What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-05-09 · 108 added, 103 removed, 332 unchanged (39% of the section changed)

4 unchanged sentences

All services and management operations are conducted by subsidiaries of RCIHH, including RCI Management Services, Inc.

Through our subsidiaries, as of March 31, 2024, we operated a total of 69 establishments that offer live adult entertainment, including one food hall.

Through our subsidiaries, as of June 30, 2024, we operated a total of 70 establishments that offer live adult entertainment, including one food hall.

We also operated a leading business communications company serving the multi-billion-dollar adult nightclubs industry.

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For a description of the accounting policies that, in management’s opinion, involve the most significant application of judgment or involve complex estimation and which could, if different judgment or estimates were made, materially affect our reported financial position, results of operations, or cash flows, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 filed with the SEC on December 14, 2023.

During the three and six months ended March 31, 2024, there were no significant changes in our accounting policies and estimates.

During the three and nine months ended June 30, 2024, there were no significant changes in our accounting policies and estimates.

Results of Operations

Highlights of the Company's operating results are as follows, with comparisons against the same period of the prior year:

Second Quarter Ended March 31, 2024

• Total revenues were $72.3 million compared to $71.5 million during the comparable prior-year quarter, a 1.1% increase (Nightclubs revenue of $59.4 million compared to $57.0 million, a 4.1% increase;

and Bombshells revenue of $12.8 million compared to $14.3 million, a 10.8% decrease)

• Consolidated same-store sales decreased by 8.6% (Nightclubs decreased by 5.7%, while Bombshells decreased by 20.5%) (refer to the definition of same-store sales in the discussion of revenues below)

• Basic and diluted earnings per share (“EPS”) of $0.08 compared to $0.83 (non-GAAP diluted EPS* of $0.90 compared to $1.30) during the comparable prior-year quarter

• Net cash provided by operating activities of $10.8 million compared to $16.8 million during the comparable prior-year quarter, a 35.5% decrease (free cash flow* of $8.8 million compared to $14.8 million, a 40.2% decrease)

Year-to Date Period Ended March 31, 2024

• Total revenues were $146.2 million compared to $141.5 million during the comparable prior-year six-month period, a 3.3% increase (Nightclubs revenue of $120.4 million compared to $113.4 million, a 6.2% increase;

Third Quarter Ended June 30, 2024

• Total revenues were $76.2 million compared to $77.1 million during the comparable prior-year quarter, a 1.1% decrease (Nightclubs revenue of $62.8 million compared to $62.4 million, a 0.6% increase;

and Bombshells revenue of $13.1 million compared to $14.4 million, an 8.7% decrease)

• Consolidated same-store sales decreased by 1.5% (Nightclubs increased by 1.7%, while Bombshells decreased by 16.2%) (refer to the definition of same-store sales in the discussion of revenues below)

• Basic and diluted earnings per share (“EPS”) this quarter of $0.56 loss compared to $0.96 income during the comparable prior-year quarter (non-GAAP diluted EPS* of $1.35 compared to $1.30)

• Net cash provided by operating activities of $15.8 million compared to $15.3 million during the comparable prior-year quarter, a 2.9% increase (free cash flow* of $13.8 million compared to $14.3 million, a 3.4% decrease)

Year-to Date Period Ended June 30, 2024

• Total revenues were $222.4 million compared to $218.5 million during the comparable prior-year nine-month period, a 1.8% increase (Nightclubs revenue of 183.2 million compared to 175.8 million, a 4.2% increase;

and Bombshells revenue of $38.6 million compared to $42.1 million, an 8.3% decrease)

• Consolidated same-store sales decreased by 6.5% (Nightclubs decreased by 3.6%, while Bombshells decreased by 19.0%) (refer to the definition of same-store sales in the discussion of revenues below)

• Basic and diluted EPS of $0.85 compared to $1.94 (non-GAAP diluted EPS* of $1.76 compared to $2.50) during the comparable prior-year six-month period

• Net cash provided by operating activities of $24.5 million compared to $31.7 million during the comparable prior-year six-month period, a 22.8% decrease (free cash flow* of $21.5 million compared to $27.8 million, a 22.7% decrease)

• Basic and diluted EPS this period of $0.30 compared to $2.91 (non-GAAP diluted EPS* of $3.11 compared to $3.80) during the comparable prior-year nine-month period

• Net cash provided by operating activities of $40.2 million compared to $47.0 million during the comparable prior-year nine-month period, a 14.4% decrease (free cash flow* of $35.3 million compared to $42.1 million, a 16.2% decrease)

* Reconciliation and discussion of non-GAAP financial measures are included in the “ Non-GAAP Financial Measures ” section below.

Consolidated revenues for the second quarter increased by $766,000, or 1.1%, versus the comparable prior-year quarter due primarily to a 12.1%, or $8.6 million, increase in sales from newly acquired clubs from last year and new Bombshells openings, partially offset by the $5.6 million impact of the decrease in consolidated same-stores sales and the $2.1 million impact of closed clubs.

Consolidated revenues for the six-month period increased by $4.7 million, or 3.3%, versus the comparable prior-year six-month period mainly due to a 13.8%, or $19.6 million, increase in sales from newly acquired clubs from last year and new Bombshells openings, partially offset by the $12.3 million impact of the decrease in consolidated same-store sales and the $2.4 million impact of closed clubs.

Consolidated revenues for the third quarter decreased by $875,000, or 1.1%, versus the comparable prior-year quarter due primarily to a 2.0%, or $1.5 million, increase in sales from newly acquired clubs from last year and new Bombshells openings, partially offset by the $1.0 million impact of the decrease in consolidated same-stores sales and the $1.4 million impact of closed clubs.

Consolidated revenues for the nine-month period increased by $3.8 million, or 1.8%, versus the comparable prior-year nine-month period mainly due to a 9.7%, or $21.1 million, increase in sales from newly acquired clubs from last year and new Bombshells openings, partially offset by the $13.3 million impact of the decrease in consolidated same-store sales and the $3.7 million impact of closed clubs.

We calculate same-store sales by comparing year-over-year revenues from nightclubs and restaurants/sports bars starting in the first full quarter of operations after at least 12 full months for Nightclubs and at least 18 full months for Bombshells.

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Segment contribution to total revenues was as follows (in thousands, except percentages):

Three Months Ended March 31, 2024 Mix Three Months Ended March 31, 2023 Mix Inc (Dec) $ Inc (Dec) %

Three Months Ended June 30, 2024 Mix Three Months Ended June 30, 2023 Mix Inc (Dec) $ Inc (Dec) %

Sales of alcoholic beverages $ 27,413 43.6 % $ 26,144 41.9 % $ 1,269 4.9 %

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$ 76,180 $ 77,055 $ (875) (1.1) %

Six Months Ended March 31, 2024 Mix Six Months Ended March 31, 2023 Mix Inc (Dec) $ Inc (Dec) %

Nine Months Ended June 30, 2024 Mix Nine Months Ended June 30, 2023 Mix Inc (Dec) $ Inc (Dec) %

Sales of alcoholic beverages $ 79,595 43.4 % $ 70,433 40.1 % $ 9,162 13.0 %

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$ 222,370 $ 218,540 $ 3,830 1.8 %

Nightclubs revenues increased by 4.1% during the second quarter compared to the same quarter last year primarily due to the $7.5 million contribution of newly acquired clubs, partially offset by the $2.9 million impact of the decline in same-store sales and the $2.1 million impact of closed clubs.

For Nightclubs that were open enough days to qualify for same-store sales (refer to the definition of same-store sales in the preceding paragraph), sales decreased by 5.7%.

Nightclubs revenues increased by 0.6% during the third quarter compared to the same quarter last year primarily due to the $778,000 contribution of newly acquired clubs and the $1.0 million impact of the increase in same-store sales, partially offset by the $1.4 million impact of closed clubs.

For Nightclubs that were open enough days to qualify for same-store sales (refer to the definition of same-store sales in the preceding paragraph), sales increased by 1.7%.

By type of revenue, alcoholic beverage sales increased by 4.9%, food, merchandise and other revenue increased by 5.1%, while service revenues decreased by 5.3%.

For the six-month period, Nightclubs revenues increased by 6.2%, mainly due to the $16.3 million contribution of newly acquired clubs, partially offset by the $6.9 million impact of the decline in same-store sales and the $2.4 million impact of closed clubs.

Nightclubs same-store sales for the six-month period declined by 6.5%.

For the nine-month period, Nightclubs revenues increased by 4.2%, mainly due to the $17.1 million contribution of newly acquired clubs, partially offset by the $5.9 million impact of the decline in same-store sales and the $3.7 million impact of closed clubs.

Nightclubs same-store sales for the nine-month period declined by 3.6%.

By type of revenue, alcoholic beverage sales increased by 13.0%, food, merchandise and other revenue increased by 7.9%, while service revenues decreased by 5.1%.

Bombshells second quarter revenues decreased by 10.8%, of which 20.5% was for same-store sales decline with the offsetting increase caused by two new locations and a food hall.

Bombshells third quarter revenues decreased by 8.7%, of which 16.2% was for same-store sales decline with the offsetting increase caused by two new locations and a food hall.

By type of revenue, food and merchandise sales decreased by 4.7% while alcoholic beverage sales decreased by 12.2%.

For the six-month period, Bombshells revenues decreased by 8.1%, caused primarily by the 20.4% same-store sales decline offset by the increase from new locations.

For the nine-month period, Bombshells revenues decreased by 8.3%, caused primarily by the 19.0% same-store sales decline offset by the increase from new locations.

By type of revenue, food and merchandise sales decreased by 5.2% while alcoholic beverage sales decreased by 10.4%.

Operating Expenses

Total operating expenses, as a percent of revenues, increased to 93.6% from 81.2% from last year’s second quarter, and increased to 87.8% from 78.6% for the six-month period.

Year-over-year change was a $9.5 million increase, or 16.4%, for the second quarter and a $17.2 million increase, or 15.5%, for the six-month period.

Total operating expenses, as a percent of revenues, increased to 103.3% from 79.9% from last year’s third quarter, and increased to 93.1% from 79.0% for the nine-month period.

Year-over-year change was a $17.2 million increase, or 27.9%, for the third quarter and a $34.4 million increase, or 19.9%, for the nine-month period.

Significant contributors to the changes in operating expenses are explained below.

Cost of goods sold .

Cost of goods sold for the second quarter increased by $801,000, or 8.8%, mainly due to higher sales.

As a percent of total revenues, cost of goods sold increased to 13.7% from 12.7% mainly due to the sales mix decrease in service revenue.

Nightclubs cost of goods sold during the second quarter increased to 11.6% from 10.4%, while Bombshells cost of goods sold increased to 23.5% from 22.2%.

For the six-month period, cost of goods sold increased by $2.2 million, or 11.9%, mainly due to higher sales.

Cost of goods sold for the third quarter decreased by $23,000, or 0.2%, mainly due to lower sales.

As a percent of total revenues, cost of goods sold increased to 13.8% from 13.7% mainly from a shift in sales mix.

Nightclubs cost of goods sold during the third quarter decreased to 11.6% from 11.7%, while Bombshells cost of goods sold increased to 24.1% from 22.3%.

For the nine-month period, cost of goods sold increased by $2.1 million, or 7.4%, mainly due to higher sales.

As a percent of total revenues, cost of goods sold increased to 13.8% from 13.1% mainly due to a shift in sales mix.

Nightclubs cost of goods sold during the six-month period increased to 11.8% from 10.4%, while Bombshells cost of goods sold increased to 23.6% from 22.6%.

Nightclubs cost of goods sold during the nine-month period increased to 11.7% from 10.9%, while Bombshells cost of goods sold increased to 23.8% from 22.5%.

Salaries and wages .

Salaries and wages increased by $1.5 million, or 8.0%, for the second quarter.

Salaries and wages increased by $414,000, or 2.0%, for the third quarter.

As a percent of total revenues, salaries and wages increased to 27.6% from 26.7%.

Nightclubs increased to 22.5% from 21.4%, Bombshells increased to 29.0% from 26.0%, while corporate increased to 5.2% from 4.7%.

For the six-month period, salaries and wages increased by $4.2 million, or 11.0%.

Nightclubs increased to 21.7% from 21.4%, Bombshells decreased to 26.7% from 27.0%, while corporate increased to 4.9% from 4.1%.

For the nine-month period, salaries and wages increased by $4.6 million, or 7.9%.

As a percent of total revenues, salaries and wages increased to 28.5% from 26.9%.

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Selling, general and administrative expenses .

Selling, general and administrative expenses increased by $2.6 million, or 11.9%, for the second quarter and increased by $5.1 million, or 11.4%, for the six-month period.

Selling, general and administrative expenses increased by $1.3 million, or 5.3%, for the third quarter and increased by $6.4 million, or 9.3%, for the nine-month period.

Dollar amounts in the tables below are in thousands, except percentages.

For the Three Months Ended

March 31, 2024 For the Three Months Ended

March 31, 2023 Better (Worse)

June 30, 2024 For the Three Months Ended

June 30, 2023 Better (Worse)

Amount % of Revenues Amount % of Revenues Amount %

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Total selling, general and administrative expenses $ 25,057 32.9 % $ 23,803 30.9 % $ (1,254) (5.3) %

For the Six Months Ended

March 31, 2024 For the Six Months Ended

March 31, 2023 Better (Worse)

For the Nine Months Ended

June 30, 2024 For the Nine Months Ended

June 30, 2023 Better (Worse)

Amount % of Revenues Amount % of Revenues Amount %

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Depreciation and amortization .

Depreciation and amortization increased by $124,000, or 3.3%, during the second quarter and increased by $670,000, or 9.5%, during the six-month period, primarily due to the higher depreciable base.

Depreciation and amortization decreased by $140,000, or 3.5%, during the third quarter and increased by $530,000, or 4.8%, during the nine-month period, primarily due to lower intangible amortization caused by recent impairments partially offset by a higher depreciable base.

Other charges, net .

Other charges, net for the second quarter and the six-month period changed mainly due to this year's impairment charges and last year's lawsuit settlements.

Other charges, net for the third quarter and the nine-month period changed mainly due to this year's impairment charges and last year's lawsuit settlements.

See Note 5 to our unaudited condensed consolidated financial statements.

Income (Loss) from Operations

For the three months ended March 31, 2024 and 2023, our consolidated operating margin was 6.4% and 18.8%, respectively, while for the six months ended March 31, 2024 and 2023, our consolidated operating margin was 12.2% and 21.4%, respectively.

For the three months ended June 30, 2024 and 2023, our consolidated operating margin was (3.3)% and 20.1%, respectively, while for the nine months ended June 30, 2024 and 2023, our consolidated operating margin was 6.9% and 21.0%, respectively.

Segment contribution to income (loss) from operations is presented in the table below (in thousands):

For the Three Months Ended

March 31, For the Six Months Ended

June 30, For the Nine Months Ended

2024 2023 2024 2023

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$ (2,536) $ 15,515 $ 15,286 $ 45,840

Excluding certain items, the three months ended March 31, 2024 and 2023 non-GAAP operating income (loss) and non-GAAP operating margin are computed in the tables below (dollars in thousands).

Excluding certain items, the three months ended June 30, 2024 and 2023 non-GAAP operating income (loss) and non-GAAP operating margin are computed in the tables below (dollars in thousands).

Refer to the discussion of Non-GAAP Financial Measures on page 30 .

For the Three Months Ended March 31, 2024

For the Three Months Ended June 30, 2024

Nightclubs Bombshells Other Corporate Total

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Settlement of lawsuits 141 — — — 141

Loss (gain) on sale of businesses and assets 7 4 — (16) (5)

Stock-based compensation — — — 471 471

Loss (gain) on sale of businesses and assets (76) 6 — 258 188

Non-GAAP operating income (loss) $ 21,902 $ 1,420 $ (108) $ (6,421) $ 16,793

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Non-GAAP operating margin 34.9 % 10.8 % (49.5) % (8.4) % 22.0 %

For the Three Months Ended March 31, 2023

For the Three Months Ended June 30, 2023

Nightclubs Bombshells Other Corporate Total

3 unchanged sentences

Settlement of lawsuits 57 6 — — 63

Loss (gain) on sale of businesses and assets (12) 16 — (1) 3

Gain on insurance — — — (27) (27)

Stock-based compensation — — — 470 470

Loss (gain) on sale of businesses and assets (153) 50 — (2) (105)

Non-GAAP operating income (loss) $ 23,551 $ 1,838 $ (92) $ (5,805) $ 19,492

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Non-GAAP operating margin 37.7 % 12.8 % (44.0) % (7.5) % 25.3 %

Excluding certain items, the six months ended March 31, 2024 and 2023 non-GAAP operating income (loss) and non-GAAP operating margin are computed in the tables below (dollars in thousands).

For the Six Months Ended March 31, 2024

Excluding certain items, the nine months ended June 30, 2024 and 2023 non-GAAP operating income (loss) and non-GAAP operating margin are computed in the tables below (dollars in thousands).

For the Nine Months Ended June 30, 2024

Nightclubs Bombshells Other Corporate Total

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Non-GAAP operating margin 34.2 % 6.0 % (116.0) % (8.7) % 20.3 %

For the Six Months Ended March 31, 2023

For the Nine Months Ended June 30, 2023

Nightclubs Bombshells Other Corporate Total

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Other Income/Expenses

Interest expense increased by $322,000, or 8.8%, during the second quarter and increased by $851,000, or 11.6%, during the six-month period primarily caused by a higher average debt balance mostly from seller-financed promissory notes from last years' acquisitions.

Our total occupancy costs, defined as the sum of operating lease expense and interest expense, were $5.8 million and $5.4 million for the quarters ended March 31, 2024 and 2023, respectively.

As a percentage of revenue, total occupancy costs were 8.0% and 7.6% during the quarters ended March 31, 2024 and 2023, respectively, primarily due to the interest from higher average debt balance.

For the six months ended March 31, 2024 and 2023, total occupancy costs were $11.8 million and $10.9 million, respectively.

As a percent of revenue, total occupancy costs were 8.1% and 7.7%, respectively, during the six-month period.

Income tax expense was $5,000 and $1.8 million during the three and six months ended March 31, 2024, respectively, compared to $2.1 million and $5.2 million during the three and six months ended and March 31, 2023, respectively.

The effective income tax expense rate was 0.7% and 18.4% for the three and six months ended March 31, 2024 compared to 21.8% and 22.4% for the three and six months ended March 31, 2023, respectively.

The disproportionate tax rates during the three months ended March 31, 2024 were caused by the small amount of pre-tax income during the quarter and the reduction of the expected annual effective tax rate.

Our effective income tax rate is affected by state taxes, permanent differences, and tax credits, including the FICA tip credit, for both years, as presented below.

Interest expense decreased by $76,000, or 1.8%, during the third quarter and increased by $775,000, or 6.6%, during the nine-month period primarily caused by a higher average debt balance mostly from seller-financed promissory notes from last years' acquisitions.

Our total occupancy costs, which we define as the sum of operating lease expense and interest expense, were $6.0 million and $6.2 million for the quarters ended June 30, 2024 and 2023, respectively.

As a percentage of revenue, total occupancy costs were 7.9% and 8.0% during the quarters ended June 30, 2024 and 2023, respectively.

For the nine months ended June 30, 2024 and 2023, total occupancy costs were $17.9 million and $17.0 million, respectively.

As a percent of revenue, total occupancy costs were 8.0% and 7.8%, respectively, during the nine-month period.

Income taxes were a benefit of $1.4 million and an expense of $378,000 during the three and nine months ended June 30, 2024, respectively, compared to $2.3 million and $7.4 million during the three and nine months ended and June 30, 2023, respectively.

The effective income tax expense rate was 21.5% and 12.0% for the three and nine months ended June 30, 2024 compared to 20.1% and 21.6% for the three and nine months ended June 30, 2023, respectively.The disproportionate tax rates during the nine months ended June 30, 2024, were caused by the decrease in the expected annual effective tax rate.

Our effective income tax rate is affected by state taxes, permanent differences, and tax credits, including the FICA tip credit, for both years, and the pretax loss in the three months ended June 30, 2024, as presented below.

For the Three Months Ended

March 31, For the Six Months Ended

June 30, For the Nine Months Ended

2024 2023 2024 2023

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Total income tax expense 21.5 % 20.1 % 12.0 % 21.6 %

Income taxes decreased in dollar amount due to the lower pretax income in the current quarter and six-month period.

Income taxes decreased in dollar amount due to a pretax loss in the current quarter and a lower pretax income in the current nine-month period.

Effective income tax rate decreased due to the acquisition of Texas-based clubs at the end of last year's second quarter and the additional tax credits from those acquisitions.

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Non-GAAP Net Income and Non-GAAP Net Income per Diluted Share .

We calculate non-GAAP net income and non-GAAP net income per diluted share by excluding or including certain items to net income attributable to RCIHH common stockholders and diluted earnings per share.

We calculate non-GAAP net income and non-GAAP net income per diluted share by excluding or including certain items to net income or loss attributable to RCIHH common stockholders and diluted earnings per share.

Adjustment items are:

(a) amortization of intangibles, (b) impairment of assets, (c) settlement of lawsuits, (d) gains or losses on sale of businesses and assets, (e) gains or losses on insurance, (f) stock-based compensation, and (g) the income tax effect of the above-described adjustments.

Included in the income tax effect of the above adjustments is the net effect of the non-GAAP provision for income taxes, calculated at 18.4% and 22.3% effective tax rate of the pre-tax non-GAAP income before taxes for the six months ended March 31, 2024 and 2023, respectively, and the GAAP income tax expense (benefit).

Included in the income tax effect of the above adjustments is the net effect of the non-GAAP provision for income taxes, calculated at 11.7% and 21.6% effective tax rate of the pre-tax non-GAAP income before taxes for the nine months ended June 30, 2024 and 2023, respectively, and the GAAP income tax expense (benefit).

We believe that excluding and including such items help management and investors better understand our operating activities.

Adjusted EBITDA .

We calculate adjusted EBITDA by excluding the following items from net income attributable to RCIHH common stockholders:

We calculate adjusted EBITDA by excluding the following items from net income or loss attributable to RCIHH common stockholders:

(a) depreciation and amortization, (b) impairment of assets, (c) income tax expense (benefit), (d) net interest expense, (e) settlement of lawsuits, (f) gains or losses on sale of businesses and assets, (g) gains or losses on insurance, and (h) stock-based compensation.

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See “Liquidity and Capital Resources” section for further discussion.

The following tables present our non-GAAP performance measures for the three and six months ended March 31, 2024 and 2023 (in thousands, except per share, number of shares, and percentages):

Three Months Ended March 31, Six Months Ended March 31,

The following tables present our non-GAAP performance measures for the three and nine months ended June 30, 2024 and 2023 (in thousands, except per share, number of shares, and percentages):

Three Months Ended June 30, Nine Months Ended June 30,

2024 2023 2024 2023

Reconciliation of GAAP net income to Adjusted EBITDA

Net income attributable to RCIHH common stockholders $ 774 $ 7,732 $ 8,000 $ 17,970

Income tax expense 5 2,147 1,804 5,178

Reconciliation of GAAP net income (loss) to Adjusted EBITDA

Net income (loss) attributable to RCIHH common stockholders $ (5,233) $ 9,085 $ 2,767 $ 27,055

Income tax expense (benefit) (1,426) 2,269 378 7,447

Interest expense, net 4,110 4,229 12,135 11,412

6 unchanged sentences

Adjusted EBITDA $ 20,083 $ 22,683 $ 54,782 $ 64,832

Three Months Ended March 31, Six Months Ended March 31,

Three Months Ended June 30, Nine Months Ended June 30,

2024 2023 2024 2023

Reconciliation of GAAP net income to non-GAAP net income

Net income attributable to RCIHH common stockholders $ 774 $ 7,732 $ 8,000 $ 17,970

Reconciliation of GAAP net income (loss) to non-GAAP net income

Net income (loss) attributable to RCIHH common stockholders $ (5,233) $ 9,085 $ 2,767 $ 27,055

Amortization of intangibles 598 918 1,897 2,722

6 unchanged sentences

Non-GAAP net income $ 12,542 $ 12,250 $ 29,053 $ 35,329

Three Months Ended March 31, Six Months Ended March 31,

Three Months Ended June 30, Nine Months Ended June 30,

2024 2023 2024 2023

Reconciliation of GAAP diluted earnings per share to non-GAAP diluted earnings per share

Reconciliation of GAAP diluted earnings (loss) per share to non-GAAP diluted earnings per share

Diluted shares 9,278,921 9,430,225 9,332,249 9,308,624

GAAP diluted earnings per share $ 0.08 $ 0.83 $ 0.85 $ 1.94

GAAP diluted earnings (loss) per share $ (0.56) $ 0.96 $ 0.30 $ 2.91

Amortization of intangibles 0.06 0.10 0.20 0.29

6 unchanged sentences

Non-GAAP diluted earnings per share $ 1.35 $ 1.30 $ 3.11 $ 3.80

Three Months Ended March 31, Six Months Ended March 31,

Three Months Ended June 30, Nine Months Ended June 30,

2024 2023 2024 2023

Reconciliation of GAAP operating income to non-GAAP operating income

Income from operations $ 4,657 $ 13,427 $ 17,822 $ 30,325

Reconciliation of GAAP operating income (loss) to non-GAAP operating income

Income (loss) from operations

$ (2,536) $ 15,515 $ 15,286 $ 45,840

Amortization of intangibles 598 918 1,897 2,722

5 unchanged sentences

Non-GAAP operating income $ 16,793 $ 19,492 $ 45,047 $ 56,372

Three Months Ended March 31, Six Months Ended March 31,

Three Months Ended June 30, Nine Months Ended June 30,

2024 2023 2024 2023

Reconciliation of GAAP operating margin to non-GAAP operating margin

Income from operations 6.4 % 18.8 % 12.2 % 21.4 %

Income (loss) from operations

(3.3) % 20.1 % 6.9 % 21.0 %

Amortization of intangibles 0.8 % 1.2 % 0.9 % 1.2 %

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Liquidity and Capital Resources

At March 31, 2024, our cash and cash equivalents were approximately $20.0 million compared to $21.0 million at September 30, 2023.

At June 30, 2024, our cash and cash equivalents were approximately $34.9 million compared to $21.0 million at September 30, 2023.

Because of the large volume of cash we handle, we have very stringent cash controls.

As of March 31, 2024, we had negative working capital of $14.4 million compared to negative working capital of $10.5 million as of September 30, 2023.

As of June 30, 2024, we had negative working capital of $5.6 million compared to negative working capital of $10.5 million as of September 30, 2023.

We believe that we can borrow capital if needed but currently we do not have unused credit facilities so there can be no guarantee that additional liquidity will be readily available or available on favorable terms.

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The following table presents a summary of our cash flows from operating, investing, and financing activities (in thousands):

For the Six Months Ended March 31,

For the Nine Months Ended June 30,

Operating activities $ 40,233 $ 47,004

1 unchanged sentence

Financing activities (9,219) (2,353)

Net decrease in cash and cash equivalents $ (1,050) $ (13,196)

Net increase (decrease) in cash and cash equivalents

$ 13,924 $ (12,396)

Cash Flows from Operating Activities

Following are our summarized cash flows from operating activities (in thousands):

For the Six Months Ended March 31,

Net income $ 7,993 $ 17,964

For the Nine Months Ended June 30,

Net income (loss)

$ 2,773 $ 26,981

Depreciation and amortization 11,638 11,108

1 unchanged sentence

Deferred income tax benefit

(6,419) (790)

Stock-based compensation 1,412 2,117

2 unchanged sentences

Net cash provided by operating activities $ 40,233 $ 47,004

Net cash provided by operating activities this current six-month period decreased from last year's comparable period primarily due to lower income from operations, higher interest expense paid, and lower income tax refund received, partially offset by lower estimated income taxes paid.

Net cash provided by operating activities this current nine-month period decreased from last year's comparable period primarily due to lower income from operations, higher interest expense paid, and lower income tax refund received, partially offset by lower estimated income taxes paid.

Cash Flows from Investing Activities

Following are our cash flows from investing activities (in thousands):

For the Six Months Ended March 31,

For the Nine Months Ended June 30,

Payments for property and equipment and intangible assets $ (19,219) $ (31,119)

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Net cash used in investing activities $ (17,090) $ (57,047)

Following is a breakdown of our payments for property and equipment and intangible assets for the six months ended March 31, 2024 and 2023 (in thousands):

For the Six Months Ended March 31,

Following is a breakdown of our payments for property and equipment and intangible assets for the nine months ended June 30, 2024 and 2023 (in thousands):

For the Nine Months Ended June 30,

New facilities, equipment, and intangible assets $ 14,239 $ 24,970

1 unchanged sentence

Total capital expenditures $ 19,219 $ 29,919

The capital expenditures during the six months ended March 31, 2024 were composed mostly of construction projects in-progress, while those during the six months ended March 31, 2023 were composed primarily of real estate and new equipment and furniture purchases for the newly acquired clubs.

The capital expenditures during the nine months ended June 30, 2024 were composed mostly of construction projects in-progress, while those during the nine months ended June 30, 2023 were composed primarily of real estate and new equipment and furniture purchases for the newly acquired clubs.

Maintenance capital expenditures refer mainly to capitalized replacement of productive assets in already existing locations.

2 unchanged sentences

Following are our cash flows from financing activities (in thousands):

For the Six Months Ended March 31,

For the Nine Months Ended June 30,

Proceeds from debt obligations $ 22,657 $ 11,595

5 unchanged sentences

Net cash used in financing activities $ (9,219) $ (2,353)

We purchased 65,219 shares of our common stock at an average price of $55.23 during the six months ended March 31, 2024, while we purchased 1,500 shares of our common stock at an average price of $65.02 during the six months ended March 31, 2023.

As of March 31, 2024, we have approximately $13.0 million authorization remaining to purchase additional shares.

We paid $0.06 per share in quarterly dividends during the two quarters ended March 31, 2024, while we paid $0.05 per share during the first quarter and $0.06 per share during the second quarter for the two quarters ended March 31, 2023.

See Note 6 to our unaudited condensed consolidated financial statements for future maturities of our debt obligations and No te 13 related to the term loan entered into after the balance sheet date.

We have paid all our debts on time and have not defaulted nor requested forbearance on any of our debts during the six months ended March 31, 2024 and 2023.

We purchased 267,849 shares of our common stock at an average price of $47.69 during the nine months ended June 30, 2024, while we purchased 1,500 shares of our common stock at an average price of $65.02 during the nine months ended June 30, 2023.

As of June 30, 2024, we have approximately $3.9 million authorization remaining to purchase additional shares.

On July 11, 2024, our Board of Directors approved a $25.0 million increase in the Company's share repurchase program.

We paid $0.06 per share in quarterly dividends during the three quarters ended June 30, 2024, while we paid $0.05 per share during the first quarter and $0.06 per share during the second and third quarters for the three quarters ended June 30, 2023.

See Note 6 to our unaudited condensed consolidated financial statements for future maturities of our debt obligations and Note 13 related to the term loan entered into after the balance sheet date.

We have paid all our debts on time and have not defaulted nor requested forbearance on any of our debts during the nine months ended June 30, 2024 and 2023.

Management also uses certain non-GAAP cash flow measures such as free cash flow.

2 unchanged sentences

Below is a table reconciling free cash flow to its most directly comparable GAAP measure (in thousands):

For the Six Months Ended March 31,

For the Nine Months Ended June 30,

Net cash provided by operating activities $ 40,233 $ 47,004

1 unchanged sentence

Free cash flow $ 35,253 $ 42,055

Our free cash flow for the six-month period decreased by 22.7% compared to the comparable prior-year period primarily due to lower income from operations, higher interest expense paid, and lower income tax refund received, partially offset lower income taxes paid and lower maintenance capital expenditures paid.

Our free cash flow for the nine-month period decreased by 16.2% compared to the comparable prior-year period primarily due to lower income from operations, higher interest expense paid, lower income tax refund received, and higher maintenance capital expenditures paid, partially offset by lower estimated income taxes paid.

We do not include capital expenditures related to new facilities construction, equipment and intangible assets as a reduction from net cash flow from operating activities to arrive at free cash flow.

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We continue to monitor the macro environment and will adjust our overall approach to capital allocation as events and trends unfold.

The following table presents a summary of such indicators for the six months ended March 31 (in thousands, except percentages):

The following table presents a summary of such indicators for the nine months ended June 30 (in thousands, except percentages):

2024 Increase

31 unchanged sentences

Our growth strategy includes acquiring existing units, opening new units after market analysis, developing new club concepts that are consistent with our management and marketing skills, franchising our Bombshells brand, and developing and opening our Bombshells concept as our capital and manpower allow.

All thirteen of the existing Bombshells restaurants as of March 31, 2024 were located in Texas.

All thirteen of the existing Bombshells restaurants as of June 30, 2024 were located in Texas.

Our growth strategy is to diversify our operations with these units which do not require SOB licenses, which are sometimes difficult to obtain.

5 unchanged sentences

Quantitative and Qualitative Disclosures About Market Risk.

As of March 31, 2024, there were no material changes to the information provided in Item 7A of the Company’s Annual Report on Form 10-K for fiscal year ended September 30, 2023.

As of June 30, 2024, there were no material changes to the information provided in Item 7A of the Company’s Annual Report on Form 10-K for fiscal year ended September 30, 2023.

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-Q

Item 2. Management’s Discussion and Analysis