管理層發言
Good afternoon. Greetings, and welcome to RCI Hospitality Holdings Third Quarter 2025 Earnings Conference Call. You can find the company's presentation on RCI's website. Go to the Investor Relations section, and all the links are at the top of the page. Please turn with me to Slide 2 of our presentation. I'm Mark Moran of Equity Animal, and I'll be the host of our call today. I'm coming to you from Washington, D.C. Eric Langan, President and CEO of RCI Hospitality; and CFO, Bradley Chhay are in Houston. Please turn with me to Slide 3. RCI is making this call exclusively on X Spaces. This conference call is being recorded. Please turn with me to Slide 4. I want to remind everybody of our safe harbor statement. You may hear or see forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those currently anticipated. We disclaim any obligation to update information disclosed in this call as a result of developments that may occur afterwards. Please turn with me to Slide 5. I also direct you to the explanation of RICK's non-GAAP financial measures. Now I'm pleased to introduce Eric Langan, President and CEO of RCI Hospitality. Eric, take it away.
Thank you, Mark. Please turn to Slide 6. Thanks for joining us today. Let me run through some key takeaways. All comparisons are year-over-year unless otherwise noted. Nightclub revenues were nearly level despite economic uncertainty related to tariffs and the tax bill, which affected our customer base. Bombshells revenue reflected the previously announced sale and divestiture of 5 underperformers, but both revenues and margin increased sequentially from the second quarter. Consolidated profitability benefited from the absence of impairment charges partially offset by other factors. We continue to make solid progress on our back-to-the-basics capital allocation plan. We acquired 2 upscale nightclubs, Platinum West in South Carolina and Platinum Plus in Allentown, Pennsylvania. Price multiples were in line with our capital allocation strategy. We opened Rick's Cabaret Steakhouse in Central City, Colorado. We also purchased more than 75,000 shares of common stock for $3 million and ended the quarter with approximately 8.76 million shares outstanding. Subsequent to the quarter, we opened a Bombshells location in Lubbock, Texas, which has been doing very well right out of the gate. Now here's Bradley to review our performance in more detail.
Thank you, Eric. Turning to Slide 7. I'll start with a review of our third quarter results. All comparisons are year-over-year for our quarter, unless otherwise noted. Total revenues were $71.1 million compared to $76.2 million, a difference of $5 million. This primarily reflected the sale and divestiture of underperforming Bombshells locations late in fiscal '24 and early fiscal '25. Impairments and other charges were $2.3 million compared to $18.3 million, a difference of approximately $60 million. Net income attributable to RCIHH common shareholders was $4.1 million compared to the loss of $5.2 million, a difference of $9.3 million, and GAAP EPS was $0.46 per share compared to a loss of $0.56 per share. Net cash provided by operating activities was $13.8 million compared to $15.8 million, a difference of $2 million, and free cash flow was about level at $13.3 million compared to $13.8 million.
Adjusted EBITDA was $15.3 million compared to $20.1 million, and non-GAAP EPS was $0.77 compared to $1.35. Most of the year-over-year difference in non-GAAP EPS was due to slightly lower margins in Nightclubs, lower margins in Bombshells, higher noncash expenses related to our self-insurance program with higher taxes. Now moving on to Slide 8. I will now cover our third quarter results by segment, beginning with Nightclubs. Revenues totaled $62.3 million, down less than 1% year-over-year. Key factors included a 3.7% decline in same-store sales and the absence of Baby Dolls Fort Worth due to a fire. This was mostly offset by $2.6 million from newly acquired or rebranded nightclubs. By revenue type, food, merchandise and other increased 5.1%, service increased 0.3% and alcoholic beverages declined 3.9%. Other net charges totaled $2.3 million compared to $7.7 million. In the third quarter of fiscal year '25, this included a mostly noncash lawsuit settlement, partially offset by a gain on insurance.
In the year-ago quarter, this primarily included impairments. There were none in this quarter. Operating income was $17.8 million compared to $13.6 million with the margin at 28.5% of revenues versus 21.7%. Results reflected the decline in other net charges and same-store sales, acquisitions not yet fully optimized and the Central City preopening costs. Non-GAAP operating income, which excludes other net charges, was $20.7 million compared to $21.9 million with the margin at 33.2% of segment revenues versus 34.9%. I'd like to point out that while GAAP and non-GAAP operating margin were down year-over-year, they have increased 2 quarters in a row sequentially. Turning to Slide 9. Here are the results of the Bombshells segment. Revenues totaled $8.6 million, a difference of $4.5 million. The key factors here included the sale and divestiture of 5 underperforming locations in the fourth quarter of '24 and the first quarter of '25, which impacted revenues by $3.8 million and a 13.5% decline in same-store sales.
This was partially offset by 2 new locations not in same-store sales. Other net charges were minimal in the third quarter of '25 versus $10.3 million in impairments last year. There was an operating income of $87,000 compared to a loss of $8.9 million with the margin at 1% of segment revenues versus a negative 68%. Results primarily reflected the decline in impairments, sales from open locations and Lubbock's preopening costs. Now on a non-GAAP basis, which excludes impairments, there was an operating income of $100,000 compared to $1.4 million profit with the margin at 1.2% of segment revenues versus 10.8%. Moving to Slide 10. You will see a summary of our corporate expenses. GAAP expenses totaled $8.7 million, an increase of $1.5 million. Non-GAAP was $8.3 million, an increase of $1.9 million. As we've explained on previous calls, starting this year, corporate expenses are being affected by an estimated noncash self-insurance actuarial reserve for the quarter.
That's why expenses were higher year-over-year in the first quarter, lower in the second, and higher in the third. Please turn to Slide 11. We have slides coming up that discuss free cash flow and adjusted EBITDA, which are non-GAAP. In advance of that, we wanted to present the closest GAAP equivalents, which are operating income, net cash from operations, and net income. So please turn to Slide 12. We ended the third quarter with cash and cash equivalents of $29.3 million. During the quarter, we used $5.25 million as part of our 2 Platinum acquisitions and $3 million to buy back shares. While they were down year-over-year, I'd like to note that both free cash flow and adjusted EBITDA increased sequentially. As a percentage of revenues, free cash flow margin increased from 11% in the second quarter to 19% in the third and back to where we were 2 years ago in the third quarter of '23, while adjusted EBITDA remained approximately level at 22% for each of the first 3 quarters this fiscal year.
Please turn to Slide 13. Debt at June 30 declined slightly $201,000 from March 31 quarter. This reflects the scheduled paydowns, new acquisition-related debt and construction financing for Bombshells Rowlett and Bombshells Lubbock. We continue to control the rate paid on our debt with an average weighted interest rate of 6.68% compared to 6.74% in the year-ago quarter. Total occupancy cost was 7.9% of revenues, level with last year, and debt to trailing 12-month adjusted EBITDA was 3.82x compared to 3.56x in the preceding quarter. While debt stayed approximately level because of the recent acquisitions and adjusted EBITDA increased sequentially, adjusted EBITDA for the trailing 12 months declined. As new locations generate revenue and EBITDA, occupancy costs and debt metrics should improve. Debt maturities continue to remain reasonable and manageable. Now here's Eric.
Thank you, Bradley. Please turn to Slide 14 to review our capital allocation strategy. Our plan calls for allocating 40% of free cash to club acquisitions and 60% to share buybacks, debt reduction, and dividends in order to grow free cash flow per share annually at a 10% to 15% rate. Please turn to Slide 15. Operationally, we are focused on our core nightclub business, reviewing every club to increase same-store sales on a regular basis, and we will rebrand, reformat, or divest underperformers. Our nightclub plan also involves acquisition. Our goal is to acquire an average of about $6 million of adjusted EBITDA per year focusing on the best clubs, buying base hits with an occasional home run. Our target matrix remains the same: 3 to 5x adjusted EBITDA for the club and fair market value for the real estate, targeting 100% cash-on-cash returns in 3 to 5 years. Purchases will be made with cash on hand, bank financing or seller notes.
We would also consider using stock when our valuation improves. For Bombshells, we are working to improve performance at existing locations, targeting 15% operating margins and return to same-store sales growth. We also plan to complete the one remaining location currently under development. The final part of our plan is to regularly buy back our stock, flexing up if we consider the price to be particularly undervalued. We also anticipate modest annual dividend increases. Over the 5 years, we aim to generate more than $250 million in free cash flow and repurchase a significant amount of shares. By fiscal '29, our targets are $400 million in revenue, $75 million in free cash flow and 7.5 million shares outstanding. The end result would be doubling our free cash flow per share to approximately $10 per share compared to what we did in fiscal '24. Please turn to Slide 16. To give you an idea of the progress we've made on the share buyback, 10 years ago, we had about 10.3 million shares outstanding.
As of last Friday, we have about 8.7 million, which represents a reduction of 15.5%. Turning to Slide 17. We have only 3 remaining projects. We are targeting Bombshells Rowlett for opening late this summer, early fall. We are also still awaiting construction permits for Baby Dolls West Fort Worth, and we are awaiting engineering review and zoning plans for the Baby Dolls Fort Worth that burned down last year. I would like to thank all of our loyal and dedicated team members for all their hard work and efforts and all of our shareholders who believe and make our success possible. Now here's Mark to open up the question-and-answer section.
Thank you very much, Eric and Bradley. First off, we have Orchard Wealth.
分析師問答
Can you hear me?
Yes, we can hear you.
I just got a question. How much in real estate do you guys have that you think you could be selling off that's nonperforming or just holding in general?
As mentioned in previous calls, we estimate our value to be around $28 million. We have contracts on a couple of properties and are negotiating on a few more. By the end of this year, which will actually be the first quarter of fiscal 2026, we expect to start seeing some of those deals close. Additionally, we anticipate more offers if the Federal Reserve lowers interest rates or if the economy improves for commercial real estate.
And if you were to liquidate all, let's say, $28 million, how much of that would have to go to just pay back debt? And what do you think you guys would be left over with?
I'm not sure. The main piece is a piece that we bought for about $2.150 million in cash and then rechanged zoning on it. It's worth somewhere between $8 million and $14 million, and we don't really owe anything on it. So that would be a big chunk of cash. The rest of it would be about less than 60% would go to debt as all of our original loans were 60% or 65% of loan to value. And those were based on appraisals from a few years back. So I would say somewhere around 40% to 45% would go to cash and the rest would go to service debt, other than a few pieces that are worth considerably more than what we paid for them. And that probably would be the opposite, 60% to 65% would go to cash and 30% to 35% to debt.
Okay. And then the thing about the insurance, you guys are now not buying insurance. You're self-insuring. How much should we basically be modeling that you guys are going to be setting aside for this particular self-insurance going forward?
There's no way for us to really know that number at this point. I can tell you year-to-date, we're at $9.4 million. It's based on actuarials, and it's based on when we settle claims from the past, when new claims are made. So it's a constantly changing number for us. So at this point, we can't really say what they'll reserve. And then to me, the real key is when will those reserves come back to us if they're not used because we have to wait through certain statutes of limitations and certain other things. So this reserve number could become a very large number over time. We're in the process of initiating a captive that we would have set prices. We know exactly what we'd be paying for the insurance. And I'm hopeful we can get that operational soon. So then we'll be able to answer those questions because we'll have a policy through a captive that we'll own, but at least we'll know what the fees are on an annual basis.
Is this one of these things that like it's got a lot of start-up costs in the beginning and then you kind of taper down and then reach a run rate for every quarter?
We initially saw 4.1 in one quarter and then dropped to 1.4 in the next, but we just recorded 3.9 in the latest quarter. The math behind this is quite complex and varies based on claims and loss runs from our former insurance partners, as they have to manage the claims. Since we've moved away from using those insurance companies, their reserves might change when a claim comes in, which can impact our own reserves going forward. Until a case is fully resolved and we know the exact amount we will pay, there can be adjustments in future quarters, and we might not end up paying anything at all. It's a complicated situation filled with uncertainty.
Next, we have D&D Realty.
I want to commend you on your pace of acquisitions. I think that's a nice tailwind for the company, and you are sticking to plan, which is great. My first question is about the acquisitions: when you bid on these assets, who are you competing against? Are there other groups bidding against you, or are you just bidding against yourself? Are you the only real exit capital for many people? I'm curious about that dynamic. My second question relates to a previous call where you mentioned a potential tailwind from some of the tax policy changes under the Trump administration. Are you seeing an uptick in activity because of that, or do you still feel the economy and some of the service charges, which you mentioned last quarter, are still subdued?
From the acquisition perspective, there’s significant competition, including management teams, leveraged buyouts, and other operators looking to expand in local markets. However, I believe we are the preferred acquirer. Others recognize that we have cash on hand and the ability to raise substantial amounts, which we have demonstrated repeatedly over the last 20 years. They understand that if they’re looking to create a long-term financial benefit for themselves or their families, we have an exceptional and unparalleled record for making payments on time, even during the COVID period. Our bidding strategy doesn’t involve competing against others; we have a set approach. We request their financial figures and assess the sustainability of the cash flow, taking into account factors like local licensing restrictions and competition potential, as well as whether the license has legal protections or is grandfathered in.
We typically employ a multiple of 3 to 5 times that evaluative figure based on our assessment of the license's protection, which has been our consistent method and will likely remain so. This approach may slow down the process at times, but it helps us avoid major errors, which is crucial in the current environment. Regarding the recent tax legislation, companies are becoming aware of the urgency with only five months remaining in the year to complete significant transactions before the year-end. I anticipate that we will see some companies initiating capital improvements. Many manufacturers have been projecting substantial investments for new plants, but I’m uncertain if all of those will materialize this year. The previous tax cuts are permanent, so companies aren’t under pressure to finalize purchases by the end of December unless they have current tax liabilities. As new funds start moving in the market, it should positively impact our business.
Although liquor sales were down 3.9%, our service revenues showed a slight increase compared to last year, indicating a potential recovery for service revenues, which are notably our highest margin income. We will monitor these developments over the next two quarters to see if service revenues continue to grow.
Next up, we have Adam Wyden.
This is for Bradley. Regarding the insurance reserves, you have reported $9 million year-to-date, and I assume there will be some in the fourth quarter as well. However, you are no longer paying for insurance. My question is how should we quantify this, considering it’s non-cash? While you are accounting for this charge, the actual cash is sitting on your balance sheet, possibly in treasuries or elsewhere. How should we assess the overall impact on EBITDA this year compared to your expectations for the future? I believe the idea was to save money, yet from what I’ve seen in the filings, it appears to be costing you money year-over-year. I’m trying to understand how the reserves will eventually reach a point where you’ll no longer need to reserve as much money or the reserves will decrease. How should we think about that?
From both a net income and adjusted EBITDA perspective, these charges are significant from both GAAP and non-GAAP views. Technically, they do impact EPS and present a negative charge; however, we cannot add it back because it is a normal and recurring expense. While it may seem like it's costing us money, it isn't affecting free cash flow. Those are the key clarifications I wanted to provide. Regarding the run rate, as Eric mentioned, we really don't have a definitive answer. Each quarter, we employ an actuarial expert to review all claims, losses, new claims, and closed claims, performing a true-up or true-down. A normalized run rate would be estimated between $10 million to $12 million based on this year's year-to-date actuarial assessments. Additionally, once our captive insurance program is operational, we expect to pay ourselves approximately $400,000 to $500,000 per month in premiums.
Okay. I’m going back in time to ask another question. My understanding is that you have never really paid out more than a few million dollars in settlements in any given year. The idea was that you were paying around $10 million or $12 million in insurance, but the actual settlements have averaged no more than $3 million. So my question is, you’re reserving as if it’s $12 million, but you’ve never actually paid out $12 million in a year. This can’t continue, right? Logically, you’ve never paid out $12 million in losses in a year, correct?
Correct. Well, there are some years like the New York one that was about a decade ago where some settlements were significantly larger.
That wasn't insured.
I have a question regarding our insurance reserves. If we are estimating $12 million in reserves, it suggests we could be paying out that amount in lawsuits annually. While the EBITDA and free cash flow look impressive considering the current circumstances, the EBITDA figure seems a bit confusing. I'm trying to understand how these two aspects fit together. It seems like you’re not intending to pay out the full $12 million since it's not reflected in the free cash flow. Eventually, after building a sufficient buffer with these charges, wouldn’t we expect those payouts to decrease? That just seems logical, doesn’t it?
I hope so, Adam. Honestly, I don’t have enough information on it yet. We expected our captive to be operational before we transitioned into self-insurance, but it took the state a considerable amount of time to finalize things. Now we are focused on developing our policy. The more we analyze it, the better our understanding becomes. We want to ensure we get it right initially, as we don’t want to establish a captive that could end up bankrupt. We believe we have the necessary formulas in place and are currently refining them. However, dealing with actuaries involves a completely different type of mathematics. It follows GAAP principles, which need to be adhered to for accurate actuarial assessments and accruals. As I’ve mentioned before, I feel like these assessments are often based on hypothetical situations rather than actual realities. All GAAP-related calculations must factor in the worst-case scenarios instead of the best-case ones.
While we investigate best-case scenarios, they focus on the worst. Analyzing the average data from the past 15 years, if we had self-insured all that time based on what we actually paid out compared to premiums, we would have significantly benefited. In fact, I believe there’s only one year where that wouldn’t have been the case, which was due to being sold excessive insurance while facing difficulties in settling cases. People chose to pursue court outcomes instead of reasonable settlements. That was a long time ago. In recent years, our experience has been much more realistic. This year, however, our insurance quote was staggering—around $9 million for $10 million of coverage. That seemed entirely unreasonable to me. Rather than proceeding with that, we explored a captive referral system where we place funds. The actuarial model indicates that there’s no return on reserves. In contrast, a captive or insurance company can invest premiums, which helps offset costs.
Thus, the actuarial processes differ significantly between self-insurance and a captive. We are hopeful to establish the captive soon and aim for an October 1 deadline. We’re striving towards that goal, and while I can’t guarantee it, I believe we’ll have everything set by the end of the calendar year. Then we’ll have actual insurance costs to work with, instead of dealing with actuarial accruals; the insurance company will manage the actuaries based on their premiums and claims, not historical data.
I understand. Essentially, once you establish the captive, the impact on EBITDA from noncash charges will significantly decrease because you'll have a separate insurance company to which you pay premiums, maintaining control. Consequently, the annual $12 million expense should diminish. Referring to Slide 12, the free cash flow has remained relatively flat year-over-year. Similarly, for most quarters, it has been consistent. Therefore, the way EBITDA is currently reported does not accurately reflect financial performance since you're not actually disbursing the funds.
Makes a lot of sense for fiscal 2025.
Yes. What I'm trying to convey is that next year, once you establish the captive, you should see a reversal in reported EBITDA since you won't realistically be incurring these types of insurance reserve charges.
There are several options we might consider when the time arrives. One possibility is to treat 2025 as a self-insured year and conduct quarterly actuarial assessments going forward. If there are reserves, they would be reintegrated. If additional reserves are required, we would need to incur more expenses. Alternatively, we could purchase an insurance policy once we have clarity on all the claims. There is a two-year statute of limitations, but we could determine the claims during that time. Many insurance companies do this by selling the liability 'book.' Essentially, we would transfer all potential liability for a fixed amount to another company, which would then assume that liability going forward. They aim to resolve those cases for less than the reserves. For instance, if we have $12 million in reserves but can sell the book for $8.5 million, we might choose to do that and retain the $3.5 million as income. As we navigate the future and address this insurance mathematics more precisely, our actuaries will provide a clearer picture as actual costs come in. It's also possible we may have no claims at all; currently, that's uncertain. Typically, claims in an insurance year are made within 18 to 24 months, and since we have only been operating for 9 months, it remains entirely speculative. At this point, it's all conjecture.
I have two additional questions that should be straightforward. One concerns the start-up costs related to Rowlett, Lubbock, Central City, and other projects. It's clear that these costs are not being added back. What impact do you anticipate these start-up and other related costs will have on EBITDA? I believe we've discussed the insurance aspect in detail, but regarding the start-up or preopening costs, how much do you think these impacted your performance in the quarter?
It's typically a couple of hundred thousand dollars per unit, Adam. And it's just we have to put people up. We have to train. We send people out 2 to 3 weeks ahead of time. They start training. They hire staff. So we've got hotel rooms, you've got training costs. You've got the hourly wages with no revenue coming in yet, things like that.
So like $0.5 million of EBITDA in the quarter, basically. Is that fair?
$400,000 to $500,000 is what I'd guess, yes.
Okay. We have the insurance and the start-up costs figured out. Regarding real estate, you've previously mentioned the possibility of selling Bombshells. It seems you've eliminated all the lease locations since you didn't have control over the real estate. Now you have 10 locations, but does that count the Grange or not?
That does not include the Grange. The Grange is gone. We actually have 11 locations open with Lubbock as of July. Now it didn't open in this last quarter. That's after the June quarter ended of it opened. So for this quarter that we're in right now, fourth quarter of 2025, we'll have 11 Bombshells locations open.
Not including Rowlett.
Not including Rowlett because Rowlett's not open yet. Now if Rowlett opens before September 30, then that will change, but I don't suspect that Rowlett will make September 30 based on some of the construction reports I got yesterday. So I think it's going to be a little bit longer.
So the question is, now that you've cleaned things up and eliminated all the lease locations, you're seeing a lot of large restaurant chains like Texas Roadhouse looking for new sites. One of the biggest challenges you've faced is that building a restaurant is taking a significant amount of time. You have around 12 locations that have recently opened, but the oldest ones have been closed. Given the current state of your stock and the value of approximately $65 million to $75 million in real estate for capital, how do you view the opportunity to invest more heavily in stock and nightclubs, especially since restaurant real estate is still trading at relatively low cap rates and you now have control over all the locations?
We've been in discussions with various groups over the past year, with an increase in inquiries recently. It seems that prime A restaurant spaces, like our Bombshells locations, are in demand based on the volume of calls we're receiving. There are many leaseback companies trying to reach us, but we are not interested in sale leasebacks. If we were to sell the real estate, we would require the buyer to also acquire the operating businesses. We would create a combined package of the real estate and the operating businesses for the right price, but we are not looking to sell at a low price. We seek a fair valuation for our shareholders, and we would consider any offer that meets that criterion.
Yes. Given your stock's performance, I believe the nightclubs segment is likely to expand since you secured some deals this year, and there may be additional clubs available for purchase. If I calculate the potential earnings, assuming Bombshells has around $1 million in EBITDA and considering minor contributions from Lubbock and Rowlett, even in a best-case scenario, the total might be around $4 million to $5 million. If you could sell the real estate for between $65 million and $75 million, it would significantly aid in acquiring nightclubs and buying back stock.
Right now, my number has been around $85 million. Would I consider $75 million? I'm not sure, as I haven't received that offer yet. If an $85 million offer comes in, we would definitely need to evaluate it and see if it works for us. At $65 million, I wouldn't be interested since I believe the real estate alone would appraise between $65 million and $67 million. Our current debt on that real estate is approximately $35 million, and our current book value is about $45 million. If someone offers $85 million, it wouldn't require much consideration; that's about a $40 million premium over book value. We would likely accept that quickly. At $75 million, we would need to evaluate it to determine if it makes sense and consider our stock price. If I could buy back 1 million shares of stock for the Bombshells segment, that would represent nearly 12% of the company. I'd need to think carefully about that. These are factors we need to analyze to see if we can make it work.
So the $67 million includes Rowlett and Lubbock, but have they been reappraised at market yet or not? Or does that include...
Those are both at cost, totaling about $65 million. That's why I mentioned it being between $65 million and $67 million. I believe both of those would appraise for about $1 million more than their cost, which is typically the case.
Got it. At that point, you'll see how much EBITDA those locations are generating. Do you think the other locations will start to become more profitable?
We currently have three locations performing well, with Lubbock being particularly strong, averaging between $190,000 and $200,000 in weekly sales. If this trend continues for the next 12 weeks, we could see figures around $2 million for that period, with potential profit margins exceeding 20%. This store alone could generate $400,000 to $500,000 in a quarter. We are in discussions with various groups, including a private equity firm and a restaurant operator, regarding our real estate interests. However, I want to clarify that we are not pursuing sale leasebacks. We could potentially access around $30 million in equity from the Bombshells real estate through a sale leaseback, but we prefer to retain these assets until we can sell the entire portfolio. We believe that owning the real estate simplifies operations for potential buyers looking to revitalize and expand the concept, as they would likely conduct a sale leaseback themselves once purchasing it from us.
Well, they'll do that after they fix it. But the reality is, is they own it, they control it, they fix it, then they do it.
They can do anything they want once they write me the check, I don't care.
And regarding the club, is the backlog for mergers and acquisitions for clubs increasing? I understand you've done a bit this year, like with Detroit and others, but you're only...
We have acquired three locations so far, but we are also considering selling a couple of our clubs. There are some local operators interested in a few of our underperforming locations, which we had been considering rebranding. Instead of rebranding, we are thinking it might be better to sell those locations, add some cash to our balance sheet, and use that to acquire clubs in more competitive and profitable markets that are easier for us to operate. Most of the clubs we've discussed acquiring were not originally our main targets but were instead part of larger deals. We believe maintaining a club that's far from our other locations, which only brings in a small income, stretches our regional management too thin. For instance, holding on to a club that's 600 miles away, generating $200,000 a year, doesn’t make sense when we could convert that into $1 million or $1.5 million cash and reinvest it in more accessible markets.
These are the kinds of considerations we are exploring. Looking back at our capital allocation strategy since 2016, we've experienced some improvements, though in 2017 our revenues declined due to selling off underperformers. We're currently undergoing a similar process more efficiently than we did in 2016, as we started divesting assets just nine months after adopting our new strategy. We have already closed the underperforming Bombshells and are now focusing on a few other clubs. In about two weeks, we'll be at EXPO in Las Vegas, where I am hopeful to have productive meetings with numerous club owners. We've also been in touch with brokers about potential deals that might not yet be public, and we're actively searching for suitable locations across the country to make our next investment.
On behalf of Eric, Bradley and the company and our subsidiaries, thank you, and good night. Please visit one of our clubs or restaurants to have a great time.