REGIS CORP 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide a reader of our consolidated financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. This MD&A should be read in conjunction with the MD&A included in our June 30, 2021 Annual Report on Form 10-K and other documents filed or furnished with the SEC during the current fiscal year. MANAGEMENT'S OVERVIEW Regis Corporation (RGS) franchises hairstyling and hair care salons throughout the United States, Canada, Puerto Rico and the United Kingdom. As of March 31, 2022, the Company franchised, owned or held ownership interests in 5,697 worldwide locations. Our locations consisted of 5,621 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 March 31, 2022, the Company had 735 employees worldwide. COVID-19 Impact During the periods ended March 31, 2022 and 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 Canada Emergency Wage Subsidy (CEWS), Canada Emergency Rent Subsidy (CERS) and the U.S. employee retention payroll tax credit were introduced for eligible employers. In fiscal years 2022 and 2021, the Company received $1.9 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. In fiscal year 2021, the Company recorded a $1.5 million benefit related to the U.S. employee retention payroll tax credit. Additionally, in December 2021 the Company paid $2.5 million of social security contributions that had been deferred under the CARES Act. 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. Additional impacts to the business may arise that we are not aware of currently. Merchandising Strategy As part of the Company's transformation to focus on managing and nurturing brands, and in line with its capital-light business, a new merchandise strategy to outsource product distribution was adopted in the third quarter of fiscal year 2021. The Company has shifted its product business from a wholesale model to a third-party distribution model. Management expects the change will positively impact franchisees by providing them access to industry-leading pricing, loyalty programs, promotional benefits, educational assets, and ongoing support. The Company will receive a fee from the third-party distributors which is included in fees on the interim unaudited Condensed Consolidated Statement of Operations. The change is expected to result in product sales to franchisees providing significantly less revenue by the end of fiscal year 2022. CRITICAL ACCOUNTING POLICIES The interim unaudited Condensed Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America. In preparing the interim unaudited Condensed Consolidated Financial Statements, we are required to make various judgments, estimates and assumptions that could have a significant impact on the results reported in the interim unaudited Condensed Consolidated Financial Statements. We base these estimates on historical experience and other assumptions believed to be reasonable under the circumstances. Estimates are considered to be critical if they meet both of the following criteria: (1) the estimate requires assumptions about material matters that are uncertain at the time the accounting estimates are made and (2) other materially different estimates could have been reasonably made or material changes in the estimates are reasonably likely to occur from period to period. Changes in these estimates could have a material effect on our interim unaudited Condensed Consolidated Financial Statements. Our significant accounting policies can be found in Note 1 to the Consolidated Financial Statements contained in Part II, Item 8 of the June 30, 2021 Annual Report on Form 10-K, as well as Notes 1 and 2 to the unaudited Condensed Consolidated Financial Statements contained within this Quarterly Report on Form 10-Q. We believe the accounting policies related to the valuation of goodwill, the valuation and estimated useful lives of long-lived assets, estimates used in relation to tax liabilities and deferred taxes are most critical to aid in fully understanding and evaluating our reported financial condition and results of operations. Discussion of each of these policies is contained under "Critical Accounting Policies" in Part II, Item 7 of our June 30, 2021 Annual Report on Form 10-K. Our policies related to revenue recognition guidance can be found in Note 2 to the unaudited Condensed Consolidated Financial Statements. 23 RESULTS OF OPERATIONS System-wide results As an asset-light franchise platform, our results are impacted by our system-wide sales, which include sales by all points of distribution, whether owned by our franchisees or the Company. While we do not record sales by franchisees as revenue, and such sales are not included in our unaudited Condensed Consolidated Financial Statements, we believe that this operating measure is important in obtaining an understanding of our financial performance. We believe system-wide sales information aids in understanding how we derive royalty revenue and in evaluating performance. System-wide same-store sales (1) by concept are detailed in the table below: Three Months Ended March 31, Nine Months Ended March 31, 2022 2021 2022 2021 SmartStyle (2.5) % (19.6) % 8.8 % (28.7) % Supercuts 17.8 (22.3) 26.0 (29.9) Portfolio Brands 4.0 (17.9) 13.2 (26.6) Consolidated system-wide same-store sales 8.6 % (20.7) % 17.8 % (28.7) % _______________________________________________________________________________ (1) Fiscal year 2022 system-wide same-store sales are calculated as the total change in sales for system-wide franchise and company-owned locations that were open on a specific day of the week during the current period and the corresponding prior period. Fiscal year 2021 system-wide same-store sales are calculated as the total change in sales for system-wide franchise and company-owned locations open 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 system-wide same-store sales are the sum of the system-wide same-store sales computed on a daily basis. Franchise salons that do not report daily sales are excluded from same-store sales. System-wide same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation. 24 Condensed Consolidated Results of Operations (Unaudited) The following table sets forth, for the periods indicated, certain information derived from our unaudited Condensed Consolidated Statement of Operations. 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 March 31, Nine Months Ended March 31, 2022 2021 2022 2021 2022 2022 2021 2022 2021 2022 ($ in millions) % of Total Revenues (1) Increase (Decrease) ($ in millions) % of Total Revenues (1) Increase (Decrease) Royalties $ 15.8 $ 12.8 24.4 % 12.8 % 1,160 $ 48.5 $ 37.0 22.8 % 11.7 % 1,110 Fees 3.4 5.1 5.2 5.1 10 11.5 9.6 5.4 3.0 240 Product sales to franchisees 1.3 13.1 2.0 13.1 (1,110) 11.7 41.1 5.5 13.0 (750) Advertising fund contributions 8.1 5.6 12.5 5.6 690 24.2 14.8 11.4 4.7 670 Franchise rental income 32.7 31.3 50.5 31.2 1,930 100.2 95.9 47.1 30.3 1,680 Company-owned salon revenue 3.5 32.3 5.4 32.2 (2,680) 16.6 117.6 7.8 37.3 (2,950) Cost of product sales to franchisees (2) 2.6 11.2 200.0 85.5 11,450 14.1 33.2 120.5 80.8 3,970 Inventory reserve 6.4 — 9.9 — N/A 6.4 — 3.0 — N/A General and administrative 15.6 24.6 24.1 24.6 (50) 53.3 77.4 25.0 24.5 50 Rent 1.2 8.0 1.9 8.0 (610) 6.1 34.1 2.9 10.8 (790) Advertising fund expense 8.1 5.6 12.5 5.6 690 24.2 14.8 11.4 4.7 670 Franchise rent expense 32.7 31.3 50.5 31.2 1,930 100.2 95.9 47.1 30.3 1,680 Company-owned salon expense 5.3 33.7 8.2 33.6 (2,540) 18.3 110.3 8.6 34.9 (2,630) Depreciation and amortization 2.0 3.6 3.1 3.6 (50) 5.8 17.4 2.7 5.5 (280) Long-lived asset impairment 0.3 0.8 0.5 0.8 (30) 0.5 9.8 0.2 3.1 (290) Goodwill impairment 16.0 — 24.7 — N/A 16.0 — 7.5 — N/A Operating loss (3) (25.4) (18.5) (39.2) (18.5) (2,070) (32.4) (76.9) (15.2) (24.3) 910 Interest expense (3.4) (3.2) (5.2) (3.2) (200) (10.2) (10.6) (4.8) (3.4) (140) Loss from sale of salon assets to franchisees, net (0.5) (4.6) (0.8) (4.6) 380 (2.2) (8.5) (1.0) (2.7) 170 Interest income and other, net 0.2 15.1 0.3 15.1 (1,480) — 15.6 — 4.9 (490) Income tax benefit (4) 1.3 0.3 4.4 3.0 N/A 1.5 1.4 3.3 1.7 N/A Net loss (3) (27.9) (10.8) (43.1) (10.8) (3,230) (43.2) (79.0) (20.3) (25.0) 470 _______________________________________________________________________________ (1) Cost of product sales to franchisees is computed as a percent of product sales to franchisees. (2) Excludes depreciation and amortization expense. The Company exited its warehouses in fiscal year 2022 and is selling inventory below cost to facilitate the wind down of the whole-sale distribution business. (3) Total is a recalculation; line items calculated individually may not sum to total due to rounding. (4) Computed as a percent of loss from continuing operations before income taxes. The income tax basis point change is noted as not applicable (N/A) as the discussion within MD&A is related to the effective income tax rate. 25 Three and Nine Months Ended March 31, 2022 Compared with Three and Nine Months Ended March 31, 2021 Consolidated Revenues Consolidated revenues are comprised of royalties, fees, advertising fund contributions, product sales to franchisees, franchise rental income and company-owned salon revenue. Consolidated revenue decreased $35.6 and $103.2 million, or 35.5% and 32.7%, for the three and nine months ended March 31, 2022, respectively. Royalty revenue increased $3.0 and $11.5 million, respectively, in the three and nine months ended March 31, 2022 due to higher franchise system-wide sales and higher franchise salon counts. The overall decrease in revenue is due to the decrease in company-owned salons. During the twelve months ended March 31, 2022, 448 salons were sold to franchisees and 544 and 22 system-wide salons were closed and constructed, respectively (2022 Net Salon Count Changes). During the three and nine months ended March 31, 2022, company-owned salon revenue decreased $28.8 and $101.0 million, respectively, due primarily to the sale of salons to franchisees and salon closures. For the three and nine months ended March 31, 2022, the impact to consolidated revenue due to the sale of salons to franchisees and closure of salons was $24.8 and $88.8 million, respectively. Royalties During the three and nine months ended March 31, 2022, royalties increased $3.0 and $11.5 million, or 23.4% and 31.1%, respectively, primarily due to the increase in franchise salons and higher franchise system-wide sales. Total franchised locations open at March 31, 2022 were 5,504 as compared to 5,317 at March 31, 2021. Fees During the three months ended March 31, 2022, fees decreased $1.7 million, or 33.3%, primarily due an increase in terminated development agreements in the three months ended March 31, 2021, partially offset by the increase in franchise salons and an increase in salons running Opensalon ® Pro in the three months ended March 31, 2022. In fiscal year 2022, the Company recorded $1.5 million of terminated development agreement fees in the second quarter. During the nine months ended March 31, 2022, fees increased $1.9 million, or 19.8%, primarily due to the increase in franchise salons and an increase in salons running Opensalon ® Pro. Product Sales to Franchisees Product sales to franchisees decreased $11.8 and $29.4 million, or 90.1% and 71.5%, respectively, during the three and nine months ended March 31, 2022, 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 $2.5 and $9.4 million, or 44.6% and 63.5%, respectively, during the three and nine months ended March 31, 2022, primarily due to the increase in franchise salon count and system-wide sales. Additionally, the increase in the nine months ended March 31, 2022 is also due to an increase in the contribution rate that had been reduced in the first half of fiscal year 2021 in response to COVID-19. Franchise Rental Income During the three and nine months ended March 31, 2022, franchise rental income increased $1.4 and $4.3 million, or 4.5% and 4.5%, respectively, primarily due to the increase in franchise salon count. Company-owned Salon Revenue During the three and nine months ended March 31, 2022, company-owned salon revenue decreased $28.8 and $101.0 million, or 89.2% and 85.9%, 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 associated with the closure of our warehouses in fiscal year 2022. Cost of Product Sales to Franchisees The 11,450 and 3,970 basis point increases in cost of product as a percent of product revenues during the three and nine months ended March 31, 2022, respectively, were primarily due to the Company reducing prices to liquidate distribution center inventory. 26 Inventory Reserve During the three and nine months ended March 31, 2022, the Company recorded an inventory reserve of $6.4 million related to distribution center inventory, primarily consisting of personal protective equipment the Company no longer believes is marketable. General and Administrative The decreases of $9.0 and $24.1 million, or 36.6% and 31.1%, in general and administrative expense during the three and nine months ended March 31, 2022, 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 and $2.0 million, respectively, of estimated potential legal settlements (see Note 5 to the unaudited Condensed Consolidated Financial Statements). Additionally, the provision for doubtful accounts expense also contributed to the decline in the nine months ended March 31, 2022. Rent The decreases of $6.8 and $28.0 million, or 85.0% and 82.1%, in rent expense during the three and nine months ended March 31, 2022, respectively, were primarily due to the net reduction in the number of company-owned salons. Additionally, in the three months ended March 31, 2022 the Company accrued less rent deemed uncollectible from franchisees. Partially offsetting the decrease in the nine month period was a $0.9 million broker fee incurred in the nine months ended March 31, 2022 related to exiting the Company's distribution centers. Advertising Fund Expense Advertising fund expense increased $2.5 and $9.4 million, or 44.6% and 63.5%, during the three and nine months ended March 31, 2022, respectively, primarily due to the increase in franchise salon count and system-wide sales. Additionally, the increase in the nine months ended March 31, 2022 is also due to an increase in the contribution rate that had been reduced in the first half of fiscal year 2021 in response to COVID-19. Franchise Rent Expense During the three and nine months ended March 31, 2022, franchise rent expense increased $1.4 and $4.3 million, or 4.5% and 4.5%, respectively, primarily due to the increase in franchise salon count. Company-owned Salon Expense Company-owned salon expense for the three and nine months ended March 31, 2022 decreased $28.4 and $92.0 million, or 84.3% and 83.4%, respectively, primarily due to the reduction in company-owned salons, a decline in product sales, and exiting third-party logistics. Depreciation and Amortization The decreases of $1.6 and $11.6 million, or 44.4% and 66.7%, in depreciation and amortization during the three and nine months ended March 31, 2022, 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 March 31, 2022 and 2021, the Company recorded a long-lived asset impairment charge of $0.3 and $0.8 million, respectively, which included an ROU asset impairment charge of $0.3 and $0.3 million, respectively. In the nine months ended March 31, 2022 and 2021, the Company recorded a long-lived asset impairment charge of $0.5 and $9.8 million, respectively, which included an ROU asset impairment charge of $0.5 and $6.3 million, respectively. The decreases in long-lived asset impairment were primarily due to more salons being impaired in prior periods. Goodwill Impairment In the three and nine months ended March 31, 2022, the Company recorded a goodwill impairment charge of $16.0 million (see Note 1 to the unaudited Condensed Consolidated Financial Statements). 27 Interest Expense The $0.2 million increase in interest expense for the three months ended March 31, 2022 was primarily due to increased borrowings. The $0.4 million decrease in interest expense for the nine months ended March 31, 2022 was primarily due to interest incurred related to the financing liabilities associated with our sale leasebacks that ended in fiscal year 2021, partially offset by an increase in borrowings. Loss from Sale of Salon Assets to Franchisees, net The $4.1 and $6.3 million decreases in the loss from the sale of salon assets to franchisees, net in the three and nine months ended March 31, 2022, respectively, were primarily due to fewer salons sold in fiscal year 2022. Interest Income and Other, net The decreases of $14.9 and $15.6 million in interest income and other, net during the three and nine months ended March 31, 2022 were primarily due to the gain associated with the leases for the Company's distribution centers recognized in the three months ended March 31, 2021. Income Tax Benefit During the three and nine months ended March 31, 2022, the Company recognized tax benefits of $1.3 and $1.5 million, respectively, with corresponding effective tax rates of 4.4% and 3.3% as compared to recognizing tax benefits of $0.3 and $1.4 million, respectively, with corresponding effective tax rates of 3.0% and 1.7% during the three and nine months ended March 31, 2021. See Note 4 to the unaudited Condensed Consolidated Financial Statements. 28 Results of Operations by Segment Based on our internal management structure, we report two segments: Franchise and Company-owned salons. See Note 10 to the unaudited Condensed Consolidated Financial Statements. Significant results of operations are discussed below with respect to each of these segments. Franchise Three Months Ended March 31, Nine Months Ended March 31, 2022 2021 Increase (Decrease) (1) 2022 2021 Increase (Decrease) (1) (Dollars in millions) (Dollars in millions) Royalties $ 15.8 $ 12.8 $ 3.0 $ 48.5 $ 37.0 $ 11.5 Fees 3.4 5.1 (1.7) 11.5 9.6 1.9 Product sales to franchisees 1.3 13.1 (11.8) 11.7 41.1 (29.4) Advertising fund contributions 8.1 5.6 2.5 24.2 14.8 9.4 Franchise rental income 32.7 31.3 1.4 100.2 95.9 4.3 Total franchise revenue (1) $ 61.2 $ 67.9 $ (6.7) $ 196.2 $ 198.3 $ (2.1) Franchise same-store sales (2) 8.8 % (19.3) % 18.0 % (27.6) % Operating loss $ (15.3) $ (5.9) $ (9.4) $ (18.0) $ (26.1) $ 8.1 Total franchise salons 5,504 5,317 187 _______________________________________________________________________________ (1) Total is a recalculation; line items calculated individually may not sum to total due to rounding. (2) 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 open 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. Franchise Revenues Franchise revenues decreased $6.7 and $2.1 million during the three and nine months ended March 31, 2022. The decrease in franchise salon revenue during the three months and nine months ended March 31, 2022 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 due to an increase in salon count and system-wide sales. During the twelve months ended March 31, 2022, franchisees constructed (net of relocations) and closed 22 and 283 franchise salons, respectively, and purchased 448 salons from the Company during the same period. The Company expects product revenue to continue to decrease throughout fiscal year 2022 due to the Company exiting its wholesale product business. Franchise Operating Loss During the three and nine months ended March 31, 2022, franchise salon operations generated operating losses of $15.3 million and $18.0 million, respectively. The loss in the three months ended March 31, 2022 was $9.4 million higher than the prior year due to a goodwill impairment charge of $16.0 million in the period. Excluding the goodwill impairment, operating income increased primarily due to higher royalty revenue and decreased general and administrative expense and rent. The operating loss improved $8.1 million in the nine months ended March 31, 2022 from the prior comparable period due to the increase in royalties and decrease in general and administrative expense and rent, partially offset by the goodwill impairment charge. 29 Company-owned Salons Three Months Ended March 31, Nine Months Ended March 31, 2022 2021 (Decrease) Increase (1) 2022 2021 (Decrease) Increase (1) (Dollars in millions) (Dollars in millions) Total revenue $ 3.5 $ 32.3 $ (28.8) $ 16.6 $ 117.6 $ (101.0) Operating loss $ (3.7) $ (12.6) $ 8.9 $ (7.9) $ (50.7) $ 42.8 Total company-owned salons 117 826 (709) _______________________________________________________________________________ (1) Total is a recalculation; line items calculated individually may not sum to total due to rounding. Company-owned Salon Revenues Company-owned salon revenues decreased $28.8 and $101.0 million during the three and nine months ended March 31, 2022, respectively, primarily due to the 2022 Net Salon Count Changes. Company-owned Salon Operating Loss During the three and nine months ended March 31, 2022, company-owned salon operating loss improved $8.9 and $42.8 million, respectively, compared to the prior comparable period. The improvement in the loss during the three and nine months ended March 31, 2022 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. 30 LIQUIDITY AND CAPITAL RESOURCES The Company's debt of $193.8 million is due in March 2023 and management's current projected cash flows do not support the ability to repay this obligation in full at maturity. As a result of the maturity date, our debt is reflected as a current liability at March 31, 2022. Management is working with advisors to determine alternative financing arrangements and believes the ability to refinance alleviates substantial doubt related to the Company's ability to continue as a going concern. If the Company is not able to refinance our debt at terms acceptable to us by the maturity date, the lender would be able to call the debt and pursue other remedies that could be harmful to our business. Sources of Liquidity Funds generated by operating activities, available cash and cash equivalents and our borrowing agreements are our most significant sources of liquidity. As of March 31, 2022, cash and cash equivalents were $25.6 million, with $23.7 and $1.9 million within the United States and Canada, respectively. The Company's borrowing arrangements include a $291.3 million five-year revolving credit facility that expires in March 2023, of which $81.8 million was available as of March 31, 2022. 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 March 31, 2022. Total liquidity per the agreement was $128.3 million as of March 31, 2022. 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 Class A common stock in "at-the-market offerings." Net proceeds from sales of shares under the "at-the-market" program 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 nine months ended March 31, 2022, the Company issued 9.3 million shares and received net proceeds of $37.2 million. Uses of Cash The Company closely manages its liquidity and capital resources. The Company's liquidity requirements depend on key variables, including the level of investment needed to support its business strategies, the performance of the business, capital expenditures, credit facilities and borrowing arrangements, and working capital management. Capital expenditures are a component of the Company's cash flow and capital management strategy, which can be adjusted in response to economic and other changes to the Company's business environment. The Company has a disciplined approach to capital allocation, which focuses on investing in key priorities as discussed within Part I, Item 1 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2021. 31 Cash Flows Cash Flows from Operating Activities During the nine months ended March 31, 2022, cash used in operating activities was $34.4 million compared to $80.0 million in the prior year. Cash used in operations improved due to higher royalties, lower general and administrative expense, lower rent 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 nine months ended March 31, 2022, cash used in investing activities of $4.3 million was due to capital expenditures primarily related to internally-developed capitalized software. During the nine months ended March 31, 2021, cash used in investing activities of $0.9 million was primarily due to capital expenditures, partially offset by proceeds from the sale of salon assets. Cash Flows from Financing Activities During the nine months ended March 31, 2022, cash provided by financing activities was $43.2 million, primarily as a result of net proceeds of $37.2 million related to the issuance of common stock and a net $6.9 million draw on the Company's revolving credit facility. During the nine months ended March 31, 2021, cash used in financing activities was $1.6 million. Financing Arrangements The Company's existing revolving credit facility is due in March 2023 and management is working with advisors to determine alternate financing. 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 March 31, 2022 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 Our debt to capitalization ratio, calculated as the principal amount of debt as a percentage of the principal amount of debt and shareholders' equity at fiscal quarter end, was as follows: Debt to Capitalization (1) March 31, 2022 94.6 % June 30, 2021 91.6 % _______________________________________________________________________________ (1) Excludes the long-term lease liability as that liability is offset by the ROU asset. The increase in the debt to capitalization ratio as of March 31, 2022 as compared to June 30, 2021, was primarily due to the decrease in shareholders' equity as a result of the loss from operations. 32 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 nine months ended March 31, 2022, the Company issued 9.3 million shares for net proceeds of $37.2 million. Share Repurchase Program In May 2000, the Board approved a stock repurchase program with no stated expiration date. Since that time and through March 31, 2022, 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 and nine months ended March 31, 2022, the Company did not repurchase any shares. As of March 31, 2022, 30.0 million shares have been cumulatively repurchased for $595.4 million, and $54.6 million remains outstanding under the approved stock repurchase program. 33 SAFE HARBOR PROVISIONS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This Quarterly Report on Form 10-Q, as well as information included in, or incorporated by reference from, future filings by the Company with the Securities and Exchange Commission and information contained in written material, press releases and oral statements issued by or on behalf of the Company contains or may contain "forward-looking statements" within the meaning of the federal securities laws, including statements concerning anticipated future events and expectations that are not historical facts. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 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 Delta, Omicron and other variants; the impact of the COVID-19 pandemic on our key suppliers; consumer shopping trends and changes in manufacturer distribution channels; changes in regulatory and statutory laws including increases in minimum wages; laws and regulations could require us to modify current business practices and incur increased costs; changes in economic conditions; changes in consumer tastes and fashion trends; the continued ability of the Company to implement its strategy, priorities and initiatives including the re-engineering of our corporate and field infrastructure; new merchandising strategy; our franchisees' ability to attract, train and retain talented stylists; financial performance of our franchisees; the ability to operate or sell the salons transferred back from TBG; our ability to manage cyber threats and protect the security of potentially sensitive information about our guests, employees, vendors or Company information; the ability of the Company to maintain a satisfactory relationship with Walmart; marketing efforts to drive traffic to our franchisees' salons; our ability to maintain and enhance the value of our brands; reliance on information technology systems; reliance on external vendors; the use of social media; failure to standardize operating processes across brands; exposure to uninsured or unidentified risks; Opensalon ® Pro may not yield the intended results; compliance with credit facility covenants and access to the existing revolving credit facility; 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; premature termination of agreements with our franchisees; financial performance of Empire Education Group; the continued ability of the Company to implement cost reduction initiatives and achieve expected cost savings; continued ability to compete in our business markets; reliance on our management team and other key personnel; the continued ability to maintain an effective system of internal controls over financial reporting; changes in tax exposure; the ability to use U.S. net operating loss carryforwards; potential litigation and other legal or regulatory proceedings could have an adverse effect on our business or other factors not listed above. Additional information concerning potential factors that could affect future financial results is set forth under Item 1A on Form 10-K. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, your attention is directed to any further disclosures made in our subsequent annual and periodic reports filed or furnished with the SEC on Forms 10-K, 10-Q and 8-K and Proxy Statements on Schedule 14A. 34 Item 3. Quantitative and Qualitative Disclosures about Market Risk We are exposed to market risk from changes in interest rates and changes in foreign currency exchange rates. There has been no material change to the factors discussed within Part II, Item 7A in the Company's June 30, 2021 Annual Report on Form 10-K.