Financial Performance - Total revenues decreased to $71.1 million in 3Q25 from $76.2 million in 3Q24[20], and to $208.5 million in 9M25 from $222.4 million in 9M24[20] - EPS increased to $0.46 in 3Q25 from $(0.56) in 3Q24[20], and to $1.84 in 9M25 from $0.30 in 9M24[20] - Non-GAAP EPS decreased to $0.77 in 3Q25 from $1.35 in 3Q24[20], and to $2.23 in 9M25 from $3.11 in 9M24[20] - Adjusted EBITDA decreased to $15.3 million in 3Q25 from $20.1 million in 3Q24[20], and to $45.2 million in 9M25 from $54.8 million in 9M24[20] - Free cash flow decreased to $13.3 million in 3Q25 from $13.8 million in 3Q24[20], and to $32.3 million in 9M25 from $35.3 million in 9M24[20] Segment Performance - Nightclubs revenues decreased by $0.5 million or -0.8% in 3Q25 compared to 3Q24[28] - Bombshells revenues decreased by $4.5 million or -34.5% in 3Q25 compared to 3Q24, primarily due to the sale/divestiture of five underperforming locations[35] - Corporate GAAP expenses increased by $1.5 million in 3Q25 compared to 3Q24[42] - Corporate Non-GAAP expenses increased by $1.9 million in 3Q25 compared to 3Q24[42] Capital Allocation and Debt - The company repurchased 75,325 common shares for $3.0 million at an average price of $40.41 per share in 3Q25[18] - Debt, net of loan costs, was $241.3 million as of June 30, 2025[54] - The weighted average interest rate on debt was 6.68% as of June 30, 2025[56] Future Targets - The company aims to generate over $250 million of cumulative free cash flow over the next 5 years[63] - The company targets $400 million in revenue and $75 million in free cash flow by FY29[65]

PART I FINANCIAL INFORMATION This section covers the unaudited condensed consolidated financial statements and management's discussion and analysis [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including cash flows, income, equity, and balance sheets, with detailed explanatory notes [Condensed Consolidated Statements of Cash Flows (unaudited)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(unaudited)) This section provides the unaudited condensed consolidated statements of cash flows, detailing operating, investing, and financing activities | Nine Months Ended June 30, | 2025 (in thousands) | 2024 (in thousands) | | :--------------------------------------- | :------------------ | :------------------ | | Net cash provided by operating activities | $35,684 | $40,233 | | Net cash used in investing activities | $(22,087) | $(17,090) | | Net cash used in financing activities | $(16,350) | $(9,219) | | Net increase (decrease) in cash | $(2,753) | $13,924 | | Cash, cash equivalents, and restricted cash at end of period | $29,597 | $34,947 | - Net cash provided by operating activities decreased by **$4,549 thousand (11.3%)** for the nine months ended June 30, 2025, compared to the same period in 2024[12](index=12&type=chunk) - Net cash used in investing activities increased by **$4,997 thousand (29.2%)** for the nine months ended June 30, 2025, primarily due to business acquisitions[12](index=12&type=chunk) [Condensed Consolidated Statements of Income (unaudited)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20(unaudited)) This section presents the unaudited condensed consolidated statements of income, highlighting revenues, operating income, and net income | Metric (in thousands, except per share) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Total revenues | $71,145 | $76,180 | $208,504 | $222,370 | | Income (loss) from operations | $8,713 | $(2,536) | $30,790 | $15,286 | | Net income (loss) attributable to RCIHH common stockholders | $4,058 | $(5,233) | $16,313 | $2,767 | | Basic and diluted EPS | $0.46 | $(0.56) | $1.84 | $0.30 | - Total revenues decreased by **6.6%** for the three months and **6.2%** for the nine months ended June 30, 2025, compared to the prior year periods[14](index=14&type=chunk) - The company reported a significant improvement in net income and EPS for both the three and nine months ended June 30, 2025, turning a loss into profit for the quarter and substantially increasing profit for the nine-month period[14](index=14&type=chunk) [Condensed Consolidated Statements of Changes in Equity (unaudited)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Equity%20(unaudited)) This section details the unaudited condensed consolidated statements of changes in equity, showing movements in common stock, additional paid-in capital, and retained earnings | Equity Component (in thousands) | Balance at September 30, 2024 | Balance at June 30, 2025 | | :------------------------------ | :---------------------------- | :----------------------- | | Common Stock (Amount) | $90 | $87 | | Additional Paid-In Capital | $61,511 | $53,244 | | Retained Earnings | $201,759 | $216,216 | | Total RCIHH Stockholders' Equity| $263,360 | $269,547 | - Total RCIHH stockholders' equity increased from **$263.36 million** at September 30, 2024, to **$269.55 million** at June 30, 2025[15](index=15&type=chunk)[17](index=17&type=chunk) - The company repurchased treasury shares, leading to a decrease in common stock shares outstanding and additional paid-in capital, while retained earnings increased due to net income[15](index=15&type=chunk) [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the unaudited condensed consolidated balance sheets, outlining assets, liabilities, and equity at period-end | Balance Sheet Item (in thousands) | June 30, 2025 | September 30, 2024 | | :-------------------------------- | :------------ | :----------------- | | Total current assets | $45,307 | $47,285 | | Total assets | $597,412 | $584,364 | | Total current liabilities | $49,042 | $48,078 | | Total liabilities | $328,109 | $321,254 | | Total equity | $269,303 | $263,110 | - Total assets increased by **$13.05 million** from September 30, 2024, to June 30, 2025, primarily driven by increases in property and equipment, goodwill, and intangibles[17](index=17&type=chunk) - The company maintained a negative working capital position, with current liabilities exceeding current assets[17](index=17&type=chunk)[146](index=146&type=chunk) [Notes to Condensed Consolidated Financial Statements (unaudited)](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) This section provides detailed notes explaining the basis of presentation, accounting standards, and specific financial accounts [1. Basis of Presentation](index=8&type=section&id=1.%20Basis%20of%20Presentation) This note describes the basis for preparing the unaudited condensed consolidated financial statements in accordance with GAAP - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information and Form 10-Q instructions, and do not include all GAAP disclosures for complete financial statements[19](index=19&type=chunk) - Management believes all necessary adjustments for fair statement, consisting solely of normal recurring adjustments, have been made[19](index=19&type=chunk) [2. Recent Accounting Standards and Pronouncements](index=8&type=section&id=2.%20Recent%20Accounting%20Standards%20and%20Pronouncements) This note outlines the adoption and evaluation of recent accounting standards and their impact on the financial statements - The Company adopted ASU 2022-03 (Fair Value Measurement) and ASU 2023-01 (Leases - Common Control Arrangements) on October 1, 2024, with no significant impact on consolidated financial statements[20](index=20&type=chunk)[21](index=21&type=chunk) - ASU 2023-05 (Business Combinations—Joint Venture Formations) was adopted on October 1, 2024, and will be applied to future joint ventures, requiring assets and liabilities to be measured at fair value upon formation[22](index=22&type=chunk) - The Company is evaluating the impact of ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Taxes) on its financial statements, with ASU 2024-03 (Expense Disaggregation Disclosures) also under evaluation[24](index=24&type=chunk)[25](index=25&type=chunk)[26](index=26&type=chunk) [3. Revenues](index=10&type=section&id=3.%20Revenues) This note provides a detailed breakdown of total revenues by type and discusses contract liabilities with customers | Revenue Type (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Sales of alcoholic beverages| $30,780 | $34,442 | $91,834 | $100,665 | | Sales of food and merchandise | $10,037 | $11,736 | $29,554 | $33,606 | | Service revenues | $25,169 | $25,268 | $72,262 | $73,951 | | Other revenues | $5,159 | $4,734 | $14,854 | $14,148 | | Total revenues | $71,145 | $76,180 | $208,504 | $222,370 | - Total revenues decreased by **6.6%** for the three months and **6.2%** for the nine months ended June 30, 2025, primarily due to declines in alcoholic beverage and food/merchandise sales[28](index=28&type=chunk) - Contract liabilities with customers, primarily for ad, expo, and franchise fees, increased from **$99 thousand** at September 30, 2024, to **$451 thousand** at June 30, 2025[31](index=31&type=chunk) [4. Segment Information](index=12&type=section&id=4.%20Segment%20Information) This note presents financial information by operating segment, including revenues and income from operations for Nightclubs and Bombshells | Segment (in thousands) | Three Months Ended June 30, 2025 (Revenues) | Three Months Ended June 30, 2024 (Revenues) | Nine Months Ended June 30, 2025 (Revenues) | Nine Months Ended June 30, 2024 (Revenues) | | :--------------------- | :------------------------------------------ | :------------------------------------------ | :----------------------------------------- | :----------------------------------------- | | Nightclubs | $62,336 | $62,823 | $181,601 | $183,228 | | Bombshells | $8,609 | $13,139 | $26,425 | $38,641 | | Other | $200 | $218 | $478 | $501 | | Total | $71,145 | $76,180 | $208,504 | $222,370 | | Segment (in thousands) | Three Months Ended June 30, 2025 (Income from Operations) | Three Months Ended June 30, 2024 (Income from Operations) | Nine Months Ended June 30, 2025 (Income from Operations) | Nine Months Ended June 30, 2024 (Income from Operations) | | :--------------------- | :-------------------------------------------------------- | :-------------------------------------------------------- | :------------------------------------------------------- | :------------------------------------------------------- | | Nightclubs | $17,761 | $13,640 | $53,246 | $45,030 | | Bombshells | $87 | $(8,914) | $1,831 | $(8,129) | | Other | $(441) | $(108) | $(1,292) | $(581) | | Corporate | $(8,694) | $(7,154) | $(22,995) | $(21,034) | | Total | $8,713 | $(2,536) | $30,790 | $15,286 | - Nightclubs revenue decreased slightly by **0.8%** for the quarter and **0.9%** for the nine months, while Bombshells revenue saw a significant decrease of **34.5%** for the quarter and **31.6%** for the nine months, primarily due to closed/sold locations and same-store sales decline[35](index=35&type=chunk)[115](index=115&type=chunk)[117](index=117&type=chunk)[118](index=118&type=chunk) - Nightclubs' income from operations increased significantly, while Bombshells improved from a loss to a slight profit for the quarter and a profit for the nine months[35](index=35&type=chunk) [5. Selected Account Information](index=13&type=section&id=5.%20Selected%20Account%20Information) This note provides details on selected balance sheet and income statement accounts, including receivables, liabilities, and expenses | Account (in thousands) | June 30, 2025 | September 30, 2024 | | :--------------------- | :------------ | :----------------- | | Total receivables, net | $4,606 | $5,832 | | Total prepaid expenses and other current assets | $3,214 | $4,427 | | Total accrued liabilities | $21,764 | $20,280 | | Total other long-term liabilities | $7,765 | $398 | - Accrued liabilities increased by **$1.48 million**, primarily due to a **$3.26 million** increase in lawsuit settlement accruals and the recognition of an estimated self-insurance liability[42](index=42&type=chunk)[77](index=77&type=chunk) - Selling, general and administrative expenses increased by **4.3%** for the quarter and **0.4%** for the nine months, driven by higher insurance and legal expenses, partially offset by decreases in taxes and permits, advertising, and security[44](index=44&type=chunk)[124](index=124&type=chunk) - Impairments and other charges, net, decreased significantly from **$18.26 million** to **$2.35 million** for the quarter and from **$26.45 million** to **$2.23 million** for the nine months, mainly due to lower asset impairments in the current period[44](index=44&type=chunk) [6. Debt](index=16&type=section&id=6.%20Debt) This note details the company's debt obligations, including new loans, promissory notes, and future maturity schedules - The Company converted a bank loan into a **$6.3 million** construction loan at **6.99%** interest, payable interest-only for 24 months[47](index=47&type=chunk) - New seller-financed promissory notes totaling **$8.0 million** were executed for club acquisitions, bearing interest rates of **7% to 8%** per annum[48](index=48&type=chunk)[50](index=50&type=chunk)[51](index=51&type=chunk) | Future Maturities of Debt Obligations (in thousands) | Total Payments | | :----------------------------------- | :------------- | | July 2025 - June 2026 | $19,117 | | July 2026 - June 2027 | $31,684 | | July 2027 - June 2028 | $27,665 | | July 2028 - June 2029 | $16,927 | | July 2029 - June 2030 | $18,005 | | Thereafter | $130,400 | | Total | $243,798 | [7. Stock-based Compensation](index=16&type=section&id=7.%20Stock-based%20Compensation) This note outlines stock-based compensation expense, unrecognized costs, and activity related to stock options - Stock-based compensation expense was **$392 thousand** for the three months and **$980 thousand** for the nine months ended June 30, 2025, a decrease from the prior year[54](index=54&type=chunk) - As of June 30, 2025, unrecognized compensation cost was **$981 thousand**, expected to be recognized over a weighted average period of **0.6 years**[54](index=54&type=chunk) | Stock Option Activity (Nine Months Ended June 30, 2025) | Number of Shares | | :-------------------------------------- | :--------------- | | Outstanding at September 30, 2024 | 300,000 | | Forfeited | (50,000) | | Outstanding at June 30, 2025 | 250,000 | | Exercisable at June 30, 2025 | 200,000 | [8. Income Taxes](index=17&type=section&id=8.%20Income%20Taxes) This note details income tax expense, benefit, and effective tax rates for the reporting periods | Income Tax Expense (Benefit) (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Total income tax expense (benefit) | $733 | $(1,426) | $3,648 | $378 | | Effective income tax rate | 15.3% | 21.5% | 18.3% | 12.0% | - Income tax expense increased significantly for both the three and nine months ended June 30, 2025, compared to the prior year, primarily due to higher pretax income[57](index=57&type=chunk)[135](index=135&type=chunk)[136](index=136&type=chunk) - The effective income tax rate for the nine months ended June 30, 2025, was **18.3%**, influenced by state taxes, permanent differences, and tax credits[57](index=57&type=chunk)[60](index=60&type=chunk) [9. Commitments and Contingencies](index=18&type=section&id=9.%20Commitments%20and%20Contingencies) This note outlines the company's legal matters, regulatory investigations, class action settlements, and self-insurance liabilities - The Company is involved in various legal matters, including a remaining unresolved claim from the IIC liquidation (Dupray case) where JAI Phoenix was found **6%** responsible for **$332,884** in damages[66](index=66&type=chunk)[68](index=68&type=chunk) - An assessment of **$2.8 million** and **$280,000** was made by the NY State Department of Labor for state unemployment tax matters for 2009-2022[70](index=70&type=chunk) - The Company is cooperating with investigations by the NY AG and NY DTF regarding tax filings and entertainment benefits, and by the SEC related to the NY AG investigation[71](index=71&type=chunk)[73](index=73&type=chunk) - A class action settlement agreement for **$2.95 million** (cash and VIP cards) was reached to resolve claims under the Illinois Biometric Information Privacy Act (BIPA), subject to court approval[74](index=74&type=chunk)[75](index=75&type=chunk) - The Company began self-insuring a significant portion of general liability and liquor insurance programs in fiscal 2025 due to prohibitive third-party costs, recording a **$9.4 million** liability as of June 30, 2025[78](index=78&type=chunk)[79](index=79&type=chunk) [10. Related Party Transactions](index=21&type=section&id=10.%20Related%20Party%20Transactions) This note discloses transactions and relationships with related parties, including guarantees and payments for services - Chairman and President Eric Langan personally guarantees all commercial bank indebtedness of the Company, totaling **$136.9 million** as of June 30, 2025, without direct compensation[81](index=81&type=chunk) - The Company has notes borrowed from related parties totaling **$650,000**, with terms consistent with other lenders[82](index=82&type=chunk) - Payments to Tall Oak Custom Furniture (owned by Eric Langan's brother) for furniture and maintenance were **$19,098** for the nine months ended June 30, 2025[83](index=83&type=chunk) - Payments to TW Mechanical LLC (50% owned by Eric Langan's son-in-law) for plumbing and HVAC services were **$1,856** for the nine months ended June 30, 2025[84](index=84&type=chunk) [11. Leases](index=21&type=section&id=11.%20Leases) This note provides details on lease expenses, including fixed, variable, and short-term payments, and weighted average lease terms | Lease Expense (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :--------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Operating lease expense – fixed payments | $1,078 | $1,292 | $3,266 | $3,876 | | Variable lease expense | $435 | $412 | $1,194 | $1,273 | | Short-term and other lease expense | $337 | $365 | $995 | $1,042 | | Total lease expense, net | $1,850 | $2,069 | $5,455 | $6,191 | - Total lease expense, net, decreased by **10.6%** for the three months and **12.0%** for the nine months ended June 30, 2025, compared to the prior year[85](index=85&type=chunk) - The weighted average remaining lease term for operating leases was **9.1 years**, with a weighted average discount rate of **5.8%** as of June 30, 2025[85](index=85&type=chunk) [12. Supplemental Disclosure of Cash Flow Information](index=22&type=section&id=12.%20Supplemental%20Disclosure%20of%20Cash%20Flow%20Information) This note provides supplemental cash flow details, including cash paid for interest and taxes, restricted cash, and non-cash investing activities | Cash Flow Item (in thousands) | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :---------------------------- | :------------------------------ | :------------------------------ | | Cash paid for interest, net | $11,827 | $12,015 | | Cash paid for income taxes | $4,361 | $3,861 | | Restricted cash | $250 | $0 | | Debt incurred for acquisitions| $8,000 | $0 | - The Company incurred **$8.0 million** in debt for business acquisitions during the nine months ended June 30, 2025[88](index=88&type=chunk) - Subsequent to June 30, 2025, the Company repurchased **36,339 shares** of common stock at an average price of **$38.09** per share[89](index=89&type=chunk) [13. Acquisitions and Dispositions](index=22&type=section&id=13.%20Acquisitions%20and%20Dispositions) This note details the company's acquisitions and dispositions, including sale of Bombshells Austin and acquisition of Flight Club and Platinum clubs - The Company sold Bombshells Austin for **$130,000** (cash and promissory note), recognizing a **$1.3 million** gain[90](index=90&type=chunk) - Acquired Flight Club in Detroit for **$11.0 million** (**$6.0 million** cash, **$5.0 million** seller-financed note), contributing **$1.83 million** in revenues and **$598 thousand** in operating income for the nine months ended June 30, 2025[91](index=91&type=chunk)[93](index=93&type=chunk)[95](index=95&type=chunk) - Acquired Platinum West (South Carolina) for **$8.0 million** (**$5.5 million** cash, **$2.5 million** seller-financed note) and Platinum Plus (Pennsylvania) for **$2.0 million** (**$1.5 million** cash, **$500,000** seller-financed note)[98](index=98&type=chunk) - The acquired Platinum clubs contributed **$1.12 million** in revenues and **$394 thousand** in operating income for the nine months ended June 30, 2025[99](index=99&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition and results of operations, highlighting key performance indicators, revenue and expense trends by segment, and non-GAAP financial measures. It also discusses liquidity, capital resources, and the Company's capital allocation and growth strategies [Overview](index=25&type=section&id=Overview) This section provides a general overview of RCI Hospitality Holdings, Inc.'s operations and business model - RCI Hospitality Holdings, Inc. operates **70 establishments** offering live adult entertainment and high-quality dining experiences (Nightclubs and Bombshells Restaurants and Bars) as of June 30, 2025[101](index=101&type=chunk)[102](index=102&type=chunk) - The Company also operates a business communications company serving the adult nightclubs industry[102](index=102&type=chunk) [Critical Accounting Policies and Estimates](index=25&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section discusses management's critical accounting policies and estimates, including assumptions and self-insurance programs - Management's estimates and assumptions are crucial for financial statements, based on historical experience and reasonable circumstances, with actual results potentially differing[103](index=103&type=chunk) - In fiscal 2025, the Company began self-insuring a significant portion of general liability and liquor insurance programs due to prohibitive third-party costs, recording a liability for unresolved and incurred but not reported claims[105](index=105&type=chunk)[106](index=106&type=chunk) [Results of Operations](index=26&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, including revenue, operating expenses, and income from operations [Revenues](index=26&type=section&id=Revenues) This section provides a detailed analysis of total revenues, segment revenues, and same-store sales performance | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (%) | | :-------------------------------- | :------------------------------- | :------------------------------- | :--------- | | Total revenues | $71.1 million | $76.2 million | -6.6% | | Nightclubs revenue | $62.3 million | $62.8 million | -0.8% | | Bombshells revenue | $8.6 million | $13.1 million | -34.5% | | Consolidated same-store sales | -4.9% | N/A | N/A | | Nightclubs same-store sales | -3.7% | N/A | N/A | | Bombshells same-store sales | -13.5% | N/A | N/A | | Metric | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | Change (%) | | :-------------------------------- | :------------------------------ | :------------------------------ | :--------- | | Total revenues | $208.5 million | $222.4 million | -6.2% | | Nightclubs revenue | $181.6 million | $183.2 million | -0.9% | | Bombshells revenue | $26.4 million | $38.6 million | -31.6% | | Consolidated same-store sales | -2.5% | N/A | N/A | | Nightclubs same-store sales | -1.3% | N/A | N/A | | Bombshells same-store sales | -11.5% | N/A | N/A | - Consolidated revenue decline was primarily due to closed locations (**$4.7 million** for Q3, **$13.2 million** for 9M) and a decrease in consolidated same-store sales (**$3.4 million** for Q3, **$5.0 million** for 9M)[111](index=111&type=chunk)[112](index=112&type=chunk) [Operating Expenses](index=28&type=section&id=Operating%20Expenses) This section analyzes trends in operating expenses, including cost of goods sold, salaries, SG&A, and impairments - Total operating expenses decreased by **20.7%** for the third quarter and **14.2%** for the nine-month period, improving as a percentage of revenues from **103.3%** to **87.8%** (Q3) and **93.1%** to **85.2%** (9M)[119](index=119&type=chunk) | Expense Category (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :------------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Cost of goods sold | $9,135 | $10,506 | $27,027 | $30,784 | | Salaries and wages | $20,916 | $20,992 | $61,971 | $63,299 | | Selling, general and administrative | $26,140 | $25,057 | $75,247 | $74,911 | | Depreciation and amortization | $3,892 | $3,901 | $11,237 | $11,638 | | Impairments and other charges, net | $2,349 | $18,260 | $2,232 | $26,452 | - Insurance expense increased significantly due to the estimated self-insurance for general liability and liquor liability[124](index=124&type=chunk) [Income (Loss) from Operations](index=30&type=section&id=Income%20(Loss)%20from%20Operations) This section examines income from operations by segment and the consolidated operating margin performance | Segment (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :--------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Nightclubs | $17,761 | $13,640 | $53,246 | $45,030 | | Bombshells | $87 | $(8,914) | $1,831 | $(8,129) | | Total Income (loss) from operations | $8,713 | $(2,536) | $30,790 | $15,286 | | Consolidated operating margin | 12.2% | (3.3)% | 14.8% | 6.9% | - Consolidated operating margin improved significantly to **12.2%** for the three months and **14.8%** for the nine months ended June 30, 2025, compared to negative **3.3%** and **6.9%** in the prior year periods, respectively[128](index=128&type=chunk) - Nightclubs segment showed strong growth in operating income, while Bombshells turned profitable for both periods[128](index=128&type=chunk) [Other Income/Expenses](index=32&type=section&id=Other%20Income%2FExpenses) This section reviews other income and expenses, including interest expense and total occupancy costs - Interest expense decreased by **4.9%** for the quarter and **1.8%** for the nine months ended June 30, 2025[133](index=133&type=chunk) - Total occupancy costs (operating lease expense + interest expense) decreased in dollar amounts but remained stable as a percentage of revenue (**7.9%** for Q3, **8.1%** for 9M) due to lower sales[134](index=134&type=chunk) [Income Taxes](index=33&type=section&id=Income%20Taxes) This section analyzes income tax expense, benefit, and effective tax rates in relation to pretax income | Income Tax Expense (Benefit) (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Total income tax expense (benefit) | $733 | $(1,426) | $3,648 | $378 | | Effective income tax rate | 15.3% | 21.5% | 18.3% | 12.0% | - Income taxes increased due to higher pretax income in the current periods[136](index=136&type=chunk) [Non-GAAP Financial Measures](index=33&type=section&id=Non-GAAP%20Financial%20Measures) This section presents non-GAAP financial measures used by management to assess ongoing business operations - Management uses non-GAAP measures like Non-GAAP Operating Income, Non-GAAP Net Income, and Adjusted EBITDA to provide a clearer understanding of ongoing business operations by excluding non-recurring or non-operational items[137](index=137&type=chunk)[138](index=138&type=chunk)[140](index=140&type=chunk) | Non-GAAP Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :----------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Adjusted EBITDA | $15,339 | $20,083 | $45,228 | $54,782 | | Non-GAAP net income | $6,813 | $12,542 | $19,764 | $29,053 | | Non-GAAP diluted EPS | $0.77 | $1.35 | $2.23 | $3.11 | | Non-GAAP operating income | $12,030 | $16,793 | $35,735 | $45,047 | - Adjusted EBITDA decreased by **23.6%** for the three months and **17.4%** for the nine months ended June 30, 2025, compared to the prior year periods[141](index=141&type=chunk)[159](index=159&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's liquidity, capital resources, and cash flow activities from operations, investing, and financing [Cash Flows from Operating Activities](index=37&type=section&id=Cash%20Flows%20from%20Operating%20Activities) This section analyzes net cash provided by operating activities and factors influencing its changes | Operating Cash Flow (in thousands) | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------ | :------------------------------ | | Net cash provided by operating activities | $35,684 | $40,233 | - Net cash provided by operating activities decreased by **11.3%** for the nine months ended June 30, 2025, due to lower cash generated from revenues and higher income tax payments, partially offset by lower operating liability payments and insurance recovery[149](index=149&type=chunk) - The Company expects volatility in payments for self-insured general liability and liquor insurance programs until a trust is fully established[150](index=150&type=chunk) [Cash Flows from Investing Activities](index=38&type=section&id=Cash%20Flows%20from%20Investing%20Activities) This section details net cash used in investing activities, including capital expenditures and business acquisitions | Investing Cash Flow (in thousands) | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------ | :------------------------------ | | Payments for property and equipment and intangible assets | $(12,289) | $(19,219) | | Acquisition of businesses | $(13,000) | $0 | | Net cash used in investing activities | $(22,087) | $(17,090) | - Net cash used in investing activities increased by **$4.997 million**, primarily due to **$13.0 million** in business acquisitions during the nine months ended June 30, 2025[151](index=151&type=chunk)[152](index=152&type=chunk) - Capital expenditures decreased from **$19.22 million** to **$12.29 million**, with new facilities/equipment accounting for **$8.95 million** and maintenance capital expenditures for **$3.34 million**[153](index=153&type=chunk) [Cash Flows from Financing Activities](index=38&type=section&id=Cash%20Flows%20from%20Financing%20Activities) This section analyzes net cash used in financing activities, including debt obligations, stock repurchases, and dividend payments | Financing Cash Flow (in thousands) | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------ | :------------------------------ | | Proceeds from debt obligations | $9,175 | $22,657 | | Payments on debt obligations | $(14,431) | $(17,137) | | Purchase of treasury stock | $(9,158) | $(12,775) | | Payment of dividends | $(1,856) | $(1,674) | | Net cash used in financing activities | $(16,350) | $(9,219) | - Net cash used in financing activities increased by **$7.131 million**, primarily due to lower proceeds from debt obligations and increased dividend payments, partially offset by lower treasury stock purchases[154](index=154&type=chunk) - The Company repurchased **198,200 shares** of common stock for **$9.16 million** at an average price of **$46.21**, with **$11.9 million** remaining authorization[154](index=154&type=chunk) - Quarterly dividends increased from **$0.06** to **$0.07** per share[155](index=155&type=chunk) [Free Cash Flow](index=39&type=section&id=Free%20Cash%20Flow) This section defines and analyzes free cash flow, outlining its calculation and role in capital allocation strategy | Free Cash Flow (in thousands) | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :---------------------------- | :------------------------------ | :------------------------------ | | Net cash provided by operating activities | $35,684 | $40,233 | | Less: Maintenance capital expenditures | $3,341 | $4,980 | | Free cash flow | $32,343 | $35,253 | - Free cash flow decreased by **8.3%** for the nine-month period, mainly due to lower conversion of revenues to cash, partially offset by lower maintenance capital expenditures[156](index=156&type=chunk) - Free cash flow is used as the baseline for the Company's capital allocation strategy, prioritizing acquisitions and development over other uses[156](index=156&type=chunk)[157](index=157&type=chunk) [Impact of Inflation](index=41&type=section&id=Impact%20of%20Inflation) This section discusses the company's ability to mitigate the impact of inflation through price adjustments - The Company has managed to recover increased costs through price increases, to the extent permitted by competition, but cannot assure this will continue[161](index=161&type=chunk) [Seasonality](index=41&type=section&id=Seasonality) This section describes the seasonal nature of nightclub operations and its impact on revenues - Nightclub operations are seasonal, with reduced revenues from April through September (fiscal Q3 and Q4) and strongest results from October through March (fiscal Q1 and Q2)[162](index=162&type=chunk) [Capital Allocation Strategy](index=41&type=section&id=Capital%20Allocation%20Strategy) This section outlines the company's strategy for allocating capital, prioritizing acquisitions, development, and share repurchases - The capital allocation strategy prioritizes acquiring or developing clubs/restaurants with a minimum **25%-33%** cash-on-cash return, disposing of underperforming units, buying back stock if after-tax yield on free cash flow exceeds **10%**, and paying down expensive debt[163](index=163&type=chunk)[167](index=167&type=chunk) [Growth Strategy](index=41&type=section&id=Growth%20Strategy) This section details the company's growth strategy, focusing on organic expansion, acquisitions, and diversification with new concepts - The Company aims for organic growth and careful market entry through acquiring existing units, opening new units, and developing new club concepts[164](index=164&type=chunk) - A key part of the growth strategy is diversifying operations with Bombshells restaurants, which do not require difficult-to-obtain SOB licenses[165](index=165&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=42&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section states that there were no material changes to the market risk disclosures previously provided in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2024 - No material changes to market risk disclosures were reported as of June 30, 2025, compared to the Annual Report on Form 10-K for fiscal year ended September 30, 2024[168](index=168&type=chunk) [Item 4. Controls and Procedures](index=42&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details the evaluation of the Company's disclosure controls and procedures, identifying material weaknesses in internal control over financial reporting related to ITGCs, accounting for business combinations, and impairment assessments. It also outlines the remediation efforts underway to address these weaknesses [Evaluation of Disclosure Controls and Procedures](index=42&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section reports on the effectiveness of the company's disclosure controls and procedures as of June 30, 2025 - The Company's disclosure controls and procedures were deemed not effective as of June 30, 2025, due to previously reported material weaknesses in internal control over financial reporting[170](index=170&type=chunk) [Previously Reported Material Weakness in Internal Control Over Financial Reporting](index=42&type=section&id=Previously%20Reported%20Material%20Weakness%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section details identified material weaknesses in internal control over financial reporting, including ITGCs and management review controls - Material weaknesses identified include ineffective IT general controls (program change management, user access, vendor management), and ineffective management review controls over accounting for business combinations and impairment assessments[171](index=171&type=chunk) - These deficiencies stem from inadequate IT controls, imprecise documentation, and reliance on outsourced IT service providers without sufficient SOC reports[171](index=171&type=chunk) [Remediation Efforts to Address Material Weakness](index=43&type=section&id=Remediation%20Efforts%20to%20Address%20Material%20Weakness) This section outlines the company's ongoing remediation efforts to address identified material weaknesses in internal controls - Remediation efforts include enhancing management review for business combinations and impairment analyses, potentially engaging third-party consultants for valuations[172](index=172&type=chunk)[173](index=173&type=chunk) - ITGC remediation involves strengthening user access review, defining program change management policies, enhancing audit log reporting, and evaluating options to mitigate risks from lacking SOC reports from third-party providers[174](index=174&type=chunk) - Management intends to remediate these material weaknesses before the end of fiscal 2025, but some initiatives, like obtaining SOC reports, face feasibility challenges[176](index=176&type=chunk) [Changes in Internal Control Over Financial Reporting](index=43&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section confirms no other material changes to internal control over financial reporting during the quarter - No other changes in internal control over financial reporting occurred during the quarter ended June 30, 2025, that materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting, beyond the remediation efforts described[177](index=177&type=chunk) PART II—OTHER INFORMATION This section provides additional information, including legal proceedings, risk factors, equity sales, exhibits, and signatures [Item 1. Legal Proceedings](index=44&type=section&id=Item%201.%20Legal%20Proceedings) This section incorporates by reference the detailed legal matters discussed in Note 9 of the unaudited condensed consolidated financial statements, covering ongoing lawsuits, regulatory investigations, and settlement agreements - Legal proceedings information is incorporated by reference from Note 9 of the financial statements[178](index=178&type=chunk) [Item 1A. Risk Factors](index=44&type=section&id=Item%201A.%20Risk%20Factors) This section states that there were no material changes to the risk factors disclosed in the Company's Annual Report on Form 10-K, except for those arising from the additional disclosures in the 'Legal Matters' and 'Self-insurance Liability' sections within Note 9 - No material changes to risk factors were reported, except for those related to 'Legal Matters' and 'Self-insurance Liability' as detailed in Note 9[179](index=179&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=44&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the Company's share repurchase activity during the three months ended June 30, 2025, including the number of shares purchased, average price paid, and remaining authorization under the repurchase plans | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :----------------- | :------------------------------- | :--------------------------- | | April 1 - 30, 2025 | 25,125 | $39.17 | | May 1 - 31, 2025 | 25,200 | $41.71 | | June 1 - 30, 2025 | 25,000 | $40.34 | | Total (Q3 2025) | 75,325 | $40.41 | - The Company repurchased **75,325 shares** of common stock during the three months ended June 30, 2025, at an average price of **$40.41** per share[180](index=180&type=chunk) - As of June 30, 2025, approximately **$11.88 million** remained authorized for share repurchases under existing plans[180](index=180&type=chunk) [Item 6. Exhibits](index=45&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and CFO, and financial information formatted in Inline XBRL - Exhibits include CEO and CFO certifications (Rule 13a-14(1) or 15d-14(a) and Section 906 of Sarbanes-Oxley Act) and financial information in Inline XBRL format[181](index=181&type=chunk) [Signatures](index=46&type=section&id=Signatures) This section contains the duly authorized signatures of the registrant's Chief Executive Officer and President, Eric S. Langan, and Chief Financial Officer and Principal Accounting Officer, Bradley Chhay, confirming the filing of the report - The report is signed by Eric S. Langan, CEO and President, and Bradley Chhay, CFO and Principal Accounting Officer, on August 11, 2025[185](index=185&type=chunk)

[FORM 8-K Filing Details](index=1&type=section&id=FORM%208-K%20Filing%20Details) This section provides the fundamental identification details for the registrant, RCI HOSPITALITY HOLDINGS, INC., including its incorporation state, commission file number, and principal executive offices [Registrant Information](index=1&type=section&id=Registrant%20Information) This section provides the fundamental identification details for the registrant, RCI HOSPITALITY HOLDINGS, INC., including its incorporation state, commission file number, and principal executive offices - Registrant: **RCI HOSPITALITY HOLDINGS, INC.**[1](index=1&type=chunk) - Jurisdiction of Incorporation: **Texas**[1](index=1&type=chunk) - Commission File Number: **001-13992**[1](index=1&type=chunk) [Securities Information](index=1&type=section&id=Securities%20Information) This part details the registrant's securities registered under Section 12(b) of the Act, specifying the class of stock, trading symbol, and the exchange where it is registered Securities Registered Under Section 12(b) | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | :------------------ | :---------------- | :---------------------------------------- | | Common stock, $0.01 par value | RICK | The Nasdaq Global Market | - The registrant is not an **emerging growth company**[3](index=3&type=chunk) [ITEM 2.02 Results of Operations and Financial Condition](index=2&type=section&id=ITEM%202.02%20RESULTS%20OF%20OPERATIONS%20AND%20FINANCIAL%20CONDITION) RCI Hospitality Holdings, Inc. announced the issuance of a press release on July 10, 2025, detailing sales figures for its nightclubs and restaurants for the third fiscal quarter ended June 30, 2025, with this information furnished as Exhibit 99.1 - A press release was issued on **July 10, 2025**, announcing sales for the **third fiscal quarter ended June 30, 2025**[4](index=4&type=chunk) - The press release is furnished as **Exhibit 99.1** to this Form 8-K[4](index=4&type=chunk) - Information in this item is not deemed 'filed' for Section 18 of the Exchange Act, nor incorporated by reference in other filings, unless expressly stated[5](index=5&type=chunk) [ITEM 9.01 Financial Statements and Exhibits](index=2&type=section&id=ITEM%209.01%20FINANCIAL%20STATEMENTS%20AND%20EXHIBITS) This section lists the exhibits accompanying the Form 8-K filing, including the press release mentioned in Item 2.02 and the Cover Page Interactive Data File Exhibits Filed | Exhibit Number | Description | | :------------- | :---------- | | 99.1 | Press release of RCI Hospitality Holdings, Inc. dated July 10, 2025 | | 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | [SIGNATURES](index=3&type=section&id=SIGNATURES) The report was duly signed on behalf of RCI HOSPITALITY HOLDINGS, INC. by its President and Chief Executive Officer, Eric Langan, on July 10, 2025, in accordance with the requirements of the Securities Exchange Act of 1934 - The report was signed by **Eric Langan**, President and Chief Executive Officer[10](index=10&type=chunk) - Date of signing: **July 10, 2025**[10](index=10&type=chunk)

Financial Data and Key Metrics Changes - Total revenues decreased to $65.9 million from $72.3 million, a decline of $6.4 million primarily due to the divestiture of underperforming locations and severe weather impacts [9][10] - Net income attributable to common shareholders increased to $3.2 million from $800,000, a difference of $2.5 million [11] - GAAP EPS rose to $0.36 per share from $0.08 per share, while non-GAAP EPS decreased to $0.65 from $0.90 [12] - Adjusted EBITDA fell to $14.2 million from $17.2 million [12] Business Line Data and Key Metrics Changes - Nightclub revenues totaled $57.5 million, a decline of 3.1% year over year, with a 3.5% drop in same-store sales [13] - Bombshell's revenue decreased to $8.2 million, a significant drop of 35.6% year over year, impacted by the divestiture of five locations and bad weather [16] - Operating income for nightclubs improved to $14.6 million from $11 million, while Bombshell's segment reported a loss of $227,000 compared to an income of $699,000 [14][16] Market Data and Key Metrics Changes - The company experienced a decline in alcoholic beverage sales by 5.3% and service revenue by 2.9%, while food and merchandise sales increased by 2.4% [13] - Total occupancy cost as a percentage of revenue increased to 8.5% from 8% year over year, reflecting lower revenues rather than higher costs [20] Company Strategy and Development Direction - The company is focused on a capital allocation strategy that allocates 40% to club acquisitions and 60% to share buybacks, debt reduction, and dividends, aiming for a 10% to 15% annual growth in free cash flow per share [22] - Plans include improving existing Bombshell locations to achieve 15% operating margins and returning to same-store sales growth [24] - The company aims to acquire an average of $6 million of adjusted EBITDA per year, targeting three to five times adjusted EBITDA for club acquisitions [23] Management's Comments on Operating Environment and Future Outlook - Management noted that severe weather negatively impacted sales, estimating a loss of approximately $5.6 million in sales due to weather-related closures [66] - The company anticipates a rebound in sales as warmer weather returns and new locations open, with expectations for improved performance in the upcoming quarters [21][74] - Management expressed optimism about the potential for growth as economic uncertainties diminish and consumer spending increases [89] Other Important Information - The company repurchased 56,875 common shares for $2.9 million, ending the quarter with approximately 8.8 million shares outstanding [8] - The company has sold its Aurora, Colorado property and is listing other properties for sale in Austin and Huntsville [27] Q&A Session Summary Question: What is the average rate of return for seller financing? - Management indicated that the current market rate for seller financing is about 6% to 7% [30] Question: How has the acquisition landscape changed compared to previous years? - Management noted that sellers are now using more realistic average numbers rather than inflated 2022 figures, making negotiations more feasible [34] Question: What operational changes were made at the new Flight Club in Detroit? - Management highlighted improvements in guest treatment and operational systems, which have positively impacted performance [50] Question: How much did weather impact EBITDA in the first quarter? - Management estimated that weather-related issues resulted in approximately $3 million in lost EBITDA due to significant sales declines during severe weather [66] Question: What is the current status of the M&A pipeline? - Management confirmed that while South Carolina did not contribute yet, the Detroit acquisition is performing well and expected to meet projected EBITDA targets [70]

Financial Data and Key Metrics Changes - Total revenues decreased to $65.9 million from $72.3 million, a decline of $6.4 million primarily due to the divestiture of underperforming locations and adverse weather conditions [9][10] - Net income attributable to common shareholders increased to $3.2 million from $800,000, a difference of $2.5 million [10] - GAAP EPS rose to $0.36 per share from $0.08 per share, while non-GAAP EPS decreased to $0.65 from $0.90 [12] - Free cash flow was $6.9 million compared to $8.8 million, reflecting reduced operating margins due to lower sales [12] - Adjusted EBITDA fell to $14.2 million from $17.2 million [12] Business Line Data and Key Metrics Changes - Nightclub revenues totaled $57.5 million, a decline of 3.1% year over year, with a 3.5% drop in same-store sales [13] - Bombshell's revenue decreased to $8.2 million, a significant drop of 35.6% year over year, impacted by the divestiture of five locations and adverse weather [16] - Operating income for nightclubs improved to $14.6 million from $11 million, with a margin increase to 25.4% from 18.6% [14] - Bombshell's segment reported an operating loss of $227,000 compared to a profit of $699,000 in the previous year [16] Market Data and Key Metrics Changes - The company experienced closures and reduced business due to severe weather, particularly in Dallas and Houston, affecting sales during January and February [9][10] - The company noted that warmer temperatures in March led to improved sales trends [7] Company Strategy and Development Direction - The company is focused on a five-year capital allocation plan, with 40% of free cash flow allocated to club acquisitions and 60% to share buybacks, debt reduction, and dividends [22] - The goal is to acquire clubs averaging $6 million of adjusted EBITDA per year, targeting three to five times adjusted EBITDA for acquisitions [24] - The company aims to improve existing Bombshell locations, targeting 15% operating margins and a return to same-store sales growth [25] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about future performance as warmer weather is expected to boost sales, and they anticipate a rebound in sales from new locations [20][21] - The management acknowledged challenges in the restaurant industry but remains hopeful for recovery as economic uncertainties diminish [85][92] - The company is actively working on improving operational efficiencies and reducing costs in the Bombshell segment [73] Other Important Information - The company repurchased 56,875 common shares for $2.9 million, ending the quarter with approximately 8.8 million shares outstanding [8] - The company has sold its Aurora, Colorado property and is listing other properties for sale in Austin and Huntsville [27][78] Q&A Session Summary Question: What is the average rate of return for seller financing? - Management indicated that the average rate is about 6% to 7% in the current market [30] Question: How has the approach to negotiations changed compared to previous years? - Management noted that sellers are now using a combination of average numbers rather than relying on high 2022 figures, reflecting the industry's downturn [34] Question: What operational changes were made at the new Flight Club in Detroit? - Management highlighted improvements in guest treatment and operational systems, which have positively impacted performance [50][52] Question: Can you clarify the insurance accrual and its impact on EBITDA? - The insurance accrual for the quarter was $1.3 million, and it is a non-cash charge [60] Question: How much EBITDA was lost due to weather in the first quarter? - Management estimated a loss of approximately $5.6 million in sales and around $3 million in EBITDA due to adverse weather conditions [68] Question: What is the current status of the M&A pipeline? - Management confirmed that while South Carolina did not contribute in the last quarter, Detroit is performing well and expected to meet projected run rates [72] Question: How is the company addressing the challenges in the Bombshell segment? - Management is focused on improving existing locations and is open to divesting underperforming assets if suitable offers arise [81]

Financial Performance - Q2 2025 - Total revenues decreased to $659 million from $723 million, a decrease of 88%[20] - Non-GAAP EPS decreased to $065 from $090[20] - Adjusted EBITDA decreased to $142 million from $172 million[20] - Free cash flow decreased to $69 million from $88 million[20] Segment Performance - Nightclubs - Nightclub revenues decreased by $18 million, or 31%, primarily due to a same-store sales decrease of 35%[26] - GAAP operating income increased to $146 million (254% of revenues) from $110 million (186% of revenues)[26] - Non-GAAP operating income decreased to $171 million (298% of segment revenues) from $198 million (334% of segment revenues)[26] Segment Performance - Bombshells - Bombshells revenues decreased by $45 million, or 356%, due to the sale/divestiture of five underperforming locations and a same-store sales decrease of 134%[33] - GAAP operating loss was $02 million (-28% of segment revenues) compared to an income of $07 million (55% of revenues)[33] - Non-GAAP operating loss was $01 million (-08% of segment revenues) compared to an income of $08 million (59% of revenues)[33] Capital Allocation and Strategy - The company repurchased 56875 common shares for $29 million, with 88 million shares outstanding as of March 31, 2025[19] - The company plans to allocate approximately 40% of free cash flow to club acquisitions and 60% to share buybacks, debt reduction, and dividends over the next five years[59, 61] - The company targets $400 million in revenue and $75 million in free cash flow by fiscal year 2029, with 75 million shares outstanding[63]

[FORM 10-Q Filing Information](index=1&type=section&id=FORM%2010-Q) This section provides the official filing details for the quarterly report, including the reporting period and company status [Filing Details](index=1&type=section&id=Filing%20Details) This document is a Quarterly Report on Form 10-Q for RCI Hospitality Holdings, Inc., covering the quarterly period ended March 31, 2025. The company is an accelerated filer and is not a shell company - The filing is a Quarterly Report on Form 10-Q for the period ended March 31, 2025[2](index=2&type=chunk) - RCI Hospitality Holdings, Inc. is an **accelerated filer**[3](index=3&type=chunk) - As of May 9, 2025, **8,798,250 shares of common stock** were outstanding[3](index=3&type=chunk) [Note About Forward-Looking Statements](index=2&type=section&id=NOTE%20ABOUT%20FORWARD-LOOKING%20STATEMENTS) This section cautions readers about forward-looking statements, outlining inherent risks and the company's limited obligation to update them [Forward-Looking Statements Disclaimer](index=2&type=section&id=Forward-Looking%20Statements%20Disclaimer) This report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially. Key risk factors include operating an adult business, business climates, success of new ventures, cybersecurity, real estate conditions, and regulatory environments. The company does not undertake to revise or publicly release results of any revision to these statements, except as required by law - The report contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995[5](index=5&type=chunk) - Factors that could cause material adverse effects include risks associated with operating an adult business, business climates in operating cities, success in launching businesses, cybersecurity, real estate conditions, and laws governing adult entertainment businesses[5](index=5&type=chunk) - The Company undertakes no obligation to revise or publicly release the results of any revision to any forward-looking statements, except as required by law[5](index=5&type=chunk) [PART I FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial performance [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for RCI Hospitality Holdings, Inc., including cash flows, income, changes in equity, and balance sheets, along with detailed notes explaining the basis of presentation, recent accounting standards, revenue disaggregation, segment information, selected account details, debt, stock-based compensation, income taxes, commitments, contingencies, related party transactions, leases, supplemental cash flow disclosures, and acquisitions/dispositions [Condensed Consolidated Statements of Cash Flows](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) - Net cash provided by operating activities decreased by **10.5%** from **$24,469 thousand** in 2024 to **$21,891 thousand** in 2025 for the six months ended March 31[12](index=12&type=chunk) - Cash and cash equivalents increased by **$313 thousand** to **$32,663 thousand** for the six months ended March 31, 2025, compared to a decrease of **$1,050 thousand** in the prior year[12](index=12&type=chunk) Condensed Consolidated Statements of Cash Flows | Metric | Six Months Ended March 31, 2025 (in thousands) | Six Months Ended March 31, 2024 (in thousands) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net cash provided by operating activities | $21,891 | $24,469 | | Net cash used in investing activities | $(12,226) | $(12,686) | | Net cash used in financing activities | $(9,352) | $(12,833) | | Net increase (decrease) in cash and cash equivalents | $313 | $(1,050) | | Cash and cash equivalents at end of period | $32,663 | $19,973 | [Condensed Consolidated Statements of Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) - Total revenues decreased by **8.9%** for the three months ended March 31, 2025, and by **6.0%** for the six months ended March 31, 2025, compared to the prior year periods[14](index=14&type=chunk) - Net income attributable to RCIHH common stockholders significantly increased to **$3,231 thousand** (EPS **$0.36**) for the three months ended March 31, 2025, from **$774 thousand** (EPS **$0.08**) in the prior year[14](index=14&type=chunk) Condensed Consolidated Statements of Income | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | Six Months Ended March 31, 2025 (in thousands) | Six Months Ended March 31, 2024 (in thousands) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Total revenues | $65,876 | $72,283 | $137,359 | $146,190 | | Income from operations | $8,171 | $4,657 | $22,077 | $17,822 | | Net income attributable to RCIHH common stockholders | $3,231 | $774 | $12,255 | $8,000 | | Basic and diluted EPS | $0.36 | $0.08 | $1.38 | $0.85 | [Condensed Consolidated Statements of Changes in Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Equity) - Total RCIHH stockholders' equity increased to **$268,785 thousand** as of March 31, 2025, from **$263,360 thousand** as of September 30, 2024[16](index=16&type=chunk) - The number of common shares outstanding decreased due to treasury stock purchases and cancellations[16](index=16&type=chunk) Condensed Consolidated Statements of Changes in Equity | Metric | March 31, 2025 (in thousands) | September 30, 2024 (in thousands) | | :----------------------------------- | :------------------------------------ | :------------------------------------ | | Total RCIHH stockholders' equity | $268,785 | $263,360 | | Common stock shares outstanding | 8,832,125 | 8,955,000 | | Retained earnings | $212,772 | $201,759 | [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) - Total assets increased to **$589,756 thousand** as of March 31, 2025, from **$584,364 thousand** as of September 30, 2024[19](index=19&type=chunk) - Total current liabilities slightly decreased from **$48,078 thousand** to **$46,623 thousand**, while total liabilities remained relatively stable[19](index=19&type=chunk) Condensed Consolidated Balance Sheets | Metric | March 31, 2025 (in thousands) | September 30, 2024 (in thousands) | | :----------------------------------- | :------------------------------------ | :------------------------------------ | | Total assets | $589,756 | $584,364 | | Total current assets | $45,553 | $47,285 | | Total liabilities | $321,217 | $321,254 | | Total equity | $268,539 | $263,110 | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [1. Basis of Presentation](index=8&type=section&id=1.%20Basis%20of%20Presentation) - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information and Form 10-Q instructions[21](index=21&type=chunk) - Operating results for the six months ended March 31, 2025, are not necessarily indicative of the full fiscal year results[21](index=21&type=chunk) [2. Recent Accounting Standards and Pronouncements](index=8&type=section&id=2.%20Recent%20Accounting%20Standards%20and%20Pronouncements) - The Company adopted ASU 2022-03 (Fair Value Measurement) and ASU 2023-01 (Leases) on October 1, 2024, with no significant impact on financial statements[22](index=22&type=chunk)[23](index=23&type=chunk) - ASU 2023-05 (Business Combinations—Joint Venture Formations) was adopted on October 1, 2024, and will apply to future joint ventures[24](index=24&type=chunk) - The Company is evaluating the impact of ASU 2023-07 (Segment Reporting), ASU 2023-09 (Income Taxes), and ASU 2024-03 (Expense Disaggregation Disclosures) on its financial statements[26](index=26&type=chunk)[27](index=27&type=chunk)[28](index=28&type=chunk) [3. Revenues](index=10&type=section&id=3.%20Revenues) - Contract liabilities with customers, included in accrued liabilities as unearned revenues, increased from **$99 thousand** at September 30, 2024, to **$425 thousand** at March 31, 2025[33](index=33&type=chunk) Revenues by Segment and Type (Three Months Ended March 31) | Revenue Type | Nightclubs 2025 ($K) | Nightclubs 2024 ($K) | Bombshells 2025 ($K) | Bombshells 2024 ($K) | Total 2025 ($K) | Total 2024 ($K) | | :----------------------- | :------------------- | :------------------- | :------------------- | :------------------- | :-------------- | :-------------- | | Alcoholic beverages | 24,575 | 25,946 | 4,291 | 6,961 | 28,866 | 32,907 | | Food and merchandise | 5,519 | 5,346 | 3,892 | 5,722 | 9,411 | 11,068 | | Service revenues | 22,870 | 23,562 | 42 | 2 | 22,912 | 23,564 | | Other revenues | 4,577 | 4,518 | 4 | 86 | 4,687 | 4,744 | | **Total Revenues** | **57,541** | **59,372** | **8,229** | **12,771** | **65,876** | **72,283** | Revenues by Segment and Type (Six Months Ended March 31) | Revenue Type | Nightclubs 2025 ($K) | Nightclubs 2024 ($K) | Bombshells 2025 ($K) | Bombshells 2024 ($K) | Total 2025 ($K) | Total 2024 ($K) | | :----------------------- | :------------------- | :------------------- | :------------------- | :------------------- | :-------------- | :-------------- | | Alcoholic beverages | 51,610 | 52,182 | 9,444 | 14,041 | 61,054 | 66,223 | | Food and merchandise | 11,255 | 10,586 | 8,262 | 11,284 | 19,517 | 21,870 | | Service revenues | 47,048 | 48,681 | 45 | 2 | 47,093 | 48,683 | | Other revenues | 9,352 | 8,956 | 65 | 175 | 9,695 | 9,414 | | **Total Revenues** | **119,265** | **120,405** | **17,816** | **25,502** | **137,359** | **146,190** | [4. Segment Information](index=12&type=section&id=4.%20Segment%20Information) - The Company operates two principal reportable segments: Nightclubs and Bombshells Restaurants and Bars, with all operations in the United States[36](index=36&type=chunk) - Nightclubs segment assets increased to **$462,985 thousand** at March 31, 2025, from **$454,892 thousand** at September 30, 2024, while Bombshells assets decreased[39](index=39&type=chunk) Segment Revenues (Six Months Ended March 31) | Segment | 2025 (in thousands) | 2024 (in thousands) | | :---------- | :------------------ | :------------------ | | Nightclubs | $119,265 | $120,405 | | Bombshells | $17,816 | $25,502 | | Other | $278 | $283 | | **Total** | **$137,359** | **$146,190** | Segment Income (Loss) from Operations (Six Months Ended March 31) | Segment | 2025 (in thousands) | 2024 (in thousands) | | :---------- | :------------------ | :------------------ | | Nightclubs | $35,485 | $31,390 | | Bombshells | $1,744 | $785 | | Other | $(851) | $(473) | | Corporate | $(14,301) | $(13,880) | | **Total** | **$22,077** | **$17,822** | [5. Selected Account Information](index=13&type=section&id=5.%20Selected%20Account%20Information) - Total selling, general and administrative expenses decreased by **$1.8 million (7.1%)** for the quarter and **$747 thousand (1.5%)** for the six-month period[46](index=46&type=chunk) - Impairment of assets for the three months ended March 31, 2025, was **$1.78 million**, significantly lower than **$8.033 million** in the prior year, primarily due to SOB license impairment[46](index=46&type=chunk) - The Company recorded a **$1.3 million gain** on the sale of Bombshells Austin and received **$1.15 million** in insurance recovery during the quarter ended December 31, 2024[47](index=47&type=chunk) Receivables, Net (in thousands) | Account | March 31, 2025 | September 30, 2024 | | :-------------------------- | :------------- | :----------------- | | Credit card receivables | $1,957 | $2,056 | | Income tax refundable | — | $2,017 | | Current portion of notes receivable | $325 | $269 | | **Total receivables, net** | **$4,174** | **$5,832** | Accrued Liabilities (in thousands) | Account | March 31, 2025 | September 30, 2024 | | :-------------------------- | :------------- | :----------------- | | Insurance | $861 | $2,390 | | Payroll and related costs | $4,772 | $4,676 | | Property taxes | $1,870 | $3,347 | | Unearned revenues | $425 | $99 | | Estimated self-insurance liability | $1,119 | — | | **Total accrued liabilities** | **$18,161** | **$20,280** | [6. Debt](index=16&type=section&id=6.%20Debt) - A bank loan of **$2.4 million** was converted into a **$6.3 million** construction loan on November 26, 2024, with a **6.99% interest rate** for the first five years[49](index=49&type=chunk) - A **$5.0 million** promissory note at **8% interest** was executed on January 21, 2025, for a club acquisition[50](index=50&type=chunk) Future Maturities of Debt Obligations as of March 31, 2025 (in thousands) | Period | Regular Amortization | Balloon Payments | Total Payments | | :------------------------ | :------------------- | :--------------- | :------------- | | April 2025 - March 2026 | $15,841 | $4,400 | $20,241 | | April 2026 - March 2027 | $15,049 | $11,376 | $26,425 | | April 2027 - March 2028 | $15,551 | $8,556 | $24,107 | | April 2028 - March 2029 | $15,938 | $2,651 | $18,589 | | April 2029 - March 2030 | $14,865 | $2,524 | $17,389 | | Thereafter | $52,013 | $85,365 | $137,378 | | **Total** | **$129,257** | **$114,872** | **$244,129** | [7. Stock-based Compensation](index=16&type=section&id=7.%20Stock-based%20Compensation) - Stock-based compensation expense was **$118 thousand** for the three months and **$588 thousand** for the six months ended March 31, 2025, a decrease from the prior year[53](index=53&type=chunk) - As of March 31, 2025, unrecognized compensation cost was **$1.4 million**, expected to be recognized over a weighted average period of **0.9 years**[53](index=53&type=chunk) Stock Option Activity (Six Months Ended March 31, 2025) | Metric | Number of Shares | Weighted-Average Exercise Price | | :-------------------------- | :--------------- | :------------------------------ | | Outstanding at September 30, 2024 | 300,000 | - | | Forfeited | (20,000) | $100.00 | | Outstanding at March 31, 2025 | 280,000 | $100.00 | | Exercisable at March 31, 2025 | 230,000 | $100.00 | [8. Income Taxes](index=17&type=section&id=8.%20Income%20Taxes) - The effective income tax rate for the three months ended March 31, 2025, was **25.1%**, significantly higher than **0.7%** in the prior year due to higher pre-tax income[57](index=57&type=chunk)[58](index=58&type=chunk) Income Tax Expense and Effective Rate (Three Months Ended March 31) | Metric | 2025 Amount ($K) | 2025 % | 2024 Amount ($K) | 2024 % | | :----------------------------------- | :--------------- | :----- | :--------------- | :----- | | Total income tax expense | $1,068 | 25.1% | $5 | 0.7% | Income Tax Expense and Effective Rate (Six Months Ended March 31) | Metric | 2025 Amount ($K) | 2025 % | 2024 Amount ($K) | 2024 % | | :----------------------------------- | :--------------- | :----- | :--------------- | :----- | | Total income tax expense | $2,915 | 19.2% | $1,804 | 18.4% | [9. Commitments and Contingencies](index=18&type=section&id=9.%20Commitments%20and%20Contingencies) - The Company has one remaining unresolved claim out of 71 original claims related to a liability policy with Indemnity Insurance Corporation (IIC), which was liquidated in 2014[63](index=63&type=chunk) - A new trial is set for June 2025 for a dram shop negligence lawsuit against JAI Phoenix, with a prior judgment against JAI Phoenix for approximately **$1.4 million** in compensatory damages and **$4.0 million** in punitive damages[65](index=65&type=chunk) - The New York State Department of Labor assessed final judgments totaling approximately **$3.08 million** against two subsidiaries for state unemployment tax matters[67](index=67&type=chunk) - The Company is cooperating with an investigation by the NY AG and NY DTF related to New York State tax filings and possible entertainment benefits provided to NY DTF personnel, with potential fines or liabilities currently indeterminable[68](index=68&type=chunk) - In fiscal 2025, the Company began self-insuring a significant portion of general liability and liquor insurance programs due to prohibitive costs, recording an estimated self-insurance expense of **$1.4 million** for the quarter ended March 31, 2025[73](index=73&type=chunk)[74](index=74&type=chunk) [10. Related Party Transactions](index=20&type=section&id=10.%20Related%20Party%20Transactions) - Chairman and President, Eric Langan, personally guarantees all commercial bank indebtedness of the Company, amounting to **$137.3 million** as of March 31, 2025[75](index=75&type=chunk) - The Company has notes borrowed from related parties totaling **$650,000**, with terms consistent with other lenders[76](index=76&type=chunk) - Amounts billed by Nottingham Creations (owned by Eric Langan's brother) for goods and services decreased significantly to **$3,974** for the three months ended March 31, 2025, from **$202,700** in the prior year[77](index=77&type=chunk) - Amounts billed directly to the Company by TW Mechanical LLC (50% owned by Eric Langan's son-in-law) for plumbing and HVAC services were **$681** for the three months ended March 31, 2025[79](index=79&type=chunk) [11. Leases](index=21&type=section&id=11.%20Leases) - Operating cash outflows from operating leases were **$1,821 thousand** for the three months and **$3,779 thousand** for the six months ended March 31, 2025[80](index=80&type=chunk) - The weighted average remaining lease term for operating leases was **9.3 years** as of March 31, 2025, with a weighted average discount rate of **5.7%**[80](index=80&type=chunk) Total Lease Expense, Net (in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Six Months Ended March 31, 2025 | Six Months Ended March 31, 2024 | | :-------------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Operating lease expense – fixed payments | $1,079 | $1,292 | $2,188 | $2,584 | | Variable lease expense | $364 | $411 | $759 | $861 | | Short-term and other lease expense | $316 | $347 | $658 | $677 | | **Total lease expense, net** | **$1,759** | **$2,050** | **$3,605** | **$4,122** | [12. Supplemental Disclosure of Cash Flow Information](index=22&type=section&id=12.%20Supplemental%20Disclosure%20of%20Cash%20Flow%20Information) - Subsequent to March 31, 2025, through May 9, 2025, the Company repurchased **33,875 shares** of common stock at an average price of **$39.80 per share**[82](index=82&type=chunk) Supplemental Cash Flow Information (Six Months Ended March 31) | Metric | 2025 (in thousands) | 2024 (in thousands) | | :----------------------------------- | :------------------ | :------------------ | | Cash paid for interest, net | $7,890 | $7,877 | | Cash paid for income taxes | $1,619 | $2,510 | | Debt incurred in connection with acquisition of businesses | $5,000 | — | | Unpaid liabilities on capital expenditures | $1,170 | $1,244 | [13. Acquisitions and Dispositions](index=22&type=section&id=13.%20Acquisitions%20and%20Dispositions) - The Company sold Bombshells Austin on November 14, 2024, for **$70,000 cash** and a **$60,000 promissory note**, recognizing a **$1.3 million gain**[83](index=83&type=chunk) - On January 21, 2025, the Company acquired 'Flight Club' in Detroit for **$11.0 million**, consisting of **$6.0 million cash** and a **$5.0 million seller-financed promissory note**, resulting in an estimated goodwill of **$613,000**[84](index=84&type=chunk) - The acquired Flight Club contributed **$681 thousand** in revenues and **$184 thousand** in income from operations from acquisition date to March 31, 2025[87](index=87&type=chunk) - On April 7, 2025, the Company acquired 'Platinum West' in West Columbia, South Carolina, for **$8.0 million**, comprising **$5.5 million cash** and a **$2.5 million seller-financed promissory note**[89](index=89&type=chunk) Preliminary Allocation of Flight Club Acquisition Price (in thousands) | Asset | Fair Value | | :-------------------------- | :--------- | | Current assets | $73 | | Property and equipment | $3,305 | | Licenses | $5,928 | | Tradename | $1,081 | | Total net assets acquired | $10,387 | | Goodwill | $613 | | **Total fair value of net assets acquired** | **$11,000** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition and results of operations, highlighting key performance indicators, revenue and expense trends by segment, non-GAAP financial measures, liquidity, capital resources, and strategic initiatives. It also discusses critical accounting policies, the impact of inflation, and seasonality [Overview](index=24&type=section&id=Overview) - RCI Hospitality Holdings, Inc. operates **67 adult entertainment establishments** and Bombshells Restaurants and Bars through its subsidiaries as of March 31, 2025[92](index=92&type=chunk) - The Company's two principal reportable segments are Nightclubs and Bombshells, with other operations grouped into 'Other'[92](index=92&type=chunk) [Critical Accounting Policies and Estimates](index=24&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - The Company began self-insuring a significant portion of general liability and liquor insurance programs in fiscal 2025 due to increasing costs, which is a new critical accounting estimate[95](index=95&type=chunk) - The estimated self-insurance liability is based on assumptions regarding economic conditions, claims frequency/severity, and settlement practices[96](index=96&type=chunk) [Results of Operations](index=25&type=section&id=Results%20of%20Operations) [Revenues](index=25&type=section&id=Revenues) - Consolidated revenues decreased by **8.9%** for the second quarter and **6.0%** for the six-month period, primarily due to closed locations and a decline in consolidated same-store sales[101](index=101&type=chunk)[102](index=102&type=chunk) - Consolidated same-store sales decreased by **4.7%** for the quarter (Nightclubs **-3.5%**, Bombshells **-13.4%**) and **1.2%** for the six-month period (Nightclubs flat, Bombshells **-10.4%**)[104](index=104&type=chunk) - Nightclubs revenues decreased by **3.1%** for the quarter and **0.9%** for the six-month period, while Bombshells revenues decreased by **35.6%** for the quarter and **30.1%** for the six-month period, mainly due to closed/sold locations and same-store sales decline[104](index=104&type=chunk)[105](index=105&type=chunk)[106](index=106&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk) Consolidated Revenue Performance | Period | Total Revenues (2025) | Total Revenues (2024) | Change % | | :-------------------------- | :-------------------- | :-------------------- | :------- | | Three Months Ended March 31 | $65.9 million | $72.3 million | -8.9% | | Six Months Ended March 31 | $137.4 million | $146.2 million | -6.0% | [Operating Expenses](index=27&type=section&id=Operating%20Expenses) - Total operating expenses decreased by **$9.9 million (14.7%)** for the second quarter and **$13.1 million (10.2%)** for the six-month period[109](index=109&type=chunk) - Cost of goods sold decreased by **15.2%** for the quarter and **11.8%** for the six-month period, mainly due to lower sales, and as a percent of total revenues, decreased to **12.8%** from **13.7%** for the quarter[110](index=110&type=chunk) - Salaries and wages decreased by **2.3%** for the quarter and **3.0%** for the six-month period due to closed locations, but increased as a percent of total revenues due to lower sales[111](index=111&type=chunk) - Selling, general and administrative expenses decreased by **7.1%** for the quarter and **1.5%** for the six-month period, primarily from closed/sold Bombshells locations and lower variable expenses, but insurance and legal expenses increased[113](index=113&type=chunk)[114](index=114&type=chunk) - Depreciation and amortization decreased by **2.8%** for the quarter and **5.1%** for the six-month period, mainly due to closed locations[115](index=115&type=chunk) - Impairment and other charges (gains), net, changed significantly due to the sale of Bombshells Austin, insurance recovery, and decreased asset impairment compared to the prior year[116](index=116&type=chunk) [Income (Loss) from Operations](index=29&type=section&id=Income%20(Loss)%20from%20Operations) - Consolidated operating margin increased to **12.4%** for the three months ended March 31, 2025 (from **6.4%** in 2024), and to **16.1%** for the six months ended March 31, 2025 (from **12.2%** in 2024)[118](index=118&type=chunk) - Nightclubs' GAAP operating margin for the six months ended March 31, 2025, was **29.8%**, while Bombshells' was **9.8%**[122](index=122&type=chunk) Income (Loss) from Operations by Segment (Six Months Ended March 31) | Segment | 2025 (in thousands) | 2024 (in thousands) | | :---------- | :------------------ | :------------------ | | Nightclubs | $35,485 | $31,390 | | Bombshells | $1,744 | $785 | | Other | $(851) | $(473) | | Corporate | $(14,301) | $(13,880) | | **Total** | **$22,077** | **$17,822** | [Other Income/Expenses](index=31&type=section&id=Other%20Income%2FExpenses) - Interest expense increased by **$49 thousand (1.2%)** for the second quarter, while interest income increased by **$43 thousand (44.8%)**[123](index=123&type=chunk) - Total occupancy costs (operating lease expense + interest expense) decreased in dollar amounts but increased as a percentage of revenue due to lower sales[124](index=124&type=chunk) [Income Taxes](index=32&type=section&id=Income%20Taxes) - Income tax expense increased due to higher pretax income in the current quarter and six-month period[125](index=125&type=chunk)[126](index=126&type=chunk) Income Tax Expense and Effective Rate (Six Months Ended March 31) | Metric | 2025 Amount ($K) | 2025 % | 2024 Amount ($K) | 2024 % | | :----------------------------------- | :--------------- | :----- | :--------------- | :----- | | Total income tax expense | $2,915 | 19.2% | $1,804 | 18.4% | [Non-GAAP Financial Measures](index=32&type=section&id=Non-GAAP%20Financial%20Measures) - Management uses non-GAAP financial measures like Non-GAAP Operating Income, Non-GAAP Net Income, and Adjusted EBITDA to clarify and enhance understanding of performance by excluding items not representative of ongoing business operations[127](index=127&type=chunk)[128](index=128&type=chunk)[130](index=130&type=chunk) - Adjusted EBITDA decreased by **17.4%** for the three months and **13.9%** for the six months ended March 31, 2025, compared to the prior year[131](index=131&type=chunk) - Non-GAAP diluted EPS decreased to **$0.65** for the three months and **$1.46** for the six months ended March 31, 2025, from **$0.90** and **$1.76** respectively in the prior year[132](index=132&type=chunk) Adjusted EBITDA (in thousands) | Period | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Three Months Ended March 31 | $14,229 | $17,232 | | Six Months Ended March 31 | $29,889 | $34,699 | Non-GAAP Diluted Earnings Per Share | Period | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Three Months Ended March 31 | $0.65 | $0.90 | | Six Months Ended March 31 | $1.46 | $1.76 | [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) - Cash and cash equivalents were **$32.7 million** at March 31, 2025, compared to **$32.4 million** at September 30, 2024[134](index=134&type=chunk) - The Company had negative working capital of **$1.1 million** at March 31, 2025, compared to **$793 thousand** at September 30, 2024[134](index=134&type=chunk) - Net cash provided by operating activities decreased by **10.5%** to **$21.9 million** for the six months ended March 31, 2025, primarily due to lower conversion of revenues to cash[137](index=137&type=chunk)[138](index=138&type=chunk) - Net cash used in investing activities was **$12.2 million** for the six months ended March 31, 2025, including **$6.0 million** for business acquisitions and **$8.6 million** for property, equipment, and intangible assets[140](index=140&type=chunk) - Net cash used in financing activities decreased to **$9.4 million** for the six months ended March 31, 2025, from **$12.8 million** in the prior year, driven by increased proceeds from debt obligations and lower treasury stock purchases[143](index=143&type=chunk) - Free cash flow decreased by **11.5%** to **$19.0 million** for the six months ended March 31, 2025, compared to the prior year[145](index=145&type=chunk) Free Cash Flow (in thousands) | Metric | Six Months Ended March 31, 2025 | Six Months Ended March 31, 2024 | | :-------------------------- | :------------------------------ | :------------------------------ | | Net cash provided by operating activities | $21,891 | $24,469 | | Less: Maintenance capital expenditures | $2,887 | $2,994 | | **Free cash flow** | **$19,004** | **$21,475** | [Impact of Inflation](index=39&type=section&id=Impact%20of%20Inflation) - The Company has managed to recover increased costs through price increases to the extent permitted by competition[150](index=150&type=chunk) [Seasonality](index=39&type=section&id=Seasonality) - Nightclub operations are seasonal, with reduced revenues from April through September (fiscal Q3 and Q4) and strongest results from October through March (fiscal Q1 and Q2)[151](index=151&type=chunk) [Capital Allocation Strategy](index=39&type=section&id=Capital%20Allocation%20Strategy) - The capital allocation strategy prioritizes acquiring or developing clubs/restaurants with a minimum **25%-33% cash-on-cash return**, disposing of underperforming units, buying back stock if after-tax yield on free cash flow is above **10%**, and paying down expensive debt[152](index=152&type=chunk)[156](index=156&type=chunk) - Growth strategy includes organic growth, acquiring existing units, opening new units, and developing new club concepts, with a focus on diversifying operations with Bombshells units that do not require SOB licenses[153](index=153&type=chunk)[154](index=154&type=chunk)[155](index=155&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=40&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) There were no material changes to the Company's market risk disclosures from its Annual Report on Form 10-K for the fiscal year ended September 30, 2024 - No material changes to market risk information were reported as of March 31, 2025, compared to the Annual Report on Form 10-K for fiscal year ended September 30, 2024[157](index=157&type=chunk) [Item 4. Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the Company's disclosure controls and procedures were not effective as of March 31, 2025, due to previously reported material weaknesses in internal control over financial reporting. These weaknesses relate to IT general controls, accounting for business combinations, and impairment assessments. Remediation efforts are underway, but full remediation is not yet complete - Disclosure controls and procedures were **not effective** as of March 31, 2025, due to identified material weaknesses in internal control over financial reporting[159](index=159&type=chunk) - Material weaknesses include ineffective design and operation of IT general controls (program change management, user access, vendor management), controls over accounting for business combinations, and controls over impairment assessments[160](index=160&type=chunk) - Remediation efforts include strengthening review and documentation for user access, defining IT change management policies, enhancing accounting system audit logs, and evaluating options for third-party SOC reports[163](index=163&type=chunk) - Management intends to remediate these material weaknesses prior to the end of fiscal 2025, but some initiatives, like addressing the lack of available SOC reports, are currently unfeasible[165](index=165&type=chunk) [PART II OTHER INFORMATION](index=42&type=section&id=PART%20II%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity sales, exhibits, and official signatures for the quarterly report [Item 1. Legal Proceedings](index=42&type=section&id=Item%201.%20Legal%20Proceedings) This section incorporates by reference the legal matters discussed in Note 9 of the unaudited condensed consolidated financial statements, which detail ongoing lawsuits and investigations - Legal proceedings information is incorporated by reference from Note 9 of the financial statements[167](index=167&type=chunk) [Item 1A. Risk Factors](index=42&type=section&id=Item%201A.%20Risk%20Factors) There were no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K, except for those arising from the additional disclosures in the 'Legal Matters' and 'Self-insurance Liability' sections of Note 9 - No material changes to risk factors were reported, except for those related to 'Legal Matters' and 'Self-insurance Liability' sections within Note 9[168](index=168&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=42&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Company repurchased 56,875 shares of common stock during the three months ended March 31, 2025, at an average price of $50.92 per share, with approximately $14.9 million remaining authorization for future repurchases - As of March 31, 2025, approximately **$14.9 million** authorization remained for additional share repurchases[169](index=169&type=chunk) Share Repurchase Activity (Three Months Ended March 31, 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :------------------ | :----------------------------- | :--------------------------- | | January 1-31, 2025 | 17,750 | $55.26 | | February 1-28, 2025 | 18,125 | $52.32 | | March 1-31, 2025 | 21,000 | $46.03 | | **Total** | **56,875** | **$50.92** | [Item 6. Exhibits](index=43&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and CFO, and financial information formatted in Inline XBRL - Exhibits include certifications from the CEO and CFO (31.1, 31.2, 32) and financial information in Inline XBRL format (101, 104)[171](index=171&type=chunk) [Signatures](index=44&type=section&id=SIGNATURES) The report is duly signed by Eric S. Langan, Chief Executive Officer and President, and Bradley Chhay, Chief Financial Officer and Principal Accounting Officer, on May 12, 2025 - The report was signed by Eric S. Langan (CEO and President) and Bradley Chhay (CFO and Principal Accounting Officer) on May 12, 2025[176](index=176&type=chunk)

Company Overview - RCI Hospitality (RICK) shares increased by 7.8% to $39.06, following a significant trading volume, contrasting with an 18.8% loss over the past four weeks [1] - The stock's surge is attributed to President Trump's announcement to suspend U.S. tariffs on most countries for 90 days, which has renewed investor optimism [1] Earnings Expectations - RCI Hospitality is projected to report quarterly earnings of $0.75 per share, reflecting a year-over-year increase of 837.5% [2] - Expected revenues for the upcoming quarter are $71.73 million, which is a slight decrease of 0.8% compared to the same quarter last year [2] Stock Performance and Trends - The consensus EPS estimate for RCI Hospitality has remained stable over the last 30 days, indicating that stock price movements may not sustain without earnings estimate revisions [3] - The stock currently holds a Zacks Rank of 1 (Strong Buy), suggesting strong potential for future performance [3] Industry Context - RCI Hospitality is part of the Zacks Leisure and Recreation Services industry, which includes Trip.com (TCOM) [3] - Trip.com has seen a 4.9% increase in its stock price, closing at $54.79, but has experienced a -15.2% return over the past month [3] - Trip.com's consensus EPS estimate has increased by 4.7% over the past month to $0.86, representing a year-over-year change of +3.6% [4]

Financial Results Announcement - RCI Hospitality Holdings, Inc. announced sales at nightclubs and restaurants for the second fiscal quarter ended March 31, 2025[4] - The press release detailing the financial results was issued on April 8, 2025[4] Company Information - The company is listed on the Nasdaq Global Market under the trading symbol RICK[2]

Core Viewpoint - RCI Hospitality (RICK) has shown a downtrend recently, losing 6.1% over the past week, but a hammer chart pattern suggests a potential trend reversal as buying interest may be emerging to counteract selling pressure [1][2]. Technical Analysis - The hammer chart pattern indicates a possible bottoming out, suggesting that selling pressure may be subsiding, which is a bullish signal for the stock [2][4]. - A hammer pattern forms when there is a small difference between opening and closing prices, with a long lower wick, indicating that the stock has found support after hitting a new low during a downtrend [3][4]. - The occurrence of a hammer pattern at the bottom of a downtrend signals that bears may have lost control, indicating a potential trend reversal [4]. Fundamental Analysis - There is a strong consensus among Wall Street analysts to raise earnings estimates for RICK, which enhances the stock's prospects for a trend reversal [2][6]. - The consensus EPS estimate for RICK has increased by 14.3% over the last 30 days, indicating analysts' agreement on the company's potential for better earnings than previously predicted [7]. - RICK holds a Zacks Rank 1 (Strong Buy), placing it in the top 5% of over 4,000 ranked stocks, which typically outperform the market [8].