RCI HOSPITALITY HOLDINGS, INC.

Previous wording

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

Current wording

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.

Previous wording

Through our subsidiaries, as of June 30, 2025, we operated a total of 70 establishments that offer live adult entertainment and restaurants and sports bars. We also operated a leading business communications company serving the multi-billion-dollar adult nightclubs industry. 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 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.

Previous wording

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.

Current wording

During the three months ended December 31, 2025, there were no significant changes in our accounting policies and estimates.

Previous wording

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

Current wording

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:

Previous wording

•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)

Current wording

•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)

Previous wording

•Consolidated same-store sales decreased by 4.9% (Nightclubs decreased by 3.7%, while Bombshells decreased by 13.5%) (refer to the definition of same-store sales in the discussion of revenues below)

Current wording

•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)

Previous wording

•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)

Current wording

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

Previous wording

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.

Current wording

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.

Previous wording

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%.

Current wording

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%.

Previous wording

For the nine-month period, Bombshells revenues decreased by 31.6%, which was primarily caused by the $10.1 million impact of closed or sold locations and the $2.8 million impact from same-store sales decline. By type of revenue, food and merchandise sales decreased by 27.6% while alcoholic beverage sales decreased by 34.1%.

Current wording

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%.

Previous wording

Total operating expenses, as a percent of revenues, decreased to 87.8% from 103.3% from last year’s third quarter, and decreased to 85.2% from 93.1% for the nine-month period. Year-over-year change was a $16.3 million decrease, or 20.7%, for the third quarter and a $29.4 million decrease, or 14.2%, for the nine-month period. Significant contributors to the changes in operating expenses are explained below.

Current wording

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.

Previous wording

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%.

Current wording

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%.

Previous wording

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. 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 $1.5 million, or 5.7%, for the quarter. Dollar amounts in the tables below are in thousands, except percentages.

Previous wording

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.

Current wording

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.

Previous wording

For the three months ended June 30, 2025, and 2024, our consolidated operating margin was 12.2% and (3.3)%, respectively, while for the nine months ended June 30, 2025, and 2024, our consolidated operating margin was 14.8% and 6.9%, respectively. Segment contribution to income (loss) from operations is presented in the table below (in thousands):

Current wording

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):

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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).

Current wording

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.

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) 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.

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, 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.

Previous 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 17.4% and 11.7% effective tax rate of the pre-tax non-GAAP income before taxes for the nine months ended June 30, 2025, and 2024, respectively, and the GAAP income tax expense (benefit). We believe that excluding and including such items help management and investors better understand our operating activities.

Current 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) 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.

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) 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.

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) 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.

Previous wording

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):

Current wording

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):

Previous wording

At June 30, 2025, our cash and cash equivalents were approximately $29.3 million compared to $32.4 million at September 30, 2024. Because of the large volume of cash we handle, we have very stringent cash controls. As of June 30, 2025, we had negative working capital of $3.7 million compared to negative working capital of $793,000 as of September 30, 2024. We believe that we can borrow capital if needed but currently we do not have unused credit facilities so there can be no guarantee that additional liquidity will be readily available or available on favorable terms.

Current wording

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.

Previous wording

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):

Current wording

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):

Previous wording

The capital expenditures during the nine months ended June 30, 2025, and 2024 were composed mostly of construction projects in-progress. Maintenance capital expenditures refer mainly to capitalized replacement of productive assets in already existing locations. 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 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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

We paid $0.07 per share in quarterly dividends during the quarters ended December 31, 2025, and 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 nine months ended June 30, 2025, and 2024.

Current 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, 2025, and 2024.

Previous wording

The following table presents a summary of such indicators for the nine months ended June 30 (in thousands, except percentages):

Current wording

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