference in April. We're doing IRC in January. We're doing the Sidoti conference also in January. I'm looking at a possible conference maybe in March. So we're going to get out. We're going to keep telling the story. But the main thing we're going to do is continue to focus on building the free cash flow, getting that $100 million in EBITDA and then growing from there. I believe that we're a little off that run rate right now but I think that by March, like I said, between March and May, that's going to be our go-forward run rate with the Lowrie clubs coming on up to speed and starting to see the effects of what we do when we take over these locations and grow them typically 15% to 20%. I think we'll see that growth come into play. The new Bombshells in Arlington had a record week. It's a fantastic location. We're working on the Rowlett property. I just talked -- we had a development meeting this afternoon before this call. Looks like everything is going good to hopefully close on that property at the end of January, early February. And we'll be getting that one started. We've got all the stuff in on the Grapevine location. It's about a 42-day deal. I think it started -- the 42 days started December 6 for that process. So hopefully, that process is going. We'll get started on construction on that one shortly thereafter. And we're in the early stages of the new location in Houston as well. And I've also got multiple other properties that we've got LOIs out that we're working or we're negotiating on right now to continue to build the Bombshells. I want to get the eight locations that we've discussed in the past and get those eight locations under contract and get them all under construction and get them going. We're meeting with a couple of other franchisees and we're talking with a couple that we've been talking with and moving those forward down the line a little bit. And of course, our current franchisee is very excited to be hopefully opening in January, early February as well. They're trying to be open before Super Bowl. So I think that's achievable for them. We've -- they originally wanted to be open in December but we've kind of told them, look, we watched these things be built a million times. We figured they'd make about mid-January and that looks like where they're headed right now. So if they get it up, done by then, they should be able to open by February which will give us our first franchisee. And I think once that franchisee starts putting their results out, I think people are going to see the value of franchising Bombshells and we're going to end up with even more franchisees and we'll continue to grow the concept.

The franchise economics on Bombshells are great. Obviously, royalty revenue is 100% return on invested capital. But I mean, if you look at -- think in one of your decks before, you were showing the cash-on-cash returns on Bombshells. I mean on a levered basis, they're like 50% or 60%. So I mean it's kind of insane that we're still trading at 5.5x EBITDA when you got this segment with those return profile. And then, you've got Chipotle and all these things trading at 40x EBITDA and Wingstop at 100x EBITDA. I mean granted, Wingstop's franchised but Chipotle is all company-owned with leases, right? And you've got an owned real estate base with arguably better cash-on-cash returns. So look, obviously, you guys reported a great quarter. And look, it's -- with pre-COVID you were doing 50 EBITDA or whatever it was. Now you're exiting '21 with a double. No, it's super impressive. I mean look, I think any initiatives and efforts you can put on expanding your audience base and trying to get the appropriate cost of capital, I think, will be beneficial. Because, obviously, the company is executing and we're not getting, I guess, the appreciation in the public market. I mean it's almost a...

I think we'll get there. I mean this is -- we've got to keep putting the information out there. The market is, overall, a little weaker right now. I think people are a little afraid of this new variant at first but I think that fear is kind of going by as people aren't really getting that sick from it, it seems from the reports that I'm reading and it hasn't slowed down business at all. We've had a great week last week. And I think as we continue this week, it's going to be a great week for us as well. We run our weeks from the 1 to the 7, the 8 through the 14 and 15 through the 21. And so I think that as we see these weeks coming in through December, we'll have a very strong December which is going to lead us to a very strong quarter. And then going to January, February, March, I think it just keeps getting better. That's what we've been seeing. So, I think we'll continue to see that.

Yes. Well, then maybe my $100 million of EBITDA is getting a little bit light but...

Well, that's what I'm working for, like making the under me for a change [ph].

Oh my goodness, wouldn't that be nice. All right, guys, I have to jump off for a Zoom but keep up the good work. Thank you.

All right. Have a good one.

Okay. The next question is coming from Joe Gomes from Noble Capital Markets. Your line is live.

Hi guys, this is Joshua Zoepfel filling in for Joe Gomes. My first question is just based on the acquisition pipeline you guys are going on. I know you guys are just finalizing those 11 clubs. But just how is it looking? And I noticed that there's like four new exposure markets that you guys are dealing with? Is it kind of like a trend you're seeing sort of a new strategy for those acquisitions?

Well, I think we've gotten more aggressive. In the past, we were paying 3x or less for most of our acquisitions. The current acquisition that we just did was a 5x EBITDA acquisition for some great locations, like you said, four new markets and we dominate in those markets with those locations. And basically some of them, they are the only locations in those markets. So we're very excited about that. It's woken up some other owners that have some quality clubs that said, "I didn't know you pay me 5x. I thought you're only paying 3x. I said, "well, we'll look at your stuff. If you -- there are certain clubs that in certain markets where I'm going to pay 3x to 4x. And then there's some, what I call supermarkets, that I would pay a higher multiple for and certain clubs. And so I'm getting calls from some of those owners now. We're starting to discuss where they fit in that 3x to 5x ratio and see if we can make them happy and get a deal done. There's a lot of clubs right now where people are considering just because of simply the large amount of cash that we have. If you look back 2019, coming up with $8 million or $10 million cash with a lot of cash down payment for us. On this deal, we put up $36 million in cash down. So we're able to do much larger deals and bigger cash which is actually more attractive to these owners, obviously, than being paid back slowly over time. But I am talking to a few that are looking for 20-year annuities. Look, I need the cash every month. I'm 68 years old, that I'll probably live another 20 years and I just want you to pay a payment every month for the next 20 years. I want guaranteed money. So we've got some deals like that, that we're talking to some owners on right now. So there's a lot of exciting stuff out there, of course.

I just kind of want to switch over to the Bombshells portion. I want to see how the franchising is going. I know you alluded to Arizona as a state you're looking at outside of Texas. Is there like maybe a possibility of other states that you're looking at?

I mean, for Arizona, we're looking at the Phoenix market for company-owned stores. For franchising, we've got about three other states that we're talking with groups right now. One is kind of in a -- they had a fight picked out. We thought we were going to get it done and then they ended up having a problem with the Department of Transportation getting a curb cut into the property. And without the curb cut, they have to put an extra road in. So the property -- there wasn't enough land there to make it work. They would have lost about 45 parking spots which makes the site not usable. So they're now looking for another spot. So hopefully, they'll find one soon and we can get them going. I guess that our current franchisees as talking about their second location already, they're excited to get it open and get started on their second location. And then we've got several others that we're kind of vetting right now and talking with and discussing the markets that they're interested in. The companies, obviously are always still looking in Florida. We'd love to be in the Miami area but I think we're now open to looking -- we're going to look in Jacksonville. We're going to look in Orlando a little bit and then maybe even on the West Coast of Florida from, say, Tampa down to Naples and look in those areas as well for possible expansion of company-owned stores in those markets as well.

Great. And then one more question, if I may. I saw that in one of the slides that your Florida clubs are doing particularly well. Is there like any kind of reason for that, like increased traffic, just better cost initiatives going into those?

Well, I think all of our New York customers moved to Florida. I mean I just think the growth in, especially the Miami, Fort Lauderdale area alone is phenomenal. The state of Florida has been very business friendly. And I think that's helped with the recovery in that market tremendously. I'm not big on politics but I do believe that it's definitely helping the clubs down there. I mean Tootsie's is doing record numbers week after week after week after week. And that's a site that was already doing, $26 million was our best year ever. This last year, we did almost $33 million and our current run rate is probably $36 million plus at that location. So you're talking about a 50% increase post-COVID at Tootsie's. Scarlett's is up 40%. So as always, I say, the numbers don't lie. I mean, the math is there, the numbers are great. And as our northern clubs are coming online now, we're starting to see an even bigger influx and I think we're going to see as the new acquisitions, as we get past the COVID restraints, I can't kind of call them restraints, right? We have these restraints put on us. And when you first take off the restraints, you haven't used your muscle in a while, it's sort of little week. And so now we're building up. We're going to the gym every day and we're building up. And those locations, I believe, will be very, very strong as we move into March and definitely through May.

Great, thank you for the color on that. That would be all for me. But congrats on the quarter and the year. Look forward to more [ph].

We are too.

Okay. The next question is coming from Jason Scheurer from Orchard Wealth. Your line is live.

Hey guys, congratulations. Thought the fourth quarter was excellent, considering it was your slowest, makes some of your other quarters look pitiful; it's unbelievable how much business you guys are doing. A question for you about sales from the new locations. What do you think they're going to add in sales to the balance sheet, let's say, for the next 12 months?

Well, if you'd ask me three months ago, I would have thought we'd already be on a run rate of about $14 million to $15 million. We're running about 80% of that -- or I'm sorry, $40 million revenue, $40 million revenue -- $14 million or so in EBITDA. About $40 million revenue, we're at about 80% of that. So we're about 32% on a run rate. But that's only based -- I mean, we've only had them for what, nine weeks now, eight weeks now. So it's still a little early to tell. It's hard because we're just not getting open hours but we're in markets where in some of their markets, the employment stuff has been very difficult. So we're having to bring people in or move people in and hire new people and train new people. So that's taking a little bit longer than it would if they'd already been open full hours and had full staffing or whatnot. So that's why it's adding about three months to it. I do believe that, like I said, we'll be on about a 20% -- 15% to 20% growth trajectory going into March or April over 2019. So they were doing $40 million in 2019, 15% we'd be at $46 million, 20% we'd be at $48 million. So I'm going to guess by the end of March, we're on a go-forward rate of about $46 million, $48 million in revenue. And I would say at least 60% of that extra $8 million, so extra $4.5 million goes to the bottom line. So we go from $14 million to $18 million, maybe. Maybe we round down a little bit, it goes $14 million to $17 million. So on an EBIT level, we're $48 million and $17 million on a run rate by the end of March. That's what I'm projecting it right now. And I don't see any issue with that. I think we've gotten stronger. I've been talking with management. A couple of the clubs have turned the corner, they're running at close to 100% of their '19 or at their 100%. They got the full hours open again. I mean they close certain days, they close certain hours. We're just now ramping up to get those days reopened, to get those hours restaffed and reopened. So it will take a little bit of time, it's day by day.

On the -- earlier, you said your Bombshells operating margins 18% to 22% is like the range you're looking at. What do you see your range for operating margins for the clubs?

Basically, we're been between 40% and 55%, really just depends on -- I mean sporting events affect us a lot. Certain locations affect us a lot, depending on what sporting events are in those towns, what the local teams do. I mean if you take New York, I think if the Knicks were contenders and going to the NBA finals, I think our New York club's revenue during that 2-month period toward -- for the finals and the playoffs was probably around 25% higher than normal just because The Garden is right here beside us. And it would be the big executives going to the games, not the -- they're not giving the tickets out in the mail. So it just depends on who goes to the games, who comes to games. The Rangers got on a real hot streak and all of a sudden, we were full of hockey customers after every game. So it just varies from market to market, time to time. If all of our markets hit at one time, I mean, it's -- that's a big difference. So it's hard to judge with everything. But I think 40% on the low side, 50%, 55% on the high side.

Okay. And then, the question I have is with the only fans rollout that you guys are going to be doing, is this going to be something that like every one of the dancers is going to be encouraged to do this and you're going to give them like a free site or something along those lines? What's your plan with that?

We're definitely going to be encouraging promoting in our clubs to help them promote their business at our clubs and bring customers into the clubs to see them and then, of course, communicate and build their online business with their customers. A lot of our -- especially, I think, it will be very popular with our business clubs where the business travelers come to our clubs. I think it will be very popular there because typically, guys are coming to town on business, come several times a year and the girls can create that relationship so that each time he comes to the town, he'll come to the club and visit as well. And when he's not coming into town, he can stay in touch online and be able to, what I call the fancy relationship, right?

Yes. Sure. Again, I'm just -- I'm very happy with the numbers. Usually for your slow quarter, I was expecting lower numbers but you guys exceeded those numbers. So congratulations.

Yes, I mean we were -- it was -- we're like is this real, is this real, sometimes ourselves; so we understand.

Awesome. Thanks, again, guys.

Yes, thank you.

[Operator Instructions] The next question is coming from Andrew Hollingworth from Holland Advisors. Your line is live.

Hi, thanks very much. I'm just making sure you can hear, because I'm calling from the U.K.

Yes, we can hear you.

Great, thanks. Thanks for taking the question. Again, like everyone else, fantastic reporting period. Just a couple of questions for me. I was going to ask you about the segmental margin in the [indiscernible] based on that. Just to be clear on that, so obviously, what I was going to ask is really the structural lift we've seen in margin, how much of that is coming from sort of revenue in terms of the good trading you're getting and how much of that is coming from the sort of structural changes you've done in terms of the cost base over the last two-year period? But you sort of answered that in the sense that what you're telling us is that the current level of run rate of the margin of the clubs you think is sort of low end of the range. So I'm just making sure that the 40% to 55% you just talked about is comparable to basically Slide 5; that's first question.

Yes. I mean I think some of the margin comes from -- we've upgraded our accounting systems over the last five years. We've streamlined stuff. Then with COVID, we've made huge -- we went from tons of revenue to zero in basically one day or about three days. And so we made some pretty big cuts in what I call the fat in the company. Now as you grow over 20, 30 years, you have some fat. Now we started cutting a lot of that fat in 2016 when we adopted the application strategy and we thought we've gotten rid of a lot by '18 -- as we move into '18 and '19. But put your revenue at zero and you realize you still got some fat in there. So, I think we were able to cut some more of that and we've been very conscious about not adding it back, keeping our costs tight, keeping our controls tight and just running a tight ship and staying very focused on the margins. So some of it is from that, some is from customers. But our VIP spend is not that high right now in certain markets but we're seeing it come back. As those big customers come back, then the margin is going to be -- that's why when you say -- I say 40% to 55%, that's a huge -- 15% is a huge margin difference but it all depends on that VIP spend. If that big VIP spend comes back in full force, that's where we'll be.

Okay. I think it's very difficult just to talk about...

I'm sorry, you're cutting out a little bit now. I'm sorry.

Okay. Just a second. In previous periods of time, you talked about sort of six to eight quarters of having sort of good trading and then it can slow down for a while. So in terms of that margin range, you had a wonderful period of trading for six to eight quarters, then it ended up in that range and sort of a slower period. Do you think now a slower period is probably 40%, not to say in this quarter or next quarter or but years from now, that's what you're telling us is that the bottom end of the range could be 40% whereas the bottom end of the range used to be obviously much lower than that?

Yes. I mean I still think that we've gotten rid of -- when you look back long term, especially if you go back pre-'16, we had a lot of what I call anchors. And those were legacy clubs that we'd own for years and years or property that we own, that we had a carrying cost on it. And we had clubs that weren't really making any money but we were so concerned with top line revenue that we didn't worry. We didn't pay as much attention to return on investment as we started doing in 2016 and we eliminated those clubs in '16, '17. And so that's why you see those lower margins is when times were low and we went to a 40% margin, we had a 6% drag from the clubs that were losing one. And so the margin dropped to 34%. Well, that 6% drag is gone and it's not coming back. If we have locations that are underperforming now, we will sell those locations, we will move those locations, do what we have to do and then reallocate that capital into a much higher margin location or asset.

Okay, that's really clear. That's really helpful. Can I just ask one more? I think in terms of the presentations you've given on past calls and, obviously, with a bit of help from Adam as well, the outlook for the business is obviously impressive and appealing and it's really well laid out in terms of your capital allocation. So I congratulate you for that. I'm a shareholder of the business in the fund that I run. And the only question that really comes to mind for me when I look at this company is what goes wrong. And so I just -- it would be lovely to hear you just talk about that a little bit and particularly in what's happened in the sort of Visa and Mastercard situation in the last sort of six months or so. And the world sort of like some businesses and doesn't like others and you have to face the situation where the governments seems to be against certain companies. Just talk to us about if society or politicians...

Well, the beauty of the government...

What can you do to appease that?

Yes. Well, the beauty is government changes every over two, four or six years, right? So that's a constant moving target. And there's not really much we can do except to maneuver through it and then we use the courts for when we can't, we tie it up until we get another administration that deals with us or a new city council that deals with us and we work it out. And then we have these settlements and then we move forward. A lot of the litigation is pretty settled, I think. I think there's a few cities and towns here and there that don't understand that there are protections and they still try to squeeze us every now and then and we have to go to battle with them like we had to do in San Antonio. But we've come to a nice compromise in San Antonio. We're going to get -- stores are going to be reopened soon. We passed the inspections today with the inspections were earlier this morning, we passed the inspections. So that's moving forward. And so I mean, it's just I call it, it's white noise, right? It's always white noise. There's always some white noise out there. We always have some legal going on here, some battle going on there. You have to deal with slip and fall. It's like Walmart. At some point, you just get so big, you have a legal department. And that's where we've gotten to. Every now and then, we lose one. And most of the times, we win because if we're wrong, we try to do it right. And we've made some legal settlement payments. You've seen the payments, we disclose them. And so sometimes we make some payments. And a lot of times, we win. Of course, you don't hear about the times we win because we're not going to go out and put that in our 10-Qs and 10-Ks and brag about winning, it's just not our way. But we fight the battles that we have to fight and we pick our battles where we think we can win. If we can get out cheaper, we try to get out. But we don't -- we don't throw our money away on frivolous lawsuits. We will spend money on our attorneys rather than pay frivolous lawsuits, so our legal stays a little higher but we have a great insurance. We have a great reputation with our insurance company right now. We hope to continue that relationship and keep that going, keeping our costs in line for insurance. And that's really the only -- I think the only real negatives out there are the occasional deals. Now obviously, you had the downturn in 2008, 2009, we survived that. We survived the pandemic, we've survived being closed down. I think we've, as a company, proven throughout the years that they keep throwing -- they throw something at us every now and then and we figure our way through it and come back even stronger each time after everything that was thrown at us this year and hopefully, we'll continue that trend.

I suppose all I'm really trying to do is sort of -- I think if you're half as successful as you look like you're going to be in terms of rolling up the industry at Miami and all the rest of it, you're going to become a much bigger company, hopefully. And you're slightly there to be stepped up from the sort [indiscernible]. And so I'm just wondering from a reputational...

When you figure statistically, it's the compounded growth, it's going to grow pretty quick. Because we've gotten to that critical mass. That's what you needed to do.

My question is just more a question of what happened to Visa and Mastercard. More than about lawsuits, it was just about somebody made it stink and then ultimately, they were forced to react. And I'm just sort of trying to put myself in a position of years to come and is the business more sort of more in the public perception and therefore, is there issues that work is right? So I just want to know how you think about that as an organization in terms of what could go wrong with it?

Yes. I mean, we -- obviously, we care about our reputation and we work through it. You can't keep all the people happy all the time. We've learned that. But I think as we expand more, especially in the Bombshells and more mainstream, the days -- the strip clubs just aren't popular to really pick on anymore; there's very few of them. It's not like in the 1980s and '90s when clubs had -- 300 clubs in the City of Dallas or Fort Worth and they were all biker bars and they're all low end. I mean, these are multimillion-dollar businesses nowadays. A lot of the smaller clubs have disappeared from the marketplace. You have a resurgence in certain markets with what I call rogue operators. They're operating without SOBs. They're operating as bikini bars and kind of skirting the rules on that. They last for a little while but they don't tend to do things the right way. So either the tax people get them or somebody -- eventually, they go away and then we continue to do our thing. The key, I think, is just operating -- being a good neighbor and just operating the best we can do. We try to avoid negative headlines. Obviously, it's impossible for any business to avoid all negative headlines because there's always haters out there. But we do our best to do the best we can and present our side of how we do things and why we do things. And I think as long as we continue to do that, we'll continue to be successful.

Good enough. I appreciate the way you take the questions, I appreciate your answer. Thank you for taking the time.

Okay, thank you.

[Operator Instructions] The next question is coming from Craig Smith [ph], private investor. Your line is live.

Hi, so I just had one question on the $11.9 million impairment. So was that in any particular market area? Or what's triggered that now with COVID-19 sort of 18 months on?

Sure. I'll give you the easy -- the quick and easy. It's multiple markets. It's mainly some of our college towns where the colleges haven't really opened back up fully in Texas and of course, our Northern clubs, New York and some other markets that just got opened so late in the year, that when you do the impairment on a 12-month basis, we just -- you just can't meet the numbers and there's no COVID exception in GAAP. We argued and that's -- if you see we have the material weaknesses because management used basically a non-COVID period. So we took out a COVID period of about six months or nine months out of our growth projections and said these months don't count because this was COVID rebuild. This is where we're really at. This is what we're really doing, blah, blah and of course, the auditors came in and said, no under GAAP, you have to do it this way, it's very cut and dry; there's no COVID exception. We said, okay, no problem. And we redid it. And we used -- included the COVID numbers and when you do that, we ended up with some impairments in some of these markets. We believe, long term, what we cover in every one of those markets. But like I said, there's just no COVID exception for GAAP, so we follow the rules.

Okay. So do you see sort of part of that maybe reversing in the future if demand...

Well, you can't reverse it. Once you write it off, it's gone. You get no write-up in value. If we did, Tootsie's would be worth -- Tootsie's would had to be written up $50 million right now, probably based on the numbers they're doing. But yes, you don't -- you never get it back. It's just a write-off in book value. I mean, we don't really use book value as a gauge of what our company is worth anyway. We use our free cash flow and our cash generation, EBITDA numbers, our non-GAAP numbers to kind of value the company and see where we're going, how much cash we can generate on a go-forward basis. So I mean, the book value is not overly important to us, so just another number.

And just one other, not related to this. But so on your new debt financing, is that a fixed rate loan or is that floating?

It's fixed rate for five years with one adjustment at the end of five years, with a floor -- I can't remember if there was a ceiling in it or not. But basically, it's a onetime adjustment for -- which carries for another five years and then it becomes ballooned at the end of 10 years, but it's on a 20-year amortization.

Okay. So if tomorrow rates increase, that's not really impacting you guys?

It won't impact us for five years.

Okay, thank you.

Then it could have a small impact in five years from now.

Okay. The next question is coming from Jason Scheurer from Orchard Wealth. Your line is live.

Hey, sorry, guys. I just wanted to get a little more clarification on stock buybacks. I'm under the impression again because you gave away part of the deal was the 0.5 million shares at $60 a share. Anything under $60, you guys are going to be crazy buying back because that's just printing money, right?

That's the way we look at it. I think we're much more aggressive. I think we would -- right now, we've got a lot of stuff on our plate. I'm trying to see what I'm getting through the holidays, letting the cash build up. We made a huge acquisition. We paid out $36 million in cash but we did borrow some of that. I don't know right off the top of my head but I'm guessing we're $24 million or so cash on hand right now today. I don't know how we'll finish the end of the quarter. We are working on a debt financing for all of the real estate in the new acquisition plus the Arlington location and a couple of other pieces of property that we own free and clear that weren't in the first loan. So there's a small package being put together on that, could give us some more cash. When we get into -- if we get that closed by the end of the quarter, we get in the quarter at $45 million or so. I think we're growing free cash after debt service and whatnot probably at $750,000, $800,000 plus a week right now, maybe even $1 million a week. I just don't -- like I said, we've just been going through this cycle and getting the K done, getting everything done, getting this acquisition done. I've got a lot of homework, so to speak, as we get to the end of this quarter and move into January and February that after 1st of the year, I'll be doing a lot of homework trying to get a really good feel for our run rate on free cash flow. We've just been -- we know it's good and we've been really busy. So we haven't really nailed it all down. But I think -- I'm hoping that we can do -- maybe put an old chart back in, have a much better understanding by the February, probably the May quarter, probably the May quarter when we actually can get that chart back in and kind of show you, look, this is our run rate, this is our free cash flow, this is what we buy. And I think if you go back to some of our old slides from pre-COVID, you'll see those slides where we basically tell you exactly when we're going to be buying stock and exactly what price is. And I want to get that back out there. I'd like that. It's just really hard to do because it's just been so crazy, right? I mean I don't know if a city is going to close at midnight next week or they're going to do -- I think in our south markets, we're very, very well off. And I think even in the north, I don't think anybody is going to deal with close down. I don't think the voting public is going to allow it. There was a big -- in Minnesota with the deep on police and just the strict restrictions and everything, there was a huge -- like four City Council members got voted out of office this last election. So I think there's a big turn like we want our businesses open, we want our -- we want to be able to go out. We want to go eat, we want to go -- we don't want to sit at home anymore. So I think that's weighing positive in our favor. Like I said, I think by the May quarter -- by the end of March, we'll be able to have a much better idea of where we're at and hopefully get that back out in the May slides, hopefully.

Well, you also have the good numbers coming from the 11 clubs being told that...

Yes. I mean because they're so new, that's the other problem is, I mean, like I said, we've got eight or nine weeks right now. And they're -- we're seeing growth trajectories in them but they're still not -- we're not back to 2019 at all the clubs yet but I think we'll be soon. And as we get to that, then the trick is figuring how to grow. But I have a better idea, solidly where we're at. And that's what I really want to know, where are we at today, so I can snapshot that and say this is where we're at. Based on seasonality, based on this, this is what our projections are. Then once we can get back to that free cash flow projection, then we can use that projection to say this when we're going to buy stock; that's super easy to calculate the yield based on the stock price.

Yes, just -- you know, anything around $60 is a complete deal. Anyway, thank you very much.

Yes and we're buying it. We're definitely buying it. If it's under $60, we'd buy it. It's getting close; so let's see what happens tomorrow.

All right. Thanks, again.

Yes, thank you.

Bye.

[Operator Instructions] Are there any final questions? This is the last chance for questions. Okay, we have a question coming from Michael Juradio [ph]. He's an individual investor. Your line is live.

Hello, everyone. Thank you for taking the last minute question here. I just had a question about the dividend. I remember you had mentioned on a call a few quarters back, you were at least maybe considering raising it slightly or something to that effect. So I just wanted to see if there was any guidance you could provide on that because -- I mean, I do love a good -- I love cash being distributed to me, I guess, you could say but by the same token, you guys are able to deploy cash and integrate into businesses with great economic characteristics and things that I couldn't buy myself in the stock market. So I don't have one view or another as far as having necessarily the -- now thinking about it -- yes, go ahead.

I don't think we'll see a big increase. But I mean, we talk about it at Board meetings. This would be the year. Probably, I have to look at the quarters when we would be due the rates to continue our annual growth rate. We've got -- basically, when you want to come up in those dividend screens, you have to have a growth rate of x [ph]. So we'll be reviewing that. It's on the agenda before the March dividend is paid to review that and make sure that we're keeping our growth trajectory. But I mean, I can see us -- we're -- I think right now we're at $0.16 a year. I can see us going to $0.18 a year, possibly paying two quarters of $0.05 and two quarters of $0.04 or I can see us maybe, depending on things, going to $0.20 and just paying a $0.05 a quarter or something like that. It's actually the worst tax efficiency and use of our capital as we have. It doesn't really go with our capital allocation strategy. But like you said, it gives a lot of investor's frothy feeling and it also puts us in a lot more screens and allows a broader group of investors to buy and hold longer. So we do like -- I personally like that aspect of the dividend. And of course, being a very large shareholder, I don't mind those quarterly checks either.

A question -- a follow-up on that. Does the acquisition pipeline would -- is that a factor? How much of a factor is it? Or is it not really entering into your thought process on that at all?

On the dividend, I know we had a dividend. Look, we've got -- if we raise it $0.04, you're talking $400,000 a year, not even $400,000 a year. We generated $36 million in cash. So I mean, $400,000, it doesn't even dent. So what we have on growth and what we're setting up has really no effect thought process at all. I mean our dividend yields, even 0.5%, I know that's 0.5% right now, is so low that it's really a very, very small portion of our cash. And like I said, it's about the field good, right? You know you got cash coming every quarter and those type of things and like I said, that's a certain shareholder base increase and feel good about owning the stock. So those are things we weigh when we discuss it at Board meetings. So those will continue to weigh on it. And like I said, continuing the growth factor. I think it's important that we keep that growth trajectory on a growth trajectory, so that that would keep coming up in all the searches when people go and do stock screenings; I think that's important.

Thank you.

Okay. I'd now like to turn the floor back to Gary Fishman for closing remarks.

Thank you, John and thank you, Eric and Bradley. Just to reiterate what Eric had mentioned, we've been invited to a number of investment conferences the first half of calendar 2022. We'll be at the ICR conference in Orlando, January 10 to the 12. We'll be participating in the Sidoti Virtual Small Cap Conference, January 19 and 20 and we'll be at the Noble Capital Markets Small Cap Conference in Hollywood, Florida, April '19 through the '21. And on behalf of Eric, Bradley, the company and our subsidiaries, thank you and good night. Stay safe, stay healthy. And as always, please visit one of our clubs or restaurants. Thank you.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.