false2024Q109-30000093541900009354192023-10-012023-12-3100009354192024-02-05xbrli:shares00009354192023-12-31iso4217:USD00009354192023-09-30iso4217:USDxbrli:shares0000935419rick:AlcoholicBeveragesMember2023-10-012023-12-310000935419rick:AlcoholicBeveragesMember2022-10-012022-12-310000935419rick:FoodAndMerchandiseMember2023-10-012023-12-310000935419rick:FoodAndMerchandiseMember2022-10-012022-12-310000935419us-gaap:ServiceMember2023-10-012023-12-310000935419us-gaap:ServiceMember2022-10-012022-12-310000935419rick:FranchiseFeesAndOtherMember2023-10-012023-12-310000935419rick:FranchiseFeesAndOtherMember2022-10-012022-12-3100009354192022-10-012022-12-310000935419rick:ServiceandOtherMember2023-10-012023-12-310000935419rick:ServiceandOtherMember2022-10-012022-12-310000935419us-gaap:CommonStockMember2023-09-300000935419us-gaap:AdditionalPaidInCapitalMember2023-09-300000935419us-gaap:RetainedEarningsMember2023-09-300000935419us-gaap:TreasuryStockCommonMember2023-09-300000935419us-gaap:NoncontrollingInterestMember2023-09-300000935419us-gaap:TreasuryStockCommonMember2023-10-012023-12-310000935419us-gaap:CommonStockMember2023-10-012023-12-310000935419us-gaap:AdditionalPaidInCapitalMember2023-10-012023-12-310000935419us-gaap:RetainedEarningsMember2023-10-012023-12-310000935419us-gaap:NoncontrollingInterestMember2023-10-012023-12-310000935419us-gaap:CommonStockMember2023-12-310000935419us-gaap:AdditionalPaidInCapitalMember2023-12-310000935419us-gaap:RetainedEarningsMember2023-12-310000935419us-gaap:TreasuryStockCommonMember2023-12-310000935419us-gaap:NoncontrollingInterestMember2023-12-310000935419us-gaap:CommonStockMember2022-09-300000935419us-gaap:AdditionalPaidInCapitalMember2022-09-300000935419us-gaap:RetainedEarningsMember2022-09-300000935419us-gaap:TreasuryStockCommonMember2022-09-300000935419us-gaap:NoncontrollingInterestMember2022-09-3000009354192022-09-300000935419us-gaap:TreasuryStockCommonMember2022-10-012022-12-310000935419us-gaap:CommonStockMember2022-10-012022-12-310000935419us-gaap:AdditionalPaidInCapitalMember2022-10-012022-12-310000935419us-gaap:RetainedEarningsMember2022-10-012022-12-310000935419us-gaap:NoncontrollingInterestMember2022-10-012022-12-310000935419us-gaap:CommonStockMember2022-12-310000935419us-gaap:AdditionalPaidInCapitalMember2022-12-310000935419us-gaap:RetainedEarningsMember2022-12-310000935419us-gaap:TreasuryStockCommonMember2022-12-310000935419us-gaap:NoncontrollingInterestMember2022-12-3100009354192022-12-310000935419rick:SalesofAlcoholicBeveragesMemberrick:NightclubsMember2023-10-012023-12-310000935419rick:SalesofAlcoholicBeveragesMemberrick:BombshellsMember2023-10-012023-12-310000935419rick:SalesofAlcoholicBeveragesMemberrick:FranchiseFeesAndOtherMember2023-10-012023-12-310000935419rick:SalesofAlcoholicBeveragesMember2023-10-012023-12-310000935419rick:SalesofAlcoholicBeveragesMemberrick:NightclubsMember2022-10-012022-12-310000935419rick:SalesofAlcoholicBeveragesMemberrick:BombshellsMember2022-10-012022-12-310000935419rick:SalesofAlcoholicBeveragesMemberrick:FranchiseFeesAndOtherMember2022-10-012022-12-310000935419rick:SalesofAlcoholicBeveragesMember2022-10-012022-12-310000935419rick:NightclubsMemberrick:FoodAndMerchandiseMember2023-10-012023-12-310000935419rick:FoodAndMerchandiseMemberrick:BombshellsMember2023-10-012023-12-310000935419rick:FranchiseFeesAndOtherMemberrick:FoodAndMerchandiseMember2023-10-012023-12-310000935419rick:NightclubsMemberrick:FoodAndMerchandiseMember2022-10-012022-12-310000935419rick:FoodAndMerchandiseMemberrick:BombshellsMember2022-10-012022-12-310000935419rick:FranchiseFeesAndOtherMemberrick:FoodAndMerchandiseMember2022-10-012022-12-310000935419us-gaap:ServiceMemberrick:NightclubsMember2023-10-012023-12-310000935419us-gaap:ServiceMemberrick:BombshellsMember2023-10-012023-12-310000935419us-gaap:ServiceMemberrick:FranchiseFeesAndOtherMember2023-10-012023-12-310000935419us-gaap:ServiceMemberrick:NightclubsMember2022-10-012022-12-310000935419us-gaap:ServiceMemberrick:BombshellsMember2022-10-012022-12-310000935419us-gaap:ServiceMemberrick:FranchiseFeesAndOtherMember2022-10-012022-12-310000935419rick:NightclubsMemberrick:OtherRevenuesMember2023-10-012023-12-310000935419rick:OtherRevenuesMemberrick:BombshellsMember2023-10-012023-12-310000935419rick:FranchiseFeesAndOtherMemberrick:OtherRevenuesMember2023-10-012023-12-310000935419rick:OtherRevenuesMember2023-10-012023-12-310000935419rick:NightclubsMemberrick:OtherRevenuesMember2022-10-012022-12-310000935419rick:OtherRevenuesMemberrick:BombshellsMember2022-10-012022-12-310000935419rick:FranchiseFeesAndOtherMemberrick:OtherRevenuesMember2022-10-012022-12-310000935419rick:OtherRevenuesMember2022-10-012022-12-310000935419rick:NightclubsMember2023-10-012023-12-310000935419rick:BombshellsMember2023-10-012023-12-310000935419rick:FranchiseFeesAndOtherMember2023-10-012023-12-310000935419rick:NightclubsMember2022-10-012022-12-310000935419rick:BombshellsMember2022-10-012022-12-310000935419rick:FranchiseFeesAndOtherMember2022-10-012022-12-310000935419rick:NightclubsMemberus-gaap:TransferredAtPointInTimeMember2023-10-012023-12-310000935419us-gaap:TransferredAtPointInTimeMemberrick:BombshellsMember2023-10-012023-12-310000935419rick:FranchiseFeesAndOtherMemberus-gaap:TransferredAtPointInTimeMember2023-10-012023-12-310000935419us-gaap:TransferredAtPointInTimeMember2023-10-012023-12-310000935419rick:NightclubsMemberus-gaap:TransferredAtPointInTimeMember2022-10-012022-12-310000935419us-gaap:TransferredAtPointInTimeMemberrick:BombshellsMember2022-10-012022-12-310000935419rick:FranchiseFeesAndOtherMemberus-gaap:TransferredAtPointInTimeMember2022-10-012022-12-310000935419us-gaap:TransferredAtPointInTimeMember2022-10-012022-12-310000935419us-gaap:TransferredOverTimeMemberrick:NightclubsMember2023-10-012023-12-310000935419us-gaap:TransferredOverTimeMemberrick:BombshellsMember2023-10-012023-12-310000935419us-gaap:TransferredOverTimeMemberrick:FranchiseFeesAndOtherMember2023-10-012023-12-310000935419us-gaap:TransferredOverTimeMember2023-10-012023-12-310000935419us-gaap:TransferredOverTimeMemberrick:NightclubsMember2022-10-012022-12-310000935419us-gaap:TransferredOverTimeMemberrick:BombshellsMember2022-10-012022-12-310000935419us-gaap:TransferredOverTimeMemberrick:FranchiseFeesAndOtherMember2022-10-012022-12-310000935419us-gaap:TransferredOverTimeMember2022-10-012022-12-310000935419rick:AdRevenueMember2023-09-300000935419rick:AdRevenueMember2023-10-012023-12-310000935419rick:AdRevenueMember2023-12-310000935419rick:ExpoRevenueMember2023-09-300000935419rick:ExpoRevenueMember2023-10-012023-12-310000935419rick:ExpoRevenueMember2023-12-310000935419rick:FranchiseFeesAndOtherMember2023-09-300000935419rick:FranchiseFeesAndOtherMember2023-12-310000935419rick:OtherSegmentMember2023-10-012023-12-310000935419rick:OtherSegmentMember2022-10-012022-12-310000935419us-gaap:CorporateMember2023-10-012023-12-310000935419us-gaap:CorporateMember2022-10-012022-12-310000935419rick:NightclubsMember2023-12-310000935419rick:NightclubsMember2023-09-300000935419rick:BombshellsMember2023-12-310000935419rick:BombshellsMember2023-09-300000935419rick:OtherSegmentMember2023-12-310000935419rick:OtherSegmentMember2023-09-300000935419us-gaap:CorporateMember2023-12-310000935419us-gaap:CorporateMember2023-09-300000935419rick:IntercompanyRentalRevenueMemberrick:NightclubsMember2023-10-012023-12-310000935419rick:IntercompanyRentalRevenueMemberus-gaap:CorporateMember2023-10-012023-12-310000935419rick:IntercompanyRentalRevenueMemberrick:NightclubsMember2022-10-012022-12-310000935419rick:IntercompanyRentalRevenueMemberus-gaap:CorporateMember2022-10-012022-12-310000935419rick:IntercompanySalesMemberrick:OtherSegmentMember2023-10-012023-12-310000935419rick:IntercompanySalesMemberrick:OtherSegmentMember2022-10-012022-12-310000935419srt:MinimumMember2023-12-31xbrli:pure0000935419srt:MaximumMember2023-12-310000935419srt:MinimumMember2023-10-012023-12-310000935419srt:MaximumMember2023-10-012023-12-310000935419us-gaap:UnsecuredDebtMember2023-10-25rick:investor00009354192023-10-250000935419us-gaap:UnsecuredDebtMember2023-12-310000935419us-gaap:UnsecuredDebtMemberus-gaap:DebtInstrumentRedemptionPeriodOneMember2023-12-310000935419us-gaap:UnsecuredDebtMemberus-gaap:DebtInstrumentRedemptionPeriodTwoMember2023-12-310000935419us-gaap:UnsecuredDebtMember2023-10-012023-12-310000935419us-gaap:UnsecuredDebtMemberus-gaap:DebtInstrumentRedemptionPeriodTwoMember2021-10-310000935419us-gaap:ConstructionLoansMember2023-11-170000935419us-gaap:ConstructionLoansMember2023-11-172023-11-17rick:monthly_installment0000935419us-gaap:DebtInstrumentRedemptionPeriodOneMemberus-gaap:ConstructionLoansMember2023-11-172023-11-170000935419us-gaap:DebtInstrumentRedemptionPeriodTwoMemberus-gaap:ConstructionLoansMember2023-11-172023-11-170000935419rick:ScheduledBalloonPaymentsOfDebtMember2023-12-310000935419srt:MaximumMemberrick:TwentyTwentyTwoStockOptionPlanMember2022-02-070000935419rick:TwentyTwentyTwoStockOptionPlanMember2022-02-092022-02-090000935419rick:TwentyTwentyTwoStockOptionPlanMember2022-02-09rick:member00009354192022-02-092022-02-090000935419us-gaap:ShareBasedCompensationAwardTrancheOneMember2022-02-092022-02-090000935419us-gaap:ShareBasedCompensationAwardTrancheThreeMember2022-02-092022-02-090000935419rick:ShareBasedPaymentArrangementTrancheFourMember2022-02-092022-02-090000935419us-gaap:ShareBasedCompensationAwardTrancheTwoMember2022-02-092022-02-090000935419rick:ShareBasedPaymentArrangementTrancheFiveMember2022-02-092022-02-090000935419us-gaap:EmployeeStockOptionMember2023-10-012023-12-310000935419us-gaap:EmployeeStockOptionMember2022-10-012022-12-31rick:plaintiff0000935419rick:IndemnityInsuranceCorporationMember2014-04-102014-04-100000935419rick:IndemnityInsuranceCorporationMember2023-12-31rick:claim0000935419rick:IndemnityInsuranceCorporationMember2023-10-012023-12-310000935419rick:JAIPhoenixMemberrick:CompensatoryDamagesMember2017-04-012017-04-300000935419rick:PunitiveDamagesMemberrick:JAIPhoenixMember2017-04-012017-04-3000009354192023-03-012023-03-3100009354192023-09-012023-09-300000935419rick:CommercialBankIndebtednessMember2023-12-310000935419rick:CommercialBankIndebtednessMember2023-09-300000935419rick:EdAnakarAndNourdeanAnakarMemberus-gaap:RelatedPartyMember2021-10-122021-10-120000935419us-gaap:RelatedPartyMemberrick:AllenChhayAndBradleyChhayMember2021-10-122021-10-120000935419rick:NottinghamCreationsAndSherwoodForestCreationsLLCMember2023-10-012023-12-310000935419rick:NottinghamCreationsAndSherwoodForestCreationsLLCMember2022-10-012022-12-310000935419us-gaap:RelatedPartyMemberrick:NottinghamCreationsAndSherwoodForestCreationsLLCMember2023-12-310000935419us-gaap:RelatedPartyMemberrick:NottinghamCreationsAndSherwoodForestCreationsLLCMember2023-09-300000935419us-gaap:RelatedPartyMemberrick:TWMechanicalLLCMember2023-12-310000935419us-gaap:RelatedPartyMemberrick:ThirdPartyGeneralContractorMemberrick:TWMechanicalLLCMember2023-10-012023-12-310000935419us-gaap:RelatedPartyMemberrick:ThirdPartyGeneralContractorMemberrick:TWMechanicalLLCMember2022-10-012022-12-310000935419rick:TWMechanicalLLCMember2023-10-012023-12-310000935419rick:TWMechanicalLLCMember2022-10-012022-12-310000935419us-gaap:RelatedPartyMemberrick:TWMechanicalLLCMember2023-09-300000935419us-gaap:EquipmentMember2023-10-012023-12-310000935419us-gaap:EquipmentMember2022-10-012022-12-310000935419rick:PrincipalPaymentsMember2023-12-310000935419rick:InterestPaymentsMember2023-12-31
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2023
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-13992
RCI HOSPITALITY HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Texas76-0458229
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
10737 Cutten Road
Houston, Texas 77066
(Address of principal executive offices) (Zip Code)
(281) 397-6730
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.01 par valueRICKThe Nasdaq Global Market
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 February 5, 2024, 9,359,685 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) the impact of the COVID-19 pandemic, 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 BALANCE SHEETS
(in thousands, except par value and number of shares)
December 31, 2023September 30, 2023
(unaudited)
ASSETS
Current assets
Cash and cash equivalents$21,155 $21,023 
Accounts receivable, net8,617 9,846 
Current portion of notes receivable253 249 
Inventories4,630 4,412 
Prepaid expenses and other current assets10,985 1,943 
Total current assets45,640 37,473 
Property and equipment, net284,398 282,705 
Operating lease right-of-use assets, net34,169 34,931 
Notes receivable, net of current portion4,362 4,443 
Goodwill70,772 70,772 
Intangibles, net178,486 179,145 
Other assets1,388 1,415 
Total assets$619,215 $610,884 
LIABILITIES AND EQUITY
Current liabilities
Accounts payable$5,254 $6,111 
Accrued liabilities26,564 16,051 
Current portion of debt obligations, net19,789 22,843 
Current portion of operating lease liabilities3,037 2,977 
Total current liabilities54,644 47,982 
Deferred tax liability, net29,143 29,143 
Debt, net of current portion and debt discount and issuance costs214,324 216,908 
Operating lease liabilities, net of current portion34,392 35,175 
Other long-term liabilities328 352 
Total liabilities332,831 329,560 
Commitments and contingencies (Note 9)
Equity
Preferred stock, $0.10 par value per share; 1,000,000 shares authorized; none issued and outstanding
  
Common stock, $0.01 par value per share; 20,000,000 shares authorized; 9,359,685 and 9,397,639 shares issued and outstanding as of December 31, 2023 and September 30, 2023, respectively
94 94 
Additional paid-in capital78,815 80,437 
Retained earnings207,714 201,050 
Total RCIHH stockholders’ equity286,623 281,581 
Noncontrolling interests(239)(257)
Total equity286,384 281,324 
Total liabilities and equity$619,215 $610,884 
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)
For the Three Months Ended
December 31,
20232022
Revenues
Sales of alcoholic beverages$33,316 $29,650 
Sales of food and merchandise10,802 10,347 
Service revenues25,119 25,563 
Other4,670 4,408 
Total revenues73,907 69,968 
Operating expenses
Cost of goods sold
Alcoholic beverages sold6,281 5,374 
Food and merchandise sold4,038 3,586 
Service and other40 49 
Total cost of goods sold (exclusive of items shown separately below)10,359 9,009 
Salaries and wages21,332 18,676 
Selling, general and administrative25,201 22,732 
Depreciation and amortization3,853 3,307 
Other charges, net(3)(654)
Total operating expenses60,742 53,070 
Income from operations13,165 16,898 
Other income (expenses)
Interest expense(4,216)(3,687)
Interest income94 91 
Income before income taxes9,043 13,302 
Income tax expense1,799 3,031 
Net income7,244 10,271 
Net income attributable to noncontrolling interests(18)(33)
Net income attributable to RCIHH common stockholders$7,226 $10,238 
Earnings per share
Basic and diluted$0.77 $1.11 
Weighted average shares used in computing earnings per share
Basic and diluted9,367,151 9,230,258 
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, 2023
9,397,639 $94 $80,437 $201,050  $ $(257)$281,324 
Purchase of treasury shares— — — — (37,954)(2,072)— (2,072)
Canceled treasury shares(37,954)— (2,072)— 37,954 2,072 —  
Excise tax on stock repurchases— — (20)— — — — (20)
Payment of dividends ($0.06 per share)
— — — (562)— — — (562)
Stock-based compensation— — 470 — — — — 470 
Net income— — — 7,226 — — 18 7,244 
Balance at December 31, 2023
9,359,685 $94 $78,815 $207,714  $ $(239)$286,384 
Balance at September 30, 2022
9,231,725 $92 $67,227 $173,950  $ $489 $241,758 
Purchase of treasury shares— — — — (1,500)(98)— (98)
Canceled treasury shares(1,500)— (98)— 1,500 98 —  
Payment of dividends ($0.05 per share)
— — — (462)— — — (462)
Stock-based compensation— — 941 — — — — 941 
Share in return of investment by noncontrolling partner— — — — — — (600)(600)
Net income— — — 10,238 — — 33 10,271 
Balance at December 31, 2022
9,230,225 $92 $68,070 $183,726  $ $(78)$251,810 
See accompanying notes to unaudited condensed consolidated financial statements.
6

RCI HOSPITALITY HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except number of shares)
(unaudited)
For the Three Months Ended December 31,
20232022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income$7,244 $10,271 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization3,853 3,307 
Stock-based compensation470 941 
Gain on sale of businesses and assets(3)(686)
Amortization of debt discount and issuance costs163 144 
Noncash lease expense762 719 
Gain on insurance (64)
Doubtful accounts expense on notes receivable22  
Changes in operating assets and liabilities:
Accounts receivable1,229 1,447 
Inventories(218)(94)
Prepaid expenses, other current and other assets(9,029)(7,208)
Accounts payable, accrued and other liabilities9,140 6,118 
Net cash provided by operating activities13,633 14,895 
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of businesses and assets 2,784 
Proceeds from insurance 64 
Proceeds from notes receivable55 55 
Payments for property and equipment and intangible assets(5,135)(12,553)
Acquisition of businesses, net of cash acquired (4,000)
Net cash used in investing activities(5,080)(13,650)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt obligations701 1,500 
Payments on debt obligations(6,352)(3,361)
Purchase of treasury stock(2,072)(98)
Payment of dividends(562)(462)
Payment of loan origination costs(136)(96)
Share in return of investment by noncontrolling partner (600)
Net cash used in financing activities(8,421)(3,117)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS132 (1,872)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD21,023 35,980 
CASH AND CASH EQUIVALENTS AT END OF PERIOD$21,155 $34,108 
7

For the Three Months Ended December 31,
20232022
CASH PAID DURING PERIOD FOR:
Interest$4,017 $3,490 
Income taxes$ $ 
Noncash investing and financing transactions:
Debt incurred in connection with acquisition of businesses$ $5,000 
Debt incurred in connection with purchase of property and equipment$ $5,584 
Unpaid excise tax on stock repurchases$20 $ 
Unpaid liabilities on capital expenditures$1,719 $1,985 
See accompanying notes to unaudited condensed consolidated financial statements.
8

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, 2023 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, 2023 included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on December 14, 2023. 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, 2023 are not necessarily indicative of the results that may be expected for the year ending September 30, 2024.
2. Recent Accounting Standards and Pronouncements
In October 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU amends Accounting Standards Codification ("ASC") Topic 805 to require acquiring entities to apply ASC 606 to recognize and measure contract assets and contract liabilities in business combinations. The ASU is effective for public entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We adopted ASU 2021-08 on October 1, 2023. Our adoption of this ASU did not have a significant impact on our consolidated financial statements.
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The amendments in this ASU clarify that an entity should measure the fair value of an equity security subject to contractual sale restriction the same way it measures an identical equity security that is not subject to such a restriction. The FASB said the contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, should not affect its fair value. The ASU is effective for public entities for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted. We have not yet evaluated the impact of this ASU on our consolidated financial statements.
In March 2023, the FASB issued ASU 2023-01, Leases (Topic 842): Common Control Arrangements, which amends certain provisions of ASC 842 that apply to arrangements between related parties under common control. The ASU requires all companies to amortize leasehold improvements associated with common control leases over the asset's useful life to the common control group regardless of the lease term. It also allows private and certain not-for-profit entities to use the written terms and conditions of an agreement to account for common control leases without further assessing the legal enforceability of those terms. The guidance is effective for all entities in fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been made available for issuance. We are still evaluating the impact of this ASU on our consolidated financial statements.

9

RCI HOSPITALITY HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)




2. Recent Accounting Standards and Pronouncements - continued
In August 2023, the FASB issued ASU 2023-05, Business Combinations—Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement, which addresses the accounting for contributions made to a joint venture, upon formation, in a joint venture's separate financial statements. The objectives of the ASU are to (1) provide decision-useful information to investors and other allocators of capital in a joint venture's financial statements and (2) reduce diversity in practice. The FASB decided to require a joint venture to apply a new basis of accounting upon formation that will recognize and initially measure its assets and liabilities at fair value (with exceptions to fair value measurement that are consistent with the business combinations guidance). The amendments of this ASU are effective prospectively for all joint venture formations with a formation date on or after January 1, 2025. Additionally, a joint venture that was formed before January 1, 2025 may elect to apply the amendments retrospectively if it has sufficient information. early adoptions is permitted in any interim or annual period in which financial statements have not yet been issued (or made available for issuance), either prospectively or retrospectively. We are still evaluating the impact of this ASU on our consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which aims to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the amendments in the ASU enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. The purpose of the amendments is to enable investors to better understand an entity's overall performance and assess potential future cash flows. The ASU applies to all public entities that are required to report segment information in accordance with ASC 280, and is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. We are evaluating the impact of this ASU on our consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. Under the ASU, public business entities must annually (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than five percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate. The amendments of the ASU are effective for public business entities for annual periods beginning after December 15, 2024. Entities are permitted to early adopt the standard for annual financial statements that have not been issued or made available for issuance. We are enhancing our income tax reporting system to be able to capture the required disclosures of this ASU.
10

RCI HOSPITALITY HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)




3. 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, 2023Three Months Ended December 31, 2022
NightclubsBombshellsOtherTotalNightclubsBombshellsOtherTotal
Sales of alcoholic beverages$26,236 $7,080 $ $33,316 $22,098 $7,552 $ $29,650 
Sales of food and merchandise5,240 5,562  10,802 4,594 5,753  10,347 
Service revenues25,119   25,119 25,533 30  25,563 
Other revenues4,438 89 143 4,670 4,100 96 212 4,408 
$61,033 $12,731 $143 $73,907 $56,325 $13,431 $212 $69,968 
Recognized at a point in time$60,600 $12,730 $143 $73,473 $55,918 $13,428 $211 $69,557 
Recognized over time433 *1  434 407 *3 1 411 
$61,033 $12,731 $143 $73,907 $56,325 $13,431 $212 $69,968 
* 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, 2023
Net Consideration
Received (Refunded)
Recognized in
Revenue
Balance at
December 31, 2023
Ad revenue$49 $142 $(114)$77 
Expo revenue1 181  182 
Franchise fees and other46  (2)44 
$96 $323 $(116)$303 
Contract liabilities with customers are included in accrued liabilities as unearned revenues in our unaudited condensed consolidated balance sheets (see also Note 5), 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)




4. Segment Information
The Company owns and operates adult nightclubs and Bombshells Restaurants and Bars. The Company has identified such segments based on management responsibility and the nature of the Company’s products, services, and costs. There are no major distinctions in geographical areas served as all operations are in the United States. 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 unaudited condensed consolidated financial statements.
Below is the financial information related to the Company’s segments (in thousands):
For the Three Months Ended
December 31,
20232022
Revenues (from external customers)
Nightclubs$61,033 $56,325 
Bombshells12,731 13,431 
Other143 212 
$73,907 $69,968 
Income (loss) from operations
Nightclubs$20,369 $22,740 
Bombshells86 1,847 
Other(196)(185)
Corporate(7,094)(7,504)
$13,165 $16,898 
Depreciation and amortization
Nightclubs$2,905 $2,485 
Bombshells643 458 
Other2 63 
Corporate303 301 
$3,853 $3,307 
Capital expenditures
Nightclubs$1,532 $4,144 
Bombshells1,908 8,319 
Other1,498 37 
Corporate197 53 
$5,135 $12,553 




12

RCI HOSPITALITY HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)




4. Segment Information - continued
December 31, 2023September 30, 2023
Total assets
Nightclubs$491,046 $483,563 
Bombshells86,730 85,215 
Other7,628 6,936 
Corporate33,811 35,170 
$619,215 $610,884 
Excluded from revenues in the table above are intercompany rental revenues of the Nightclubs and Corporate segments for the three months ended December 31, 2023, amounting to $4.5 million and $227,000, respectively, and for the three months ended December 31, 2022, amounting to $3.7 million and $231,000, respectively; and intercompany sales of Robust Energy Drink included in Other segment for the three months ended December 31, 2023 and 2022 amounting to $39,000 and $37,000, respectively. These intercompany revenue amounts are eliminated upon consolidation.
General corporate expenses 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, depreciation and other corporate costs such as automobile and travel costs. Management considers these to be non-allocable costs for segment purposes.
Certain real estate assets previously wholly assigned to Bombshells have been subdivided and allocated to other future development or investment projects. Accordingly, those asset costs have been transferred out of the Bombshells segment.
5. Selected Account Information
The components of accounts receivable, net are as follows (in thousands):
December 31, 2023September 30, 2023
Credit card receivables$4,297 $4,141 
Income tax refundable1,192 2,989 
ATM in-transit2,015 1,675 
Other (net of allowance for doubtful accounts of $64 and $62, respectively)
1,113 1,041 
Total accounts receivable, net$8,617 $9,846 
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, 2023September 30, 2023
Prepaid insurance$9,297 $375 
Prepaid legal156 184 
Prepaid taxes and licenses265 486 
Prepaid rent215 346 
Other1,052 552 
Total prepaid expenses and other current assets$10,985 $1,943 
13

RCI HOSPITALITY HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)




5. Selected Account Information - continued
The components of accrued liabilities are as follows (in thousands):
December 31, 2023September 30, 2023
Insurance$9,022 $9 
Sales and liquor taxes2,499 2,468 
Payroll and related costs4,100 4,412 
Property taxes3,607 3,086 
Interest690 654 
Patron tax1,543 914 
Unearned revenues303 96 
Lawsuit settlement2,123 2,448 
Other2,677 1,964 
Total accrued liabilities$26,564 $16,051 
The components of selling, general and administrative expenses are as follows (in thousands):
For the Three Months Ended
December 31,
20232022
Taxes and permits$4,042 $2,684 
Advertising and marketing3,474 2,670 
Supplies and services2,695 2,424 
Insurance3,315 2,582 
Legal733 985 
Lease1,824 1,762 
Charge card fees1,732 1,897 
Utilities1,485 1,271 
Security1,411 1,164 
Stock-based compensation470 941 
Accounting and professional fees1,186 1,518 
Repairs and maintenance1,099 1,164 
Other1,735 1,670 
Total selling, general and administrative expenses$25,201 $22,732 

14

RCI HOSPITALITY HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)




6. Debt
On October 25, 2023, the Company entered into a debt modification transaction under which 26 investors holding a total principal amount of $15.7 million in unsecured promissory notes agreed to extend the maturity dates of such notes, with no other changes to the terms and conditions of the original promissory notes, which original promissory notes were issued in October 2021 and had original maturity dates in October 2024. The transaction was effected by the 26 investors returning for cancellation their original promissory notes, with us issuing new amended and restated promissory notes to such investors. The original promissory notes were deemed cancelled as of the end of the day on October 31, 2023, and the new amended promissory notes will have an original issue date, and be deemed effective, as of November 1, 2023.
Other than the extension of the maturity dates, there were no other changes to the terms and conditions of the original promissory notes (except for the reduction in principal, as described below, and the corresponding reduction in monthly installments of principal and interest). The new amended notes will continue to bear interest at the rate of 12% per annum. Of the new amended promissory notes, $9.1 million are payable interest-only monthly (or quarterly) in arrears, with a final lump sum payment of principal and accrued and unpaid interest due on October 1, 2026. The remaining $6.6 million in promissory notes are payable in monthly payments of principal and interest based on a 10-year amortization period, with the balance of the entire principal amount together with all accrued and unpaid interest due and payable in full on November 1, 2027. The original promissory notes that were returned and cancelled as consideration for the issuance of the $6.6 million in new amended promissory notes had an original principal amount of $7.5 million in October 2021.
On November 17, 2023, the Company closed on a construction loan agreement with a bank lender for a total amount of $7.2 million bearing an interest rate of 8.5% per annum for the construction of a Bombshells restaurant in Rowlett, Texas. The promissory note is payable in 120 monthly payments, the first 18 months of which will be interest-only. The succeeding 101 monthly payments will be payable in equal installments of $63,022 in principal and interest, and the remaining balance in principal and accrued interest payable on the 120th month. The loan is secured by the real estate property under construction. There are certain financial covenants with which the Company is to be in compliance related to this loan.
Future maturities of long-term debt as of December 31, 2023 are as follows: $20.4 million, $24.1 million, $22.6 million, $21.9 million, $19.9 million and $128.2 million for the twelve months ending December 31, 2024, 2025, 2026, 2027, 2028, and thereafter, respectively. Of the maturity schedule mentioned above, $5.7 million, $11.1 million, $9.1 million, $7.9 million, $5.7 million and $70.6 million, respectively, relate to scheduled balloon payments. Unamortized debt discount and issuance costs amounted to $2.9 million and $2.9 million as of December 31, 2023 and September 30, 2023, respectively.
7. Stock-based Compensation
On February 7, 2022, our board of directors approved the 2022 Stock Option Plan (the “2022 Plan”). The board’s adoption of the 2022 Plan was approved by the shareholders during the annual stockholders' meeting on August 23, 2022. The 2022 Plan provides that the maximum aggregate number of shares of common stock underlying options that may be granted under the 2022 Plan is 300,000. The options granted under the 2022 Plan may be either incentive stock options or non-qualified options. The 2022 Plan is administered by the compensation committee of the board of directors. The compensation committee has the exclusive power to select individuals to receive grants, to establish the terms of the options granted to each participant, provided that all options granted shall be granted at an exercise price not less than the fair market value of the common stock covered by the option on the grant date, and to make all determinations necessary or advisable under the 2022 Plan. On February 9, 2022, the board of directors approved a grant of 50,000 stock options to each of six members of management subject to the approval of the 2022 Plan.
Stock-based compensation for the three months ended December 31, 2023 and 2022, which is included in corporate segment selling, general and administrative expenses, amounted to $470,000 and $941,000, respectively. As of December 31, 2023, we had unrecognized compensation cost amounting to $4.0 million related to stock-based compensation awards granted, which is expected to be recognized over a weighted average period of 2.1 years.

15

RCI HOSPITALITY HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)




7. Stock-based Compensation - continued
The February 9, 2022 stock options vest over four years with the first 20% having vested on the approval of the 2022 Plan at the 2022 annual stockholders' meeting on August 23, 2022, and 20% vesting on February 9 of each year thereafter, provided however that the options will be subject to earlier vesting under certain events set forth in the Plan, including without limitation a change in control. All of the options will expire, if not exercised, at the end of five years. The weighted average grant-date fair value of the stock options was $31.37 per share. No stock options were exercised during the three months ended December 31, 2023. As of December 31, 2023, 120,000 stock options were vested and exercisable.
For the three months ended December 31, 2023 and 2022, we excluded 300,000 stock options from the calculation of diluted earnings per share because their effect was anti-dilutive. Aside from the outstanding stock options, there were no other potentially dilutive securities for inclusion in the calculation of diluted earnings per share.
8. Income Taxes
Income tax expense was $1.8 million and $3.0 million during the three months ended December 31, 2023 and 2022, respectively. The effective income tax expense rate was 19.9% and 22.8% for the three months ended December 31, 2023 and 2022, respectively. Our effective income tax rate is affected by state taxes, permanent differences, and tax credits, including the FICA tip credit, for both years, as presented below.
For the Three Months Ended
December 31,
20232022
Federal statutory income tax expense21.0 %21.0 %
State income taxes, net of federal benefit3.4 %4.0 %
Permanent differences0.5 %0.5 %
Tax credits(5.0)%(2.8)%
Other %0.1 %
Total income tax expense19.9 %22.8 %
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states. Fiscal year ended September 30, 2020 and subsequent years remain open to federal tax examination. The Company ordinarily goes through various federal and state reviews and examinations for various tax matters.
9. Commitments and Contingencies
Legal Matters
Texas Patron Tax
A declaratory judgment action was brought by five operating subsidiaries of the Company to challenge a Texas Comptroller administrative rule related to the $5 per customer Patron Tax Fee assessed against Sexually Oriented Businesses. An administrative rule attempted to expand the fee to cover venues featuring dancers using latex cover as well as traditional nude entertainment. The administrative rule was challenged on both constitutional and statutory grounds. On November 19, 2018, the Court issued an order that a key aspect of the administrative rule is invalid based on it exceeding the scope of the Comptroller’s authority. On March 6, 2020, the U.S. District Court for the Western District of Texas, Austin Division, ruled that the Texas Patron Tax is unconstitutional as it has been applied and enforced by the Comptroller. The State of Texas appealed to the Fifth Circuit Court of Appeals, who affirmed that the Texas Patron Fee is unconstitutional as applied. The State of Texas next sought review from the Supreme Court, but the high court declined to take the case and in doing so exhausted the State's rights to appeal the judgment. The lawsuit was sent back to the trial court for post-trial proceedings, which resulted in the award of attorneys' fees to the operating subsidiaries. Pursuant to the rulings, the Texas Patron Fee is unconstitutional as applied to clubs featuring dancers using latex cover.
16

RCI HOSPITALITY HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)




9. Commitments and Contingencies - continued
Indemnity Insurance Corporation
As previously reported, the Company and its subsidiaries were insured under a liability policy issued by Indemnity Insurance Corporation, RRG (“IIC”) through October 25, 2013. The Company and its subsidiaries changed insurance companies on that date.
On November 7, 2013, the Court of Chancery of the State of Delaware entered a Rehabilitation and Injunction Order (“Rehabilitation Order”), which declared IIC impaired, insolvent and in an unsafe condition and placed IIC under the supervision of the Insurance Commissioner of the State of Delaware (“Commissioner”) in her capacity as receiver (“Receiver”). The Rehabilitation Order empowered the Commissioner to rehabilitate IIC through a variety of means, including gathering assets and marshaling those assets as necessary. Further, the order stayed or abated pending lawsuits involving IIC as the insurer until May 6, 2014.
On April 10, 2014, the Court of Chancery of the State of Delaware entered a Liquidation and Injunction Order With Bar Date (“Liquidation Order”), which ordered the liquidation of IIC and terminated all insurance policies or contracts of insurance issued by IIC. The Liquidation Order further ordered that all claims against IIC must have been filed with the Receiver before the close of business on January 16, 2015 and that all pending lawsuits involving IIC as the insurer were further stayed or abated until October 7, 2014. As a result, the Company and its subsidiaries no longer had insurance coverage under the liability policy with IIC. The Company has retained counsel to defend against and evaluate these claims and lawsuits. We are funding 100% of the costs of litigation and will seek reimbursement from the bankruptcy receiver. The Company filed the appropriate claims against IIC with the Receiver before the January 16, 2015 deadline and has provided updates as requested; however, there are no assurances of any recovery from these claims. It is unknown at this time what effect this uncertainty will have on the Company. As previously stated, since October 25, 2013, the Company has obtained general liability coverage from other insurers, which have covered and/or will cover any claims arising from actions after that date. As of December 31, 2023, we have 1 remaining unresolved claim out of the original 71 claims.
Shareholder Derivative Action
On January 21, 2022, Shiva Stein and Kevin McCarty filed a shareholder derivative action in the Southern District of Texas, Houston Division against former director Nourdean Anakar, Yura Barabash, former director Steven L. Jenkins, Eric Langan, Luke Lirot, former CFO Phillip K. Marshall, Elaine J. Martin, Allan Priaulx, and Travis Reese as defendants, as well as against RCI Hospitality Holdings, Inc. as nominal defendant. The action, styled Stein v. Anakar, et al., No. 4:22-mc-00149 (S.D. Tex.), alleges claims for breach of fiduciary duty based on alleged dissemination of inaccurate information and failure to maintain internal controls. These allegations are substantively similar to claims asserted in a prior securities class action that was settled in August of 2022 and a prior derivative action that was dismissed in June of 2021. On July 24, 2023, the parties reached an agreement in principle to resolve the action. On October 10, 2023, the parties submitted an agreement to settle the action to the Court for the Court's preliminary approval. The Company believes that payments under the settlement agreement will be covered by insurance.
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 suit alleged that Mr. Panameno injured Mr. Dupray in a traffic accident after being served alcohol at an establishment operated by JAI Phoenix. The suit alleged that JAI Phoenix was liable under theories of common law dram shop negligence and dram shop negligence per se. After a jury trial proceeded to a verdict in favor of the plaintiffs against both defendants, in April 2017 the Court entered a judgment under which JAI Phoenix’s share of compensatory damages is approximately $1.4 million and its share of punitive damages is $4.0 million. In May 2017, JAI Phoenix filed a motion for judgment as a matter of law or, in the alternative, motion for new trial. The Court denied this motion in August 2017. In September 2017, JAI Phoenix filed a notice of appeal. In June 2018, the matter was heard by the Arizona Court of Appeals. On November 15, 2018 the Court of Appeals vacated the jury’s verdict and remanded the case to the trial court. It is anticipated that a new trial will occur at some point in the future. JAI Phoenix will continue to vigorously defend itself.
17

RCI HOSPITALITY HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)




9. Commitments and Contingencies - continued
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.
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 quarter ended September 30, 2023.
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.
There were no lawsuit settlements incurred during the three months ended December 31, 2023 and 2022. As of December 31, 2023 and September 30, 2023, the Company has accrued $2.1 million and $2.4 million in accrued liabilities, respectively, related to settlement of lawsuits.
10. Related Party Transactions
Presently, our Chairman and President, 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, 2023 and September 30, 2023, was $116.7 million and $119.2 million, respectively.
Included in the October 2023 debt transaction (see Note 6) are notes borrowed from related parties—one note for $500,000 (Ed Anakar, an employee of the Company and brother of our former director Nourdean Anakar) and another note for $150,000 (from a brother of Company CFO, Bradley Chhay) in which the terms of the notes are the same as the rest of the lender group.
We used the services of Nottingham Creations, and previously Sherwood Forest Creations, LLC, both furniture fabrication companies that manufacture tables, chairs and other furnishings for our Bombshells locations, as well as providing ongoing maintenance. Nottingham Creations is owned by a brother of Eric Langan (as was Sherwood Forest). Amounts billed to us for goods and services provided by Nottingham Creations and Sherwood Forest were $142,098 and $0 during the three months ended December 31, 2023 and 2022, respectively. As of December 31, 2023 and September 30, 2023, we owed Nottingham Creations and Sherwood Forest $36,308 and $10,700, respectively, in unpaid billings.

18

RCI HOSPITALITY HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)




10. Related Party Transactions - continued
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 2024 and 2023. 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, 2023 and 2022, respectively. Amounts billed directly to the Company were $2,932 and $0 for the three months ended December 31, 2023 and 2022, respectively. As of December 31, 2023 and September 30, 2023, the Company owed TW Mechanical $0 and $0, respectively, in unpaid direct billings.
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, 2023 and 2022 is as follows (in thousands):
Three Months Ended December 31,
20232022
Operating lease expense – fixed payments$1,292 $1,259 
Variable lease expense450 427 
Short-term and other lease expense (includes $107 and $64 recorded in advertising and marketing for the three months ended December 31, 2023 and 2022, respectively; and $141 and $127 recorded in repairs and maintenance for the three months ended December 31, 2023 and 2022, respectively; see Note 5)
330 267 
Sublease income  
Total lease expense, net$2,072 $1,953 
Other information:
Operating cash outflows from operating leases$2,033 $1,910 
Weighted average remaining lease term – operating leases10.3 years11.2 years
Weighted average discount rate – operating leases5.8 %5.6 %
Future maturities of operating lease liabilities as of December 31, 2023 are as follows (in thousands):
Principal PaymentsInterest PaymentsTotal Payments
January - December 2024$3,037 $2,014 $5,051 
January - December 20253,296 1,835 5,131 
January - December 20263,594 1,640 5,234 
January - December 20273,355 1,438 4,793 
January - December 20282,996 1,256 4,252 
Thereafter21,151 4,333 25,484 
$37,429 $12,516 $49,945 

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, 2023.
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 dining experiences to its guests. All services and management operations are conducted by subsidiaries of RCIHH, including RCI Management Services, Inc.
Through our subsidiaries, as of December 31, 2023, we operated a total of 69 establishments that offer live adult entertainment, including one food hall. 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.
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, 2023 filed with the SEC on December 14, 2023.
During the three months ended December 31, 2023, there were no significant changes in our accounting policies and estimates.
Results of Operations
Highlights of the Company's operating results during the quarter ended December 31, 2023 are as follows:
Total revenues were $73.9 million compared to $70.0 million during the comparable prior-year quarter, a 5.6% increase (Nightclubs revenue of $61.0 million compared to $56.3 million, an 8.4% increase; and Bombshells revenue of $12.7 million compared to $13.4 million, a 5.2% decrease)
Consolidated same-store sales decreased by 9.8% (Nightclubs decreased by 7.2% while Bombshells decreased by 20.3%) (refer to the definition of same-store sales in the discussion of revenues below)
Basic and diluted earnings per share (“EPS”) of $0.77 compared to $1.11 (non-GAAP diluted EPS* of $0.87 compared to $1.19) during the comparable prior-year quarter
Net cash provided by operating activities of $13.6 million compared to $14.9 million during the comparable prior-year quarter, an 8.5% decrease (free cash flow* of $12.7 million compared to $13.0 million, a 2.9% decrease)
*Reconciliation and discussion of non-GAAP financial measures are included in the “Non-GAAP Financial Measures” section below.
20

The following table summarizes our results of operations as a percentage of revenue:
Three Months Ended
December 31,
20232022
Revenues
Sales of alcoholic beverages45.1 %42.4 %
Sales of food and merchandise14.6 %14.8 %
Service revenues34.0 %36.5 %
Other6.3 %6.3 %
Total revenues100.0 %100.0 %
Operating expenses
Cost of goods sold
Alcoholic beverages sold18.9 %18.1 %
Food and merchandise sold37.4 %34.7 %
Service and other0.1 %0.2 %
Total cost of goods sold (exclusive of items shown separately below)14.0 %12.9 %
Salaries and wages28.9 %26.7 %
Selling, general and administrative34.1 %32.5 %
Depreciation and amortization5.2 %4.7 %
Other charges, net— %(0.9)%
Total operating expenses82.2 %75.8 %
Income from operations17.8 %24.2 %
Other income (expenses)
Interest expense(5.7)%(5.3)%
Interest income0.1 %0.1 %
Income before income taxes12.2 %19.0 %
Income tax expense2.4 %4.3 %
Net income9.8 %14.7 %
*Percentages may not foot due to rounding. Percentage of revenue for individual cost of goods sold items pertains to their respective revenue line.
Revenues
Consolidated revenues for the first quarter increased by $3.9 million, or 5.6%, versus the comparable prior-year quarter due primarily to a 15.0%, or $10.5 million, increase in sales from newly acquired clubs from last year and new Bombshells openings, partially offset by the $6.7 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 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 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, 2023MixThree Months Ended December 31, 2022MixInc (Dec) $Inc (Dec) %
Nightclubs
Sales of alcoholic beverages$26,236 43.0 %$22,098 39.2 %$4,138 18.7 %
Sales of food and merchandise5,240 8.6 %4,594 8.2 %646 14.1 %
Service revenues25,119 41.2 %25,533 45.3 %(414)(1.6)%
Other revenues4,438 7.3 %4,100 7.3 %338 8.2 %
61,033 100.0 %56,325 100.0 %4,708 8.4 %
Bombshells
Sales of alcoholic beverages7,080 55.6 %7,552 56.2 %(472)(6.3)%
Sales of food and merchandise5,562 43.7 %5,753 42.8 %(191)(3.3)%
Service revenues— 0.0 %30 0.2 %(30)(100.0)%
Other revenues89 0.7 %96 0.7 %(7)(7.3)%
12,731 100.0 %13,431 100.0 %(700)(5.2)%
Other
Other revenues143 100.0 %212 100.0 %(69)(32.5)%
$73,907 $69,968 $3,939 5.6 %
Nightclubs revenues increased by 8.4% during the first quarter compared to the same quarter last year primarily due to the $8.9 million contribution of newly acquired clubs, partially offset by the $4.0 million impact of the decrease in same-store sales. For Nightclubs that were open enough days to qualify for same-store sales (refer to the definition of same-store sales in the preceding paragraph), sales decreased by 7.2%. By type of revenue, alcoholic beverage sales increased by 18.7%, food, merchandise and other revenue increased by 11.3%, while service revenues decreased by 1.6%.
Bombshells revenues decreased by 5.2%, of which 20.3% was for same-store sales decrease with the offsetting increase caused by two new locations and a food hall. By type of revenue, food and merchandise sales decreased by 3.3% while alcoholic beverage sales decreased by 6.3%.
Operating Expenses
Total operating expenses, as a percent of revenues, increased to 82.2% from 75.8% from last year’s first quarter, with a $7.7 million increase, or 14.5%, which was mainly caused by costs and expenses directly related to higher sales in the current-year first quarter, with the impact of fixed expenses on clubs and restaurants having decreases in their same-stores sales. Significant contributors to the changes in operating expenses are explained below.
Cost of goods sold. Cost of goods sold for the first quarter increased by $1.4 million, or 15.0%, mainly due to higher sales. As a percent of total revenues, cost of goods sold increased to 14.0% from 12.9% mainly due to the sales mix decrease in service revenue. Nightclubs cost of goods sold increased to 12.0% from 10.5%, while Bombshells cost of goods sold increased to 23.7% from 22.9%. Both increases in percent to segment revenue were caused mainly by shift in sales mix toward lower margin sales type.
Salaries and wages. Salaries and wages increased by $2.7 million, or 14.2%, for the first quarter due to increase in personnel from newly acquired clubs and new Bombshells openings, work shifts to accommodate the increase in sales, and the impact of minimum wage increases in certain states and cities. As a percent of total revenues, salaries and wages increased to 28.9% from 26.7% due to wage inflation. Nightclubs increased to 22.0% from 20.8% and Bombshells increased to 31.1% from 26.5%, while corporate increased to 5.1% from 4.7%.

22

Selling, general and administrative expenses. Selling, general and administrative expenses increased by $2.5 million, or 10.9%, primarily due to increased variable expenses related to higher sales during the current-year first quarter. Dollar amounts in the tables below are in thousands, except percentages.
For the Three Months Ended
December 31, 2023
For the Three Months Ended
December 31, 2022
Better (Worse)
Amount% of RevenuesAmount% of RevenuesAmount%
Taxes and permits$4,042 5.5 %$2,684 3.8 %$(1,358)(50.6)%
Advertising and marketing3,474 4.7 %2,670 3.8 %(804)(30.1)%
Supplies and services2,695 3.6 %2,424 3.5 %(271)(11.2)%
Insurance3,315 4.5 %2,582 3.7 %(733)(28.4)%
Legal733 1.0 %985 1.4 %252 25.6 %
Lease1,824 2.5 %1,762 2.5 %(62)(3.5)%
Charge card fees1,732 2.3 %1,897 2.7 %165 8.7 %
Utilities1,485 2.0 %1,271 1.8 %(214)(16.8)%
Security1,411 1.9 %1,164 1.7 %(247)(21.2)%
Stock-based compensation470 0.6 %941 1.3 %471 50.1 %
Accounting and professional fees1,186 1.6 %1,518 2.2 %332 21.9 %
Repairs and maintenance1,099 1.5 %1,164 1.7 %65 5.6 %
Other1,735 2.3 %1,670 2.4 %(65)(3.9)%
Total selling, general and administrative expenses$25,201 34.1 %$22,732 32.5 %$(2,469)(10.9)%
Taxes and permits mainly increased due to the increase in the Texas patron tax. Advertising and marketing increased mainly due to higher commissions and promotional expenses. Insurance expense increased due to additional clubs and restaurants.
Depreciation and amortization. Depreciation and amortization increased by $546,000, or 16.5%, during the quarter due to the higher depreciable base.
Other charges, net. Other charges, net for the quarter changed due to one sale of real estate property in the prior-year first quarter.
Income (Loss) from Operations
For the quarter ended December 31, 2023 and 2022, our consolidated operating margin was 17.8% and 24.2%, respectively. Segment contribution to income (loss) from operations is presented in the table below (in thousands):
For the Three Months Ended
December 31,
20232022
Nightclubs$20,369 $22,740 
Bombshells86 1,847 
Other(196)(185)
Corporate(7,094)(7,504)
$13,165 $16,898 
23

Excluding certain items, the first quarter ended December 31, 2023 and 2022 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 26.
For the Three Months Ended December 31, 2023
NightclubsBombshellsOtherCorporateTotal
Income (loss) from operations$20,369 $86 $(196)$(7,094)$13,165 
Amortization of intangibles 591 63 — 659 
Gain on sale of businesses and assets(1)— — (2)(3)
Stock-based compensation— — — 470 470 
Non-GAAP operating income (loss)$20,959 $149 $(196)$(6,621)$14,291 
GAAP operating margin33.4 %0.7 %(137.1)%(9.6)%17.8 %
Non-GAAP operating margin34.3 %1.2 %(137.1)%(9.0)%19.3 %
For the Three Months Ended December 31, 2022
NightclubsBombshellsOtherCorporateTotal
Income (loss) from operations$22,740 $1,847 $(185)$(7,504)$16,898 
Amortization of intangibles628 61 695 
Gain on sale of businesses and assets(569)— — (21)(590)
Gain on insurance(48)— — (16)(64)
Stock-based compensation— — — 941 941 
Non-GAAP operating income (loss)$22,751 $1,849 $(124)$(6,596)$17,880 
 
GAAP operating margin40.4 %13.8 %(87.3)%(10.7)%24.2 %
Non-GAAP operating margin40.4 %13.8 %(58.5)%(9.4)%25.6 %
Other Income/Expenses
Interest expense increased by $529,000, or 14.3%, primarily caused by a higher average debt balance mostly from seller-financed promissory notes from last years' acquisitions.
Our total occupancy costs, defined as the sum of operating lease expense and interest expense, were $6.0 million and $5.4 million for the quarters ended December 31, 2023 and 2022, respectively. As a percentage of revenue, total occupancy costs were 8.2% and 7.8% during the quarters ended December 31, 2023 and 2022, respectively, primarily due to the interest from higher average debt balance.

24

Income Taxes
Income tax expense was $1.8 million and $3.0 million during the three months ended December 31, 2023 and 2022, respectively. The effective income tax expense rate was 19.9% and 22.8% for the three months ended December 31, 2023 and 2022, respectively. Our effective income tax rate is affected by state taxes, permanent differences, and tax credits, including the FICA tip credit, for both years, as presented below.
For the Three Months Ended
December 31,
20232022
Federal statutory income tax expense21.0 %21.0 %
State income taxes, net of federal benefit3.4 %4.0 %
Permanent differences0.5 %0.5 %
Tax credit(5.0)%(2.8)%
Other— %0.1 %
Total income tax expense19.9 %22.8 %
Income taxes decreased in dollar amount due to the lower pretax income in the current first quarter. Effective income tax rate decreased due to the acquisition of Texas-based clubs at the end of last year's second quarter and the additional tax credits from those acquisitions.
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) gains or losses on sale of businesses and assets, (c) gains or losses on insurance, and (d) 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 attributable to RCIHH common stockholders and diluted earnings per share. Adjustment items are: (a) amortization of intangibles, (b) gains or losses on sale of businesses and assets, (c) gains or losses on insurance, (d) stock-based compensation, and (e) 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 19.9% and 22.7% effective tax rate of the pre-tax non-GAAP income before taxes for the three months ended December 31, 2023 and 2022, 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 attributable to RCIHH common stockholders: (a) depreciation and amortization, (b) income tax expense (benefit), (c) net interest expense, (d) gains or losses on sale of businesses and assets, (e) gains or losses on insurance, and (f) stock-based compensation. 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, 2023 and 2022 (in thousands, except per share, number of shares and percentages):
Three Months Ended December 31,
20232022
Reconciliation of GAAP net income to Adjusted EBITDA
Net income attributable to RCIHH common stockholders$7,226 $10,238 
Income tax expense1,799 3,031 
Interest expense, net4,122 3,596 
Depreciation and amortization3,853 3,307 
Stock-based compensation470 941 
Gain on sale of businesses and assets(3)(590)
Gain on insurance— (64)
Adjusted EBITDA$17,467 $20,459 
Three Months Ended December 31,
20232022
Reconciliation of GAAP net income to non-GAAP net income
Net income attributable to RCIHH common stockholders$7,226 $10,238 
Amortization of intangibles659 695 
Stock-based compensation470 941 
Gain on sale of businesses and assets(3)(590)
Gain on insurance— (64)
Net income tax effect(220)(200)
Non-GAAP net income$8,132 $11,020 
Three Months Ended December 31,
20232022
Reconciliation of GAAP diluted earnings per share to non-GAAP diluted earnings per share
Diluted shares9,367,151 9,230,258 
GAAP diluted earnings per share$0.77 $1.11 
Amortization of intangibles0.07 0.08 
Stock-based compensation0.05 0.10 
Gain on sale of businesses and assets0.00 (0.06)
Gain on insurance0.00 (0.01)
Net income tax effect(0.02)(0.02)
Non-GAAP net income$0.87 $1.19 
26

Three Months Ended December 31,
20232022
Reconciliation of GAAP operating income to non-GAAP operating income
Income from operations$13,165 $16,898 
Amortization of intangibles659 695 
Stock-based compensation470 941 
Gain on sale of businesses and assets(3)(590)
Gain on insurance— (64)
Non-GAAP operating income$14,291 $17,880 
Three Months Ended December 31,
20232022
Reconciliation of GAAP operating margin to non-GAAP operating margin
Income from operations17.8 %24.2 %
Amortization of intangibles0.9 %1.0 %
Stock-based compensation0.6 %1.3 %
Gain on sale of businesses and assets0.0 %(0.8)%
Gain on insurance0.0 %(0.1)%
Non-GAAP operating income19.3 %25.6 %
* 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, 2023, our cash and cash equivalents were approximately $21.2 million compared to $21.0 million at September 30, 2023. Because of the large volume of cash we handle, we have very stringent cash controls. As of December 31, 2023, we had negative working capital of $9.0 million compared to negative working capital of $10.5 million as of September 30, 2023. 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):
For the Three Months Ended December 31,
20232022
Operating activities$13,633 $14,895 
Investing activities(5,080)(13,650)
Financing activities(8,421)(3,117)
Net increase (decrease) in cash and cash equivalents$132 $(1,872)
Cash Flows from Operating Activities
Following are our summarized cash flows from operating activities (in thousands):
For the Three Months Ended December 31,
20232022
Net income$7,244 $10,271 
Depreciation and amortization3,853 3,307 
Stock-based compensation470 941 
Net change in operating assets and liabilities1,122 263 
Other944 113 
Net cash provided by operating activities$13,633 $14,895 
Net cash provided by operating activities this current quarter decreased from last year's comparable quarter primarily due to lower income from operations and higher interest expense paid.
28

Cash Flows from Investing Activities
Following are our cash flows from investing activities (in thousands):
For the Three Months Ended December 31,
20232022
Payments for property and equipment and intangible assets$(5,135)$(12,553)
Acquisition of businesses— (4,000)
Proceeds from sale of businesses and assets— 2,784 
Proceeds from insurance— 64 
Proceeds from notes receivable55 55 
Net cash used in investing activities$(5,080)$(13,650)
Following is a breakdown of our payments for property and equipment and intangible assets for the quarter ended December 31, 2023 and 2022 (in thousands):
For the Three Months Ended December 31,
20232022
New facilities, equipment, and intangible assets$4,152 $10,689 
Maintenance capital expenditures983 1,864 
Total capital expenditures$5,135 $12,553 
The capital expenditures during the quarter ended December 31, 2023 were composed mostly of construction projects in-progress, while those during the quarter ended December 31, 2022 were composed primarily of real estate and new equipment and furniture purchases for the newly acquired clubs. 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):
For the Three Months Ended December 31,
20232022
Proceeds from debt obligations$701 $1,500 
Payments on debt obligations(6,352)(3,361)
Purchase of treasury stock(2,072)(98)
Payment of dividends(562)(462)
Payment of loan origination costs(136)(96)
Share in return of investment by noncontrolling partner— (600)
Net cash used in financing activities$(8,421)$(3,117)
We purchased 37,954 shares of our common stock at an average price of $54.59 during the quarter ended December 31, 2023, while we purchased 1,500 shares of our common stock at an average price of $65.02 during the quarter ended December 31, 2022. As of December 31, 2023, we have approximately $14.6 million authorization remaining to purchase additional shares.
We paid $0.06 per share for dividends during the first quarter ended December 31, 2023, while we paid $0.05 per share during the first quarter ended December 31, 2022.
29

See Note 6 to our unaudited condensed consolidated financial statements for future maturities of our debt obligations. We have paid all our debts on time and have not defaulted nor requested forbearance on any of our debts during the three months ended December 31, 2023 and 2022.
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):
For the Three Months Ended December 31,
20232022
Net cash provided by operating activities$13,633 $14,895 
Less: Maintenance capital expenditures983 1,864 
Free cash flow$12,650 $13,031 
Our free cash flow for the quarter decreased by 2.9% compared to the comparable prior-year quarter primarily due to lower income from operations and higher interest expense paid, partially offset lower maintenance capital expenditures paid.
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 the lingering effect of the COVID-19 pandemic, 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 three months ended December 31 (in thousands, except percentages):
2023Increase
(Decrease)
2022Increase
(Decrease)
2021
Sales of alcoholic beverages$33,316 12.4 %$29,650 12.2 %$26,431 
Sales of food and merchandise10,802 4.4 %10,347