RCI Hospitality (RICK) - 2025 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION This section covers the unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Financial Statements 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) 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] - 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] Condensed Consolidated Statements of Income (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] - 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] Condensed Consolidated Statements of Changes in Equity (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][17] - 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] Condensed Consolidated Balance Sheets 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] - The company maintained a negative working capital position, with current liabilities exceeding current assets[17][146] Notes to Condensed Consolidated Financial Statements (unaudited) This section provides detailed notes explaining the basis of presentation, accounting standards, and specific financial accounts 1. Basis of Presentation 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] - Management believes all necessary adjustments for fair statement, consisting solely of normal recurring adjustments, have been made[19] 2. Recent Accounting Standards and Pronouncements 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][21] - 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] - 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][25][26] 3. Revenues 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] - 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] 4. Segment Information 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][115][117][118] - 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] 5. Selected Account Information 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][77] - 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][124] - 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] 6. Debt 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] - New seller-financed promissory notes totaling $8.0 million were executed for club acquisitions, bearing interest rates of 7% to 8% per annum[48][50][51] | 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 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] - 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] | 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 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][135][136] - 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][60] 9. Commitments and Contingencies 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][68] - 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] - 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][73] - 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][75] - 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][79] 10. Related Party Transactions 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] - The Company has notes borrowed from related parties totaling $650,000, with terms consistent with other lenders[82] - 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] - 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] 11. Leases 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] - 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] 12. Supplemental Disclosure of Cash Flow Information 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] - Subsequent to June 30, 2025, the Company repurchased 36,339 shares of common stock at an average price of $38.09 per share[89] 13. Acquisitions and Dispositions 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] - 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][93][95] - 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] - 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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][102] - The Company also operates a business communications company serving the adult nightclubs industry[102] Critical Accounting Policies and Estimates 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] - 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][106] Results of Operations This section analyzes the company's financial performance, including revenue, operating expenses, and income from operations 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][112] Operating Expenses 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] | 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] Income (Loss) from Operations 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] - Nightclubs segment showed strong growth in operating income, while Bombshells turned profitable for both periods[128] Other Income/Expenses 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] - 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] Income Taxes 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] Non-GAAP Financial Measures 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][138][140] | 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][159] Liquidity and Capital Resources This section discusses the company's liquidity, capital resources, and cash flow activities from operations, investing, and financing Cash Flows from Operating Activities 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] - The Company expects volatility in payments for self-insured general liability and liquor insurance programs until a trust is fully established[150] Cash Flows from Investing Activities 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][152] - 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] Cash Flows from Financing Activities 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] - 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] - Quarterly dividends increased from $0.06 to $0.07 per share[155] Free Cash Flow 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] - Free cash flow is used as the baseline for the Company's capital allocation strategy, prioritizing acquisitions and development over other uses[156][157] Impact of Inflation 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] 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] Capital Allocation Strategy 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][167] Growth Strategy 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] - A key part of the growth strategy is diversifying operations with Bombshells restaurants, which do not require difficult-to-obtain SOB licenses[165] Item 3. Quantitative and Qualitative Disclosures about Market Risk 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] Item 4. Controls and Procedures 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 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] Previously Reported Material Weakness in Internal Control Over Financial Reporting 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] - These deficiencies stem from inadequate IT controls, imprecise documentation, and reliance on outsourced IT service providers without sufficient SOC reports[171] Remediation Efforts to Address Material Weakness 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][173] - 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] - Management intends to remediate these material weaknesses before the end of fiscal 2025, but some initiatives, like obtaining SOC reports, face feasibility challenges[176] Changes in Internal Control Over Financial Reporting 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] PART II—OTHER INFORMATION This section provides additional information, including legal proceedings, risk factors, equity sales, exhibits, and signatures Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] - As of June 30, 2025, approximately $11.88 million remained authorized for share repurchases under existing plans[180] Item 6. Exhibits 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] 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]