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What changed in RCI HOSPITALITY HOLDINGS, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of RCI HOSPITALITY HOLDINGS, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+236 added−227 removedSource: 10-K (2023-12-14) vs 10-K (2022-12-14)

Top changes in RCI HOSPITALITY HOLDINGS, INC.'s 2023 10-K

236 paragraphs added · 227 removed · 180 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

24 edited+4 added−7 removed22 unchanged
Biggest changeBased on our current capital allocation strategy: • We consider acquiring or developing our own clubs or restaurants that we believe have the potential to provide a minimum cash on cash return of 25%-33%, absent an otherwise strategic rationale; • We consider disposing of underperforming units to free up capital for more productive use; • We consider buying back our own stock if the after-tax yield on free cash flow is above 10%; • We consider paying down our most expensive debt if it makes sense on a tax-adjusted basis, or there is an otherwise strategic rationale. 6 Table of Contents Over a five-year period from fiscal 2017 up to fiscal 2022, we improved diluted earnings per share at a compound annual growth rate (“CAGR”) of 42.0%, which was mainly caused by increasing revenue at a CAGR of 13.1%, and flowing through net income at a CAGR of 41.0%.
Biggest changeBased on our current capital allocation strategy: • We consider buying back our own stock if the after-tax yield on free cash flow is above 10%; • We consider acquiring or developing our own clubs or restaurants that we believe have the potential to provide a minimum cash on cash return of 25%-33%, absent an otherwise strategic rationale; • We consider disposing of underperforming units to free up capital for more productive use; • We consider paying down our most expensive debt if it makes sense on a tax-adjusted basis, or there is an otherwise strategic rationale.
Together with its subsidiaries, RCI Hospitality Holdings, Inc. is collectively referred to as “RCIHH,” the “Company,” “we,” “us,” or “our” in this report. We also operate a leading business communications company serving the multibillion-dollar adult nightclubs industry. RCIHH was incorporated in the State of Texas in 1994 and became public in 1995. Our fiscal year ends on September 30.
Together with its subsidiaries, RCI Hospitality Holdings, Inc. is collectively referred to as “RCIHH,” "RCI," the “Company,” “we,” “us,” or “our” in this report. We also operate a leading business communications company serving the multibillion-dollar adult nightclubs industry. RCIHH was incorporated in the State of Texas in 1994 and became public in 1995. Our fiscal year ends on September 30.
Our entertainers at Rick’s Cabaret in Minneapolis, Minnesota and at Jaguars Club in Phoenix, Arizona act as commissioned employees. All employees and independent contractors sign arbitration non-class-action participation agreements, where allowed by federal and state laws. None of our employees are represented by a union. We consider our employee relations to be good.
Our entertainers at Rick’s Cabaret in Minneapolis, Minnesota and at Jaguars Club in Phoenix, Arizona may elect to act as commissioned employees. All employees and independent contractors sign arbitration non-class-action participation agreements, where allowed by federal and state laws. None of our employees are represented by a union. We consider our employee relations to be good.
See Note 16 to our consolidated financial statements for details of the transactions. For a list of our nightclub locations, refer to Item 2—“Properties.” Bombshells Segment Our Bombshells segment operates a restaurant and bar concept that sets itself apart with décor that pays homage to all branches of the U.S. military.
See Note 14 to our consolidated financial statements for details of the transactions. For a list of our nightclub locations, refer to Item 2—“Properties.” Bombshells Segment Our Bombshells segment operates a restaurant and bar concept that sets itself apart with décor that pays homage to all branches of the U.S. military.
References to years 2022, 2021, and 2020 are for fiscal years ended September 30, 2022, 2021, and 2020, respectively. Our fiscal quarters chronologically end on December 31, March 31, June 30 and September 30. Our corporate website address is www.rcihospitality.com.
References to years 2023, 2022, and 2021 are for fiscal years ended September 30, 2023, 2022, and 2021, respectively. Our fiscal quarters chronologically end on December 31, March 31, June 30 and September 30. Our corporate website address is www.rcihospitality.com.
On December 22, 2020, the Company signed a franchise development agreement with a group of private investors to open three Bombshells locations in San Antonio, Texas over a period of five 5 Table of Contents years, and the right of first refusal for three more locations in Corpus Christi, New Braunfels, and San Marcos, all in Texas.
On December 22, 2020, the Company signed a franchise development agreement with a group of private investors to open three Bombshells locations in San Antonio, Texas, over a period of five years, and the right of first refusal for three more locations in Corpus Christi, New Braunfels, and San Marcos, all in Texas.
There can be no assurance that these steps we have taken to protect our service marks will be adequate to deter misappropriation of our protected intellectual property rights. EMPLOYEES AND INDEPENDENT CONTRACTORS Our people are employed by the parent company or by its subsidiaries.
There can be no assurance that these steps we have taken to protect our service marks will be adequate to deter misappropriation of our protected intellectual property rights. 7 Table of Contents EMPLOYEES AND INDEPENDENT CONTRACTORS Our people are employed by the parent company or by its subsidiaries.
ED Publications, founded in 1991, also publishes the Annual VIP Guide of adult nightclubs, touring entertainers and industry vendors; and produces the Annual Gentlemen’s Club Owners EXPO, a national convention and tradeshow.
ED Publications, founded in 1991, also publishes the Annual VIP Guide of adult nightclubs, touring entertainers and industry vendors; and produces the Annual Gentlemen’s Club Owners EXPO, a national convention and trade show.
We have also obtained service mark registrations from the Patent and Trademark Office for “RICK’S AND STARS DESIGN” logo, “RCI HOSPITALITY HOLDINGS, INC.,” “RICK’S,” “RICK’S CABARET,” “CLUB ONYX,” “XTC CABARET,” “SCARLETT’S CABARET,” “SILVER CITY CABARET,” “BOMBSHELLS RESTAURANT AND BAR,” “THE SEVILLE CLUB,” “DOWN IN TEXAS SALOON,” “CLUB DULCE,” “THE BLACK ORCHID,” “HOOPS CABARET,” “VEE LOUNGE,” “STUDIO 80,” “FOXY’S CABARET,” “EXOTIC DANCER,” “TOYS FOR TATAS,” "LA BOHEME GENTLEMAN'S CLUB," “MILE HIGH MEN’S CLUB,” “MHMC logo,” “AFTER DARK,” “COUNTRY ROCK CABARET,” “PT’S,” “DIAMOND CABARET,” and “BOMBSHELLS OFFICER’S CLUB” are registered through service mark registrations issued by the United States Patent and Trademark Office.
We have also obtained service mark registrations from the Patent and Trademark Office for “RICK’S AND STARS DESIGN” logo, “RCI HOSPITALITY HOLDINGS, INC.,” “RICK’S,” “RICK’S CABARET,” “CLUB ONYX,” “XTC CABARET,” “SCARLETT’S CABARET,” “SILVER CITY CABARET,” “BOMBSHELLS RESTAURANT AND BAR,” “THE SEVILLE CLUB,” “DOWN IN TEXAS SALOON,” “HOOPS CABARET,” “VEE LOUNGE,” “STUDIO 80,” “FOXY’S CABARET,” “EXOTIC DANCER,” “TOYS FOR TATAS,” "LA BOHEME GENTLEMAN'S CLUB," “MILE HIGH MEN’S CLUB,” “MHMC logo,” “AFTER DARK,” “COUNTRY ROCK CABARET,” “PT’S,” “DIAMOND CABARET,” "CABARET ROYALE," "BABY DOLLS SALOON," "BABY DOLLS TOPLESS SALOON," "BABY DOLLS," "JAGUARS," and “BOMBSHELLS OFFICER’S CLUB” are registered through service mark registrations issued by the United States Patent and Trademark Office.
Minnesota, North Carolina, Louisiana, Arizona, Pennsylvania, Florida, New York, and Illinois have similar laws that may limit the availability of a permit to sell alcoholic beverages or that may provide for suspension or revocation of a permit to sell alcoholic beverages in certain circumstances.
Colorado, Minnesota, North Carolina, Louisiana, Arizona, Pennsylvania, Florida, New York, Kentucky, Maine, Indiana, and Illinois have similar laws that may limit the availability of a permit to sell alcoholic beverages or that may provide for suspension or revocation of a permit to sell alcoholic beverages in certain circumstances.
Our clubs do business as Rick’s Cabaret, Jaguars Club, Tootsie’s Cabaret, XTC Cabaret, Club Onyx, Hoops Cabaret and Sports Bar, Scarlett’s Cabaret, Diamond Cabaret, Cheetah Gentlemen's Club, PT's Showclub, Playmates Club, Country Rock Cabaret, La Boheme Gentlemen's Cabaret, Temptations Adult Cabaret, Foxy’s Cabaret, Vivid Cabaret, Downtown Cabaret, Cabaret East, The Seville, Silver City Cabaret, Heartbreakers Gentlemen's Club, and Kappa Men’s Club.
Our clubs do business as Rick’s Cabaret, Jaguars Club, Tootsie’s Cabaret, XTC Cabaret, Club Onyx, Hoops Cabaret and Sports Bar, Scarlett’s Cabaret, Diamond Cabaret, Cheetah Gentlemen's Club, PT's Showclub, Playmates Club, Country Rock Cabaret, Temptations Adult Cabaret, Foxy’s Cabaret, Vivid Cabaret, Downtown Cabaret, Cabaret East, The Seville, Silver City Cabaret, Heartbreakers Gentlemen's Club, Kappa Men’s Club, Baby Dolls, and Chicas Locas.
Businesses that are not included as Nightclubs or Bombshells are combined as “Other.” During fiscal 2022, 2021, and 2020, on a consolidated basis, revenues were $267.6 million, $195.3 million, and $132.3 million, respectively, generating diluted earnings (loss) per share of $4.91, $3.37, and $(0.66), respectively.
Businesses that are not included as Nightclubs or Bombshells are combined as “Other.” During fiscal 2023, 2022, and 2021, consolidated revenues were $293.8 million, $267.6 million, and $195.3 million, respectively, generating diluted earnings per share of $3.13, $4.91, and $3.37, respectively.
The names “Rick’s” and “Rick’s Cabaret,” “Tootsie’s Cabaret,” “XTC Cabaret,” “Scarlett’s,” “Silver City,” “Club Onyx,” “Downtown Cabaret,” “Temptations,” “The Seville,” “Jaguars,” “Hoops Cabaret,” “Foxy’s Cabaret,” “Mile High Men’s Club,” “Country Rock Cabaret,” “PT’s,” and “Diamond Cabaret” are proprietary. In the restaurant/sports bar business, “Bombshells” is also proprietary.
The names “Rick’s” and “Rick’s Cabaret,” “Tootsie’s Cabaret,” “XTC Cabaret,” “Scarlett’s,” “Silver City,” “Club Onyx,” “Downtown Cabaret,” “Temptations,” “The Seville,” “Jaguars,” “Hoops Cabaret,” “Foxy’s Cabaret,” "Studio 80," “Country Rock Cabaret,” “PT’s,” “Diamond Cabaret,” “Baby Dolls Saloon," "Baby Dolls," and "Chicas Locas" are proprietary. In the restaurant/sports bar business, “Bombshells” is also proprietary.
During fiscal 2022, our Nightclub segment sales mix was 45% service revenue; 39% alcoholic beverages; and 16% food, merchandise and other. Segment gross margin (revenues less cost of goods sold, divided by revenues) was approximately 90%. Our Nightclubs segment revenue increased by 50% and income from operations increased by more than 89% compared to the prior year.
During fiscal 2023, our Nightclub segment sales mix was 43.6% service revenue; 40.7% alcoholic beverages; and 15.7% food, merchandise, and other. Segment gross margin (revenues less cost of goods sold, divided by revenues) was approximately 88.9%. Our Nightclubs segment revenue increased by approximately 14.8% and income from operations decreased by 11.6% compared to the prior year.
As of this date, we have pending 7 Table of Contents registration applications for the names “TOOTSIES CABARET,” “IN THE BIZ,” “JAGUARS,” 'KNOCKERS BAR & GRILL," and “THE MANSION.” We also own the rights to numerous trade names associated with our media division.
As of this date, we have pending registration applications for the names “TOOTSIES CABARET,” “RICK'S REWARDS,” “VENICE CABARET,” "CHERRY CREEK FOOD HALL AND BREWERY," and “THE MANSION.” We also own the rights to numerous trade names associated with our media division.
Same-stores sales for Nightclubs in 2022 was +10.1%. During fiscal 2022, we acquired 15 gentlemen’s clubs, certain related real estate properties, and associated intellectual property through five different transactions with an aggregate acquisition price of $132.6 million. These 15 clubs contributed $41.9 million in revenues during fiscal 2022.
Same-stores sales for Nightclubs in 2023 was -3.5%. During fiscal 2023, we acquired six gentlemen’s clubs, certain related real estate properties, and associated intellectual property through two transactions with an aggregate acquisition price of $75.5 million (with a combined fair value of $72.3 million). These six clubs contributed $18.2 million in revenues during fiscal 2023.
As of September 30, 2022, we had the following employees: Operations Managers Non-Managers Corporate Total Hourly 23 2,704 25 2,752 Salaried 356 41 70 467 379 2,745 95 3,219 Additionally, as of September 30, 2022, we had independent contractor entertainers who are self-employed and conduct business at our locations on a non-exclusive basis.
As of September 30, 2023, we had the following employees: Operations Managers Non-Managers Corporate Total Hourly 24 3,183 19 3,226 Salaried 408 59 85 552 432 3,242 104 3,778 Additionally, as of September 30, 2023, we had independent contractor entertainers who are self-employed and conduct business at our locations on a non-exclusive basis.
As a result, net cash provided by operating activities improved at 25.1% and free cash flow at 25.0% CAGR for the same period. See discussions of our non-GAAP financial measures starting on page 37. COMPETITION The adult entertainment and the restaurant/sports bar businesses are highly competitive with respect to price, service and location.
See discussions of our non-GAAP financial measures starting on page 41 . 6 Table of Contents COMPETITION The adult entertainment and the restaurant/sports bar businesses are highly competitive with respect to price, service and location.
OUR BUSINESS We operate several businesses, which we aggregate for financial reporting purposes into two reportable segments – Nightclubs and Bombshells.
Information contained in the corporate website shall not be construed as part of this Form 10-K. OUR BUSINESS We operate several businesses, which we aggregate for financial reporting purposes into two reportable segments – Nightclubs and Bombshells.
Our Media Group is the leading business communications company serving the multibillion-dollar adult nightclubs industry and the adult retail products industry. It owns a national industry convention and tradeshow; two national industry trade publications; two national industry award shows; and more than a dozen industry and social media websites.
It owns a national industry convention and trade show; two national industry trade publications; two national industry award shows; and more than a dozen industry and social media websites.
As of September 30, 2022, we have eleven company-owned Bombshells locations, all in Texas with two in the Dallas area, one in Austin, and eight in the Greater Houston area. We also currently have one franchised location in San Antonio, Texas. During fiscal 2022, Bombshells sales mix was 56% alcoholic beverages and 44% food, merchandise, and other.
In February 2023, we acquired the San Antonio franchise location and terminated our franchise and development agreement. As of September 30, 2023, we have twelve company-owned Bombshells locations, all in Texas with two in the Dallas area, one in Austin, one in San Antonio, and eight in the Greater Houston area.
Item 1. Business. OVERVIEW RCI Hospitality Holdings, Inc. is a holding company. Through our subsidiaries, we engaged in a number of activities in the hospitality and other businesses. As of September 30, 2022, our subsidiaries operated a total of 63 establishments that offer live adult entertainment and/or restaurant and bar operations, including 1 location that was temporarily closed.
Item 1. Business. 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. Our subsidiaries operated 69 establishments in 13 states as of September 30, 2023.
Fiscal 2020 was heavily impacted by the COVID-19 pandemic. 4 Table of Contents The table below shows the number of Nightclubs and Bombshells open by state as of September 30, 2022: Nightclubs Bombshells (1) Total Arizona 1 — 1 Colorado 5 — 5 Florida 4 — 4 Illinois 5 — 5 Indiana 1 — 1 Kentucky 1 — 1 Louisiana 1 — 1 Maine 1 — 1 Minnesota 3 — 3 New York 4 — 4 North Carolina 2 — 2 Pennsylvania 1 — 1 Texas 23 12 35 52 12 64 (1) Includes one franchised location.
The table below shows the number of Nightclubs and Bombshells open by state as of September 30, 2023: Nightclubs Bombshells (1) Total Arizona 1 — 1 Colorado 5 1 6 Florida 4 — 4 Illinois 5 — 5 Indiana 1 — 1 Kentucky 1 — 1 Louisiana 1 — 1 Maine 1 — 1 Minnesota 3 — 3 New York 4 — 4 North Carolina 2 — 2 Pennsylvania 1 — 1 Texas 27 12 39 56 13 69 (1) Includes one food hall location. 4 Table of Contents Nightclubs Segment We operate our adult entertainment nightclubs through several brands that target many different demographics of customers by providing a unique, quality entertainment environment.
For a list of our Bombshells locations, refer to Item 2—“Properties.” Other Segment We group together all businesses not belonging to either Nightclubs and Bombshells as Other reportable segment. This is made up of several wholly-owned subsidiaries composed primarily of our Media Group and Drink Robust.
Bombshells segment revenue decreased by 7.0%, while income from operations decreased by 43.5% from prior year. Same-stores sales for Bombshells in 2023 was -14.6%. For a list of our Bombshells locations, refer to Item 2—“Properties.” 5 Table of Contents Other Segment We group together all businesses not belonging to either Nightclubs and Bombshells as Other reportable segment.
Removed
Information contained in the corporate website shall not be construed as part of this Form 10-K.
Added
In December 2022, we acquired a food hall in Denver, Colorado. Subsequent to our fiscal 2023 year-end, we opened one Bombshells location in Stafford, Texas in November 2023. During fiscal 2023, Bombshells sales mix was 55.5% alcoholic beverages and 44.5% food, merchandise, and other. Segment gross margin (revenues less cost of goods sold, divided by revenues) was approximately 78%.
Removed
CURRENT OPERATING ENVIRONMENT Our fiscal 2020 was the period hard hit by the COVID-19 pandemic causing a significant reduction in customer traffic in our clubs and restaurants due to changes in consumer behavior as social distancing practices, dining room closures and other restrictions were mandated or encouraged by federal, state and local governments.
Added
This is made up of several wholly-owned subsidiaries composed primarily of our Media Group and Drink Robust. Our Media Group is the leading business communications company serving the multibillion-dollar adult nightclubs industry and the adult retail products industry.
Removed
In fiscal 2021, our businesses started to recover from the initial effects of the pandemic when government restrictions eased. Stimulus money also flowed to the economy at that time which prompted discretionary spending. In fiscal 2022, several coronavirus variants threatened to bring back tight restrictions.
Added
Over a five-year period from fiscal 2018 through fiscal 2023, we improved diluted earnings per share at a compound annual growth rate (“CAGR”) of approximately 8%, which was mainly caused by increasing revenue at a CAGR of approximately 12%, and flowing through net income at a CAGR of approximately 7%.
Removed
Along with the pandemic, geopolitical and macroeconomic events started to affect the U.S. economy in general, with global inflation and supply chain disruption impacting our businesses. Geopolitical and macroeconomic events are still developing. In the event global inflation leads to a major economic downturn, our business operations and cash flow could be significantly affected.
Added
As a result, net cash provided by operating activities improved at approximately 18% and free cash flow at also approximately 18% CAGR for the same period.
Removed
Nightclubs Segment We operate our adult entertainment nightclubs through several brands that target many different demographics of customers by providing a unique, quality entertainment environment.
Removed
Segment gross margin (revenues less cost of goods sold, divided by revenues) was approximately 77%. We grew Bombshells segment revenue by 5.8%, while income from operations decreased by 13.3% from prior year. Same-stores sales for Bombshells in 2022 was -4.6%.
Removed
In relation to our acquisitions during fiscal 2022, we now have club locations in Denver, Colorado; Louisville, Kentucky; Raleigh, North Carolina; Portland, Maine; Indianapolis, Indiana; Sauget, Illinois; Newburgh, New York; and Hallandale Beach and Coral Gables, Florida.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

44 edited+36 added−11 removed90 unchanged
Biggest changeRisks related to our business ◦ We may deviate from our present capital allocation strategy. ◦ We may need additional financing, or our business expansion plans may be significantly limited. ◦ There is substantial competition in the nightclub entertainment industry, which may affect our ability to operate profitably or acquire additional clubs. ◦ The adult entertainment industry is extremely volatile. ◦ Private advocacy group actions targeted at the kind of adult entertainment we offer could result in limitations and our inability to operate in certain locations and negatively impact our business. ◦ We rely heavily on information technology in our operations and any material failure, weakness, interruption or breach of security could prevent us from effectively operating our business. ◦ Security breaches of confidential customer information or personal employee information may adversely affect our business. ◦ Our acquisitions may result in disruptions in our business and diversion of management’s attention. ◦ We face a variety of risks associated with doing business with franchisees and licensees. ◦ The impact of new club or restaurant openings could result in fluctuations in our financial performance. ◦ Our ability to grow sales through delivery orders is uncertain. ◦ We incur significant costs as a result of operating as a public company, and our management devotes substantial time to new compliance initiatives. ◦ We have identified a material weakness in our internal control over financial reporting. ◦ We may have uninsured risks in excess of our insurance coverage. ◦ Our previous liability insurer may be unable to provide coverage to us and our subsidiaries. ◦ The protection provided by our service marks is limited. ◦ We are dependent on key personnel. ◦ A failure to maintain food safety throughout the supply chain and food-borne illness concerns may have an adverse effect on our business. 9 Table of Contents ◦ Other risk factors may adversely affect our financial performance.
Biggest changeRisks related to our business ◦ We may deviate from our present capital allocation strategy. ◦ We may need additional financing, or our business expansion plans may be significantly limited. ◦ There is substantial competition in the nightclub entertainment industry, which may affect our ability to operate profitably or acquire additional clubs. ◦ The adult entertainment industry is extremely volatile. ◦ Private advocacy group actions targeted at the kind of adult entertainment we offer could result in limitations and our inability to operate in certain locations and negatively impact our business. ◦ We rely heavily on information technology in our operations and any material failure, weakness, interruption or breach of security could prevent us from effectively operating our business. ◦ We are exposed to risks related to cyber security and protection of confidential information, and failure to protect the integrity and security of payment card or individually identifiable information of our guests and employees or confidential and proprietary information of the Company could damage our reputation and expose us to loss of revenues, increased costs and litigation. ◦ Our acquisitions may result in disruptions in our business and diversion of management’s attention. ◦ We face a variety of risks associated with doing business with franchisees and licensees. ◦ The impact of new club or restaurant openings could result in fluctuations in our financial performance. ◦ Our ability to grow sales through delivery orders is uncertain. ◦ We incur significant costs as a result of operating as a public company, and our management devotes substantial time to new compliance initiatives. ◦ We have identified material weaknesses in our internal control over financial reporting. ◦ We may have uninsured risks in excess of our insurance coverage. ◦ We are subject to increasing legal complexity and could be party to litigation that could adversely affect us. ◦ Our previous liability insurer may be unable to provide coverage to us and our subsidiaries. ◦ The protection provided by our service marks is limited. ◦ We are dependent on key personnel. 9 Table of Contents ◦ If we are not able to hire, develop, and retain qualified club and restaurant employees and/or appropriately plan our workforce, our growth plan and profitability could be adversely affected. ◦ A failure to maintain food safety throughout the supply chain and food-borne illness concerns may have an adverse effect on our business. ◦ Our venture, expansion, and renovation projects may face significant inherent risks. ◦ Other risk factors may adversely affect our financial performance.
The adult entertainment industry standard is to classify adult entertainers as independent contractors, not employees. If federal or state law mandates that they be classified as employees, our business could be adversely impacted. The adult entertainment industry standard is to classify adult entertainers as independent contractors, not employees.
If federal or state law mandates that they be classified as employees, our business could be adversely impacted. The adult entertainment industry standard is to classify adult entertainers as independent contractors, not employees.
Langan possesses a unique and comprehensive knowledge of our industry. While Mr. Langan has no present plans to leave or retire in the near future, his loss could have a negative effect on our operating, marketing and financial performance if we are unable to find an adequate replacement with similar knowledge and experience within our industry. Mr.
Mr. Langan possesses a unique and comprehensive knowledge of our industry. While Mr. Langan has no present plans to leave or retire in the near future, his loss could have a negative effect on our operating, marketing and financial performance if we are unable to find an adequate replacement with similar knowledge and experience within our industry. Mr.
Our liquidity position is, in part, dependent upon our ability to borrow funds from financial institutions and/or private individuals. Certain of our debts have financial covenants that require us to maintain certain operating income to debt service ratios. As of September 30, 2022, we were in compliance with all covenants.
Our liquidity position is, in part, dependent upon our ability to borrow funds from financial institutions and/or private individuals. Certain of our debts have financial covenants that require us to maintain certain operating income to debt service ratios. As of September 30, 2023, we were in compliance with all covenants.
A summary of our risk factors is as follows: Risks related to general macroeconomic and safety conditions ◦ The novel coronavirus (COVID-19) pandemic has disrupted and may continue to disrupt our business, which has and could continue to materially affect our operations, financial condition, and results of operations for an extended period of time. ◦ Our business, financial condition, and results of operations could be adversely affected by disruptions in the global economy caused by the ongoing conflict between Russia and Ukraine. ◦ If we are unable to maintain compliance with certain of our debt covenants or unable to obtain waivers, we may be unable to make additional borrowings and be declared in default where our debt will be made immediately due and payable.
A summary of our risk factors is as follows: Risks related to general macroeconomic and safety conditions ◦ The novel coronavirus (COVID-19) pandemic has disrupted and may continue to disrupt our business, which has and could continue to materially affect our operations, financial condition, and results of operations for an extended period of time. ◦ Our business, financial condition, and results of operations could be adversely affected by disruptions in the global economy caused by the ongoing war between Russia and Ukraine and the Israel-Hamas war. ◦ If we are unable to maintain compliance with certain of our debt covenants or unable to obtain waivers, we may be unable to make additional borrowings and be declared in default where our debt will be made immediately due and payable.
As previously stated, since October 25, 2013, the Company obtained general liability coverage from other insurers, which have covered and/or will cover any claims arising from actions after that date. As of September 30, 2022, we have 1 remaining unresolved claims out of the original 71 claims. The protection provided by our service marks is limited.
As previously stated, since October 25, 2013, the Company obtained general liability coverage from other insurers, which have covered and/or will cover any claims arising from actions after that date. As of September 30, 2023, we have 1 remaining unresolved claim out of the original 71 claims. The protection provided by our service marks is limited.
In addition, regardless of the source or cause, any report of food-borne illnesses such as E. coli, hepatitis A, trichinosis or salmonella, and other food safety issues including food tampering or contamination, at one 16 Table of Contents of our restaurants or clubs could adversely affect the reputation of our brands and have a negative impact on our sales.
In addition, regardless of the source or cause, any report of food-borne illnesses such as E. coli, hepatitis A, trichinosis or salmonella, and other food safety issues including food tampering or contamination, at one of our restaurants or clubs could adversely affect the reputation of our brands and have a negative impact on our sales.
Any government or regulatory investigations initiated as a result of the above may cause a deflation in our stock price. Additionally, allegations, directly or indirectly against us, may be posted on the internet, including social media platforms by anyone, whether or not related to us, on an anonymous basis.
Any government or 19 Table of Contents regulatory investigations initiated as a result of the above may cause a deflation in our stock price. Additionally, allegations, directly or indirectly against us, may be posted on the internet, including social media platforms by anyone, whether or not related to us, on an anonymous basis.
Accordingly, results for any one fiscal quarter are not necessarily indicative of results to be 17 Table of Contents expected for any other fiscal quarter or for any fiscal year and same-store sales for any particular future period may decrease. In the future, operating results may fall below the expectations of securities analysts and investors.
Accordingly, results for any one fiscal quarter are not necessarily indicative of results to be expected for any other fiscal quarter or for any fiscal year and same-store sales for any particular future period may decrease. In the future, operating results may fall below the expectations of securities analysts and investors.
While we take steps to ensure that our adult entertainers are deemed independent contractors, if our adult 11 Table of Contents entertainers are determined to have been misclassified as independent contractors, we would incur additional exposure under federal and state law, workers’ compensation, unemployment benefits, labor, employment and tort laws, including for prior periods, as well as potential liability for employee benefits and tax withholdings.
While we take steps to ensure that our adult entertainers are deemed independent contractors, if our adult entertainers are determined to have been misclassified as independent contractors, we would incur additional exposure under federal and state law, workers’ compensation, unemployment benefits, labor, employment and tort laws, including for prior periods, as well as potential liability for employee benefits and tax withholdings.
The Rehabilitation Order empowered the Commissioner to rehabilitate IIC through a variety of means, 15 Table of Contents 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.
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.
The loss of the intellectual property rights owned or claimed by us could have a material adverse effect on our business. We are dependent on key personnel. Our future success is dependent, in a large part, on retaining the services of Eric Langan, our President and Chief Executive Officer, and Bradley Chhay, our Chief Financial Officer. Mr.
The loss of the intellectual property rights owned or claimed by us could have a material adverse effect on our business. 17 Table of Contents We are dependent on key personnel. Our future success is dependent, in a large part, on retaining the services of Eric Langan, our President and Chief Executive Officer, and Bradley Chhay, our Chief Financial Officer.
Due to the foregoing factors, results for any one fiscal quarter are not necessarily indicative of results to be expected for any other fiscal quarter or for a full fiscal year. Our ability to grow sales through delivery orders is uncertain.
Due to the foregoing factors, results for any one fiscal quarter are not necessarily indicative of results to be expected for any other fiscal quarter or for a full fiscal year. 14 Table of Contents Our ability to grow sales through delivery orders is uncertain.
In performing this evaluation and testing, both our management and our independent registered public accounting firm concluded that our internal control over financial reporting is not effective as of September 30, 2022. We are, however, addressing this issue and remediating our material weakness.
In performing this evaluation and testing, both our management and our independent registered public accounting firm concluded that our internal control over financial reporting is not effective as of September 30, 2023. We are, however, addressing this issue and remediating our material weaknesses.
We have also obtained service mark registrations from the Patent and Trademark Office for “RICK’S AND STARS DESIGN” logo, “RCI HOSPITALITY HOLDINGS, INC.,” “RICK’S,” “RICK’S CABARET,” “CLUB ONYX,” “XTC CABARET,” “SCARLETT’S CABARET,” “SILVER CITY CABARET,” “BOMBSHELLS RESTAURANT AND BAR,” “THE SEVILLE CLUB,” “DOWN IN TEXAS SALOON,” “CLUB DULCE,” “THE BLACK ORCHID,” “HOOPS CABARET,” “VEE LOUNGE,” “STUDIO 80,” “FOXY’S CABARET,” “EXOTIC DANCER,” “TOYS FOR TATAS,” “MILE HIGH MEN’S CLUB,” “MHMC logo,” “AFTER DARK,” “COUNTRY ROCK CABARET,” “PT’S,” “DIAMOND CABARET,” and BOMBSHELLS OFFICER’S CLUB are registered through service mark registrations issued by the United States Patent and Trademark Office.
We have also obtained service mark registrations from the Patent and Trademark Office for “RICK’S AND STARS DESIGN” logo, “RCI HOSPITALITY HOLDINGS, INC.,” “RICK’S,” “RICK’S CABARET,” “CLUB ONYX,” “XTC CABARET,” “SCARLETT’S CABARET,” “SILVER CITY CABARET,” “BOMBSHELLS RESTAURANT AND BAR,” “THE SEVILLE CLUB,” “DOWN IN TEXAS SALOON,” “HOOPS CABARET,” “VEE LOUNGE,” “STUDIO 80,” “FOXY’S CABARET,” “EXOTIC DANCER,” “TOYS FOR TATAS,” “MILE HIGH MEN’S CLUB,” “MHMC logo,” “AFTER DARK,” “COUNTRY ROCK CABARET,” “PT’S,” “DIAMOND CABARET,” "CABARET ROYALE," BABY DOLLS SALOON," "BABY DOLLS TOPLESS SALOON," "BABY DOLLS," "JAGUARS," and BOMBSHELLS OFFICER’S CLUB are registered through service mark registrations issued by the United States Patent and Trademark Office.
Our Articles of Incorporation and Bylaws provide, as permitted by governing Texas law, that our directors and officers shall not be personally liable to us or any of our stockholders for monetary damages for breach of fiduciary duty as a director or officer, with certain exceptions.
Our directors and officers have limited liability and have rights to indemnification. Our Articles of Incorporation and Bylaws provide, as permitted by governing Texas law, that our directors and officers shall not be personally liable to us or any of our stockholders for monetary damages for breach of fiduciary duty as a director or officer, with certain exceptions.
A huge portion, if not all, of the impairments in 2021 and 2020 related to the projected decline in EBITDA caused by the COVID-19 pandemic.
A huge portion, if not all, of the impairments in 2021 related to the then-projected decline in EBITDA caused by the COVID-19 pandemic.
We have identified a material weakness in our internal control over financial reporting. Management, including our Chief Executive Officer and our Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of September 30, 2022, and concluded that we did not maintain effective internal control over financial reporting.
We have identified material weaknesses in our internal control over financial reporting. Management, including our Chief Executive Officer and our Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of September 30, 2023, and concluded that we did not maintain effective internal control over financial reporting.
The COVID-19 pandemic has had an adverse effect that was material on our business. The COVID-19 pandemic, federal, state and local government responses to COVID-19, our customers’ responses to the pandemic, and our Company’s responses to the pandemic have all disrupted and will continue to disrupt our business.
The COVID-19 pandemic had an adverse effect that was material on our business. The COVID-19 pandemic, federal, state and local government responses to COVID-19, our customers’ responses to the pandemic, and our Company’s responses to the pandemic all disrupted our business.
Due to the impact of COVID-19 and other external factors such as supply chain disruption, the conflict in Ukraine and the potential economic slowdown, our financial performance in future fiscal quarters could be negatively impacted.
Due to the impact of COVID-19 and other external factors such as supply chain disruption, the conflicts in Ukraine and in the Gaza Strip, and the potential economic slowdown, our financial performance in future periods could be negatively impacted.
We may need additional financing, or our business expansion plans may be significantly limited. If cash generated from our operations is insufficient to satisfy our working capital and capital expenditure requirements, we will need to raise additional funds through the public or private sale of our equity or debt securities.
If cash generated from our operations is insufficient to satisfy our working capital and capital expenditure requirements, we will need to raise additional funds through the public or private sale of our equity or debt securities.
We may have uninsured risks in excess of our insurance coverage. We maintain insurance in amounts we consider adequate for personal injury and property damage to which the business of the Company may be subject.
We maintain insurance in amounts we consider adequate for personal injury and property damage to which the business of the Company may be subject.
Additionally, the industry is subject to unpredictable competitive trends and competition for general entertainment dollars. There can be no assurance that we will be able to remain profitable in this competitive industry. The adult entertainment industry is extremely volatile. Historically, the adult entertainment, restaurant and bar industry has been an extremely volatile industry.
There can be no assurance that we will be able to remain profitable in this competitive industry. The adult entertainment industry is extremely volatile. Historically, the adult entertainment, restaurant and bar industry has been an extremely volatile industry.
This price may be influenced by many factors, including: • our performance and prospects; • the depth and liquidity of the market for our securities; • investor perception of us and the industry in which we operate; • changes in earnings estimates or buy/sell recommendations by analysts; • general financial and other market conditions; and • domestic economic conditions.
This price may be influenced by many factors, including: • our performance and prospects; • the depth and liquidity of the market for our securities; • investor perception of us and the industry in which we operate; • changes in earnings estimates or buy/sell recommendations by analysts; • general financial and other market conditions; and • domestic economic conditions. 20 Table of Contents Public stock markets have experienced, and may experience, extreme price and trading volume volatility.
As a result of our periodic impairment reviews, we recorded impairment charges of $1.9 million in 2022 (representing $566,000 goodwill impairment on one club, $293,000 SOB license impairment on one club, and $1.0 million property and equipment impairment on one club and one Bombshells unit); $13.6 million in 2021 (representing $6.3 million goodwill impairment on seven clubs, $5.3 million SOB license impairment on three clubs, and $2.0 million property and equipment impairment on four clubs and one held-for-sale property); and $10.6 million in 2020 (representing $7.9 million goodwill impairment on seven club reporting units, $2.3 million of license impairment on two clubs, $302,000 property and equipment impairment on one club and one Bombshells, and $104,000 of operating lease right-of-use asset impairment on one club).
As a result of our periodic impairment reviews, we recorded impairment charges of $12.6 million in 2023 (representing $4.2 million of goodwill impairment on four clubs, $6.5 million of SOB license impairment on eight clubs, $1.0 million of operating lease right-of-use asset on one club, $814,000 of software impairment on two investment projects, and $58,000 of property and equipment impairment on one club); $1.9 million in 2022 (representing $566,000 of goodwill impairment on one club, $293,000 of SOB license impairment on one club, and $1.0 million of property and equipment impairment on one club and one Bombshells unit); and $13.6 million in 2021 (representing $6.3 million of goodwill impairment on seven clubs, $5.3 million of SOB license impairment on three clubs, and $2.0 million of property and equipment impairment on four clubs and one held-for-sale property).
While certain actions have been taken to implement a remediation plan to address this material weakness and to enhance our internal control over financial reporting, if this material weakness is not remediated, it could adversely affect our ability to report our financial condition and results of operations in a timely and accurate manner, which could negatively affect investor confidence in our company, and, as a result, the value of our common stock could be adversely affected.
While certain actions have been taken to implement a remediation plan to address these material weaknesses and to enhance our internal control over financial reporting, if these material weaknesses are not remediated, it could adversely affect our ability to report our financial condition and results of operations in a timely and accurate manner, which could negatively affect investor confidence in our Company, and, as a result, the value of our common stock could be adversely affected. 15 Table of Contents We may have uninsured risks in excess of our insurance coverage.
If these factors are not conducive to implementing our present capital allocation strategy, or we determine that adopting a different capital allocation strategy is in the best interest of shareholders, we reserve the right to deviate from this approach. There can be no assurance that we will not deviate from or adopt an alternative capital allocation strategy moving forward.
If these factors are not conducive to implementing our present capital allocation strategy, or we determine that adopting a different capital allocation strategy is in the best interest of shareholders, we reserve the right to deviate from this approach.
We cannot ensure that additional financing will be available on terms favorable to us, if at all. Any future equity financing, if available, may result 12 Table of Contents in dilution to existing shareholders; and debt financing, if available, may include restrictive covenants.
We cannot ensure that additional financing will be available on terms favorable to us, if at all. Any future equity financing, if available, may result in dilution to existing shareholders; and debt financing, if available, may include restrictive covenants. Any failure by us to procure timely additional financing, if needed, will have material adverse consequences on our business operations.
As of this date, we have pending registration applications for the names “TOOTSIES CABARET,” “IN THE BIZ,” “JAGUARS”, “THE MANSION,” and “LA BOHEME GENTLEMAN’S CLUB.” We also own the rights to numerous trade names associated with our media division.
As of this date, we have pending registration applications for the names “TOOTSIES CABARET,” "RICK'S REWARDS," "VENICE CABARET," “CHERRY CREEK FOOD HALL AND BREWERY”, and “THE MANSION.” We also own the rights to numerous trade names associated with our media division.
However, the protection is limited to the expression, and not the conduct of an entertainer. While our nightclubs are generally well established in their respective markets, there can be no assurance that local, state and/or federal licensing and other regulations will permit our nightclubs to remain in operation or profitable in the future.
While our nightclubs are generally well established in their respective markets, there can be no assurance that local, state and/or federal licensing and other regulations will permit our nightclubs to remain in operation or profitable in the future. 11 Table of Contents The adult entertainment industry standard is to classify adult entertainers as independent contractors, not employees.
The Articles further provide that we will indemnify our directors and officers against expenses and liabilities they incur to defend, settle, or satisfy any civil litigation or criminal action brought against them on account of their being or having been its directors or officers unless, in such action, they are adjudged to have acted with gross negligence or willful misconduct. 18 Table of Contents The inclusion of these provisions in the Articles may have the effect of reducing the likelihood of derivative litigation against directors and officers and may discourage or deter stockholders or management from bringing a lawsuit against directors and officers for breach of their duty of care, even though such an action, if successful, might otherwise have benefited us and our stockholders.
The Articles further provide that we will indemnify our directors and officers against expenses and liabilities they incur to defend, settle, or satisfy any civil litigation or criminal action brought against them on account of their being or having been its directors or officers unless, in such action, they are adjudged to have acted with gross negligence or willful misconduct.
There can be no assurance, however, that uninsured liabilities may not arise in the markets in which we operate which could have a material adverse effect on the Company. Our previous liability insurer may be unable to provide coverage to us and our subsidiaries.
There can be no assurance, however, that uninsured liabilities may not arise in the markets in which we operate which could have a material adverse effect on the Company. We are subject to increasing legal complexity and could be party to litigation that could adversely affect us. Increasing legal complexity will continue to affect our operations and results.
Any failure by us to procure timely additional financing, if needed, will have material adverse consequences on our business operations. There is substantial competition in the nightclub entertainment industry, which may affect our ability to operate profitably or acquire additional clubs. Our nightclubs face substantial competition. Some of our competitors may have greater financial and management resources than we do.
There is substantial competition in the nightclub entertainment industry, which may affect our ability to operate profitably or acquire additional clubs. Our nightclubs face substantial competition. Some of our competitors may have greater financial and management resources than we do. Additionally, the industry is subject to unpredictable competitive trends and competition for general entertainment dollars.
Public stock markets have experienced, and may experience, extreme price and trading volume volatility. These broad market fluctuations may adversely affect the market price of our securities. Cumulative voting is not available to our stockholders. Cumulative voting in the election of Directors is expressly denied in our Articles of Incorporation.
These broad market fluctuations may adversely affect the market price of our securities. Cumulative voting is not available to our stockholders. Cumulative voting in the election of Directors is expressly denied in our Articles of Incorporation. Accordingly, the holder or holders of a majority of the outstanding shares of our common stock may elect all of our Directors.
Our management and other personnel devote a substantial amount of time to these compliance initiatives. Moreover, these rules and 14 Table of Contents regulations increase our legal and financial compliance costs and will make some activities more time-consuming and costly.
Our management and other personnel devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations increase our legal and financial compliance costs and will make some activities more time-consuming and costly. In addition, the Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and effective disclosure controls and procedures.
We believe that we have selected highly competent operating partners and franchisees with significant experience in restaurant operations, and we are providing them training and support on the Bombshells brand. However, the probability of opening, ultimate success and quality of any franchise or licensed restaurant rests principally with the franchisee.
We face a variety of risks associated with doing business with franchisees and licensees. We started franchising Bombshells in 2015. We believe that we have selected highly competent operating partners and franchisees with significant experience in restaurant operations, and we are providing them training and support on the Bombshells brand.
If management is unable to fully integrate acquired business, products or persons with existing operations, we may not receive the benefits of the acquisitions, and our revenues and stock trading price may decrease. We face a variety of risks associated with doing business with franchisees and licensees. We have started franchising Bombshells.
In addition, our profitability may suffer because of acquisition-related costs or amortization, or impairment costs for acquired goodwill and other intangible assets. If management is unable to fully integrate acquired business, products or persons with existing operations, we may not receive the benefits of the acquisitions, and our revenues and stock trading price may decrease.
Exclusions and quarantines of restaurant team members or groups thereof disrupt an individual restaurant’s operations and often come with little or no notice to the local restaurant management. During fiscal 2022, along with COVID-19, our operating results were impacted by geopolitical and other macroeconomic events, leading to higher than usual inflation on wages and other cost of goods sold.
In the last couple of years, along with COVID-19, our operating results were impacted by geopolitical and other macroeconomic events, leading to higher than usual inflation on wages and other cost of goods sold.
These events further impacted the availability of team members needed to staff our restaurants and caused additional disruptions in our product supply chain.
These events further impacted the availability of team members needed to staff our restaurants and caused additional disruptions in our product supply chain. 10 Table of Contents Our business, financial condition, and results of operations could be adversely affected by disruptions in the global economy caused by the ongoing war between Russia and Ukraine and the Israel-Hamas war.
Our business, financial condition, and results of operations could be adversely affected by disruptions in the global economy caused by the ongoing conflict between Russia and Ukraine. The ongoing conflict between Russia and Ukraine could have adverse effects on global macroeconomic conditions which could negatively impact our business, financial condition, and results of operations.
The ongoing war between Russia and Ukraine and the more recent Israel-Hamas war could have adverse effects on global macroeconomic conditions which could negatively impact our business, financial condition, and results of operations. These conflicts are highly unpredictable and have already resulted in significant volatility in oil and natural gas prices worldwide.
These problems could adversely affect our results of operations, and remediation could result in significant, unplanned capital investments. Security breaches of confidential customer information or personal employee information may adversely affect our business. A significant portion of our revenues are paid through debit and credit cards.
These problems could adversely affect our results of operations, and remediation could result in significant, unplanned capital investments.
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.
Further, adverse publicity resulting from these claims may hurt our business. 16 Table of Contents Our previous liability insurer may be unable to provide coverage to us and our subsidiaries. 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.
Any acquisitions will require the integration of the operations, products and personnel of the acquired businesses and the training and motivation of these individuals. Such acquisitions may disrupt our operations and divert management’s attention from day-to-day operations, which could impair our relationships with current employees, customers and partners.
Such acquisitions may disrupt our operations and divert management’s attention from day-to-day operations, which could impair our relationships with current employees, customers and partners. We may also incur debt or issue equity securities to pay for any future acquisitions. These issuances could be substantially dilutive to our stockholders.
Langan and Chhay have signed employment agreements with us (as described herein), there can be no assurance that Mr. Langan or Mr. Chhay will continue to be employed by us. A failure to maintain food safety throughout the supply chain and food-borne illness concerns may have an adverse effect on our business.
Langan and Chhay have signed employment agreements with us (as described herein), there can be no assurance that Mr. Langan or Mr. Chhay will continue to be employed by us. If we are not able to hire, develop, and retain qualified club and restaurant employees and/or appropriately plan our workforce, our growth plan and profitability could be adversely affected.
Removed
The ongoing effects of COVID-19 and its variants, along with other geopolitical and macroeconomic events could lead to future capacity restrictions, mask and vaccination mandates, wage inflation, staffing challenges, product cost inflation and disruptions in the supply chain that impact our restaurants’ ability to obtain the products needed to support their operations.
Added
Exclusions and quarantines of restaurant team members or groups thereof disrupt an individual restaurant’s operations and often come with little or no notice to the local restaurant management.
Removed
The conflict is highly unpredictable and has already resulted in significant volatility in oil and natural gas prices worldwide. We currently have some software developers in Ukraine and the uncertainly of their living conditions has delayed some of the deliverables in our recently 10 Table of Contents launched internet venture.
Added
However, the protection is limited to the expression, and not the conduct of an entertainer.
Removed
In addition, the conflict could lead to increased cyberattacks or could aggravate other risk factors that we have previously identified.
Added
There can be no assurance that we will not deviate from or adopt an alternative capital allocation strategy moving forward. 12 Table of Contents We may need additional financing, or our business expansion plans may be significantly limited.
Removed
Other restaurants and retailers have experienced significant security breaches in which debit and credit card information or other personal information of their customers have been stolen. We also maintain certain personal information regarding our employees.
Added
We are exposed to risks related to cyber security and protection of confidential information, and failure to protect the integrity and security of payment card or individually identifiable information of our guests and employees or 13 Table of Contents confidential and proprietary information of the Company could damage our reputation and expose us to loss of revenues, increased costs and litigation.
Removed
Although we aim to safeguard our technology systems, they could potentially be vulnerable to damage, disability or failures due to physical theft, fire, power outage, telecommunication failure or other catastrophic events, as well as from internal and external security breaches, employee error or malfeasance, denial of service attacks, viruses, worms and other disruptive problems caused by hackers and cyber criminals.
Added
Our technology systems contain personal, financial, and other information that is entrusted to us by our guests and employees, as well as financial, proprietary, and other confidential information related to our business, and a significant portion of our sales are by credit or debit cards.
Removed
A breach in our systems that compromises the information of our customers or employees could result in widespread negative publicity, damage to our reputation, a loss of customers, and legal liabilities. 13 Table of Contents We may in the future become subject to lawsuits or other proceedings for purportedly fraudulent transactions arising from the actual or alleged theft of our customers’ debit and credit card information or if customer or employee information is obtained by unauthorized persons or used inappropriately.
Added
If our technology systems, or those of third-party services providers we rely upon, are compromised as a result of a cyber-attack (including whether from circumvention of security systems, denial-of-service attacks, hacking, “phishing” attacks, computer viruses, ransomware, malware, or social engineering) or other external or internal method, it could result in an adverse and material impact on our reputation, operations, and financial condition.
Removed
Any such claim or proceeding, or any adverse publicity resulting from such an event, may have a material adverse effect on our business. Our acquisitions may result in disruptions in our business and diversion of management’s attention. We have made and may continue to make acquisitions of complementary nightclubs, restaurants or related operations.
Added
The cyber risks we face range from cyber-attacks common to most industries, to attacks that target us due to the confidential consumer information we obtain through our electronic processing of credit and debit card transactions. Such security breaches could also result in litigation or governmental investigation against us, as well as the imposition of penalties.
Removed
We may also incur debt or issue equity securities to pay for any future acquisitions. These issuances could be substantially dilutive to our stockholders. In addition, our profitability may suffer because of acquisition-related costs or amortization, or impairment costs for acquired goodwill and other intangible assets.
Added
These impacts could also occur if we are perceived either to have had an attack or to have failed to properly respond to an incident.
Removed
In addition, the Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and effective disclosure controls and procedures.
Added
We are subject to a variety of continually evolving and developing laws and regulations regarding privacy, data protection, and data security, including those related to the collection, storage, handling, use, disclosure, transfer, and security of personal data.
Removed
Specifically, management identified a material weakness related to management's review of accounting for business combinations, specifically related to the identification of and accounting for, intangibles assets acquired in a business combination - see Item 9A, “Controls and Procedures,” below.
Added
The use and disclosure of such information is regulated and enforced at the federal, state and international levels, and these laws, rules and regulations are subject to change.
Removed
Accordingly, the holder or holders of a majority of the outstanding shares of our common stock may elect all of our Directors. Our directors and officers have limited liability and have rights to indemnification.
Added
As privacy and information security laws and regulations change or cyber risks evolve pertaining to data, we may incur significant additional costs in technology, third-party services, and personnel to maintain systems designed to anticipate and prevent cyber-attacks. As with many public companies, our defenses are under attack regularly. There might be minor intrusions from time to time.
Added
We have added certain preventive measures to reduce cyber risks. However, we cannot provide assurance that our security frameworks and measures will be successful in preventing future significant cyber-attacks or data loss. Our acquisitions may result in disruptions in our business and diversion of management’s attention.
Added
We have made and may continue to make acquisitions of complementary nightclubs, restaurants or related operations. Any acquisitions will require the integration of the operations, products and personnel of the acquired businesses and the training and motivation of these individuals.
Added
However, the probability of opening, ultimate success and quality of any franchise or licensed restaurant rests principally with the franchisee.
Added
Management identified material weaknesses related to (1) proper design and implementation of controls over management's review of the Company's accounting for business combinations, specifically related to the identification of and accounting for, intangibles assets acquired in a business combination and over the precision of management's review of certain valuation assumptions; (2) the impairment of goodwill, indefinite-lived intangibles, and long-lived assets, specifically over the precision of management's review of certain assumptions; and (3) ineffective information technology general controls in the areas of user access and program change-management over certain information technology systems that support the Company's financial reporting processes.
Added
We could be subject to legal proceedings that may adversely affect our business, including class actions, administrative proceedings, government investigations, employment and personal injury claims, claims alleging violations of federal and state laws regarding consumer, workplace and employment matters, wage and hour claims, discrimination and similar matters, landlord/tenant disputes, disputes with current and former suppliers, claims by current and former franchisees, contractors, data privacy claims and intellectual property claims (including claims that we infringed upon another party’s trademarks, or copyrights).
Added
Inconsistent standards imposed by governmental authorities can adversely affect our business and increase our exposure to litigation which could result in significant judgments, including punitive and liquidated damages, and injunctive relief.
Added
Occasionally, our guests file complaints or lawsuits against us alleging that we are responsible for an illness or injury they suffered as a result of a visit to our restaurants, or that we have problems with food quality or operations. As a Company, we take responsible alcohol service seriously. However, we are subject to "dram shop" statutes.
Added
These statutes generally allow a person injured by an intoxicated person to recover damages from an establishment that served alcoholic beverages to the intoxicated person. Some litigation against restaurant chains has resulted in significant judgments, including punitive damages, under dram shop statutes.
Added
Because a plaintiff may seek punitive damages, which may not be covered by insurance, this type of action could have an adverse impact on our financial condition and results of operations.
Added
Litigation involving our relationship with contractors and the legal distinction between our contractors and us for employment law purposes, if determined adversely, could increase costs, negatively impact the business prospects of our operations and subject us to incremental liability for their actions.
Added
Our operating results could also be affected by the following: • The relative level of our defense costs and nature and procedural status of pending proceedings; • The cost and other effects of settlements, judgments or consent decrees, which may require us to make disclosures or to take other actions that may affect perceptions of our brands and products; • Adverse results of pending or future litigation, including litigation challenging the composition and preparation of our products, or the appropriateness or accuracy of our marketing or other communication practices; and • The scope and terms of insurance or indemnification protections that we may have (if any).
Added
Regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend and may divert time, attention and money away from our operations and hurt our performance. A judgment significantly in excess of any applicable insurance coverage could have significant adverse effect on our financial condition or results of operations.
Added
The Company and its subsidiaries changed insurance companies on that date.
Added
We rely on our restaurant- and club-level employees to consistently provide high-quality food and positive experiences to our guests. In addition, our ability to continue to open new restaurants depends on us attracting, hiring, developing, and retaining high-quality managers.

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Item 2. Properties

Properties — owned and leased real estate

7 edited+0 added−1 removed1 unchanged
Biggest changeLouis, IL 2022 (1) PT's Showclub, Indianapolis, IN 2022 Rick's Cabaret, Raleigh, NC 2022 (1) Rick's Cabaret, Portland, ME 2022 PT's Showclub, Louisville, KY 2022 PT's Centerfold, Denver, CO 2022 Mansion Gentlemen's Club & Steakhouse, Newburgh, NY 2022 Bombshells, Arlington, TX 2022 Playmates Club, Miami, FL 2022 Cheetah Gentlemen's Club, Miami, FL 2022 PT's Showclub, Odessa, TX 2022 (1) Leased location.
Biggest changeLouis, IL 2022 (1) PT's Showclub, Indianapolis, IN 2022 Rick's Cabaret, Raleigh, NC 2022 (1) Rick's Cabaret, Portland, ME 2022 PT's Showclub, Louisville, KY 2022 PT's Centerfold, Denver, CO 2022 Mansion Gentlemen's Club & Steakhouse, Newburgh, NY 2022 Bombshells, Arlington, TX 2022 Playmates Club, Miami, FL 2022 Cheetah Gentlemen's Club, Miami, FL 2022 PT's Showclub, Odessa, TX 2022 Heartbreakers Gentlemen's Club, Dickinson, TX 2023 Cherry Creek Food Hall, Denver, CO 2023 Bombshells, San Antonio, TX 2023 (1) Baby Dolls, Dallas, TX 2023 Chicas Locas, Dallas, TX 2023 Chicas Locas, Arlington, TX 2023 Chicas Locas, Houston, TX 2023 Baby Dolls, Fort Worth, TX 2023 (1) Leased location.
Below is a list of locations we operated as of September 30, 2022: Name of Establishment Fiscal Year Acquired/Opened Club Onyx, Houston, TX 1995 Rick’s Cabaret, Minneapolis, MN 1998 XTC Cabaret, Austin, TX 1998 Scarlett's Cabaret, San Antonio, TX 1998 Rick’s Cabaret, New York City, NY 2005 Club Onyx, Charlotte, NC 2005 (1) Jaguars Club, San Antonio, TX 2006 Rick’s Cabaret, Fort Worth, TX 2007 Tootsie’s Cabaret, Miami Gardens, FL 2008 XTC Cabaret, Dallas, TX 2008 Rick’s Cabaret, Round Rock, TX 2009 Cabaret East, Fort Worth, TX 2010 Rick’s Cabaret DFW, Fort Worth, TX 2011 Downtown Cabaret, Minneapolis, MN 2011 Temptations, Aledo, TX 2011 (1) Silver City Cabaret, Dallas, TX 2012 Jaguars Club, Odessa, TX 2012 Jaguars Club, Phoenix, AZ 2012 Jaguars Club, Lubbock, TX 2012 Jaguars Club, Longview, TX 2012 Jaguars Club, Abilene, TX 2012 Jaguars Club, Edinburg, TX 2012 Jaguars Club, El Paso, TX 2012 Jaguars Club, Harlingen, TX 2012 Studio 80, Fort Worth, TX 2013 (1) Bombshells, Dallas, TX 2013 Scarlett's Cabaret, Sulphur, LA 2013 Temptations, Beaumont, TX 2013 Vivid Cabaret, New York, NY 2014 (1) Bombshells, Austin, TX 2014 (1) Rick’s Cabaret, Odessa, TX 2014 Bombshells, Spring, TX 2014 (1) Bombshells Fuqua, Houston, TX 2014 (1) 20 Table of Contents Foxy’s Cabaret, Austin TX 2015 The Seville, Minneapolis, MN 2015 Hoops Cabaret and Sports Bar, New York, NY 2016 (1) Bombshells, Highway 290 Houston, TX 2017 (1) Scarlett’s Cabaret, Washington Park, IL 2017 Scarlett’s Cabaret, Miami, FL 2017 Bombshells, Pearland, TX 2018 Kappa Men’s Club, Kappa, IL 2018 Rick’s Cabaret, Chicago, IL 2019 Rick’s Cabaret, Pittsburgh, PA 2019 Bombshells I-10, Houston, TX 2019 Bombshells 249, Houston, TX 2019 Bombshells, Katy, TX 2020 Bombshells 59, Houston, TX 2020 Diamond Cabaret, Denver, CO 2022 (1) Scarlett's Cabaret, Denver, CO 2022 PT's Showclub, Denver, CO 2022 La Boheme Gentlemen's Cabaret, Denver, CO 2022 (1) Diamond Cabaret, St.
Below is a list of locations we operated as of September 30, 2023: Name of Establishment Fiscal Year Acquired/Opened Club Onyx, Houston, TX 1995 Rick’s Cabaret, Minneapolis, MN 1998 XTC Cabaret, Austin, TX 1998 Scarlett's Cabaret, San Antonio, TX 1998 Rick’s Cabaret, New York City, NY 2005 Club Onyx, Charlotte, NC 2005 (1) Jaguars Club, San Antonio, TX 2006 Rick’s Cabaret, Fort Worth, TX 2007 Tootsie’s Cabaret, Miami Gardens, FL 2008 XTC Cabaret, Dallas, TX 2008 Rick’s Cabaret, Round Rock, TX 2009 Cabaret East, Fort Worth, TX 2010 Rick’s Cabaret DFW, Fort Worth, TX 2011 Downtown Cabaret, Minneapolis, MN 2011 Silver City Cabaret, Dallas, TX 2012 Jaguars Club, Odessa, TX 2012 Jaguars Club, Phoenix, AZ 2012 Jaguars Club, Longview, TX 2012 Jaguars Club, Tye, TX 2012 Jaguars Club, Edinburg, TX 2012 Jaguars Club, El Paso, TX 2012 Jaguars Club, Harlingen, TX 2012 Studio 80, Fort Worth, TX 2013 (1) Bombshells, Dallas, TX 2013 Scarlett's Cabaret, Sulphur, LA 2013 Temptations, Beaumont, TX 2013 Vivid Cabaret, New York, NY 2014 (1) Bombshells, Austin, TX 2014 (1) Rick’s Cabaret, Odessa, TX 2014 Bombshells, Spring, TX 2014 (1) Bombshells Fuqua, Houston, TX 2014 (1) Foxy’s Cabaret, Austin TX 2015 22 Table of Contents The Seville, Minneapolis, MN 2015 Hoops Cabaret and Sports Bar, New York, NY 2016 (1) Bombshells, Highway 290 Houston, TX 2017 (1) Scarlett’s Cabaret, Washington Park, IL 2017 Scarlett’s Cabaret, Miami, FL 2017 Bombshells, Pearland, TX 2018 Kappa Men’s Club, Kappa, IL 2018 Rick’s Cabaret, Chicago, IL 2019 Rick’s Cabaret, Pittsburgh, PA 2019 Bombshells I-10, Houston, TX 2019 Bombshells 249, Houston, TX 2019 Bombshells, Katy, TX 2020 Bombshells 59, Houston, TX 2020 Diamond Cabaret, Denver, CO 2022 (1) Scarlett's Cabaret, Denver, CO 2022 PT's Showclub, Denver, CO 2022 Rick's Cabaret, Denver, CO 2022 (1) Diamond Cabaret, St.
Our property leases are typically for a fixed rental rate with contingent rent for certain locations. The lease terms generally have initial terms of 10 to 20 years with renewal terms of 5 to 20 years. At September 30, 2022, certain of the properties we own were collateral for mortgage debt amounting to approximately $123.0 million.
Our property leases are typically for a fixed rental rate with contingent rent for certain locations. The lease terms generally have initial terms of 10 to 20 years with renewal terms of 5 to 20 years. At September 30, 2023, certain of the properties we own were collateral for mortgage debt amounting to approximately $136.1 million.
Our principal corporate office is located at 10737 Cutten Road, Houston, Texas 77066, consisting of a 21,000-square foot corporate office and an 18,000-square foot warehouse facility.
Fourteen of our clubs and restaurants are in leased locations. Our principal corporate office is located at 10737 Cutten Road, Houston, Texas 77066, consisting of a 21,000-square foot corporate office and an 18,000-square foot warehouse facility.
We believe that our existing facilities, both owned and leased, are in good condition and adequate and suitable for the conduct of our business. See related information in Notes 6 and 9 to our consolidated financial statements. Item 3. Legal Proceedings.
We believe that our existing facilities, both owned and leased, are in good condition and adequate and suitable for the conduct of our business. See related information in Notes 5 and 8 to our consolidated financial statements. 23 Table of Contents
Item 2. Properties. As of September 30, 2022, we own 66 real estate properties. On 49 of these properties, we operate clubs or restaurants, including those temporarily closed. We lease multiple other properties to third-party tenants. Five of our owned properties are in locations where we previously operated clubs, but now lease the buildings to third parties.
Item 2. Properties. As of September 30, 2023, we own 88 real estate properties. On 55 of these properties, we operate clubs or restaurants, including those temporarily closed. We lease multiple other properties to third-party tenants.
Twelve are non-income-producing properties for corporate use (including our corporate office) or future club or restaurant locations, or may be offered for sale in the future. Fourteen of our clubs and restaurants are in leased locations.
Nine of our owned properties are in locations where we previously operated clubs or are adjacent to acquired clubs, but now lease the buildings to third parties. Twenty four are non-income-producing properties for corporate use (including our corporate office) or future club or restaurant locations, or may be offered for sale in the future.
Removed
See the “ Legal Matters ” section within Note 11 to our consolidated financial statements within this Annual Report on Form 10-K for the requirements of this Item, which section is incorporated herein by reference. Item 4. Mine Safety Disclosures. Not applicable. 21 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

13 edited+1 added−1 removed2 unchanged
Biggest changeEquity Compensation Plan Information 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.
Biggest changeThe 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.
Starting in March 2016, in conjunction with our share buyback program (see discussion below), our Board of Directors declared regular quarterly cash dividends of $0.03 per share, except for the fourth quarter of fiscal 2019, the second and fourth quarters of fiscal 2020, and all four quarters of fiscal 2021 when we paid $0.04 per share.
Starting in March 2016, in conjunction with our share buyback program (see discussion below), our board of directors declared regular quarterly cash dividends of $0.03 per share, except for the fourth quarter of fiscal 2019, the second and fourth quarters of fiscal 2020, all four quarters of fiscal 2021, and the first quarter of fiscal 2022 when we paid $0.04 per share.
The graph assumes a hypothetical investment of $100 on September 30, 2017 in each of our common stock and each of the indices, and that all dividends were reinvested. The measurement points utilized in the graph consist of the last trading day as of September 30 each year, representing the last day of our fiscal year.
The graph assumes a hypothetical investment of $100 on September 30, 2018 in each of our common stock and each of the indices, and that all dividends were reinvested. The measurement points utilized in the graph consist of the last trading day as of September 30 each year, representing the last day of our fiscal year.
The 22 Table of Contents 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.
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.
Currently, we estimate that there are approximately 10,700 stockholders having beneficial ownership in street name. Transfer Agent and Registrar The transfer agent and registrar for our common stock is Colonial Stock Transfer Company, Inc., 66 Exchange Place, 1st Floor, Salt Lake City, Utah 84111. Dividend Policy Prior to 2016, we had not paid cash dividends on our common stock.
Currently, we estimate that there are approximately 12,900 stockholders having beneficial ownership in street name. Transfer Agent and Registrar The transfer agent and registrar for our common stock is Colonial Stock Transfer Company, Inc., 66 Exchange Place, 1st Floor, Salt Lake City, Utah 84111. Dividend Policy Prior to 2016, we had not paid cash dividends on our common stock.
In the second quarter of fiscal 2022, we increased our regular quarterly dividends to $0.05 per share. During fiscal 2022, 2021, and 2020, we paid cash dividends totaling $1.8 million, $1.4 million, and $1.3 million, respectively.
In the second quarter of fiscal 2022, we increased our regular quarterly dividends to $0.05 per share. In the second quarter of 2023, we increased our regular quarterly dividends to $0.06 per share. During fiscal 2023, 2022, and 2021, we paid cash dividends totaling $2.1 million, $1.8 million, and $1.4 million, respectively.
Our common stock is quoted on the NASDAQ Global Market under the symbol “RICK.” Holders On December 9, 2022, the closing stock price for our common stock as reported by NASDAQ was $83.63, and there were 131 stockholders of record of our common stock (excluding broker held shares in “street name”).
Our common stock is quoted on the NASDAQ Global Market under the symbol “RICK.” Holders On December 8, 2023, the closing stock price for our common stock as reported by NASDAQ was $62.30, and there were 120 stockholders of record of our common stock (excluding broker held shares in “street name”).
On February 9, 2022, the board of directors approved a grant of 50,000 stock options each to six members of management subject to the approval of the 2022 Plan. See Note 13 to our consolidated financial statements for details.
On February 9, 2022, the board of directors approved a grant of 50,000 stock options each to six members of management subject to the approval of the 2022 Plan.
Stock Performance Graph The following chart compares the five-year cumulative total stock performance of our common stock; the NASDAQ Composite Index (IXIC); the Russell 2000 Index (RUT); and the Dow Jones U.S. Restaurant & Bar Index (DJUSRU), our peer index.
See Note 1 1 to our consolidated financial statements for details. 26 Table of Contents Stock Performance Graph The following chart compares the five-year cumulative total stock performance of our common stock; the NASDAQ Composite Index (IXIC); the Russell 2000 Index (RUT); and the Dow Jones U.S. Restaurant & Bar Index (DJUSRU), our peer index.
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 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.
Purchases of Equity Securities by the Issuer Our share repurchase activity during the three months ended September 30, 2022 was as follows: Period Total Number of Shares (or Units) Purchased Average Price Paid per Share (or Unit) (1) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (2) Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet be Purchased Under the Plans or Programs (3) July 1-31, 2022 37,200 $ 52.66 37,200 $ 19,945,243 August 1-31, 2022 5,050 $ 58.46 5,050 $ 19,650,034 September 1-30, 2022 12,223 $ 64.28 12,223 $ 18,864,381 54,473 $ 55.80 54,473 (1) Prices include any commissions and transaction costs.
Purchases of Equity Securities by the Issuer Our share repurchase activity during the three months ended September 30, 2023 was as follows: Period Total Number of Shares (or Units) Purchased Average Price Paid per Share (or Unit) (1) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (2) Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet be Purchased Under the Plans or Programs July 1-31, 2023 8,870 $ 69.47 8,870 $ 18,150,893 August 1-31, 2023 9,922 $ 66.16 9,922 $ 17,494,464 September 1-30, 2023 13,794 $ 61.85 13,794 $ 16,641,326 32,586 32,586 (1) Prices include any commissions and transaction costs.
(2) All shares were purchased pursuant to the repurchase plans approved by the Board of Directors as disclosed in our most recent Annual Report on Form 10-K. (3) On May 24, 2022, the Board of Directors approved a $25.0 million increase in the Company's share repurchase program.
(2) All shares were purchased pursuant to the repurchase plans approved by the board of directors as disclosed in our most recent Annual Report on Form 10-K. 25 Table of Contents Equity Compensation Plan Information On February 7, 2022, our board of directors approved the 2022 Stock Option Plan (the “2022 Plan”).
The historical stock performance presented below is not intended to and may not be indicative of future stock performance. 9/30/2017 9/30/2018 9/30/2019 9/30/2020 9/30/2021 9/30/2022 RCI Hospitality Holdings, Inc. $ 100.00 $ 118.98 $ 83.06 $ 82.13 $ 276.11 $ 262.01 NASDAQ Composite Index $ 100.00 $ 123.87 $ 123.14 $ 171.91 $ 222.42 $ 162.80 Dow Jones U.S.
The historical stock performance presented below is not intended to and may not be indicative of future stock performance. 9/30/2018 9/30/2019 9/30/2020 9/30/2021 9/30/2022 9/30/2023 RCI Hospitality Holdings, Inc. $ 100.00 $ 69.81 $ 69.03 $ 232.06 $ 220.21 $ 204.59 NASDAQ Composite Index $ 100.00 $ 99.42 $ 138.79 $ 179.57 $ 131.43 $ 164.29 Dow Jones U.S.
Removed
Restaurant & Bar Index $ 100.00 $ 112.64 $ 146.90 $ 148.82 $ 182.42 $ 156.82 Russell 2000 Index $ 100.00 $ 113.80 $ 102.18 $ 101.13 $ 147.86 $ 111.66 Item 6. [Reserved] 23 Table of Contents
Added
Restaurant & Bar Index $ 100.00 $ 130.41 $ 132.11 $ 161.94 $ 139.22 $ 158.58 Russell 2000 Index $ 100.00 $ 89.79 $ 88.87 $ 129.93 $ 98.12 $ 105.22 Item 6. [Reserved] 27 Table of Contents

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

91 edited+14 added−26 removed53 unchanged
Biggest changeRefer to discussion of Non-GAAP Financial Measures on page 37. 2022 Nightclubs Bombshells Other Corporate Total Income (loss) from operations $ 82,798 $ 11,504 $ 57 $ (22,900) $ 71,459 Amortization of intangibles 2,042 6 61 9 2,118 Settlement of lawsuits 1,287 18 — 112 1,417 Impairment of assets 1,238 650 — — 1,888 Loss (gain) on sale of businesses and assets (2,010) 17 — (382) (2,375) Gain on insurance (463) — — — (463) Stock-based compensation — — — 2,353 2,353 Non-GAAP operating income (loss) $ 84,892 $ 12,195 $ 118 $ (20,808) $ 76,397 GAAP operating margin 40.1 % 19.2 % 3.9 % (8.6) % 26.7 % Non-GAAP operating margin 41.2 % 20.4 % 8.2 % (7.8) % 28.5 % 35 Table of Contents 2021 Nightclubs Bombshells Other Corporate Total Income (loss) from operations $ 43,815 $ 13,264 $ 35 $ (18,566) $ 38,548 Amortization of intangibles 187 14 57 — 258 Settlement of lawsuits 275 59 5 1,010 1,349 Impairment of assets 13,612 — — — 13,612 Costs and charges related to debt refinancing 17 — — 40 57 Loss (gain) on sale of businesses and assets (580) 72 — (14) (522) Gain on insurance (1,209) — — (44) (1,253) Non-GAAP operating income (loss) $ 56,117 $ 13,409 $ 97 $ (17,574) $ 52,049 GAAP operating margin 31.9 % 23.4 % 2.7 % (9.5) % 19.7 % Non-GAAP operating margin 40.9 % 23.7 % 7.5 % (9.0) % 26.7 % 2020 Nightclubs Bombshells Other Corporate Total Income (loss) from operations $ 13,056 $ 9,237 $ (614) $ (18,933) $ 2,746 Amortization of intangibles 211 15 383 — 609 Settlement of lawsuits 174 — — — 174 Impairment of assets 10,370 245 — — 10,615 Loss (gain) on sale of businesses and assets (639) 16 — (38) (661) Loss (gain) on insurance 433 — — (13) 420 Non-GAAP operating income (loss) $ 23,605 $ 9,513 $ (231) $ (18,984) $ 13,903 GAAP operating margin 14.8 % 21.4 % (83.1) % (14.3) % 2.1 % Non-GAAP operating margin 26.7 % 22.0 % (31.3) % (14.3) % 10.5 % Other Income/Expenses Interest expense increased by $2.0 million from 2021 to 2022 and by $181,000 from 2020 to 2021.
Biggest changeRefer to discussion of Non-GAAP Financial Measures on page 41. 2023 Nightclubs Bombshells Other Corporate Total Income (loss) from operations $ 73,187 $ 6,502 $ (1,446) $ (26,759) $ 51,484 Amortization of intangibles 2,497 530 484 17 3,528 Settlement of lawsuits 3,552 207 — — 3,759 Impairment of assets 11,815 — 814 — 12,629 Loss (gain) on sale of businesses and assets (734) 77 — (25) (682) Gain on insurance (48) — — (29) (77) Stock-based compensation — — — 2,588 2,588 Non-GAAP operating income (loss) $ 90,269 $ 7,316 $ (148) $ (24,208) $ 73,229 GAAP operating margin 30.9 % 11.7 % (109.6) % (9.1) % 17.5 % Non-GAAP operating margin 38.1 % 13.1 % (11.2) % (8.2) % 24.9 % 39 Table of Contents 2022 Nightclubs Bombshells Other Corporate Total Income (loss) from operations $ 82,798 $ 11,504 $ 57 $ (22,900) $ 71,459 Amortization of intangibles 2,042 6 61 9 2,118 Settlement of lawsuits 1,287 18 — 112 1,417 Impairment of assets 1,238 650 — — 1,888 Loss (gain) on sale of businesses and assets (2,010) 17 — (382) (2,375) Gain on insurance (463) — — — (463) Stock-based compensation — — — 2,353 2,353 Non-GAAP operating income (loss) $ 84,892 $ 12,195 $ 118 $ (20,808) $ 76,397 GAAP operating margin 40.1 % 19.2 % 3.9 % (8.6) % 26.7 % Non-GAAP operating margin 41.2 % 20.4 % 8.2 % (7.8) % 28.5 % 2021 Nightclubs Bombshells Other Corporate Total Income (loss) from operations $ 43,815 $ 13,264 $ 35 $ (18,566) $ 38,548 Amortization of intangibles 187 14 57 — 258 Settlement of lawsuits 275 59 5 1,010 1,349 Impairment of assets 13,612 — — — 13,612 Costs and charges related to debt refinancing 17 — — 40 57 Loss (gain) on sale of businesses and assets (580) 72 — (14) (522) Gain on insurance (1,209) — — (44) (1,253) Non-GAAP operating income (loss) $ 56,117 $ 13,409 $ 97 $ (17,574) $ 52,049 GAAP operating margin 31.9 % 23.4 % 2.7 % (9.5) % 19.7 % Non-GAAP operating margin 40.9 % 23.7 % 7.5 % (9.0) % 26.7 % Other Income/Expenses Interest expense increased by approximately $4.0 million from 2022 to 2023 and by approximately $2.0 million from 2021 to 2022.
These nightclubs are in Houston, Austin, San Antonio, Dallas, Fort Worth, Beaumont, Longview, Harlingen, Edinburg, Tye, Lubbock, Aledo, Round Rock, El Paso and Odessa, Texas; Denver, Colorado; Charlotte and Raleigh, North Carolina; Minneapolis, Minnesota; New York and Newburgh, New York; Miami Gardens, Pembroke Park and Miami, Florida; Pittsburgh, Pennsylvania; Phoenix, Arizona; Louisville, Kentucky; Portland, Maine; Indianapolis, Indiana; and Washington Park, Kappa, Sauget and Chicago, Illinois.
These nightclubs are in Houston, Austin, San Antonio, Dallas, Fort Worth, Beaumont, Longview, Harlingen, Edinburg, Tye, Lubbock, Round Rock, El Paso and Odessa, Texas; Denver, Colorado; Charlotte and Raleigh, North Carolina; Minneapolis, Minnesota; New York and Newburgh, New York; Miami Gardens, Pembroke Park and Miami, Florida; Pittsburgh, Pennsylvania; Phoenix, Arizona; Louisville, Kentucky; Portland, Maine; Indianapolis, Indiana; and Washington Park, Kappa, Sauget and Chicago, Illinois.
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 one of our acquisitions.
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.
The $637,000 interest expense portion above includes $103,000 in unamortized debt issuance costs that were written off and $228,000 in expensed new loan costs. 40 Table of Contents 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.
The $637,000 interest expense portion above includes $103,000 in unamortized debt issuance costs that were written off and $228,000 in expensed new loan costs. 43 Table of Contents 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.
Stock-based Compensation We recognize expense for stock-based compensation awards, which is equal to the fair value of the awards at grant date, ratably in selling, general and administrative expenses in our consolidated statements of operations over their requisite service period. Calculating the grant date fair value of stock-based compensation awards requires the input of subjective assumptions.
Stock-based Compensation We recognize expense for stock-based compensation awards, which is equal to the fair value of the awards at grant date, ratably in selling, general and administrative expenses in our consolidated statements of income over their requisite service period. Calculating the grant date fair value of stock-based compensation awards requires the input of subjective assumptions.
Adjustment items are: (a) amortization of intangibles, (b) impairment of assets, 37 Table of Contents (c) gains or losses on sale of businesses and assets, (d) gains or losses on insurance, (e) unrealized loss on equity securities, (f) settlement of lawsuits, (g) gain on debt extinguishment, (h) costs and charges related to debt refinancing, (i) stock-based compensation, (j) the income tax effect of the above-described adjustments, and (k) change in deferred tax asset valuation allowance.
Adjustment items are: (a) amortization of intangibles, (b) impairment of assets, (c) gains or losses on sale of businesses and assets, (d) gains or losses on insurance, (e) unrealized loss on equity securities, (f) settlement of lawsuits, (g) gain on debt extinguishment, (h) costs and charges related to debt refinancing, (i) stock-based compensation, (j) the income tax effect of the above-described adjustments, and (k) change in deferred tax asset valuation allowance.
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. 25 Table of Contents 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.
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.
During 2022, we acquired fifteen clubs at an aggregate acquisition price of $132.6 million, of which $55.3 million was in cash, $49.0 million in debt, and $30.0 million in equity (500,000 shares of our common stock with an acquisition date fair value of $29.9 million, discounted for lack of marketability due to the lock-up period).
During 2022, we acquired fifteen clubs at an aggregate acquisition date fair value of $132.6 million, of which $55.3 million was in cash, $49.0 million in debt (with an acquisition date fair value of $47.4 million) and $30.0 million in equity (500,000 shares of our common stock with an acquisition date fair value of $29.9 million, discounted for lack of marketability due to the lock-up period).
We recognize forfeitures when they occur. Income Taxes We estimate certain components of our provision for income taxes including the recoverability of deferred tax assets that arise from temporary differences between the tax and book carrying amounts of existing assets and liabilities and their respective tax bases.
We recognize forfeitures when they occur. 30 Table of Contents Income Taxes We estimate certain components of our provision for income taxes including the recoverability of deferred tax assets that arise from temporary differences between the tax and book carrying amounts of existing assets and liabilities and their respective tax bases.
The rest of the claims for the Sulphur club were received in 2022. Gains related to insurance recoveries are recognized when the contingencies related to the insurance claims have been resolved, which may be in a subsequent reporting period. See Note 15 to our consolidated financial statements.
The rest of the claims for the Sulphur club were received in 2022. Gains related to insurance recoveries are recognized when the contingencies related to the insurance claims have been resolved, which may be in a subsequent reporting period. See Note 1 3 to our consolidated financial statements.
For indefinite-lived tradename, we determine fair value by using the relief from royalty method. The fair value is then compared to the carrying value and an impairment charge is recognized by the amount by which the carrying amount 26 Table of Contents exceeds the fair value of the asset.
For indefinite-lived tradename, we determine fair value by using the relief from royalty method. The fair value is then compared to the carrying value and an impairment charge is recognized by the amount by which the carrying amount exceeds the fair value of the asset.
See Notes 2 and 16 to our consolidated financial statements. In 2021, we settled a case with one of our Bombshells landlords for $1.0 million. See Note 11 to our consolidated financial statements. In 2022, we settled several cases including the image infringement lawsuit and the securities class actions part of which was paid by insurance.
In 2022, we settled several cases including the image infringement lawsuit and the securities class actions part of which was paid by insurance. In 2021, we settled a case with one of our Bombshells landlords for $1.0 million. See Note 1 0 to our consolidated financial statements.
In relation to insurance claims and recoveries, we recognized a $463,000 gain in 2022, $1.3 million gain in 2021, and a $420,000 loss in 2020 mainly related to a fire in one of our clubs in Washington Park, Illinois toward the end of fiscal 2018 and a hurricane that damaged one of our clubs in Sulphur, Louisiana in August 2020.
In relation to insurance claims and recoveries, we recognized a $77,000 gain in 2023, $463,000 gain in 2022, and $1.3 million gain in 2021 mainly related to a fire in one of our clubs in Washington Park, Illinois toward the end of fiscal 2018 and a hurricane that damaged one of our clubs in Sulphur, Louisiana in August 2020.
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. Same-Store Sales.
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. 28 Table of Contents Same-Store Sales.
GAAP measures. 28 Table of Contents The following common size tables present a comparison of our results of operations as a percentage of total revenues for the three most recently completed fiscal years: 2022 2021 2020 Revenues Sales of alcoholic beverages 42.3 % 44.4 % 44.6 % Sales of food and merchandise 16.6 % 21.1 % 18.5 % Service revenues 35.1 % 28.4 % 31.1 % Other 6.0 % 6.1 % 5.8 % Total revenues 100.0 % 100.0 % 100.0 % Operating expenses Cost of goods sold Alcoholic beverages sold 17.8 % 18.3 % 18.8 % Food and merchandise sold 35.1 % 33.6 % 33.0 % Service and other 0.3 % 0.6 % 0.5 % Total cost of goods sold (exclusive of items shown separately below) 13.5 % 15.4 % 14.7 % Salaries and wages 25.6 % 25.9 % 29.5 % Selling, general and administrative 29.5 % 28.0 % 39.1 % Depreciation and amortization 4.6 % 4.2 % 6.7 % Other charges, net 0.2 % 6.8 % 8.0 % Total operating expenses 73.3 % 80.3 % 97.9 % Income from operations 26.7 % 19.7 % 2.1 % Other income (expenses) Interest expense (4.5) % (5.1) % (7.4) % Interest income 0.2 % 0.1 % 0.2 % Non-operating gains (losses), net 0.1 % 2.7 % 0.0 % Income (loss) before income taxes 22.5 % 17.5 % (5.1) % Income tax expense (benefit) 5.3 % 2.0 % (0.4) % Net income (loss) 17.2 % 15.4 % (4.8) % † Percentages may not foot due to rounding in this and in all of the succeeding tables presenting percentages in this report.
GAAP measures. 32 Table of Contents The following common size tables present a comparison of our results of operations as a percentage of total revenues for the three most recently completed fiscal years: 2023 2022 2021 Revenues Sales of alcoholic beverages 43.3 % 42.3 % 44.4 % Sales of food and merchandise 14.9 % 16.6 % 21.1 % Service revenues 35.3 % 35.1 % 28.4 % Other 6.5 % 6.0 % 6.1 % Total revenues 100.0 % 100.0 % 100.0 % Operating expenses Cost of goods sold Alcoholic beverages sold 18.3 % 17.8 % 18.3 % Food and merchandise sold 35.1 % 35.1 % 33.6 % Service and other 0.2 % 0.3 % 0.6 % Total cost of goods sold (exclusive of items shown separately below) 13.3 % 13.5 % 15.4 % Salaries and wages 27.1 % 25.6 % 25.9 % Selling, general and administrative 31.7 % 29.5 % 28.0 % Depreciation and amortization 5.2 % 4.6 % 4.2 % Other charges, net 5.3 % 0.2 % 6.8 % Total operating expenses 82.5 % 73.3 % 80.3 % Income from operations 17.5 % 26.7 % 19.7 % Other income (expenses) Interest expense (5.4) % (4.5) % (5.1) % Interest income 0.1 % 0.2 % 0.1 % Non-operating gains, net — % 0.1 % 2.7 % Income before income taxes 12.2 % 22.5 % 17.5 % Income tax expense 2.3 % 5.3 % 2.0 % Net income 9.9 % 17.2 % 15.4 % † Percentages may not foot due to rounding in this and in all of the succeeding tables presenting percentages in this report.
There can be no assurance that we will be able to obtain additional financing on reasonable terms in the future, if at all, should the need arise. An inability to obtain such additional financing could have an adverse effect on our growth strategy. 45 Table of Contents
There can be no assurance that we will be able to obtain additional financing on reasonable terms in the future, if at all, should the need arise. An inability to obtain such additional financing could have an adverse effect on our growth strategy.
For the year ended September 30, 2020, we identified seven reporting units that were impaired and recognized a goodwill impairment loss totaling $7.9 million. For indefinite-lived intangibles, specifically SOB licenses, we determine fair value by estimating the multiperiod excess earnings of the asset with key assumptions being similar to those used in the goodwill impairment valuation model.
For the year ended September 30, 2021, we identified seven reporting units that were impaired and recognized a goodwill impairment loss totaling $6.3 million. For indefinite- and definite-lived intangibles, specifically SOB licenses, we determine fair value by estimating the multiperiod excess earnings of the asset with key assumptions being similar to those used in the goodwill impairment valuation model.
Refer to dispositions in Note 16 to our consolidated financial statement for details on gains or losses on sale of businesses and assets.
Refer to dispositions in Note 1 4 to our consolidated financial statement for details on gains or losses on sale of businesses and assets.
Cost of goods sold includes cost of alcoholic and non-alcoholic beverages, food, cigars and cigarettes, merchandise, media printing/binding, and Drink Robust. As a percentage of consolidated revenues, consolidated cost of goods sold was 13.5%, 15.4%, and 14.7% for fiscal 2022, 2021, and 2020, respectively.
Cost of goods sold includes cost of alcoholic and non-alcoholic beverages, food, cigars and cigarettes, merchandise, media printing/binding, and Drink Robust. As a percentage of consolidated revenues, consolidated cost of goods sold was 13.3%, 13.5%, and 15.4% for fiscal 2023, 2022, and 2021, respectively.
There were no new Bombshells units opened in 2021. We also sold two real estate properties in 2021. We opened two new Bombshells units in 2020 (one in Katy, Texas and another on U.S. Highway 59 in Houston, Texas) and sold three real estate properties.
There were no new Bombshells units opened in 2021. We also sold two real estate properties in 2021. We opened two new Bombshells units in 2020 (one in Katy, Texas and another on U.S.
Bombshells cost of goods sold was 23.5%, 23.8%, and 22.6% for fiscal 2022, 2021, and 2020, respectively, which was mainly driven by menu price increases in 2022 in response to inflation, the shift in sales mix to lower-margin food sales in 2021, and to higher-margin alcoholic beverage sales in 2020. Salaries and wages .
Bombshells cost of goods sold was 22.4%, 23.5%, and 23.8% for fiscal 2022, 2021, and 2020, respectively, which was mainly driven by menu price increases in 2023 and 2022 in response to inflation, and the shift in sales mix to lower-margin food sales in 2021. Salaries and wages .
Our growth strategy is to diversify our operations with these units which do not require SOB licenses, which are sometimes difficult to obtain. While we are searching for adult nightclubs to acquire, we are able to also search for restaurant/sports bar locations that are consistent with our income targets. We opened two new Bombshells units in fiscal 2020.
Our growth strategy is to diversify our operations with these units which do not require SOB licenses, which are sometimes difficult to obtain. While we are searching for adult nightclubs to acquire, we are able to also search for restaurant/sports bar locations that are consistent with our income targets.
Operating Expenses Total operating expenses, as a percent of consolidated revenues, were 73.3%, 80.3%, and 97.9% for the fiscal year 2022, 2021, and 2020, respectively. Significant contributors to the change in operating expenses as a percent of revenues are explained below. Cost of goods sold .
Operating Expenses Total operating expenses, as a percent of consolidated revenues, were 82.5%, 73.3%, and 80.3% for the fiscal year 2023, 2022, and 2021, respectively. Significant contributors to the change in operating expenses as a percent of revenues are explained below. Cost of goods sold .
Salaries and wages as a percentage of segment revenue (except Corporate, which is based on consolidated revenues): 2022 2021 2020 Nightclubs 19.8 % 19.6 % 22.2 % Bombshells 24.3 % 23.0 % 24.1 % Other 41.6 % 45.2 % 66.4 % Corporate 4.6 % 5.1 % 6.5 % 25.6 % 25.9 % 29.5 % Selling, general and administrative expenses .
Salaries and wages as a percentage of segment revenue (except Corporate, which is based on consolidated revenues): 2023 2022 2021 Nightclubs 21.3 % 19.8 % 19.6 % Bombshells 26.8 % 24.3 % 23.0 % Other 45.8 % 41.6 % 45.2 % Corporate 4.6 % 4.6 % 5.1 % 27.1 % 25.6 % 25.9 % Selling, general and administrative expenses .
LIQUIDITY AND CAPITAL RESOURCES At September 30, 2022, our cash and cash equivalents were approximately $36.0 million as compared to $35.7 million at September 30, 2021. Because of the large volume of cash we handle, we have very stringent cash controls.
LIQUIDITY AND CAPITAL RESOURCES At September 30, 2023, our cash and cash equivalents were $21.0 million as compared to $36.0 million at September 30, 2022. Because of the large volume of cash we handle, we have very stringent cash controls.
We believe that excluding and including such items help management and investors better understand our operating activities. Adjusted EBITDA .
We believe that excluding and including such items help management and investors better understand our operating activities. 41 Table of Contents Adjusted EBITDA .
Included in the income tax effect of the above adjustments is the net effect of the non-GAAP provision for income taxes, calculated at 22.8%, 13.5%, and 26.0% effective tax rate of the pre-tax non-GAAP income before taxes for the 2022, 2021, and 2020, respectively, and the GAAP income tax expense (benefit).
Included in the income tax effect of the above adjustments is the net effect of the non-GAAP provision for income taxes, calculated at 20.6%, 22.8%, and 13.5% effective tax rate of the pre-tax non-GAAP income before taxes for the 2023, 2022, and 2021, respectively, and the GAAP income tax expense.
We use adjusted EBITDA as one guideline to assess the unleveraged performance return on our investments. Adjusted EBITDA multiple is also used as a target benchmark for our acquisitions of nightclubs. We also use certain non-GAAP cash flow measures such as free cash flow.
We use adjusted EBITDA as one guideline to assess the unleveraged performance return on our investments. Adjusted EBITDA multiple is also used as a 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 table presents a summary of our net cash flows from operating, investing, and financing activities (in thousands): 2022 2021 2020 Operating $ 64,509 $ 41,991 $ 15,632 Investing (67,797) (6,814) (994) Financing 3,582 (15,096) (13,130) Net increase in cash and cash equivalents $ 294 $ 20,081 $ 1,508 We require capital principally for the acquisition of new clubs, construction of new Bombshells, renovation of older units, and investments in technology.
The following table presents a summary of our net cash flows from operating, investing, and financing activities (in thousands): 2023 2022 2021 Operating $ 59,130 $ 64,509 $ 41,991 Investing (64,824) (67,797) (6,814) Financing (9,263) 3,582 (15,096) Net increase (decrease) in cash and cash equivalents $ (14,957) $ 294 $ 20,081 We require capital principally for the acquisition of new clubs, construction of new Bombshells, renovation of older units, and investments in technology.
We recorded impairment charges for SOB licenses amounting to $293,000 in 2022 related to one club, $5.3 million in 2021 related to three clubs, and $2.3 million in 2020 related to two clubs.
We recorded impairment charges for SOB licenses amounting to $6.5 million in 2023 related to eight clubs, $293,000 in 2022 related to one club, and $5.3 million in 2021 related to three clubs.
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. 27 Table of Contents OPERATIONS REVIEW Highlights of operations from fiscal 2022, 2021, and 2020 are as follows (in thousands, except percentages and per share amounts): 2022 Inc (Dec) 2021 Inc (Dec) 2020 Revenues Consolidated $ 267,620 37.1 % $ 195,258 47.6 % $ 132,327 Nightclubs $ 206,251 50.2 % $ 137,348 55.4 % $ 88,373 Bombshells $ 59,925 5.8 % $ 56,621 31.0 % $ 43,215 Same-store sales Consolidated +5.6 % +1.5 % Nightclubs +10.1 % -2.1 % Bombshells -4.6 % +7.7 % Income from operations Consolidated $ 71,459 85.4 % $ 38,548 1,303.8 % $ 2,746 Nightclubs $ 82,798 89.0 % $ 43,815 235.6 % $ 13,056 Bombshells $ 11,504 (13.3) % $ 13,264 43.6 % $ 9,237 Diluted earnings (loss) per share $ 4.91 $ 3.37 $ (0.66) Net cash provided by operating activities $ 64,509 53.6 % $ 41,991 168.6 % $ 15,632 Free cash flow* $ 58,911 63.3 % $ 36,084 167.7 % $ 13,481 * Reconciliation and discussion of non-GAAP financial measures are included under the “Non-GAAP Financial Measures” section of this Item.
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. 31 Table of Contents OPERATIONS REVIEW Highlights of operations from fiscal 2023, 2022, and 2021 are as follows (in thousands, except percentages and per share amounts): 2023 Inc (Dec) 2022 Inc (Dec) 2021 Revenues Consolidated $ 293,790 9.8 % $ 267,620 37.1 % $ 195,258 Nightclubs $ 236,748 14.8 % $ 206,251 50.2 % $ 137,348 Bombshells $ 55,723 (7.0) % $ 59,925 5.8 % $ 56,621 Same-store sales Consolidated -6.0 % +5.6 % Nightclubs -3.5 % +10.1 % Bombshells -14.6 % -4.6 % Income from operations Consolidated $ 51,484 (28.0) % $ 71,459 85.4 % $ 38,548 Nightclubs $ 73,187 (11.6) % $ 82,798 89.0 % $ 43,815 Bombshells $ 6,502 (43.5) % $ 11,504 (13.3) % $ 13,264 Diluted earnings per share $ 3.13 $ 4.91 $ 3.37 Net cash provided by operating activities $ 59,130 (8.3) % $ 64,509 53.6 % $ 41,991 Free cash flow* $ 53,176 (9.7) % $ 58,911 63.3 % $ 36,084 * Reconciliation and discussion of non-GAAP financial measures are included under the “Non-GAAP Financial Measures” section of this Item.
The decrease from 2020 to 2021 was mainly from significantly low capital expenditure in 2020 while the increase from 2021 to 2022 was mainly caused by the growth in our depreciable asset base and amortizable intangibles caused by acquired clubs and a new Bombshells unit. Other charges, net .
The increase from 2021 to 2022 was mainly caused by the growth in our depreciable asset base and amortizable intangibles caused by acquired clubs and a new Bombshells unit, while the increase from 2022 to 2023 was mainly from newly acquired clubs. Other charges, net .
Drink Robust sales were $201,000, $249,000, and $150,000 in fiscal 2022, 2021, and 2020, respectively, which excludes intercompany sales to Nightclubs and Bombshells units amounting to $261,000, $141,000, and $70,000 in fiscal 2022, 2021, and 2020, respectively. Media business revenues were $1.2 million, $1.0 million, and $589,000 in fiscal 2022, 2021, and 2020, respectively.
Drink Robust sales were $145,000, $201,000, and $249,000 in fiscal 2023, 2022, and 2021, respectively, which exclude intercompany sales to Nightclubs and Bombshells units amounting to $254,000, $261,000, and $141,000 in fiscal 2023, 2022, and 2021, respectively. Media business revenues were $1.1 million, $1.2 million, and $1.0 million in fiscal 2023, 2022, and 2021, respectively.
In fiscal 2021, we received 11 notices of forgiveness for our PPP loans approving the forgiveness of 100% of each of the 11 PPP loans amounting to $5.3 million in principal and interest, which were included in non-operating gains (losses), net.
In fiscal 2021, we received 11 notices of forgiveness for our PPP loans approving the forgiveness of 100% of each of the 11 PPP loans amounting to $5.3 million in principal and interest, which were included in non-operating gains (losses), net. 40 Table of Contents In November 2021, we received a partial forgiveness of the remaining $124,000 PPP loan for $85,000 in principal and interest.
Included in other revenues of the Nightclubs segment is real estate rental revenue amounting to $1.6 million in 2022, $1.5 million in 2021, and $1.3 million in 2020. 31 Table of Contents Bombshells segment revenues. Bombshells revenues increased by 5.8% from 2021 to 2022 and by 31.0% from 2020 to 2021.
Included in other revenues of the Nightclubs segment is real estate rental revenue amounting to $1.8 million in 2023, $1.6 million in 2022, and $1.5 million in 2021. 35 Table of Contents Bombshells segment revenues.
Income from Operations During fiscal 2022, 2021, and 2020, our consolidated operating margin was 26.7%, 19.7%, and 2.1%, respectively.
Income from Operations During fiscal 2023, 2022, and 2021, our consolidated operating margin was 17.5%, 26.7%, and 19.7%, respectively.
See “Liquidity and Capital Resources” section for further discussion. 38 Table of Contents The following tables present our non-GAAP performance measures for the periods indicated (in thousands, except per share amounts and percentages): 2022 2021 2020 Reconciliation of GAAP net income (loss) to Adjusted EBITDA Net income (loss) attributable to RCIHH common stockholders $ 46,041 $ 30,336 $ (6,085) Income tax expense (benefit) 14,071 3,989 (493) Interest expense, net 11,539 9,739 9,487 Settlement of lawsuits 1,417 1,349 174 Impairment of assets 1,888 13,612 10,615 Gain on sale of businesses and assets (2,375) (522) (661) Depreciation and amortization 12,391 8,238 8,836 Unrealized loss on equity securities — 84 64 Gain on debt extinguishment (138) (5,329) — Loss (gain) on insurance (463) (1,253) 420 Stock-based compensation 2,353 — — Adjusted EBITDA $ 86,724 $ 60,243 $ 22,357 Reconciliation of GAAP net income (loss) to non-GAAP net income Net income (loss) attributable to RCIHH common stockholders $ 46,041 $ 30,336 $ (6,085) Amortization of intangibles 2,118 258 609 Settlement of lawsuits 1,417 1,349 174 Impairment of assets 1,888 13,612 10,615 Gain on sale of businesses and assets (2,375) (522) (661) Costs and charges related to debt refinancing* — 694 — Unrealized loss on equity securities — 84 64 Gain on debt extinguishment (138) (5,329) — Loss (gain) on insurance (463) (1,253) 420 Stock-based compensation 2,353 — — Change in deferred tax asset valuation allowance 343 (632) 1,273 Net income tax effect (729) (1,845) (1,700) Non-GAAP net income $ 50,455 $ 36,752 $ 4,709 39 Table of Contents 2022 2021 2020 Reconciliation of GAAP diluted earnings (loss) per share to non-GAAP diluted earnings per share Diluted shares 9,383,445 9,004,744 9,199,225 GAAP diluted earnings (loss) per share $ 4.91 $ 3.37 $ (0.66) Amortization of intangibles 0.23 0.03 0.07 Settlement of lawsuits 0.15 0.15 0.02 Impairment of assets 0.20 1.51 1.15 Gain on sale of businesses and assets (0.25) (0.06) (0.07) Costs and charges related to debt refinancing* — 0.08 — Unrealized loss on equity securities — 0.01 0.01 Gain on debt extinguishment (0.01) (0.59) — Loss (gain) on insurance (0.05) (0.14) 0.05 Stock-based compensation 0.25 — — Change in deferred tax asset valuation allowance 0.04 (0.07) 0.14 Net income tax effect (0.08) (0.20) (0.18) Non-GAAP diluted earnings per share $ 5.38 $ 4.08 $ 0.51 Reconciliation of GAAP operating income to non-GAAP operating income Income from operations $ 71,459 $ 38,548 $ 2,746 Amortization of intangibles 2,118 258 609 Settlement of lawsuits 1,417 1,349 174 Impairment of assets 1,888 13,612 10,615 Costs and charges related to debt refinancing* — 57 — Gain on sale of businesses and assets (2,375) (522) (661) Loss (gain) on insurance (463) (1,253) 420 Stock-based compensation 2,353 — — Non-GAAP operating income $ 76,397 $ 52,049 $ 13,903 2022 2021 2020 Reconciliation of GAAP operating margin to non-GAAP operating margin GAAP operating margin 26.7 % 19.7 % 2.1 % Amortization of intangibles 0.8 % 0.1 % 0.5 % Settlement of lawsuits 0.5 % 0.7 % 0.1 % Impairment of assets 0.7 % 7.0 % 8.0 % Costs and charges related to debt refinancing* — % 0.0 % — % Gain on sale of businesses and assets (0.9) % (0.3) % (0.5) % Loss (gain) on insurance (0.2) % (0.6) % 0.3 % Stock-based compensation 0.9 % — % — % Non-GAAP operating margin 28.5 % 26.7 % 10.5 % * Costs and charges related to debt refinancing in 2021 consist of $637,000 in interest expense and $57,000 in legal and professional fees.
The following tables present our non-GAAP performance measures for the periods indicated (in thousands, except per share amounts and percentages): 2023 2022 2021 Reconciliation of GAAP net income to Adjusted EBITDA Net income attributable to RCIHH common stockholders $ 29,246 $ 46,041 $ 30,336 Income tax expense 6,846 14,071 3,989 Interest expense, net 15,538 11,539 9,739 Settlement of lawsuits 3,759 1,417 1,349 Impairment of assets 12,629 1,888 13,612 Gain on sale of businesses and assets (682) (2,375) (522) Depreciation and amortization 15,151 12,391 8,238 Unrealized loss on equity securities — — 84 Gain on debt extinguishment — (138) (5,329) Gain on insurance (77) (463) (1,253) Stock-based compensation 2,588 2,353 — Adjusted EBITDA $ 84,998 $ 86,724 $ 60,243 Reconciliation of GAAP net income to non-GAAP net income Net income attributable to RCIHH common stockholders $ 29,246 $ 46,041 $ 30,336 Amortization of intangibles 3,528 2,118 258 Settlement of lawsuits 3,759 1,417 1,349 Impairment of assets 12,629 1,888 13,612 Gain on sale of businesses and assets (682) (2,375) (522) Costs and charges related to debt refinancing* — — 694 Unrealized loss on equity securities — — 84 Gain on debt extinguishment — (138) (5,329) Gain on insurance (77) (463) (1,253) Stock-based compensation 2,588 2,353 — Change in deferred tax asset valuation allowance (176) 343 (632) Net income tax effect (5,068) (729) (1,845) Non-GAAP net income $ 45,747 $ 50,455 $ 36,752 42 Table of Contents 2023 2022 2021 Reconciliation of GAAP diluted earnings per share to non-GAAP diluted earnings per share Diluted shares 9,335,983 9,383,445 9,004,744 GAAP diluted earnings per share $ 3.13 $ 4.91 $ 3.37 Amortization of intangibles 0.38 0.23 0.03 Settlement of lawsuits 0.40 0.15 0.15 Impairment of assets 1.35 0.20 1.51 Gain on sale of businesses and assets (0.07) (0.25) (0.06) Costs and charges related to debt refinancing* — — 0.08 Unrealized loss on equity securities — — 0.01 Gain on debt extinguishment — (0.01) (0.59) Gain on insurance (0.01) (0.05) (0.14) Stock-based compensation 0.28 0.25 — Change in deferred tax asset valuation allowance (0.02) 0.04 (0.07) Net income tax effect (0.54) (0.08) (0.20) Non-GAAP diluted earnings per share $ 4.90 $ 5.38 $ 4.08 Reconciliation of GAAP operating income to non-GAAP operating income Income from operations $ 51,484 $ 71,459 $ 38,548 Amortization of intangibles 3,528 2,118 258 Settlement of lawsuits 3,759 1,417 1,349 Impairment of assets 12,629 1,888 13,612 Costs and charges related to debt refinancing* — — 57 Gain on sale of businesses and assets (682) (2,375) (522) Gain on insurance (77) (463) (1,253) Stock-based compensation 2,588 2,353 — Non-GAAP operating income $ 73,229 $ 76,397 $ 52,049 2023 2022 2021 Reconciliation of GAAP operating margin to non-GAAP operating margin GAAP operating margin 17.5 % 26.7 % 19.7 % Amortization of intangibles 1.2 % 0.8 % 0.1 % Settlement of lawsuits 1.3 % 0.5 % 0.7 % Impairment of assets 4.3 % 0.7 % 7.0 % Costs and charges related to debt refinancing* — % 0.0 % — % Gain on sale of businesses and assets (0.2) % (0.9) % (0.3) % Gain on insurance — % (0.2) % (0.6) % Stock-based compensation 0.9 % 0.9 % — % Non-GAAP operating margin 24.9 % 28.5 % 26.7 % * Costs and charges related to debt refinancing in 2021 consist of $637,000 in interest expense and $57,000 in legal and professional fees.
For the year ended September 30, 2022, we identified one reporting unit that was impaired and recognized a goodwill impairment loss of $566,000. For the year ended September 30, 2021, we identified seven reporting units that were impaired and recognized a goodwill impairment loss totaling $6.3 million.
For the year ended September 30, 2023, we identified four reporting units that were impaired and recognized a total goodwill impairment of $4.2 million. For the year ended September 30, 2022, we identified one reporting unit that was impaired and recognized a goodwill impairment loss of $566,000.
Total occupancy cost rate (total occupancy cost as a percentage of revenues) was high in 2020 due to lower sales activity caused by the pandemic, as shown below. 2022 2021 2020 Lease 2.5 % 2.0 % 3.1 % Interest 4.5 % 4.8 % 7.4 % Total occupancy cost 7.0 % 6.8 % 10.5 % 36 Table of Contents The 2021 interest expense rate above excludes certain costs and charges related to the September 2021 Refinancing Note amounting to approximately $637,000, or 0.3% of consolidated revenues.
Total occupancy cost rate (total occupancy cost as a percentage of revenues) is shown in the table below. 2023 2022 2021 Lease 2.5 % 2.5 % 2.0 % Interest 5.4 % 4.5 % 4.8 % Total occupancy cost 7.9 % 7.0 % 6.8 % The 2021 interest expense rate above excludes certain costs and charges related to the September 2021 Refinancing Note amounting to approximately $637,000, or 0.3% of consolidated revenues.
Our growth strategy includes acquiring existing units, opening new units after market analysis, developing new club concepts that are consistent with our management and marketing skills, franchising our Bombshells brand, and developing and opening our Bombshells concept as our capital and manpower allow. All eleven of the existing Bombshells as of September 30, 2022 are located in Texas.
Our growth strategy includes acquiring existing clubs, opening new clubs after market analysis, developing new club concepts that are consistent with our management and marketing skills, franchising our Bombshells brand, and developing and opening our Bombshells concept as our capital and manpower allow.
Bombshells Our wholly-owned subsidiaries own and operate restaurants and sports bars in Houston, Dallas, Austin, Spring, Pearland, Tomball, Katy and Arlington, Texas under the brand name Bombshells Restaurant & Bar. We have one franchised unit in San Antonio, Texas.
Bombshells Our wholly-owned subsidiaries own and operate restaurants and sports bars in Houston, Dallas, Austin, Spring, Pearland, Tomball, Katy, Arlington, and San Antonio, Texas under the brand name Bombshells Restaurant & Bar. Bombshells also operates a food hall in Denver, Colorado.
See Note 16 to our consolidated financial statements. 42 Table of Contents Following is a reconciliation of our additions to property and equipment for the years ended September 30, 2022, 2021, and 2020 (in thousands): 2022 2021 2020 New capital expenditures in new clubs and Bombshells units and equipment* $ 18,405 $ 7,604 $ 3,585 Maintenance capital expenditures 5,598 5,907 2,151 Total capital expenditures, excluding business acquisitions $ 24,003 $ 13,511 $ 5,736 * Includes real estate except those acquired through business acquisitions.
Following is a reconciliation of our additions to property and equipment for the years ended September 30, 2023, 2022, and 2021 (in thousands): 2023 2022 2021 New capital expenditures in new clubs and Bombshells units and equipment* $ 34,430 $ 18,405 $ 7,604 Maintenance capital expenditures 5,954 5,598 5,907 Total capital expenditures, excluding business acquisitions $ 40,384 $ 24,003 $ 13,511 * Includes real estate except those acquired through business acquisitions.
Cash Flows from Financing Activities Following are our summarized cash flows from financing activities (in thousands): 2022 2021 2020 Proceeds from debt obligations $ 35,820 $ 38,490 $ 6,503 Payments on debt obligations (14,894) (49,178) (8,832) Purchase of treasury stock (15,097) (1,794) (9,484) Payment of dividends (1,784) (1,440) (1,286) Payment of loan origination costs (463) (1,174) — Distribution to noncontrolling interests — — (31) Net cash provided by (used in) financing activities $ 3,582 $ (15,096) $ (13,130) See Note 9 to our consolidated financial statements for a detailed discussion of our debt obligations.
Cash Flows from Financing Activities Following are our summarized cash flows from financing activities (in thousands): 2023 2022 2021 Proceeds from debt obligations $ 11,595 $ 35,820 $ 38,490 Payments on debt obligations (15,650) (14,894) (49,178) Purchase of treasury stock (2,223) (15,097) (1,794) Payment of dividends (2,146) (1,784) (1,440) Payment of loan origination costs (239) (463) (1,174) Distribution to noncontrolling interests (600) — — Net cash provided by (used in) financing activities $ (9,263) $ 3,582 $ (15,096) See Note 8 to our consolidated financial statements for a detailed discussion of our debt obligations, including the future maturities of our debt obligations in the next five years and thereafter.
The following table presents a summary of such indicators (dollars in thousands): 2022 Inc (Dec) 2021 Inc (Dec) 2020 Sales of alcoholic beverages $ 113,316 30.7 % $ 86,685 46.7 % $ 59,080 Sales of food and merchandise 44,294 7.7 % 41,111 68.1 % 24,460 Service revenues 93,888 69.3 % 55,461 34.7 % 41,162 Other revenues 16,122 34.3 % 12,001 57.4 % 7,625 Total revenues $ 267,620 37.1 % $ 195,258 47.6 % $ 132,327 Net income (loss) attributable to RCIHH common stockholders $ 46,041 51.8 % $ 30,336 (598.5) % $ (6,085) Net cash provided by operating activities $ 64,509 53.6 % $ 41,991 168.6 % $ 15,632 Adjusted EBITDA* $ 86,724 44.0 % $ 60,243 169.5 % $ 22,357 Free cash flow* $ 58,911 63.3 % $ 36,084 167.7 % $ 13,481 Debt (end of period) $ 202,463 61.8 % $ 125,168 (11.5) % $ 141,435 * See definition and calculation of Adjusted EBITDA and Free Cash Flow under Non-GAAP Financial Measures and Liquidity and Capital Resources above.
The following table presents a summary of such indicators (dollars in thousands): 2023 Inc (Dec) 2022 Inc (Dec) 2021 Sales of alcoholic beverages $ 127,262 12.3 % $ 113,316 30.7 % $ 86,685 Sales of food and merchandise 43,906 (0.9) % 44,294 7.7 % 41,111 Service revenues 103,577 10.3 % 93,888 69.3 % 55,461 Other revenues 19,045 18.1 % 16,122 34.3 % 12,001 Total revenues $ 293,790 9.8 % $ 267,620 37.1 % $ 195,258 Net income attributable to RCIHH common stockholders $ 29,246 (36.5) % $ 46,041 51.8 % $ 30,336 Net cash provided by operating activities $ 59,130 (8.3) % $ 64,509 53.6 % $ 41,991 Adjusted EBITDA* $ 84,998 (2.0) % $ 86,724 44.0 % $ 60,243 Free cash flow* $ 53,176 (9.7) % $ 58,911 63.3 % $ 36,084 Debt (end of period) $ 239,751 18.4 % $ 202,463 61.8 % $ 125,168 * See definition and calculation of Adjusted EBITDA and Free Cash Flow under Non-GAAP Financial Measures and Liquidity and Capital Resources above.
As of September 30, 2022, we had working capital of $18.6 million compared to working capital of $26.1 million as of September 30, 2021, excluding net assets held for sale (net of associated liabilities of $0 and $1.1 million, respectively) amounting to $1.0 million and $3.8 million as of September 30, 2022 and 2021, respectively.
As of September 30, 2023, we had negative working capital of $10.5 million compared to a working capital of $18.6 million as of September 30, 2022, excluding net assets held for sale amounting to $0 and $1.0 million as of September 30, 2023 and 2022, respectively.
The components of consolidated selling, general and administrative expenses are in the tables below (dollar amounts in thousands): 2022 2021 2020 Amount % Amount % Amount % Taxes and permits $ 9,468 3.5 % $ 8,701 4.5 % $ 8,071 6.1 % Advertising and marketing 9,860 3.7 % 6,676 3.4 % 5,367 4.1 % Supplies and services 8,614 3.2 % 6,190 3.2 % 4,711 3.6 % Insurance 10,152 3.8 % 5,676 2.9 % 5,777 4.4 % Lease 6,706 2.5 % 3,942 2.0 % 4,060 3.1 % Legal 1,995 0.7 % 3,997 2.0 % 4,725 3.6 % Utilities 4,585 1.7 % 3,366 1.7 % 2,945 2.2 % Charge card fees 6,292 2.4 % 3,376 1.7 % 2,382 1.8 % Security 4,404 1.6 % 3,892 2.0 % 2,582 2.0 % Accounting and professional fees 3,909 1.5 % 2,031 1.0 % 3,463 2.6 % Repairs and maintenance 3,754 1.4 % 2,767 1.4 % 2,289 1.7 % Stock-based compensation 2,353 0.9 % — — % — — % Other 6,755 2.5 % 3,994 2.0 % 5,320 4.0 % $ 78,847 29.5 % $ 54,608 28.0 % $ 51,692 39.1 % 33 Table of Contents By reportable segment, selling, general and administrative expenses are broken down as follows (dollar amounts in thousands): 2022 Inc (Dec) 2021 Inc (Dec) 2020 Nightclubs $ 51,285 56.7 % $ 32,725 8.7 % $ 30,105 Bombshells 17,295 16.2 % 14,883 26.8 % 11,735 Other 418 76.4 % 237 (11.6) % 268 Corporate 9,849 45.6 % 6,763 (29.4) % 9,584 $ 78,847 44.4 % $ 54,608 5.6 % $ 51,692 Selling, general and administrative expenses as a percentage of segment revenue (except Corporate, which is based on consolidated revenues): 2022 2021 2020 Nightclubs 24.9 % 23.8 % 34.1 % Bombshells 28.9 % 26.3 % 27.2 % Other 28.9 % 18.4 % 36.3 % Corporate 3.7 % 3.5 % 7.2 % 29.5 % 28.0 % 39.1 % The significant variances in selling, general and administrative expenses are as follows: As a percentage of revenues, relatively fixed expenses were high in rate due to lower sales in fiscal 2020, while more discretionary/controllable expenses such as advertising and marketing were kept to a minimum.
The components of consolidated selling, general and administrative expenses are in the tables below (dollar amounts in thousands): 2023 2022 2021 Amount % Amount % Amount % Taxes and permits $ 11,966 4.1 % $ 9,468 3.5 % $ 8,701 4.5 % Advertising and marketing 11,928 4.1 % 9,860 3.7 % 6,676 3.4 % Supplies and services 10,724 3.7 % 8,614 3.2 % 6,190 3.2 % Insurance 10,268 3.5 % 10,152 3.8 % 5,676 2.9 % Lease 7,206 2.5 % 6,706 2.5 % 3,942 2.0 % Legal 3,742 1.3 % 1,995 0.7 % 3,997 2.0 % Utilities 5,760 2.0 % 4,585 1.7 % 3,366 1.7 % Charge card fees 7,090 2.4 % 6,292 2.4 % 3,376 1.7 % Security 5,618 1.9 % 4,404 1.6 % 3,892 2.0 % Accounting and professional fees 4,286 1.5 % 3,909 1.5 % 2,031 1.0 % Repairs and maintenance 4,924 1.7 % 3,754 1.4 % 2,767 1.4 % Stock-based compensation 2,588 0.9 % 2,353 0.9 % — — % Other 6,924 2.4 % 6,755 2.5 % 3,994 2.0 % $ 93,024 31.7 % $ 78,847 29.5 % $ 54,608 28.0 % 37 Table of Contents By reportable segment, selling, general and administrative expenses are broken down as follows (dollar amounts in thousands): 2023 Inc (Dec) 2022 Inc (Dec) 2021 Nightclubs $ 61,350 19.6 % $ 51,285 56.7 % $ 32,725 Bombshells 18,928 9.4 % 17,295 16.2 % 14,883 Other 602 44.0 % 418 76.4 % 237 Corporate 12,144 23.3 % 9,849 45.6 % 6,763 $ 93,024 18.0 % $ 78,847 44.4 % $ 54,608 Selling, general and administrative expenses as a percentage of segment revenue (except Corporate, which is based on consolidated revenues): 2023 2022 2021 Nightclubs 25.9 % 24.9 % 23.8 % Bombshells 34.0 % 28.9 % 26.3 % Other 45.6 % 28.9 % 18.4 % Corporate 4.1 % 3.7 % 3.5 % 31.7 % 29.5 % 28.0 % The significant variances in selling, general and administrative expenses are as follows: As a percentage of revenues, relatively fixed expenses tend to be higher in rate due to lower sales, while more variable expenses tend to keep their rates even if dollar amounts are increasing.
In 2022, we acquired fifteen clubs with an aggregate acquisition price of $132.6 million, of which $55.3 million in cash, $49.0 million in debt, and 500,000 shares of our common stock in equity. See Note 16 to our consolidated financial statements.
In 2022, we acquired fifteen clubs with an aggregate acquisition date fair value of $132.6 million, of which $55.3 million in cash, $49.0 million in debt (with an acquisition date fair value of $47.4 million), and 500,000 shares of our common stock in equity.
Percentage of revenue for individual cost of goods sold items pertains to their respective revenue line. 29 Table of Contents Below is a table presenting the changes in each line item of the income statement for the last three fiscal years (dollar amounts in thousands) Better (Worse) 2022 vs. 2021 2021 vs. 2020 Amount % Amount % Revenues Sales of alcoholic beverages $ 26,631 30.7 % $ 27,605 46.7 % Sales of food and merchandise 3,183 7.7 % 16,651 68.1 % Service revenues 38,427 69.3 % 14,299 34.7 % Other 4,121 34.3 % 4,376 57.4 % Total revenues 72,362 37.1 % 62,931 47.6 % Operating expenses Cost of goods sold Alcoholic beverages sold (4,272) (26.9) % (4,786) (43.1) % Food and merchandise sold (1,743) (12.6) % (5,723) (70.9) % Service and other 57 15.2 % (107) (40.1) % Total cost of goods sold (exclusive of items shown separately below) (5,958) (19.8) % (10,616) (54.6) % Salaries and wages (17,820) (35.2) % (11,557) (29.6) % Selling, general and administrative (24,239) (44.4) % (2,916) (5.6) % Depreciation and amortization (4,153) (50.4) % 598 6.8 % Other charges, net 12,719 96.5 % (2,638) (25.0) % Total operating expenses (39,451) (25.2) % (27,129) (20.9) % Income from operations 32,911 85.4 % 35,802 1,303.8 % Other income/expenses Interest expense (1,958) (19.6) % (181) (1.8) % Interest income 158 62.5 % (71) (21.9) % Non-operating gains/losses, net (5,119) (96.0) % 5,394 * Income/loss before income taxes 25,992 76.1 % 40,944 601.7 % Income tax expense/benefit (10,082) (252.7) % (4,482) * Net income/loss $ 15,910 52.8 % $ 36,462 * * Not meaningful.
Percentage of revenue for individual cost of goods sold items pertains to their respective revenue line. 33 Table of Contents Below is a table presenting the changes in each line item of the income statement for the last three fiscal years (dollar amounts in thousands) Better (Worse) 2023 vs. 2022 2022 vs. 2021 Amount % Amount % Revenues Sales of alcoholic beverages $ 13,946 12.3 % $ 26,631 30.7 % Sales of food and merchandise (388) (0.9) % 3,183 7.7 % Service revenues 9,689 10.3 % 38,427 69.3 % Other 2,923 18.1 % 4,121 34.3 % Total revenues 26,170 9.8 % 72,362 37.1 % Operating expenses Cost of goods sold Alcoholic beverages sold (3,136) (15.6) % (4,272) (26.9) % Food and merchandise sold 108 0.7 % (1,743) (12.6) % Service and other 35 11.0 % 57 15.2 % Total cost of goods sold (exclusive of items shown separately below) (2,993) (8.3) % (5,958) (19.8) % Salaries and wages (11,053) (16.1) % (17,820) (35.2) % Selling, general and administrative (14,177) (18.0) % (24,239) (44.4) % Depreciation and amortization (2,760) (22.3) % (4,153) (50.4) % Other charges, net (15,162) (3,246.7) % 12,719 96.5 % Total operating expenses (46,145) (23.5) % (39,451) (25.2) % Income from operations (19,975) (28.0) % 32,911 85.4 % Other income/expenses Interest expense (3,976) (33.3) % (1,958) (19.6) % Interest income (23) (5.6) % 158 62.5 % Non-operating gains/losses, net (211) (100.0) % (5,119) * Income/loss before income taxes (24,185) (40.2) % 25,992 76.1 % Income tax expense/benefit 7,225 51.3 % (10,082) * Net income/loss $ (16,960) (36.8) % $ 15,910 * * Not meaningful.
We also utilize capital to repurchase our common stock as part of our share repurchase program, based on our capital allocation strategy guidelines, and to pay our quarterly dividends. 41 Table of Contents Cash Flows from Operating Activities Following are our summarized cash flows from operating activities (in thousands): 2022 2021 2020 Net income (loss) $ 46,060 $ 30,150 $ (6,312) Depreciation and amortization 12,391 8,238 8,836 Deferred tax expense (benefit) 3,080 (1,253) (1,268) Stock-based compensation expense 2,353 — — Impairment of assets 1,888 13,612 10,615 Gain on debt extinguishment (83) (5,298) — Net change in operating assets and liabilities (1,421) (3,451) 1,380 Other 241 (7) 2,381 Net cash provided by operating activities $ 64,509 $ 41,991 $ 15,632 Net cash flows from operating activities increased from 2021 to 2022 mainly due to the operating results of the fifteen acquired clubs and one Bombshells opened.
We also utilize capital to repurchase our common stock as part of our share repurchase program, based on our capital allocation strategy guidelines, and to pay our quarterly dividends. 44 Table of Contents Cash Flows from Operating Activities Following are our summarized cash flows from operating activities (in thousands): 2023 2022 2021 Net income $ 29,100 $ 46,060 $ 30,150 Depreciation and amortization 15,151 12,391 8,238 Deferred tax expense (benefit) (1,781) 3,080 (1,253) Stock-based compensation expense 2,588 2,353 — Impairment of assets 12,629 1,888 13,612 Gain on debt extinguishment — (83) (5,298) Net change in operating assets and liabilities (1,203) (1,421) (3,451) Other 2,646 241 (7) Net cash provided by operating activities $ 59,130 $ 64,509 $ 41,991 Net cash flows from operating activities decreased from 2022 to 2023 mainly due to the lower same-store sales and the higher interest expense paid, partially offset by the lower income taxes paid.
See table below (in thousands): 2022 2021 2020 Net cash provided by operating activities $ 64,509 $ 41,991 $ 15,632 Less: Maintenance capital expenditures 5,598 5,907 2,151 Free cash flow $ 58,911 $ 36,084 $ 13,481 We do not include total capital expenditures as a reduction from net cash flow from operating activities to arrive at free cash flow.
See table below (in thousands): 2023 2022 2021 Net cash provided by operating activities $ 59,130 $ 64,509 $ 41,991 Less: Maintenance capital expenditures 5,954 5,598 5,907 Free cash flow $ 53,176 $ 58,911 $ 36,084 As a % of revenue 18.1 % 22.0 % 18.5 % 46 Table of Contents We do not include total capital expenditures as a reduction from net cash flow from operating activities to arrive at free cash flow.
A breakdown of the changes compared to total changes in Bombshells revenues is as follows: 2022 vs. 2021 2021 vs. 2020 Impact of 4.6% decrease and 7.7% increase in same-store sales, respectively, to total revenues (4.6) % 5.2 % New units 10.1 % 9.6 % Closed units — % 16.2 % Other 0.3 % — % 5.8 % 31.0 % Bombshells segment sales mix for the three fiscal years is as follows: 2022 2021 2020 Sales of alcoholic beverages 55.6 % 57.2 % 62.8 % Sales of food and merchandise 43.4 % 42.2 % 36.8 % Service and other revenues 1.0 % 0.6 % 0.4 % 100.0 % 100.0 % 100.0 % Bombshells Katy was opened in the first quarter of 2020, while Bombshells 59 was opened in the second quarter of 2020.
Bombshells revenues decreased by 7.0% from 2022 to 2023 and increased by 5.8% from 2021 to 2022, as explained below. 2023 vs. 2022 2022 vs. 2021 Impact of 14.6% and 4.6% decrease in same-store sales, respectively, to total revenues (13.5) % (4.6) % New units 6.5 % 10.1 % Closed units — % — % Other — % 0.3 % (7.0) % 5.8 % Bombshells segment sales mix for the three fiscal years is as follows: 2023 2022 2021 Sales of alcoholic beverages 55.5 % 55.6 % 57.2 % Sales of food and merchandise 42.9 % 43.4 % 42.2 % Service and other revenues 1.6 % 1.0 % 0.6 % 100.0 % 100.0 % 100.0 % No new Bombshells location was opened in 2021.
Legal and Other Contingencies As mentioned in Item 3 – “Legal Proceedings” and in a more detailed discussion in Note 11 to our consolidated financial statements, we are involved in various suits and claims in the normal course of business. We record a liability when it is probable that a loss has been incurred and the amount is reasonably estimable.
Legal and Other Contingencies As mentioned in Item 3 – “Legal Proceedings” and in a more detailed discussion in Note 1 0 to our consolidated financial statements, we are involved in various suits and claims in the normal course of business.
A breakdown of the changes compared to total change in Nightclubs revenues is as follows: 2022 vs. 2021 2021 vs. 2020 Impact of 10.1% increase and 2.1% decrease in same-store sales, respectively, to total revenues 9.5 % (1.2) % Newly acquired units 30.5 % — % Closed units 10.1 % 56.4 % Other 0.1 % 0.2 % 50.2 % 55.4 % Nightclubs segment sales mix for the three fiscal years, below: 2022 2021 2020 Sales of alcoholic beverages 38.8 % 39.5 % 36.2 % Sales of food and merchandise 8.9 % 12.5 % 9.7 % Service revenues 45.3 % 40.2 % 46.4 % Other 7.0 % 7.8 % 7.7 % 100.0 % 100.0 % 100.0 % The 2022 new units include 15 clubs, of which eleven were acquired in October 2021, one acquired in November 2021, one acquired in May 2022, and two acquired in July 2022.
Nightclubs revenues increased by 14.8% from 2022 to 2023 and by 50.2% from 2021 to 2022, as explained below. 2023 vs. 2022 2022 vs. 2021 Impact of 3.5% decrease and 10.1% increase in same-store sales, respectively, to total revenues (3.2) % 9.5 % Newly acquired units 18.4 % 30.5 % Closed units (0.4) % 10.1 % Other — % 0.1 % 14.8 % 50.2 % Nightclubs segment sales mix for the three fiscal years, below: 2023 2022 2021 Sales of alcoholic beverages 40.7 % 38.8 % 39.5 % Sales of food and merchandise 8.4 % 8.9 % 12.5 % Service revenues 43.6 % 45.3 % 40.2 % Other 7.3 % 7.0 % 7.8 % 100.0 % 100.0 % 100.0 % The 2023 new units include six clubs, one of which was acquired in October 2022 and five acquired in March 2023.
We purchased shares of our common stock representing 268,185 shares, 74,659 shares, and 516,102 shares in 2022, 2021, and 2020, respectively. We paid quarterly dividends of $0.03 per share in fiscal 2020, except in the second and fourth quarter of 2020 where we paid $0.04 per share.
We purchased shares of our common stock representing 34,086 shares, 268,185 shares, and 74,659 shares in 2023, 2022, and 2021, respectively. We paid quarterly dividends of $0.04 per share in fiscal 2021 through the first quarter of 2022. In the second quarter of 2022 through the first quarter of 2023, we increased our quarterly dividends to $0.05 per share.
Cash Flows from Investing Activities Following are our summarized cash flows from investing activities (in thousands): 2022 2021 2020 Proceeds from sale of businesses and assets $ 10,669 $ 5,415 $ 2,221 Proceeds from notes receivable 182 130 1,576 Proceeds from insurance 648 1,152 945 Payments for property and equipment and intangible assets (24,003) (13,511) (5,736) Acquisition of businesses, net of cash acquired (55,293) — — Net cash used in investing activities $ (67,797) $ (6,814) $ (994) In 2022, we acquired fifteen clubs with an aggregate acquisition price of $132.6 million, of which $55.3 million in cash, $49.0 million in debt, and 500,000 shares of our common stock in equity.
Cash Flows from Investing Activities Following are our summarized cash flows from investing activities (in thousands): 2023 2022 2021 Proceeds from sale of businesses and assets $ 4,245 $ 10,669 $ 5,415 Proceeds from notes receivable 229 182 130 Proceeds from insurance 86 648 1,152 Payments for property and equipment and intangible assets (40,384) (24,003) (13,511) Acquisition of businesses, net of cash acquired (29,000) (55,293) — Net cash used in investing activities $ (64,824) $ (67,797) $ (6,814) In 2023, we acquired six clubs for a combined sum of $75.5 million (with an aggregate acquisition date fair value of $72.3 million), of which $29.0 million was in cash, $30.5 million in debt (with an acquisition date fair value of $30.4 million), and 200,000 shares of our common stock in equity (with an acquisition date fair value of $12.8 million).
During 2021, we recorded aggregate impairment charges amounting to $13.6 million related to goodwill of seven clubs ($6.3 million), SOB licenses of three clubs ($5.3 million), and property and equipment of five clubs, one of which is held for sale ($2.0 million).
During 2021, we recorded aggregate impairment charges amounting to $13.6 million related to goodwill of seven clubs ($6.3 million), SOB licenses of three clubs ($5.3 million), and property and equipment of five clubs, one of which is held for sale ($2.0 million). 38 Table of Contents In 2023, we recognized settlements with the New York Department of Labor amounting to $3.1 million related to the assessment by the New York Department of Labor for state unemployment insurance.
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.
During the fourth quarter of 2023, we also recognized software impairments amounting to $814,000 related to two venture projects. 29 Table of Contents 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.
We consider lease plus interest expense as our occupancy costs since most of our debts are for real properties where our clubs and restaurants are located. For occupancy cost purposes, we exclude non-real-estate-related interest expense.
The increase in interest expense was primarily caused by the significantly higher average debt balance from borrowings to finance our acquisitions. We consider lease plus interest expense as our occupancy costs since most of our debts are for real properties where our clubs and restaurants are located. For occupancy cost purposes, we exclude non-real-estate-related interest expense.
Results of operations related to acquired entities are included prospectively beginning with the date of acquisition. Acquisition-related costs are expensed as incurred.
The excess of the acquisition price over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Results of operations related to acquired entities are included prospectively beginning with the date of acquisition. Acquisition-related costs are expensed as incurred.
Excluding certain items, non-GAAP operating income (loss) and non-GAAP operating margin are computed in the tables below (dollars in thousands).
Bombshells operating margin was 11.7%, 19.2%, and 23.4% in 2023, 2022, and 2021, respectively. Excluding certain items, non-GAAP operating income (loss) and non-GAAP operating margin are computed in the tables below (dollars in thousands).
Corporate salary pay cuts made in 2020 during the height of the pandemic restrictions were paid back in 2021. 32 Table of Contents By reportable segment, salaries and wages are broken down as follows (dollar amounts in thousands): 2022 Inc (Dec) 2021 Inc (Dec) 2020 Nightclubs $ 40,859 51.4 % $ 26,986 37.8 % $ 19,590 Bombshells 14,585 11.8 % 13,041 25.1 % 10,427 Other 601 3.3 % 582 18.5 % 491 Corporate 12,402 23.8 % 10,018 17.0 % 8,562 $ 68,447 35.2 % $ 50,627 29.6 % $ 39,070 Unit-level manager payroll is included in salaries and wages of each location, while payroll for regional manager and above are included in general corporate.
As a percentage of revenues, consolidated salaries and wages were 27.1%, 25.6%, and 25.9% in 2023, 2022, and 2021, respectively, mainly due to sales trend and the impact of fixed salaries on change in sales. 36 Table of Contents By reportable segment, salaries and wages are broken down as follows (dollar amounts in thousands): 2023 Inc (Dec) 2022 Inc (Dec) 2021 Nightclubs $ 50,489 23.6 % $ 40,859 51.4 % $ 26,986 Bombshells 14,949 2.5 % 14,585 11.8 % 13,041 Other 604 0.5 % 601 3.3 % 582 Corporate 13,458 8.5 % 12,402 23.8 % 10,018 $ 79,500 16.1 % $ 68,447 35.2 % $ 50,627 Unit-level manager payroll is included in salaries and wages of each location, while payroll for regional manager and above are included in Corporate.
Closed units in the comparable prior year contributed $13.9 million, or 7.1% of total prior-year revenue, to the total revenue increase from 2021 to 2022 and $56.8 million, or 42.9% of total prior-year revenue, to the total consolidated revenue increase from 2020 to 2021. 30 Table of Contents Segment contribution to total revenues was as follows (dollar amounts in thousands): 2022 Inc (Dec) 2021 Inc (Dec) 2020 Nightclubs Sales of alcoholic beverages $ 80,001 47.3 % $ 54,305 70.0 % $ 31,950 Sales of food and merchandise 18,289 6.2 % 17,221 101.2 % 8,561 Service revenues 93,481 69.5 % 55,146 34.5 % 41,004 Other revenues 14,480 35.6 % 10,676 55.7 % 6,858 206,251 50.2 % 137,348 55.4 % 88,373 Bombshells Sales of alcoholic beverages 33,315 2.9 % 32,380 19.4 % 27,130 Sales of food and merchandise 26,005 8.9 % 23,890 50.3 % 15,899 Service revenues 407 29.2 % 315 99.4 % 158 Other revenues 198 450.0 % 36 28.6 % 28 59,925 5.8 % 56,621 31.0 % 43,215 Other Other revenues 1,444 12.0 % 1,289 74.4 % 739 $ 267,620 37.1 % $ 195,258 47.6 % $ 132,327 Nightclubs segment revenues.
From 2021 to 2022, consolidated revenues increased by $72.4 million, or 37.1%, due to increases in same-store sales, newly acquired and constructed locations, and from locations closed in 2021 and reopened in 2022. 34 Table of Contents Segment contribution to total revenues was as follows (dollar amounts in thousands): 2023 Inc (Dec) 2022 Inc (Dec) 2021 Nightclubs Sales of alcoholic beverages $ 96,325 20.4 % $ 80,001 47.3 % $ 54,305 Sales of food and merchandise 19,995 9.3 % 18,289 6.2 % 17,221 Service revenues 103,217 10.4 % 93,481 69.5 % 55,146 Other revenues 17,211 18.9 % 14,480 35.6 % 10,676 236,748 14.8 % 206,251 50.2 % 137,348 Bombshells Sales of alcoholic beverages 30,937 (7.1) % 33,315 2.9 % 32,380 Sales of food and merchandise 23,911 (8.1) % 26,005 8.9 % 23,890 Service revenues 360 (11.5) % 407 29.2 % 315 Other revenues 515 160.1 % 198 450.0 % 36 55,723 (7.0) % 59,925 5.8 % 56,621 Other Other revenues 1,319 (8.7) % 1,444 12.0 % 1,289 $ 293,790 9.8 % $ 267,620 37.1 % $ 195,258 Nightclubs segment revenues.
There is significant judgment required in both the probability determination and as to whether an exposure can be reasonably estimated.
We record a liability when it is probable that a loss has been incurred and the amount is reasonably estimable. There is significant judgment required in both the probability determination and as to whether an exposure can be reasonably estimated.
IMPACT OF INFLATION To the extent permitted by competition, we have managed to recover increased costs through price increases and may continue to do so. However, there can be no assurance that we will be able to do so in the future. SEASONALITY Our nightclub operations are affected by seasonal factors.
However, there can be no assurance that we will be able to do so in the future. 47 Table of Contents SEASONALITY Our nightclub operations are affected by seasonal factors.
As of September 30, 2022, 2021, and 2020, we had $1.5 million, $3.4 million, and $20,000 in construction-in-progress related mostly to Bombshells opening in the subsequent fiscal year.
Highway 59 in Houston, Texas) and sold three real estate properties. 45 Table of Contents As of September 30, 2023, 2022, and 2021, we had $7.7 million, $1.5 million, and $3.4 million in construction-in-progress related mostly to Bombshells opening in the subsequent fiscal years.
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. 43 Table of Contents Debt Financing See Note 9 to our consolidated financial statements for more details regarding our debt activity.
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.
The components of our annual effective income tax rate are the following: 2022 2021 2020 Federal statutory income tax expense/benefit 21.0 % 21.0 % 21.0 % State income taxes, net of federal benefit 3.0 % 2.1 % (3.7) % Permanent differences 0.2 % (1.3) % (5.8) % Change in state tax rate 1.5 % (2.4) % — % Change in valuation allowance 0.6 % (1.9) % (18.7) % Tax credits (3.0) % (3.5) % 13.9 % Other 0.2 % (2.4) % 0.6 % Total effective income tax rate 23.4 % 11.7 % 7.2 % * Positive or negative percentages are in relation to income or loss before income taxes of the respective fiscal year.
The components of our annual effective income tax rate are the following: 2023 2022 2021 Federal statutory income tax expense/benefit 21.0 % 21.0 % 21.0 % State income taxes, net of federal benefit 4.5 % 3.0 % 2.1 % Permanent differences 1.7 % 0.2 % (1.3) % Change in tax rates (0.7) % 1.5 % (2.4) % Change in valuation allowance (0.5) % 0.6 % (1.9) % Tax credits (5.9) % (3.0) % (3.5) % Other (1.0) % 0.2 % (2.4) % Total effective income tax rate 19.0 % 23.4 % 11.7 % The effective income tax rate difference from the statutory federal corporate tax rate of 21% comes from offsetting impact of state income tax, net of federal benefit, changes in the deferred tax asset valuation allowance, and tax credits that are mostly FICA tip credits.
The components of other charges, net are in the table below (dollars in thousands): 2022 Inc (Dec) 2021 Inc (Dec) 2020 Impairment of assets $ 1,888 (86.1) % $ 13,612 28.2 % $ 10,615 Settlement of lawsuits 1,417 5.0 % 1,349 675.3 % 174 Gain on sale of businesses and assets (2,375) 355.0 % (522) (21.0) % (661) Loss (gain) on insurance (463) (63.0) % (1,253) (398.3) % 420 $ 467 (96.5) % $ 13,186 25.0 % $ 10,548 The significant variances in other charges, net are discussed below: During 2022, we recorded aggregate impairment charges amounting to $1.9 million related to goodwill of one club ($566,000), SOB license of one club ($293,000), and property and equipment of one club and one Bombshells unit ($1.0 million).
The components of other charges, net are in the table below (dollars in thousands): 2023 Inc (Dec) 2022 Inc (Dec) 2021 Impairment of assets $ 12,629 568.9 % $ 1,888 (86.1) % $ 13,612 Settlement of lawsuits 3,759 165.3 % 1,417 5.0 % 1,349 Gain on sale of businesses and assets (682) (71.3) % (2,375) 355.0 % (522) Gain on insurance (77) (83.4) % (463) (63.0) % (1,253) $ 15,629 3,246.7 % $ 467 (96.5) % $ 13,186 The significant variances in other charges, net are discussed below: During 2023, we recorded aggregate impairment charges amounting to $12.6 million related to goodwill of four clubs ($4.2 million), SOB licenses of eight clubs ($6.5 million), operating lease right-of-use asset and property and equipment of a closed club ($1.1 million), and software of two investment projects ($814,000).
Historically, we have experienced reduced revenues from April through September (our fiscal third and fourth quarters) with the strongest operating results occurring during October through March (our fiscal first and second quarters), but in fiscal 2020, due to the COVID-19 pandemic, revenues during the second through the fourth quarter were significantly reduced.
Historically, we have experienced reduced revenues from April through September (our fiscal third and fourth quarters) with the strongest operating results occurring during October through March (our fiscal first and second quarters). Our revenues in certain markets are also affected by sporting events that cause unusual changes in sales from year to year.
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.
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.
Our revenues in certain markets are also affected by sporting events that cause unusual changes in sales from year to year. GROWTH STRATEGY We believe that we can continue to grow organically and through careful entry into markets with high growth potential.
GROWTH STRATEGY We believe that we can continue to grow organically and through careful entry into markets with high growth potential.
See Note 16 to our consolidated financial statements. In total, these newly acquired clubs contributed $41.9 million in revenues during 2022 since their acquisition dates. No new clubs were acquired in 2020 and 2021.
In total, these 2023 and 2022 newly acquired clubs contributed $18.2 million and $41.9 million in revenues, respectively, during their year of acquisition. No new clubs were acquired in 2021.
Business Combinations The Company accounts for business combinations under the acquisition method of accounting, which requires the recognition of acquired tangible and identifiable intangible assets and assumed liabilities at their acquisition date fair values. The excess of the acquisition price over the fair value of assets acquired and liabilities assumed is recorded as goodwill.
Business Combinations The Company accounts for business combinations under the acquisition method of accounting, which requires the recognition of acquired tangible and identifiable intangible assets and assumed liabilities at their acquisition date fair values. These fair values are a result of valuation techniques that use significant assumptions that are subject to a high degree of judgment.
Consolidated salaries and wages increased by $17.8 million, or 35.2%, from 2021 to 2022 and increased by $11.6 million, or 29.6%, from 2020 to 2021.
Consolidated salaries and wages increased by $11.1 million, or 16.1%, from 2022 to 2023 and increased by $17.8 million, or 35.2%, from 2021 to 2022. The dollar increases are mostly from newly acquired or constructed locations.
See page 29 above for the breakdown of percentages for each line item of consolidated cost of goods sold as it relates to the respective consolidated revenue line. For the Nightclubs segment, cost of goods sold was 10.5%, 11.8%, and 10.7% for fiscal 2022, 2021, and 2020, respectively, which was primarily caused by shifts in sales mix.
For the Nightclubs segment, cost of goods sold was 11.1%, 10.5%, and 11.8% for fiscal 2023, 2022, and 2021, respectively, which was primarily caused by shifts in sales mix among the three fiscal years.
We paid quarterly dividends of $0.04 per share in fiscal 2021 through the first quarter of 2022. Then starting in the second quarter of 2022, we increased our quarterly dividends to $0.05 per share. Non-GAAP Cash Flow Measure Management also uses certain non-GAAP cash flow measures such as free cash flow.
Then starting in the second quarter of 2023, we increased our quarterly dividends to $0.06 per share. We expect annual dividend payments of $2.2 million in 2024 based on our current quarterly dividend rate. Non-GAAP Cash Flow Measure We also use certain non-GAAP cash flow measures, such as free cash flow.
No new Bombshells location was opened in 2021. Bombshells Arlington was opened in the first quarter of 2022. Other segment revenues. Other revenues included revenues from Drink Robust in all three fiscal years presented.
Bombshells Arlington was opened in the first quarter of 2022. Bombshells San Antonio was acquired from our franchisee in the second quarter of 2023. We also acquired a food hall in Greenwood Village, Colorado during the first quarter of 2023. Other segment revenues. Other revenues included revenues from Drink Robust in all three fiscal years presented.
Below is a table which reflects segment contribution to income from operations (in thousands): 2022 2021 2020 Nightclubs $ 82,798 $ 43,815 $ 13,056 Bombshells 11,504 13,264 9,237 Other 57 35 (614) Corporate (22,900) (18,566) (18,933) $ 71,459 $ 38,548 $ 2,746 Nightclubs operating margin was 40.1%, 31.9%, and 14.8% in 2022, 2021, and 2020, respectively, primarily due to the impact of the COVID-19 pandemic in 2020 and the closure of underperforming units, fixed expense leverage on increasing sales, and impairment of assets of $1.2 million, $13.6 million, and $10.4 million for 2022, 2021, and 2020, respectively.
Below is a table which reflects segment contribution to income from operations (in thousands): 2023 2022 2021 Nightclubs $ 73,187 $ 82,798 $ 43,815 Bombshells 6,502 11,504 13,264 Other (1,446) 57 35 Corporate (26,759) (22,900) (18,566) $ 51,484 $ 71,459 $ 38,548 Nightclubs operating margin was 30.9%, 40.1%, and 31.9% in 2023, 2022, and 2021.
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 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.
In the event global inflation leads to a major economic downturn, our business operations and cash flow could be significantly affected. 24 Table of Contents OUR BUSINESS The following are our operating segments: Nightclubs Our wholly-owned subsidiaries own and/or operate upscale adult nightclubs serving primarily businessmen and professionals.
OUR BUSINESS The following are our operating segments: Nightclubs Our wholly-owned subsidiaries own and/or operate upscale adult nightclubs serving primarily businessmen and professionals.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeItem 7A. Quantitative and Qualitative Disclosures About Market Risk The items in our financial statements subject to market risk are potential debt instruments with variable interest rates. We do not carry any debt with a variable interest rate in effect as of September 30, 2022.
Biggest changeItem 7A. Quantitative and Qualitative Disclosures About Market Risk The items in our financial statements subject to market risk are potential debt instruments with variable interest rates. We have certain debts that have variable interest rates in effect as of September 30, 2023.
Removed
Certain of our debt have variable interest rates but will only be effective in future years.
Added
An increase in interest rates in the future may have a negative impact on our results of operations and cash flows. A hypothetical 10% change in interest rates would have had a $680,000 impact on the Company's annual results of operations and cash flows.

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