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, 2022 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 (NYSE:RGS) is a leader in the beauty salon industry. 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. Regis’ franchised and corporate locations operate under concepts such as Supercuts ® , SmartStyle ® , Cost Cutters ® , Roosters ® and First Choice Haircutters ® . Regis maintains an ownership interest in Empire Education Group in the United States. As of March 31, 2023, the Company had 486 employees worldwide. Merchandising Strategy As part of the Company's transformation to focus on managing and nurturing brands, and in line with its capital-light business, the Company shifted its product business from a wholesale model to a third-party distribution model in fiscal year 2022. 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 receives a rebate from the third-party distributor, which is included in fees on the interim unaudited Condensed Consolidated Statement of Operations. As a result of the change, product sales to franchisees will continue to decrease and are expected to provide less revenue and costs in fiscal year 2023 as compared to prior year. 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, 2022 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 and the valuation and estimated useful lives of long-lived assets 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, 2022 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. 21 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. 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 $911.6 million in the nine months ended March 31, 2022. System-wide same-store sales by concept are detailed in the table below: Three Months Ended March 31, Nine Months Ended March 31, 2023 2022 2023 2022 Supercuts 7.6 % 17.8 % 7.9 % 26.0 % SmartStyle (0.5) (2.5) (2.2) 8.8 Portfolio Brands 8.8 4.0 6.1 13.2 Consolidated system-wide same-store sales (1) 6.0 % 8.6 % 5.0 % 17.8 % _______________________________________________________________________________ (1) System-wide same-store sales are calculated as the total change in sales for system-wide franchise and company-owned locations that were open on a specific day of the week during the current period and the corresponding prior period. Quarterly and year-to-date system-wide same-store sales are the sum of the system-wide same-store sales computed on a daily basis. Franchise salons that do not report daily sales are excluded from same-store sales. System-wide same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation. In the nine months ended March 31, 2023, a net 338 franchise salons have closed, which reduces future royalty income. 22 Condensed Consolidated Results of Operations (Unaudited) The following table sets forth, for the periods indicated, certain information derived from our unaudited Condensed Consolidated Statement of Operations. The percentages are computed as a percent of total consolidated revenues, except as otherwise indicated, and the increase (decrease) is measured in basis points. Variances calculated on amounts shown in millions may result in rounding differences. Three Months Ended March 31, Nine Months Ended March 31, 2023 2022 2023 2022 2023 2023 2022 2023 2022 2023 ($ in millions) % of Total Revenues (1) Increase (Decrease) ($ in millions) % of Total Revenues (1) Increase (Decrease) Royalties $ 16.0 $ 15.8 28.7 % 24.7 % 400 $ 49.4 $ 48.5 27.9 % 23.1 % 480 Fees 2.5 2.4 4.6 3.8 80 8.3 8.6 4.7 4.1 60 Product sales to franchisees 0.6 1.3 1.1 2.0 (90) 2.2 11.7 1.2 5.6 (440) Advertising fund contributions 7.8 8.1 14.0 12.7 130 24.0 24.2 13.5 11.5 200 Franchise rental income 26.6 32.7 47.7 51.3 (360) 85.8 100.2 48.3 47.8 50 Company-owned salon revenue 2.2 3.5 3.9 5.5 (160) 7.9 16.6 4.4 7.9 (350) 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 — 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) Rent 2.1 1.2 3.8 1.9 190 5.9 6.0 3.3 2.9 40 Advertising fund expense 7.8 8.1 14.0 12.7 130 24.0 24.2 13.5 11.5 200 Franchise rent expense 26.6 32.7 47.7 51.3 (360) 85.8 100.2 48.3 47.8 50 Company-owned salon expense 2.1 5.3 3.8 8.3 (450) 7.3 18.3 4.1 8.7 (460) Depreciation and amortization 1.0 1.6 1.8 2.5 (70) 6.1 4.8 3.4 2.3 110 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 Interest expense (4.8) (3.2) (8.6) (5.0) (360) (13.1) (9.6) (7.4) (4.6) (280) Loss from sale of salon assets to franchisees, net — (0.5) — (0.8) 80 — (2.2) — (1.0) 100 Other, net 0.4 0.2 0.7 0.3 40 1.2 — 0.7 — 70 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 Net loss (2) (1.6) (27.9) (2.9) (43.7) 4,080 (2.6) (43.2) (1.5) (20.6) 1,910 _______________________________________________________________________________ (1) Cost of product sales to franchisees is computed as a percent of product sales to franchisees. (2) Total is a recalculation; line items calculated individually may not sum to total due to rounding. (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 the MD&A is related to the effective income tax rate. 23 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 $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). Royalties 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. Fees 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 $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 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 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 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 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. 24 Inventory Reserve 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 $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 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 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 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 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 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 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. 25 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 $1.6 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 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 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 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. 26 Results of Operations by Segment Based on our internal management structure, we report two segments: Franchise and Company-owned salons. See Note 12 to the unaudited Condensed Consolidated Financial Statements. Significant results of continuing operations are discussed below with respect to each of these segments. Franchise Three Months Ended March 31, Nine Months Ended March 31, 2023 2022 Increase (Decrease) (1) 2023 2022 Increase (Decrease) (1) (Dollars in millions) (Dollars in millions) Royalties $ 16.0 $ 15.8 $ 0.2 $ 49.4 $ 48.5 $ 0.9 Fees 2.5 2.4 0.1 8.3 8.6 (0.3) Product sales to franchisees 0.6 1.3 (0.7) 2.2 11.7 (9.5) Advertising fund contributions 7.8 8.1 (0.3) 24.0 24.2 (0.2) Franchise rental income 26.6 32.7 (6.1) 85.8 100.2 (14.4) Total franchise revenue (1) $ 53.6 $ 60.3 $ (6.7) $ 169.7 $ 193.3 $ (23.6) Franchise same-store sales (2) 6.0 % 8.8 % 5.1 % 18.0 % Franchise adjusted EBITDA $ 4.8 $ 2.9 $ 1.9 $ 17.3 $ 5.2 $ 12.1 Total franchise salons 5,057 5,504 (447) _______________________________________________________________________________ (1) Total is a recalculation; line items calculated individually may not sum to total due to rounding. (2) Franchise same-store sales 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. 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 Revenue 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 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. 27 Company-Owned Salons Three Months Ended March 31, Nine Months Ended March 31, 2023 2022 (Decrease) Increase (1) 2023 2022 (Decrease) Increase (1) (Dollars in millions) (Dollars in millions) Total revenue $ 2.2 $ 3.5 $ (1.3) $ 7.9 $ 16.6 $ (8.7) Company-owned salon adjusted EBITDA $ (0.6) $ (3.3) $ 2.7 $ (1.5) $ (8.0) $ 6.5 Total company-owned salons 70 117 (47) _______________________________________________________________________________ (1) Total is a recalculation; line items calculated individually may not sum to total due to rounding. Company-Owned Salon Revenue 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 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. 28 LIQUIDITY AND CAPITAL RESOURCES In August 2022, the Company reached an agreement to amend its credit agreement and extend the maturity to August 2025 from March 2023. Under the amendment, the $295.0 million revolving credit facility was converted to a $180.0 million term loan and $55.0 million revolving credit facility with the minimum liquidity covenant reduced to $10.0 million from $75.0 million. The amended credit agreement includes typical provisions and financial covenants, including minimum EBITDA, leverage and fixed-charge coverage ratio covenants, the latter two of which are not tested until December 31, 2023. See Note 9 to the unaudited Condensed Consolidated Financial Statements. Sources of Liquidity Funds generated by operating activities, available cash and cash equivalents and our borrowing agreements are our most significant sources of liquidity. 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 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. Additionally, 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." 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 our brands and franchisees. 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 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. 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, credit facilities and borrowing arrangements, and working capital management. 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, 2022. Cash Requirements 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. 29 Cash Flows Cash Flows from Operating Activities 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 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 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 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 Our debt to capitalization ratio, calculated as the principal amount of debt as a percentage of the principal amount of debt and shareholders' deficit at fiscal quarter end, was as follows: Debt to Capitalization (1) March 31, 2023 122.0 % June 30, 2022 120.8 % _______________________________________________________________________________ (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, 2023 was primarily due to an increase in outstanding borrowings compared to June 30, 2022. 30 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 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 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 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. 31 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 COVID-19 pandemic, including any adverse impact from variants; 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, fashion trends and consumer spending patterns; compliance with New York Stock Exchange listing requirements; reliance on franchise royalties and overall success of our franchisees’ salons; the return of sales at franchise locations to pre-pandemic levels; new merchandising strategy that utilizes third-party preferred supplier arrangements; our franchisees' ability to attract, train and retain talented stylists and salon leaders; the success of our franchisees, which operate independently; our ability to manage cyber threats and protect the security of potentially sensitive information about our guests, franchisees, 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; the successful migration of our franchisees to the Zenoti ® salon technology platform; 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; the effectiveness of our enterprise risk management program; compliance with covenants in our financing arrangement, access to the existing revolving credit facility, and we may face an accelerated obligation to repay our indebtedness; our capital investments in technology may not achieve appropriate returns; premature termination of agreements with our franchisees; financial performance of Empire Education Group, Inc.; 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. 32 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, 2022 Annual Report on Form 10-K.