Quick10K

RCI Hospitality

Price	17.53		EPS	2
Shares	10		P/E	10
MCap	170		P/FCF	5
Net Debt	-11		EBIT	24
TEV	159		TEV/EBIT	7
TTM 2019-06-30, in MM, except price, ratios

10-Q	2020-06-30	Filed 2020-08-10 Print
10-Q	2020-03-31	Filed 2020-05-11 Print
10-Q	2019-12-31	Filed 2020-02-27 Print
10-K	2019-09-30	Filed 2020-02-13 Print
10-Q	2019-06-30	Filed 2019-09-24 Print
10-Q	2019-03-31	Filed 2019-09-24 Print
10-Q	2018-12-31	Filed 2019-02-11 Print
10-K	2018-09-30	Filed 2018-12-31 Print
10-Q	2018-06-30	Filed 2018-08-09 Print
10-Q	2018-03-31	Filed 2018-05-10 Print
10-Q	2017-12-31	Filed 2018-03-07 Print
10-K	2017-09-30	Filed 2018-02-14 Print
10-Q	2017-06-30	Filed 2017-08-09 Print
10-Q	2017-03-31	Filed 2017-05-09 Print
10-Q	2016-12-31	Filed 2017-02-09 Print
10-K	2016-09-30	Filed 2016-12-13 Print
10-Q	2016-06-30	Filed 2016-08-04 Print
10-Q	2016-03-31	Filed 2016-05-10 Print
10-Q	2015-12-31	Filed 2016-02-09 Print
10-K	2015-09-30	Filed 2015-12-14 Print
10-Q	2015-06-30	Filed 2015-08-10 Print
10-Q	2015-03-31	Filed 2015-05-11 Print
10-Q	2014-12-31	Filed 2015-02-09 Print
10-K	2014-09-30	Filed 2014-12-15 Print
10-Q	2014-06-30	Filed 2014-08-11 Print
10-Q	2014-03-31	Filed 2014-05-12 Print
10-Q	2013-12-31	Filed 2014-02-10 Print
10-K	2013-09-30	Filed 2013-12-16 Print
10-Q	2013-06-30	Filed 2013-08-08 Print
10-Q	2013-03-31	Filed 2013-05-09 Print
10-Q	2012-12-31	Filed 2013-02-11 Print
10-K	2012-09-30	Filed 2012-12-14 Print
10-Q	2012-06-30	Filed 2012-08-09 Print
10-Q	2012-03-31	Filed 2012-05-10 Print
10-Q	2011-12-31	Filed 2012-02-07 Print
10-K	2011-09-30	Filed 2011-12-14 Print
10-Q	2011-06-30	Filed 2011-08-09 Print
10-Q	2011-03-31	Filed 2011-05-10 Print
10-Q	2010-12-31	Filed 2011-02-09 Print
10-K	2010-09-30	Filed 2010-12-14 Print
10-Q	2010-06-30	Filed 2010-08-16 Print
10-Q	2010-03-31	Filed 2010-05-11 Print
10-Q	2009-12-31	Filed 2010-02-16 Print

8-K	2020-11-19	Earnings, Regulation FD, Exhibits
8-K	2020-10-08	Earnings, Exhibits
8-K	2020-09-14	Officers, Shareholder Vote, Exhibits
8-K	2020-09-04	Earnings, Regulation FD, Exhibits
8-K	2020-08-10	Earnings, Exhibits
8-K	2020-07-09	Earnings, Exhibits
8-K	2020-04-09
8-K	2020-03-02
8-K	2020-02-27
8-K	2020-02-13
8-K	2020-02-13
8-K	2020-01-09
8-K	2019-12-19
8-K	2019-12-16
8-K	2019-12-10
8-K	2019-10-03
8-K	2019-09-30
8-K	2019-09-24
8-K	2019-08-12
8-K	2019-08-12
8-K	2019-08-08
8-K	2019-07-25
8-K	2019-07-22
8-K	2019-07-12
8-K	2019-07-09
8-K	2019-05-17
8-K	2019-05-10
8-K	2019-02-11
8-K	2019-01-10
8-K	2018-12-31
8-K	2018-12-04
8-K	2018-10-09
8-K	2018-08-29
8-K	2018-08-09
8-K	2018-07-10
8-K	2018-05-15
8-K	2018-05-10
8-K	2018-05-01
8-K	2018-04-10
8-K	2018-03-28
8-K	2018-03-08
8-K	2018-03-07
8-K	2018-03-02
8-K	2018-02-16
8-K	2018-02-14
8-K	2018-01-09
8-K	2018-01-02
8-K	2017-12-29

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Balance Sheet	Income Statement	Cash Flow
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2020

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number: 001-13992

 

RCI HOSPITALITY HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Texas		76-0458229
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

10737 Cutten Road

Houston, Texas 77066

(Address of principal executive offices) (Zip Code)

 

(281) 397-6730

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common stock, $0.01 par value		RICK		The Nasdaq Global Market NASDAQ

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

As of August 7, 2020, 9,125,281 shares of the registrant’s common stock were outstanding.

 

 

 

NOTE ABOUT FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, among other things, statements regarding plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements, which are other than statements of historical facts. Forward-looking statements may appear throughout this report, including, without limitation, the following sections: Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements generally can be identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “will be,” “will continue,” “will likely result,” and similar expressions. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q and those discussed in other documents we file with the Securities and Exchange Commission (“SEC”). Important factors that in our view could cause material adverse effects on our financial condition and results of operations include, but are not limited to, the risks and uncertainties associated with (i) operating and managing an adult business, (ii) the business climates in cities where it operates, (iii) the success or lack thereof in launching and building the company’s businesses, (iv) cyber security, (v) conditions relevant to real estate transactions, (vi) our ability to maintain compliance with the filing requirements of the SEC and the Nasdaq Stock Market, (vii) the impact of the COVID-19 pandemic, and (viii) numerous other factors such as laws governing the operation of adult entertainment businesses, competition and dependence on key personnel. We undertake no obligation to revise or publicly release the results of any revision to any forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

 

As used herein, the “Company,” “we,” “our,” and similar terms include RCI Hospitality Holdings, Inc. and its subsidiaries, unless the context indicates otherwise.

 

 

RCI HOSPITALITY HOLDINGS, INC.

FORM 10-Q

TABLE OF CONTENTS

 

 

 

PART I FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

RCI HOSPITALITY HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

RCI HOSPITALITY HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

 

Sales of Food and Merchandise [Member]

See accompanying notes to unaudited condensed consolidated financial statements.

Service Revenues [Member] 

 

RCI HOSPITALITY HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(in thousands)

(unaudited)

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

RCI HOSPITALITY HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1. Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of RCI Hospitality Holdings, Inc. (the “Company or “RCIHH”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP” or “U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q of Regulation S-X. They do not include all information and footnotes required by GAAP for complete financial statements. The September 30, 2019 consolidated balance sheet data were derived from audited financial statements but do not include all disclosures required by GAAP. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements for the year ended September 30, 2019 included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on February 13, 2020. The interim unaudited condensed consolidated financial statements should be read in conjunction with those consolidated financial statements included in the Form 10-K. In the opinion of management, all adjustments considered necessary for a fair statement of the financial statements, consisting solely of normal recurring adjustments, have been made. Operating results for the three and nine months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending September 30, 2020.

 

2. Recent Accounting Standards and Pronouncements

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), on accounting for leases which requires lessees to recognize most leases on their balance sheets for the rights and obligations created by those leases. The guidance requires enhanced disclosures regarding the amount, timing, and uncertainty of cash flows arising from leases, and will be effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. In July 2018, the FASB issued ASU 2018-11 providing for certain practical expedients in the implementation of ASU 2016-02. The guidance requires the use of a modified retrospective approach. We adopted ASU 2016-02 and related amendments as of October 1, 2019 and elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to retain historical lease classification, as well as relief from reviewing expired and existing contracts to determine if they contain leases. Our adoption of the new leasing standard resulted in an increase of $27.3 million in our total assets as of October 1, 2019 due to the recognition of operating lease right-of-use assets net of the reclassification of deferred rent liability of $1.2 million and an increase in total liabilities due to the recognition of a $28.6 million operating lease liabilities. Our adoption of ASC 842 did not have an impact on our consolidated statements of operations and cash flows, except for additional required disclosures. See additional disclosures in Note 14.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU requires, among other things, the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Our evaluation indicates that our consolidated financial statements will not be significantly impacted upon adoption of this guidance.

 

8

 

 

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

In February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU provides financial statement preparers with an option to reclassify stranded tax effects within accumulated other comprehensive income (“AOCI”) to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (“Tax Act”) is recorded. The ASU requires financial statement preparers to disclose (1) a description of the accounting policy for releasing income tax effects from AOCI; (2) whether they elect to reclassify the stranded income tax effects from the Tax Act; and (3) information about the other income tax effects that are reclassified. The amendments affect any organization that is required to apply the provisions of Topic 220, Income Statement—Reporting Comprehensive Income, and has items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by GAAP. The ASU is effective for all organizations for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. Organizations should apply the proposed amendments either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act is recognized. We adopted ASU 2018-02 as of October 1, 2019. Our adoption of this guidance did not have an impact on our consolidated financial statements.

 

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 modifies the disclosure requirements of Accounting Standards Codification (“ASC”) Topic 820 with certain removals, modifications, and additions. Eliminated disclosures that may affect the Company include (1) transfers between level 1 and level 2 of the fair value hierarchy, and (2) policies related to valuation processes and the timing of transfers between levels of the fair value hierarchy. Modified disclosures that may affect the Company include (1) a requirement to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse if the entity has communicated the timing publicly for investments in certain entities that calculate net asset value, and (2) clarification that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. Additional disclosures that may affect the Company include (1) disclosure of changes in unrealized gains and losses for the period included in other comprehensive income for recurring level 3 fair value measurements held at the end of the reporting period, and (2) disclosure of the range and weighted average of significant unobservable inputs used to develop level 3 fair value measurements. The update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures upon issuance of the ASU and delay adoption of the additional disclosures until the effective date. Our evaluation indicates that fair value disclosures in our consolidated financial statements will be minimally impacted by the requirements of this ASU.

 

9

 

 

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

In March 2019, the FASB issued ASU No. 2019-01, Leases (Topic 842): Codification Improvements. ASU 2019-01 aligns the guidance for fair value of the underlying asset by lessors with existing guidance in Topic 842. The ASU requires that the fair value of the underlying asset at lease commencement is its cost reflecting in volume or trade discounts that may apply. However, if there has been a significant lapse of time between the date the asset was acquired and the lease commencement date, the definition of fair value as outlined in Topic 820 should be applied. In addition, the ASU exempts both lessees and lessors from having to provide certain interim disclosures in the fiscal year in which a company adopts the new leases standard. The update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Our evaluation indicates that our consolidated financial statements will not be significantly impacted upon adoption of this guidance.

 

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU simplifies accounting for income taxes by removing the following exceptions: (1) exception to the incremental approach for intraperiod tax allocation, (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments, and (3) exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. The ASU also improves financial statement preparers’ application of income tax related guidance for franchise taxes that are partially based on income; transactions with a government that result in a step up in the tax basis of goodwill; separate financial statements of legal entities that are not subject to tax; and enacted changes in tax laws in interim periods. The ASU is effective for public business entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted for public business entities for periods for which financial statements have not been issued. An entity that elects early adoption in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption should adopt all the amendments in the same period. We are still evaluating the impact of this ASU on the Company’s consolidated financial statements.

 

10

 

 

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

3. Liquidity and Impact of COVID-19 Pandemic

 

In March 2020, President Donald Trump declared the coronavirus disease 2019 (“COVID-19”) pandemic as a national public health emergency. COVID-19 is the disease caused by a novel strain of a coronavirus that originated from Wuhan, China in November 2019. The declaration resulted in a significant reduction in customer traffic in our clubs and restaurants due to changes in consumer behavior as social distancing practices, dining room closures and other restrictions that were mandated or encouraged by federal, state and local governments, and since March 2020, we have temporarily closed and reopened several of our clubs and restaurants.

 

The closure of our clubs and restaurants caused by the COVID-19 pandemic has presented operational challenges. Our strategy is to open locations in accordance with local and state guidelines and it is too early to know when and if they will generate positive cash flows for us. Depending on the timing and number of locations we get open, and their ability to generate positive cash flow, we may need to borrow funds to meet our obligations or consider selling certain assets. The COVID-19 pandemic is adversely affecting the availability of liquidity generally in the credit markets, and there can be no guarantee that additional liquidity will be readily available or available on favorable terms, especially the longer the COVID-19 pandemic lasts.

 

To augment an expected decline in operating cash flows caused by the COVID-19 pandemic, we instituted the following measures:

 

	●	Arranged and continue to arrange for deferment of principal and interest payment on certain of our debts;
	●	Furloughed employees working at our clubs and restaurants, except for a limited number of managers;
	●	Pay cut for all remaining salaried and hourly employees and deferral of board of director compensation;
	●	Deferred or modified certain fixed monthly expenses such as insurance, rent, and taxes, among others;
	●	Canceled certain non-essential expenses such as advertising, cable, pest control, point-of-sale system support, and investor relations coverage, among others.

 

On May 8, 2020, the Company received approval and funding under the Paycheck Protection Program (“PPP”) of the CARES Act for its restaurants, shared service entity and lounge. See Notes 7 and 9. Ten of our restaurant subsidiaries received amounts ranging from $271,000 to $579,000 for an aggregate amount of $4.2 million; our shared-services subsidiary received $1.1 million; and one of our lounges received $124,000. None of our adult nightclub and other non-core business subsidiaries received funding under the PPP.

 

As of the release of this report, we do not know the extent and duration of the impact of COVID-19 on our businesses due to the uncertainty about the spread of the virus. Lower sales, as caused by social distancing guidelines, could lead to adverse financial results. However, we will continually monitor and evaluate the situation and will determine any further measures to be instituted, including refinancing several of our debt obligations.

 

We continue to adhere to state and local government mandates regarding the pandemic and, since March 2020, have closed and reopened several of our locations depending on changing government mandates. As of the release of this report, we have reopened many of our club and Bombshells locations with limited occupancy but some of our bigger clubs are still closed.

 

Valuation of Goodwill, Indefinite-Lived Intangibles and Long-Lived Assets

 

We consider the COVID-19 pandemic as a triggering event in the assessment of recoverability of the goodwill, indefinite-lived intangibles, and long-lived assets in our clubs and restaurants that are affected. We evaluated forecasted cash flows considering future assumed impact of COVID-19 pandemic on sales. Based on our evaluation as of June 30, 2020, we determined our assets are impaired in a total amount of approximately $9.2 million comprised of $6.5 million in goodwill, $2.3 million in SOB licenses, $302,000 in property and equipment, and $104,000 in right-of-use operating lease assets.

 

4. Revenues

 

The Company recognizes revenue from the sale of alcoholic beverages, food and merchandise, service and other revenues at the point-of-sale upon receipt of cash, check, or credit card charge, net of discounts and promotional allowances based on consideration specified in implied contracts with customers. Sales and liquor taxes collected from customers and remitted to governmental authorities are presented on a net basis in the accompanying unaudited condensed consolidated statements of operations. The Company recognizes revenue when it satisfies a performance obligation (point in time of sale) by transferring control over a product or service to a customer.

 

Commission revenues, such as ATM commission, are recognized when the basis for such commission has transpired. Revenues from the sale of magazines and advertising content are recognized when the issue is published and shipped. Revenues and external expenses related to the Company’s annual Expo convention are recognized upon the completion of the convention, which normally occurs during our fiscal fourth quarter. Lease revenue (included in other revenues) is recognized when earned (recognized over time) and is more appropriately covered by guidance under ASC 842, Leases (ASC 840 in prior year). See Note 14.

 

11

 

 

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Revenues, as disaggregated by revenue type, timing of recognition, and reportable segment (see also Note 12), are shown below (in thousands):

 

Schedule of Disaggregation of Segment Revenues 

Copy History

		Three Months Ended June 30, 2020																Three Months Ended June 30, 2019
		Nightclubs				Bombshells				Other				Total				Nightclubs				Bombshells				Other				Total
Sales of alcoholic beverages		$	1,777			$	5,846			$	-			$	7,623			$	14,597			$	4,973			$	-			$	19,570
Sales of food and merchandise			774				2,678				-				3,452				3,313				3,733				-				7,046
Service revenues			2,906				1				-				2,907				17,257				42				-				17,299
Other revenues			556				6				177				739				2,722				7				383				3,112
		$	6,013			$	8,531			$	177			$	14,721			$	37,889			$	8,755			$	383			$	47,027
Recognized at a point in time		$	5,781			$	8,531			$	175			$	14,487			$	37,457			$	8,755			$	369			$	46,581
Recognized over time			232	*			-				2				234