RCI HOSPITALITY HOLDINGS, INC. (RICK)

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 June 30, 2026, 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 June 30, 2026, there were no significant changes in our accounting policies and estimates.

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Results of Operations

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

Three Months Ended June 30, 2026

•Total revenues were $73.9 million compared to $71.1 million, a 3.9% increase (Nightclubs revenue of $63.0 million compared to $62.3 million, a 1.0% increase; and Bombshells revenue of $10.8 million compared to $8.6 million, a 25.4% increase)

•Consolidated same-store sales decreased by 0.2% (Nightclubs decreased by 0.8%, while Bombshells increased by 4.7%) (refer to the definition of same-store sales in the discussion of revenues below)

•Basic and diluted earnings per share (“EPS”) of $0.83 compared to $0.46

•Non-GAAP diluted EPS* of $0.90 compared to $0.77

•Net cash provided by operating activities of $11.3 million compared to $13.8 million, an 18.2% decrease

•Free cash flow* of $10.6 million compared to $13.3 million, a 20.2% decrease

Nine Months Ended June 30, 2026

•Total revenues were $213.5 million compared to $208.5 million, a 2.4% increase (Nightclubs revenue of $185.6 million compared to $181.6 million, a 2.2% increase; and Bombshells revenue of $27.5 million compared to $26.4 million, a 4.2% increase)

•Consolidated same-store sales decreased by 3.4% (Nightclubs decreased by 2.5%, while Bombshells decreased by 9.7%)

•Basic and diluted EPS of $0.16 compared to $1.84

•Non-GAAP diluted EPS* of $2.41 compared to $2.23

•Net cash provided by operating activities of $29.0 million compared to $35.7 million, an 18.8% decrease

•Free cash flow* of $25.7 million compared to $32.3 million, a 20.4% decrease

* Reconciliation and discussion of non-GAAP financial measures are included in the “Non-GAAP Financial Measures” section below.

Revenues

Consolidated revenues for the third quarter increased by $2.8 million, or 3.9%, versus the comparable prior-year quarter due primarily to a $2.8 million increase in sales from new locations and a $1.4 million increase from reformatted/rebranded locations, partially offset by a $121,000 impact of the decrease in consolidated same-stores sales and a $1.2 million impact of closed locations.

Consolidated revenues for the nine months increased by $5.0 million, or 2.4%, versus the comparable prior-year nine-month period due primarily to a $11.2 million increase in sales from new locations and a $3.7 million increase from reformatted/rebranded locations, partially offset by a $6.6 million impact of the decrease in consolidated same-stores sales and a $3.2 million impact of closed locations.

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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.

Segment contribution to total revenues was as follows (in thousands, except percentages):

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Nightclubs revenues increased by 1.0% during the third quarter compared to the same quarter last year primarily due to the $950,000 contribution of newly acquired clubs and $1.4 million from clubs that have been reformatted and/or rebranded, partially offset by the $493,000 impact of the decrease in same-store sales and the $1.2 million impact of closed clubs. For clubs that were open enough days to qualify as a same-store location, sales decreased by 0.8%. By type of revenue, alcoholic beverage sales decreased by 4.2%, food, merchandise and other revenue decreased by 1.4%, while service revenues increased by 7.6%.

During the nine-month period, Nightclubs revenues increased by 2.2% mainly due to the $6.5 million contribution of newly acquired clubs and $3.7 million from clubs that have been reformatted and/or rebranded, partially offset by the $4.3 million impact of the decrease in same-store sales and the $2.0 million impact of closed clubs. By type of revenue, alcoholic beverage sales decreased by 3.3%, food, merchandise and other revenue increased by 1.3%, while service revenues increased by 8.5%.

Bombshells third quarter revenues increased by 25.4% primarily due to the increase in same-store sales and sales from a new location. By type of revenue, food and merchandise sales increased by 16.3%, while alcoholic beverage sales increased by 33.6%.

During the nine-month period, Bombshells revenues increased by 4.2%. This was mainly caused by a $2.3 million decrease in same-store sales and a $1.2 million decrease from closed locations, partially offset by a $4.6 million contribution from new locations. By type of revenue, alcoholic beverage sales increased by 6.2% while food, merchandise and other increased by 2.0%.

Operating Expenses

Total operating expenses, as a percent of revenues, decreased to 82.5% from 87.8% from last year’s third quarter, and increased to 87.0% from 85.2% for the nine-month period. Year-over-year change was a $1.5 million decrease, or 2.3%, for the quarter and an $8.0 million increase, or 4.5%, for the nine months. Significant contributors to the changes in operating expenses are explained below.

Cost of goods sold. Cost of goods sold for the third quarter increased by $548,000, or 6.0%, and increased by $702,000, or 2.6%, for the nine-month period mainly due to higher sales. As a percent of total revenues, cost of goods sold was incr

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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

OVERVIEW

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand RCI Hospitality Holdings, Inc., our operations and our present business environment. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes thereto contained in Item 8 – “Financial Statements and Supplementary Data” of this report. This overview summarizes the MD&A, which includes the following sections:

•Our Business — a general description of our business and the adult nightclub industry, our objective, our strategic priorities, our core capabilities, and challenges and risks of our business.

•Critical Accounting Policies and Estimates — a discussion of accounting policies that require critical judgments and estimates.

•Operations Review — an analysis of our Company’s consolidated results of operations for the three years presented in our consolidated financial statements.

•Liquidity and Capital Resources — an analysis of cash flows, aggregate contractual obligations, and an overview of financial position.

OUR BUSINESS

The following are our operating segments:

We generate our revenues from the sale of liquor, beer, wine, food, and merchandise; service revenues such as cover charges, membership fees, and facility use fees; and other revenues such as commissions from vending and ATM machines, real estate rental, valet parking, and other products and services for both nightclub and restaurant/sports bar operations. Other revenues include Media Group revenues for the sale of advertising content and revenues from our annual Expo convention, and Drink Robust sales. Our fiscal year-end is September 30.

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Upon initial adoption of ASU 2023-07 for the annual reporting period ended September 30, 2025 (see Note 2 to our consolidated financial statements), certain previously reported segment information have changed. There were no changes in consolidated amounts. Segment-related discussions and analyses in the MD&A relate to amounts exclusive of intersegment items.

Same-Store 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 significantly higher than normal. We exclude from a particular month’s calculation units previously included in the same-store sales base that have closed temporarily for more than 15 days 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 definitions stated above. Revenues outside of our Nightclubs and Bombshells reportable segments’ core business are excluded from same-store sales calculation.

Our goal is to use our Company’s assets—our brands, financial strength, and the talent and strong commitment of our management and employees—to become more competitive and to accelerate growth.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s discussion and analysis of financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these consolidated financial statements requires our management to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These estimates are based on management’s historical and industry experience and on various other assumptions that are believed to be reasonable under the circumstances. On a regular basis, we evaluate these accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results may differ from our estimates, and such differences could be material.

A full discussion of our significant accounting policies is contained in Note 2 to our consolidated financial statements, which is included in Item 8 – “Financial Statements and Supplementary Data” of this report. We believe that the following accounting estimates are the most critical to aid in fully understanding and evaluating our financial results. These estimates require our most difficult, subjective or complex judgments because they relate to matters that are inherently uncertain. We have reviewed these critical accounting policies and estimates and related disclosures with our Audit Committee.

Impairment of Long-Lived Assets

We review long-lived assets, such as property and equipment, and intangible assets subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. These events or changes in circumstances include, but are not limited to, significant underperformance relative to historical or projected future operating results, significant changes in the manner of use of the acquired assets or the strategy for the overall business, and significant negative industry or economic trends. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset group to the estimated undiscounted cash flows over the estimated remaining useful life of the primary asset included in the asset group. If the asset group is not recoverable, the impairment loss is calculated as the excess of the carrying value over the fair value. We define our asset group as an operating club or restaurant location, which is also our reporting unit or the lowest level for which cash flows can be identified. Key estimates in the undiscounted cash flow model include management’s estimate of the projected revenues and operating margins. Fair value is determined using the market, income, or cost approaches. If fair value is used to determine using the income approach, an additional key assumption is the selection of a weighted-average cost of capital to discount cash flows. Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell and are no longer depreciated.

During fourth quarter of 2025, we impaired one property for $1.6 million in property and equipment.

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During the third quarter of 2024, we impaired six properties for $4.8 million in property and equipment and $5.7 million in operating lease right-of-use assets. During the fourth quarter of 2024, we impaired ten properties for $5.8 million in property and equipment and $747,000 in operating lease right-of-use assets. These properties are predominantly comprised of leased Bombshells locations.

During the third quarter of 2023, we impaired one property for $58,000 for its property and equipment and $1.0 million for its operating lease right-of-use asset before the club's permanent closure. During the fourth quarter of 2023, we also recognized software impairments amounting to $814,000 related to two venture projects.

Key assumptions and estimates used in long-lived asset impairment testing, the most significant of which is our estimated future cash flows, may produce materially different amounts of fair value, which could significantly impact our results of operations.

Goodwill and Other Intangible Assets

Goodwill and other intangible assets that have indefinite useful lives are tested annually for impairment during our fourth fiscal quarter and are tested for impairment more frequently if events and circumstances indicate that the asset might be impaired.

Our impairment calculations require management to make assumptions and to apply judgment in order to estimate fair values. If our actual results are not consistent with our estimates and assumptions, we may be exposed to impairments that could be material. We do not believe that there is a reasonable likelihood that there will be a change in the estimates or assumptions we used that could cause a material change in our calculated impairment charges.

For our goodwill impairment review, we have the option to first perform a qualitative assessment to determine if it is more likely than not that the fair value of the reporting unit is less than its carrying value. This assessment is based on several factors, including industry and market conditions, overall financial performance, including an assessment of cash flows in comparison to actual and projected results of prior periods. If it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value based on our qualitative analysis, or if we elect to skip this step, we perform a Step 1 quantitative analysis to determine the fair value of the reporting unit. The fair value is determined using market-related valuation models, including discounted cash flows and comparable asset market values. Key estimates in the discounted cash flow model include management’s estimate of the projected revenues and operating margins, along with the selection of a weighted-average cost of capital to discount cash flows. We recognize goodwill impairment in the amount that the carrying value of the reporting unit exceeds the fair value of the reporting unit, not to exceed the amount of goodwill allocated to the reporting unit, based on the results of our Step 1 analysis. For the year ended September 30, 2025, we did not impair goodwill. For the year ended September 30, 2024, we identified four reporting units that were impaired and recognized a total goodwill impairment of $8.9 million. For the year ended September 30, 2023, we identified four repor

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