What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-11 compared with 2025-05-12 · 112 added, 108 removed, 388 unchanged (36% of the section changed)

4 unchanged sentences

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

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

Through our subsidiaries, as of June 30, 2025, we operated a total of 70 establishments that offer live adult entertainment and restaurants and sports bars.

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

During the three and nine months ended June 30, 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 and cash flows are as follows, with comparisons against the same period of the prior year:

Second Quarter Ended March 31, 2025

Third Quarter Ended June 30, 2025

• Total revenues were $71.1 million compared to $76.2 million during the comparable prior-year quarter, a 6.6% decrease (Nightclubs revenue of $62.3 million compared to $62.8 million, a 0.8% decrease;

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

and Bombshells revenue of $8.6 million compared to $13.1 million, a 34.5% decrease)

• Consolidated same-store sales decreased by 4.9% (Nightclubs decreased by 3.7%, while Bombshells decreased by 13.5%) (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)

• Basic and diluted earnings per share (“EPS”) this quarter of $0.46 compared to loss per share of $0.56 during the comparable prior-year quarter (non-GAAP diluted EPS* of $0.77 compared to $1.35)

• Net cash provided by operating activities was $13.8 million compared to $15.8 million during the comparable prior-year quarter, a 12.5% decrease (free cash flow* of $13.3 million compared to $13.8 million, a 3.2% 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;

Year-to-Date Period Ended June 30, 2025

• Total revenues $208.5 million compared to $222.4 million during the comparable prior-year nine-month period, a 6.2% decrease (Nightclubs revenue of $181.6 million compared to $183.2 million, a 0.9% decrease;

and Bombshells revenue of $26.4 million compared to $38.6 million, a 31.6% 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)

• Consolidated same-store sales decreased by 2.5% (Nightclubs same-store sales decreased by 1.3%, while Bombshells decreased by 11.5%)

• Basic and diluted EPS for the current nine months was $1.84 compared to $0.30 during the comparable prior-year period (non-GAAP diluted EPS* of $2.23 compared to $3.11)

• Net cash provided by operating activities was $35.7 million compared to $40.2 million during the comparable prior-year period, a 11.3% decrease (free cash flow* of $32.3 million compared to $35.3 million, a 8.3% 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 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.

Consolidated revenues for the third quarter decreased by $5.0 million, or 6.6%, versus the comparable prior-year quarter due primarily to the $4.7 million impact of closed locations and the $3.4 million impact of the 4.9% decline in consolidated same-store sales, partially offset by a $2.7 million increase in sales from new locations and the $326,000 impact of reopened clubs that were rebranded.

Consolidated revenues for the nine-month period decreased by $13.8 million, or 6.2%, versus the comparable prior-year nine-month period primarily due to $13.2 million impact of closed locations and the $5.0 million impact of the 2.5% decline in consolidated same-store sales, partially offset by a $3.6 million increase in sales from new locations and the $708,000 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 March 31, 2025 Mix Three Months Ended March 31, 2024 Mix Inc (Dec) $ Inc (Dec) %

Three Months Ended June 30, 2025 Mix Three Months Ended June 30, 2024 Mix Inc (Dec) $ Inc (Dec) %

Sales of alcoholic beverages $ 26,338 42.3 % $ 27,413 43.6 % $ (1,075) (3.9) %

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$ 71,145 $ 76,180 $ (5,035) (6.6) %

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

Nine Months Ended June 30, 2025 Mix Nine Months Ended June 30, 2024 Mix Inc (Dec) $ Inc (Dec) %

Sales of alcoholic beverages $ 77,948 42.9 % $ 79,595 43.4 % $ (1,647) (2.1) %

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$ 208,504 $ 222,370 $ (13,866) (6.2) %

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.

Nightclubs revenues decreased by 0.8% during the third quarter compared to the same quarter last year primarily due to the $2.3 million impact of the decrease in same-store sales and the $871,000 impact of closed clubs, partially offset by the $2.3 million 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 3.7%.

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food, merchandise and other revenue increased by 5.1%;

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.

while service revenues increased by 0.3%.

For the nine-month period, Nightclubs revenues decreased by 0.9% primarily due to the $3.1 million impact of closed clubs, partially offset by the $3.0 million contribution of a newly acquired club and a $708,000 impact from newly rebranded clubs.

Same-store sales for the nine-month period decreased by 1.3%.

By type of revenue, alcoholic beverage sales decreased by 2.1%;

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while service revenues decreased by 2.1%.

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.

Bombshells third quarter revenues decreased by 34.5%, which was primarily due to the $3.8 million impact of closed or sold locations and the $1.1 million impact of the decrease in same-store sales, partially offset by the $383,000 increase caused by sales from a new location.

By type of revenue, food and merchandise sales decreased by 29.3% while alcoholic beverage sales decreased by 36.8%.

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.

For the nine-month period, Bombshells revenues decreased by 31.6%, which was primarily caused by the $10.1 million impact of closed or sold locations and the $2.8 million impact from same-store sales decline.

By type of revenue, food and merchandise sales decreased by 27.6% while alcoholic beverage sales decreased by 34.1%.

Operating Expenses

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.

Total operating expenses, as a percent of revenues, decreased to 87.8% from 103.3% from last year’s third quarter, and decreased to 85.2% from 93.1% for the nine-month period.

Year-over-year change was a $16.3 million decrease, or 20.7%, for the third quarter and a $29.4 million decrease, or 14.2%, 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 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.

Cost of goods sold for the third quarter decreased by $1.4 million, or 13.0%, and for the nine-month period decreased by $3.8 million, or 12.2%, mainly due to lower sales.

As a percent of total revenues, cost of goods sold decreased to 12.8% from 13.8% for the third quarter and decreased to 13.0% from 13.8% for the nine-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 23.7% from 24.1%.

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%.

For the nine-month period, Nightclubs cost of goods sold decreased to 11.4% from 11.7%, while Bombshells cost of goods sold slightly decreased to 23.5% from 23.8%.

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

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

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

2025 2024 2025 2024

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Salaries and wages .

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 decreased by $76,000, or 0.4%, for the quarter and decreased by $1.3 million, or 2.1%, for the nine-month period mainly due to closed locations.

As a percent of total revenues, salaries and wages increased to 29.4% from 27.6% for the quarter and increased to 29.7% from 28.5% for the nine-month period mainly due to lower sales.

Nightclubs increased to 22.9% from 21.7% for the quarter and increased to 23.3% from 22.1% for the nine-month period.

Bombshells increased to 33.2% from 26.7% for the quarter and increased to 32.0% from 28.9% for the nine-month period.

Corporate slightly decreased to 4.7% from 4.9% for the quarter and decreased to 4.9% from 5.0% for the nine-month period.

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

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

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

2025 2024 2025 2024

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Selling, general and administrative expenses .

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.

Total selling, general and administrative expenses decreased by $1.1 million, or 4.3%, for the quarter and decreased by $336,000, or 0.4%, for the nine-month period.

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

Three Months Ended

March 31, 2025 Three Months Ended

March 31, 2024 Better (Worse)

June 30, 2025 Three Months Ended

June 30, 2024 Better (Worse)

Amount % of Revenues Amount % of Revenues Amount %

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Total selling, general and administrative expenses $ 26,140 36.7 % $ 25,057 32.9 % $ (1,083) (4.3) %

Six Months Ended

March 31, 2025 Six Months Ended

March 31, 2024 Better (Worse)

Nine Months Ended

June 30, 2025 Nine Months Ended

June 30, 2024 Better (Worse)

Amount % of Revenues Amount % of Revenues Amount %

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

Any unallocated self-insurance reserve remains in Corporate segment.

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,

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

2025 2024 2025 2024

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Depreciation and amortization .

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 decreased by $9,000, or 0.2%, during the quarter and decreased by $401,000, or 3.4%, during the nine-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,

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

2025 2024 2025 2024

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$ 3,892 $ 3,901 $ 11,237 $ 11,638

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,

Impairment and other charges, net .

Impairment and other charges, 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 received during the first and third quarters for a club razed by fire in a prior period;

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

and the increase in lawsuit settlements during the current third quarter.

See Notes 5 and 9 to our unaudited condensed consolidated financial statements.

By segment, impairment and other charges, net are as follows (in thousands):

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

2025 2024 2025 2024

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Income (Loss) from Operations

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.

For the three months ended June 30, 2025, and 2024, our consolidated operating margin was 12.2% and (3.3)%, respectively, while for the nine months ended June 30, 2025, and 2024, our consolidated operating margin was 14.8% and 6.9%, respectively.

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

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

2025 2024 2025 2024

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$ 8,713 $ (2,536) $ 30,790 $ 15,286

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).

Excluding certain items, the three months ended June 30, 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 33 .

Three Months Ended March 31, 2025

Three Months Ended June 30, 2025

Nightclubs Bombshells Other Corporate Total

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Amortization of intangibles 572 1 — 3 576

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

Settlement of lawsuits 3,281 — — — 3,281

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Loss (gain) on sale of businesses and assets 191 12 — (1) 202

Gain on insurance (1,134) — — — (1,134)

Non-GAAP operating income (loss) $ 20,671 $ 100 $ (441) $ (8,300) $ 12,030

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Non-GAAP operating margin 33.2 % 1.2 % (220.5) % (11.7) % 16.9 %

Three Months Ended March 31, 2024

Three Months Ended June 30, 2024

Nightclubs Bombshells Other Corporate Total

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

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

Excluding certain items, the nine months ended June 30, 2025, and 2024 non-GAAP operating income (loss) and non-GAAP operating margin are computed in the tables below (dollars in thousands).

Nine Months Ended June 30, 2025

Nightclubs Bombshells Other Corporate Total

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Non-GAAP operating margin 32.2 % 2.6 % (270.3) % (10.6) % 17.1 %

Six Months Ended March 31, 2024

Nine Months Ended June 30, 2024

Nightclubs Bombshells Other Corporate Total

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Other Income/Expenses

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.

During the third quarter, interest expense decreased by $208,000, or 4.9%, and interest income decreased by $13,000, or 10.0%.

During the nine-month period, interest expense decreased by $223,000, or 1.8%, while interest income increased by $115,000, or 35.9%.

Gain on lease termination was from a settlement of lease obligation related to a closed Bombshells unit during the quarter ended December 31, 2024.

Our total occupancy costs, which we define as the sum of operating lease expense and interest expense, were $5.6 million and $6.0 million for the quarters ended June 30, 2025, and 2024, respectively, and $17.0 million and $17.9 million for the nine months ended June 30, 2025, and 2024, respectively.

As a percentage of revenue, total occupancy costs were 7.9% and 7.9% during the quarters ended June 30, 2025, and 2024, respectively, and 8.1% and 8.0% during the nine months ended June 30, 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.

Income taxes were an expense of $733,000 and $3.6 million during the three and nine months ended June 30, 2025, respectively, and a benefit of $1.4 million and an expense of $378,000 during the three and nine months ended June 30, 2024, respectively.

The effective income tax rate was 15.3% and 18.3% for the three and nine months ended June 30, 2025, respectively, and 21.5% and 12.0% for the three and nine months ended June 30, 2024, respectively.

The disproportionate tax rates during the nine months ended June 30, 2024, were caused by the decrease in 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

Three Months Ended June 30, 2025 Three Months Ended June 30, 2024

Amount % Amount %

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Other 8 0.2 % 9 (0.1) %

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

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

Total income tax expense (benefit)

$ 733 15.3 % $ (1,426) 21.5 %

Nine Months Ended June 30, 2025 Nine Months Ended June 30, 2024

Amount % Amount %

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Total income tax expense $ 3,648 18.3 % $ 378 12.0 %

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

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

Non-GAAP Financial Measures

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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).

Included in the income tax effect of the above adjustments is the net effect of the non-GAAP provision for income taxes, calculated at 17.4% and 11.7% effective tax rate of the pre-tax non-GAAP income before taxes for the nine months ended June 30, 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.

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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, 2025, and 2024 (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, 2025, and 2024 (in thousands, except per share, number of shares, and percentages):

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

2025 2024 2025 2024

Reconciliation of GAAP net income to Adjusted EBITDA

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

Income tax expense 1,068 5 2,915 1,804

Reconciliation of GAAP net income (loss) to Adjusted EBITDA

Net income (loss) attributable to RCIHH common stockholders $ 4,058 $ (5,233) $ 16,313 $ 2,767

Income tax expense (benefit) 733 (1,426) 3,648 378

Interest expense, net 3,915 4,110 11,797 12,135

7 unchanged sentences

Adjusted EBITDA $ 15,339 $ 20,083 $ 45,228 $ 54,782

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

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

2025 2024 2025 2024

Reconciliation of GAAP net income to non-GAAP net income

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

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

Net income (loss) attributable to RCIHH common stockholders $ 4,058 $ (5,233) $ 16,313 $ 2,767

Amortization of intangibles 576 598 1,733 1,897

7 unchanged sentences

Non-GAAP net income $ 6,813 $ 12,542 $ 19,764 $ 29,053

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

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

2025 2024 2025 2024

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 8,793,809 9,278,921 8,859,028 9,332,249

GAAP diluted earnings per share $ 0.36 $ 0.08 $ 1.38 $ 0.85

GAAP diluted earnings (loss) per share $ 0.46 $ (0.56) $ 1.84 $ 0.30

Amortization of intangibles 0.07 0.06 0.20 0.20

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Non-GAAP diluted earnings per share $ 0.77 $ 1.35 $ 2.23 $ 3.11

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

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

2025 2024 2025 2024

Reconciliation of GAAP operating income to non-GAAP operating income

Income from operations $ 8,171 $ 4,657 $ 22,077 $ 17,822

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

Income (loss) from operations $ 8,713 $ (2,536) $ 30,790 $ 15,286

Amortization of intangibles 576 598 1,733 1,897

5 unchanged sentences

Non-GAAP operating income $ 12,030 $ 16,793 $ 35,735 $ 45,047

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

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

2025 2024 2025 2024

Reconciliation of GAAP operating margin to non-GAAP operating margin

Income from operations 12.4 % 6.4 % 16.1 % 12.2 %

Income (loss) from operations 12.2 % (3.3) % 14.8 % 6.9 %

Amortization of intangibles 0.8 % 0.8 % 0.8 % 0.9 %

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Liquidity and Capital Resources

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

At June 30, 2025, our cash and cash equivalents were approximately $29.3 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 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.

As of June 30, 2025, we had negative working capital of $3.7 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):

Six Months Ended March 31,

Nine Months Ended June 30,

Operating activities $ 35,684 $ 40,233

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

Six Months Ended March 31,

Nine Months Ended June 30,

Net income $ 16,319 $ 2,773

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Net cash provided by operating activities $ 35,684 $ 40,233

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.

Although income from operations in the current nine-month period was higher than the comparable last year, net cash provided by operating activities during the nine-month period decreased due to lower cash generated from revenues and higher payments of income taxes, partially offset by lower payments of operating liabilities and business interruption insurance received 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.

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

Six Months Ended March 31,

Nine Months Ended June 30,

Payments for property and equipment and intangible assets $ (12,289) $ (19,219)

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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,

See Note 13 to our unaudited condensed consolidated financial statements.

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 for the club, and $1.75 million cash for the associated real estate.

On June 13, 2025, the Company completed the acquisition of a club in Allentown, Pennsylvania, for a total purchase price of $2.0 million, consisting of $1.5 million cash and $500,000 in seller-financed 7% promissory note.

See Note 13 to our unaudited condensed consolidated financial statements.

Following is a breakdown of our payments for property and equipment and intangible assets for the nine months ended June 30, 2025, and 2024 (in thousands):

Nine Months Ended June 30,

New facilities, equipment, and intangible assets $ 8,948 $ 14,239

1 unchanged sentence

Total capital expenditures $ 12,289 $ 19,219

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

The capital expenditures during the nine months ended June 30, 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.

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

Six Months Ended March 31,

Nine Months Ended June 30,

Proceeds from debt obligations $ 9,175 $ 22,657

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Net cash used in financing activities $ (16,350) $ (9,219)

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.

We purchased 198,200 shares of our common stock at an average price of $46.21 during the nine months ended June 30, 2025, while we purchased 267,849 shares of our common stock at an average price of $47.69 during the nine months ended June 30, 2024.

As of June 30, 2025, we have approximately $11.9 million authorization remaining to purchase additional shares.

We paid $0.07 per share in quarterly dividends during the three quarters ended June 30, 2025, while we paid $0.06 per share during the three quarters ended June 30, 2024.

See Note 6 to our unaudited condensed consolidated financial statements for future maturities of our debt obligations as of June 30, 2025.

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, 2025, and 2024.

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

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

Six Months Ended March 31,

Nine Months Ended June 30,

Net cash provided by operating activities $ 35,684 $ 40,233

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Free cash flow $ 32,343 $ 35,253

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.

Our free cash flow for the nine-month period decreased by 8.3% 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 and maintenance capital expenditures in the current nine-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.

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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):

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.

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

As of June 30, 2025, nine of the ten existing Bombshells restaurants were located in Texas, with one 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.

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Quantitative and Qualitative Disclosures About Market Risk.

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.

As of June 30, 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