What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-02-03 compared with 2021-11-04 · 94 added, 102 removed, 186 unchanged (51% of the section changed)

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MANAGEMENT'S OVERVIEW

Regis Corporation (RGS) franchises technology-enabled hairstyling and hair care salons throughout the United States, Puerto Rico and the United Kingdom.

As of September 30, 2021, the Company franchised, owned or held ownership interests in 5,843 worldwide locations.

Regis Corporation (RGS) franchises technology-enabled hairstyling and hair care salons throughout the United States, Canada, Puerto Rico and the United Kingdom.

As of December 31, 2021, the Company franchised, owned or held ownership interests in 5,779 worldwide locations.

Our locations consisted of 5,703 system-wide North American and international salons, and in 76 locations we maintained a non-controlling ownership interest less than 100 percent.

Each of the Company's salon concepts generally offer similar salon products and services and serve the mass market.

As of September 30, 2021, the Company had 1,172 employees worldwide.

Impact of COVID-19 on Business Operations

During the period ended September 30, 2021, the COVID-19 pandemic had an adverse impact on operations.

The COVID-19 pandemic continues to impact salon guest visits and franchisee staffing, resulting in a significant reduction in revenue.

As a result, COVID-19 has, and may continue to have, a negative affect on revenue and profitability.

As of December 31, 2021, the Company had 853 employees worldwide.

COVID-19 Impact

During the period ended December 31, 2021, the COVID-19 pandemic had an adverse impact on operations.

The COVID-19 pandemic continues to impact salon guest visits and franchisee staffing, resulting in a significant reduction in revenue and profitability.

In response to COVID-19, the U.S.

employee retention payroll tax credit, Canada Emergency Wage Subsidy (CEWS) and Canada Emergency Rent Subsidy (CERS) were introduced for eligible employers.

In fiscal year 2021, the Company recorded a $1.5 million benefit related to the U.S.

employee retention payroll tax credit.

In fiscal years 2022 and 2021, the Company received $1.4 and $1.6 million, respectively, in CEWS and $1.2 and $0.0 million, respectively, in CERS that partially cover expenses incurred in Canada during those years.

Overall, COVID-19 has, and may continue to have, a negative effect on revenue and profitability.

The ultimate impact of the COVID-19 pandemic in both the short and long term is not currently estimable due to the uncertainty surrounding the duration of the pandemic, the availability and acceptance of preventative vaccines, the emergence and impact of new COVID-19 variants, and changing government restrictions.

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The change is expected to result in product sales to franchisees providing significantly less revenue by the end of fiscal year 2022.

Cost of product sales to franchisees and general and administrative expense are expected to decrease once the transition is complete which is expected to be by the end of fiscal year 2022.

CRITICAL ACCOUNTING POLICIES

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System-wide same-store sales (1) by concept are detailed in the table below:

Three Months Ended September 30,

Three Months Ended December 31, Six Months Ended December 31,

2021 2020 2021 2020

SmartStyle 13.2 % (32.2) % 15.1 % (33.0) %

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The percentages are computed as a percent of total consolidated revenues, except as otherwise indicated, and the increase (decrease) is measured in basis points.

Three Months Ended September 30,

Three Months Ended December 31, Six Months Ended December 31,

2021 2020 2021 2020 2021 2021 2020 2021 2020 2021

($ in millions) % of Total

Revenues (1) Increase (Decrease) ($ in millions) % of Total

Revenues (1) Increase (Decrease)

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Interest income and other, net 0.1 0.4 0.1 0.4 (30) (0.1) 0.5 (0.1) 0.2 (30)

Income tax benefit (4) — 0.6 0.5 1.8 N/A

Income tax benefit (4) 0.2 0.4 3.2 1.2 N/A 0.2 1.0 1.4 1.5 N/A

Net loss (3) (4.9) (32.9) (7.0) (31.6) 2,460 (15.3) (68.1) (10.4) (31.6) 2,120

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The income taxes basis point change is noted as not applicable (N/A) as the discussion within MD&A is related to the effective income tax rate.

Consolidated Revenues

Consolidated revenues primarily include franchise royalties, fees, product sales to franchisees, advertising contributions, rental income, and service and product sales in company-owned salons.

The following tables summarize revenues and same-store sales by concept, as well as the reasons for the percentage change:

Three Months Ended September 30,

(Dollars in thousands)

Royalties $ 16,602 $ 11,405

Fees 3,265 2,042

Product sales to franchisees 8,008 13,742

Advertising fund contributions 8,114 4,509

Franchise rental income 33,762 32,283

Total, Franchise $ 69,751 $ 63,981

Franchise same-store sales (1) 23.7 % (31.9) %

Total, Company-owned salons $ 8,005 $ 47,415

Consolidated revenues $ 77,756 $ 111,396

Percent change from prior year (2) (30.2) % (54.9) %

_______________________________________________________________________________

(1) Franchise same-store sales in fiscal year 2022 are calculated as the total change in sales for franchise locations that were open on a specific day of the week during the current period and the corresponding prior period.

Franchise same-store sales in fiscal year 2021 are calculated as the total change in sales for franchise locations for more than one year that were open on a specific day of the week during the current period and the corresponding prior period.

Quarterly and year-to-date franchise same-store sales are the sum of the franchise same-store sales computed on a daily basis.

Franchise salons that do not report daily sales are excluded from same-store sales.

Franchise same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation.

(2) Decrease due to the Company's strategic shift from a company-owned salon business to an asset-light franchise model.

Three Months Ended September 30, 2021 Compared with Three Months Ended September 30, 2020

Three and Six Months Ended December 31, 2021 Compared with Three and Six Months Ended December 31, 2020

Consolidated Revenues

Consolidated revenues are primarily comprised of royalties, fees, advertising fund contributions, franchise product sales, rental income and company-owned salon revenue.

Consolidated revenue decreased $33.6 million, or 30.2%, for the three months ended September 30, 2021.

Royalty revenue increased $5.2 million in the three months ended September 30, 2021 due to higher franchise system-wide sales and higher franchise salon counts.

During the twelve months ended September 30, 2021, 692 salons were sold to franchisees and 799 and 31 system-wide salons were closed and constructed, respectively (2022 Net Salon Count Changes).

During the three months ended September 30, 2021, company-owned salon revenue decreased $39.4 million due primarily to the sale of salons to franchisees and salon closures.

For the three months ended September 30, 2021, the impact to consolidated revenue due to the sale of salons to franchisees and closure of salons was $35.3 million.

During the three months ended September 30, 2021, royalties increased $5.2 million, or 45.6%, primarily due to the increase in franchise salons and higher franchise system-wide sales.

Total franchised locations open at September 30, 2021 were 5,587 as compared to 5,226 at September 30, 2020.

During the three months ended September 30, 2021, fees increased $1.3 million, primarily due to the increase in franchise salons and an increase in salons running Opensalon ® Pro.

Consolidated revenues are comprised of royalties, fees, advertising fund contributions, franchise product sales, rental income and company-owned salon revenue.

Consolidated revenue decreased $34.0 and $67.7 million, or 32.6% and 31.4%, for the three and six months ended December 31, 2021, respectively.

Royalty revenue increased $3.4 and $8.5 million, respectively, in the three and six months ended December 31, 2021 due to higher franchise system-wide sales and higher franchise salon counts.

During the twelve months ended December 31, 2021, 560 salons were sold to franchisees and 628 and 25 system-wide salons were closed and constructed, respectively (2022 Net Salon Count Changes).

During the three and six months ended December 31, 2021, company-owned salon revenue decreased $32.9 and $72.3 million, respectively, due primarily to the sale of salons to franchisees and salon closures.

For the three and six months ended December 31, 2021, the impact to consolidated revenue due to the sale of salons to franchisees and closure of salons was $28.8 and $64.0 million, respectively.

During the three and six months ended December 31, 2021, royalties increased $3.4 and $8.5 million, or 26.8% and 35.1%, respectively, primarily due to the increase in franchise salons and higher franchise system-wide sales.

Total franchised locations open at December 31, 2021 were 5,553 as compared to 5,269 at December 31, 2020.

During the three and six months ended December 31, 2021, fees increased $2.5 and $3.6 million, respectively, primarily due to the increase in franchise salons, an increase in salons running Opensalon ® Pro and an increase in terminated development agreements (see Note 3 to the unaudited Condensed Consolidated Financial Statements).

Product Sales to Franchisees

Product sales to franchisees decreased $5.7 million, or 41.6%, during the three months ended September 30, 2021, primarily due to the Company's shift to third-party distribution partners.

Product sales to franchisees decreased $11.8 and $17.6 million, or 83.1% and 62.9%, respectively, during the three and six months ended December 31, 2021, primarily due to the Company's shift to third-party distribution partners.

The Company expects revenue from product sales to decrease significantly during fiscal year 2022.

Advertising Fund Contributions

Advertising fund contributions increased $3.6 million, or 80.0%, during the three months ended September 30, 2021, primarily due to the increase in franchise salon count and system-wide sales.

Advertising fund contributions increased $3.3 and $6.9 million, or 70.2% and 75.0%, respectively, during the three and six months ended December 31, 2021, primarily due to the increase in franchise salon count and system-wide sales.

Franchise Rental Income

During the three months ended September 30, 2021, franchise rental income increased $1.5 million, or 4.6%, primarily due to the increase in franchise salon count.

During the three and six months ended December 31, 2021, franchise rental income increased $1.5 and $2.9 million, or 4.6% and 4.5%, respectively, primarily due to the increase in franchise salon count.

Company-owned Salon Revenue

Company-owned salon revenue decreased $39.4 million due to the decrease in Company-owned salons as a result of the sale of salons to franchisees and salon closures, a decline in product sales, and exiting our third-party logistic revenue.

During the three and six months ended December 31, 2021, company-owned salon revenue decreased $32.9 and $72.3 million, or 86.8% and 84.8%, respectively, due to the decrease in Company-owned salons as a result of the sale of salons to franchisees and salon closures, a decline in product sales, and exiting our third-party logistic revenue.

Cost of Product Sales to Franchisees

The 2,320 basis point increase in cost of product as a percent of product revenues during the three months ended September 30, 2021 was primarily due to the Company reducing prices to liquidate inventory at its distribution centers to facilitate exiting the distribution centers.

The 6,210 and 3,200 basis point increases in cost of product as a percent of product revenues during the three and six months ended December 31, 2021, respectively, were primarily due to the Company reducing prices to liquidate inventory at its distribution centers to facilitate exiting the distribution centers.

General and Administrative

The decrease of $4.3 million, or 16.5%, in general and administrative expense during the three months ended September 30, 2021 was primarily due to lower administrative and field management salaries due to reductions in headcount as we align our cost structure with our transition to an asset-light franchise model.

Additionally, bad debt expense decreased $2.1 million year-over-year.

These decreases were offset by an increase in stock compensation expense of $2.9 million, due primarily to a $2.4 million benefit from the forfeiture of awards related to the departure of the Company's former CEO in fiscal year 2021.

The decrease of $11.4 million, or 86.4%, in rent expense during the three months ended September 30, 2021 was primarily due to the net reduction in the number of company-owned salons.

Partially offsetting the decrease is a $1.3 million broker fee incurred this fiscal year related to exiting the Company's distribution centers.

The decreases of $10.7 and $15.0 million, or 40.1% and 28.4%, in general and administrative expense during the three and six months ended December 31, 2021, respectively, were primarily due to lower administrative and field management compensation due to reductions in headcount as we align our cost structure with our asset-light franchise model, partially offset by $1.0 million of legal expenses (see Note 5 to the unaudited Condensed Consolidated Financial Statements).

Additionally, the provision for doubtful accounts expense also contributed to the decline in the six months ended December 31, 2021.

The decreases of $9.8 and $21.2 million, or 76.0% and 81.2%, in rent expense during the three and six months ended December 31, 2021, respectively, were primarily due to the net reduction in the number of company-owned salons.

Partially offsetting the decrease in the six month period was a $0.9 million broker fee incurred in the six months ended December 31, 2021 related to exiting the Company's distribution centers.

Advertising Fund Expense

Advertising fund expense increased $3.6 million, or 80.0%, during the three months ended September 30, 2021, primarily due to the increase in franchise salon count and system-wide sales.

Advertising fund expense increased $3.3 and $6.9 million, or 70.2% and 75.0%, during the three and six months ended December 31, 2021, respectively, primarily due to the increase in franchise salon count and system-wide sales.

Franchise Rent Expense

During the three months ended September 30, 2021, franchise rent expense increased $1.5 million, or 4.6%, primarily due to the increase in franchise salon count.

During the three and six months ended December 31, 2021, franchise rent expense increased $1.5 and $2.9 million, or 4.6% and 4.5%, respectively, primarily due to the increase in franchise salon count.

Company-owned Salon Expense

Company-owned salon expense for the three months ended September 30, 2021 decreased $35.0 million, or 81.6%, primarily due to the reduction in company-owned salons.

Company-owned salon expense for the three and six months ended December 31, 2021 decreased $28.5 and $63.6 million, or 84.8% and 83.0%, respectively, primarily due to the reduction in company-owned salons, a decline in product sales, and exiting third-party logistics.

Depreciation and Amortization

The decrease of $5.5 million, or 74.3%, in depreciation and amortization during the three months ended September 30, 2021 was primarily due to the net reduction in company-owned salon counts and no depreciation expense in the current year related to the distribution center assets that were derecognized in the third quarter of fiscal year 2021.

The decreases of $4.4 and $10.0 million, or 68.8% and 72.5%, in depreciation and amortization during the three and six months ended December 31, 2021, respectively, were primarily due to the net reduction in company-owned salon counts and no depreciation expense in the current year related to the distribution center assets that were derecognized in the third quarter of fiscal year 2021.

Long-Lived Asset Impairment

In the three months ended September 30, 2021 and 2020, the Company recorded a long-lived asset impairment charge of $0.2 and $5.8 million, respectively, which included a ROU asset impairment charge of $0.1 and $4.6 million, respectively, and salon asset impairment of $0.1 and $1.2 million, respectively.

The decrease in long-lived asset impairment is primarily due to more salons being impaired in prior periods.

In the three months ended December 31, 2021 and 2020, the Company recorded a long-lived asset impairment charge of $0.1 and $3.2 million, respectively, which included an ROU asset impairment charge of $0.0 and $1.5 million, respectively.

In the six months ended December 31, 2021 and 2020, the Company recorded a long-lived asset impairment charge of $0.2 and $9.0 million, respectively, which included an ROU asset impairment charge of $0.2 and $6.0 million, respectively.

The decreases in long-lived asset impairment were primarily due to more salons being impaired in prior periods.

Interest Expense

The $0.5 million decrease in interest expense for the three months ended September 30, 2021 was primarily due to a lower interest rate in fiscal year 2022.

The $0.3 and $0.7 million decreases in interest expense for the three and six months ended December 31, 2021, respectively, were primarily due to a lower average interest rate in fiscal year 2022.

Loss from Sale of Salon Assets to Franchisees, net

The $0.4 million increase in the loss from the sale of salon assets to franchisees, net in the three months ended September 30, 2021 was primarily due to no proceeds being received for the salons sold in fiscal year 2022 compared to $3.7 million of proceeds in fiscal year 2021.

The $2.6 and $2.2 million decreases in the loss from the sale of salon assets to franchisees, net in the three and six months ended December 31, 2021, respectively, were primarily due to fewer salons sold in fiscal year 2022.

Interest Income and Other, net

The decrease of $0.3 million in interest income and other, net during the three months ended September 30, 2021 was primarily due to the foreign exchange loss of $0.3 million in fiscal year 2022 compared to no loss in fiscal year 2021.

The decrease of $0.3 million in interest income and other, net during the three months ended December 31, 2021 was primarily due to the foreign exchange gains of $0.3 million in the three months ended December 31, 2020 compared to no gain in the three months ended December 31, 2021.

The decrease of $0.6 million in interest income and other, net during the six months ended December 31, 2021 was primarily due to the foreign exchange losses of $0.3 million in the six months ended December 31, 2021 compared to foreign exchange gains of $0.3 million in the six months ended December 31, 2020.

Income Tax Benefit

During the three months ended September 30, 2021, the Company recognized a tax benefit of $0.05 million, with a corresponding effective tax rate of 0.5% as compared to recognizing a tax benefit of $0.6 million, with a corresponding effective tax rate of 1.8% during the three months ended September 30, 2020.

During the three and six months ended December 31, 2021, the Company recognized tax benefits of $0.2 and $0.2 million, respectively, with corresponding effective tax rates of 3.2% and 1.4% as compared to recognizing tax benefits of $0.4 and $1.0 million, respectively, with corresponding effective tax rates of 1.2% and 1.5% during the three and six months ended December 31, 2020.

See Note 4 to the unaudited Condensed Consolidated Financial Statements.

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Significant results of operations are discussed below with respect to each of these segments.

Three Months Ended September 30,

2021 2020 Increase (Decrease) (1)

(Dollars in millions)

Three Months Ended December 31, Six Months Ended December 31,

2021 2020 Increase (Decrease) (1) 2021 2020 Increase (Decrease) (1)

(Dollars in millions) (Dollars in millions)

Royalties $ 16.1 $ 12.7 $ 3.4 $ 32.7 $ 24.2 $ 8.5

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Franchise same-store sales (2) 22.4 % (31.1) % 23.0 % (31.5) %

Operating loss $ (4.8) $ (10.8) $ 6.0

Operating income (loss) $ 2.1 $ (9.4) $ 11.5 $ (2.7) $ (20.2) $ 17.5

_______________________________________________________________________________

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Franchise Revenues

Franchise salon revenues increased $5.8 million during the three months ended September 30, 2021.

The increase in franchise salon revenue during the three months ended September 30, 2021 was primarily due to higher royalties and advertising contributions due to an increase in salon count and system-wide sales.

During the twelve months ended September 30, 2021, franchisees constructed (net of relocations) and closed 27 and 358 Franchise-owned salons, respectively, and purchased 692 salons from the Company during the same period.

The increase in royalties and advertising contributions was partially offset by a decline in franchise product sales, which the Company expects revenue to significantly decrease throughout fiscal year 2022 due to the Company exiting its whole-sale product business.

Franchise Operating Loss

During the three months ended September 30, 2021, franchise salon operations generated an operating loss of $4.8 million, a $6.0 million improvement from the prior comparable period.

The improvement in the three months ended September 30, 2021 was primarily due to an increase in royalties and reduced general and administrative expense related primarily to salaries and bad debt expense.

Franchise revenues decreased $1.2 million during the three months ended December 31, 2021 and increased $4.6 million during the six months ended December 31, 2021.

The decrease in franchise salon revenue during the three months ended December 31, 2021 was primarily due to the decrease in product sales to franchisees due to the Company's shift to third-party distributors, partially offset by higher royalties and advertising fund contributions.

The increase in franchise revenue during the six months ended December 31, 2021 was primarily due to higher royalties and advertising contributions due to an increase in salon count and system-wide sales.

During the twelve months ended December 31, 2021, franchisees constructed (net of relocations) and closed 23 and 299 franchise salons, respectively, and purchased 560 salons from the Company during the same period.

The increases in royalties and advertising contributions were partially offset by a decline in franchise product sales, which the Company expects revenue to significantly decrease throughout fiscal year 2022 due to the Company exiting its whole-sale product business.

Franchise Operating Income (Loss)

During the three and six months ended December 31, 2021, franchise salon operations generated operating income of $2.1 million and operating loss of $2.7 million, an $11.5 and $17.5 million improvement from the prior comparable period.

The improvement in the three and six months ended December 31, 2021 was primarily due to increases in royalties and reduced general and administrative expense related primarily to cost saving initiatives.

Company-owned Salons

Three Months Ended September 30,

2021 2020 (Decrease) Increase (1)

(Dollars in millions)

Three Months Ended December 31, Six Months Ended December 31,

2021 2020 (Decrease) Increase (1) 2021 2020 (Decrease) Increase (1)

(Dollars in millions) (Dollars in millions)

Total revenue $ 5.0 $ 37.9 $ (32.9) $ 13.0 $ 85.3 $ (72.3)

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Company-owned Salon Revenues

Company-owned salon revenues decreased $39.4 million during the three months ended September 30, 2021, primarily due to the 2022 Net Salon Count Changes.

Company-owned salon revenues decreased $32.9 and $72.3 million during the three and six months ended December 31, 2021, respectively, primarily due to the 2022 Net Salon Count Changes.

Company-owned Salon Operating Loss

During the three months ended September 30, 2021, company-owned salon operating loss improved $19.7 million compared to the prior comparable period.

The improvement in the loss during the three months ended September 30, 2021 was primarily due to reduced general and administrative expense primarily related to salaries and a decrease in marketing expense.

During the three and six months ended December 31, 2021, company-owned salon operating loss improved $14.2 and $33.9 million, respectively, compared to the prior comparable period.

The improvement in the loss during the three and six months ended December 31, 2021 was primarily due to reduced general and administrative expense primarily related to salaries, a decrease in depreciation and long-lived asset impairment and the exiting of loss making company-owned salons.

LIQUIDITY AND CAPITAL RESOURCES

Sources of Liquidity

Funds generated by operating activities, available cash and cash equivalents, proceeds from sale of salons sold to franchisees, and our borrowing agreements are our most significant sources of liquidity.

As of September 30, 2021, cash and cash equivalents were $45.5 million, with $42.3 and $3.2 million within the United States and Canada, respectively.

The Company's borrowing arrangements include a $293.3 million five-year revolving credit facility that expires in March 2023, of which $81.8 million was available as of September 30, 2021.

Funds generated by operating activities, available cash and cash equivalents and our borrowing agreements are our most significant sources of liquidity.

As of December 31, 2021, cash and cash equivalents were $35.4 million, with $33.1 and $2.3 million within the United States and Canada, respectively.

The Company's borrowing arrangements include a $291.7 million five-year revolving credit facility that expires in March 2023, of which $81.8 million was available as of December 31, 2021.

The Company's liquidity per the agreement includes the unused available balance under the credit facility, unrestricted cash and cash equivalents and the shortfall in the gap in expected proceeds from the sale of salon assets of $20.9 million as of December 31, 2021.

Total liquidity per the agreement was $138.1 million as of December 31, 2021.

The revolving credit facility has a minimum liquidity covenant of $75.0 million (see Note 8 to the unaudited Condensed Consolidated Financial Statements).

Additionally, on February 3, 2021, the Company filed a $150.0 million shelf registration statement and $50.0 million prospectus supplement with the SEC under which it may offer and sell, from time to time, up to $50.0 million worth of its of its Class A common stock in "at-the-market offerings." Net proceeds from sales of shares under the "at-the-market" program, if any, may be used to, among other things, fund working capital requirements, repay debt and support growth strategies.

Additionally, on February 3, 2021, the Company filed a $150.0 million shelf registration statement and $50.0 million prospectus supplement with the SEC under which it may offer and sell, from time to time, up to $50.0 million worth of its Class A common stock in "at-the-market offerings." Net proceeds from sales of shares under the "at-the-market" program, if any, may be used to, among other things, fund working capital requirements, repay debt and support growth strategies.

Such strategies may include positioning the Company for potential expansion through targeted industry acquisitions and alternatives to fund additional capital investment requirements related to potential partnership opportunities to facilitate continued growth of our proprietary technology, Opensalon ® Pro.

During the three months ended September 30, 2021, the Company issued 8.1 million shares and received net proceeds of $32.2 million.

On September 29, 2021, the Company sold 1.2 million shares for net proceeds of $5.0 million, which settled on October 1, 2021.

During the six months ended December 31, 2021, the Company issued 9.3 million shares and received net proceeds of $37.2 million.

The Company closely manages its liquidity and capital resources.

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Cash Flows from Operating Activities

During the three months ended September 30, 2021, cash used in operating activities was $12.3 million.

Cash used in operations decreased due to higher royalties and lower general and administrative expense.

These cash inflows were partially offset by the Company's bonus payment of $2.1 million to non-executives paid during the first quarter.

In the prior year, bonuses were paid in the second quarter.

During the six months ended December 31, 2021, cash used in operating activities was $24.3 million.

Cash used in operations improved due to higher royalties, lower general and administrative expense and the exiting of loss making company-owned salons.

These improvements were partially offset by $2.5 million of social security contributions remitted in the second quarter that had been deferred under the CARES Act.

Cash Flows from Investing Activities

During the three months ended September 30, 2021, cash used in investing activities of $1.5 million was due to capital expenditures primarily related to internally-developed capitalized software.

During the six months ended December 31, 2021, cash used in investing activities of $2.9 million was due to capital expenditures primarily related to internally-developed capitalized software.

During the six months ended December 31, 2020, cash provided by investing activities of $0.6 million was primarily due to proceeds from the sale of salon assets, partially offset by capital expenditures.

Cash Flows from Financing Activities

During the three months ended September 30, 2021, cash provided by financing activities was $40.8 million, primarily as a result of net proceeds of $32.2 million related to the issuance of common stock and a net $8.9 million draw on the Company's revolving credit facility.

During the six months ended December 31, 2021, cash provided by financing activities was $43.6 million, primarily as a result of net proceeds of $37.2 million related to the issuance of common stock and a net $7.3 million draw on the Company's revolving credit facility.

During the six months ended December 31, 2020, cash used in financing activities was $1.3 million, primarily due to the Company's purchase of its non-controlling interest from the minority shareholders.

Financing Arrangements

See Note 8 of the Notes to the unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 and Note 8 of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021, for additional information regarding our financing arrangements.

The Company's existing revolving credit facility is due in March 2023 and management expects to refinance the debt prior to the expiration date.

Uncertainty in the business, including the impact of COVID-19, may reduce our borrowing options and increase the interest rate.

An increase to the rate or a decrease to the facility may impact our ability to achieve our strategic objectives and may materially impact our operations.

Additionally, the Company may need to look to other sources of financing, including additional use of the Company's At-The-Market (ATM) offering or other equity offerings that may be dilutive to shareholders.

See Note 8 of the Notes to the unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for the quarter ended December 31, 2021 and Note 8 of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021, for additional information regarding our financing arrangements.

Debt to Capitalization Ratio

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Capitalization (1)

September 30, 2021 83.1 %

December 31, 2021 83.5 %

June 30, 2021 91.6 %

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It excludes the long-term lease liability as that liability is offset by the ROU asset.

The decrease in the debt to capitalization ratio as of September 30, 2021 as compared to June 30, 2021, was primarily due to the increase in shareholders' equity as a result of the common stock issued in the quarter

The decrease in the debt to capitalization ratio as of December 31, 2021 as compared to June 30, 2021, was primarily due to the increase in shareholders' equity as a result of the common stock issued in the first quarter.

Share Issuance Program

On February 3, 2021, the Company filed a $150.0 million shelf registration statement and $50.0 million prospectus supplement with the SEC under which it may offer and sell, from time to time, up to $50.0 million worth of its Class A common stock in "at-the-market" offerings.

During the three months ended September 30, 2021, the Company issued 8.1 million shares for net proceeds of $32.2 million.

During the three and six months ended December 31, 2021, the Company issued 1.2 and 9.3 million shares for net proceeds of $5.0 and $37.2 million, respectively.

Share Repurchase Program

In May 2000, the Board approved a stock repurchase program with no stated expiration date.

Since that time and through September 30, 2021, the Board has authorized $650.0 million to be expended for the repurchase of the Company's stock under this program.

Since that time and through December 31, 2021, the Board has authorized $650.0 million to be expended for the repurchase of the Company's stock under this program.

All repurchased shares become authorized, but unissued shares of the Company.

The timing and amounts of any repurchases depend on many factors, including the market price of the common stock and overall market conditions.

During the three months ended September 30, 2021, the Company did not repurchase any shares.

As of September 30, 2021, 30.0 million shares have been cumulatively repurchased for $595.4 million, and $54.6 million remains outstanding under the approved stock repurchase program.

During the three and six months ended December 31, 2021, the Company did not repurchase any shares.

As of December 31, 2021, 30.0 million shares have been cumulatively repurchased for $595.4 million, and $54.6 million remains outstanding under the approved stock repurchase program.

SAFE HARBOR PROVISIONS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

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The forward-looking statements in this document reflect management's best judgment at the time they are made, but all such statements are subject to numerous risks and uncertainties, which could cause actual results to differ materially from those expressed in or implied by the statements herein.

Such forward-looking statements are often identified herein by use of words including, but not limited to, "may," "believe," "project," "forecast," "expect," "estimate," "anticipate," and "plan." These uncertainties include a potential material adverse impact on our business and results of operations as a result of the uncertain duration and severity of the COVID-19 pandemic, including any adverse impact from the Delta variant;

the impact of the COVID-19 pandemic on our key suppliers;

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compliance with credit facility covenants and access to the existing revolving credit facility;

ability to re-finance our existing credit facility or the ability to re-finance at a similar rate;

ability to re-finance our existing credit facility, including our ability to re-finance at a similar rate, and our ability to raise additional debt or equity capital;

our capital investments in technology may not achieve appropriate returns;

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financial performance of Empire Education Group;

the continued ability of the Company to implement cost reduction initiatives;

the continued ability of the Company to implement cost reduction initiatives and achieve expected cost savings;

continued ability to compete in our business markets;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis