RCI HOSPITALITY HOLDINGS, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and related notes thereto included in this quarterly report, and the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended September 30, 2025. Overview RCI Hospitality Holdings, Inc. 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 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. We have two principal reportable segments: Nightclubs and Bombshells. We combine operating segments not included in Nightclubs and Bombshells into “Other.” In the context of club and restaurant/sports bar operations, the terms the “Company,” “we,” “our,” “us” and similar terms used in this report refer to subsidiaries of RCIHH. RCIHH was incorporated in the State of Texas in 1994. 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 The preparation of the unaudited condensed consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On a regular basis, we evaluate these estimates. These estimates are based on management’s historical industry experience and on various other assumptions that are believed to be reasonable under the circumstances. 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, 2025, filed with the SEC on March 19, 2026. During the three months ended December 31, 2025, there were no significant changes in our accounting policies and estimates. 20 Table of Contents Results of Operations 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 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. Revenues 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. We consider the first six months of operations of a Bombshells unit to be the “honeymoon period” where sales are higher than normal. We exclude from a particular month’s calculation units previously included in the same-store sales base that have closed temporarily until its next full quarter of operations. We also exclude from the same-store sales base units that are being reconcepted or are closed due to renovations or remodels. Acquired units are included in the same-store sales calculation as long as they qualify based on the definition stated above. Revenues outside of our Nightclubs and Bombshells reportable segments are excluded from same-store sales calculation. 21 Table of Contents Segment contribution to total revenues was as follows (in thousands, except percentages): Three Months Ended December 31, 2025 Mix Three Months Ended December 31, 2024 Mix Inc (Dec) $ Inc (Dec) % Nightclubs Sales of alcoholic beverages $ 25,795 41.4 % $ 27,035 43.8 % $ (1,240) (4.6) % Sales of food and merchandise 5,936 9.5 % 5,736 9.3 % 200 3.5 % Service revenues 25,810 41.4 % 24,178 39.2 % 1,632 6.7 % Other revenues 4,768 7.7 % 4,775 7.7 % (7) (0.1) % 62,309 100.0 % 61,724 100.0 % 585 0.9 % Bombshells Sales of alcoholic beverages 4,344 51.8 % 5,153 53.7 % (809) (15.7) % Sales of food and merchandise 4,030 48.1 % 4,370 45.6 % (340) (7.8) % Service revenues 1 — % 3 — % (2) (66.7) % Other revenues 6 0.1 % 61 0.6 % (55) (90.2) % 8,381 100.0 % 9,587 100.0 % (1,206) (12.6) % Other Other revenues 138 100.0 % 172 100.0 % (34) (19.8) % $ 70,828 $ 71,483 $ (655) (0.9) % 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, 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 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 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%. 22 Table of Contents Selling, general and administrative expenses . 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 December 31, 2025 Three Months Ended December 31, 2024 Better (Worse) Amount % of Revenues Amount % of Revenues Amount % Taxes and permits $ 3,593 5.1 % $ 3,828 5.4 % $ 235 6.1 % Advertising and marketing 3,030 4.3 % 2,962 4.1 % (68) (2.3) % Supplies and services 2,783 3.9 % 2,488 3.5 % (295) (11.9) % Insurance 2,718 3.8 % 5,283 7.4 % 2,565 48.6 % Legal 1,207 1.7 % 1,386 1.9 % 179 12.9 % Lease 1,651 2.3 % 1,602 2.2 % (49) (3.1) % Charge card fees 1,955 2.8 % 1,748 2.4 % (207) (11.8) % Utilities 1,570 2.2 % 1,371 1.9 % (199) (14.5) % Security 1,112 1.6 % 1,084 1.5 % (28) (2.6) % Stock-based compensation 392 0.6 % 470 0.7 % 78 16.6 % Accounting and professional fees 1,497 2.1 % 1,134 1.6 % (363) (32.0) % Repairs and maintenance 1,303 1.8 % 1,203 1.7 % (100) (8.3) % Other 1,893 2.7 % 1,648 2.3 % (245) (14.9) % Total selling, general and administrative expenses $ 24,704 34.9 % $ 26,207 36.7 % $ 1,503 5.7 % 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 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 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 December 31, 2025 2024 Nightclubs $ 18,722 $ 20,853 Bombshells (139) 1,945 Other (150) (103) Corporate (7,397) (8,789) $ 11,036 $ 13,906 23 Table of Contents 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 December 31, 2025 Nightclubs Bombshells Other Corporate Total Income (loss) from operations $ 18,722 $ (139) $ (150) $ (7,397) $ 11,036 Amortization of intangibles 613 — — 2 615 Impairment of assets 1,163 — — — 1,163 Settlement of lawsuits, net of recoveries (827) 25 — — (802) Stock-based compensation — — — 392 392 Loss on sale of businesses and assets 22 4 — 7 33 Gain on insurance (177) — — — (177) Non-GAAP operating income (loss) $ 19,516 $ (110) $ (150) $ (6,996) $ 12,260 GAAP operating margin 30.0 % (1.7) % (108.7) % (10.4) % 15.6 % Non-GAAP operating margin 31.3 % (1.3) % (108.7) % (9.9) % 17.3 % Three Months Ended December 31, 2024 Nightclubs Bombshells Other Corporate Total Income (loss) from operations $ 20,853 $ 1,945 $ (103) $ (8,789) $ 13,906 Amortization of intangibles 574 1 — 5 580 Settlement of lawsuits 179 — — — 179 Stock-based compensation — — — 470 470 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 GAAP operating margin 33.8 % 20.3 % (59.9) % (12.3) % 19.5 % Non-GAAP operating margin 33.4 % 6.4 % (59.9) % (11.8) % 17.8 % Other Income/Expenses 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 Taxes 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. 24 Table of Contents Non-GAAP Financial Measures In addition to our financial information presented in accordance with GAAP, management uses certain non-GAAP financial measures, within the meaning of the SEC Regulation G, to clarify and enhance understanding of past performance and prospects for the future. Generally, a non-GAAP financial measure is a numerical measure of a company’s operating performance, financial position or cash flows that excludes or includes amounts that are included in or excluded from the most directly comparable measure calculated and presented in accordance with GAAP. We monitor non-GAAP financial measures because it describes the operating performance of the Company and helps management and investors gauge our ability to generate cash flow, excluding (or including) some items that management believes are not representative of the ongoing business operations of the Company, but are included in (or excluded from) the most directly comparable measures calculated and presented in accordance with GAAP. Relative to each of the non-GAAP financial measures, we further set forth our rationale as follows: Non-GAAP Operating Income and Non-GAAP Operating Margin. 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, net of recoveries, (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. Non-GAAP Net Income and Non-GAAP Net Income per Diluted Share . We calculate non-GAAP net income and non-GAAP net income per diluted share by excluding or including certain items to net income or loss attributable to RCIHH common stockholders and diluted earnings per share. Adjustment items are: (a) amortization of intangibles, (b) impairment of assets, (c) settlement of lawsuits, 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. 25 Table of Contents Adjusted EBITDA . 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) 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. Adjusted EBITDA provides a core operational performance measurement that compares results without the need to adjust for federal, state and local taxes which have considerable variation between domestic jurisdictions. The results are, therefore, without consideration of financing alternatives of capital employed. We use adjusted EBITDA as one guideline to assess our unleveraged performance return on our investments. Adjusted EBITDA is also the target benchmark for our acquisitions of nightclubs. We also use certain non-GAAP cash flow measures such as free cash flow. 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, 2025, and 2024 (in thousands, except per share, number of shares, and percentages): Three Months Ended December 31, 2025 2024 Reconciliation of GAAP net income (loss) to Adjusted EBITDA Net income (loss) attributable to RCIHH common stockholders $ (4,734) $ 9,024 Income tax expense 1,549 1,847 Interest expense, net 4,251 3,973 Depreciation and amortization 4,187 3,569 Impairment of assets 1,163 — Settlement of lawsuits, net of recoveries (802) 179 Stock-based compensation 392 470 Loss (gain) on sale of businesses and assets 33 (1,406) Gain on insurance (177) (1,017) Premium on stock repurchase 9,885 — Gain on lease termination — (979) Adjusted EBITDA $ 15,747 $ 15,660 Three Months Ended December 31, 2025 2024 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, net of recoveries (802) 179 Stock-based compensation 392 470 Loss (gain) on sale of businesses and assets 33 (1,406) Gain on insurance (177) (1,017) Premium on stock repurchase 9,885 — Gain on lease termination — (979) Net income tax effect (261) 310 Non-GAAP net income $ 6,114 $ 7,161 26 Table of Contents Three Months Ended December 31, 2025 2024 Reconciliation of GAAP diluted earnings (loss) per share to non-GAAP diluted earnings per share Diluted shares 8,295,880 8,920,774 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, net of recoveries (0.10) 0.02 Stock-based compensation 0.05 0.05 Loss (gain) on sale of businesses and assets 0.00 (0.16) Gain on insurance (0.02) (0.11) Premium on stock repurchase 1.19 0.00 Gain on lease termination — (0.11) Net income tax effect (0.03) 0.03 Non-GAAP diluted earnings per share $ 0.74 $ 0.80 Three Months Ended December 31, 2025 2024 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, net of recoveries (802) 179 Stock-based compensation 392 470 Loss (gain) on sale of businesses and assets 33 (1,406) Gain on insurance (177) (1,017) Non-GAAP operating income $ 12,260 $ 12,712 Three Months Ended December 31, 2025 2024 Reconciliation of GAAP operating margin to non-GAAP operating margin Income from operations 15.6 % 19.5 % Amortization of intangibles 0.9 % 0.8 % Impairment of assets 1.6 % 0.0 % 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) % Non-GAAP operating income 17.3 % 17.8 % * Per share amounts and percentages may not foot due to rounding. ** The adjustments to reconcile net income attributable to RCIHH common stockholders to non-GAAP net income exclude the impact of adjustments related to noncontrolling interests, which is immaterial. 27 Table of Contents Liquidity and Capital Resources 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 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. We have not recently raised capital through the issuance of equity securities although we have used equity recently in our acquisitions. Instead, we use debt financing to lower our overall cost of capital and increase our return on stockholders’ equity. We have a history of borrowing funds in private transactions and from sellers in acquisition transactions and have secured traditional bank financing on our new development projects and refinancing of our existing notes payable. There can be no assurance though that any of these financing options would be presently available on favorable terms, if at all. We also have historically utilized these cash flows to invest in property and equipment, adult nightclubs, and restaurants/sports bars. We expect to generate adequate cash flows from operations for the next 12 months from the issuance of this report. The following table presents a summary of our cash flows from operating, investing, and financing activities (in thousands): Three Months Ended December 31, 2025 2024 Operating activities $ 7,816 $ 13,344 Investing activities (1,543) (4,404) Financing activities (11,351) (6,572) 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): Three Months Ended December 31, 2025 2024 Net income $ (4,649) $ 9,065 Depreciation and amortization 4,187 3,569 Impairment of assets 1,163 — Deferred income tax benefit — (389) Stock-based compensation 392 470 Premium on stock repurchase 9,885 — Net change in operating assets and liabilities (3,997) 2,521 Other 835 (1,892) Net cash provided by operating activities $ 7,816 $ 13,344 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. 28 Table of Contents Cash Flows from Investing Activities Following are our cash flows from investing activities (in thousands): Three Months Ended December 31, 2025 2024 Payments for property and equipment and intangible assets $ (2,331) $ (5,754) Proceeds from sale of businesses and assets 600 129 Proceeds from insurance 138 1,150 Proceeds from notes receivable 50 71 Net cash used in investing activities $ (1,543) $ (4,404) 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, 2025 2024 New facilities, equipment, and intangible assets $ 1,195 $ 4,478 Maintenance capital expenditures 1,136 1,276 Total capital expenditures $ 2,331 $ 5,754 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. Variances in capital expenditures are primarily due to the number and timing of new, remodeled, or reconcepted locations under construction. Cash Flows from Financing Activities Following are our cash flows from financing activities (in thousands): Three Months Ended December 31, 2025 2024 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) Investment from noncontrolling partner 1,800 — Payments to noncontrolling interests (36) — Net cash used in financing activities $ (11,351) $ (6,572) 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. 29 Table of Contents Management also uses certain non-GAAP cash flow measures such as free cash flow. We calculate free cash flow as net cash provided by operating activities less maintenance capital expenditures. We use free cash flow as the baseline for the implementation of our capital allocation strategy. Below is a table reconciling free cash flow to its most directly comparable GAAP measure (in thousands): Three Months Ended December 31, 2025 2024 Net cash provided by operating activities $ 7,816 $ 13,344 Less: Maintenance capital expenditures 1,136 1,276 Free cash flow $ 6,680 $ 12,068 As a % of revenue 9.4 % 16.9 % 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. This is because, based on our capital allocation strategy, acquisitions and development of our own clubs and restaurants are our primary uses of free cash flow. Other than the impact of uncertainties caused by near-term macro environment, including commodity and labor inflation, and our contractual debt and lease obligations, we are not aware of any event or trend that would adversely impact our liquidity. In our opinion, working capital is not a true indicator of our financial status. Typically, businesses in our industry carry current liabilities in excess of current assets because businesses in our industry receive substantially immediate payment for sales, with nominal receivables, while inventories and other current liabilities normally carry longer payment terms. Vendors and purveyors often remain flexible with payment terms, providing businesses in our industry with opportunities to adjust to short-term business downturns. We consider the primary indicators of financial status to be the long-term trend of revenue growth, the mix of sales revenues, overall cash flow, profitability from operations and the level of long-term debt. 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): 2025 Increase (Decrease) 2024 Increase (Decrease) 2023 Sales of alcoholic beverages $ 30,139 (6.4) % $ 32,188 (3.4) % $ 33,316 Sales of food and merchandise 9,966 (1.4) % 10,106 (6.4) % 10,802 Service revenues 25,811 6.7 % 24,181 (3.7) % 25,119 Other 4,912 (1.9) % 5,008 7.2 % 4,670 Total revenues $ 70,828 (0.9) % $ 71,483 (3.3) % $ 73,907 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 Adjusted EBITDA* $ 15,747 0.6 % $ 15,660 (10.3) % $ 17,467 Free cash flow* $ 6,680 (44.6) % $ 12,068 (4.6) % $ 12,650 Debt (end of period) $ 256,428 8.9 % $ 235,529 0.6 % $ 234,113 * See definition and calculation of Adjusted EBITDA and Free Cash Flow above in the Non-GAAP Financial Measures subsection of Results of Operations. 30 Table of Contents Impact of Inflation To the extent permitted by competition, we have managed to recover increased costs through price increases and may continue to do so. However, there can be no assurance that we will be able to do so in the future. Seasonality Our nightclub operations are affected by seasonal factors. Historically, we have experienced reduced revenues from April through September (our fiscal third and fourth quarters) with the strongest operating results occurring during October through March (our fiscal first and second quarters). Our revenues in certain markets are also affected by sporting events that cause unusual changes in sales from year to year. Capital Allocation Strategy 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 We believe that we can continue to grow organically and through careful entry into markets with high growth potential. 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 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. The acquisition of additional clubs may require us to take on additional debt or issue our common stock, or both. There can be no assurance that we will be able to obtain additional financing on reasonable terms in the future, if at all, should the need arise. An inability to obtain such additional financing could have an adverse effect on our growth strategy. 31 Table of Contents Item 3. Quantitative and Qualitative Disclosures About Market Risk. 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.