Investor letter, August 2020

ADW Capital/Adam Wyden owned just under 10% of RCI Hospitality, a ~$150mm market cap upscale night-club and restaurant operator that was a contrarian pandemic-era idea; the company’s balance sheet, owned real estate, 30%+ free-cash-flow yield on normalized earnings, and strong capital-allocation CEO were expected to make it a survivor and major reopening beneficiary, and potentially a painful short.

“We had a subsequent happy hour featuring a company of which ADW Capital/Adam Wyden owns just under 10 percent – RCI Hospitality (RICK). This ~$150mm market cap upscale night club and restaurant operator had a very large short interest and simple bear case against it: in the middle of a pandemic, nobody wants to – or even can, in many cases – go to the venues. In fact, people like me would pay NOT to go in order to avoid potential Covid exposure. To complicate the story, RICK’s CEO has an unorthodox background, including a lack of traditional college degree. To say that RCI Hospitality was a contrarian idea during a pandemic would be an understatement. However, Adam’s logic was as follows: the environment has changed, but humans have not changed; this is temporary. The company has the balance sheet to survive this; it owns a ton of real estate, which can be monetized, if necessary. The stock trades at a 30%+ free cash flow yield on normalized earnings, and the CEO has proven himself to be a very good capital allocator. As often happens, Adam was right.”