What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2023-12-14 compared with 2022-12-14 · 25 added, 44 removed, 113 unchanged (38% of the section changed)

RCI Hospitality Holdings, Inc.

is a holding company.

Through our subsidiaries, we engaged in a number of activities in the hospitality and other businesses.

As of September 30, 2022, our subsidiaries operated a total of 63 establishments that offer live adult entertainment and/or restaurant and bar operations, including 1 location that was temporarily closed.

is a holding company that, through its subsidiaries, engages in businesses that offer live adult entertainment and/or high-quality dining experiences to its guests.

Our subsidiaries operated 69 establishments in 13 states as of September 30, 2023.

Together with its subsidiaries, RCI Hospitality Holdings, Inc.

is collectively referred to as “RCIHH,” the “Company,” “we,” “us,” or “our” in this report.

is collectively referred to as “RCIHH,” "RCI," the “Company,” “we,” “us,” or “our” in this report.

We also operate a leading business communications company serving the multibillion-dollar adult nightclubs industry.

6 unchanged sentences

Information contained in the corporate website shall not be construed as part of this Form 10-K.

CURRENT OPERATING ENVIRONMENT

Our fiscal 2020 was the period hard hit by the COVID-19 pandemic causing a significant reduction in customer traffic in our clubs and restaurants due to changes in consumer behavior as social distancing practices, dining room closures and other restrictions were mandated or encouraged by federal, state and local governments.

In fiscal 2021, our businesses started to recover from the initial effects of the pandemic when government restrictions eased.

Stimulus money also flowed to the economy at that time which prompted discretionary spending.

In fiscal 2022, several coronavirus variants threatened to bring back tight restrictions.

Along with the pandemic, geopolitical and macroeconomic events started to affect the U.S.

economy in general, with global inflation and supply chain disruption impacting our businesses.

Geopolitical and macroeconomic events are still developing.

In the event global inflation leads to a major economic downturn, our business operations and cash flow could be significantly affected.

We operate several businesses, which we aggregate for financial reporting purposes into two reportable segments – Nightclubs and Bombshells.

Businesses that are not included as Nightclubs or Bombshells are combined as “Other.”

During fiscal 2022, 2021, and 2020, on a consolidated basis, revenues were $267.6 million, $195.3 million, and $132.3 million, respectively, generating diluted earnings (loss) per share of $4.91, $3.37, and $(0.66), respectively.

Fiscal 2020 was heavily impacted by the COVID-19 pandemic.

During fiscal 2023, 2022, and 2021, consolidated revenues were $293.8 million, $267.6 million, and $195.3 million, respectively, generating diluted earnings per share of $3.13, $4.91, and $3.37, respectively.

The table below shows the number of Nightclubs and Bombshells open by state as of September 30, 2023:

12 unchanged sentences

Texas 27 12 39

(1) Includes one franchised location.

(1) Includes one food hall location.

Nightclubs Segment

We operate our adult entertainment nightclubs through several brands that target many different demographics of customers by providing a unique, quality entertainment environment.

Our clubs do business as Rick’s Cabaret, Jaguars Club, Tootsie’s Cabaret, XTC Cabaret, Club Onyx, Hoops Cabaret and Sports Bar, Scarlett’s Cabaret, Diamond Cabaret, Cheetah Gentlemen's Club, PT's Showclub, Playmates Club, Country Rock Cabaret, La Boheme Gentlemen's Cabaret, Temptations Adult Cabaret, Foxy’s Cabaret, Vivid Cabaret, Downtown Cabaret, Cabaret East, The Seville, Silver City Cabaret, Heartbreakers Gentlemen's Club, and Kappa Men’s Club.

Our clubs do business as Rick’s Cabaret, Jaguars Club, Tootsie’s Cabaret, XTC Cabaret, Club Onyx, Hoops Cabaret and Sports Bar, Scarlett’s Cabaret, Diamond Cabaret, Cheetah Gentlemen's Club, PT's Showclub, Playmates Club, Country Rock Cabaret, Temptations Adult Cabaret, Foxy’s Cabaret, Vivid Cabaret, Downtown Cabaret, Cabaret East, The Seville, Silver City Cabaret, Heartbreakers Gentlemen's Club, Kappa Men’s Club, Baby Dolls, and Chicas Locas.

We also operate one dance club under the brand name Studio 80.

6 unchanged sentences

Segment gross margin (revenues less cost of goods sold, divided by revenues) was approximately 88.9%.

Our Nightclubs segment revenue increased by 50% and income from operations increased by more than 89% compared to the prior year.

Our Nightclubs segment revenue increased by approximately 14.8% and income from operations decreased by 11.6% compared to the prior year.

Same-stores sales for Nightclubs in 2023 was -3.5%.

During fiscal 2022, we acquired 15 gentlemen’s clubs, certain related real estate properties, and associated intellectual property through five different transactions with an aggregate acquisition price of $132.6 million.

These 15 clubs contributed $41.9 million in revenues during fiscal 2022.

During fiscal 2023, we acquired six gentlemen’s clubs, certain related real estate properties, and associated intellectual property through two transactions with an aggregate acquisition price of $75.5 million (with a combined fair value of $72.3 million).

These six clubs contributed $18.2 million in revenues during fiscal 2023.

See Note 14 to our consolidated financial statements for details of the transactions.

7 unchanged sentences

Bombshells is also franchising under our subsidiary, BMB Franchising Services, Inc., which has been approved to sell franchises in all 50 states.

On December 22, 2020, the Company signed a franchise development agreement with a group of private investors to open three Bombshells locations in San Antonio, Texas over a period of five

years, and the right of first refusal for three more locations in Corpus Christi, New Braunfels, and San Marcos, all in Texas.

On December 22, 2020, the Company signed a franchise development agreement with a group of private investors to open three Bombshells locations in San Antonio, Texas, over a period of five years, and the right of first refusal for three more locations in Corpus Christi, New Braunfels, and San Marcos, all in Texas.

On May 2, 2022, the Company signed its second franchise development agreement with a private investor to open three Bombshells locations in the state of Alabama over a period of five years.

We opened one company-owned location in Arlington, Texas (Dallas area), in December 2021 and our first franchised location opened in June 2022 in San Antonio, Texas.

As of September 30, 2022, we have eleven company-owned Bombshells locations, all in Texas with two in the Dallas area, one in Austin, and eight in the Greater Houston area.

We also currently have one franchised location in San Antonio, Texas.

In February 2023, we acquired the San Antonio franchise location and terminated our franchise and development agreement.

As of September 30, 2023, we have twelve company-owned Bombshells locations, all in Texas with two in the Dallas area, one in Austin, one in San Antonio, and eight in the Greater Houston area.

In December 2022, we acquired a food hall in Denver, Colorado.

Subsequent to our fiscal 2023 year-end, we opened one Bombshells location in Stafford, Texas in November 2023.

During fiscal 2023, Bombshells sales mix was 55.5% alcoholic beverages and 44.5% food, merchandise, and other.

Segment gross margin (revenues less cost of goods sold, divided by revenues) was approximately 78%.

We grew Bombshells segment revenue by 5.8%, while income from operations decreased by 13.3% from prior year.

Bombshells segment revenue decreased by 7.0%, while income from operations decreased by 43.5% from prior year.

Same-stores sales for Bombshells in 2023 was -14.6%.

4 unchanged sentences

Our Media Group is the leading business communications company serving the multibillion-dollar adult nightclubs industry and the adult retail products industry.

It owns a national industry convention and tradeshow;

It owns a national industry convention and trade show;

two national industry trade publications;

3 unchanged sentences

ED Publications, founded in 1991, also publishes the Annual VIP Guide of adult nightclubs, touring entertainers and industry vendors;

and produces the Annual Gentlemen’s Club Owners EXPO, a national convention and tradeshow.

and produces the Annual Gentlemen’s Club Owners EXPO, a national convention and trade show.

The Media Group produces two nationally recognized industry award shows for the readers of both ED Club Bulletin and StorErotica magazines, and maintains a number of B-to-B and consumer websites for both industries.

11 unchanged sentences

Based on our current capital allocation strategy:

• We consider buying back our own stock if the after-tax yield on free cash flow is above 10%;

• We consider acquiring or developing our own clubs or restaurants that we believe have the potential to provide a minimum cash on cash return of 25%-33%, absent an otherwise strategic rationale;

• We consider disposing of underperforming units to free up capital for more productive use;

• We consider buying back our own stock if the after-tax yield on free cash flow is above 10%;

• We consider paying down our most expensive debt if it makes sense on a tax-adjusted basis, or there is an otherwise strategic rationale.

Over a five-year period from fiscal 2017 up to fiscal 2022, we improved diluted earnings per share at a compound annual growth rate (“CAGR”) of 42.0%, which was mainly caused by increasing revenue at a CAGR of 13.1%, and flowing through net income at a CAGR of 41.0%.

As a result, net cash provided by operating activities improved at 25.1% and free cash flow at 25.0% CAGR for the same period.

Over a five-year period from fiscal 2018 through fiscal 2023, we improved diluted earnings per share at a compound annual growth rate (“CAGR”) of approximately 8%, which was mainly caused by increasing revenue at a CAGR of approximately 12%, and flowing through net income at a CAGR of approximately 7%.

As a result, net cash provided by operating activities improved at approximately 18% and free cash flow at also approximately 18% CAGR for the same period.

See discussions of our non-GAAP financial measures starting on page 41 .

1 unchanged sentence

All of our nightclubs compete with a number of locally owned adult clubs, some of whose brands may have name recognition that equals that of ours.

The names “Rick’s” and “Rick’s Cabaret,” “Tootsie’s Cabaret,” “XTC Cabaret,” “Scarlett’s,” “Silver City,” “Club Onyx,” “Downtown Cabaret,” “Temptations,” “The Seville,” “Jaguars,” “Hoops Cabaret,” “Foxy’s Cabaret,” “Mile High Men’s Club,” “Country Rock Cabaret,” “PT’s,” and “Diamond Cabaret” are proprietary.

The names “Rick’s” and “Rick’s Cabaret,” “Tootsie’s Cabaret,” “XTC Cabaret,” “Scarlett’s,” “Silver City,” “Club Onyx,” “Downtown Cabaret,” “Temptations,” “The Seville,” “Jaguars,” “Hoops Cabaret,” “Foxy’s Cabaret,” "Studio 80," “Country Rock Cabaret,” “PT’s,” “Diamond Cabaret,” “Baby Dolls Saloon," "Baby Dolls," and "Chicas Locas" are proprietary.

In the restaurant/sports bar business, “Bombshells” is also proprietary.

5 unchanged sentences

We presently hold a Mixed Beverage Permit and a Late Hour Permit at numerous Texas locations.

Minnesota, North Carolina, Louisiana, Arizona, Pennsylvania, Florida, New York, and Illinois have similar laws that may limit the availability of a permit to sell alcoholic beverages or that may provide for suspension or revocation of a permit to sell alcoholic beverages in certain circumstances.

Colorado, Minnesota, North Carolina, Louisiana, Arizona, Pennsylvania, Florida, New York, Kentucky, Maine, Indiana, and Illinois have similar laws that may limit the availability of a permit to sell alcoholic beverages or that may provide for suspension or revocation of a permit to sell alcoholic beverages in certain circumstances.

It is our policy, prior to expanding into any new market, to take steps to ensure compliance with all licensing and regulatory requirements for the sale of alcoholic beverages, as well as the sale of food.

4 unchanged sentences

In all states where we operate, management believes we are in compliance with applicable city, county, state or other local laws governing the sale of alcohol and sexually oriented businesses.

In relation to our acquisitions during fiscal 2022, we now have club locations in Denver, Colorado;

Louisville, Kentucky;

Raleigh, North Carolina;

Portland, Maine;

Indianapolis, Indiana;

Sauget, Illinois;

Newburgh, New York;

and Hallandale Beach and Coral Gables, Florida.

Our rights to the trade names “RCI Hospitality Holdings, Inc.,” “Rick’s,” “Rick’s Cabaret,” “Tootsie’s Cabaret,” “Club Onyx,” “XTC Cabaret,” “Temptations,” “Jaguars,” “Downtown Cabaret,” “Cabaret East,” “Bombshells Restaurant and Bar,” “Vee Lounge,” “Mile High Men’s Club,” “Country Rock Cabaret,” “PT’s,” and “Diamond Cabaret” are established under common law, based upon our substantial and continuous use of these trade names in interstate commerce, some of which have been in use at least as early as 1987.

We have registered our service mark, “RICK’S AND STARS DESIGN,” and the “BOMBSHELLS RESTAURANT & BAR” logo design with the United States Patent and Trademark Office.

We have also obtained service mark registrations from the Patent and Trademark Office for “RICK’S AND STARS DESIGN” logo, “RCI HOSPITALITY HOLDINGS, INC.,” “RICK’S,” “RICK’S CABARET,” “CLUB ONYX,” “XTC CABARET,” “SCARLETT’S CABARET,” “SILVER CITY CABARET,” “BOMBSHELLS RESTAURANT AND BAR,” “THE SEVILLE CLUB,” “DOWN IN TEXAS SALOON,” “CLUB DULCE,” “THE BLACK ORCHID,” “HOOPS CABARET,” “VEE LOUNGE,” “STUDIO 80,” “FOXY’S CABARET,” “EXOTIC DANCER,” “TOYS FOR TATAS,” "LA BOHEME GENTLEMAN'S CLUB," “MILE HIGH MEN’S CLUB,” “MHMC logo,” “AFTER DARK,” “COUNTRY ROCK CABARET,” “PT’S,” “DIAMOND CABARET,” and “BOMBSHELLS OFFICER’S CLUB” are registered through service mark registrations issued by the United States Patent and Trademark Office.

As of this date, we have pending

registration applications for the names “TOOTSIES CABARET,” “IN THE BIZ,” “JAGUARS,” 'KNOCKERS BAR & GRILL," and “THE MANSION.” We also own the rights to numerous trade names associated with our media division.

We have also obtained service mark registrations from the Patent and Trademark Office for “RICK’S AND STARS DESIGN” logo, “RCI HOSPITALITY HOLDINGS, INC.,” “RICK’S,” “RICK’S CABARET,” “CLUB ONYX,” “XTC CABARET,” “SCARLETT’S CABARET,” “SILVER CITY CABARET,” “BOMBSHELLS RESTAURANT AND BAR,” “THE SEVILLE CLUB,” “DOWN IN TEXAS SALOON,” “HOOPS CABARET,” “VEE LOUNGE,” “STUDIO 80,” “FOXY’S CABARET,” “EXOTIC DANCER,” “TOYS FOR TATAS,” "LA BOHEME GENTLEMAN'S CLUB," “MILE HIGH MEN’S CLUB,” “MHMC logo,” “AFTER DARK,” “COUNTRY ROCK CABARET,” “PT’S,” “DIAMOND CABARET,” "CABARET ROYALE," "BABY DOLLS SALOON," "BABY DOLLS TOPLESS SALOON," "BABY DOLLS," "JAGUARS," and “BOMBSHELLS OFFICER’S CLUB” are registered through service mark registrations issued by the United States Patent and Trademark Office.

As of this date, we have pending registration applications for the names “TOOTSIES CABARET,” “RICK'S REWARDS,” “VENICE CABARET,” "CHERRY CREEK FOOD HALL AND BREWERY," and “THE MANSION.” We also own the rights to numerous trade names associated with our media division.

There can be no assurance that these steps we have taken to protect our service marks will be adequate to deter misappropriation of our protected intellectual property rights.

10 unchanged sentences

Additionally, as of September 30, 2023, we had independent contractor entertainers who are self-employed and conduct business at our locations on a non-exclusive basis.

Our entertainers at Rick’s Cabaret in Minneapolis, Minnesota and at Jaguars Club in Phoenix, Arizona act as commissioned employees.

Our entertainers at Rick’s Cabaret in Minneapolis, Minnesota and at Jaguars Club in Phoenix, Arizona may elect to act as commissioned employees.

All employees and independent contractors sign arbitration non-class-action participation agreements, where allowed by federal and state laws.

5 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business