What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-05-03 compared with 2023-02-01 · 90 added, 70 removed, 207 unchanged (44% of the section changed)

4 unchanged sentences

Regis Corporation (NYSE:RGS) is a leader in the beauty salon industry.

As of December 31, 2022, the Company franchised, owned or held ownership interests in 5,347 worldwide locations.

As of March 31, 2023, the Company franchised, owned or held ownership interests in 5,203 worldwide locations.

Our locations consisted of 5,127 system-wide North American and international salons, and 76 locations in which we maintained a non-controlling ownership interest less than 100 percent.

1 unchanged sentence

Regis maintains an ownership interest in Empire Education Group in the United States.

As of December 31, 2022, the Company had 545 employees worldwide.

As of March 31, 2023, the Company had 486 employees worldwide.

Merchandising Strategy

19 unchanged sentences

We believe system-wide sales information aids in understanding how we derive royalty revenue and in evaluating performance.

During the three months ended March 31, 2023, system-wide revenue of $299.3 million increased $8.3 million from $291.0 million in the three months ended March 31, 2022.

During the nine months ended March 31, 2023, system wide revenue of $918.7 million increased $7.1 million from $911.6 million in the nine months ended March 31, 2022.

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

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

Three Months Ended March 31, Nine Months Ended March 31,

2023 2022 2023 2022

8 unchanged sentences

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

In the nine months ended March 31, 2023, a net 338 franchise salons have closed, which reduces future royalty income.

Condensed Consolidated Results of Operations (Unaudited)

2 unchanged sentences

Variances calculated on amounts shown in millions may result in rounding differences.

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

Three Months Ended March 31, Nine Months Ended March 31,

2023 2022 2023 2022 2023 2023 2022 2023 2022 2023

9 unchanged sentences

Cost of product sales to franchisees 1.0 2.5 166.7 192.3 (2,560) 2.8 13.2 127.3 112.8 1,450

Inventory reserve 1.2 — 2.0 — N/A 1.2 — 1.0 — N/A

Inventory reserve — 6.4 — 10.0 (1,000) 1.2 6.4 0.7 3.0 (230)

General and administrative 13.1 14.8 23.5 23.2 30 39.2 50.7 22.1 24.2 (210)

5 unchanged sentences

Long-lived asset impairment — 0.3 — 0.5 (50) — 0.5 — 0.2 (20)

Goodwill impairment — 13.1 — 20.5 (2,050) — 13.1 — 6.2 (620)

Operating income (loss) (2) 2.0 (22.2) 3.6 (34.8) 3,840 5.2 (27.6) 2.9 (13.1) 1,600

2 unchanged sentences

Other, net 0.4 0.2 0.7 0.3 40 1.2 — 0.7 — 70

Income tax benefit (expense) (3) — 0.2 — 3.8 N/A — 0.2 (0.6) 1.6 N/A

Income tax benefit (3) 0.2 1.3 10.0 4.9 N/A 0.2 1.5 3.2 3.8 N/A

Income (loss) from discontinued operations 0.5 (3.4) 0.9 (5.3) 620 4.0 (5.3) 2.3 (2.5) 480

5 unchanged sentences

(3) 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.

Three and Six Months Ended December 31, 2022 Compared with Three and Six Months Ended December 31, 2021

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

Three and Nine Months Ended March 31, 2023 Compared with Three and Nine Months Ended March 31, 2022

Consolidated Revenues

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

Consolidated revenue decreased $9.3 and $24.3 million, or 13.4% and 16.6%, for the three and six months ended December 31, 2022, respectively.

Royalty revenue increased $0.1 and $0.6 million in the three and six months ended December 31, 2022, respectively, due to improved system-wide same-store sales and average royalty rates.

The overall decrease in revenue for the three and six months ended December 31, 2022 is due to the decrease in company-owned salon revenue of $2.4 and $7.3 million, respectively, due primarily to salon closures, the decline in product sales to franchisees of $1.3 and $8.8 million, respectively, and the decline in franchise rental income of $4.9 and $8.3 million, respectively.

During the twelve months ended December 31, 2022, 17 salons were sold to franchisees and 452 and 20 system-wide salons were closed and constructed, respectively (2023 Net Salon Count Changes).

During the three and six months ended December 31, 2022, royalties increased $0.1 and $0.6 million, or 0.6% and 1.8%, respectively, primarily due to higher average royalty rates and improved system-wide same-store sales partially offset by a decrease in franchise salon count.

During the three and six months ended December 31, 2022, fees decreased $0.7 and $0.4 million, or 17.9% and 6.5%, respectively, primarily due to a decrease in terminated development agreements in fiscal year 2023 partially offset by an increase in the rebate received from the Company's shift in its product business to a third-party distribution model.

Consolidated revenue decreased $8.0 and $32.3 million, or 12.5% and 15.4%, for the three and nine months ended March 31, 2023, respectively.

Royalties increased $0.2 and $0.9 million in the three and nine months ended March 31, 2023, respectively, due to higher average royalty rates and improved system-wide same-store sales.

The overall decrease in revenue for the three and nine months ended March 31, 2023 is due to the decrease in company-owned salon revenue of $1.3 and $8.7 million, respectively, due primarily to salon closures, as well as the decline in product sales to franchisees of $0.7 and $9.5 million, respectively, and the decline in franchise rental income of $6.1 and $14.4 million, respectively.

During the twelve months ended March 31, 2023, three salons were sold to franchisees and 512 and 18 system-wide salons were closed and constructed, respectively (2023 Net Salon Count Changes).

During the three and nine months ended March 31, 2023, royalties increased $0.2 and $0.9 million, or 1.3% and 1.9%, respectively, primarily due to higher average royalty rates and improved system-wide same-store sales, partially offset by a decrease in franchise salon count.

During the three months ended March 31, 2023, fees increased $0.1 million, or 4.2%, as compared to the same period in the prior year, primarily due to an increase in the rebate received from the Company's third-party distribution partner.

During the nine months ended March 31, 2023, fees decreased $0.3 million, or 3.5%, compared to the same period in the prior year, primarily due to a decrease in terminated development agreements, partially offset by an increase in the rebate received from the Company's third-party distribution partner.

Product Sales to Franchisees

Product sales to franchisees decreased $1.3 and $8.8 million, or 54.2% and 84.6%, respectively, during the three and six months ended December 31, 2022, primarily due to the Company's shift in its product business to a third-party distribution model.

Product sales to franchisees decreased $0.7 and $9.5 million, or 53.8% and 81.2%, respectively, during the three and nine months ended March 31, 2023, primarily due to the Company's shift in its product business to a third-party distribution model.

Advertising Fund Contributions

Advertising fund contributions did not change significantly year-over-year, declining slightly due to a reduction in salon count partially offset by an increase in system-wide same-store sales.

Advertising fund contributions decreased $0.3 and $0.2 million, or 3.7% and 0.8%, respectively, during the three and nine months ended March 31, 2023, primarily due to the decrease in franchise salon count, partially offset by improved system-wide same-store sales.

Franchise Rental Income

During the three and six months ended December 31, 2022, franchise rental income decreased $4.9 and $8.3 million, or 14.5% and 12.3%, respectively, primarily due to a lower franchise salon count.

During the three and nine months ended March 31, 2023, franchise rental income decreased $6.1 and $14.4 million, or 18.7% and 14.4%, respectively, primarily due to a lower franchise salon count.

Company-Owned Salon Revenue

During the three and six months ended December 31, 2022, company-owned salon revenue decreased $2.4 and $7.3 million, or 48.0% and 56.2%, respectively, due to the decrease in company-owned salon count and a decline in product sales.

During the three and nine months ended March 31, 2023, company-owned salon revenue decreased $1.3 and $8.7 million, or 37.1% and 52.4%, respectively, due to the decrease in company-owned salon count and a decline in product sales.

Cost of Product Sales to Franchisees

The 1,100 basis point decrease in cost of product as a percent of product revenues during the three months ended December 31, 2022 was primarily due to higher marketing and freight expense in fiscal year 2022.

The 870 basis point increase in cost of product as a percent of product revenues during the six months ended December 31, 2022 was primarily due to the Company reducing prices to liquidate distribution center inventory.

The 2,560 basis point decrease in cost of product as a percent of product revenues during the three months ended March 31, 2023 was primarily due to higher freight expense in fiscal year 2022.

The 1,450 basis point increase in cost of product as a percent of product revenues during the nine months ended March 31, 2023 was primarily due to the Company reducing prices to liquidate distribution center inventory.

Inventory Reserve

In the three and six months ended December 31, 2022, the Company recorded an inventory reserve charge of $1.2 million related to slow moving products.

During the three and six months ended December 31, 2021, the Company recorded inventory reserve charges of $1.2 and $1.5 million, respectively, which were included in company-owned salon expense related to distribution center inventory.

In the three months ended March 31, 2023, the Company did not record an inventory reserve charge, and in the nine months ended March 31, 2023, the Company recorded an inventory reserve charge of $1.2 million related to slow moving products.

In the three and nine months ended March 31, 2022, the Company recorded total inventory reserve charges of $7.5 and $9.0 million, respectively.

In the three months ended March 31, 2022, $6.4 and $1.1 million were recorded in inventory reserve and company-owned salon expense, respectively, on the unaudited Condensed Consolidated Statement of Operations.

In the nine months ended March 31, 2022, $6.4 and $2.6 million were recorded in inventory reserve and company-owned salon expense, respectively, on the unaudited Condensed Consolidated Statement of Operations.

See Note 1 to the unaudited Condensed Consolidated Financial Statements.

General and Administrative

General and administrative expense decreased $3.4 and $9.8 million, or 22.5% and 27.3%, during the three and six months ended December 31, 2022, respectively.

Lower administrative and field management compensation resulting from headcount reductions, a decrease in expenses associated with the distribution center closures in fiscal year 2022 and a favorable actuarial adjustment of $0.6 million contributed to the decrease.

Rent expense decreased $0.9 and $1.0 million, or 30.0% and 20.8%, during the three and six months ended December 31, 2022, respectively.

There was a benefit of $0.1 and $1.2 million in the three and six months ended December 31, 2021 related to Canadian COVID-19 rent relief, which was offset by the net reduction in the number of company-owned salons in fiscal year 2023.

General and administrative expense decreased $1.7 and $11.5 million, or 11.5% and 22.7%, during the three and nine months ended March 31, 2023, respectively.

Lower administrative and field management compensation resulting from headcount reductions, lower legal and professional fees and a decrease in expenses associated with the distribution center closures in fiscal year 2022 contributed to the decrease.

Rent expense increased $0.9 million, or 75.0%, during the three months ended March 31, 2023, primarily due to lapping beneficial rent accrual adjustments in the prior year, partially offset by a decrease in the number of company-owned salons.

Rent expense decreased $0.1 million, or 1.7%, during the nine months ended March 31, 2023 as compared to the same period in the prior year.

The decrease is due to a net reduction in the number of company-owned salons, partially offset by a $1.2 million benefit in the nine months ended March 31, 2022 related to Canadian COVID-19 rent relief.

Advertising Fund Expense

Advertising fund expense did not change significantly year-over-year, declining slightly due to a reduction in salon count partially offset by an increase in system-wide same-store sales.

Advertising fund expense decreased $0.3 and $0.2 million, or 3.7% and 0.8%, respectively, during the three and nine months ended March 31, 2023, primarily due to the decrease in franchise salon count, partially offset by improved system-wide same-store sales.

Franchise Rent Expense

During the three and six months ended December 31, 2022, franchise rent expense decreased $4.9 and $8.3 million, or 14.5% and 12.3%, respectively, primarily due to a lower franchise salon count.

During the three and nine months ended March 31, 2023, franchise rent expense decreased $6.1 and $14.4 million, or 18.7% and 14.4%, respectively, primarily due to a lower franchise salon count.

Company-Owned Salon Expense

Company-owned salon expense for the three and six months ended December 31, 2022 decreased $2.9 and $7.8 million, or 56.9% and 60.0%, respectively, primarily due to the reduction in company-owned salon count and a decline in product sales, partially offset by $0.8 and $1.4 million of Canadian wage relief received in the three and six months ended December 31, 2021, respectively.

Company-owned salon expense for the three and nine months ended March 31, 2023 decreased $3.2 and $11.0 million, or 60.4% and 60.1%, respectively, primarily due to the reduction in company-owned salon count, a decline in product sales and inventory reserve charges of $1.1 and $2.6 million in the three and nine months ended March 31, 2022, respectively.

These decreases are partially offset by $0.5 and $1.9 million of Canadian COVID-19 wage relief received in the three and nine months ended March 31, 2022, respectively.

Depreciation and Amortization

The increases of $2.2 and $1.9 million, or 137.5% and 61.3%, in depreciation and amortization during the three and six months ended December 31, 2022, respectively, were primarily due to a $2.6 million accelerated depreciation charge related to the consolidation of office space within the Company's corporate headquarters, partially offset by lower asset retirement obligations ("white boxing" salons at lease end) and the net reduction in company-owned salon count.

Depreciation and amortization decreased $0.6 million, or 37.5%, during the three months ended March 31, 2023.

The decrease in the three months ended March 31, 2023 was primarily due to lower asset retirement obligations ("white boxing" salons at lease end) and the net reduction in company-owned salon count.

Depreciation and amortization increased $1.3 million, or 27.1%, during the nine months ended March 31, 2023.

The increase in the nine months ended March 31, 2023 was primarily due to a $2.6 million accelerated depreciation charge in the second quarter related to the consolidation of office space within the Company's corporate headquarters, partially offset by lower asset retirement obligations and the net reduction in company-owned salon count.

Long-Lived Asset Impairment

In the three and six months ended December 31, 2022, the Company did not record a long-lived asset impairment charge, and in the three and six months ended December 31, 2021, the Company recorded long-lived asset impairment charges of $0.1 and $0.2 million, respectively.

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

In the three and nine months ended March 31, 2023, the Company recorded a long-lived asset impairment charge of $0.04 million, and in the three and nine months ended March 31, 2022, the Company recorded long-lived asset impairment charges of $0.3 and $0.5 million, respectively.

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

Goodwill Impairment

In the three and nine months ended March 31, 2023, the Company did not record a goodwill impairment charge, and in the three and nine months ended March 31, 2022, the Company recorded a goodwill impairment charge of $13.1 million.

See Note 1 to the unaudited Condensed Consolidated Financial Statements.

Interest Expense

The $1.2 and $1.9 million increases in interest expense for the three and six months ended December 31, 2022, respectively, were primarily due to the amortization of fees related to the credit amendment that was signed in the first quarter of fiscal year 2023 and a higher interest rate on outstanding borrowings.

The $1.6 and $3.5 million increases in interest expense for the three and nine months ended March 31, 2023, respectively, were primarily due to the amortization of fees related to the credit amendment that was signed in the first quarter of fiscal year 2023 and a higher interest rate on outstanding borrowings.

Loss from Sale of Salon Assets to Franchisees, Net

There was one salon sold in the six months ended December 31, 2022 compared to 13 and 94 in the three and six months ended December 31, 2021, respectively, which resulted in $0.6 and $1.7 million decreases in the loss from sale of salon assets to franchisees, net.

Other, net increased $1.1 and $0.9 million during the three and six months ended December 31, 2022, respectively, primarily due to a $1.1 million grant received from the state of North Carolina related to COVID-19 relief.

Income Tax Benefit (Expense)

During the three months ended December 31, 2022, the Company recognized no tax benefit or expense, as compared to recognizing a tax benefit of $0.2 million, with a corresponding effective tax rate of 3.8% during the three months ended December 31, 2021.

During the six months ended December 31, 2022, the Company recognized tax expense of $0.03 million, with a corresponding effective tax rate of (0.6)%, as compared to recognizing a tax benefit of $0.2 million, with a corresponding effective tax rate of 1.6% during the six months ended December 31, 2021.

There was one salon sold in the nine months ended March 31, 2023 compared to 14 and 108 in the three and nine months ended March 31, 2022, respectively, which resulted in $0.5 and $2.2 million improvements in the loss from sale of salon assets to franchisees, net.

Other, net increased $0.2 and $1.2 million during the three and nine months ended March 31, 2023, respectively.

The increase in the three months ended March 31, 2023, was primarily due to a class action settlement.

The increase in the nine months ended March 31, 2023 was primarily due to a $1.1 million grant received from the state of North Carolina related to COVID-19 relief and the class action settlement.

Income Tax Benefit

During the three months ended March 31, 2023, the Company recognized a tax benefit of $0.2 million, with a corresponding effective tax rate of 10.0%, as compared to recognizing a tax benefit of $1.3 million, with a corresponding effective tax rate of 4.9% during the three months ended March 31, 2022.

During the nine months ended March 31, 2023, the Company recognized a tax benefit of $0.2 million, with a corresponding effective tax rate of 3.2%, as compared to recognizing a tax benefit of $1.5 million, with a corresponding effective tax rate of 3.8% during the nine months ended March 31, 2022.

See Note 5 to the unaudited Condensed Consolidated Financial Statements.

Income (Loss) from Discontinued Operations

In the three and six months ended December 31, 2022, the Company recorded a gain from discontinued operations of $0.1 and $3.4 million, respectively, and in the three and six months ended December 31, 2021, the Company recorded a loss of $0.8 and $1.9 million, respectively.

The gain in fiscal year 2023 is primarily due to receipt of $4.5 million in sales proceeds, of which $0.5 million were received in the second quarter, which were previously held back.

In the three and nine months ended March 31, 2023, the Company recorded a gain from discontinued operations of $0.5 and $4.0 million, respectively, and in the three and nine months ended March 31, 2022, the Company recorded a loss of $3.4 and $5.3 million, respectively.

The gain in fiscal year 2023 is primarily due to receipt of $5.0 million in sales proceeds offset by a $0.5 million transaction fee and other expenses.

The Company received proceeds of $0.5 million in the third quarter, which were previously held back.

See Note 3 to the unaudited Condensed Consolidated Financial Statements.

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

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

Three Months Ended March 31, Nine Months Ended March 31,

2023 2022 Increase (Decrease) (1) 2023 2022 Increase (Decrease) (1)

17 unchanged sentences

Franchise Revenue

Franchise revenues decreased $6.8 and $16.9 million during the three and six months ended December 31, 2022, respectively.

The decreases in franchise salon revenue during the three and six months ended December 31, 2022 were primarily due to the decrease in product sales to franchisees due to the Company's shift to a third-party distributor and franchise rental income.

During the twelve months ended December 31, 2022, franchisees purchased 17 salons from the Company and constructed (net of relocations) and closed 19 and 393 franchise salons, respectively.

Franchise revenue decreased $6.7 and $23.6 million during the three and nine months ended March 31, 2023, respectively.

The decreases in franchise salon revenue during the three and nine months ended March 31, 2023 were primarily due to the decrease in franchise rental income as a result of lower salon count and the decrease in product sales to franchisees due to the Company's shift to a third-party distributor model.

During the twelve months ended March 31, 2023, franchisees purchased three salons from the Company and constructed (net of relocations) and closed 17 and 467 franchise salons, respectively.

Franchise Adjusted EBITDA

During the three and six months ended December 31, 2022, franchise adjusted EBITDA totaled $7.5 and $12.5 million, respectively, an improvement of $1.8 and $10.2 million compared to the three and six months ended December 31, 2021, respectively.

During the three and nine months ended March 31, 2023, franchise adjusted EBITDA totaled $4.8 and $17.3 million, respectively, an improvement of $1.9 and $12.1 million compared to the three and nine months ended March 31, 2022, respectively.

The improvements are primarily due to an increase in average royalty revenues and a decrease in general and administrative expense.

Company-Owned Salons

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

Three Months Ended March 31, Nine Months Ended March 31,

2023 2022 (Decrease) Increase (1) 2023 2022 (Decrease) Increase (1)

7 unchanged sentences

Company-Owned Salon Revenue

Company-owned salon revenues decreased $2.4 and $7.3 million during the three and six months ended December 31, 2022, respectively, primarily due to the 2023 Net Salon Count Changes and a decline in product sales in salons.

Company-owned salon revenue decreased $1.3 and $8.7 million during the three and nine months ended March 31, 2023, respectively, primarily due to the 2023 Net Salon Count Changes and a decline in product sales in salons.

Company-Owned Salon Adjusted EBITDA

During the three and six months ended December 31, 2022, company-owned salon adjusted EBITDA improved $3.4 and $3.8 million, respectively, primarily due to the closure of unprofitable salons and a $1.1 million grant received from the state of North Carolina related to COVID-19 relief in the three months ended December 31, 2022.

During the three and nine months ended March 31, 2023, company-owned salon adjusted EBITDA improved $2.7 and $6.5 million, respectively, primarily due to the closure of unprofitable salons.

The nine months ended March 31, 2023 also benefited from a $1.1 million grant received from the state of North Carolina related to COVID-19 relief in the second quarter.

LIQUIDITY AND CAPITAL RESOURCES

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The Company believes it has sufficient liquidity, cash on hand and borrowing capacity, to meet its obligations in the next twelve months and beyond.

As of December 31, 2022, cash and cash equivalents were $9.4 million, with $8.4 and $1.0 million within the United States and Canada, respectively.

As of December 31, 2022, the Company's borrowing arrangements include a $173.8 million term loan and a $55.0 million revolving credit facility that expires in August 2025.

As of December 31, 2022, the unused available credit under the revolving credit facility was $34.3 million, the credit agreement has a minimum liquidity covenant of $10.0 million, and total liquidity per the agreement was $43.7 million.

As of March 31, 2023, cash and cash equivalents were $8.8 million, with $7.7 and $1.1 million within the United States and Canada, respectively.

As of March 31, 2023, the Company's borrowing arrangements include a $172.9 million term loan and a $55.0 million revolving credit facility that expires in August 2025.

As of March 31, 2023, the unused available credit under the revolving credit facility was $34.3 million, the credit agreement has a minimum liquidity covenant of $10.0 million, and total liquidity per the agreement was $43.0 million.

See Note 9 to the unaudited Condensed Consolidated Financial Statements.

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The timing and amount of sales of shares, if any, will depend on a variety of factors, including prevailing market conditions, the trading price of shares, and other factors as determined by the Company.

During the three and six months ended December 31, 2022, the Company did not issue shares under the prospectus supplement.

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

As of December 31, 2022, $11.6 million remains outstanding under the share issuance program.

During the three and nine months ended March 31, 2023, the Company did not issue shares under the prospectus supplement.

During the nine months ended March 31, 2022, the Company issued 9.3 million shares and received net proceeds of $37.2 million.

As of March 31, 2023, $11.6 million remains outstanding under the share issuance program.

The Company closely manages its liquidity and capital resources.

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Cash Requirements

The Company's most significant contractual cash requirements as of December 31, 2022 were lease commitments and interest payments.

The Company's most significant contractual cash requirements as of March 31, 2023 were lease commitments and interest payments.

See Note 8 to the unaudited Condensed Consolidated Financial Statements for further lease commitment detail.

Cash Flows from Operating Activities

During the six months ended December 31, 2022, cash used in operating activities was $6.9 million compared to $24.3 million in the prior year.

Cash used in operations improved due to lower general and administrative expense, a $1.1 million cash grant received from the state of North Carolina related to COVID-19 relief and less cash used for working capital.

Cash use in fiscal year 2023 included a $2.5 million payment of previously deferred social security contributions.

During the nine months ended March 31, 2023, cash used in operating activities was $8.5 million compared to $34.4 million in the prior year.

Cash used in operations improved due to lower general and administrative expense, a $1.1 million cash grant received from the state of North Carolina related to COVID-19 relief, $0.6 million received related to COVID-19 employee retention credits and less cash used for working capital.

Cash used in fiscal year 2023 included a $2.5 million payment of previously deferred social security contributions.

Cash Flows from Investing Activities

During the six months ended December 31, 2022, cash provided by investing activities of $3.6 million, primarily related to cash received of $4.5 million from the sale of OSP, net of a $0.5 million transaction fee.

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

During the nine months ended March 31, 2023, cash provided by investing activities of $4.2 million primarily related to cash received of $5.0 million from the sale of OSP, partially offset by a $0.5 million transaction fee.

During the nine months ended March 31, 2022, cash used in investing activities of $4.3 million was primarily due to capital expenditures, primarily related to internally-developed capitalized software.

Cash Flows from Financing Activities

During the six months ended December 31, 2022, cash used in financing activities was $1.6 million, primarily as a result of debt refinancing fees of $4.4 million, partially offset by a net $2.8 million borrowing under 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 related to the issuance of common stock and a net draw on the Company's revolving credit facility.

During the nine months ended March 31, 2023, cash used in financing activities was $2.6 million, primarily as a result of debt refinancing fees of $4.4 million, partially offset by a net $1.9 million borrowing under the Company's revolving credit facility.

During the nine months ended March 31, 2022, cash provided by financing activities was $43.2 million, primarily as a result of net proceeds related to the issuance of common stock and a net draw on the Company's revolving credit facility.

Financing Arrangements

See Note 9 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, 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, 2022, for additional information regarding our financing arrangements.

See Note 9 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, 2023 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, 2022, for additional information regarding our financing arrangements.

Debt to Capitalization Ratio

1 unchanged sentence

Capitalization (1)

December 31, 2022 120.9 %

March 31, 2023 122.0 %

June 30, 2022 120.8 %

1 unchanged sentence

(1) Excludes the long-term lease liability as that liability is offset by the ROU asset.

The debt to capitalization ratio as of December 31, 2022 did not change significantly compared to June 30, 2022.

The increase in the debt to capitalization ratio as of March 31, 2023 was primarily due to an increase in outstanding borrowings compared to June 30, 2022.

Share Issuance Program

In February 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 six months ended December 31, 2022, the Company did not issue shares under the prospectus supplement.

As of December 31, 2022, 9.3 million shares have been cumulatively issued for $38.4 million, and $11.6 million remains outstanding under the share issuance program.

During the nine months ended March 31, 2023, the Company did not issue shares under the prospectus supplement.

As of March 31, 2023, 9.3 million shares have been cumulatively issued for $38.4 million, and $11.6 million remains outstanding under the share issuance program.

Share Repurchase Program

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

Since that time and through December 31, 2022, 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 March 31, 2023, 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 six months ended December 31, 2022, the Company did not repurchase any shares.

As of December 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.

During the nine months ended March 31, 2023, the Company did not repurchase any shares.

As of March 31, 2023, 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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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