Yet Another Value Podcast - Yaron Naymark from 1 Main Capital on RCI Hospitality $RICK

Episode Date: April 9, 2021

Yaron Naymark, founder and Portfolio Manager at 1 Main Capital, discusses his investment in RCI Hospitality (RICK). RICK is a cash flow machine, and Yaron thinks the company is set to compound free cash flow per share at an accelerated rate for years as they continue to roll up the gentlemen's club industry at very low multiples, execute on their Bombshell's growth plans, and repurchase shares when they trade at attractive prices.Yaron's Twitter: https://twitter.com/1MainCapital1maincapital's website: https://www.1maincapital.com/Chapters0:00 Intro1:55 RICK overview10:05 Getting comfortable with the management team18:30 Discussing the roll up opportunity28:15 Valuation arbitrage on acquired clubs32:25 Bombshell's growth prospects38:50 Breaking down the ROIC for new Bombshell's44:15 RICK valuation and SOTP49:25 Does ESG and regulation help or hurt RICK?51:55 Normalized FCF for RICK57:10 Closing thoughts and adjusting for James Harden leaving Houston

All right. Hello and welcome to the yet another value podcast. I'm your host, Andrew Walker. And with me today, I'm excited to have on your own name mark. Your own is the founder and portfolio manager at one main capital. He's also the first guest to come on here who might make this a not suitable for work podcast. But we'll get to explain it all that in a second. Your own, how's it going? All good, man. Thanks for having me on. Hey, I appreciate you coming on. Let me just jump right into it and start the podcast the way I do every podcast. And that's by pitching you, my guest. You know, you and I have talked on several occasions. We talked for almost 45 minutes before the podcast started, but, you know, I just think you're a super clear thinker

and I love your portfolio. I love how eclectic it is, but I think the best way to show what a clear thinker you are is, you and I were talking earlier this year about Collectors Universe, CLCT. Obviously, you remember it. I think a lot of the people on this podcast might have seen some tweets and posts and maybe made some money off that. But we looked at the proxy. It came out. We were talking about. And I said, you know, it looks bad, but it doesn't look awful. And most other investors would have just dropped it. And you pushed me. You said, dude, you need to reread this. You're missing the force for the trees. This is an awful deal. It hugely conflicted. Like read between the lines a little bit more. Most other investors would have just like kind of dropped it and

not pushed anyone. So I appreciate it. I really respect your opinions. Me and my investors appreciate you pushing me there because that turned out fantastically. But I love the way you're thinking. I think if people go, your letters are on your website, if people go read a couple of your letters. I think they will hear it and agree with me. So I'll let you comment on anything there, or we can jump into the stock we're going to talk about today. Yeah, the only thing I'll say is thanks for the kind of words. I think the only thing better than making money is making money with other people that you enjoy, you know, having conversations about stocks with. So I'm glad you were able to participate and kind of join along for the ride on that

one. Excellent. Excellent. Well, hopefully we'll make some more money in the future. And maybe even on this one. So let's flip to the stock we're going to talk about today. It's RCI Hospitality. The ticker is Rick. I'll let you say what they do and everything, but you've pitched them at the Best Ideas Conference earlier this year. You've been longed them for a long time and hugely successful and right on them so far. So I think you think this is just the beginning, but I'll turn it over to you. Who is Rick? What do they do? And why are they kind of your best idea? Yeah. So I have been long. I've been long RCI hospitality since the inception of one main capital, which was in February of 2018. My multiple uninvested capital has been pretty good.

My IRA is probably a lot worse than some people who jumped on after COVID, because that's when it really took off. But RCI is, it's an owner of primarily gentlemen's clubs across the U.S. It owns about three dozen gentlemen's clubs across the U.S., primarily in major metro markets, you know, Miami, New York, Chicago, big cities like that. And then it also has this emerging restaurant concept. It's kind of like a sports bar concept. It's military theme. They have about 10 locations all in Texas today. Really good unit economics on those. And they're investing a lot of capital to kind of grow that concept, both on the own side as well as they're just starting to franchise it as well. It's a really high quality business. Majority of their profits today

still come from the gentleman's club business, super high quality. They basically have local monopolies. People don't generally want new gentlemen's clubs in their backyard. So it's very hard to get new permits to open new ones. And most cities don't grant them. And on top of that, you need the liquor license and both the liquor license and the license to operate the gentlemen's club are grandfathered into a specific location. So if you don't own the underlying real estate, it also makes it very hard to compete. And so they're basically local monopolies. You know, like local bars and clubs in Vegas or Miami. The hot one of the day really changes every few years. You know, new people are like, oh, that's the old one. What's the new hot one? And so,

like, you might make a lot of cash out of the best nightclub in Vegas for five years. But five years later, there's probably a new one that pops up. That's the hot one in town. That's not the case with gentlemen's clubs. I mean, the hot gentlemen's club of New York has been the hot gentlemen's club in New York for the last five years, 10 years, 20 years, and will be the hot one of New York for the next five years, 10 years, 20 years. They generate a lot of cash. They don't require a lot of cap-x reinvestment to maintain them. You need to change the carpets every few years, maybe change the sound system every few years. But for the most part, all the EBITDA you earn converts into cash.

So no real competition, very cash generative. And RCI specifically is able to take the cash they generate from those clubs and reinvest at very high rates of return. The two places they typically invest in are club acquisitions and they're able to buy competing clubs for, you know, four-ish times EBITDA usually. There's a very large market for these. I mean, there's hundreds of these across the country, probably 500,000. I forget what the number they put in their presentation, but like many, many hundreds.

So the market size is multiples of their current size. And most of them are privately owned by people who kind of built them over the last 20, 30 years and are probably going to be looking to retire at some point. And there's no natural buyers of these. they're so cash generative and so profitable in the big markets. You know, I'm not talking about tertiary or kind of small cities. I'm talking about the big city clubs are so cash generative and so profitable that you can't really sell them to a management buyout type situation.

And institutional buyers like private equity firms don't want to buy them and roll them off themselves because, you know, their LPs might not like that they're owning gentlemen's club. So there's not a lot of competition to buy these. I mean, to give you context, the club that they bought that I first, you know, made me look at this company was a club in Miami called Scarlett. And that club, when they bought it, it was doing six million of EBITDA and they bought it for like 30 million bucks. So like you can't sell that to your management team, even if the management team wants

to, you know, pay more than RCI does. And so they're able to kind of roll this industry up only the locations they want in good markets. They have strong job growth, strong economic prospects, good population growth. And so like these clubs on a same store basis grow. They the cash flow they generate grows. You're buying them at like, you know, 25, 33% unlevered yields. And you could lever them up because you're getting mortgages on the underlying real estate, which they tend to buy with the property. And so like your returns on equity could be, you know, 35, 40, 50% pre-tax. And then the other projects that they reinvest their cash flow into are this bombshell concept, which I touched on earlier. That's the sports bar concept. You know, it took them,

a while to prove that out. They started with a few locations that weren't that successful. They were in like B and C type locations to save money on the real estate side. And the formats were a little bit smaller. But over the years, they've kind of, they kept experimenting and they figured out that if they put them in great locations and build them with big size, the unit economics just make a ton of sense. I mean, the unlevered returns on bombshells are even higher than they get on the club acquisitions. The paybacks are really fast. They could also lever them up. So you're looking at levered ROEs, well, depending on whether they lease or buy the underlying

real estate, you're looking at ROEs that could be like 50% as well. And so they're taking, this thing was trading, you know, in early 2018 at a single digit free cash flow multiple. Today, it's at, you know, probably a low double digit free cash flow multiple. So it's definitely re-rated some. But they're taking that free cash flow and reinvesting it at these incredibly high rates of return. And so there's a very clear path to them growing free cash flow per share. that I think they're going to do at least 25% plus.

You know, they have this 10 to 15% target out there. But when you push the CEO, Eric Langan, on why he says 10 to 15, he's just like, I prefer to, you know, under promise and over the liver. I don't want you guys beating me over the head if I only grow, you know, 15% one year or something like that. And so I think they're going to grow 25% plus for as far as the eye can see. I think there's a ton of consolidation opportunity. And there are just not that many names out there that I follow.

that are very high quality, predictable cash flow in business that you could buy at a low double-digit free cash flow multiple that I think can grow free cash flow per share at 25% plus as far as the I can see, especially in situations where I like the management team, I think that they have skin in the game, they're competent, they make good business decisions. You know, Eric, people can hate on him for the business decisions he makes sometimes. And, you know, the way I describe him is he didn't go to. Wharton, he went to the school of Hard Knocks. He learned over decades. He's built this business out of basically, you know, when he was in his early 20s, I think he started to build this business.

And he, you know, he's made mistakes along the way, but he admits to his mistakes. He doesn't try to brush them under the rug. He'll tell you when he messes up. He listens to his shareholders when he makes decisions. He doesn't repeat the mistakes he makes. And he has a really good business head on his shoulders. So like, I can live with the mistakes he's made to date. I could live with the mistakes he's probably going to make in the future. But I feel like we're aligned. He's a winner. He's competitive. He has a great opportunity to deploy the cash flow that this business is going to generate over the next decade. And the valuation makes a ton of sense still. So I'm really bullish on it. That was a great overview. And let me tell you that I told you before the podcast,

this one's a little bit of a sore subject because Rick's, one of the things about them is they own the real estate under a lot of their, you know, gentlemen's clubs, I guess you would call. And I've got notes from, I think it was 2016 and I typed in, like, I think the New York location, because they own a New York location at like 55th or something. I said, I think the New York location might be worth the entire enterprise value. And for some reason, I passed and shame on me because it's been a huge home run since then. But I just want to, I want to give some pushbacks to the thesis here, right? Because, hey, I think it's a good thesis. I know it's a very popular piece on Finchew it, but there are pushbacks going around. And so I'm going to

give you some pushbacks here. I think the first pushback when you think of for anyone would be the management team, right? And I do think there is a little bit of the proof is in the pudding, but there's also some red flags. Now, I think the first thing would be, hey, if I said, hey, that guy, he owns the local strip club. Why don't you go do business with them? Most people's first thing would be like, oh, hey, let's hold the brakes a little bit on the local strip club owner, right? So I think that's, and I think that was a little bit furthered by, it was 2018. There was an SEC investigation. There was a short sale report. And the company actually, I don't think they pled guilty, but they did pay an SEC fine. The CEO paid a fine. The CFO paid a fine. A board member

paid a fine. So they did settle it, but it was related to improper executive compensations and perks and stuff. And I think when you roll those two together, like that is a lot of hair that's coming on to things. So maybe if you can address kind of the management that I'm not saying it's anything on tour, but you can see why there's. I think that's one of the biggest pushbacks I've gotten historically. I think, you know, now that the stock is working, I don't hear that pushback as often. Obviously, when the stock was at 15, it was very easy to tell me that's why the stock was at 15 now.

Like, I don't hear it as much. The reality is Eric owns around 7% of the company. He definitely realizes that he hit his pocketbook way more by depressing the share price of the 7% of the company than any of the perks that were going on. But like, even the pocketbook thing, like if someone had. bad intentions, doesn't matter if their interests are aligned with mine. Like, I tend to not want to be involved in those situations. I don't think any of the perks that they were doing were really a big deal in any way. I mean, if you just step back and think that any big public

company, if you look into the CEO's actions, I think you will find that they're kind of using some perks in a way or company resources in a way that, like, if you did a full-blown investigation, you might realize, like, hey, maybe that wasn't the best idea to do. And that's the level of kind of perks and related party transactions that were going on here. I mean, like, I mean, you had really bad things like GE, right? Like they had a jet following another jet, like for no reason, an empty jet just in case, you know, one of the jets malfunction. Like, you had stuff like that. But I bet you if you look at any Fortune 500 company, like the CEO might use the corporate tickets to the football game or the Super Bowl to give to his kid.

or they might expense a corporate dinner from time to time. And here you had a situation where I'm trying to think of like the really big ones. I mean, there was. It was improper aircraft use was one. Yeah. So like they used the corporate aircraft for personal reasons. And they actually expensed that use, but they didn't expense it properly. I think they didn't like the way they accounted for it wasn't the right way.

But it was it was fully reflected in the income statement and cash flow statement. really impact the reported financials. It was just the way they disclosed it and the way they accounted for it. The way they accounted for the percentage of the cost that needs to be allocated to compensation versus non-compensation. So there was a disclosure issue. I don't think anything was malicious. I don't think anything reached the size where it was like, holy shit, you were stealing from the company. Excuse my French. I mean, we're talking about like disclosed compensation that they didn't disclose before that amounted to like the low hundreds of thousands of dollars over a multi-year period like they went back and looked over a three

or four-year period or something like that and the totality of this stuff that they had to come back and disclose was in the low hundreds of thousands for a business that's you know multi-hundred million dollar market cap over a multi-year period and like I think this never even would have been an issue if there wasn't this anonymous short seller um that came out and had this report about the company that had all these accusations and was kind of malicious towards them. And that happened to coincide. So the SEC read that and started to do an investigation. The board did its fiduciary duty to shareholders or its duty to shareholders and hired an international law firm to do an internal investigation at the same time that the

SEC was doing its investigation. And so you had two eyeballs looking at this. As bad as you know, the things they found, the worst things they found were these low hundreds of thousands of dollars of stuff that were fully expensed and not appropriately disclosed, which I don't think is that big of a deal. And then the auditor resigned. And I think the whole reason the auditor resigned was, so going back, you know, probably like three or four years ago, there was a big shareholder of RCI that went to them and they were like, hey, you're using this like not well known auditor. I think it would actually help you if you like change to more nationally recognized auditors. They changed the BDO. When they changed the BDO, they also decided to change

their like accounting software. And so they had two years in a row where that change in accounting software led to them closing the books late in the year. And so they basically filed, delayed 10Ks both of those years. Shareholders were kind of pissed and yelling at the company. The company was kind of pissed and yelling at its auditor because they're the client of the auditor. So, they're like, hey, like, we're giving you everything you're asking. Why are you asking for stuff five days before we need to finish our K? And now we're missing it by the weeks. And so, like, they kind of gave BDO shit for two years in a row.

Then this SEC thing happens. And BDO is kind of blindsided by it because, like, the company was not lying to BDO. BDO just wasn't asking them all the right questions about like, hey, are you doing anything with this? Are you doing anything with that? How are you accounting for this? And so I think BDO is probably like, shit. Now we look bad.

Three years in a row, we have this review. And I think they started asking for a bunch of unfair requests. They wanted to open a third internal review done by BDO. So they would have had to pay for the SEC one, to pay for the international law firm one, and to pay for the BDO one. And the company was just like, no, you guys were actually the one who engaged the international law firm on behalf of our company. You should be fine with their review. And if you have to resign, you have to resign. I think it was kind of a relationship that had gone too far south.

six. And so, but, but the biggest worry I had at the time was, are they going to be able to find a new nationally recognized accounting firm? They found, um, uh, freedmen, which is nationally recognized to come on. And then I was worried that will they have to restate earnings or free cash flow? And they didn't. Free cash flow was, you know, what they said it was. They generated a lot of it. They reinvested that free cash flow into the things I thought they were reinvesting them into. and they were able to grow earnings because of it. So I think a lot of that is now in the past. They settled with the SEC.

They improved their disclosures. And I think most importantly, you know, what I told you about Eric's made mistakes in the past, but he learns from them and he won't repeat them. I'm highly, highly confident he will not be repeating these mistakes. He did not have a fun two-year period dealing with the SEC and law firms and stuff. It cost the company a lot of money. And it hurt the share price. He paid like $400,000, which today at today's share price, it's not much money.

to him, I guess, but it's still serious money. And it was a lot of money for him. It's serious money. And like, it was just stuff like they had a board member that was the brother of the guy who runs the club division. And they didn't disclose that. And you need to know if a board member is deciding the compensation of one of the most senior people in a company. But the guy, I forget what he's made, what he was making, the manager of the club division. But like, it was under a million bucks a year. This is a really profitable division of the company that's really important and creating a lot of value by deploying capital at very attractive rates of return. So if he's making like 600 grand a year, I personally don't think that's like if it was disclosed, it wouldn't change my opinion about

the company. So basically nothing that they ended up disclosing really changes my opinion about the company. It was just the fact that, wow, you got caught and now you have to disclose it. It kind of looks bad. And I think that's what, as people were waiting to see what was going to be disclosed and what was going to be found, that was the scariest part. But once they disclosed everything, it's like, oh, that's it. And that's how I felt as well. I don't then they're going to repeat that mistake. It's perfect. Let's turn to the next thing. This is something that I've always had trouble with, right? Because they have always pitched. And I think maybe the share price is proven, their performance is proven, but they've always

pitched, hey, we can go roll this industry up exactly what you're saying, right? Like, we can roll this industry up at somewhere between three to five times EBDA. EBDA is, these are very profitable, very cash generator of college, you know, that the singles and the 20s just keep on coming into our bank account and everything. And we're going to, you know, we're going to buy it three to five times EBIT and we're going to create a lot of value. My pushback to that was always intellectually like, hey, it takes a buyer and a seller, right? And the seller is selling because he thinks he's giving an attractive price. And you guys are just going to buy at three to five times a dot.

And I don't think they're like, you know, if company, if tech company A goes and buys tech company B, a lot of times there's big cost synergies, there's big revenue synergies from plugging and distribution. There's not really synergies here, right? It's really just, hey, we're going and buying that really attractive. multiples and we can do this all day long. And it always struck me intellectual as, why is someone selling to you at such a cheap multiple when this is such a good business? You know, I get that like a lot of private equity firms might not want to be in this business, but there are private equity

firms that don't give a, don't give a crap about ESG, you know? So I'm sure they could find other buyers. And like, even at three to five times EBITAB, 20 million, 30 million for these clubs, I'm sure there's even buyers in the local markets who could write a check for this. So I'm just surprised that they can create this much value from an acquisition strategy without any a roll-up strategy without any real big synergies, if that makes sense. Yeah, I mean, there are small synergies, but I agree with you. They're not massive. I mean, liquor purchasing, obviously, if you have scale, you're buying liquor for cheaper.

You have regional managers who know the business and understand where the leakage comes from and kind of preventing theft and the likes. You might have a more sound pricing strategy on kind of how to price things at lunch, how to price things at dinner, how to price things on a busy Saturday night. So there might be some operational and some cost synergies. They put their own ATMs into these places and they charge ATM fees. So like I forget what the revenue number is, but I think they generate maybe like five million of EBITDA from their ATMs or something like that, which is a crazy number

when I heard it. And so like there are some synergies, but I agree with you. The synergies aren't massive. And at the end of the day, the sellers are still selling for like very high cash yields. but it's owner operated what they're generally buying. These guys are looking to retire generally. They want to cash out. They built a very valuable business.

They want to cash out. And I'll push back on the fact that there are lots of willing buyers at $30 million. Like if you're a very wealthy local guy, you probably care about your reputation a little bit. It's kind of like, man, that guy went and bought a strip club. Like if you're really wealthy and local, you also might not know how to run it, right? Your wife might not want you buying that like, hey, honey, I'm going to sink 20 million into the strip club. Your wife or your husband might not want you buying it. You might not feel confident that you know how to operate it well, right?

Because like there is in the broader industry, and we're probably going to touch on this in a little bit from an ESG standpoint as well. But there could be drug sales, prostitution. And if you don't, if you don't sniff that stuff out, which like RCI obviously is way better at doing it than like a local owner is because they, you know, they know to hire undercover. security guards or former police officers and to fire people if they find out anything like that's going on under their watch. But like if you're really wealthy, do you really need that headache of like all of a sudden a headline comes out that, you know, there's drugs being sold in your club that you bought, that your wife didn't want you to buy? And on top of that, like, I think people tend to not trust the numbers that much from sellers of these clubs because it's like,

wow, it's a big cash business. Does this, you know, did he just jack the numbers the year before he sold it to me. So like there's a little bit of a trust element that RCI has perfected how to diligence these things, right? And it's actually not as much of a cash element as you think. Like the dancers make a lot of cash, but most of RCI's revenue is actually credit card, right? It's entrance fees to the bar to the bar. It's mostly use credit card for the VIP areas and the bottle service. That's where they make most of the revenue. So it's mostly credit card. So there's not a lot of cash leakage, but they know how to figure out if someone's kind of gaming the numbers for a year or two before they try to sell the business. So there's just like,

a know-how, you know, an industry knowledge component to this that they have. And there really aren't, I mean, you think, like, there are private equity firms that don't care, but private equity firms that are going to buy, these are not really financeable assets, right? You have to buy them pretty much all cash and maybe a seller note. And so, like, a private equity firm that wants to buy a $25 or $30 million platform and then wants to go infuse cash into additional roll-ups, you're looking at maybe maybe they're putting like 25 to 50 million of capital into this thing over the life of the roll up and if that's going to be 10% of their fund they're investing out of a 500 million dollar fund right to do that strategy and a 500 million dollar fund

definitely has invest the LPs that don't want you doing that so like there might be much smaller funds they want to do this but I think this is too big for them the funds that are 400 500 million I don't think could do it I haven't come across any that can And so like, and these are limited competition processes where Eric and the team get to know these potential sellers years in advance and have a little bit of a kind of proprietary element to this of like knowing who's ready to sell, who's, you know, what price would work for them. And also structuring the deals in a way where it's like, listen, you might not want to take all the cash at once because you're going to have to pay tax. Yeah. And you don't know what to do with all that cash. So what if we give you like a nine or 10 percent seller note where you can make nine percent interest on a big.

chunk of it. And maybe the management team is like, hey, we'll do that deal. If you're willing to give us a seller note, we'll buy the club with a seller note. But do you really want to trust the management team of the club you're handing the keys over to with a, you know, paying you with a seller note? No, no, you'd rather trust a public company with a $500 million market cap to pay you back that seller note than the management team of the club. So they could structure the deals in creative ways to defer taxes to make sure the sellers are still getting good compensation on part of the transaction that's deferred. So there's a lot of elements to why they get these deals. And you don't need to find that many of them. I wish, by the way, that they could deploy all their free cash flow

into club acquisitions. I think that's the much higher quality business. And it's a very durable cash flow stream. I just don't think there's enough sellers in any given year. And RCI doesn't want to rush to deploy all their cash into whatever deals are available. So that's kind of why they came up with the bombshells concept, which has worked out very well for shareholders, but you can't predict when these come up. You know, two can come up one year, zero the next, three the next. And so that's kind of why you have bombshells, which is a good outlet for the cash. But if they could do as many of these deals as they wanted, I mean, I would say put all your cash into these. I love your point on, you know, this is not normal due diligence where you look

at a restaurant and you say, oh, yeah, like I can look like you need to be able to do diligence that How many people are equipped to due diligence that there's not prostitution going on in one of these or something? I love that point. Very specialized due diligence. I think that was a great point. I also love that the seller's note, if you're giving them a seller's note, it also encourages, hey, if they've been juiced cooking the books in any form, they don't want to take a seller note. So kind of aligns incentives. I love both those points. Let me just ask on buyers. By the way, they have offsets on the seller note. So if they find out that, you know, there's fines that haven't been paid or they were doing something that leads to fines that need to be paid or that they were lying about the books, they could offset the seller note. So for up to a two-year period, generally, they could reduce the purchase price that they paid if they find something shady, but they haven't had to do that because their diligence process is really good. I love that point. Let me just push back on no other buyers, though. So let's say I agree with you that we eliminate private equity firms. You know, it's very tough. It's not like there's tons of publicly traded gentlemen clubs out there. But I do think there are some other big

gentlemen groups out there. So I think there are a couple other big, big buyer groups that could potentially serve as kind of competition for these? Yeah, there's one other big one. It comes down to if they're both bidding around the same, it comes down to who you want to sell to. I think Eric has a great reputation. He treats employees of the bot asset really well. He treats the former sellers really well, right? If they want to roll their seller note five years at 9%, he's like, you know what, we'll pay you another. He treats sellers well. And the market's big enough, again, we're like, you know, if you have 500 of these being sold over in big markets, right? Because it's important to Eric. He used to buy cheap clubs and kind of dying towns. And he realized that like

they comp negative. Public markets don't like that. He eventually ends up shutting them down and taking impairments on them and he didn't figure out to do with the real estate. He wants growing cities with like population growth, strong job outlook, where people are doing well and they want to spend more money, right? Like Miami, you have the Super Bowl coming. every few years. In Minnesota, they have this. And in Chicago, they have the NCAA tournament. Like, he likes those cities where, like, people are spending more and more on entertainment and going out every year and those markets are growing. And so, like, let's say there's 500 of those coming to market over the next 10 years as people retire. He doesn't need to buy all 500.

I mean, he creates so much value with each one of these that, again, if he could do one a year of these or two a year of these, he's going to create tremendous value, especially at today's market cap, which is still relatively small relative to the overall market size. Perfect. And we're going to talk bombshells and then valuation in a second. But I do just want to do a quick valuation point. Like, look, they're buying these for three to five times EBIT. I think if you bought something, if you bought one of these for five times EBDA, I think that would probably translate to about seven to eight times after tax free cash flow. And I think, you know, right now trading at 10 to 12 times free cash flow. If you listen to the

Q1. How do you get to seven to ten times? after tax-free cash flow, if you're running them for five times EBITDA? I was just doing the math in my head with a 25% tax rate, a little bit of interest drag, a little bit of that. If you want to say a different number, please, please go ahead. Yeah, I mean, like he could leverage, generally what he buys them for is like three to four times EBITDA, excluding the real estate. With the real estate, it's five times is kind of, he'll say it's a little bit less, but I've done the math on all the ones he's purchased historically. On average, when he buys the real estate, he buys these for around five times. Because he buys the real estate with it at five times. He puts two turns of debt on it. And so, like,

the returns on equity are way, way higher, right? I mean, so let's say it's four or five times free cash flow equity. I was kind of more thinking an unlevered after tax free cash flow. That's five times. You know, I think the stock right now is, let's call it about 10 times free cash flow. I think if you think there's a boom coming maybe. But it's more than the sellers are selling. Right. So I do think there's, again, the question would be, hey, they're going out and buying businesses for, you know, people are, rational people are selling them to, for five times free cash flow, right? And we're turning around and buying in the public market for 12 times free cash flow, 10 times free cash, whatever, we're buying it for more. So I do think there's a

pushback. Aren't I paying a little bit too much versus the private market value of these businesses? Yeah. I mean, if if the way you think about valuation is what comps are worth, then yes. But if the way you think about valuation is, you know, how much is this cash flow stream worth to me over time and how much do I think it can grow over time, then I think I personally am very happy with 12 times free cash flow, which is like an 8ish percent free cash flow, you're growing 25 percent a year for a very long period of time where I think that cash is reinvested in a very shareholder-friendly way. The other point I would make is these guys, you know, if they're selling for seven times free cash flow, that free cash flow stream for them is growing at 2 to 3 percent in line with comps.

It's not growing at 25%, right? Because they can't take their free cash flow and roll up the industry because they're one kind of guy who built this business who's not set up with the infrastructure to create this roll up strategy, right? So, like, you have the club that's growing free cash flow at 2 to 3%. You have RCI that's growing free cash flow per share at, I think, 25%. I think that's worth a premium. I mean, if you just ask me, like, how much would I pay for this asset that I think is going to grow at 3%. And granted, that 3% growth you also, I guess, get. the free cash flow yields because you don't have to reinvest to get that two to three percent

growth so like really your total return from that asset would probably be your free cash flow plus your growth and so if you're buying it for like i don't know eight times unlevered free cash flow and that's a 12 percent 12ish percent yield plus three percent growth so still you're getting like 15 percent call it total return from that asset whereas i think with rcii you could probably make 25 percent total return so like i think that's worth a higher free cash flow multiple um and also public targets do tend to value these larger, more diverse. And by the way, you get diversification with RCI, right? If you buy one club in Chicago and that club burns down, that's it. Great point.

You have a nationally diverse. And if Chicago's economy goes to crap, you're screwed. Whereas RCI, you're diversified across a lot of cities, a lot of locations. Diversification is worth something. I think there's a premium for that as well. I mentioned the New York club that five years ago, it probably still, but five years ago, I was like, it's probably worth Rick was a lot cheaper of time. It's probably worth Rick's enterprise. Today, like I think the New York economy is going to be five, but especially six months ago, the death of big cities,

the death of New York City, right? If you only own that New York strip club, you were probably a little nervous, whereas, you know, for RCI, they own that, but they also in the Miami. They also, so I think that city diversification, I think, is real and great. Let's turn over to bombshells. So bomb shows, you described it when we were launching, people are really, a lot of people are really excited about this concept.

And I will be honest to me, I look at it. It's the least exciting. And it sounds like you're excited, but you're less excited about it than the thing. But when I look at it, I say bombshells, it's a restaurant company, right? And there's plenty of those out there. Twin Peaks was hot for a while, I think. There's Hooters been around for a long time. And look, I'm, my first department out of college, there was a hooters right next door. And I probably spent a little too much time there, to be honest with you. So no judgment. But, you know, I look at it and I say, they're saying they're going to get great returns on capital. I'm sure the returns are fine, but, you know, they say it's going to be 100 units. And I look at it and say, Hooters and Twin Peaks, like, what's the competitive advantage

here? Why is this such a great business? Isn't this? It's taken, I think they launched it in 2013 and they're up to 10 units. And I get they were fleshing up the concept and stuff. But if it was this great a concept, wouldn't it be bigger right now? Like, it's just one of the, it's the more perplexing piece of the story. So I threw a lot out there. I'll let you kind of dive into it. Well, first of all, Eric will resent you for calling it a Brett Sterron concept, even though I kind of see, I see how it is. He calls it a military-themed sports bar that actually caters to not just men who want to look at attractive waitresses, but to families.

I forget the demographic, but it's a lot of ladies who go there, too, not just, not just gents. It's not just a bunch of dudes going to watch sports games. But, but yeah, I hear you. I'm still, the jury's still out with me on whether it's going to be a very successful, a hundred unit concept. The beauty is that the paybacks are so fast that even if this is not a durable concept, you get your cash out in like a year or two from these things. They're not putting a lot of equity into these, the least concepts. The own concepts, they are putting a little more

equity into, but they could eventually sell those locations with the underlying equipment for key money to new restaurant operators. And they cash flow like crazy for the first year and a half for two years. So, like, even if it's not durable, I think you get your cash out so quickly that you're not destroying value. There's a shot that these things are durable. And if they are, it's a tremendously massive growth opportunity for you. And agree with you. Like, I think the jury's still out. I do think the fact that they're only at 10 since over eight year period shows that Eric doesn't move quick if he doesn't believe in something. The fact that he's thinking about accelerating now, and again, most of his net worth is tied up in his company. When it was,

wasn't working that well. He wasn't out there saying, I'm going to grow at all costs. When he's made bad acquisitions in the past, he's figured out why they were bad and he's not doing them anymore. When he's open bad concepts, he's like, let me restaurant concepts. He's like, I'm going to stop and figure out whether this is good or not. I'm not going to reinvest my company's cash into bad projects. And so I think the fact that he's trying to accelerate the concept now tells you he really believes the economics from these is durable and he believes the market opportunity is there, I think that the beauty is you're not really paying much for that optionality today because most of the profitability is from the club's business. That club's business alone, in my opinion,

justifies the market cap and enterprise value today. I think if you had to shut down all the restaurants, you would get cash out of them because he does own the underlying real estate on some and he could sell, you know, the equipment and stuff. And so, Um, and so like worst case, you know, this thing doesn't pan out and you shut it down and you can't do as many club acquisitions as you generate cash flow. So you end up buying back more stock and pay more dividends. And I still think you do okay from today's levels if that's the worst case. Best case is these things are as durable as Eric thinks they are. The economics are as good as they have been over the last few years. I mean, if you look at the economics of the last few open locations, they're insane. They're, they're opening these for like, to two times EBITDA, you know? And, and so like, yeah, if that's durable and you can get to 100 units, this stock could be, I mean, I agree with people out there who said this could be a $500 stock. Like, there could be. And the crazy thing is, and I've spoken to them about this as well, is that if the economics really are durable and they're this good, you really should not be

franchising them at all. You should be deploying all your own capital into these, right? Because you're generating more capital today than you're going to be able to deploy, meaning, like, you can't do as many club acquisitions as you want. You can't even open these restaurants up as fast as you want. So you have excess cash today that you're going to have to figure out what to do with, and you're most likely going to do buybacks, which you're buying back stock at an 8% free cash flow yield. Like, why would you be buying stock at an 8% free cash flow yield if you could open

additional locations instead of giving them to franchisees who are putting up their own capital at these amazing returns? But the counterpoint that Eric gives me is like, look, we don't have the bandwidth to open as many locations as franchisees could open. So they could help us accelerate the concept. On top of that, like, we're not going to franchise the people in the cities that we're most focused on where we have the most boots on the ground where we understand the local dynamics really well. We're only going to franchise the places where someone else has that expertise. So, like, who knows when we would even get there? so they could help us accelerate, they could help us succeed in those markets, and they have to put

no capital up for those units, and they still get the royalty. So, like, it's definitely a creative to valuation, the franchise concept. I think the jury's still out from my perspective on whether bongshaws is really a durable concept or whether it's going to end up being, to your point, like a Twin Peaks or like a hooters, but the beauty is you're not paying for it today, in my opinion. Yeah. No, I, the thing that you said that struck me the most there is this, you know, yes, It's taken them, I'll just call it round up and call it 10 years to get to 10 units. And a lot of people might look at that as a sign of failure. But what it actually is is it took them 10 years because they were tweaking the model,

making sure they got it right. And the fact that Eric, you know, who he's been over it the whole time and now he's talking about the acceleration, it actually shows that he took the time to get the model right. And now is when he's really excited about that. I thought that was just such a great point and such a different way of looking at it. The only other pushback I would give here is, you know, like the cash on cash return. I've never seen a restaurant say, like, our cash on cash returns are bad. You know, like I've got Dave and Busters.

I just pulled up their presentation. They say, hey, our worst, our worst model is a 30% cash on cash return with, you know, and our best models are 40%. So they're talking about the same type returns. And you look at Dave and Busters, that's a business that trades. I think it's actually too expensive right now. It trades like almost 10 times EBITDA. Right.

But, you know, historically that was like a six to eight times EBITDA business because the fact is it's a restaurant and yet the cash and cash returns are great, but a lot of it is because you don't have to put much capital into it because you're getting the leases and stuff. And I just look at bombshells and I say, like, I just don't really see the differentiation there, right? Like, even if it's not a restaurant company, like, why are you going to go to bombshells versus the Dave & Busters versus the Buffalo Wadwings?

Like, it's just a restaurant. It's a restaurant, but the thing that makes the cash on cash returns for this restaurant better than your every other restaurant is that these guys, I forget what the mix is, but it's like 75% or something like that is liquor. sales. These are not restaurants. These are bars. These are nightclubs that sell food and show games on TVs. And so they're a lot closer, in my opinion, to like the hot nightclub in town that generates, I mean, the hot nightclubs in Vegas, in Miami, in New York, those cash on cash returns are phenomenal. You cannot replicate them. The problem is they're not that durable. And that's what I'm

torn on is whether this is going to be durable, like, you know, a restaurant. that could be the hot restaurant in town for a decade plus, two decades, or if it's more like the hot nightclub in NYC that kind of changes out every five years, the one that people want to go to. But the reason why they're able to earn such high returns is because the margins on liquor are like 90%, right? You pay 20 bucks for a drink, you know, the liquor costs in that might be a dollar or two, whereas the margins on food for restaurants are way lower.

So if you have a very high liquor mix and you put the same amount of capital into this box as a restaurant does, right? By definition, you're going to earn much higher returns on your capital. And the revenue on these, the revenue on these is, I mean, it's phenomenal. They earn like five million of revenue per box. Really? Yeah, five million plus. I think their most recent units are earning like six or seven million per box of revenue. And most of that, most of that is liquor. So like, if you think about the gross margins on that, if it's six or seven in a revenue for the newer boxes, you're earning like five million of gross margin, five to six million of gross margin, whereas the typical restaurant, even if they do five million of revenue,

might be earning like two million a gross margin. So think about the difference for the return on capital if you're a high food mix versus a high liquor mix. So two questions, which I can only ask because I pulled up the Dave and Buster's slide as we were talking to get that cash and cash return number. Is there, is there liquor mix significantly higher than like, you know, Buffalo Wild Wings or something? Are they getting significantly more than a Buffalo Wild Wings or are Dave and Busters? I don't know Buffalo Wild Wings liquor mix, but I know that RCI is probably, if I had to get, if I, it's definitely at least two thirds and I think up to 80% liquor.

Something like something between 65 and 80% of bombshells revenue is liquor, yeah. That's, so I'm looking at Dave and Busters. We'll ignore the games. But Dave and Busters is like, you know, maybe 25% to 30% bar versus 60% food. And then so you think like Dave and Busters, their bar margins are about 75%. You think they've got like a little bit of pricing advantage there. They actually do higher margins than that?

No, I mean, they're probably 80, 80-ish percent. Okay, yeah. No, like five million, that's just, that's a big number. You know, a cheesecake factory, cheesecake factories are next level. Those do 11 million. But like, I'm just looking at, you know, that's more than an outback steakhouse does. That's more than a Chili's does. That's pretty impressive volumes that they're getting at these things.

do you think there's a chance you know they've done 10 so far they want to go to 100 and there is the issue a lot of retailers and restaurants have where the first five and then they want to roll out to 50 and it turns out oh their first five you chose the prime location do you hit your target demographic and the next 45 have nowhere near the returns do you think they might have cherry picked the first 10 or do you feel comfortable what the the kind of opportunity is that big well the first three were not good locations so like they definitely did not cherry pick I think the the most recent ones they did. Yeah, they cherry pick great locations. And I think the reason it took them so long to get their first franchisee, for example, is people were coming to them and saying, hey, I want to open here. And Eric is like, no, I don't believe in that location for this concept. And I'm not going to allow my first franchisee to fail because my first franchisee is going to succeed so that everyone sees how great this concept is and everyone wants to franchise it. So I think he's very focused on locations. In terms of the types of cities it can go into, I think there's lots of, you know, Florida is a great market for it, just like Texas is, I think. You probably have Arizona, you probably have

Nevada. I think you have those types of states where you want to be near big cities, where people care about sports, where there's density, where people like to go out to bars and have a good night life. I think we're nowhere near saturation on that front. But once we get the 50, 60 units, you could ask me again, and I'll let you know if I still believe that. Perfect. So let's turn over to valuation. You know, as we talk, I think this is a little bit over a 700 million enterprise value company. I think the way you would break the valuation down is you would value the core clubs, then the bombshell opportunity, and then the real estate, though all of that is kind of interconnected. So can you talk to me about how you look at valuation here? Yeah. I mean,

I just, I look at it very simplistically. I look at free cash flow per share and I model it out. I assume they're going to redeploy that free cash flow into some club acquisitions, which that's my preferable method. I wish, like, if they announce five club acquisitions this year, my confidence in valuation will be higher than if they announce zero and they put more money into bombshells. The more club acquisitions they do, the more confidence I have in my out-year free cash flow per share numbers. Because I think when they're, if they could deploy into clubs at the same cash on cash returns as bombshells, I think the club cash flow stream is more durable. and deserves a higher multiple. Yep. But either way, I just, I think they can grow free cash flow per share, call it at 25% a year.

I do have a more specific model that I've kind of shared out there. And I think if they prove out that they can grow free cash flow per share at 25%, which, by the way, they have not for like a decade plus grown free cash flow per share at that rate, right? There were points in time where Eric was deploying cash into bad projects. He invested in this new energy during called Robust that didn't really do that well. He bought clubs in bad markets that he had to shut down and take impairments on. He thought that for a public company, you needed to have a revenue and EBITDA growth story. He never understood that free cash flow per share is what investors care about.

He had all these different types of advisors coming to him telling him, you need to grow, grow, grow, grow the business, not grow, grow, free cash flow per share. and so the business was growing and free cash flow per share wasn't growing and the stock was doing nothing for a long period of time. And so he has not proved out over a decade plus that he can grow at the types of rates I'm talking about, right? He changed his capital allocation philosophy in 2015 or 2016. I forget exactly what year. And a big shareholder came to him and was like, hey, you have these super stable local monopolies that are highly cash generative and you traded a single digit free cash flow multiple. Just stop shooting yourself in the foot. Literally do nothing. And if your stock stays here and you can't buy great clubs at four times EBITDA, buy back your stock. And I promise you the stock will go up. And he listened to that shareholder. And then he put thought into it. He read books on the topic. And he put out this very thoughtful capital allocation philosophy. And since he's done that, free cash flow per share has grown at 20 plus percent. I still think people don't believe that's a sustainable number. But if what I'm talking about over the next three to four years pans out, which is that he grows

free cash flow per share to $7, $8, $9, $10. I think at that point, he's still very early days in terms of consolidating the broader national opportunity. And people will say, holy crap, he could do this for another decade. What am I willing to pay for a business that can grow free cash flow per share for the next decade at 20%? And at that point, I think people will give him credit for it because right now they're not. I don't think people believe what I believe about that future.

And I think if people give them credit for it, I don't know, what do businesses trade at? that grow free cash flow per share at 20% plus a year like clockwork, right? They trade it 30, 40 times earnings. And I get there's a little bit of an ESG element here that it may never get there. But could it get to 20 or 25 times earnings? Yeah, I could see it. And by the way, I don't even think there's that big of an ESG over issue here. I think, you know, historically it's been harder to own because no one has been public about it.

But now more and more people are being public about it. And it's not even that unethical in my mind. The people who work at these clubs, the women who work there, are doing so voluntarily in a safe work environment created by RCI, whereas maybe under the previous owner it was an unsafe work environment, right? Maybe they allowed more prostitution. RCI does not allow that. Maybe they allowed drug sales. RCI does not allow that. And they get to pick their hours and make good compensation.

They can go to school during the day. They can take care of their kids during the day. Like, they sign up for this because this is a good job for them. And so I personally don't think I'm qualified to sit here and tell other people that that's not a good job for them and that it's unethical. Like if other people want to be customers of this voluntarily and other people want to be employees of this voluntarily and they decide that this is a good job for them that gives them flexibility and good compensation, I just don't see the issue from an ESG standpoint. So maybe the market will evolve to that point of view over time, especially so if they can grow free cash flow per share at 25%. a year for the next five years. Maybe people will convince themselves that, you know, of my view, and maybe I have convinced myself of that view just because I believe what I believe about the

business. But I don't think it's crazy to think this thing trades at 20 times plus free cash flow. And so if you can compound free cash flow per share at 25% a year and grow your multiple of free cash flow from 12 times to 20 times, I mean, your IRAs will be phenomenal. I do have some, I do have a couple more questions of valuation, but let's talk ESG real quick since we hit that. I guess there's two pieces to ESJ. On one side, I could almost see how regulation is good for them, right? You mentioned NIMBY earlier where there aren't new clubs coming. So I think their clubs go more and more valuable as a scarcity thing. And I could almost see, hey, we are the good guys in the industry, give us licenses, take licenses from other

people because we're the good guys and we don't allow the stuff to talk about. So I guess that's but on the other side, you know, I could see how increased regulations. Like I think there was a Chicago law that they got rumor but never passed, like no alcohol in strip clubs or something. Or I could just see overall how a lot of cities, you know, there's licenses involved with strip clubs. There's license involved in selling liquors. I can see how, you know, there could be political pushback to, hey, we just don't want this or something. So how do you think about regulation, both on the upside and downside? Yeah. So the biggest footprint and most of their earnings are in Texas and Florida. I think that's the least risk of having a regulatory issue.

fortunately these are locally regulated markets and again they're diversified across geography so to the extent you wouldn't want to buy a single club for that reason that's another reason why rci should trade it a higher multiple than an individual club because you can't regulate their entire business out of existence in one fell swoop on a local level unless there's some federally mandated you know or federal law that pops up but like i don't i just don't think that's the focus of like the u.s. senator at congress right now and so yeah it's on a market by market basis. Most of their exposures in Texas and Florida, which I think are relatively insulated from that. And it's a risk, you know, every business has a risk that you have to be willing

to live with to own in my portfolio and probably everyone's portfolio. And that's just one of those risks. By the way, while you were asking that question, I looked it up. Bombshell's revenue this year was 63%. So I was a little bit high on my estimate. But yeah, 63. And what was it for Dave and Busters, you said. Dave and Busters, if I'm doing the math in my head, is probably like 25 to 30 percent of their sales, excluding the games, because Dave and Buster is obviously a unique model. Right. And that's a much more capital and intensive business because you need massive real estate footprint and you need to fill that real estate with all those games, whereas like bombshells doesn't need to do that. But yeah, there's 63% liquor in the last year

in fiscal year 2020, which is Nate, which is nuts. So regulation, you've addressed the downside. I think we've probably hit the upside. But if you want to say, anything more about the upside to NIMB or being a better operator, please go for it. No, I think we've got that time. Let's just circle among valuation. So we started talking valuation a little bit. You know, I do think one thing I've struggled with, so they reported, this is actually kind of a timely conversation because they reported their, it was a Q1 or Q2, same source this

morning, and they're on fire. And I don't think anybody here is looking and saying that the next year is not going to be absolutely on fire for, especially for this type of business, right? I think that's a given. But when I look at that, you know, like, again, the Q1 call, there was lots of talk about a near term $8 per share free cash flow number. It might have gotten a little contentious. But I looked at this and I say, 2019, I think they're free cash flow per share number. If I'm just doing CFO, cash flow from operations, less maintenance capax, it was a little bit under $4 per share, probably higher now because a couple more bombshells and all that.

But, you know, $8 might be a peak number, but maybe the. the medium term normalized number before they start growing again is lower than that. But when I think valuation, like, how are you looking through the near term boom and thinking like your steady state valuation and then obviously you get growth on top of that? But how do you think about that? Yeah, I definitely personally think you're going to have a bananas year starting, probably starting right now, right? Like people our age are just starting to get vaccinated right now.

and like I went to grab beers with a couple buddies yesterday and like the place was packed and I haven't seen a place like that in forever so like I think they reported in today's press release that I think all their clubs were open except one at the end of the fiscal second quarter which was last week but that throughout the the quarter it was like maybe 25 were open on average or something like that out of the 36 so like I think once they're all open which is probably any day now, you will have a banana's first year, right, or like a grand opening type year where like people are just psyched to go out again and like comps are going to be phenomenal and they're going to print cash. They're going to take that banana's cash flow and be able to redeploy it, hopefully, into great new projects. So like that one year boom helps them from a redeployment standpoint, but you can't capitalize it. I think you have to assume it normalizes a bit. But let's just assume to your point, like, you know, maybe four was too low because they have some new bombshells and maybe like five is the right normalized number

now. And if they can grow that at 25% a year, for a few years, it's still not hard to get an $8, $9, $10 number in your, you know, I typically model out three to five years on most of my investments. And so it's still not hard to get an $8, $9, $10 number three to five years out, depending on how many club acquisitions they could do, how many bombshells they could open. And really, the more stock they have to buy back because they can't do as much club M&A and open as many bombshells as they have cash for, then that's what depresses your out of your free cash flow per share numbers. And it's unpredictable. So like I have various cases that I run. But either way, you can get to a high single digit, low double digit free cash flow per share

number five years out. And I think, again, I think once people realize that this is a business that can grow free cash flow per share at those types of rates, you throw 20 times on let's say $10 and it could be a $200 stock. And I don't think that's crazy. You know, People will tell me I'm crazy for throwing 20 times on it. But people also told me I was stupid for buying it when it was at four times free cash flow. So like I think, you know, what's the Twitter lady, Helene, Helen, maybe Helen, that says like narrative follows price. Like she has a pin tweet. She always says, look at my pin tweet.

What's her Twitter account? I do not know. You don't know. Fine. There's someone on Twitter who always says when people are like, oh my God, she's like, look at my pin tweet and it basically says narrative follows price. I think narrative will follow price. So like as the stock starts to work, more people want to own it because it's working. And then people will find reasons to take their free cash flow multiple up from 12 to 13 and then from 13 to 14 because

they're going to want to own it because it's growing at 20, 25 percent a year. And every time it goes up a little bit, people will justify why it's worth that higher valuation because like the reality is it's hard to find assets that grow at those rates that are predictable with good management team. So I think it'll happen slowly. You know, the beauty is if I'm wrong on my multiple and it goes back to eight times free cash flow, I still think you're looking at like eight times 10 bucks or something like that in the out years. And so you're looking into $80 stock, which is like not the best IRA. But I just, I don't see a reasonable scenario where you lose a ton of money, even from here.

Even though like, you know, you could look at the stock chart over the last year and be like, man, it was just at 15. Why can't it go back there? But like, yeah, anything in my portfolio can de-rate on a multiple base. basis in a big way. The beauty is if this de-rate, he's literally going to cannibalize himself. He is going to generate so much cash over the next five years that like if the stock price really does go lower, you see, my worry right now is at 12 times free cash flow, buybacks aren't that accretive. So I hope he could do a lot of M&A, right? But if it de-rates, I'll care less

about the M&A because he could just cannibalize himself. So you kind of have a little hedge there, like lower multiple, buybacks are better, higher multiple. I'm happy with a higher multiple. So that's kind of how I think about it. To me, what's so attractive about the story is, I, you know, again, restaurants. I look at a Dave & Busters or a bombshell or something. I say, you know, I think these are seven times even out businesses. They're blah. But when I look at the club's business, like, I do believe that that is an advantage business.

I think they've got advantages in a choir. But I just really believe, like, that New York City license, you know, for a long time, I was invested in MSG, which owns the, which owns Madison Square Garden. And part of the thing was it is the only arena in Manhattan. And like that New York City strip club, there's a couple other strip clubs in New York City, but nobody's building new strip clubs in New York City. They're not going to let that, they're not going to let that go. So that New York City strip club, and I'm sure other markets, maybe you can build a new one,

but I just think they've got advantages in terms of operations. It's a clean place. If somebody has a drug scandal, they're going to be the buyer of first resort if that's allowed to stay. And I just look at that and I say that plus, hey, you know what? 2020 was the absolute worst year imaginable for a strip club business. Like, can you imagine anything that that's more personal? the more COVID spreading. And this thing did 24 million in the club side of it did 24 million

in EBDA during a COVID year, right? Like, yes, the near term is going to be a big boom. But to me, if five years ago, you and I sat down and said, hey, it's a slow growth, adult business, you know, it's very economically sensitive, which I do think the VIP rooms are economically sensitive, but maybe you slap a seven multiple, like today I look at the trip club business. I see advantaged. It can make it through the worst environment in the world. they're the natural buyer, like, I think that's a business that deserves a pretty lofty multiple. And we can, you know, you and I can argue about what it is, but especially on that adult, I keep saying strip club, on the gentleman side of the business, I do think a lot of what you're saying has been proven right and will continue to be proven right.

So that makes sense to me. Let me see. I just want to hit a couple other things. One thing, James Harden, I know Rick has strip clubs in Houston. I know they've got him in Manhattan. I don't think they have him in Brooklyn. James Hardin got traded from Houston to Brooklyn. Have you adjusted your models properly for the James Hardin trade?

He's going to have to come into Manhattan for that one. I think we've talked about a lot. I think we've hit just about everything I kind of wanted to hit. Is there any last words you want to say on this one? No, I mean, I think we touched on a lot. If anyone has questions when they listen to it, my email address is on my Twitter profile, and hopefully everyone feels free to reach out with feedback, criticism. I'm all yours.

always love hearing some pushback on my ideas, but you do a pretty good job pushing back anyway. So that I'll get anything you haven't. Well, this has been a really fun one. And I will tell you, it was fun revisiting it. And as we talked, I got more bullish. This happens sometimes. But again, I just think like, especially that adults, clubs business, like it's been proven out. This thing is resistant. They have an advantage. It's resilient. I like that. Your own, it's been great talking. I think you did a great job pushing back. Really enjoyed the conversation. We're going to have to have you back because you own KKR, which I love you own another couple of stocks that are interesting. But I'd encourage everyone go check out

his Twitter, go check out his website. I think you'll like what you see. Obviously, you've heard the podcast. So appreciate you coming on and we will chat soon. Thanks, Andrew. See you later.