RCI HOSPITALITY HOLDINGS INC

Previous wording

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

Current wording

Through our subsidiaries, as of March 31, 2025, we operated a total of 67 establishments that offer live adult entertainment. We also operated a leading business communications company serving the multi-billion-dollar adult nightclubs industry. 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.

Previous wording

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

Current wording

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.

Previous wording

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

Current wording

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

Previous wording

•Total revenues were $71.5 million compared to $73.9 million during the comparable prior-year quarter, a 3.3% decrease (Nightclubs revenue of $61.7 million compared to $61.0 million, a 1.1% increase; and Bombshells revenue of $9.6 million compared to $12.7 million, an 24.7% decrease)

Current wording

•Total revenues were $65.9 million compared to $72.3 million during the comparable prior-year quarter, a 8.9% decrease (Nightclubs revenue of $57.5 million compared to $59.4 million, a 3.1% decrease; and Bombshells revenue of $8.2 million compared to $12.8 million, an 35.6% decrease)

Previous wording

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

Current wording

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

Previous wording

•Basic and diluted earnings per share (“EPS”) this quarter of $1.01 compared to $0.77 during the comparable prior-year quarter (non-GAAP diluted EPS* of $0.80 compared to $0.87)

Current wording

•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)

Previous wording

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

Current wording

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.

Previous wording

Nightclubs revenues increased by 1.1% during the first quarter compared to the same quarter last year primarily due to the $436,000 contribution of newly acquired clubs and the $2.1 million impact of the increase in same-store sales, partially offset by the $1.8 million impact of closed clubs. For Nightclubs that were open enough days to qualify for same-store sales (refer to the definition of same-store sales in the preceding paragraph), sales increased by 3.7%. By type of revenue, alcoholic beverage sales increased by 3.0%, food, merchandise and other revenue increased by 8.6%, while service revenues decreased by 3.7%.

Current wording

Nightclubs revenues decreased by 3.1% during the second quarter compared to the same quarter last year primarily due to the $2.0 million impact of the decrease in same-store sales and the $792,000 impact of closed clubs, partially offset by the $681,000 contribution of a newly acquired club and a $326,000 impact from newly rebranded clubs. For Nightclubs that were open enough days to qualify for same-store sales (refer to the definition of same-store sales in the preceding paragraph), sales decreased by 3.5%. By type of revenue, alcoholic beverage sales decreased by 5.3%; food, merchandise and other revenue increased by 2.4%; while service revenues decreased by 2.9%.

Previous wording

Bombshells first quarter revenues decreased by 24.7%, of which 7.5% was for same-store sales decline and $2.6 million from recently closed or sold locations, with the offsetting increase caused by sales from a new location. By type of revenue, food and merchandise sales decreased by 21.4% while alcoholic beverage sales decreased by 27.2%.

Current wording

Bombshells second quarter revenues decreased by 35.6%, which was primarily due to the $3.7 million impact of closed or sold locations and the $1.1 million impact of the decrease in same-store sales, partially offset by the increase caused by sales from a new location. By type of revenue, food and merchandise sales decreased by 32.0% while alcoholic beverage sales decreased by 38.4%.

Previous wording

Total operating expenses, as a percent of revenues, decreased to 80.5% from 82.2% from last year’s first quarter. Year-over-year change was a $3.2 million decrease, or 5.2%. Significant contributors to the changes in operating expenses are explained below.

Current wording

Total operating expenses, as a percent of revenues, decreased to 87.6% from 93.6% from last year’s second quarter, and decreased to 83.9% from 87.8% for the six-month period. Year-over-year change was a $9.9 million decrease, or 14.7%, for the second quarter and a $13.1 million decrease, or 10.2%, for the six-month period. Significant contributors to the changes in operating expenses are explained below.

Previous wording

Cost of goods sold. Cost of goods sold for the first quarter decreased by $878,000, or 8.5%, mainly due to lower sales. As a percent of total revenues, cost of goods sold decreased to 13.3% from 14.0%. Nightclubs cost of goods sold during the quarter decreased to 11.5% from 12.0%, while Bombshells cost of goods sold slightly increased to 23.9% from 23.7%.

Current wording

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. Nightclubs cost of goods sold during the quarter decreased to 11.3% from 11.6%, while Bombshells cost of goods sold decreased to 22.9% from 23.5%. For the six-month period, Nightclubs cost of goods sold decreased to 11.4% from 11.8%, while Bombshells cost of goods sold slightly decreased to 23.4% from 23.6%.

Previous wording

Selling, general and administrative expenses. Total selling, general and administrative expenses increased by $1.0 million, or 4.0%, for the quarter. Dollar amounts in the tables below are in thousands, except percentages.

Current wording

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

Previous wording

Advertising and marketing decreased mainly due to closed locations. Insurance expense increased due to the estimated self-insurance for general liability and liquor liability that was set up during the current quarter. Legal expenses increased due mainly to the increase in ongoing cases.

Current wording

Most of the decreases in selling, general and administrative expenses come from closed or sold Bombshells locations and from lower variable expenses caused by lower sales. Insurance expense increased due to the estimated self-insurance for general liability and liquor liability. Legal expenses increased due mainly to the increase in ongoing cases.

Previous wording

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

Current wording

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.

Previous wording

Other gains, net. Other gains, net for the quarter changed mainly due the sale of our Bombshells location in Austin, Texas, which was significantly impaired in a prior period, and the insurance recovery for a club razed by fire in a prior period. See Note 5 to our unaudited condensed consolidated financial statements.

Current wording

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.

Previous wording

For the three months ended December 31, 2024, and 2023, our consolidated operating margin was 19.5% and 17.8%, respectively. Segment contribution to income (loss) from operations is presented in the table below (in thousands):

Current wording

For the three months ended March 31, 2025, and 2024, our consolidated operating margin was 12.4% and 6.4%, respectively, while for the six months ended March 31, 2025, and 2024, our consolidated operating margin was 16.1% and 12.2%, respectively. Segment contribution to income (loss) from operations is presented in the table below (in thousands):

Previous wording

Interest expense decreased by $64,000, or 1.5%, while interest income increased by $85,000, or 90.4%, during the quarter. Gain on lease termination was from a settlement of lease obligation related to a closed Bombshells unit in a prior period.

Current wording

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.

Previous wording

Our total occupancy costs, which we define as the sum of operating lease expense and interest expense, were $5.8 million and $6.0 million for the quarters ended December 31, 2024, and 2023, respectively. As a percentage of revenue, total occupancy costs were 8.0% and 8.2% during the quarters ended December 31, 2024, and 2023, respectively.

Current wording

Our total occupancy costs, which we define as the sum of operating lease expense and interest expense, were $5.6 million and $5.8 million for the quarters ended March 31, 2025, and 2024, respectively, and $11.3 million and $11.8 million for the six months ended March 31, 2025, and 2024, respectively. As a percentage of revenue, total occupancy costs were 8.5% and 8.0% during the quarters ended March 31, 2025, and 2024, respectively, and 8.3% and 8.1% during the six months ended March 31, 2025, and 2024, respectively. Although total occupancy costs decreased in dollars, percentages based on revenue increased due to lower sales.

Previous wording

Income tax expense was $1.8 million and $1.8 million during the three months ended December 31, 2024, and 2023, respectively. The effective income tax rate was 16.9% and 19.9% for the three months ended December 31, 2024, and 2023, respectively. Our effective income tax rate is affected by state taxes, permanent differences, and tax credits, including the FICA tip credit, for both years, as presented below.

Current wording

Income tax expense was $1.1 million and $2.9 million during the three and six months ended March 31, 2025, respectively, and $5,000 and $1.8 million during the three and six months ended March 31, 2024, respectively. The effective income tax rate was 25.1% and 19.2% for the three and six months ended March 31, 2025, respectively, and 0.7% and 18.4% for the three and six months ended March 31, 2024, respectively. The disproportionate tax rates during the three months ended March 31, 2024, were caused by the small amount of pre-tax income during the quarter and the reduction of the then-expected annual effective tax rate. Our effective income tax rate is affected by state taxes, permanent differences, and tax credits, including the FICA tip credit, for both years, as presented below (dollars in thousands).

Previous wording

Income taxes increased in dollar amount due to a higher pretax income in the current quarter. Effective income tax rate decreased due to higher tax credits.

Current wording

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

Previous wording

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) settlement of lawsuits, (c) gains or losses on sale of businesses and assets, (d) gains or losses on insurance, and (e) 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.

Current wording

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, (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.

Previous wording

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) settlement of lawsuits, (c) gains or losses on sale of businesses and assets, (d) gains or losses on insurance, (e) stock-based compensation, (f) gains or losses on lease termination, and (g) the income tax effect of the above-described adjustments. Included in the income tax effect of the above adjustments is the net effect of the non-GAAP provision for income taxes, calculated at 17.7% and 19.9% effective tax rate of the pre-tax non-GAAP income before taxes for the three months ended December 31, 2024, and 2023, respectively, and the GAAP income tax expense (benefit). We believe that excluding and including such items help management and investors better understand our operating activities.

Current wording

stock-based compensation, (g) gains or losses on lease termination, and (h) the income tax effect of the above-described adjustments. Included in the income tax effect of the above adjustments is the net effect of the non-GAAP provision for income taxes, calculated at 18.1% and 18.4% effective tax rate of the pre-tax non-GAAP income before taxes for the six months ended March 31, 2025, and 2024, respectively, and the GAAP income tax expense (benefit). We believe that excluding and including such items help management and investors better understand our operating activities.

Previous wording

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) settlement of lawsuits, (e) gains or losses on sale of businesses and assets, (f) gains or losses on insurance, (g) stock-based compensation, and (h) gains or losses on lease termination. 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.

Current wording

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) impairment of assets, (c) income tax expense, (d) net interest expense, (e) settlement of lawsuits, (f) gains or losses on sale of businesses and assets, (g) gains or losses on insurance, (h) stock-based compensation, and (i) gains or losses on lease termination. We believe that adjusting for such items helps management and investors better understand our operating activities. 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.

Previous wording

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

Current wording

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):

Previous wording

At December 31, 2024, our cash and cash equivalents were approximately $34.7 million compared to $32.4 million at September 30, 2024. Because of the large volume of cash we handle, we have very stringent cash controls. As of December 31, 2024, we had working capital of $0.8 million compared to a negative working capital of $793,000 as of September 30, 2024. 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.

Current wording

At March 31, 2025, our cash and cash equivalents were approximately $32.7 million compared to $32.4 million at September 30, 2024. Because of the large volume of cash we handle, we have very stringent cash controls. As of March 31, 2025, we had negative working capital of $1.1 million compared to negative working capital of $793,000 as of September 30, 2024. We believe that we can borrow capital if needed but currently we do not have unused credit facilities so there can be no guarantee that additional liquidity will be readily available or available on favorable terms.

Previous wording

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

Current wording

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.

Previous wording

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

Current wording

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):

Previous wording

The capital expenditures during the quarter ended December 31, 2024, and 2023 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.

Current wording

The capital expenditures during the six months ended March 31, 2025, and 2024 were composed mostly of construction projects in-progress. Maintenance capital expenditures refer mainly to capitalized replacement of productive assets in already existing locations. Variances in capital expenditures are primarily due to the number and timing of new, remodeled, or reconcepted locations under construction.

Previous wording

We purchased 66,000 shares of our common stock at an average price of $48.76 during the quarter ended December 31, 2024, while we purchased 37,954 shares of our common stock at an average price of $54.59 during the quarter ended December 31, 2023. As of December 31, 2024, we have approximately $17.8 million authorization remaining to purchase additional shares.

Current wording

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.

Previous wording

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

Current wording

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.

Previous wording

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

Current wording

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.

Previous wording

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

Current wording

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.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

As of March 31, 2025, nine of the ten existing Bombshells restaurants were located in Texas, and one new location in Denver, Colorado. Our growth strategy is to diversify our operations with these units which do not require SOB licenses, which are sometimes difficult to obtain. 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.