What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-05-07 compared with 2025-08-11 · 123 added, 260 removed, 240 unchanged (61% of the section changed)

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RCI Hospitality Holdings, Inc.

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

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

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

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.

Through our subsidiaries, as of December 31, 2025, we operated a total of 68 establishments that offer live adult entertainment and sports bars and restaurants.

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

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Our corporate offices are located in Houston, Texas.

Upon initial adoption of ASU 2023-07 for the annual reporting period ended September 30, 2025, certain previously reported segment information have changed.

There were no changes in consolidated financial information.

Segment-related discussions and analyses in the MD&A relate to amounts exclusive of intersegment items.

Critical Accounting Policies and Estimates

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Actual results may differ from these estimates.

For a description of the accounting policies that, in management’s opinion, involve the most significant application of judgment or involve complex estimation and which could, if different judgment or estimates were made, materially affect our reported financial position, results of operations, or cash flows, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2024, filed with the SEC on December 16, 2024.

In fiscal 2025, the Company started self-insuring a significant portion of expected losses under its general liability and liquor insurance programs due to increasingly prohibitive costs of such coverage from third-party insurers.

The Company continues to purchase insurance for workers' compensation, property, auto, and business interruption, as well as the minimum insurance coverage where it is required by law for licensing requirements.

We record a liability for unresolved claims and for an estimate of incurred but not reported claims based on historical experience.

The estimated liability is based on a number of assumptions and factors regarding economic conditions, the frequency and severity of claims development history, and settlement practices.

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

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.

During the three months ended December 31, 2025, 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:

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 $8.6 million compared to $13.1 million, a 34.5% decrease)

Highlights of the Company's operating results for the quarter ended December 31, 2025, are as follows, with comparisons against the same period of the prior year:

• Total revenues were $70.8 million compared to $71.5 million, a 0.9% decrease (Nightclubs revenue of $62.3 million compared to $61.7 million, a 0.9% increase;

and Bombshells revenue of $8.4 million compared to $9.6 million, an 12.6% decrease)

• Consolidated same-store sales decreased by 7.7% (Nightclubs decreased by 5.8%, while Bombshells decreased by 21.9%) (refer to the definition of same-store sales in the discussion of revenues below)

• Basic and diluted earnings per share (“EPS”) this quarter of $0.46 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 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 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)

• Basic and diluted earnings per share (“EPS”) this quarter of a loss of $0.57 compared to an income of $1.01

• Non-GAAP diluted EPS* of $0.74 compared to $0.80

• Net cash provided by operating activities of $7.8 million compared to $13.3 million, a 41.4% decrease

• Free cash flow* of $6.7 million compared to $12.1 million, a 44.6% decrease

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

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.

Consolidated revenues for the first quarter decreased by $0.7 million, or 0.9%, versus the comparable prior-year quarter due primarily to the $1.4 million impact of closed locations, partially offset by a $4.8 million increase in sales from new locations and the $5.3 million impact of the decrease in consolidated same-stores sales.

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 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) %

Sales of food and merchandise 5,914 9.5 % 5,904 9.4 % 10 0.2 %

Service revenues 25,166 40.4 % 25,103 40.0 % 63 0.3 %

Other revenues 4,918 7.9 % 4,403 7.0 % 515 11.7 %

62,336 100.0 % 62,823 100.0 % (487) (0.8) %

Sales of alcoholic beverages 4,442 51.6 % 7,029 53.5 % (2,587) (36.8) %

Sales of food and merchandise 4,123 47.9 % 5,832 44.4 % (1,709) (29.3) %

Service revenues 3 — % 165 1.3 % (162) (98.2) %

Other revenues 41 0.5 % 113 0.9 % (72) (63.7) %

8,609 100.0 % 13,139 100.0 % (4,530) (34.5) %

Other revenues 200 100.0 % 218 100.0 % (18) (8.3) %

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

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

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

Sales of alcoholic beverages $ 25,795 41.4 % $ 27,035 43.8 % $ (1,240) (4.6) %

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$ 70,828 $ 71,483 $ (655) (0.9) %

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%.

By type of revenue, alcoholic beverage sales decreased by 3.9%;

food, merchandise and other revenue increased by 5.1%;

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%;

food, merchandise and other revenue increased by 5.3%;

while service revenues decreased by 2.1%.

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 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.

Nightclubs revenues increased by 0.9% during the first quarter compared to the same quarter last year primarily due to the $3.0 million contribution of newly acquired clubs and the $3.5 million impact of the decrease in same-store sales, partially offset by the $256,000 impact of closed clubs.

For clubs that were open enough days to qualify as a same-store location (refer to the definition of same-store sales in the preceding paragraph), sales decreased by 5.8%.

By type of revenue, alcoholic beverage sales decreased by 4.6%, food, merchandise and other revenue increased by 1.8%, while service revenues increased by 6.7%.

Bombshells first quarter revenues decreased by 12.6%, of which 21.9% was for same-store sales decline and $1.2 million from recently closed or sold locations, with the offsetting increase caused by sales from a new location.

By type of revenue, food and merchandise sales decreased by 7.8%, while alcoholic beverage sales decreased by 15.7%.

Operating Expenses

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.

Total operating expenses, as a percent of revenues, increased to 84.4% from 80.5% from last year’s first quarter.

Year-over-year change was a $2.2 million increase, or 3.8%.

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

Cost of goods sold .

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 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 June 30, Nine Months Ended June 30,

2025 2024 2025 2024

Nightclubs $ 7,071 $ 7,315 $ 20,707 $ 21,512

Bombshells 2,037 3,164 6,211 9,187

Other 27 27 109 85

$ 9,135 $ 10,506 $ 27,027 $ 30,784

Cost of goods sold for the first quarter decreased by $240,000, or 2.5%, mainly due to lower sales.

As a percent of total revenues, cost of goods sold decreased to 13.0% from 13.3% mainly due to shift in sales mix to higher-margin service revenues.

Nightclubs cost of goods sold during the quarter was flat at 11.5% compared to prior year, while Bombshells cost of goods sold slightly decreased to 23.7% from 23.9%.

Salaries and wages .

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 June 30, Nine Months Ended June 30,

2025 2024 2025 2024

Nightclubs $ 14,276 $ 13,653 $ 42,297 $ 40,486

Bombshells 2,860 3,507 8,458 11,174

Other 468 122 1,023 450

Corporate 3,312 3,710 10,193 11,189

$ 20,916 $ 20,992 $ 61,971 $ 63,299

Salaries and wages increased by $0.9 million, or 4.3%, for the quarter mainly due to last year's club acquisitions.

As a percent of total revenues, salaries and wages increased to 30.3% from 28.8%.

Nightclubs increased to 23.7% from 22.6%, Bombshells increased to 34.3% from 29.3%, while corporate slightly increased to 5.3% from 5.2%.

Selling, general and administrative expenses .

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.

Total selling, general and administrative expenses decreased by $1.5 million, or 5.7%, for the quarter.

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

Three Months Ended

June 30, 2025 Three Months Ended

June 30, 2024 Better (Worse)

Amount % of Revenues Amount % of Revenues Amount %

Taxes and permits $ 3,418 4.8 % $ 4,575 6.0 % $ 1,157 25.3 %

Advertising and marketing 2,974 4.2 % 3,072 4.0 % 98 3.2 %

Supplies and services 2,503 3.5 % 2,642 3.5 % 139 5.3 %

Insurance 5,389 7.6 % 3,183 4.2 % (2,206) (69.3) %

Legal 1,383 1.9 % 1,034 1.4 % (349) (33.8) %

Lease 1,607 2.3 % 1,793 2.4 % 186 10.4 %

Charge card fees 1,791 2.5 % 1,798 2.4 % 7 0.4 %

Utilities 1,320 1.9 % 1,467 1.9 % 147 10.0 %

Security 1,019 1.4 % 1,178 1.5 % 159 13.5 %

Stock-based compensation 392 0.6 % 471 0.6 % 79 16.8 %

Accounting and professional fees 1,259 1.8 % 910 1.2 % (349) (38.4) %

Repairs and maintenance 1,221 1.7 % 1,154 1.5 % (67) (5.8) %

Other 1,864 2.6 % 1,780 2.3 % (84) (4.7) %

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

Nine Months Ended

June 30, 2025 Nine Months Ended

June 30, 2024 Better (Worse)

December 31, 2025 Three Months Ended

December 31, 2024 Better (Worse)

Amount % of Revenues Amount % of Revenues Amount %

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Total selling, general and administrative expenses $ 24,704 34.9 % $ 26,207 36.7 % $ 1,503 5.7 %

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.

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 June 30, Nine Months Ended June 30,

2025 2024 2025 2024

Nightclubs $ 17,579 $ 17,535 $ 52,425 $ 51,482

Bombshells 3,311 4,449 10,123 14,179

Other 133 174 598 540

Corporate 5,117 2,899 12,101 8,710

$ 26,140 $ 25,057 $ 75,247 $ 74,911

Supplies and services increased mainly due to the four new clubs and two Bombshells locations.

Insurance expense decreased due to last year's estimated self-insurance reserve.

Accounting and professional fees increased mainly due to additional audit procedures performed in relation to the delayed year-end filing.

Depreciation and amortization .

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 June 30, Nine Months Ended June 30,

2025 2024 2025 2024

Nightclubs $ 3,311 $ 2,996 $ 9,440 $ 8,828

Bombshells 302 615 961 1,908

Other 13 3 40 7

Corporate 266 287 796 895

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

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

Nightclubs $ 2,338 $ 7,684 $ 3,486 $ 15,890

Bombshells 12 10,318 (1,159) 10,322

Other — — — —

Corporate (1) 258 (95) 240

$ 2,349 $ 18,260 $ 2,232 $ 26,452

Depreciation and amortization increased by $618,000, or 17.3%, during the quarter primarily due to additional assets from last year's club acquisitions and newly opened Bombshells.

Impairments and other charges (gains), net .

Impairments and other charges (gains), net changed mainly due the current quarter impairment, the recovery in the current quarter from a previously recorded lawsuit settlement, and 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 last year's first quarter.

Income (Loss) from Operations

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.

For the three months ended December 31, 2025, and 2024, our consolidated operating margin was 15.6% and 19.5%, respectively.

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

Three Months Ended

June 30, Nine Months Ended

2025 2024 2025 2024

Three Months Ended December 31,

Nightclubs $ 18,722 $ 20,853

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$ 11,036 $ 13,906

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).

Excluding certain items, the three months ended December 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 25 .

Three Months Ended June 30, 2025

Nightclubs Bombshells Other Corporate Total

Income (loss) from operations $ 17,761 $ 87 $ (441) $ (8,694) $ 8,713

Amortization of intangibles 572 1 — 3 576

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

Stock-based compensation — — — 392 392

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

GAAP operating margin 28.5 % 1.0 % (220.5) % (12.2) % 12.2 %

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

Three Months Ended June 30, 2024

Nightclubs Bombshells Other Corporate Total

Income (loss) from operations $ 13,640 $ (8,914) $ (108) $ (7,154) $ (2,536)

Amortization of intangibles 578 16 — 4 598

Impairment of assets 7,619 10,312 — — 17,931

Settlement of lawsuits 141 — — — 141

Stock-based compensation — — — 471 471

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

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

GAAP operating margin 21.7 % (67.8) % (49.5) % (9.4) % (3.3) %

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

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

Three Months Ended December 31, 2025

Nightclubs Bombshells Other Corporate Total

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Impairment of assets

Settlement of lawsuits 3,557 30 — — 3,587

1,163 — — — 1,163

Settlement of lawsuits, net of recoveries (827) 25 — — (802)

Stock-based compensation — — — 392 392

Loss (gain) on sale of businesses and assets 300 (1,189) — (95) (984)

Loss on sale of businesses and assets 22 4 — 7 33

Gain on insurance (177) — — — (177)

2 unchanged sentences

Non-GAAP operating margin 31.3 % (1.3) % (108.7) % (9.9) % 17.3 %

Nine Months Ended June 30, 2024

Three Months Ended December 31, 2024

Nightclubs Bombshells Other Corporate Total

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Amortization of intangibles 574 1 — 5 580

Impairment of assets 15,652 10,312 — — 25,964

Settlement of lawsuits 179 — — — 179

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Loss (gain) on sale of businesses and assets 16 (1,330) — (92) (1,406)

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

Non-GAAP operating income (loss) $ 20,605 $ 616 $ (103) $ (8,406) $ 12,712

2 unchanged sentences

Other Income/Expenses

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 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 June 30, 2025 Three Months Ended June 30, 2024

Amount % Amount %

Federal statutory income tax expense $ 1,006 21.0 % $ (1,395) 21.0 %

State income taxes, net of federal benefit 145 3.0 % (214) 3.2 %

Permanent differences 83 1.7 % 22 (0.3) %

Tax credit (509) (10.6) % 152 (2.3) %

Other 8 0.2 % 9 (0.1) %

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 %

Federal statutory income tax expense $ 4,193 21.0 % $ 662 21.0 %

State income taxes, net of federal benefit 561 2.8 % 135 4.3 %

Permanent differences 210 1.1 % 100 3.2 %

Tax credit (1,488) (7.5) % (528) (16.8) %

Other 172 0.9 % 9 0.3 %

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 nine-month period.

Interest expense increased by $198,000, or 4.8%, while interest income decreased by $80,000, or 44.7%, during the quarter.

Premium on stock repurchase resulted from the November 2025 block stock buyback.

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 $6.0 million and $5.8 million for the quarters ended December 31, 2025, and 2024, respectively.

As a percentage of revenue, total occupancy costs were 8.5% and 8.0% during the quarters ended December 31, 2025, and 2024, respectively.

Income tax expense was $1.5 million and $1.8 million during the three months ended December 31, 2025, and 2024, respectively.

The effective income tax rate was (50.0)% and 16.9% for the three months ended December 31, 2025, and 2024, respectively.

Our effective income tax rate is affected by state taxes, permanent differences, and tax credits, including the FICA tip credit, for both periods, and the pretax loss and the nondeductible premium on stock repurchase in the current quarter.

Non-GAAP Financial Measures

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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) 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) 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 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).

(a) amortization of intangibles, (b) impairment of assets, (c) settlement of lawsuits, net of recoveries, (d) gains or losses on sale of businesses and assets, (e) gains or losses on insurance, (f) stock-based compensation, (g) premium on stock repurchase, (h) gains or losses on lease termination, and (i) 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 approximately 22.8% and 17.7% effective tax rate of the pre-tax non-GAAP income before taxes for the three months ended December 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.

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

(a) depreciation and amortization, (b) impairment of assets, (c) income tax expense, (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.

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

We believe that adjusting for such items helps 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 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

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

Three Months Ended December 31,

Reconciliation of GAAP net income (loss) to Adjusted EBITDA

Net income (loss) attributable to RCIHH common stockholders

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

$ (4,734) $ 9,024

Income tax expense 1,549 1,847

Interest expense, net 4,251 3,973

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Impairment of assets 1,163 —

Settlement of lawsuits 3,281 141 3,587 308

Settlement of lawsuits, net of recoveries

Stock-based compensation 392 470

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Gain on insurance (177) (1,017)

Premium on stock repurchase

Gain on lease termination — (979)

Adjusted EBITDA $ 15,747 $ 15,660

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

2025 2024 2025 2024

Three Months Ended December 31,

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

Net income (loss) attributable to RCIHH common stockholders

$ (4,734) $ 9,024

Amortization of intangibles 615 580

Impairment of assets 1,163 —

Settlement of lawsuits 3,281 141 3,587 308

Settlement of lawsuits, net of recoveries

Stock-based compensation 392 470

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Gain on insurance (177) (1,017)

Premium on stock repurchase

Gain on lease termination — (979)

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Non-GAAP net income $ 6,114 $ 7,161

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

2025 2024 2025 2024

Three Months Ended December 31,

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

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GAAP diluted earnings (loss) per share

$ (0.57) $ 1.01

Amortization of intangibles 0.07 0.07

Impairment of assets 0.14 —

Settlement of lawsuits 0.37 0.02 0.40 0.03

Settlement of lawsuits, net of recoveries

Stock-based compensation 0.05 0.05

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Gain on insurance (0.02) (0.11)

Premium on stock repurchase

Gain on lease termination — (0.11)

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Non-GAAP diluted earnings per share $ 0.74 $ 0.80

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

2025 2024 2025 2024

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

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

Three Months Ended December 31,

Reconciliation of GAAP operating income to non-GAAP operating income

Income from operations $ 11,036 $ 13,906

Amortization of intangibles 615 580

Impairment of assets 1,163 —

Settlement of lawsuits 3,281 141 3,587 308

Settlement of lawsuits, net of recoveries

Stock-based compensation 392 470

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Non-GAAP operating income $ 12,260 $ 12,712

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

2025 2024 2025 2024

Three Months Ended December 31,

Reconciliation of GAAP operating margin to non-GAAP operating margin

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

Income from operations 15.6 % 19.5 %

Amortization of intangibles 0.9 % 0.8 %

Impairment of assets 1.6 % 0.0 %

Settlement of lawsuits 4.6 % 0.2 % 1.7 % 0.1 %

Settlement of lawsuits, net of recoveries

(1.1) % 0.3 %

Stock-based compensation 0.6 % 0.7 %

Loss (gain) on sale of businesses and assets

0.0 % (2.0) %

Gain on insurance (0.2) % (1.4) %

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Liquidity and Capital Resources

At June 30, 2025, our cash and cash equivalents were approximately $29.3 million compared to $32.4 million at September 30, 2024.

At December 31, 2025, our cash and cash equivalents were approximately $28.6 million compared to $33.7 million at September 30, 2025.

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

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.

As of December 31, 2025, we had negative working capital of $26.3 million compared to a negative working capital of $12.1 million as of September 30, 2025.

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):

Nine Months Ended June 30,

Three Months Ended December 31,

Operating activities $ 7,816 $ 13,344

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Net increase (decrease) in cash and cash equivalents

$ (5,078) $ 2,368

Cash Flows from Operating Activities

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

Nine Months Ended June 30,

Three Months Ended December 31,

Net income $ (4,649) $ 9,065

Depreciation and amortization 4,187 3,569

Deferred income tax benefit

(2,200) (6,419)

Impairment of assets 1,163 —

Deferred income tax benefit

Stock-based compensation 392 470

Premium on stock repurchase

Net change in operating assets and liabilities (3,997) 2,521

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Net cash provided by operating activities $ 7,816 $ 13,344

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.

Net cash provided by operating activities was lower in the current quarter by 41.4% primarily due to the lower income from operations, higher income taxes paid, and higher payments to settle lawsuits.

Cash Flows from Investing Activities

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

Nine Months Ended June 30,

Three Months Ended December 31,

Payments for property and equipment and intangible assets $ (2,331) $ (5,754)

Acquisition of businesses (13,000) —

Proceeds from sale of businesses and assets 600 129

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Net cash used in investing activities $ (1,543) $ (4,404)

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 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,

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

Three Months Ended December 31,

New facilities, equipment, and intangible assets $ 1,195 $ 4,478

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Total capital expenditures $ 2,331 $ 5,754

The capital expenditures during the nine months ended June 30, 2025, and 2024 were composed mostly of construction projects in-progress.

The capital expenditures during the quarter ended December 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.

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

Nine Months Ended June 30,

Three Months Ended December 31,

Proceeds from debt obligations $ 2,253 $ 2,963

Payments on debt obligations (4,952) (5,694)

Payment of loan origination costs (40) —

Purchase of treasury stock (9,831) (3,218)

Payment of dividends (545) (623)

Payment of loan origination costs (80) (290)

Investment from noncontrolling partner 1,800 —

Payments to noncontrolling interests (36) —

Net cash used in financing activities $ (11,351) $ (6,572)

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.

We purchased 74,061 shares of our common stock at an average price of $24.72 during the quarter ended December 31, 2025, while we purchased 66,000 shares of our common stock at an average price of $48.76 during the quarter ended December 31, 2024.

As of December 31, 2025, we have approximately $7.3 million authorization remaining to purchase additional shares.

On April 2, 2026, the board of directors approved a $20.0 million increase in the Company's share repurchase program.

Outside of our open-market stock repurchase program, on November 21, 2025, the Company repurchased in a privately negotiated transaction 821,000 shares of its own common stock from a single stockholder for $30.0 million, paid $8.0 million in cash and $22.0 million under a two-year 12% unsecured promissory note.

We paid $0.07 per share in quarterly dividends during the quarters ended December 31, 2025, and 2024.

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, 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):

Nine Months Ended June 30,

Three Months Ended December 31,

Net cash provided by operating activities $ 7,816 $ 13,344

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Free cash flow $ 6,680 $ 12,068

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.

As a % of revenue

Our free cash flow for the quarter decreased by 44.6% compared to the comparable prior-year period primarily due to the lower income from operations, higher income taxes paid, and higher payments to settle lawsuits.

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 nine months ended June 30 (in thousands, except percentages):

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

2025 Increase

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Total revenues $ 70,828 (0.9) % $ 71,483 (3.3) % $ 73,907

Net income attributable to RCIHH common stockholders $ 16,313 489.6 % $ 2,767 (89.8) % $ 27,055

Net income (loss) attributable to RCIHH common stockholders

$ (4,734) (152.5) % $ 9,024 24.9 % $ 7,226

Net cash provided by operating activities $ 7,816 (41.4) % $ 13,344 (2.1) % $ 13,633

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Capital Allocation Strategy

Our capital allocation strategy provides us with disciplined guidelines on how we should use our free cash flows;

provided however, that we may deviate from this strategy if other strategic rationale warrants.

We calculate free cash flow as net cash flows from operating activities minus maintenance capital expenditures.

Using the after-tax yield of buying our own stock as baseline, management believes that we are able to make better investment decisions.

Based on our current capital allocation strategy:

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

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

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

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

Our overall objective is to create value for our shareholders by developing and operating profitable businesses in the hospitality and related space.

We strive to achieve that by providing an attractive price-value entertainment, dining experience, and top-notch service;

by attracting and retaining quality personnel;

and by focusing on unit-level operating performance.

In December 2024, we launched our five-year Back-to-Basics strategy where we focus on improving performance of existing clubs and Bombshells units to fuel our capital allocation priorities.

For the allocation of our free cash flow, we currently divide it among club acquisitions (investing), share buybacks (financing), and dividends (financing).

Our financial targets by fiscal 2029 are to achieve:

•Total revenues of $400 million

•Free cash flow of $75 million

•Shares outstanding of 7.5 million

Growth Strategy

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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 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.

While we are searching for adult nightclubs to acquire, we are able to also search for restaurant/sports bar locations that are consistent with our income targets.

As of December 31, 2025, ten of the eleven existing Bombshells restaurants were located in Texas, with one location in Denver, Colorado.

As part of managing our free cash flow to fuel growth, we are evaluating our Bombshells program in view of recent performance trends.

Currently, we have one Bombshells location that is under construction and do not plan to add anymore locations after that.

We continue to evaluate opportunities to acquire new nightclubs and anticipate acquiring new locations that fit our business model as we have done in the past.

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Quantitative and Qualitative Disclosures About Market Risk.

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.

As of December 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, 2025.

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