Rci Hospitality Holdings, Inc 10-Q for FY2026 Q1
Rci Hospitality Holdings, Inc. (RICK)
10-Q
2026-05-07
For: 2025-12-31
View Original
Added on
May 07, 2026
About this 10-Q
Rci Hospitality Holdings, Inc filed this 10-Q on May 7, 2026, covering the quarter ended December 31, 2025 (FY2026 Q1).
Headline figures
Quarter ended December 31, 2025, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $70.83M
- down 0.9% from $71.48M a year earlier
- Net loss
- $4.73M
- compared with net income of $9.02M a year earlier
- Diluted EPS
- -$0.57
- compared with $1.01 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended December 31, 2025
Commission File Number: 001-13992
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. Large accelerated filer o Accelerated filer x Non-accelerated filer o Smaller reporting company o Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of May 1, 2026, 7,651,500 shares of the registrant’s common stock were outstanding.
NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, among other things, statements regarding plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements, which are other than statements of historical facts. Forward-looking statements may appear throughout this report, including, without limitation, the following sections: Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements generally can be identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “will be,” “will continue,” “will likely result,” and similar expressions. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q and those discussed in other documents we file with the Securities and Exchange Commission (“SEC”). Important factors that in our view could cause material adverse effects on our financial condition and results of operations include, but are not limited to, the risks and uncertainties associated with (i) operating and managing an adult business, (ii) the business climates in cities where we operate, (iii) the success or lack thereof in launching and building our businesses, (iv) cyber security, (v) conditions relevant to real estate transactions, (vi) our ability to regain and maintain compliance with the filing requirements of the SEC and the Nasdaq Stock Market, and (vii) numerous other factors such as laws governing the operation of adult entertainment businesses, competition and dependence on key personnel. We undertake no obligation to revise or publicly release the results of any revision to any forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
As used herein, the “Company,” “we,” “our,” and similar terms include RCI Hospitality Holdings, Inc. and its subsidiaries, unless the context indicates otherwise.
2
RCI HOSPITALITY HOLDINGS, INC.
FORM 10-Q
TABLE OF CONTENTS
| Page | ||||||||
3
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
RCI HOSPITALITY HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except number of shares)
(unaudited)
| Three Months Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||
Net income (loss) | $ | ( | $ | ||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Impairment of assets | |||||||||||
| Deferred income tax benefit | ( | ||||||||||
| Stock-based compensation | |||||||||||
| Loss (gain) on sale of businesses and assets | ( | ||||||||||
| Amortization of debt discount and issuance costs | |||||||||||
| Noncash lease expense | |||||||||||
| Gain on insurance | ( | ( | |||||||||
| Credit loss expense on notes receivable | |||||||||||
Premium on stock repurchase | |||||||||||
Changes in operating assets and liabilities: | |||||||||||
| Receivables | ( | ||||||||||
| Inventories | ( | ||||||||||
| Prepaid expenses, other current and other assets | ( | ( | |||||||||
| Accounts payable, accrued and other liabilities | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||
| Proceeds from sale of businesses and assets | |||||||||||
| Proceeds from insurance | |||||||||||
| Proceeds from notes receivable | |||||||||||
| Payments for property and equipment and intangible assets | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||
| Proceeds from debt obligations | |||||||||||
| Payments on debt obligations | ( | ( | |||||||||
| Payment of loan origination costs | ( | ||||||||||
| Purchase of treasury stock | ( | ( | |||||||||
| Payment of dividends | ( | ( | |||||||||
| Investment from noncontrolling partner | |||||||||||
| Payments to noncontrolling interests | ( | ||||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | ( | ||||||||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | |||||||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | $ | |||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
4
RCI HOSPITALITY HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share and number of share data)
(unaudited)
| Three Months Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Revenues | |||||||||||
| Sales of alcoholic beverages | $ | $ | |||||||||
| Sales of food and merchandise | |||||||||||
| Service revenues | |||||||||||
| Other | |||||||||||
| Total revenues | |||||||||||
| Operating expenses | |||||||||||
| Cost of goods sold | |||||||||||
| Alcoholic beverages sold | |||||||||||
| Food and merchandise sold | |||||||||||
| Service and other | |||||||||||
| Total cost of goods sold (exclusive of items shown separately below) | |||||||||||
| Salaries and wages | |||||||||||
| Selling, general and administrative | |||||||||||
| Depreciation and amortization | |||||||||||
Impairments and other charges (gains), net | ( | ||||||||||
| Total operating expenses | |||||||||||
| Income from operations | |||||||||||
| Other income (expenses) | |||||||||||
| Interest expense | ( | ( | |||||||||
| Interest income | |||||||||||
| Premium on stock repurchase | ( | ||||||||||
| Gain on lease termination | |||||||||||
Income (loss) before income taxes | ( | ||||||||||
| Income tax expense | |||||||||||
Net income (loss) | ( | ||||||||||
| Net income attributable to noncontrolling interests | ( | ( | |||||||||
Net income (loss) attributable to RCIHH common stockholders | $ | ( | $ | ||||||||
Earnings (loss) per share | |||||||||||
| Basic and diluted | $ | ( | $ | ||||||||
Weighted average shares used in computing earnings (loss) per share | |||||||||||
| Basic and diluted | |||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
5
RCI HOSPITALITY HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands, except number of shares)
(unaudited)
| Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Noncontrolling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||||||
| Number of Shares | Amount | Number of Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2025 | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||
| Purchase of treasury shares | — | — | — | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Canceled treasury shares | ( | ( | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Excise tax on stock repurchases | — | — | ( | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
Payment of dividends ($ | — | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Investment from noncontrolling partner | — | — | — | ( | — | — | |||||||||||||||||||||||||||||||||||||||||
| Payments to noncontrolling interests | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
Net income (loss) | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2025 | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2024 | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||
| Purchase of treasury shares | — | — | — | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Canceled treasury shares | ( | ( | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Excise tax on stock repurchases | — | — | ( | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
Payment of dividends ($ | — | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2024 | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
6
RCI HOSPITALITY HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value and number of shares)
| December 31, 2025 | September 30, 2025 | ||||||||||
| (unaudited) | |||||||||||
| ASSETS | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Receivables, net | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Assets held for sale | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Operating lease right-of-use assets, net | |||||||||||
| Notes receivable, net of current portion | |||||||||||
| Goodwill | |||||||||||
| Intangibles, net | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued liabilities | |||||||||||
| Current portion of debt obligations, net | |||||||||||
| Current portion of operating lease liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Deferred tax liability, net | |||||||||||
| Debt, net of current portion and debt discount and issuance costs | |||||||||||
| Operating lease liabilities, net of current portion | |||||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
| Equity | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Total RCIHH stockholders’ equity | |||||||||||
| Noncontrolling interests | ( | ||||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
7
RCI HOSPITALITY HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of RCI Hospitality Holdings, Inc. (the “Company,” “RCIHH,” “we,” or “us”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP” or “U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q of Regulation S-X. They do not include all information and footnotes required by GAAP for complete financial statements. The September 30, 2025 consolidated balance sheet data were derived from audited financial statements but do not include all disclosures required by GAAP. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements for the year ended September 30, 2025, included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 19, 2026. The interim unaudited condensed consolidated financial statements should be read in conjunction with those consolidated financial statements included in the Form 10-K. In the opinion of management, all adjustments considered necessary for a fair statement of the financial statements, consisting solely of normal recurring adjustments, have been made. Operating results for the three months ended December 31, 2025, are not necessarily indicative of the results that may be expected for the year ending September 30, 2026.
2. Recent Accounting Standards and Pronouncements
In November 2024, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which expands disclosures about income statement expenses. The guidance requires disaggregation of certain costs and expenses included in each relevant expense caption on our consolidated statements of income in a separate note to the financial statements at each interim and annual reporting period, including amounts of purchases of inventory, employee compensation, depreciation, and intangible asset amortization. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, as clarified by ASU 2025-01, with early adoption permitted. The amendments in this ASU should be applied either (1) prospectively to financial statements issued for reporting periods after the effective date of the ASU or (2) retrospectively to any or all prior periods presented in the financial statements. We are currently evaluating the impact of this guidance on our financial statement disclosures.
In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements, which intended to improve the navigability of the guidance in Accounting Standards Codification ("ASC") Topic 270 and clarify when it applies. Under the amendments, an entity is subject to ASC 270 if it provides interim financial statements and notes in accordance with GAAP. The ASU also addresses the form and content of such financial statements, adds list to ASC 270 of the interim disclosures required by all other ASC topics, and establishes a principle under which an entity must disclose events since the end of the last annual reporting period that have a material impact on the entity. The amendments are not intended to change the fundamental nature of interim reporting or expand or reduce current interim disclosure requirements but rather to reflect the effects of the SEC's form and content requirements related to interim reporting. The amendments of this ASU are effective to us for interim reporting periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted. This ASU may be applied either prospectively or retrospectively to any or all prior periods presented in the financial statements. We are currently evaluating the impact of this ASU on our interim reporting financial statement disclosures.
8
RCI HOSPITALITY HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Supplemental Disclosure of Cash Flow Information
The following table sets forth certain cash and noncash activities (in thousands), as follows:
| Three Months Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Cash paid during the period for: | |||||||||||
| Interest, net of amounts capitalized | $ | $ | |||||||||
Income taxes, net of refunds of $ | $ | $ | |||||||||
| Noncash investing and financing transactions: | |||||||||||
| Debt incurred in connection with stock repurchases | $ | $ | |||||||||
| Unpaid excise tax on stock repurchases | $ | $ | |||||||||
| Unpaid liabilities on capital expenditures | $ | $ | |||||||||
On November 21, 2025, the Company repurchased 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 (see Note 7).
Subsequent to the balance sheet date through May 1, 2026, we repurchased 137,500 shares of our common stock at an average price of $23.96 per share.
4. Segment Information
The Company owns and operates adult nightclubs and Bombshells Restaurants and Bars. The Company has identified such segments based on how the chief operating decision maker assigns management responsibility, how financial information is regularly reviewed, the nature of the Company’s products, services and costs, regulatory environments, and how resources are allocated. There are no major distinctions in geographical areas served as all operations are in the United States. The Company's chief operating decision maker ("CODM") is its chief executive officer. The Company measures segment profit (loss) as income (loss) from operations. Segment assets are those assets controlled by each reportable segment. The Other category below includes our media and energy drink divisions that are not significant to the consolidated financial statements.
In adopting ASU 2023-07, we recast one of our shared-services subsidiary from Other to Corporate. We also recast three previously planned and previously reported casino-related subsidiaries classified in Other to Nightclubs and Bombshells. We reclassified certain prior year segment disclosures to conform to current year presentation.
9
RCI HOSPITALITY HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Segment Information—continued
Below is the financial information (in thousands) related to the Company’s reportable segments as provided to the CODM:
| Three Months Ended December 31, 2025 | Three Months Ended December 31, 2024 | ||||||||||||||||||||||||||||||||||
| Nightclubs | Bombshells | Total | Nightclubs | Bombshells | Total | ||||||||||||||||||||||||||||||
| Revenues | |||||||||||||||||||||||||||||||||||
| Third party | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Intersegment | |||||||||||||||||||||||||||||||||||
| Reconciliation of revenue | |||||||||||||||||||||||||||||||||||
| Other revenues, including intersegment | |||||||||||||||||||||||||||||||||||
| Elimination of intersegment revenues | ( | ( | |||||||||||||||||||||||||||||||||
| Total consolidated revenues | |||||||||||||||||||||||||||||||||||
| Less: | |||||||||||||||||||||||||||||||||||
| Cost of goods sold, including intersegment | |||||||||||||||||||||||||||||||||||
| Salaries and wages | |||||||||||||||||||||||||||||||||||
| Selling, general, and administrative, including intersegment | |||||||||||||||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||||||||||||||
| Impairments and other charges (gains), net | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Other segment items | ( | ( | |||||||||||||||||||||||||||||||||
| Segment income (loss) | ( | ||||||||||||||||||||||||||||||||||
| Reconciliation of segment income (loss) | |||||||||||||||||||||||||||||||||||
| Other loss | ( | ( | |||||||||||||||||||||||||||||||||
| Interest expense, net | ( | ( | |||||||||||||||||||||||||||||||||
| Elimination of intersegment income | ( | ( | |||||||||||||||||||||||||||||||||
| Unallocated corporate overhead | ( | ( | |||||||||||||||||||||||||||||||||
| Consolidated income (loss) before income taxes | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Segment capital expenditures | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Reconciliation to consolidated capital expenditures | |||||||||||||||||||||||||||||||||||
| Other operating segments | |||||||||||||||||||||||||||||||||||
| Unallocated corporate | |||||||||||||||||||||||||||||||||||
| Consolidated capital expenditures | $ | $ | |||||||||||||||||||||||||||||||||
| December 31, 2025 | September 30, 2025 | ||||||||||||||||||||||||||||||||||
| Nightclubs | Bombshells | Total | Nightclubs | Bombshells | Total | ||||||||||||||||||||||||||||||
| Segment assets | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Reconciliation to consolidated total assets | |||||||||||||||||||||||||||||||||||
| Other operating segments | |||||||||||||||||||||||||||||||||||
| Unallocated corporate | |||||||||||||||||||||||||||||||||||
| Consolidated total assets | $ | $ | |||||||||||||||||||||||||||||||||
General corporate overhead include corporate salaries, health insurance and social security taxes for officers, legal, accounting and information technology employees, corporate taxes and insurance, legal and accounting fees, unallocated self-insurance reserve, depreciation and other corporate costs such as automobile and travel costs. Management considers these to be non-allocable costs for segment purposes.
10
RCI HOSPITALITY HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Revenues
Revenues, as disaggregated by revenue type, timing of recognition, and reportable segment (see also Note 4), are shown below (in thousands):
| Three Months Ended December 31, 2025 | Three Months Ended December 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||
| Nightclubs | Bombshells | Other | Total | Nightclubs | Bombshells | Other | Total | ||||||||||||||||||||||||||||||||||||||||
| Sales of alcoholic beverages | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Sales of food and merchandise | |||||||||||||||||||||||||||||||||||||||||||||||
| Service revenues | |||||||||||||||||||||||||||||||||||||||||||||||
| Other revenues | |||||||||||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
| Recognized at a point in time | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Recognized over time | * | * | |||||||||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
* Lease revenue (included in Other Revenues) as covered by ASC 842. All other revenues are covered by ASC 606.
The Company does not have contract assets with customers. The Company’s unconditional right to consideration for goods and services transferred to the customer is included in accounts receivable, net in our unaudited condensed consolidated balance sheet. A reconciliation of contract liabilities with customers is presented below (in thousands):
Balance at September 30, 2025 | Net Consideration Received/Recognized | Recognized in Revenue | Balance at December 31, 2025 | ||||||||||||||||||||
| Ad revenue | $ | $ | $ | ( | $ | ||||||||||||||||||
| Expo revenue | |||||||||||||||||||||||
| VIP cards | ( | ||||||||||||||||||||||
| Other | ( | ||||||||||||||||||||||
| $ | $ | $ | ( | $ | |||||||||||||||||||
Contract liabilities with customers are included in accrued liabilities as unearned revenues in our unaudited condensed consolidated balance sheets (see also Note 6), while the revenues associated with these contract liabilities are included in other revenues in our unaudited condensed consolidated statements of income.
11
RCI HOSPITALITY HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. Selected Account Information
The components of receivables, net are as follows (in thousands):
| December 31, 2025 | September 30, 2025 | ||||||||||
| Credit card receivables | $ | $ | |||||||||
| Income tax refundable | |||||||||||
| ATM in-transit | |||||||||||
| Current portion of notes receivable | |||||||||||
Other (net of allowance for doubtful accounts of $ | |||||||||||
| Total receivables, net | $ | $ | |||||||||
Notes receivable consist primarily of secured promissory notes executed between the Company and various buyers of our businesses and assets with interest rates ranging from 6 % to 9 % per annum and having original terms ranging from 1 to 20 years.
The components of prepaid expenses and other current assets are as follows (in thousands):
| December 31, 2025 | September 30, 2025 | ||||||||||
| Prepaid insurance | $ | $ | |||||||||
| Prepaid legal | |||||||||||
| Prepaid taxes and licenses | |||||||||||
| Prepaid rent | |||||||||||
| Other | |||||||||||
| Total prepaid expenses and other current assets | $ | $ | |||||||||
The components of accrued liabilities are as follows (in thousands):
| December 31, 2025 | September 30, 2025 | ||||||||||
| Legal fees | $ | $ | |||||||||
| Insurance | |||||||||||
| Payroll and related costs | |||||||||||
| Property taxes | |||||||||||
| Sales and liquor taxes | |||||||||||
| Lawsuit settlement | |||||||||||
| Estimated self-insurance liability | |||||||||||
| Construction in progress | |||||||||||
| Patron tax | |||||||||||
| Income taxes | |||||||||||
| Interest | |||||||||||
| Unearned revenues | |||||||||||
| Other | |||||||||||
| Total accrued liabilities | $ | $ | |||||||||
12
RCI HOSPITALITY HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. Selected Account Information—continued
The components of other long-term liabilities are as follows (in thousands):
| December 31, 2025 | September 30, 2025 | ||||||||||
Estimated self-insurance liability | $ | $ | |||||||||
| Advances from creditors | |||||||||||
| Other | |||||||||||
| Total other long-term liabilities | $ | $ | |||||||||
The components of selling, general and administrative expenses are as follows (in thousands):
| Three Months Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Taxes and permits | $ | $ | |||||||||
| Advertising and marketing | |||||||||||
| Supplies and services | |||||||||||
| Insurance | |||||||||||
| Legal | |||||||||||
| Lease | |||||||||||
| Charge card fees | |||||||||||
| Utilities | |||||||||||
| Security | |||||||||||
| Stock-based compensation | |||||||||||
| Accounting and professional fees | |||||||||||
| Repairs and maintenance | |||||||||||
| Other | |||||||||||
| Total selling, general and administrative expenses | $ | $ | |||||||||
The components of impairments and other charges (gains), net are as follows (in thousands):
13
RCI HOSPITALITY HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. Debt
On October 1, 2025, the Company entered into a debt modification transaction with 22 investors by extending their promissory notes' maturity date to October 2028. Two new investors joined with a combined $2.1 million and two existing investors increased their participation by a combined $250,000 . The promissory notes continue to bear a 12 % annual interest rate with interest-only monthly installments until full balance at maturity.
On November 21, 2025, in connection with a stock repurchase transaction (see Note 3), the Company executed a two-year $22.0 million unsecured promissory note bearing a 12 % annual interest rate. The note is payable in monthly payments of principal and interest of $1.0 million for 23 months with the remaining balance paid at maturity.
Future maturities of debt obligations as of December 31, 2025, are as follows (in thousands):
| Regular Amortization | Balloon Payments | Total Payments | |||||||||||||||
| January - December 2026 | $ | $ | $ | ||||||||||||||
| January - December 2027 | |||||||||||||||||
| January - December 2028 | |||||||||||||||||
| January - December 2029 | |||||||||||||||||
| January - December 2030 | |||||||||||||||||
| Thereafter | |||||||||||||||||
| $ | $ | $ | |||||||||||||||
14
RCI HOSPITALITY HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. 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.
9. Commitments and Contingencies
Legal Matters
New York Indictment and Related Matters
On or about May 29, 2024, search warrants were executed on the Company’s corporate headquarters in Houston, Texas, three separate clubs in New York, New York, and for the mobile phone of three individuals (including two executive officers and a non-executive corporate employee) by the New York State Attorney General (“NY AG”) and the New York State Department of Taxation and Finance (“NY DTF”). On June 7, 2024, the Company received a subpoena from the NY AG requesting documents and other information with respect to certain clubs in New York and Florida. The Company cooperated with the NY AG during its investigation. As a result of this investigation, a non-executive corporate employee was placed on administrative leave during the pendency of an internal review process.
On or about September 16, 2025, the Company, three subsidiaries, and five employees, including two executive officers, were arraigned in connection with an indictment filed by the NY AG in which the defendants were variously charged with committing the crimes of Criminal Tax Fraud in the First Degree in violation of Tax Law §1806, a class B felony; Bribery in the Second Degree in violation of Penal Law §200.03, a class C felony; Criminal Tax Fraud in the Second Degree in violation of Tax Law §1805, a class C felony; Criminal Tax Fraud in the Third Degree in violation of Tax Law §1804, a class D felony; Criminal Tax Fraud in the Fourth Degree in violation of Tax Law §1803, a class E felony; Conspiracy in the Fourth Degree in violation of Penal Law §105.10, a class E felony; and Offering a False Instrument for Filing in the First Degree in violation of Penal Law §175.35(1). According to the NY AG, "an investigation by the Office of the Attorney General revealed that RCI executives bribed an auditor with the NY DTF to avoid paying over $8 million in sales taxes to New York City and the state from 2010 to 2024."
On November 25, 2025, the board of directors convened and approved a resolution for Eric Langan and Bradley Chhay to step down as CEO and CFO of the Company, respectively, effective November 28, 2025. In the same meeting, the board nominated and approved the appointment of Travis Reese and Albert Molina as Interim President and CEO and Interim CFO, respectively. Messrs. Langan and Chhay remain employed with the Company and will be focusing on operational improvement and strategic efforts as Head of M&A and Head of Corporate Development, respectively. On January 29, 2026, Mr. Langan stepped down as Chairman of the Company’s board of directors. Mr. Langan was replaced by Mr. Reese as Chairman. Mr. Langan remains a member of the board of directors. The non-executive corporate employee mentioned above continues to be on administrative leave during the pendency of the indictment. The defendants entered a plea of not guilty to all of the charges and are vigorously defending themselves against the charges in court. It is not possible at this time to determine whether the Company will incur (or to reasonably estimate the amount of) any fines, penalties, or liabilities in connection with the indictment.
On or about May 20, 2025, the Company received a subpoena from the U.S. Securities and Exchange Commission ("SEC") seeking certain documents and information related to the NY AG investigation and NY DTF issues. The Company is cooperating with the SEC and its investigation. It is not possible at this time to determine whether the Company will incur (or to reasonably estimate the amount of) any fines, penalties, or liabilities in connection with the SEC investigation.
15
RCI HOSPITALITY HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Commitments and Contingencies—continued
Shareholder Class and Derivative Actions
In September 2025, a putative securities class action was filed against RCI Hospitality Holdings, Inc. and certain of its officers in the Southern District of Texas, Houston Division. The complaints allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and 10b-5 promulgated thereunder based on alleged materially false and misleading statements made in the Company’s SEC filings and disclosures as they relate to the indictment filed by the NY AG and other related issues. The complaints seek unspecified damages, costs, and attorneys’ fees. This lawsuit is captioned Hernandez v. RCI Hospitality Holdings, Inc., et al. (filed September 21, 2025, naming the Company, Eric S. Langan, and Bradley Chhay). On April 14, 2026, the court entered an order appointing the lead plaintiff and the respective lead and liaison counsel for the purported class. The Company has not yet answered or otherwise responded to the complaint, but intends on moving to dismiss the operative pleading for failure to state a claim upon which relief can be granted. The Company intends to continue to vigorously defend against this action. This action is in its early stage, and a potential loss cannot yet be estimated.
On November 17, 2025, a shareholder derivative action was filed in Harris County District Court against officers and directors Eric S. Langan, Yura Barabash, Bradley Chhay, Luke Lirot, Elaine J. Martin, Arthur A. Priaulx, Travis Reese, and RCI Hospitality Holdings, Inc., as nominal defendant. The action alleges that the individual officers and directors made or caused the Company to make a series of materially false and/or misleading statements and omissions related to the indictment filed by the NY AG and other related issues and engaged in or caused the Company to, inter alia, fail to maintain internal controls over its business and financial reporting sufficient to ensure the accuracy of its public filings. The action asserts claims for breach of fiduciary duty and unjust enrichment. The complaint seeks injunctive relief, damages, restitution, costs, and attorneys’ fees. The case, Ayers v. RCI Hospitality Holdings, Inc., et al., is in its early stage, and a potential loss cannot yet be estimated.
On March 2, 2026, a shareholder derivative action was filed in the Eleventh Division of the Texas Business Court against officers and directors Eric S. Langan, Yura Barabash, Bradley Chhay, Luke Lirot, Elaine J. Martin, Arthur A. Priaulx, Travis Reese, and Ahmed Anakar. The action alleges that the individual officers and directors breached their fiduciary duties by failing to adequately monitor issues related to the indictment filed by the NY AG and other related issues. The action asserts claims for breaches of fiduciary duties respectively owed by the directors and officers. The complaint seeks injunctive relief, damages, restitution, costs, and attorneys’ fees. The case, Taylor v. Langan, et al., is in its early stage, and a potential loss cannot yet be estimated.
Illinois BIPA Matter
On April 14, 2025, the Company's subsidiaries, RCI Management Services, Inc., Pooh Bah Enterprises, Inc., and RCI Dining Services (Harvey), Inc. (collectively, "Defendants") entered into a class action settlement agreement to resolve claims under the Illinois Biometric Information Privacy Act ("BIPA"), 740 ILCS 14/1 et seg., arising from the alleged collection of customer fingerprints at Rick's Cabaret in Chicago and Scarlett's Cabaret in Washington Park, Illinois. The settlement resolves two consolidated cases: Rapp et al. v. RCI Management Services, Inc. et al., Case No. 22LA0884 (St. Clair County, Illinois) and Loera v. Pooh Bah Enterprises, Inc., Case No. 2021CH04759 (Cook County, Illinois).
Under the terms of the agreement, and without admitting any liability, Defendants will provide a settlement fund valued at approximately $2.95 million, consisting of $1.25 million in cash and $1.7 million in VIP cards. The settlement includes payments to class members submitting valid claims, attorneys' fees of up to 40 % of the fund, incentive awards to named plaintiffs, and administrative costs. Any unclaimed funds remaining after payment of valid claims, fees, and costs will revert to the Defendants. The cash settlement was paid in full in July 2025 and the VIP cards were issued in December 2025, with unclaimed VIP cards amounting to $1.23 million.
16
RCI HOSPITALITY HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Commitments and Contingencies—continued
Other
On June 23, 2014, Mark H. Dupray and Ashlee Dupray filed a lawsuit against Pedro Antonio Panameno and our subsidiary, JAI Dining Services (Phoenix), Inc. (“JAI Phoenix”), in the Superior Court of Arizona for Maricopa County. The complaint alleged that Mr. Panameno injured Mr. Dupray in a traffic accident after being served alcohol at an establishment operated by JAI Phoenix and asserted claims against JAI Phoenix under theories of common law dram shop negligence and dram shop negligence per se. Following a jury trial, in April 2017, the court entered judgment in favor of the plaintiffs and awarded compensatory and punitive damages, allocating approximately $1.4 million in compensatory damages and $4.0 million in punitive damages to JAI Phoenix. JAI Phoenix filed post-trial motions, which were denied in August 2017, and subsequently filed a notice of appeal in September 2017. In June 2018, the Arizona Court of Appeals heard the matter and, on November 15, 2018, issued a decision vacating the jury’s verdict and remanding the case for a new trial.
The retrial was held in June 2025. The jury found Mr. Panameno 94 % responsible and JAI Phoenix 6 % responsible. The jury awarded total damages of $5.1 million and punitive damages of $125,000 . Based on the jury’s allocation of fault, JAI Phoenix is responsible for $332,884 of the total award. Under applicable law, plaintiffs retain the right to appeal; however, it is not known at this time whether an appeal will be filed, but if an appeal is filed, the Company will vigorously defend.
In March 2023, the New York State Department of Labor assessed a final judgment against one of our subsidiaries in a state unemployment tax matter for the years 2009-2022. The assessment of $2.8 million, which was recorded by the Company during the quarter ended March 31, 2023, was issued in final notice by the NY DOL after several appeals were denied by the Supreme Court of the State of New York, Appellate Division, Third Department. In September 2023, the NY DOL assessed another of our subsidiaries for approximately $280,000 on the same matter for the period January 2015 through June 2022. We recorded this latter assessment during the fiscal year ended September 30, 2023.
As set forth in the risk factors as disclosed in this report, the adult entertainment industry standard is to classify adult entertainers as independent contractors, not employees. While we take steps to ensure that our adult entertainers are deemed independent contractors, from time to time, we are named in lawsuits related to the alleged misclassification of entertainers. Claims are brought under both federal and where applicable, state law. Based on the industry standard, the manner in which the independent contractor entertainers are treated at the clubs, and the entertainer license agreements governing the entertainer’s work at the clubs, the Company believes that these lawsuits are without merit. Lawsuits are handled by attorneys with an expertise in the relevant law and are defended vigorously.
General
In the regular course of business affairs and operations, we are subject to possible loss contingencies arising from third-party litigation and federal, state, and local environmental, labor, health and safety laws and regulations. We assess the probability that we could incur liability in connection with certain of these lawsuits. Our assessments are made in accordance with generally accepted accounting principles, as codified in ASC 450-20, and is not an admission of any liability on the part of the Company or any of its subsidiaries. In certain cases that are in the early stages and in light of the uncertainties surrounding them, we do not currently possess sufficient information to determine a range of reasonably possible liability. In matters where there is insurance coverage, in the event we incur any liability, we believe it is unlikely we would incur losses in connection with these claims in excess of our insurance coverage.
The Company recorded lawsuit settlements incurred, net of recoveries, amounting to $802,000 net recoveries and $179,000 net settlements for the three months ended December 31, 2025, and 2024, respectively. As of December 31, 2025, and September 30, 2025, the Company has accrued $2.7 million and $4.2 million, respectively, related to settlement of lawsuits, which is included in accrued liabilities in our unaudited condensed consolidated balance sheets.
17
RCI HOSPITALITY HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. Related Party Transactions
Presently, our director and former Chairman, President, and CEO, Eric Langan, personally guarantees all of the commercial bank indebtedness of the Company. Mr. Langan receives no compensation or other direct financial benefit for any of the guarantees. The balance of our commercial bank indebtedness, net of debt discount and issuance costs, as of December 31, 2025, and September 30, 2025, was $138.2 million and $139.6 million, respectively.
Included in the debt balance as of December 31, 2025, and September 30, 2025, is a note borrowed from a related party for $350,000 and $150,000 , respectively, from a brother of the Company's former CFO, Bradley Chhay, in which the terms of the note is the same as the rest of the lender group.
We used the services of Tall Oak Custom Furniture and Nottingham Barrels and Furniture, previously Nottingham Creations, all furniture fabrication companies that manufacture tables, chairs and other furnishings for our Bombshells locations, as well as providing ongoing maintenance. Tall Oak Custom Furniture and Nottingham Barrels and Furniture are owned by a brother of Eric Langan (as was Nottingham Creations). Amounts billed to us for goods and services provided by Tall Oak Custom Furniture, Nottingham Barrels and Furniture, and Nottingham Creations were $0 and $2,780 during the three months ended December 31, 2025, and 2024, respectively. As of December 31, 2025, and September 30, 2025, we owed Tall Oak Custom Furniture, Nottingham Barrels and Furniture, and Nottingham Creations $3,312 and $3,312 , respectively, in unpaid billings.
TW Mechanical LLC provided plumbing and HVAC services to both a third-party general contractor providing construction services to the Company, as well as directly to the Company during fiscal 2026 and 2025. A son-in-law of Eric Langan owns a 50 % interest in TW Mechanical. Amounts billed by TW Mechanical to the third-party general contractor were $0 and $0 for the three months ended December 31, 2025, and 2024, respectively. Amounts billed directly to the Company were $0 and $720 for the three months ended December 31, 2025, and 2024, respectively. As of December 31, 2025, and September 30, 2025, the Company owed TW Mechanical $0 and $0 , respectively, in unpaid direct billings.
18
RCI HOSPITALITY HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
11. Leases
Total lease expense included in selling, general and administrative expenses in our unaudited condensed consolidated statements of income for the three months ended December 31, 2025, and 2024 is as follows (in thousands):
| Three Months Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Operating lease expense – fixed payments | $ | $ | |||||||||
| Variable lease expense | |||||||||||
Short-term and other lease expense (includes $ | |||||||||||
| Sublease income | |||||||||||
| Total lease expense, net | $ | $ | |||||||||
| Other information: | |||||||||||
| Operating cash outflows from operating leases | $ | $ | |||||||||
| Weighted average remaining lease term – operating leases | |||||||||||
| Weighted average discount rate – operating leases | % | % | |||||||||
Future maturities of operating lease liabilities as of December 31, 2025, are as follows (in thousands):
| Principal Payments | Interest Payments | Total Payments | |||||||||||||||
| January - December 2026 | $ | $ | $ | ||||||||||||||
| January - December 2027 | |||||||||||||||||
| January - December 2028 | |||||||||||||||||
| January - December 2029 | |||||||||||||||||
| January - December 2030 | |||||||||||||||||
| Thereafter | |||||||||||||||||
| $ | $ | $ | |||||||||||||||
12. Dispositions
On October 7, 2025, the Company sold 100 % of the common stock of a club subsidiary located in Harlingen, Texas, for $600,000 . The sale did not included the real estate where the club is located. The Company recognized a loss of approximately $17,000 on the sale.
On February 6, 2026, the Company sold a club located in Edinburg, Texas, for $1.1 million recognizing a $219,000 loss on the sale. Proceeds from the sale were used to pay down certain related debt.
19
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
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
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
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
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.
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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
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 | |||||||
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| 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
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
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
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
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
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.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures, defined in Rule 13a-15(e) under the Exchange Act, that are designed to ensure that the information required to be filed or submitted with the SEC under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management of the company with the participation of its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
In connection with the preparation of this Quarterly Report on Form 10-Q for the quarter ended December 31, 2025, an evaluation was performed under the supervision and with the participation of management, including the interim chief executive officer and interim chief financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on their evaluation, they have concluded that our disclosure controls and procedures were not effective as of December 31, 2025. This determination is based on the previously reported material weaknesses management identified in our internal control over financial reporting, as described below. We are in the process of remediating the material weaknesses in our internal control, as described below. We believe the completion of these processes should remedy our disclosure controls and procedures. We will continue to monitor these issues.
Previously Reported Material Weakness in Internal Control Over Financial Reporting
In our Annual Report for the year ended September 30, 2025, filed with the SEC on March 19, 2026, management concluded that our internal control over financial reporting was not effective as of September 30, 2025. In the evaluation, management identified material weaknesses in internal control related (1) ineffective design and operation of controls over certain information technology general controls ("ITGCs"), including program change management and vendor management controls; (2) ineffective design and operation of controls, which include management review controls, over the accounting for business combinations and contingent liabilities; and (3) ineffective design and operation of controls, which include management review controls, over the impairment assessments over long-lived assets, definite- and indefinite-lived intangible assets, and goodwill. The identified ITGC control deficiencies resulted from two factors. First, the Company's procedures governing program change management were insufficiently documented, resulting in controls that could not be consistently evidenced. Second, the Company relies on third-party IT service providers for certain key components of the technology infrastructure supporting its financial reporting processes. Specifically, certain service providers supporting applications within the Company's revenue cycle were unable to provide System and Organization Controls ("SOC") reports, thus management was unable to effectively evaluate the design and operating effectiveness of the internal controls maintained by these service providers. Consequently, certain business process controls were determined to be ineffective, limited to the extent those controls rely upon information processed within, or subject to, the control environments of the applicable third-party service providers. These deficiencies may have an impact on our financial statements, account balances, and disclosures. Based on our evaluation, our management, with the participation of our chief executive officer and chief financial officer, concluded that our internal control over financial reporting was not effective as of September 30, 2025.
Remediation Efforts to Address Material Weakness
Review of Accounting for Business Combinations and Contingent Liabilities
Management has re-evaluated the design of its controls over the accounting for business combinations and will continue to implement enhancements to improve the precision, documentation, and timeliness of review procedures. Management has re-evaluated the design of its controls over the accounting for legal contingencies and will implement enhancements to improve the clarity and quality of documentation supporting review of legal contingencies, including related legal fees and unasserted claims.
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Review of Impairment Assessments over Long-lived Assets, Definite- and Indefinite-lived Intangible Assets, and Goodwill
Given the inherently subjective nature of the assumptions underlying the valuation models used in impairment analyses, management will re-evaluate the review procedures to strengthen the validation and documentation of such assumptions.
Information Technology General Controls
As a result of the material weakness and its ongoing remediation efforts, management is enhancing change monitoring procedures and evaluating alternative procedures where SOC reports are not available for certain third-party application vendors.
Further, management is committed to enhanced quarterly reporting on the remediation measures to the Audit Committee of the board of directors.
It is our belief that these added controls will effectively remediate the existing material weaknesses.
The material weaknesses will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of these material weaknesses will be completed prior to the end of fiscal 2026.
Changes in Internal Control Over Financial Reporting
Other than as described above, there were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended December 31, 2025, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
33
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
See the “Legal Matters” section within Note 9 of the unaudited condensed consolidated financial statements within this Quarterly Report on Form 10-Q, which information is incorporated herein by reference.
Item 1A. Risk Factors.
There were no material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2025, except for such risks and uncertainties that may result from the additional disclosures in the “Legal Matters” section within Note 9 of the unaudited condensed consolidated financial statements within this Quarterly Report on Form 10-Q, which information is incorporated herein by reference. The risks described in the Annual Report on Form 10-K and in this Form 10-Q are not the only risks the Company faces. Additional risks and uncertainties not currently known to the Company, or that the Company deems to be immaterial, also may have a material adverse impact on the Company’s business, financial condition or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Our share repurchase activity during the three months ended December 31, 2025, was as follows:
| Period | Total Number of Shares (or Units) Purchased | Average Price Paid per Share (or Unit)(1) | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs(2) | Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet be Purchased Under the Plans or Programs | ||||||||||||||||||||||
| October 1-31, 2025 | — | $ | — | — | $ | 9,174,873 | ||||||||||||||||||||
November 1-30, 2025(3) | 852,061 | $ | 36.09 | 31,061 | $ | 8,421,628 | ||||||||||||||||||||
| December 1-31, 2025 | 43,000 | $ | 25.05 | 43,000 | $ | 7,344,376 | ||||||||||||||||||||
| 895,061 | $ | 35.56 | 74,061 | |||||||||||||||||||||||
(1) Prices include any commissions and transaction costs, but exclude a 1% excise tax.
(2) All shares were purchased pursuant to the repurchase plans approved by the board of directors as disclosed in our most recent Annual Report on Form 10-K.
(3) 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.
On April 2, 2026, the board of directors approved a $20.0 million increase in the Company's share repurchase program.
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Item 6. Exhibits.
| Exhibit No. | Description | |||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32 | ||||||||
| 101 | The following financial information from RCI Hospitality Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2025, formatted in Inline XBRL (Extensible Business Reporting Language) includes: (i) the Condensed Consolidated Statements of Cash Flows, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Changes in Equity, (iv) the Condensed Consolidated Balance Sheets, and (v) Notes to the Condensed Consolidated Financial Statements. | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |||||||
35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| RCI HOSPITALITY HOLDINGS, INC. | ||||||||
Date: May 7, 2026 | By: | /s/ Travis Reese | ||||||
| Travis Reese | ||||||||
| Interim Chief Executive Officer and President | ||||||||
Date: May 7, 2026 | By: | /s/ Albert Molina | ||||||
| Albert Molina | ||||||||
| Interim Chief Financial Officer and Principal Accounting Officer | ||||||||
36
EXHIBIT 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Travis Reese, Chief Executive Officer of RCI Hospitality Holdings, Inc., certify that:
1.I have reviewed this quarterly report on Form 10-Q of RCI Hospitality Holdings, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal year that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s independent registered public accounting firm and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: May 7, 2026 | By: | /s/ Travis Reese | ||||||
| Travis Reese | ||||||||
| Interim Chief Executive Officer | ||||||||
EXHIBIT 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Albert Molina, Interim Chief Financial Officer and Principal Accounting Officer of RCI Hospitality Holdings, Inc., certify that:
1.I have reviewed this quarterly report on Form 10-Q of RCI Hospitality Holdings, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s independent registered public accounting firm and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: May 7, 2026 | By: | /s/ Albert Molina | ||||||
| Albert Molina | ||||||||
| Interim Chief Financial Officer and Principal Accounting Officer | ||||||||
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of RCI Hospitality Holdings, Inc. (the “Company”) on Form 10-Q for the fiscal period ended December 31, 2025, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, the Chief Executive Officer and the Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that based on our knowledge, that:
(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company as of and for the periods covered in the Report.
| /s/ Travis Reese | |||||
| Travis Reese | |||||
| Interim Chief Executive Officer | |||||
| May 7, 2026 | |||||
| /s/ Albert Molina | |||||
| Albert Molina | |||||
| Interim Chief Financial Officer and Principal Accounting Officer | |||||
| May 7, 2026 | |||||
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to RCI Hospitality Holdings, Inc. and will be retained by RCI Hospitality Holdings, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished to the Securities and Exchange Commission as an exhibit to the Form 10-Q and shall not be considered filed as part of the Form 10-Q.