2010 Financial Results Overview
- Q3 revenue of $14.4 million; nine-month revenue of $41.7
million
- Q3 operating income of $2.6 million; nine-month operating
income of $3.8 million
- Q3 income from continuing operations of $1.5 million, or $0.09
per share; nine-month income from continuing operations of $1.2
million, or $0.05 per share
- Q3 EBITDA of $3.4 million; nine-month EBITDA of $5.1
million
- $2.9 million of debt paid in Q3; $4.7 million of debt retired
during first nine-months of 2010
- Cash balance of $2.4 million at September 30, 2010
VCG Holding Corp. (Nasdaq:VCGH), a growing and
leading consolidator and operator of adult nightclubs, today
announced financial results for the third quarter and nine months
ended September 30, 2010 (see attached tables, including
reconciliation tables).
As previously announced, on July 16, 2010, VCG sold its Jaguar's
Gold Club in Fort Worth, Texas to a wholly-owned subsidiary of
Rick's Cabaret International, Inc. ("RICK"). Total consideration
consisted of $1.0 million cash and 467,497 shares of VCG common
stock held by RICK. VCG used the cash proceeds from the sale to pay
down high interest debt, and retired the shares of common stock
included in the transaction. The operations of Jaguar's are
reflected as discontinued operations on VCG's Condensed
Consolidated Statements of Operations. Results for the three
months ended September 30, 2010 included income from discontinued
operations, net of tax, in the amount of $0.5 million, or $0.03 per
diluted share.
Troy Lowrie, Chairman and Chief Executive Officer, stated, "We
reported higher revenues during the third quarter of 2010, driven
primarily by the continued success of our recently introduced
club-level revenue streams, which offset a decline in sales of
alcohol. During the three and nine months of 2010, fifteen and
twelve of our clubs, respectively, reported same-store increases in
revenue. As referenced above, the third quarter of 2010 also
included income from discontinued operations of $0.03 per
share. Cash flow from operations at September 30, 2010 was
$5.7 million and free cash flow was $2.1 million. We used free
cash flow and the $1.0 million cash proceeds from the sale of
Jaguar's to reduce total debt at September 30, 2010 to $26.0
million from $30.8 million at December 31, 2009. At September
30, 2010, VCG had access to liquidity of approximately $1.1 million
on our line of credit and cash of $2.4 million."
Third Quarter 2010 Financial Results
Total revenue for the third quarter of 2010 increased to $14.4
million from $13.4 million in the third quarter of 2009.
Revenue increased due to higher sales of food and merchandise
and higher service revenues, which offset a decline in sales of
alcohol and other income. The 19.8% increase in service
revenue reflected continued patron acceptance of table side
services, wristband access to special areas, table dances, and
suite fees, all of which were introduced company-wide in 2009.
Cost of goods sold (the cost of alcohol, food and merchandise)
was $1.5 million, or 25.6% of revenue, compared to $1.4 million, or
23.4% of revenue, in the third quarter of 2009. The increase
as a percentage of revenue was attributable to the reporting of
food sales through the POS systems installed by VCG between October
2009 and February 2010. Prior to 2009, VCG had subleased the
kitchen and outsourced the food service to experienced chefs ("food
vendors") at four of our five "A" type clubs.
Revenue from restaurant operations is reported under food and
merchandise revenue. This subleased revenue is reduced by
appropriate sales taxes, credit card fees and other specifically
attributable charges. The net earnings that are paid out to the
chefs as a consulting fee are recorded in cost of goods sold. Other
ancillary costs associated with running a restaurant, such as
wait-staff payroll, restaurant supplies and licenses are currently
paid by the outside chefs. By way of comparison, when "A" club
restaurant cost of sales data is removed from the total, cost of
goods sold as a percentage of applicable revenue for all other
clubs drops to 24.4% and 22.6% for the three months ended September
30, 2010 and 2009, respectively.
Total operating expenses for the third quarter of 2010 was $11.8
million as compared to $11.4 million in the third quarter of 2009.
Lower taxes, permits, and licenses, a decline in legal and
professional fees, and lower interest expense were offset by higher
salaries and wages, increased rent, and advisory fees related to
the change in control proposal. As a percentage of revenue,
total operating expenses declined to 82.0% from 85.2% in the third
quarter of 2009.
Operating income for the third quarter of 2010 was $2.6 million
compared to operating income of $2.0 million in the third quarter
of 2009.
Total interest expense declined to $0.7 million in the third
quarter of 2010 from $0.8 million in the third quarter of 2009,
reflecting the Company's ongoing efforts to renegotiate and prepay
debt.
Income from continuing operations for the third quarter of 2010
was $1.5 million, or $0.09 per share, compared to income from
continuing operations of $0.8 million, or $0.03 per share, in the
third quarter of 2009.
Net income for the third quarter of 2010 was $1.9 million, or
$0.12 per share, compared to net income of $0.6 million, or $0.04
per share, in the third quarter of 2009. Net income for the
third quarter of 2010 included income from discontinued operations
of $0.5 million, or $0.03 per share.
Weighted average shares outstanding for the third quarter of
2010 declined by approximately 1.1 million, or 6.1%, from the third
quarter of 2009. The decrease reflects the receipt, and
subsequent retirement, of 467,497 shares of VCG common stock in
connection with the sale of Jaguar's and the effect of the share
repurchase plan. The share repurchase plan was cancelled by
VCG's Board of Directors in the second quarter 2010, due to the
potential sale of the Company.
EBITDA for the third quarter of 2010 rose to $3.4 million from
EBITDA of $2.2 million in the third quarter of 2009.
Nine-Month 2010 Financial Results
Total revenue for the nine-month period of 2010 increased to
$41.7 million from $40.2 million in the same period last
year. Revenue increased due to higher sales of food and
merchandise, higher service revenues, and increased other income,
offsetting a decline in sales of alcohol.
Cost of goods sold (the cost of alcohol, food and merchandise)
was $4.5 million, or 25.9% of revenue, compared to $4.4 million, or
23.5% of revenue last year. The increase as a percentage of revenue
was attributable to the reporting of food sales through the POS
systems installed by VCG between October 2009 and February 2010, as
detailed above. When "A" club restaurant cost of sales data is
removed from the total, cost of goods sold as a percentage of
applicable revenues for all other clubs dropped to 24.4% for the
nine-month period of 2010 and 22.9% in 2009.
Total operating expenses for the nine-month period of 2010 were
$37.9 million, up from $33.9 million in the nine-month period of
2009. The increase in total operating expenses for 2010 was
primarily attributable to a previously disclosed $2.1 million
litigation accrual related to legacy litigation, higher salaries
and wages, increased legal and professional fees, and advisory fees
related to change in control.
Operating income for the nine-month period of 2010 was $3.8
million, and included the $2.1 million accrual for legacy
litigation, compared to income from operations of $6.3 million in
the same period last year. Excluding the $2.1 million accrual,
operating income for the nine-month period of 2010 was $5.9
million.
Total interest expense declined to $2.1 million for the first
nine months of 2010 from $2.7 million in the comparable prior year
period, for the reasons cited above.
Income from continuing operations for the nine-month period in
2010 was $1.2 million, or $0.05 per share, compared to income from
continuing operations of $2.3 million, or $0.11 per share, in last
year's period.
Net income for the nine-month period of 2010 was $1.3 million,
or $0.08 per share, compared to net income of $2.0 million, or
$0.12 per share, in the same period last year. Net income for
the nine-month period of 2010 included income from discontinued
operations of $0.5 million, or $0.03 per share.
Weighted average shares outstanding for the nine-month period of
2010 declined by approximately 0.6 million shares, or 3.3%, from
the same period last year, for the reasons cited
above.
EBITDA for the nine-month period of 2010 was $5.1 million as
compared to EBITDA of $7.3 million in last year's period.
Potential Sale of the Company
As previously announced, on November 9, 2010 VCG entered into a
definitive Agreement and Plan of Merger (the "Merger Agreement")
with the Company's Chairman of the Board and Chief Executive
Officer, Troy Lowrie, Family Dog, LLC, FD Acquisition Co., and the
Company's President and Chief Operating Officer, Micheal Ocello, to
acquire all of the outstanding common stock of the Company held by
public shareholders for $2.25 per share in cash in a going-private
merger transaction where FD Acquisition Co. would merge with and
into the Company, with the Company surviving the merger. Family
Dog, LLC and its wholly-owned subsidiary FD Acquisition Co. are
currently owned and controlled by Mr. Lowrie.
Completion of the merger is subject to certain closing
conditions, including approval by a majority of the Company's
disinterested shareholders. Completion of the merger is not subject
to financing or due diligence conditions. The transaction is
expected to close in the first quarter of 2011. Upon the closing of
the merger, VCG will no longer be a public reporting or trading
company. It is expected that certain members of VCG's management
will participate in the ownership of the Company following the
closing of the merger.
Additional information concerning the merger and the definitive
Merger Agreement are available in a Current Report on Form 8-K,
which VCG filed with the Securities and Exchange Commission on
November 10, 2010.
VCG will not be hosting a conference call in connection with the
issuance of 2010 third quarter and nine months financial results in
light of the proposed merger.
ABOUT VCG HOLDING CORP.
VCG Holding Corp. is an owner, operator, and consolidator of
adult nightclubs throughout the United States. The Company
currently owns 19 adult nightclubs located in Anaheim,
Indianapolis, St. Louis, Denver, Colorado Springs, Dallas, Raleigh,
Minneapolis, Louisville, Miami, and Portland, ME.
The VCG Holding Corp. logo is available at
http://www.globenewswire.com/newsroom/prs/?pkgid=5105
CAUTIONARY NOTE REGARDING FORWARD LOOKING
STATEMENT
Certain statements in this press release are forward-looking
statements within the meaning of the Securities Litigation Reform
Act of 1995, as amended. All statements, other than statements of
historical fact, included in this press release that address
activities, events or developments that we believe or anticipate
will or may occur in the future are forward-looking statements.
Such statements are based on current expectations, estimates and
projections about the Company's business based, in part, on
assumptions made by management. These statements are not guarantees
of future performance and involve risks and uncertainties that are
difficult to predict, including, without limitation, future
financial performance and whether the parties to the merger
agreement will successfully complete the merger. Therefore, actual
outcomes and results may differ materially from what is expressed
or forecasted in such forward-looking statements due to numerous
risks, uncertainties and factors identified from time to time in
the Company's reports with the Securities and Exchange Commission,
including our Annual Report on Form 10-K for the year ended
December 31, 2009, and the Quarterly Report to be filed on November
12, 2010. All forward-looking statements attributable to us or
any persons acting on our behalf are expressly qualified in their
entirety by these risks, uncertainties and factors. All guidance
and forward-looking statements in this press release are made as of
the date hereof and we do not undertake any obligation to update
any forecast or forward-looking statements, except as may be
required by law.
| VCG HOLDING
CORP. |
| CONDENSED CONSOLIDATED
BALANCE SHEETS |
| |
|
|
| |
(unaudited) |
(audited) |
| |
September 30, |
December 31, |
| |
2010 |
2009 |
| Assets |
|
|
| Current Assets |
|
|
| Cash |
$ 2,384,073 |
$ 2,677,440 |
| Other receivables |
229,833 |
254,333 |
| Income taxes receivable |
142,568 |
594,720 |
| Inventories |
862,514 |
920,192 |
| Prepaid expenses |
656,636 |
354,730 |
| Current portion of deferred
income tax asset |
28,400 |
76,920 |
| Assets of business held for
sale |
-- |
2,519,962 |
| Total Current
Assets |
4,304,024 |
7,398,297 |
| Property and equipment,
net |
20,643,975 |
21,016,179 |
| Non-compete agreements,
net |
10,500 |
22,000 |
| Trade names |
452,000 |
452,000 |
| Licenses, net |
34,140,721 |
34,252,018 |
| Goodwill, net |
2,279,045 |
2,279,045 |
| Favorable lease rights,
net |
1,594,067 |
1,647,968 |
| Other long-term assets |
214,840 |
241,993 |
| Non-current portion of deferred
income tax asset |
3,348,490 |
3,841,673 |
| Total
Assets |
$ 66,987,662 |
$ 71,151,173 |
| Liabilities and Equity |
|
|
| Current Liabilities |
|
|
| Accounts payable — trade |
$ 1,121,886 |
$ 1,750,940 |
| Accrued expenses |
4,642,962 |
1,930,049 |
| Income taxes payable |
26,956 |
67,917 |
| Deferred revenue |
104,700 |
110,010 |
| Current portion of unfavorable
lease rights |
217,272 |
217,116 |
| Current portion of long-term
debt and capital lease |
6,953,893 |
3,805,277 |
| Current portion of long-term
debt, related party |
7,427 |
62,067 |
| Liabilities of business held
for sale |
-- |
1,488,157 |
| Total Current
Liabilities |
13,075,096 |
9,431,533 |
| Long-Term Liabilities |
|
|
| Capital lease, net of current
portion |
38,331 |
-- |
| Deferred rent |
1,990,242 |
1,521,140 |
| Unfavorable lease rights, net
of current portion |
4,672,938 |
4,835,931 |
| Long-term debt, net of current
portion |
11,941,524 |
19,751,021 |
| Long-term debt, related party,
net of current portion |
7,096,619 |
7,129,018 |
| Total Long-Term
Liabilities |
25,739,654 |
33,237,110 |
| Commitments and Contingent
Liabilities (Note 9) |
|
|
| Equity |
|
|
| Common stock $.0001 par value;
50,000,000 shares authorized;16,292,071 (2010) and 17,310,723
(2009) shares issued and outstanding |
1,629 |
1,731 |
| Additional paid-in capital |
50,312,458 |
51,932,082 |
| Accumulated deficit |
(25,690,527) |
(26,996,863) |
| Total VCG Stockholders'
Equity |
24,623,560 |
24,936,950 |
| Noncontrolling interests in
consolidated partnerships |
3,549,352 |
3,545,580 |
| Total
Equity |
28,172,912 |
28,482,530 |
| Total Liabilities and
Equity |
$ 66,987,662 |
$ 71,151,173 |
| |
| VCG HOLDING
CORP. |
| CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS |
|
(unaudited) |
| |
|
|
|
|
| |
Three Months
Ended |
Nine Months
Ended |
| |
September
30, |
| |
2010 |
2009 |
2010 |
2009 |
| Revenue: |
|
|
|
|
| Sales of alcoholic
beverages |
$ 5,387,645 |
$ 5,708,126 |
$ 16,027,165 |
$ 17,434,580 |
| Sales of food and
merchandise |
489,197 |
447,336 |
1,509,420 |
1,370,706 |
| Service revenue |
7,723,924 |
6,448,750 |
21,822,139 |
19,146,956 |
| Other income |
783,420 |
804,461 |
2,335,182 |
2,260,070 |
| Total
Revenue |
14,384,186 |
13,408,673 |
41,693,906 |
40,212,312 |
| Operating Expenses: |
|
|
|
|
| Cost of goods sold |
1,505,342 |
1,438,489 |
4,540,244 |
4,410,656 |
| Salaries and wages |
3,985,303 |
3,489,669 |
11,779,614 |
10,299,234 |
| Impairment of building and
land |
-- |
-- |
-- |
268,000 |
| Contingent indemnification
claim |
-- |
-- |
2,135,000 |
-- |
| Other general and
administrative: |
|
|
|
|
| Taxes, permits and
licenses |
740,395 |
1,152,838 |
2,345,866 |
2,699,480 |
| Charge card and bank fees |
189,909 |
188,352 |
537,311 |
593,736 |
| Rent |
1,480,475 |
1,385,492 |
4,369,882 |
4,153,523 |
| Legal fees |
307,160 |
188,651 |
1,236,619 |
869,171 |
| Other professional fees |
553,969 |
704,737 |
1,945,703 |
2,062,041 |
| Advisory fees related to change
in control proposals |
121,629 |
-- |
136,766 |
-- |
| Advertising and marketing |
645,320 |
653,170 |
1,955,019 |
1,935,202 |
| Insurance |
409,023 |
435,374 |
1,324,195 |
1,218,718 |
| Utilities |
278,253 |
268,851 |
748,649 |
754,679 |
| Repairs and maintenance |
276,831 |
240,291 |
814,902 |
806,142 |
| Other |
868,197 |
882,048 |
2,742,326 |
2,676,090 |
| Depreciation and
amortization |
427,449 |
393,918 |
1,264,971 |
1,194,377 |
| Total Operating
Expenses |
11,789,255 |
11,421,880 |
37,877,067 |
33,941,049 |
| Income from Operations |
2,594,931 |
1,986,793 |
3,816,839 |
6,271,263 |
| Other Income
(Expenses): |
|
|
|
|
| Interest expense |
(512,802) |
(695,441) |
(1,579,626) |
(2,151,699) |
| Interest expense, related
party |
(181,126) |
(142,522) |
(541,700) |
(530,067) |
| Interest income |
1,181 |
4,500 |
5,407 |
4,572 |
| Gain (loss) on sale of
assets |
2,701 |
(68,784) |
1,025 |
(57,363) |
| Total Other Income
(Expenses) |
(690,046) |
(902,247) |
(2,114,894) |
(2,734,557) |
| |
|
|
|
|
| Income From Continuing Operations
Before Income Taxes |
1,904,885 |
1,084,546 |
1,701,945 |
3,536,706 |
| Income tax expense (benefit) —
current |
(21,900) |
(92,189) |
100,100 |
81,054 |
| Income tax expense —
deferred |
399,348 |
417,435 |
411,000 |
1,110,101 |
| Total Income
Taxes |
377,448 |
325,246 |
511,100 |
1,191,155 |
| Income From Continuing
Operations |
1,527,437 |
759,300 |
1,190,845 |
2,345,551 |
| |
|
|
|
|
| Income From Discontinued Operations,
Net of Income Taxes |
523,646 |
35,770 |
472,812 |
96,974 |
| Profit of Consolidated and Affiliated
Companies |
2,051,083 |
795,070 |
1,663,657 |
2,442,525 |
| Less Net Income Attributable to
Noncontrolling Interests |
(132,601) |
(162,843) |
(357,321) |
(394,842) |
| Net Income Attributable to
VCG |
$ 1,918,482 |
$ 632,227 |
$ 1,306,336 |
$ 2,047,683 |
| Earnings Per Share |
|
|
|
|
| Continuing Operations: |
|
|
|
|
| Basic and fully diluted income per share
attributable to VCG's stockholders |
$ 0.09 |
$ 0.03 |
$ 0.05 |
$ 0.11 |
| Discontinued
Operations: |
|
|
|
|
| Basic and fully diluted income per share
attributable to VCG's stockholders |
$ 0.03 |
$ -- |
$ 0.03 |
$ 0.01 |
| Net Income Attributable to VCG
Stockholders |
$ 0.12 |
$ 0.04 |
$ 0.08 |
$ 0.12 |
| Basic and fully diluted weighted average
shares outstanding |
16,371,444 |
17,440,835 |
16,979,127 |
17,552,034 |
| |
| VCG HOLDING
CORP. |
| CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS |
|
(unaudited) |
| |
|
|
| |
For the Nine Months
Ended |
| |
September
30, |
| |
2010 |
2009 |
| Operating Activities |
|
|
| Profit of consolidated and
affiliated companies |
$ 1,663,657 |
$ 2,442,525 |
| Adjustments to reconcile profit
of consolidated and affiliated companies to net cash provided by
operating activities: |
|
|
| Impairment of building
and land |
-- |
268,000 |
| Depreciation |
1,319,110 |
1,270,503 |
| Amortization of non-compete
agreements |
12,018 |
12,776 |
| Amortization of leasehold
rights and liabilities, net |
(141,790) |
(147,588) |
| Amortization of loan
fees |
48,413 |
174,524 |
| Stock-based compensation
expense |
110,262 |
233,364 |
| Deferred income taxes |
653,000 |
1,026,470 |
| (Gain) Loss on disposition of
assets |
(817,060) |
57,364 |
| Accrued interest added to
long-term debt |
125,913 |
132,230 |
| Changes in operating assets and
liabilities |
2,763,612 |
(39,351) |
| Net cash provided by operating
activities |
5,737,135 |
5,430,817 |
| Investing Activities |
|
|
| Proceeds from divestiture of a
club |
1,000,000 |
-- |
| Additions to property and
equipment |
(838,372) |
(602,111) |
| Deposits |
18,740 |
-- |
| Proceeds from sale of
assets |
3,000 |
252,973 |
| Net cash provided (used) by
investing activities |
183,368 |
(349,138) |
| Financing Activities |
|
|
| Proceeds from debt |
100,000 |
1,160,147 |
| Payments on debt |
(5,018,611) |
(3,722,214) |
| Proceeds from related party
debt |
200,000 |
25,099 |
| Payments on related party
debt |
(343,048) |
(812,435) |
| Borrowing (payments) on
revolving line of credit |
180,000 |
(390,000) |
| Payment on capitalized
leases |
(3,419) |
(19,111) |
| Loan fees paid |
(40,000) |
(78,725) |
| Repurchase of stock |
(935,243) |
(777,097) |
| Distributions to noncontrolling
interests |
(353,549) |
(380,281) |
| Net cash used by financing
activities |
(6,213,870) |
(4,994,617) |
| Net increase (decrease) in
cash |
(293,367) |
87,062 |
| Cash beginning of
period |
2,677,440 |
2,209,060 |
| Cash end of period |
$ 2,384,073 |
$ 2,296,122 |
| |
|
|
| Non-cash divestiture
activities: |
|
|
| Common stock received as
partial consideration for the Ft. Worth Club |
$ 794,745 |
$ -- |
| Fair value of liabilities
transferred to buyer |
$ -- |
$ 1,771,854 |
| Issuance of note receivable to
buyer |
$ -- |
$ 322,963 |
| Non-cash investing and financing
activities: |
|
|
| Acquisition of vehicle through
capital lease |
$ 49,577 |
$ -- |
| |
| VCG Holding
Corp. |
| EBITDA
Reconciliation |
|
(unaudited) |
| |
|
|
|
|
| |
(unaudited) |
| |
Three Months
Ended |
Nine Months
Ended |
| |
September
30, |
| |
2010 |
2009 |
2010 |
2009 |
| Net Income attributable to VCG
stockholders |
$1,918,482 |
$632,227 |
$1,306,336 |
$2,047,683 |
| Add back: |
|
|
|
|
|
Depreciation |
429,087 |
419,480 |
1,319,110 |
1,270,503 |
| Amortization of
non-compete agreements |
3,500 |
4,259 |
12,018 |
12,776 |
| Amortization of
leasehold rights and liabilities, net |
(38,764) |
(48,606) |
(141,790) |
(147,588) |
| Amortization of loan
fees |
13,916 |
52,621 |
48,413 |
174,524 |
| Interest expense |
680,012 |
785,342 |
2,072,913 |
2,507,242 |
| Total income tax
expense |
377,448 |
325,246 |
511,100 |
1,191,155 |
| EBITDA before non-cash impairment
charges |
$3,383,681 |
$2,170,569 |
$5,128,100 |
$7,056,295 |
| Add back: |
|
|
|
|
| Total non-cash impairment
charges |
-- |
-- |
-- |
268,000 |
| Total excluding non-cash impairment
charges |
$3,383,681 |
$2,170,569 |
$5,128,100 |
$7,324,295 |
| |
|
|
|
|
| Total revenue |
$14,384,186 |
$13,408,673 |
$41,693,906 |
$40,212,312 |
| EBITDA as a percentage of
revenue |
23.5% |
16.2% |
12.3% |
18.2% |
| |
| VCG Holding
Corp. |
| Calculation of Free
Cash Flow |
|
(unaudited) |
| |
|
|
|
|
| |
Three Months
Ended |
Nine Months
Ended |
| |
September
30, |
| |
2010 |
2009 |
2010 |
2009 |
| EBITDA |
$3,383,681 |
$2,170,569 |
$5,128,100 |
$7,324,295 |
| Less: |
|
|
|
|
| Interest
expense |
680,012 |
785,342 |
2,072,913 |
2,507,242 |
| Current income
tax |
(21,900) |
(92,189) |
100,100 |
81,054 |
| Capital
expenditures |
293,839 |
121,941 |
838,372 |
602,111 |
| Free Cash Flow |
$2,431,730 |
$1,355,475 |
$2,116,715 |
$4,133,888 |
CONTACT: VCG Holding Corp.
Troy Lowrie, Chief Executive Officer
(303) 934-2424
tlowrie@vcgh.com
The Equity Group Inc.
Devin Sullivan, Senior Vice President
(212) 836-9608
dsullivan@equityny.com
Vcg Holding Corp. (MM) (NASDAQ:VCGH)
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