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Item 1. Financial Statements

2025-05-12 compared with 2025-02-10 · 280 added, 132 removed, 355 unchanged (54% of the section changed)

1 unchanged sentence

RCI HOSPITALITY HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value and number of shares)

December 31, 2024 September 30, 2024

Current assets

Cash and cash equivalents $ 34,718 $ 32,350

Receivables, net 3,519 5,832

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Six Months Ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES

Net income $ 12,259 $ 7,993

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 7,345 7,737

Impairment of assets 1,780 8,033

Deferred income tax benefit ( 1,242 ) ( 1,911 )

Stock-based compensation 588 941

Loss (gain) on sale of businesses and assets ( 1,248 ) 37

Amortization of debt discount and issuance costs 290 312

Noncash lease expense 1,326 1,535

Gain on insurance ( 1,150 ) —

Doubtful accounts expense on notes receivable — 22

Changes in operating assets and liabilities, net of business acquisitions:

Receivables 1,714 1,067

Inventories 64 ( 142 )

Prepaid expenses and other current assets 4,226 4,427

Total current assets 47,103 47,285

Property and equipment, net 282,621 280,075

Operating lease right-of-use assets, net 25,573 26,231

Notes receivable, net of current portion 4,103 4,174

Goodwill 61,911 61,911

Intangibles, net 162,881 163,461

Other assets 2,026 1,227

Total assets $ 586,218 $ 584,364

LIABILITIES AND EQUITY

Current liabilities

Accounts payable $ 5,010 $ 5,637

Accrued liabilities 20,514 20,280

Current portion of debt obligations, net 17,788 18,871

Current portion of operating lease liabilities 3,008 3,290

Total current liabilities 46,320 48,078

Deferred tax liability, net 22,304 22,693

Debt, net of current portion and debt discount and issuance costs 217,741 219,326

Operating lease liabilities, net of current portion 27,471 30,759

Other long-term liabilities 3,611 398

Total liabilities 317,447 321,254

Commitments and contingencies ( Note 7 )

Preferred stock, $ 0.10 par value per share;

1,000,000 shares authorized;

none issued and outstanding

Common stock, $ 0.01 par value per share;

20,000,000 shares authorized;

8,889,000 and 8,955,000 shares issued and outstanding as of December 31, 2024, and September 30, 2024, respectively

Additional paid-in capital 58,731 61,511

Retained earnings 210,160 201,759

Total RCIHH stockholders’ equity 268,980 263,360

Noncontrolling interests ( 209 ) ( 250 )

Total equity 268,771 263,110

Total liabilities and equity $ 586,218 $ 584,364

Prepaid expenses, other current, and other assets

( 530 ) ( 6,420 )

Accounts payable, accrued, and other liabilities

Net cash provided by operating activities 21,891 24,469

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from sale of businesses and assets 1,085 —

Proceeds from insurance 1,150 —

Proceeds from notes receivable 147 116

Payments for property and equipment and intangible assets ( 8,608 ) ( 12,802 )

Acquisition of businesses, net of cash acquired ( 6,000 ) —

Net cash used in investing activities ( 12,226 ) ( 12,686 )

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from debt obligations 8,396 2,657

Payments on debt obligations ( 10,321 ) ( 10,630 )

Purchase of treasury stock ( 6,114 ) ( 3,602 )

Payment of dividends ( 1,242 ) ( 1,122 )

Payment of loan origination costs ( 71 ) ( 136 )

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 BEGINNING OF PERIOD 32,350 21,023

CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 32,663 $ 19,973

See accompanying notes to unaudited condensed consolidated financial statements.

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(in thousands, except per share and number of share data)

For the Three Months Ended

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

2025 2024 2025 2024

Sales of alcoholic beverages $ 28,866 $ 32,907 $ 61,054 $ 66,223

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Depreciation and amortization 3,776 3,884 7,345 7,737

Other gains, net ( 2,244 ) ( 3 )

Impairments and other charges (gains), net

2,127 8,195 ( 117 ) 8,192

Total operating expenses 57,705 67,626 115,282 128,368

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Net income 3,194 749 12,259 7,993

Net income attributable to noncontrolling interests ( 41 ) ( 18 )

Net loss (income) attributable to noncontrolling interests 37 25 ( 4 ) 7

Net income attributable to RCIHH common stockholders $ 3,231 $ 774 $ 12,255 $ 8,000

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Balance at December 31, 2024 8,889,000 89 58,731 210,160 — — ( 209 ) 268,771

Purchase of treasury shares — — — — ( 56,875 ) ( 2,896 ) — ( 2,896 )

Canceled treasury shares ( 56,875 ) ( 1 ) ( 2,895 ) — 56,875 2,896 — —

Excise tax on stock repurchases — — ( 29 ) — — — — ( 29 )

Payment of dividends ($ 0.07 per share)

— — — ( 619 ) — — — ( 619 )

Stock-based compensation — — 118 — — — — 118

Net income (loss) — — — 3,231 — — ( 37 ) 3,194

Balance at March 31, 2025

8,832,125 $ 88 $ 55,925 $ 212,772 — $ — $ ( 246 ) $ 268,539

Balance at September 30, 2023

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Balance at December 31, 2023 9,359,685 94 78,815 207,714 — — ( 239 ) 286,384

Purchase of treasury shares — — — — ( 27,265 ) ( 1,530 ) — ( 1,530 )

Canceled treasury shares ( 27,265 ) ( 1 ) ( 1,529 ) — 27,265 1,530 — —

Excise tax on stock repurchases — — ( 15 ) — — — — ( 15 )

Payment of dividends ($ 0.06 per share)

— — — ( 560 ) — — — ( 560 )

Stock-based compensation — — 471 — — — — 471

Net income (loss) — — — 774 — — ( 25 ) 749

Balance at March 31, 2024

9,332,420 $ 93 $ 77,742 $ 207,928 — $ — $ ( 264 ) $ 285,499

See accompanying notes to unaudited condensed consolidated financial statements.

RCI HOSPITALITY HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, except number of shares)

For the Three Months Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES

Net income $ 9,065 $ 7,244

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 3,569 3,853

Deferred income tax benefit

Stock-based compensation 470 470

Gain on sale of businesses and assets ( 1,463 ) ( 3 )

Amortization of debt discount and issuance costs 63 163

Noncash lease expense 658 762

Gain on insurance ( 1,150 ) —

Doubtful accounts expense on notes receivable — 22

Changes in operating assets and liabilities, net of business acquisitions:

Receivables 2,373 1,229

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value and number of shares)

March 31, 2025 September 30, 2024

Current assets

Cash and cash equivalents $ 32,663 $ 32,350

Receivables, net 4,174 5,832

Inventories 4,645 4,676

Prepaid expenses, other current and other assets ( 598 ) ( 9,029 )

Accounts payable, accrued and other liabilities 750 9,140

Net cash provided by operating activities 13,344 13,633

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from sale of businesses and assets 129 —

Proceeds from insurance 1,150 —

Proceeds from notes receivable 71 55

Payments for property and equipment and intangible assets ( 5,754 ) ( 5,135 )

Net cash used in investing activities ( 4,404 ) ( 5,080 )

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from debt obligations 2,963 701

Payments on debt obligations ( 5,694 ) ( 6,352 )

Purchase of treasury stock ( 3,218 ) ( 2,072 )

Payment of dividends ( 623 ) ( 562 )

Payment of loan origination costs — ( 136 )

Net cash used in financing activities ( 6,572 ) ( 8,421 )

NET INCREASE IN CASH AND CASH EQUIVALENTS 2,368 132

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 32,350 21,023

CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 34,718 $ 21,155

CASH PAID DURING PERIOD FOR:

Interest $ 4,080 $ 4,017

Income taxes $ 3 $ —

Noncash investing and financing transactions:

Unpaid excise tax on stock repurchases $ 33 $ 20

Unpaid liabilities on capital expenditures $ 2,451 $ 1,719

Prepaid expenses and other current assets 4,071 4,427

Total current assets 45,553 47,285

Property and equipment, net 283,442 280,075

Operating lease right-of-use assets, net 24,905 26,231

Notes receivable, net of current portion 4,031 4,174

Goodwill 62,524 61,911

Intangibles, net 167,383 163,461

Other assets 1,918 1,227

Total assets $ 589,756 $ 584,364

LIABILITIES AND EQUITY

Current liabilities

Accounts payable $ 5,652 $ 5,637

Accrued liabilities 18,161 20,280

Current portion of debt obligations, net 19,737 18,871

Current portion of operating lease liabilities 3,073 3,290

Total current liabilities 46,623 48,078

Deferred tax liability, net 21,451 22,693

Debt, net of current portion and debt discount and issuance costs 221,725 219,326

Operating lease liabilities, net of current portion 26,677 30,759

Other long-term liabilities 4,741 398

Total liabilities 321,217 321,254

Commitments and contingencies ( Note 9 )

Preferred stock, $ 0.10 par value per share;

1,000,000 shares authorized;

none issued and outstanding

Common stock, $ 0.01 par value per share;

20,000,000 shares authorized;

8,832,125 and 8,955,000 shares issued and outstanding as of March 31, 2025, and September 30, 2024, respectively

Additional paid-in capital 55,925 61,511

Retained earnings 212,772 201,759

Total RCIHH stockholders’ equity 268,785 263,360

Noncontrolling interests ( 246 ) ( 250 )

Total equity 268,539 263,110

Total liabilities and equity $ 589,756 $ 584,364

See accompanying notes to unaudited condensed consolidated financial statements.

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They do not include all information and footnotes required by GAAP for complete financial statements.

The September 30, 2024 consolidated balance sheet data were derived from audited financial statements but do not include all disclosures required by GAAP.

The consolidated balance sheet data as of September 30, 2024, were derived from audited financial statements but do not include all disclosures required by GAAP.

However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements for the year ended September 30, 2024, included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on December 16, 2024.

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In the opinion of management, all adjustments considered necessary for a fair statement of the financial statements, consisting solely of normal recurring adjustments, have been made.

Operating results for the three months ended December 31, 2024 are not necessarily indicative of the results that may be expected for the year ending September 30, 2025.

Operating results for the six months ended March 31, 2025, are not necessarily indicative of the results that may be expected for the year ending September 30, 2025.

Recent Accounting Standards and Pronouncements

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The guidance requires disaggregation of certain costs and expenses included in each relevant expense caption on our consolidated statements of income in a separate note to the financial statements at each interim and annual reporting period, including amounts of purchases of inventory, employee compensation, depreciation, and intangible asset amortization.

The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted.

The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, as clarified by ASU 2025-01, with early adoption permitted.

The amendments in this ASU should be applied either (1) prospectively to financial statements issued for reporting periods after the effective date of the ASU or (2) retrospectively to any or all prior periods presented in the financial statements.

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Revenues, as disaggregated by revenue type, timing of recognition, and reportable segment (see also Note 4 ), are shown below (in thousands):

Three Months Ended December 31, 2024 Three Months Ended December 31, 2023

Three Months Ended March 31, 2025 Three Months Ended March 31, 2024

Nightclubs Bombshells Other Total Nightclubs Bombshells Other Total

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$ 57,541 $ 8,229 $ 106 $ 65,876 $ 59,372 $ 12,771 $ 140 $ 72,283

Six Months Ended March 31, 2025 Six Months Ended March 31, 2024

Nightclubs Bombshells Other Total Nightclubs Bombshells Other Total

Sales of alcoholic beverages $ 51,610 $ 9,444 $ — $ 61,054 $ 52,182 $ 14,041 $ — $ 66,223

Sales of food and merchandise 11,255 8,262 — 19,517 10,586 11,284 — 21,870

Service revenues 47,048 45 — 47,093 48,681 2 — 48,683

Other revenues 9,352 65 278 9,695 8,956 175 283 9,414

$ 119,265 $ 17,816 $ 278 $ 137,359 $ 120,405 $ 25,502 $ 283 $ 146,190

Recognized at a point in time $ 118,440 $ 17,814 $ 278 $ 136,532 $ 119,549 $ 25,500 $ 283 $ 145,332

Recognized over time 825 * 2 — 827 856 * 2 — 858

$ 119,265 $ 17,816 $ 278 $ 137,359 $ 120,405 $ 25,502 $ 283 $ 146,190

* Lease revenue (included in Other Revenues) as covered by ASC 842.

All other revenues are covered by ASC 606.

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Revenues — continued

The Company does not have contract assets with customers.

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Recognized in

Revenue Balance at December 31, 2024

Revenue Balance at March 31, 2025

Ad revenue $ 31 $ 247 $ ( 185 ) $ 93

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Below is the financial information related to the Company’s segments (in thousands):

For the Three Months Ended

Three Months Ended

March 31, Six Months Ended

2025 2024 2025 2024

Revenues (from external customers)

12 unchanged sentences

Bombshells 339 650 659 1,293

Other 14 2 27 4

Corporate 265 305 530 608

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Segment Information — continued

December 31, 2024 September 30, 2024

March 31, 2025 September 30, 2024

Nightclubs $ 462,985 $ 454,892

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$ 589,756 $ 584,364

Excluded from revenues in the table above are intercompany rental revenues of the Nightclubs and Corporate segments for the three months ended December 31, 2024, amounting to $ 4.7 million and $ 385,000 , respectively, and for the three months ended December 31, 2023, amounting to $ 4.5 million and $ 227,000 , respectively;

and intercompany sales of Robust Energy Drink included in Other segment for the three months ended December 31, 2024, and 2023 amounting to $ 72,000 and $ 39,000 , respectively.

Excluded from revenues in the table above are intercompany rental revenues of the Nightclubs, Other, and Corporate segments for the three months ended March 31, 2025, amounting to $ 4.9 million, $ 45,000 , and $ 0 , respectively, and for the six months ended March 31, 2025, amounting to $ 9.6 million, $ 45,000 , and $ 385,000 , respectively;

and intercompany sales of Robust Energy Drink included in Other segment for the three and six months ended March 31, 2025, amounting to $ 65,000 and $ 137,000 , respectively.

Excluded from revenues in the table above are intercompany rental revenues of the Nightclubs, Other, and Corporate segments for the three months ended March 31, 2024, amounting to $ 4.6 million, $ 0 , and $ 21,000 , respectively, and for the six months ended March 31, 2024, amounting to $ 9.1 million, $ 0 , and $ 248,000 , respectively;

and intercompany sales of Robust Energy Drink included in Other segment for the three and six months ended March 31, 2024, amounting to $ 89,000 and $ 128,000 , respectively.

These intercompany revenue amounts are eliminated upon consolidation.

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The components of receivables, net are as follows (in thousands):

December 31, 2024 September 30, 2024

March 31, 2025 September 30, 2024

Credit card receivables $ 1,957 $ 2,056

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The components of prepaid expenses and other current assets are as follows (in thousands):

December 31, 2024 September 30, 2024

March 31, 2025 September 30, 2024

Prepaid insurance $ 1,814 $ 2,792

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The components of accrued liabilities are as follows (in thousands):

December 31, 2024 September 30, 2024

March 31, 2025 September 30, 2024

Insurance $ 861 $ 2,390

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The components of other long-term liabilities are as follows (in thousands):

December 31, 2024 September 30, 2024

March 31, 2025 September 30, 2024

Estimated self-insurance liability

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The components of selling, general and administrative expenses are as follows (in thousands):

For the Three Months Ended

Three Months Ended

March 31, Six Months Ended

2025 2024 2025 2024

Taxes and permits $ 3,418 $ 3,967 $ 7,246 $ 8,009

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Total selling, general and administrative expenses $ 22,900 $ 24,653 $ 49,107 $ 49,854

The components of other gains, net are as follows (in thousands):

For the Three Months Ended

Settlement of lawsuits $ 179 $ —

Gain on sale of businesses and assets

The components of impairments and other charges (gains), net are as follows (in thousands):

Three Months Ended

March 31, Six Months Ended

2025 2024 2025 2024

Impairment of assets $ 1,780 $ 8,033 $ 1,780 $ 8,033

Settlement of lawsuits 127 167 306 167

Loss (gain) on sale of businesses and assets 220 ( 5 ) ( 1,186 ) ( 8 )

Gain on insurance — — ( 1,017 ) —

Total other gains, net $ ( 2,244 ) $ ( 3 )

Income tax expense was $ 1.8 million and $ 1.8 million during the three months ended December 31, 2024, and 2023, respectively.

The effective income tax rate was 16.9 % and 19.9 % for the three months ended December 31, 2024, and 2023, respectively.

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.

For the Three Months Ended December 31, 2024 For the Three Months Ended December 31, 2023

Total impairments and other charges (gains), net

$ 2,127 $ 8,195 $ ( 117 ) $ 8,192

During the quarter ended March 31, 2025, we recorded $ 1.8 million in SOB license impairment related to four clubs.

During the quarter ended March 31, 2024, we recorded $ 4.4 million in SOB license impairment related to four clubs, $ 2.9 million in goodwill impairment related to two clubs, and $ 693,000 in tradename impairment related to one club.

During the quarter ended December 31, 2024, we sold Bombshells Austin for a gain of $ 1.3 million.

See Note 13 .

During the quarter ended December 31, 2024, we received insurance recovery amounting to $ 1.15 million for a club razed by fire in a prior period.

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On November 26, 2024, the Company converted a bank loan secured on October 10, 2022 to purchase real property into a construction loan with the same bank lender.

The old loan had a remaining principal balance of $ 2.4 million.

The new construction loan has maximum principal limit of $ 6.3 million and has a term of 204 months.

The loan bears an interest rate of 6.99 % per annum for the first five years after which will adjust annually to a new rate equal to the then-current Wall Street Journal Prime Rate plus 0.25 % per annum, with a floor of 6.99 % per annum.

The loan is payable interest-only during the first 24 months, then payable for the next 36 months in equal installments of $ 60,162 in principal and interest, after which will be payable based on the adjusted interest rate for the next 143 months, with the remaining principal and accrued interest payable at maturity.

There are certain financial covenants with which the Company is to be in compliance related to this loan.

On January 21, 2025, in relation to a club acquisition (see Note 13 ), the Company executed a promissory note for $ 5.0 million with the seller.

The 8 % promissory note is payable 59 monthly installments of $ 67,718 in principal and interest, with the balance of principal and accrued interest payable at maturity.

On February 26, 2025, the Company extended its line-of-credit facility with a lender bank for a maximum availability of $ 5.0 million to mature on June 7, 2025.

All other terms and conditions in the original line-of-credit remain unchanged.

Future maturities of debt obligations as of March 31, 2025, are as follows (in thousands):

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

$ 129,257 $ 114,872 $ 244,129

On April 7, 2025, in relation to a club acquisition (see Note 13 ), the Company executed a seller-financed promissory note for $ 2.5 million bearing an interest of 7 % per annum.

The promissory note matures in five years and is payable in equal monthly installments of $ 49,503 in principal and interest.

Stock-based Compensation

On February 7, 2022, our board of directors approved the 2022 Stock Option Plan (the “2022 Plan”).

The board’s adoption of the 2022 Plan was approved by the shareholders during the annual stockholders' meeting on August 23, 2022.

The 2022 Plan provides that the maximum aggregate number of shares of common stock underlying options that may be granted under the 2022 Plan is 300,000 .

The options granted under the 2022 Plan may be either incentive stock options or non-qualified options.

The 2022 Plan is administered by the compensation committee of the board of directors.

The compensation committee has the exclusive power to select individuals to receive grants, to establish the terms of the options granted to each participant, provided that all options granted shall be granted at an exercise price not less than the fair market value of the common stock covered by the option on the grant date, and to make all determinations necessary or advisable under the 2022 Plan.

On February 9, 2022, the board of directors approved a grant of 50,000 stock options each to six members of management subject to the approval of the 2022 Plan.

Stock-based compensation, which is included in corporate segment selling, general and administrative expenses amounted to $ 118,000 and $ 588,000 during the three and six months ended March 31, 2025, respectively, and $ 471,000 and $ 941,000 during the three and six months ended March 31, 2024, respectively.

As of March 31, 2025, we had unrecognized compensation cost amounting to $ 1.4 million related to stock-based compensation awards granted, which is expected to be recognized over a weighted average period of 0.9 years.

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Stock-based Compensation — continued

The February 9, 2022 stock options vest over four years with the first 20 % having vested on the approval of the 2022 Plan at the 2022 annual stockholders' meeting on August 23, 2022, and 20 % vesting on February 9 of each year thereafter, provided however that the options will be subject to earlier vesting under certain events set forth in the Plan, including without limitation a change in control.

All of the options will expire, if not vested, at the end of five years .

The weighted average grant-date fair value of the stock options was $ 31.37 .

The following table summarizes information about stock option activity during the six months ended March 31, 2025, under the 2022 Plan:

Number of Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands)

Outstanding at September 30, 2024 300,000

Forfeited ( 20,000 ) $ 100.00

Outstanding at March 31, 2025 280,000 $ 100.00 1.7 $ —

Exercisable at March 31, 2025 230,000 $ 100.00 1.7 $ —

For the three and six months ended March 31, 2025, and 2024, we excluded the impact of 300,000 stock options from the calculation of diluted earnings per share because their effect was anti-dilutive.

Aside from the outstanding stock options, there were no other potentially dilutive securities for inclusion in the calculation of diluted earnings per share.

Income tax expense was $ 1.1 million and $ 2.9 million during the three and six months ended March 31, 2025, respectively, and $ 5,000 and $ 1.8 million during the three and six months ended March 31, 2024, respectively.

The effective income tax rate was 25.1 % and 19.2 % for the three and six months ended March 31, 2025, respectively, and 0.7 % and 18.4 % for the three and six months ended March 31, 2024, 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 then-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 (dollars in thousands).

Three Months Ended March 31, 2025 Three Months Ended March 31, 2024

Amount % Amount %

8 unchanged sentences

Income Taxes — continued

Six Months Ended March 31, 2025 Six Months Ended March 31, 2024

Amount % Amount %

Federal statutory income tax expense $ 3,187 21.0 % $ 2,057 21.0 %

State income taxes, net of federal benefit 416 2.7 % 349 3.6 %

Permanent differences 127 0.8 % 78 0.8 %

Tax credits ( 979 ) ( 6.5 ) % ( 680 ) ( 6.9 ) %

Other 164 1.1 % — — %

Total income tax expense $ 2,915 19.2 % $ 1,804 18.4 %

The Company or one of its subsidiaries files income tax returns in the U.S.

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As previously stated, since October 25, 2013, the Company has obtained general liability coverage from other insurers, which have covered and/or will cover any claims arising from actions after that date.

As of December 31, 2024, we have 1 remaining unresolved claim out of the original 71 claims.

As of March 31, 2025, we have 1 remaining unresolved claim out of the original 71 claims.

RCI HOSPITALITY HOLDINGS, INC.

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JAI Phoenix will continue to vigorously defend itself.

As set forth in the risk factors as disclosed in this report, the adult entertainment industry standard is to classify adult entertainers as independent contractors, not employees.

The adult entertainment industry standard is to classify adult entertainers as independent contractors, not employees.

While we take steps to ensure that our adult entertainers are deemed independent contractors, from time to time, we are named in lawsuits related to the alleged misclassification of entertainers.

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In matters where there is insurance coverage, in the event we incur any liability, we believe it is unlikely we would incur losses in connection with these claims in excess of our insurance coverage.

The Company recorded lawsuit settlements incurred amounting to $ 179,000 and $ 0 for the three months ended December 31, 2024, and 2023, respectively.

As of December 31, 2024, and September 30, 2024, the Company has accrued $ 2.0 million and $ 2.0 million, respectively, related to settlement of lawsuits, which is included in accrued liabilities in our unaudited condensed consolidated balance sheets.

The Company recorded lawsuit settlements incurred amounting to $ 127,000 and $ 306,000 for the three and six months ended March 31, 2025, respectively, and $ 167,000 and $ 167,000 for the three and six months ended March 31, 2024, respectively.

As of March 31, 2025, and September 30, 2024, the Company has accrued $ 2.1 million and $ 2.0 million, respectively, related to settlement of lawsuits, which is included in accrued liabilities in our unaudited condensed consolidated balance sheets.

Self-insurance Liability

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Our assumptions are reviewed, monitored, and adjusted when warranted by changing circumstances.

Our initial accrual for estimated self-insurance liability during the quarter ended December 31, 2024, amounted to $ 4.1 million (see Note 5 ).

We recorded estimated self-insurance expense amounting to $ 4.1 million during the quarter ended December 31, 2024, and $ 1.4 million during the quarter ended March 31, 2025.

Related Party Transactions

1 unchanged sentence

Langan receives no compensation or other direct financial benefit for any of the guarantees.

The balance of our commercial bank indebtedness, net of debt discount and issuance costs, as of December 31, 2024 and September 30, 2024, was $ 135.1 million and $ 135.3 million, respectively.

Included in the debt balance as of December 31, 2024, and September 30, 2024, are notes borrowed from related parties—one note for $ 500,000 (from Ed Anakar, an employee of the Company and brother of our former director Nourdean Anakar) and another note for $ 150,000 (from a brother of Company CFO, Bradley Chhay) in which the terms of the notes are the same as the rest of the lender group.

The balance of our commercial bank indebtedness, net of debt discount and issuance costs, as of March 31, 2025 and September 30, 2024, was $ 137.3 million and $ 135.3 million, respectively.

Included in the debt balance as of March 31, 2025, and September 30, 2024, are notes borrowed from related parties—one note for $ 500,000 (from Ed Anakar, an employee of the Company and brother of our former director Nourdean Anakar) and another note for $ 150,000 (from a brother of Company CFO, Bradley Chhay) in which the terms of the notes are the same as the rest of the lender group.

We used the services of Nottingham Creations, and previously Sherwood Forest Creations, LLC, both furniture fabrication companies that manufacture tables, chairs and other furnishings for our Bombshells locations, as well as providing ongoing maintenance.

Nottingham Creations is owned by a brother of Eric Langan (as was Sherwood Forest).

Amounts billed to us for goods and services provided by Nottingham Creations and Sherwood Forest were $ 2,780 and $ 142,098 during the three months ended December 31, 2024, and 2023, respectively.

As of December 31, 2024, and September 30, 2024, we owed Nottingham Creations and Sherwood Forest $ 3,300 and $ 18,700 , respectively, in unpaid billings.

Amounts billed to us for goods and services provided by Nottingham Creations and Sherwood Forest were $ 3,974 and $ 6,754 during the three and six months ended March 31, 2025, respectively, and $ 202,700 and $ 344,798 during the three and six months ended March 31, 2024, respectively.

As of March 31, 2025, and September 30, 2024, we owed Nottingham Creations and Sherwood Forest $ 3,312 and $ 18,700 , respectively, in unpaid billings.

RCI HOSPITALITY HOLDINGS, INC.

3 unchanged sentences

A son-in-law of Eric Langan owns a 50 % interest in TW Mechanical.

Amounts billed by TW Mechanical to the third-party general contractor were $ 0 and $ 0 for the three months ended December 31, 2024, and 2023, respectively.

Amounts billed directly to the Company were $ 720 and $ 2,932 for the three months ended December 31, 2024, and 2023, respectively.

As of December 31, 2024 and September 30, 2024, the Company owed TW Mechanical $ 0 and $ 0 , respectively, in unpaid direct billings.

Total lease expense included in selling, general and administrative expenses in our unaudited condensed consolidated statements of income for the three months ended December 31, 2024, and 2023 is as follows (in thousands):

Three Months Ended December 31,

Amounts billed by TW Mechanical to the third-party general contractor were $ 0 and $ 0 for the three and six months ended March 31, 2025, respectively, and $ 0 and $ 0 for the three and six months ended March 31, 2024, respectively.

Amounts billed directly to the Company were $ 681 and $ 1,401 for the three and six months ended March 31, 2025, respectively, and $ 228 and $ 3,160 for the three and six months ended March 31, 2024, respectively.

As of March 31, 2025, and September 30, 2024, the Company owed TW Mechanical $ 227 and $ 0 , respectively, in unpaid direct billings.

Total lease expense included in selling, general and administrative expenses in our unaudited condensed consolidated statements of income for the three and six months ended March 31, 2025, and 2024 is as follows (in thousands):

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

2025 2024 2025 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 (includes $ 102 and $ 107 recorded in advertising and marketing for the three months ended December 31, 2024, and 2023, respectively;

and $ 142 and $ 141 recorded in repairs and maintenance for the three months ended December 31, 2024, and 2023, respectively;

Short-term and other lease expense (includes $ 89 and $ 118 recorded in advertising and marketing for the three months ended March 31, 2025, and 2024, respectively, and $ 191 and $ 225 for the six months ended March 31, 2025, and 2024, respectively;

and $ 133 and $ 147 recorded in repairs and maintenance for the three months ended March 31, 2025, and 2024, respectively, and $ 275 and $ 288 for the six months ended March 31, 2025, and 2024, respectively;

316 347 658 677

Sublease income — — — —

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Weighted average discount rate – operating leases 5.7 % 5.8 %

Future maturities of operating lease liabilities as of December 31, 2024, are as follows (in thousands):

Future maturities of operating lease liabilities as of March 31, 2025, are as follows (in thousands):

Principal Payments Interest Payments Total Payments

January - December 2025 $ 3,008 $ 1,584 $ 4,592

January - December 2026 3,266 1,403 4,669

January - December 2027 3,004 1,218 4,222

January - December 2028 2,621 1,055 3,676

January - December 2029 2,603 895 3,498

April 2025 - March 2026 $ 3,073 $ 1,540 $ 4,613

April 2026 - March 2027 3,254 1,357 4,611

April 2027 - March 2028 2,860 1,175 4,035

April 2028 - March 2029 2,652 1,015 3,667

April 2029 - March 2030 2,476 858 3,334

Thereafter 15,435 2,497 17,932

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Subsequent Events

On January 21, 2025, the Company completed the acquisition of a club in the Detroit, Michigan market for a total purchase price of $ 11.0 million, consisting of $ 3.0 million in cash and $ 5.0 million in a seller-financed 8 % promissory note for the club, and $ 3.0 million in cash for the associated real estate.

Supplemental Disclosure of Cash Flow Information

The following table sets forth certain cash and noncash activities (in thousands), as follows:

Six Months Ended March 31,

Cash paid for interest, net of amounts capitalized $ 7,890 $ 7,877

Cash paid for income taxes $ 1,619 $ 2,510

Noncash investing and financing transactions:

Debt incurred in connection with acquisition of businesses $ 5,000 $ —

Note receivable from sale of businesses and assets $ 60 $ —

Unpaid excise tax on stock repurchases $ 62 $ 35

Unpaid liabilities on capital expenditures $ 1,170 $ 1,244

Subsequent to the balance sheet date through May 9, 2025, we repurchased 33,875 shares of our common stock at an average price of $ 39.80 per share.

Acquisitions and Dispositions

Sale of Bombshells Austin

On November 14, 2024, the Company sold Bombshells Austin for $ 70,000 in cash and $ 60,000 in a 6 % 12-month promissory note.

The Company recognized a $ 1.3 million gain on the sale.

On January 21, 2025, the Company completed the acquisition of a club in the Detroit, Michigan, market for a total agreed acquisition price of $ 11.0 million, consisting of $ 3.0 million in cash and $ 5.0 million in a seller-financed 8.0 % promissory note (see Note 6 ) for the club, and $ 3.0 million in cash for the associated real estate.

The preliminary fair value of the consideration is as follows (in thousands):

Note payable 5,000

Total fair value of consideration $ 11,000

We recognized the assets and liabilities for this acquisition based on our estimates of their acquisition date fair values in our Nightclubs reportable segment.

We have not finalized our valuation of the tangible and identifiable intangible assets acquired in this transaction.

As of the release of this report, the fair value of the acquired tangible and identifiable intangible assets are provisional pending the completion of the final valuations for those assets.

Based on the allocation of the preliminary fair value of the acquisition price and subject to any working capital adjustments, the amount of goodwill is estimated at $ 613,000 .

Goodwill represents the excess of the acquisition price fair value over the fair values of the tangible and identifiable intangible assets acquired, which is essentially the forward earnings potential of the acquired club and our entry into a new market.

Goodwill will not be amortized but will be tested at least annually for impairment.

Approximately $ 613,000 of the recognized goodwill will be deductible for income tax purposes.

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Acquisitions and Dispositions — continued

The following is our preliminary allocation of the fair value of the acquisition price (in thousands) as of January 21, 2025:

Current assets $ 73

Property and equipment 3,305

Licenses 5,928

Tradename 1,081

Total net assets acquired 10,387

Total fair value of net assets acquired $ 11,000

Licenses and tradename will not be amortized but will be tested at least annually for impairment.

In connection with this acquisition, we incurred approximately $ 114,000 and $ 141,000 in acquisition-related expenses during the three and six months ended March 31, 2025, respectively, which are included in selling, general and administrative expenses in our unaudited condensed consolidated statements of income.

From the date of acquisition until March 31, 2025, the acquired club contributed the following, which are included in our unaudited condensed consolidated statements of income (in thousands):

Three Months Ended

March 31, 2025 Six Months Ended

March 31, 2025

Revenues $ 681 $ 681

Income from operations $ 184 $ 184

We have not yet received the fiscal 2024 financial statements from the seller, therefore, we could not provide supplemental pro forma information for the combined entities.

Sale of Aurora CO Property

On March 31, 2025, the Company sold a real estate property in Aurora, Colorado, for $ 825,000 .

The Company recognized a loss of $ 88,000 on the sale, including closing costs.

Platinum West

On April 7, 2025, the Company completed the acquisition of a club in West Columbia, South Carolina, for a total purchase price of $ 8.0 million, consisting of $ 3.75 million cash and $ 2.5 million in a seller-financed 7 % promissory note (see Note 6 ) for the club, and $ 1.75 million cash for the associated real estate.

As of the filing of this report, we have not completed our valuation and do not have estimates of fair value for the acquired assets and any assumed liability, if any.

Subsequent to the balance sheet date through February 7, 2025, we repurchased 22,125 shares of our common stock at an average price of $ 55.00 per share.

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 1. Financial Statements