RCI Hospitality (US:RICK)2020-12-14 21:09Business Operations - As of September 30, 2020, RCI Hospitality Holdings, Inc. operated a total of 48 establishments, including adult entertainment venues and restaurants[13]. - The company has temporarily closed and reopened several locations in response to COVID-19 mandates, affecting operational capacity[21]. - The company operates in a highly competitive environment, with significant competition in both the adult entertainment and restaurant sectors[35]. - The company is dependent on key personnel, particularly the President and CEO Eric Langan and CFO Bradley Chhay, for its future success[86]. - The company has identified a material weakness in internal control over financial reporting, which could negatively affect investor confidence and stock value if not remediated[77]. - The company has pending registration applications for the names "Tootsies Cabaret," "In The Biz," and "Bombshells Officer's Club"[38]. - The company has implemented measures to manage cash flow, including deferring principal and interest payments on debts and furloughing employees[189]. - The company plans to grow through acquisitions, new unit openings, and franchising of the Bombshells brand[208]. Financial Performance - Total revenue for the fiscal year ended September 30, 2020, declined by 26.9% to $132.3 million compared to $181.1 million in 2019[120]. - Net income attributable to RCI Hospitality Holdings, Inc. for 2020 was a loss of $6.1 million, down from a profit of $20.3 million in 2019[120]. - Diluted earnings per share for 2020 were $(0.66), compared to $2.10 in 2019[120]. - Adjusted EBITDA for 2020 was $22.4 million, a decrease from $46.2 million in 2019[120]. - Cash and cash equivalents as of September 30, 2020, were $15.6 million, an increase from $14.1 million in 2019[120]. - Total liabilities increased to $208.6 million in 2020 from $185.3 million in 2019[120]. - Free cash flow decreased by 59.5% to $13.5 million from $33.3 million[147]. - Consolidated revenues decreased by $48.7 million, or 26.9%, from 2019 to 2020, primarily due to significantly lower traffic caused by COVID-19 restrictions[150]. - Nightclubs segment revenues decreased by 40.5% from 2019 to 2020, with sales of alcoholic beverages down by 44.2% and service revenues down by 39.6%[151]. - Bombshells segment revenues increased by 40.2% from 2019 to 2020, driven by a 35.0% contribution from new units[153]. Impact of COVID-19 - The COVID-19 pandemic has led to a significant decrease in total revenues, impacting financial performance in future fiscal quarters[55]. - The company temporarily closed all clubs and restaurants on March 18, 2020, and has since reopened many locations with operating hour restrictions and limited occupancy[47]. - The company has implemented cost-saving measures throughout its operations in response to the COVID-19 pandemic[47]. - The same-store sales for Nightclubs in 2020 were -9.0% excluding the impact of the pandemic, and -41.7% including it[24]. - Bombshells same-store sales in 2020 were +18.3% excluding the pandemic impact, and +6.5% including it[29]. Competition and Market Risks - The company faces substantial competition in the nightclub entertainment industry, which may affect profitability and expansion plans[55]. - The adult entertainment industry is extremely volatile and sensitive to economic conditions, which could materially impact revenues[66]. - The adult entertainment industry standard classifies entertainers as independent contractors; changes in this classification could adversely impact the company's business[58]. - Security breaches involving customer or employee information could lead to negative publicity and legal liabilities, adversely affecting the company's business[71]. Debt and Financing - The company is in compliance with all debt covenants as of September 30, 2020, but faces challenges in maintaining compliance due to the pandemic's impact on operations[55]. - The company may need additional financing if cash generated from operations is insufficient, which could lead to dilution of existing shareholders' ownership[64]. - Long-term debt at the end of 2020 was $141,435 thousand, a decrease of 1.5% from $143,528 thousand in 2019[201]. - Future interest payments on debt are estimated at $51,559 thousand, with significant payments due in 2021[199]. Operational Challenges - The company recorded impairment charges of $10.6 million in 2020, primarily due to a decline in EBITDA caused by the COVID-19 pandemic[56]. - The company faces risks related to food safety, which could adversely affect its reputation and sales if food-borne illnesses are reported[88]. - The company has not entered into a formal employment agreement with CFO Bradley Chhay since September 2020, raising concerns about leadership stability[86]. - The company has experienced seasonal fluctuations in revenue, with stronger operating results typically occurring from October through March[92]. Shareholder Actions - The company declared a total dividend of $0.14 per share in 2020, up from $0.13 per share in 2019[120]. - The company repurchased shares amounting to $9.5 million in 2020, representing 516,102 shares[204]. - The company has $10.8 million remaining for share repurchases as of September 30, 2020[204].