Eric Langan is the president and CEO of RCI hospitality holdings on the NASDAQ.
I'm in friends wood Texas today. I've got some personal properties down here, so I had to run some errands and want to catch up with you guys. Though excellent in RCA hospitality holdings is its headquarters in Houston, we're located northeastern our main corporate office.
I started in the business almost 35 years ago. Now my first club was when I was 21. I decided I wanted to open up a club and sold my baseball card collections so I could lease a little place of about 1600 square feet and open up. Then from there, a second location that was 5400 square feet, and this the parlayed that into multiple clubs ended up merging into a public shell in 1997 through a reverse merger and then in 1998 joined that company and with RCI with Riggs and then basically what founder out in 1999 and I've been CEO CEO since then. We've grown from basically that first unit that opened in 1989 to over 61 branches today.
I had had a ton of cards. I was in the football pretty heavy in 81, so I had a bunch of Joe Montana rookie cards. I had a lot of bold Mickey Mantle, Ernie Banks, Sandy Kofax; you know those that type stuff I'm looking back like when you're collecting these cards.
I was twenty years old into girls right so you know baseball cards had been collecting since I was about five years old so you know I gotta I guess I kind of outgrown but yeah I still I miss some of my some of my you know top cards for sure I've bought some cards some cards back over the years not very many but you know I think I think I think that's why I like NFT so much I guess I just like collecting that I'm kind of like ordering the NFT's a little bit I'm more for the you know just for collections and archives I don't collect the expensive ones or by extensive lines and you know I did a few few for investment but but not not serious nothing nothing serious most of my stuff that I'm I bought tons of his just because I enjoy it what kind of entities are interesting to you right now are the ones that you kind of look at for investment or just for kind of personal I'm I'm I like the chili lab stuff but Jimmy last dot IO they they're on their 4th generation they just came out with their friends which are little eggs that you played this game with so it's pretty exciting but I just you know I like the art and and I like the community and the people as much as as much as I do anything else.
I have to go to NFT NYC next week, where I will be there from the 20th to the 23rd for four nights. I had just gotten back from being out in Denver and Dallas doing some work on some club stuff, so I had been out late enough. I decided I needed to take a break from that to get ready for New York, NY is the biggest show of the year.
In the beginning I was you know in 9th grade so in 1983 I was 15 years old but yeah right you know Rick started I've I've seen a lot of stuff from the beginning they they grew pretty steadily through early 90s and then the free 3 founders initially they broke up they had built three clubs each of them took a different club with you know Robert waters taking the Houston location at that was the you know the club that went into the public company 1995 I came along in 1998 and they were building their club in Minneapolis at that time they were a little stretched and we had some we had access management and we had some clubs and stuff we were doing some projects and you know I I didn't really enjoy being in public I I was I was a club guy and I'm I'm used to working 15 hours 17 hours a day in the clubs every night you know and going to this corporate world we had to get up at 8:00 o'clock or 9:00 o'clock in the morning and I think was was a little rough on me you know I was 30 years old basically and so I decided to look let's merge you run the public company.
I'll run the nightclubs, and together, we'll make a killing and kind of started that way. Still, Robert went on vacation. When he came back, I made a bunch of changes at the club charging cover charge and whatnot, so he was not happy with that. I said well, at least she's doing her job. I liked it when they tried to charge me a cover charge. That means they're not letting people in for free; I want all the money in the register, but you know, I think he realized he was losing control of the operations because, you know, the people there work for me now. So we had some disagreements on how how to remedy that. So basically, I bought him out in about March 99 and took the company over. I think our revenues were about $6 million at that time, so now we're our revenues. We have run rates close to 280 million 260 to $280 million.
I emerged in 1998 yeah I owned the XTC cabaret chain and we had a club called broad streets at that time so we had four locations and I think they had three locations where they had two locations open they're working on their third so much smaller company back then Yep and at some point you incorporated restaurants such as bombshells into the portfolio when did that get started and kind of how did that come about sure we open the first bombshells in 2013 in Dallas TX we open a building that we already own the building so it was just basically we just built the restaurant out in it it was highly successful did very very well we had some growing pains 'cause we didn't understand the restaurant business but we knew the bar business so it was a sports bar and restaurant so the sports are doing really good but everybody is complaining about the food so I brought in a guy named David Simmons who's our director of operations for our restaurant division now who asked you work at branker and planet word for Planet Hollywood and several other restaurant companies and we brought him in and he fixed our menus and fixed our food we went to an all scratch kitchen and just you know as he likes to say we have certain items that we own that night so you go to our place because that's where you can get that taken care item and so he's very big on making sure that we have several things that are items that you know other restaurant chains don't have and we've been very successful with that we have a bombshells here in the Austin area I know and it it's pretty popular when when was that one open that was actually our third location and so it's a little smaller than our than our typical story is now but it's still a very good with location for us it's on pflugerville it's in Austin city limits but at the pflugerville.
We got close down entirely for COVID which was highly unusual we went from you know I think 4.8 million sales one week to zero the next so that was that was a pretty abrupt halt what we did is we dug in we cut costs we went to our banks and asked her to hurt we own most of our real estate so we were able to defer a lot of but basically you know other people had rents we were able to delay our our rents basically because our rents are our our mortgage payments and we're able to get some deferment from the bank we apply for PPP loans of course they gave the PPP loans to our restaurant division but not our adult nightclub division they the bank refused to process the loans for us so we only got the PPP money for the restaurants but we paid our general managers we paid our regional managers you know through the close down in New York up to 14 months I think but that gave us a lot of staff so when we were ready to reopen new locations as COVID restrictions were lifted we're bringing guys from all over the country they were traveling in and helping us you know open the locations up which made us highly successful a lot of a lot of markets move the first open or the only ones available for period of time which is like bombshells comps for this quarter are very very difficult because last year we were basically the only place to sell and alcohol and so you know now this year everything is open again things are getting back to normal which is nice I've actually prefer that over over being the only ones open because it you know I think time the population you know being being locked down with Russ especially especially for the kids so absolutely it's back open and you know we started opening up the clouds.
We got a couple of lawsuits we had to see this add to the text. I don't leverage Commission to get some of our clubs open. We sued in Miami Dade county, you know, keep the clubs open through COVID. Still, we were successful in those challenges and and and I'm up our stuff open once was it was essential to us. On that point, our staff, what does the regulatory kind of environment look like in different jurisdictions? I mean, is it different stuff you have to deal with in different states and cities, etc. yes, it's all local. Hence, it's all way down to the city level, county-level state level, you know it it it just varies a lot of places you know we have a corporate liaison for the company who runs around and meets with different political bodies meets with you know go City Council meetings meets with chief of police other city officials to make sure that you know we have a good neighbor policy we try to be good neighbors.
So we you know we we'd rather them 'cause there's complaints on U.S. policy let us let us see if we can fix and see if their complaints are real and be human be a face right not just oh that's that strip club down the street you know instead it's oh let me know you got a problem ever let me call and and you know I've got I got contacts there I can call I know those guys I'll I'll call and will will work with itself that's help us a lot and when that fails you know we have some of the top person amendment attorneys in the country so one way or the other you know we we we we stay open we fight battles but you know those battles are most of that stuff was in the late 90s mid 2000s and they're just really hasn't been a lot of uh a lot of fights anymore couple here and there but nothing nothing major mainly mainly taxes or or regulations so you know our hours or stuff like that that that that that that we are against and that we have to you know try to negotiate or fight fight to stay open hours.
We are currently at 59 clubs, and we have 11 restaurants, so we have 61 open locations and a couple of locations under contract right now. We have two bombshell properties in various stages of construction and the third one under contract, going pretty rapidly. It's the third season in New York, your biggest location, and tootsies in Miami. We have rich New York disease our biggest location it's allowed the current expansion that they just did recent expansion I think it's about 78,000 square feet now under roof and then our New York location which isn't a big location it's only 10,000 square feet because that's all the left it's all the larger your loud to be in under New York law school business can't be over 10,000 square feet and but it's still one of our top locations for sure revenue-wise
It's an exotic dancer magazine, a trade magazine, and we also own the trade show, the exotic dancer Expo, in Las Vegas every year. I'll be this August I think 14th to the 17th so basically we'll all the club owners and DJ's and managers and whatnot from the industry all go out to Vegas for four days we have seminars training, of course, the trade show where vendors you know pitch their wares to our stuff like that whoever companies and the beer companies are all out there and you know it's just basically a three day you know I call it it's a learning party that's what we call it and externally you know so we're not there to learn. Still, you can party too, so no doubt.
on August 9th will be our second earnings conference call on Twitter space is I met I met mark through one of our large shareholders who introduced me to the idea we had started with the NFT projects so we were getting very familiar with with Twitter and Twitter spaces as it was and I thought what a great idea what a great way to you know communicate with investors directly you know we've been trying for 25 years to use you know investment banks and and analysts to get our message out and we just we just don't reach that many people and we go to an average convention I went to for conventions in the last year probably talked to 80 or 90 people we have you know almost 3000 people on the earnings conference call we just did a Twitter space as a debate between a short someone put a short cord out on the company and we so we said well let's debate on Twitter space is I was on that he agreed where are you OK great so you know you know and it's excellent so there were 4800 people that listened in on the call I think the highest anyone given time over to our period was just over 900 and then in the first six hours add 10,000 replays I haven't I haven't looked to see the current numbers but you know when you think about the sheer number of people that were reaching out to and especially in the in the fence with community who really kind of embracing us a little bit you know but it's funny 'cause you got shorts damn lungs in that community so the community overall is is is is is debating the bricks right so I I mean I just think it's great it's got people talking about it but what's really amazing is it's putting people in the clubs so it's bringing people from Twitter into our brick and mortar business which you know to me is is absolutely fantastic
You know, and especially the large number of 25 to 35-year-olds that that is in you see the crypto and NFT feel part of Twitter bringing a lot of them they've never been to a club before their idea of a strip club is HBO G string Divas. They walk into a place like tootsies or bricks New York and go what this place you know is, so it's just been it's been perfect for us all the way around. That's interesting. I feel like the landscape is changing in the business community communications industry people are not using the old ways of communicating. People are going to places like social media podcasts, things like that. I feel like you're embracing that in your business, and it sounds like it's been paying off.
I was in space as yesterday the two guys in there were running the space for 62 years old quote big short sellers, so I've set my list just getting their feelings, and I was like man, this is amazing, and they get it they understand you know look it's about communication right and what better way than free and and and with lots of people at one time you know.
This is the second podcast we've done we did one with liquidity with big swing index and you know I'm embracing I've got a couple other requests in my DMS right now that I'm gonna get back with and and try to you know just keep keep telling our story right I mean that's the idea is to keep telling our story keep expanding our reach and I think as people learn more and more about our company and see our free cash flow and our capital case in strategy and understand that you know we're serious about this you know just building free cash flow per share for our shareholders and building wealth for our shareholders that's the that's been our thing 'cause 2016 before we're growing a company high powered all my financial advisors in 2015 when a deal went South and you know they were pushing me hard to to do the deal so they can make their $750,000 and bees have the detriment to the company and I said you know I'm done with these guys you know we're just we're just we're go on our own and then group shareholders met with me from California I'm sorry I'm not trying I love it and you know they they introduced us to the book the outsiders and we and we read it we looked through the concept and we discussed some of the ideas with them and basically create our cap on kacian strategy from that it's been highly successful of course can you talk a little bit about that I saw some of that on your website your capital allocation strategy kind of stuff you're working on and some of them and a projects you have replaced well basically it has three prongs one prong says if our free cash flow yield is over 10% we just buy back our own stock unless we have Better opportunities and a hurdle rate of three times so if our if we're at you know 1011% we wanna get a 33% return of cash on cash and we're gonna take our cash and and and making investments and new properties or or or new clubs.
We do our cluster acquisition because the restrictions are very difficult to the mode is is very large it's hard to go and open new clubs in in markets so we try to buy existing clubs in markets and eventually try to buy all the clubs in the same markets that we you know we basically don't have any competitors that are gonna mess up the political landscape or mess up you know what we've got going on and then the third is by you know expanding our bombshells locations and building new bombshells and we started the bombshells basically because we can't always guarantee we can find clubs to buy but we can typically find you know 353 to five locations pretty easily we're actually trying to do six year in 2023 go up 6 and 23 and it's trying to do six year for 20 three 2425 and get us to basically 30 units by the end of fiscal 25 I'm very excited about that part of the concepts well we get bank financing for that so we get to do the vital and and do the construction with bank financing we have come up about 25% of the capital required to open location that way yes so you're currently in some big cities Miami New York Chicago Saint Louis Pittsburgh and you have a presence in the South are you looking at different markets right now to to expand into we're looking all over the country right now other than basically California we've stayed out of California we had a bad experience there a few years back and right now it's just not a favorable I don't think it's a favorable market for our industry or for any industry really but especially ours.
We've been focusing on the northeast, the Midwest, Indianapolis, Louisville, Minneapolis, and our cities there, along with Chicago and Saint Louis, so we're looking to grow around those areas. Then, of course, I'll open down the East Coast from you know Portland ME to you know to Miami, so we've got a pretty long stretch up down these folks right now like Carolinas a lot so looking at North Carolina South Carolina right now pretty heavily as well we just got a new club in Raleigh, so that's an excellent location for us and so you know just going to keep growing we like markets were in because they're easier to manage. Still, we also have people that are prepared to move for us and want to move up in the company and and and create, you know a long term career with us so my guys been with us word gosh I'm guys with me from the beginning from like 1991.
I got an app previous collecting but when I started learning about blockchain I got very excited with the energies we can you can create a meta mask to be anonymous so you can hold your interact which is basically just the key to the blockchain for the utility that we're gonna offer that is up three cover charges for you and a friend at the bottom level and in the in the NFT spirit we were doing 3D rig arts so three dimensional art as well as rarity levels so you have the you know level 5 which I'll get you in a printed for free a level 4 gets you at three friends in for free and then from there it starts adding bottle service VIP lines GIFs from the top ten rarities will have a birthday party every year on your birth month for you and 12 guests including bottle service and and cover charge VIP everything is all covered and then how there's gotta be someone at once in one of my favorites is I go to the Super bowl every year and so we're gonna do everything is that Super Bowl more than one will go to Super Bowl with me out in phoenix in February so that'll be that'll be a great great deal.
You can go to the tip and strip dot IO, and you can pre-buy right now with the credit card. We're trying to make it very easy. We'll call it to web 2 1/2 so that you can; you know, bridge our our our web two and web three along with our brick and mortar business, and it's working very well. We started pre-selling last week. We're starting to push in the club. This weekend is the first time we're going to be pushing very hard to NFT NYC, and with eve courts at right now and the market, you know, the proven market is crazy.
I don't know when we're going to make it yet, so we sentence we determined we were hoping sometime shortly after the end at the NYC, but I think we might push another month or so and see if this crypto market settles down a little bit and finds it finds the bottom. I don't want someone to you know pay and all of a sudden you know because my whole bunch more money than so when you can't fight with you any display any U.S. dollar from your visa card you can use Apple Pay Google Pay all those are available on the site to purchase.
You get immediate level 5 access, so as soon as you get your receipt in the mail, you can get you and a friend into any of the clubs of the 36 clubs around the country just by showing your receipt, so you get immediate utility before you even have your FT.
I feel very excited what was funny is my son is the one who brought this idea he's 26 years old and we started our CI development services for him to be the president ran for the company and it ran our energy drink for awhile and he still doing that as as he's doing this as well and you know he just came up with you know look we need a we need a benefits program or VIP program and I think in FT is the best way to do it and so when he started pitching to me at first I had met I was a little skeptical you know I'm I'm 54 years old and so I said well teach me this Twitter teach me this teach me this discord I'm new at discord was can I play video game so I kind of had an idea of this word but tell me what you mean by great community on discord and show me what you know so I started in February we started learning everything and you know he convinced me pretty quickly that that this was definitely especially as I like I said I studied the blockchain learn blockchain and I listened to Gary vee about you know all these new projects are gonna have utility the art alone is not going to be enough we got to have real genuine utility and so I said you know awesome let's do it.
We've worked with two excellent groups Depeche Mode as we already put. Our group is a conglomerate that brings up a bunch of artists together, so, like a running artist, we've got actual fashion clothing designers designing all the outfits. Then we've got you to know a gotta dust 3D programming who's done it you know the 3D bodies the faces that you know all the different features it's coming together really great I'm very excited about it we've only put a few sneak peeks out there the early ones the product is being refined even better and I think people are going to love it when they when it comes out.
you always have to think ahead if you navigate different obstacles like you feel like you're just it's who you are before thinking or because of the way this industry and you always have to be one step ahead and like figure out what's next ideal I think that you know I think the club business has a lot of you know 19 to 25-year-olds that work in it whether from dancers waitresses bartenders I think they keep me young right and I'm I talked him all the time you know so I hear all these ideas and you know
I would just say look at our record from 2016 on prior to that we were a different company than we are today different management philosophies it took me a long time but it took grow into that application strategy that we have today and they had really learned the things I had to learn so I would say you know in 2016 I graduated college I got my first job it's kind of a it's how I look at it and you know here we are you know we're on solid I think I mean this year is gonna be unbelievable we I think our K garner was about 20% if you take out 2020 through 2021 and I think we're going to be this year next year probably over 30% free cash flow per share growth so I'm very excited about it a couple of really good years here with the big acquisition that we bought 13 clubs already this year we've got problem hoping to pick up about four or more so maybe 17 by 17 close by the end of September maybe it's only 15 and we get the other ones you know before the end of the calendar year but I think we'll have 17 acquisitions by the end of the calendar year 2022 and I'm just really excited to see you know where we going 2023
Cash is king were sitting on over 40 million in cash right now if if the economy goes into recession which I think is inevitable because it becomes self filling prophecy if everybody continues to tell everybody how bad it's going to get eventually it's going to get bad but I think labor markets holding up steady right now we are numbers are fantastic you know consumers definitely want party they definitely want to travel this summer so I don't think I don't believe no matter what the Fed does they're not slowing the consumer down before before August September so we'll see what happens between now and then and hopefullyyou know the Fed the Fed realizes that the consumer will slow down when when when school starts backing up the college kids go back college and partying stops in the traveling stops I think people will I think people will listen a little more then I believe they are concerned now with the $5 gas and whatnot so you're getting that concern you're putting in I I hope they don't slam the brakes on right we don't we don't wanna hit a brick wall.
I think that's the key right now when is the most booming time of the year for your company all done we've gotten so big I I mean we used to be we used to be seasonal I used to say you know our best time towards October through March but now that we have Denver you know we've looked at the Denver number denver's rate in summer and they they get you know they have some pretty harsh winters so they'll have some some off months in December you know January where you know New York will be you know blowing up going it out in December in January because it gets dark at 5:00 o'clock and you know what do you do when you get off work if you walk outside it's already dark you would put the strip club so you know I think we just gotta gotta stick with it and see how it goes I I think our I think our weakest time this year will probably be you know end of August and September and then I expect us to kick right back up in October again even if the economy is bad in you know recession hits I I think that people adjust will go from quality of customer to quantity customer for our VIP spend maybe a little less but we'll we'll just pack the clubs out with more people will you know will do discounting we'll we'll do more free cover passes will run more specials and promos on on social media and just keep people coming out to the clubs that's the name of the game for us.
So we had to do in 2009 we had about 12 back then was about six months but we didn't have social media and we didn't have our ERP system we have today today my number is I get my numbers instantaneously I know every every day by 1:30 what what you know the receipts from all 60 locations tonight before were I have comparison sheets I can have our corporate office run programs on profit losses so I can see if our costs are getting out of line almost on a weekly basis it's a it's amazing what what Bradley my CFO has has has created with the ERP system for us as far as tools to to actually operate the company and see when things are sliding I mean if you look at bombshells we were able to keep our cost of goods and our labor in line through all of this through all these you know inflationary deals so far we'll see how this quarter goes it is tough food prices are definitely getting hard hit and it's getting harder and harder to keep passing that on to the consumer so you know margins may get it for for you know six month period here but I think will recover from it.
I still don't think anything will affect us by word about 8 or 10% regardless of the only final thoughts or questions for Eric before we wrap up. Oh man, there's so many, but I don't want to keep you all day, so I mean, one thing that I'm a younger and you but I just when you got into this did you have a grandiose vision I got to hear what you're telling your story is like you broke it through an industry you should have a bunch of standardization right you made everything as you can predict and model and then it's something you from self-finance when you started this delete vision, or you pick your head to the ground or kept at it or like how do you look at it well I was twenty I was 21 when I started, so I had more money than brains, and hopefully I could say it that way I like I like keeping having more money than brains.
I was dating a stripper. She was at my apartment with her friends all the freaking time. My place was the party place. I was a party guy when I was young. So we're like we're taking these girls to work every day picking him up every day why aren't we taking our place, why aren't we making them all, and so we decided that made us decide to open the club in the first place and so I'd say the beginning it was about you know it was about the journals, and you know they complained about the management they complain how they were treated and said look we have to do better. We have to figure out a way to do this better, which is how it started. That's the real vision of growth that started in about 2004.
You know we tried. At that point, we had been with the public company for about five years, and the CEO and I realized we were going nowhere. We need unless we have a location in New York City because we trainees New York guys down to Houston, and they come to the club and party their butts off. Still, they wouldn't fire stock because they didn't look at us as a real business. They see us as a place to get out of the city and party, you know. We have to obtain a place in New York to catch him in work mode and let him see the business side of the business, not just the fun side they come down here. They want a party that doesn't want to leave look at the business. So we opened in New York, and I think once we got open in New York City, I think that's when the real dream started.
We started looking to acquire the gloves, and in 2007 found the 50s in Miami, and that was an eye-opener course in June 2008. You know, our market cap was higher than playboys, so you know that that that that that was a time when the plug was planted, you know because I was joking around when I get thirty million I'm selling I'm going to the beach you all see me later well in 2008 I was 40 years old I said I can't go to the beach at 40 what am I going to do for 50 years you know both my grandpas were in their late 80s when they passed I said man you know my dad 77 I said I got a lot of time left I don't know I can't retire yet so you know we I think that's when it sentence OK we're going to grow this thing we made 11 acquisitions in 2008 you know that we have the meltdown of everything we still can you know continue to grow.
We did a significant acquisition of nine clubs and a single in a single transaction. Then I think from there on it's just been you know it's just it's a lot of fun you have over 2900 employees now, and you know they keep me going you know I you know we have a Facebook group and whatnot word guys can everybody post pictures of their kids. You all new babies hope so, and so's wife is pregnant. So we just really kind of, you know, a close family. Even though we have 2900 employees, there is 137 plus in management; it's really easy to get close with that many guys. I love watching the kids grow up and stand, you know, hearing the stories, and I've got guys working their kids are graduating college right now.
I said it's just been a lot of fun, and it's still a lot of fun, and I think I'm going to become no fun. I'll probably do because you know someone told me if you know if you're having fun with what you're doing every working day in your life, I think I word you know the test of time.