What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-12 compared with 2025-02-10 · 230 added, 80 removed, 266 unchanged (54% of the section changed)

4 unchanged sentences

All services and management operations are conducted by subsidiaries of RCIHH.

Through our subsidiaries, as of December 31, 2024, we operated a total of 64 establishments that offer live adult entertainment.

Through our subsidiaries, as of March 31, 2025, we operated a total of 67 establishments that offer live adult entertainment.

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

15 unchanged sentences

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

During the three months ended December 31, 2024, except as mentioned above, there were no significant changes in our accounting policies and estimates.

During the three and six months ended March 31, 2025, except as mentioned above, there were no significant changes in our accounting policies and estimates.

Results of Operations

Highlights of the Company's operating results for the quarter ended December 31, 2024, are as follows, with comparisons against the same period of the prior year:

• Total revenues were $71.5 million compared to $73.9 million during the comparable prior-year quarter, a 3.3% decrease (Nightclubs revenue of $61.7 million compared to $61.0 million, a 1.1% increase;

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

Second Quarter Ended March 31, 2025

• Total revenues were $65.9 million compared to $72.3 million during the comparable prior-year quarter, a 8.9% decrease (Nightclubs revenue of $57.5 million compared to $59.4 million, a 3.1% decrease;

and Bombshells revenue of $8.2 million compared to $12.8 million, an 35.6% decrease)

• Consolidated same-store sales increased by 2.3% (Nightclubs increased by 3.7%, while Bombshells decreased by 7.5%) (refer to the definition of same-store sales in the discussion of revenues below)

• Consolidated same-store sales decreased by 4.7% (Nightclubs decreased by 3.5%, while Bombshells decreased by 13.4%) (refer to the definition of same-store sales in the discussion of revenues below)

• Basic and diluted earnings per share (“EPS”) this quarter of $0.36 compared to $0.08 during the comparable prior-year quarter (non-GAAP diluted EPS* of $0.65 compared to $0.90)

• Net cash provided by operating activities of $13.3 million compared to $13.6 million during the comparable prior-year quarter, a 2.1% decrease (free cash flow* of $12.1 million compared to $12.7 million, a 4.6% decrease)

• Net cash provided by operating activities was $8.5 million compared to $10.8 million during the comparable prior-year quarter, a 21.1% decrease (free cash flow* of $6.9 million compared to $8.8 million, a 21.4% decrease)

Year-to-Date Period Ended March 31, 2025

• Total revenues $137.4 million compared to $146.2 million during the comparable prior-year six-month period, a 6.0% decrease (Nightclubs revenue of $119.3 million compared to $120.4 million, a 0.9% decrease;

and Bombshells revenue of $17.8 million compared to $25.5 million, a 30.1% decrease)

• Consolidated same-store sales decreased by 1.2% (Nightclubs same-store sales were flat, while Bombshells decreased by 10.4%)

• Basic and diluted EPS for the current six months was $1.38 compared to $0.85 during the comparable prior-year period (non-GAAP diluted EPS* of $1.46 compared to $1.76)

• Net cash provided by operating activities was $21.9 million compared to $24.5 million during the comparable prior-year period, a 10.5% decrease (free cash flow* of $19.0 million compared to $21.5 million, a 11.5% decrease)

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

Consolidated revenues for the first quarter decreased by $2.4 million, or 3.3%, versus the comparable prior-year quarter due primarily to the $4.4 million impact of closed locations, partially offset by a $487,000 increase in sales from new locations and the $1.5 million impact of the increase in consolidated same-stores sales.

Consolidated revenues for the second quarter decreased by $6.4 million, or 8.9%, versus the comparable prior-year quarter due primarily to the $4.5 million impact of closed locations and the $3.1 million impact of the 4.7% decline in consolidated same-store sales, partially offset by a $869,000 increase in sales from new locations and the $326,000 impact of reopened clubs that were rebranded.

Consolidated revenues for the six-month period decreased by $8.8 million, or 6.0%, versus the comparable prior-year six-month period primarily due to $8.5 million impact of closed locations and the $1.6 million impact of the 1.2% decline in consolidated same-store sales, partially offset by a $920,000 increase in sales from new locations and the $382,000 impact of reopened clubs that were rebranded.

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

Three Months Ended March 31, 2025 Mix Three Months Ended March 31, 2024 Mix Inc (Dec) $ Inc (Dec) %

Sales of alcoholic beverages $ 24,575 42.7 % $ 25,946 43.7 % $ (1,371) (5.3) %

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$ 65,876 $ 72,283 $ (6,407) (8.9) %

Nightclubs revenues increased by 1.1% during the first quarter compared to the same quarter last year primarily due to the $436,000 contribution of newly acquired clubs and the $2.1 million impact of the increase in same-store sales, partially offset by the $1.8 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 3.7%.

By type of revenue, alcoholic beverage sales increased by 3.0%, food, merchandise and other revenue increased by 8.6%, while service revenues decreased by 3.7%.

Bombshells first quarter revenues decreased by 24.7%, of which 7.5% was for same-store sales decline and $2.6 million from recently closed or sold locations, with the offsetting increase caused by sales from a new location.

Six Months Ended March 31, 2025 Mix Six Months Ended March 31, 2024 Mix Inc (Dec) $ Inc (Dec) %

Sales of alcoholic beverages $ 51,610 43.3 % $ 52,182 43.3 % $ (572) (1.1) %

Sales of food and merchandise 11,255 9.4 % 10,586 8.8 % 669 6.3 %

Service revenues 47,048 39.4 % 48,681 40.4 % (1,633) (3.4) %

Other revenues 9,352 7.8 % 8,956 7.4 % 396 4.4 %

119,265 100.0 % 120,405 100.0 % (1,140) (0.9) %

Sales of alcoholic beverages 9,444 53.0 % 14,041 55.1 % (4,597) (32.7) %

Sales of food and merchandise 8,262 46.4 % 11,284 44.2 % (3,022) (26.8) %

Service revenues 45 0.3 % 2 0.0 % 43 2150.0 %

Other revenues 65 0.4 % 175 0.7 % (110) (62.9) %

17,816 100.0 % 25,502 100.0 % (7,686) (30.1) %

Other revenues 278 100.0 % 283 100.0 % (5) (1.8) %

$ 137,359 $ 146,190 $ (8,831) (6.0) %

Nightclubs revenues decreased by 3.1% during the second quarter compared to the same quarter last year primarily due to the $2.0 million impact of the decrease in same-store sales and the $792,000 impact of closed clubs, partially offset by the $681,000 contribution of a newly acquired club and a $326,000 impact from newly rebranded 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 3.5%.

By type of revenue, alcoholic beverage sales decreased by 5.3%;

food, merchandise and other revenue increased by 2.4%;

while service revenues decreased by 2.9%.

For the six-month period, Nightclubs revenues decreased by 0.9% primarily due to the $2.2 million impact of closed clubs, partially offset by the $681,000 contribution of a newly acquired club and a $382,000 impact from newly rebranded clubs.

Same-store sales for the six-month period was flat.

By type of revenue, alcoholic beverage sales decreased by 1.1%;

food, merchandise and other revenue increased by 5.4%;

while service revenues decreased by 3.4%.

Bombshells second quarter revenues decreased by 35.6%, which was primarily due to the $3.7 million impact of closed or sold locations and the $1.1 million impact of the decrease in same-store sales, partially offset by the increase caused by sales from a new location.

By type of revenue, food and merchandise sales decreased by 32.0% while alcoholic beverage sales decreased by 38.4%.

For the six-month period, Bombshells revenues decreased by 30.1%, which was primarily caused by the $6.3 million impact of closed or sold locations and the $1.7 million impact from same-store sales decline.

By type of revenue, food and merchandise sales decreased by 26.8% while alcoholic beverage sales decreased by 32.7%.

Operating Expenses

Total operating expenses, as a percent of revenues, decreased to 80.5% from 82.2% from last year’s first quarter.

Year-over-year change was a $3.2 million decrease, or 5.2%.

Total operating expenses, as a percent of revenues, decreased to 87.6% from 93.6% from last year’s second quarter, and decreased to 83.9% from 87.8% for the six-month period.

Year-over-year change was a $9.9 million decrease, or 14.7%, for the second quarter and a $13.1 million decrease, or 10.2%, for the six-month period.

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

Cost of goods sold .

Cost of goods sold for the first quarter decreased by $878,000, or 8.5%, mainly due to lower sales.

As a percent of total revenues, cost of goods sold decreased to 13.3% from 14.0%.

Nightclubs cost of goods sold during the quarter decreased to 11.5% from 12.0%, while Bombshells cost of goods sold slightly increased to 23.9% from 23.7%.

Cost of goods sold for the second quarter decreased by $1.5 million, or 15.2%, and for the six-month period decreased by $2.4 million, or 11.8%, mainly due to lower sales.

As a percent of total revenues, cost of goods sold decreased to 12.8% from 13.7% for the second quarter and decreased to 13.0% from 13.9% for the six-month period.

Nightclubs cost of goods sold during the quarter decreased to 11.3% from 11.6%, while Bombshells cost of goods sold decreased to 22.9% from 23.5%.

For the six-month period, Nightclubs cost of goods sold decreased to 11.4% from 11.8%, while Bombshells cost of goods sold slightly decreased to 23.4% from 23.6%.

Cost of goods sold by segment is as follows (in thousands):

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

2025 2024 2025 2024

Nightclubs $ 6,512 $ 6,887 $ 13,636 $ 14,197

Bombshells 1,882 3,007 4,174 6,023

Other 17 25 82 58

$ 8,411 $ 9,919 $ 17,892 $ 20,278

Salaries and wages .

Salaries and wages decreased by $768,000, or 3.6%, for the quarter mainly due to closed locations.

As a percent of total revenues, salaries and wages decreased to 28.8% from 28.9%.

Nightclubs increased to 22.6% from 22.0%, Bombshells decreased to 29.3% from 31.1%, while corporate slightly increased to 5.2% from 5.1%.

Salaries and wages decreased by $484,000, or 2.3%, for the quarter and decreased by $1.3 million, or 3.0%, for the six-month period mainly due to closed locations.

As a percent of total revenues, salaries and wages increased to 31.1% from 29.0% for the quarter and increased to 29.9% from 28.9% for the six-month period mainly due to lower sales.

Nightclubs increased to 24.5% from 22.5% for the quarter and increased to 23.5% from 22.3% for the six-month period.

Bombshells increased to 33.9% from 29.0% for the quarter and increased to 31.4% from 30.1% for the six-month period.

Corporate slightly decreased to 4.8% from 5.2% for the quarter and decreased to 5.0% from 5.1% for the six-month period.

Salaries and wages by segment are as follows (in thousands):

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

2025 2024 2025 2024

Nightclubs $ 14,091 $ 13,377 $ 28,021 $ 26,833

Bombshells 2,791 3,708 5,598 7,667

Other 450 160 555 328

Corporate 3,159 3,730 6,881 7,479

$ 20,491 $ 20,975 $ 41,055 $ 42,307

Selling, general and administrative expenses .

Total selling, general and administrative expenses increased by $1.0 million, or 4.0%, for the quarter.

Total selling, general and administrative expenses decreased by $1.8 million, or 7.1%, for the quarter and decreased by $747,000, or 1.5%, for the six-month period.

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

For the Three Months Ended

December 31, 2024 For the Three Months Ended

December 31, 2023 Better (Worse)

Three Months Ended

March 31, 2025 Three Months Ended

March 31, 2024 Better (Worse)

Amount % of Revenues Amount % of Revenues Amount %

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Total selling, general and administrative expenses $ 22,900 34.8 % $ 24,653 34.1 % $ 1,753 7.1 %

Advertising and marketing decreased mainly due to closed locations.

Insurance expense increased due to the estimated self-insurance for general liability and liquor liability that was set up during the current quarter.

Six Months Ended

March 31, 2025 Six Months Ended

March 31, 2024 Better (Worse)

Amount % of Revenues Amount % of Revenues Amount %

Taxes and permits $ 7,246 5.3 % $ 8,009 5.5 % $ 763 9.5 %

Advertising and marketing 5,563 4.0 % 6,467 4.4 % 904 14.0 %

Supplies and services 4,956 3.6 % 5,431 3.7 % 475 8.7 %

Insurance 8,106 5.9 % 6,580 4.5 % (1,526) (23.2) %

Legal 2,755 2.0 % 1,849 1.3 % (906) (49.0) %

Lease 3,139 2.3 % 3,609 2.5 % 470 13.0 %

Charge card fees 3,398 2.5 % 3,414 2.3 % 16 0.5 %

Utilities 2,879 2.1 % 2,947 2.0 % 68 2.3 %

Security 2,102 1.5 % 2,698 1.8 % 596 22.1 %

Stock-based compensation 588 0.4 % 941 0.6 % 353 37.5 %

Accounting and professional fees 2,311 1.7 % 2,322 1.6 % 11 0.5 %

Repairs and maintenance 2,491 1.8 % 2,213 1.5 % (278) (12.6) %

Other 3,573 2.6 % 3,374 2.3 % (199) (5.9) %

Total selling, general and administrative expenses $ 49,107 35.8 % $ 49,854 34.1 % $ 747 1.5 %

Most of the decreases in selling, general and administrative expenses come from closed or sold Bombshells locations and from lower variable expenses caused by lower sales.

Insurance expense increased due to the estimated self-insurance for general liability and liquor liability.

Legal expenses increased due mainly to the increase in ongoing cases.

Selling, general and administrative expenses by segment are as follows (in thousands):

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

2025 2024 2025 2024

Nightclubs $ 17,207 $ 16,953 $ 34,846 $ 33,947

Bombshells 3,285 4,703 6,812 9,730

Other 305 230 465 366

Corporate 2,103 2,767 6,984 5,811

$ 22,900 $ 24,653 $ 49,107 $ 49,854

Depreciation and amortization .

Depreciation and amortization decreased by $284,000, or 7.4%, during the quarter primarily due to closed locations.

Other gains, net .

Other gains, net for the quarter changed mainly due the sale of our Bombshells location in Austin, Texas, which was significantly impaired in a prior period, and the insurance recovery for a club razed by fire in a prior period.

Depreciation and amortization decreased by $108,000, or 2.8%, during the quarter and decreased by $392,000, or 5.1%, during the six-month period primarily due to closed locations.

Depreciation and amortization expenses by segment are as follows (in thousands):

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

2025 2024 2025 2024

Nightclubs $ 3,158 $ 2,927 $ 6,129 $ 5,832

Bombshells 339 650 659 1,293

Other 14 2 27 4

Corporate 265 305 530 608

$ 3,776 $ 3,884 $ 7,345 $ 7,737

Impairment and other charges (gains), net .

Impairment and other charges (gains), net changed mainly due to the sale during the first quarter of our Bombshells location in Austin, Texas, which was significantly impaired in a prior period;

the insurance recovery during the first quarter for a club razed by fire in a prior period;

and the decrease in impairment of assets during the current quarter and the six-month period compared to last year.

See Note 5 to our unaudited condensed consolidated financial statements.

Impairment and other charges (gains), net by segment are as follows (in thousands):

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

2025 2024 2025 2024

Nightclubs $ 1,970 $ 8,207 $ 1,148 $ 8,206

Bombshells 159 4 (1,171) 4

Other — — — —

Corporate (2) (16) (94) (18)

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

Income (Loss) from Operations

For the three months ended December 31, 2024, and 2023, our consolidated operating margin was 19.5% and 17.8%, respectively.

For the three months ended March 31, 2025, and 2024, our consolidated operating margin was 12.4% and 6.4%, respectively, while for the six months ended March 31, 2025, and 2024, our consolidated operating margin was 16.1% and 12.2%, respectively.

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

For the Three Months Ended

Three Months Ended

March 31, Six Months Ended

2025 2024 2025 2024

Nightclubs $ 14,603 $ 11,021 $ 35,485 $ 31,390

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$ 8,171 $ 4,657 $ 22,077 $ 17,822

Excluding certain items, the three months ended December 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 March 31, 2025, and 2024 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 32 .

For the Three Months Ended December 31, 2024

Three Months Ended March 31, 2025

Nightclubs Bombshells Other Corporate Total

1 unchanged sentence

Amortization of intangibles 572 1 — 4 577

Impairment of assets 1,780 — — — 1,780

Settlement of lawsuits 97 30 — — 127

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Non-GAAP operating margin 29.8 % (0.8) % (641.5) % (8.2) % 16.7 %

For the Three Months Ended December 31, 2023

Three Months Ended March 31, 2024

Nightclubs Bombshells Other Corporate Total

1 unchanged sentence

Amortization of intangibles 589 47 — 4 640

Impairment of assets 8,033 — — — 8,033

Settlement of lawsuits 167 — — — 167

Stock-based compensation — — — 471 471

Gain on sale of businesses and assets (1) — — (2) (3)

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

Non-GAAP operating income (loss) $ 19,817 $ 750 $ (277) $ (6,327) $ 13,963

1 unchanged sentence

Non-GAAP operating margin 33.4 % 5.9 % (197.9) % (8.8) % 19.3 %

Excluding certain items, the six months ended March 31, 2025, and 2024 non-GAAP operating income (loss) and non-GAAP operating margin are computed in the tables below (dollars in thousands).

Six Months Ended March 31, 2025

Nightclubs Bombshells Other Corporate Total

Income (loss) from operations $ 35,485 $ 1,744 $ (851) $ (14,301) $ 22,077

Amortization of intangibles 1,146 2 — 9 1,157

Impairment of assets 1,780 — — — 1,780

Settlement of lawsuits 276 30 — — 306

Stock-based compensation — — — 588 588

Loss (gain) on sale of businesses and assets 109 (1,201) — (94) (1,186)

Gain on insurance (1,017) — — — (1,017)

Non-GAAP operating income (loss) $ 37,779 $ 575 $ (851) $ (13,798) $ 23,705

GAAP operating margin 29.8 % 9.8 % (306.1) % (10.4) % 16.1 %

Non-GAAP operating margin 31.7 % 3.2 % (306.1) % (10.0) % 17.3 %

Six Months Ended March 31, 2024

Nightclubs Bombshells Other Corporate Total

Income (loss) from operations $ 31,390 $ 785 $ (473) $ (13,880) $ 17,822

Amortization of intangibles 1,180 110 — 9 1,299

Impairment of assets 8,033 — — — 8,033

Settlement of lawsuits 167 — — — 167

Stock-based compensation — — — 941 941

Loss (gain) on sale of businesses and assets 6 4 — (18) (8)

Non-GAAP operating income (loss) $ 40,776 $ 899 $ (473) $ (12,948) $ 28,254

GAAP operating margin 26.1 % 3.1 % (167.1) % (9.5) % 12.2 %

Non-GAAP operating margin 33.9 % 3.5 % (167.1) % (8.9) % 19.3 %

Other Income/Expenses

Interest expense decreased by $64,000, or 1.5%, while interest income increased by $85,000, or 90.4%, during the quarter.

Gain on lease termination was from a settlement of lease obligation related to a closed Bombshells unit in a prior period.

Our total occupancy costs, which we define as the sum of operating lease expense and interest expense, were $5.8 million and $6.0 million for the quarters ended December 31, 2024, and 2023, respectively.

As a percentage of revenue, total occupancy costs were 8.0% and 8.2% during the quarters ended December 31, 2024, and 2023, respectively.

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

During the second quarter, interest expense increased by $49,000, or 1.2%, while interest income increased by $43,000, or 44.8%.

During the six-month period, interest expense decreased by $15,000, or 0.2%, while interest income increased by $128,000, or 67.4%.

Gain on lease termination was from a settlement of lease obligation related to a closed Bombshells unit during the first quarter.

Our total occupancy costs, which we define as the sum of operating lease expense and interest expense, were $5.6 million and $5.8 million for the quarters ended March 31, 2025, and 2024, respectively, and $11.3 million and $11.8 million for the six months ended March 31, 2025, and 2024, respectively.

As a percentage of revenue, total occupancy costs were 8.5% and 8.0% during the quarters ended March 31, 2025, and 2024, respectively, and 8.3% and 8.1% during the six months ended March 31, 2025, and 2024, respectively.

Although total occupancy costs decreased in dollars, percentages based on revenue increased due to lower sales.

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 %

5 unchanged sentences

Total income tax expense $ 1,068 25.1 % $ 5 0.7 %

Income taxes increased in dollar amount due to a higher pretax income in the current quarter.

Effective income tax rate decreased due to higher tax credits.

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 credit (979) (6.5) % (680) (6.9) %

Other 164 1.1 % — — %

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

Income taxes increased due to a higher pretax income in the current quarter and the six-month period.

Non-GAAP Financial Measures

5 unchanged sentences

We calculate non-GAAP operating income and non-GAAP operating margin by excluding the following items from income from operations and operating margin:

(a) amortization of intangibles, (b) settlement of lawsuits, (c) gains or losses on sale of businesses and assets, (d) gains or losses on insurance, and (e) stock-based compensation.

(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, and (f) stock-based compensation.

We believe that excluding these items assists investors in evaluating period-over-period changes in our operating income and operating margin without the impact of items that are not a result of our day-to-day business and operations.

2 unchanged sentences

Adjustment items are:

(a) amortization of intangibles, (b) settlement of lawsuits, (c) gains or losses on sale of businesses and assets, (d) gains or losses on insurance, (e) stock-based compensation, (f) gains or losses on lease termination, 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 17.7% and 19.9% effective tax rate of the pre-tax non-GAAP income before taxes for the three months ended December 31, 2024, and 2023, respectively, and the GAAP income tax expense (benefit).

(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, (g) gains or losses on lease termination, and (h) 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 18.1% and 18.4% effective tax rate of the pre-tax non-GAAP income before taxes for the six months ended March 31, 2025, and 2024, 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.

1 unchanged sentence

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

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

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

We believe that adjusting for such items helps management and investors better understand our operating activities.

5 unchanged sentences

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

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

Three Months Ended December 31,

The following tables present our non-GAAP performance measures for the three and six months ended March 31, 2025, and 2024 (in thousands, except per share, number of shares, and percentages):

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

2025 2024 2025 2024

Reconciliation of GAAP net income to Adjusted EBITDA

3 unchanged sentences

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

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

Settlement of lawsuits 127 167 306 167

Stock-based compensation 118 471 588 941

Gain on sale of businesses and assets (1,406) (3)

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

Gain on insurance — — (1,017) —

1 unchanged sentence

Adjusted EBITDA $ 14,229 $ 17,232 $ 29,889 $ 34,699

Three Months Ended December 31,

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

2025 2024 2025 2024

Reconciliation of GAAP net income to non-GAAP net income

1 unchanged sentence

Amortization of intangibles 577 640 1,157 1,299

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

Settlement of lawsuits 127 167 306 167

Stock-based compensation 118 471 588 941

Gain on sale of businesses and assets (1,406) (3)

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

Gain on insurance — — (1,017) —

2 unchanged sentences

Non-GAAP net income $ 5,790 $ 8,379 $ 12,951 $ 16,511

Three Months Ended December 31,

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

2025 2024 2025 2024

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

2 unchanged sentences

Amortization of intangibles 0.07 0.07 0.13 0.14

Impairment of assets 0.20 0.86 0.20 0.86

Settlement of lawsuits 0.01 0.02 0.03 0.02

Stock-based compensation 0.01 0.05 0.07 0.10

Gain on sale of businesses and assets (0.16) 0.00

Loss (gain) on sale of businesses and assets 0.02 0.00 (0.13) 0.00

Gain on insurance 0.00 0.00 (0.11) 0.00

2 unchanged sentences

Non-GAAP diluted earnings per share $ 0.65 $ 0.90 $ 1.46 $ 1.76

Three Months Ended December 31,

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

2025 2024 2025 2024

Reconciliation of GAAP operating income to non-GAAP operating income

1 unchanged sentence

Amortization of intangibles 577 640 1,157 1,299

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

Settlement of lawsuits 127 167 306 167

Stock-based compensation 118 471 588 941

Gain on sale of businesses and assets (1,406) (3)

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

Gain on insurance — — (1,017) —

Non-GAAP operating income $ 10,993 $ 13,963 $ 23,705 $ 28,254

Three Months Ended December 31,

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

2025 2024 2025 2024

Reconciliation of GAAP operating margin to non-GAAP operating margin

1 unchanged sentence

Amortization of intangibles 0.9 % 0.9 % 0.8 % 0.9 %

Impairment of assets 2.7 % 11.1 % 1.3 % 5.5 %

Settlement of lawsuits 0.2 % 0.2 % 0.2 % 0.1 %

Stock-based compensation 0.2 % 0.7 % 0.4 % 0.6 %

Gain on sale of businesses and assets (2.0) % 0.0 %

Loss (gain) on sale of businesses and assets 0.3 % 0.0 % (0.9) % 0.0 %

Gain on insurance 0.0 % 0.0 % (0.7) % 0.0 %

3 unchanged sentences

Liquidity and Capital Resources

At December 31, 2024, our cash and cash equivalents were approximately $34.7 million compared to $32.4 million at September 30, 2024.

At March 31, 2025, our cash and cash equivalents were approximately $32.7 million compared to $32.4 million at September 30, 2024.

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

As of December 31, 2024, we had working capital of $0.8 million compared to a negative working capital of $793,000 as of September 30, 2024.

As of March 31, 2025, we had negative working capital of $1.1 million compared to negative working capital of $793,000 as of September 30, 2024.

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 Three Months Ended December 31,

Six Months Ended March 31,

Operating activities $ 21,891 $ 24,469

1 unchanged sentence

Financing activities (9,352) (12,833)

Net increase in cash and cash equivalents $ 2,368 $ 132

Net increase (decrease) in cash and cash equivalents $ 313 $ (1,050)

Cash Flows from Operating Activities

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

For the Three Months Ended December 31,

Six Months Ended March 31,

Net income $ 12,259 $ 7,993

1 unchanged sentence

Deferred income tax benefit

(1,242) (1,911)

Impairment of assets 1,780 8,033

Stock-based compensation 588 941

2 unchanged sentences

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

Although income from operations in the current quarter was higher than the same-quarter last year, net cash provided by operating activities during the current quarter slightly decreased due to lower conversion to cash of revenues earned partially offset by lower payments of operating liabilities in the current quarter as compared to last year.

Although income from operations in the current six-month period was higher than the comparable last year, net cash provided by operating activities during the six-month period decreased due to lower conversion of revenues earned to cash partially offset by lower payments of operating liabilities as compared to last year.

In view of self-insuring most of our general liability and liquor insurance programs, we expect our payments for expected losses for those programs to be volatile in the near future until we have fully established a trust to fund our estimated self-insurance liability.

1 unchanged sentence

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

For the Three Months Ended December 31,

Six Months Ended March 31,

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

Acquisition of businesses (6,000) —

Proceeds from sale of businesses and assets 1,085 —

2 unchanged sentences

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

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

For the Three Months Ended December 31,

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 for the club, and $3.0 million in cash for the associated real estate.

See Note 13 .

On April 7, 2025, subsequent to the reporting date of this quarterly report, 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 for the club, and $1.75 million cash for the associated real estate.

See Note 13 .

Following is a breakdown of our payments for property and equipment and intangible assets for the six months ended March 31, 2025, and 2024 (in thousands):

Six Months Ended March 31,

New facilities, equipment, and intangible assets $ 5,721 $ 9,808

1 unchanged sentence

Total capital expenditures $ 8,608 $ 12,802

The capital expenditures during the quarter ended December 31, 2024, and 2023 were composed mostly of construction projects in-progress.

The capital expenditures during the six months ended March 31, 2025, and 2024 were composed mostly of construction projects in-progress.

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 Three Months Ended December 31,

Six Months Ended March 31,

Proceeds from debt obligations $ 8,396 $ 2,657

4 unchanged sentences

Net cash used in financing activities $ (9,352) $ (12,833)

We purchased 66,000 shares of our common stock at an average price of $48.76 during the quarter ended December 31, 2024, while we purchased 37,954 shares of our common stock at an average price of $54.59 during the quarter ended December 31, 2023.

As of December 31, 2024, we have approximately $17.8 million authorization remaining to purchase additional shares.

We paid $0.07 per share in quarterly dividends during the quarter ended December 31, 2024, while we paid $0.06 per share during the quarter ended December 31, 2023.

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

We purchased 122,875 shares of our common stock at an average price of $49.76 during the six months ended March 31, 2025, while we purchased 65,219 shares of our common stock at an average price of $55.23 during the six months ended March 31, 2024.

As of March 31, 2025, we have approximately $14.9 million authorization remaining to purchase additional shares.

We paid $0.07 per share in quarterly dividends during the two quarters ended March 31, 2025, while we paid $0.06 per share during the two quarters ended March 31, 2024.

See Note 6 to our unaudited condensed consolidated financial statements for future maturities of our debt obligations as of March 31, 2025.

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, 2025, and 2024.

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 Three Months Ended December 31,

Six Months Ended March 31,

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

1 unchanged sentence

Free cash flow $ 19,004 $ 21,475

Our free cash flow for the quarter decreased by 4.6% compared to the comparable prior-year period primarily due to higher maintenance capital expenditures and lower conversion to cash of revenues earned, partially offset by lower payments of operating liabilities in the current quarter as compared to last year.

Our free cash flow for the six-month period decreased by 11.5% compared to the comparable prior-year period primarily due to lower conversion of revenues earned to cash, partially offset by lower payments of operating liabilities in the current six-month period as compared to last year.

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.

6 unchanged sentences

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 quarters ended December 31 (in thousands, except percentages):

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

2025 Increase

31 unchanged sentences

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

All nine of the existing Bombshells restaurants as of December 31, 2024 were located in Texas, and we opened a new Bombshells location in Denver, Colorado, in January 2025.

As of March 31, 2025, nine of the ten existing Bombshells restaurants were located in Texas, and one new location in Denver, Colorado.

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 December 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, 2024.

As of March 31, 2025, 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, 2024.

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