RCI HOSPITALITY HOLDINGS, INC.

Previous 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.

Current wording

Through our subsidiaries, as of March 31, 2026, we operated a total of 67 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

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:

Current wording

Highlights of the Company's operating results and cash flows are as follows, as compared to the same period of the prior year (all throughout the MD&A, unless stated otherwise):

Previous 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)

Current wording

•Total revenues were $68.7 million compared to $65.9 million, a 4.3% increase (Nightclubs revenue of $60.3 million compared to $57.5 million, a 4.8% increase; and Bombshells revenue of $8.4 million compared to $8.2 million, a 1.6% increase)

Previous 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)

Current wording

•Consolidated same-store sales decreased by 1.9% (Nightclubs decreased by 0.7%, while Bombshells decreased by 11.1%) (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 a loss of $0.57 compared to an income of $1.01

Current wording

•Basic and diluted earnings per share (“EPS”) of $0.04 loss compared to $0.36 income

Previous wording

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

Current wording

•Non-GAAP diluted EPS* of $0.78 compared to $0.65

Previous 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.

Current wording

Consolidated revenues for the second quarter increased by $2.8 million, or 4.3%, versus the comparable prior-year quarter due primarily to a $3.4 million increase in sales from new locations and a $1.2 million increase from reformatted/rebranded locations, partially offset by a $1.2 million impact of the decrease in consolidated same-stores sales and a $500,000 impact of closed locations.

Previous 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%.

Current wording

Nightclubs revenues increased by 4.8% during the second quarter compared to the same quarter last year primarily due to the $2.4 million contribution of newly acquired clubs and $1.2 million from clubs that have been reformatted and/or rebranded, partially offset by the $358,000 impact of the decrease in same-store sales and the $500,000 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 0.7%. By type of revenue, alcoholic beverage sales decreased by 0.9%, food, merchandise and other revenue increased by 3.8%, while service revenues increased by 11.3%.

Previous 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%.

Current wording

Bombshells second quarter revenues increased by 1.6% primarily due to sales from a new location, partially offset by the decline in same-store sales. By type of revenue, food and merchandise sales decreased by 0.3%, while alcoholic beverage sales increased by 4.0%.

Previous 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.

Current wording

Total operating expenses, as a percent of revenues, increased to 94.5% from 87.6% from last year’s second quarter, and increased to 89.4% from 83.9% for the six-month period. Year-over-year change was a $7.2 million decrease, or 12.5%, for the quarter and a $9.4 million increase, or 8.2%, for the six months. 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 $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%.

Current wording

Cost of goods sold. Cost of goods sold for the second quarter increased by $394,000, or 4.7%, and increased by $154,000, or 0.9%, for the six-month period mainly due to higher sales. As a percent of total revenues, cost of goods sold was flat at 12.8% during the quarter and decreased to 12.9% from 13.0% during the six-month period mainly due to shift in sales mix to higher-margin service revenues. Nightclubs cost of goods sold during the quarter decreased to 11.2% from 11.3% and for the six months decreased to 11.3% from 11.4%. Bombshells cost of goods sold increased to 24.7% from 22.9% during the quarter and increased to 24.2% from 23.4% during the six months.

Previous 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.

Current wording

Selling, general, and administrative expenses. Total selling, general, and administrative expenses increased by $297,000, or 1.3%, for the quarter and decreased by $1.2 million, or 2.5%, for the six-month period. Dollar amounts in the tables below are in thousands, except percentages.

Previous wording

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.

Current wording

Insurance expense decreased due to last year's estimated self-insurance reserve. Charge card fees, supplies and services, utilities, and repairs and maintenance increased due to increase in sales.

Previous wording

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.

Current wording

Depreciation and amortization. Depreciation and amortization increased by $241,000, or 6.4%, during the quarter and increased by $859,000, or 11.7%, during the six-month period primarily due to additional assets from last year's club acquisitions and newly opened Bombshells.

Previous 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.

Current wording

Impairments and other charges (gains), net. Impairments and other charges (gains), net changed mainly due to impairment of assets, 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 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):

Current wording

For the three and six months ended March 31, 2026, and 2025, our consolidated operating margin was 5.5% and 12.4%, and 10.6% and 16.1%, respectively. Segment contribution to income (loss) from operations is presented in the table below (in thousands):

Previous 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.

Current wording

Interest expense increased by $467,000, or 11.5%, while interest income decreased by $57,000, or 41.0%, during the quarter. Interest expense increased by $665,000, or 8.1%, while interest income decreased by $137,000, or 43.1%, during the six-month period. Non-operating gains and losses include premium on stock repurchase and gain on lease termination. 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 $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.

Current wording

Our total occupancy costs, which we define as the sum of operating lease expense and interest expense, were $6.1 million and $5.6 million for the quarters ended March 31, 2026, and 2025, respectively. As a percentage of revenue, total occupancy costs were 8.9% and 8.5% during the quarters ended March 31, 2026, and 2025, respectively. Total occupancy costs were $12.1 million and $11.3 million for the six months ended March 31, 2026, and 2025, respectively. As a percentage of revenue, total occupancy costs were 8.7% and 8.3% during the six months ended March 31, 2026, and 2025, respectively.

Previous 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.

Current wording

Income tax was a $398,000 benefit and a $1.1 million expense during the three months ended March 31, 2026, and 2025, respectively. The effective income tax rate was approximately 64.5% and 25.1% for the three months ended March 31, 2026, and 2025, respectively. Income tax expense was $1.2 million and $2.9 million during the six months ended March 31, 2026, and 2025, respectively. The effective income tax rate approximately was 31.0% and 19.2% for the six months ended March 31, 2026, and 2025, respectively. Our effective income tax rate is affected by state taxes, permanent differences, and tax credits, including the FICA tip credit, for both years, and the impact of the nondeductible premium on stock repurchase on a pretax loss during the current year, particularly a low pretax loss in the current quarter.

Previous wording

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:

Current wording

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 they describe the operating performance of the Company and help 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:

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) 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.

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 22.3% and 18.1% effective tax rate of the pre-tax non-GAAP income before taxes for the six months ended March 31, 2026, and 2025, 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

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):

Current wording

The following tables present our non-GAAP performance measures for the three and six months ended March 31, 2026, and 2025 (in thousands, except per share, number of shares, and percentages):

Previous 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.

Current wording

At March 31, 2026, our cash and cash equivalents were approximately $26.9 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 March 31, 2026, we had negative working capital of $32.7 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

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.

Current wording

Net cash provided by operating activities was lower in the current six-month period by 19.2% primarily due to the higher vendor payments and higher interest expense paid, partially offset by higher cash collection from sales.

Previous 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):

Current wording

Following is a breakdown of our payments for property and equipment and intangible assets for the six months ended March 31, 2026, and 2025 (in thousands):

Previous 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.

Current wording

We purchased 177,061 shares of our common stock in the open market at an average price of $24.11 during the six months ended March 31, 2026, while we purchased 122,875 shares of our common stock in the open market at an average price of $49.76 during the six months ended March 31, 2025. As of March 31, 2026, we have approximately $4.9 million authorization remaining to purchase additional shares. On April 2, 2026, our 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 quarters ended December 31, 2025, and 2024.

Current wording

We paid $0.08 per share in quarterly dividends during the quarter ended March 31, 2026, while we paid $0.07 per share in quarterly dividends during each of the quarters ended December 31, 2024, March 31, 2025, and December 31, 2025.

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, 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 six months ended March 31, 2026, and 2025.

Previous wording

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.

Current wording

Our free cash flow for the quarter decreased by 20.5% compared to the comparable prior-year period primarily due to the higher vendor payments and higher interest expense paid, partially offset by higher cash collection from sales and lower maintenance capital expenditures.

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

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.

Current wording

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). However, as we have expanded our geographical presence in recent years, October through December (our fiscal first quarter) and April through June (our fiscal third quarter) have become the periods with the strongest operating results. Our revenues in certain markets are also affected by sporting events that cause unusual changes in sales from year to year.