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Item 1. Financial Statements

2024-01-31 compared with 2023-11-01 · 136 added, 91 removed, 357 unchanged (39% of the section changed)

Financial Statements

Financial Statements (Unaudited)

REGIS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

As of September 30, 2023 and June 30, 2023

As of December 31, 2023 and June 30, 2023

(Dollars in thousands, except per share data)

September 30,

2023 June 30,

30 unchanged sentences

Common stock, $ 0.05 par value;

issued and outstanding, 45,579,248 and 45,566,228 common shares at September 30, 2023 and June 30, 2023, respectively

Additional paid-in capital 65,160 64,600

issued and outstanding, 2,279,450 and 2,277,828 common shares at December 31, 2023 and June 30, 2023, respectively (Note 1)

Additional paid-in capital (Note 1) 67,710 66,764

Accumulated other comprehensive income 9,026 9,023

6 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

For the Three Months Ended September 30, 2023 and 2022

For the Three and Six Months Ended December 31, 2023 and 2022

(Dollars and shares in thousands, except per share amounts)

Three Months Ended September 30,

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

2023 2022 2023 2022

Royalties $ 15,820 $ 16,158 $ 32,348 $ 33,338

8 unchanged sentences

Cost of product sales to franchisees 58 1,310 417 1,780

Inventory reserve — 1,228 — 1,228

General and administrative 11,772 11,747 22,501 26,108

Rent (Note 8)

1,394 2,090 2,491 3,843

Advertising fund expense 6,808 7,965 14,034 16,216

2 unchanged sentences

Depreciation and amortization 677 3,793 1,047 5,044

Long-lived asset impairment 170 — 170 —

Total operating expenses 46,274 59,237 92,212 118,638

Operating income 4,779 730 12,213 3,200

Other expense:

Other (expense) income:

Interest expense ( 6,188 ) ( 4,519 ) ( 12,376 ) ( 8,336 )

Other, net 299 1,248 99 785

Income (loss) from operations before income taxes 1,046 ( 1,810 )

Loss from operations before income taxes ( 1,110 ) ( 2,541 ) ( 64 ) ( 4,351 )

Income tax benefit (expense) 107 — 255 ( 28 )

Income (loss) from continuing operations 1,194 ( 1,838 )

(Loss) income from continuing operations ( 1,003 ) ( 2,541 ) 191 ( 4,379 )

Income from discontinued operations (Note 3) 2,000 134 2,000 3,440

Net income $ 1,194 $ 1,468

Net income per share:

Income (loss) from continuing operations 0.03 ( 0.04 )

Net income (loss) $ 997 $ ( 2,407 ) $ 2,191 $ ( 939 )

Net income (loss) per share:

(Loss) income from continuing operations $ ( 0.43 ) $ ( 1.10 ) $ 0.08 $ ( 1.90 )

Income from discontinued operations 0.85 0.06 0.86 1.49

Net income per share, basic (2) $ 0.03 $ 0.03

Income (loss) from continuing operations 0.03 ( 0.04 )

Net income (loss) per share, basic (2) $ 0.43 $ ( 1.04 ) $ 0.94 $ ( 0.41 )

(Loss) income from continuing operations ( 0.43 ) $ ( 1.10 ) 0.08 ( 1.90 )

Income from discontinued operations 0.85 0.06 0.84 1.49

Net income per share, diluted (2) $ 0.03 $ 0.03

Net income (loss) per share, diluted (2) $ 0.43 $ ( 1.04 ) $ 0.93 $ ( 0.41 )

Weighted average common and common equivalent shares outstanding:

8 unchanged sentences

REGIS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

For the Three Months Ended September 30, 2023 and 2022

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

For the Three and Six Months Ended December 31, 2023 and 2022

(Dollars in thousands)

Three Months Ended September 30,

Net income $ 1,194 $ 1,468

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

2023 2022 2023 2022

Net income (loss) $ 997 $ ( 2,407 ) $ 2,191 $ ( 939 )

Foreign currency translation adjustments 292 132 3 ( 726 )

Comprehensive income $ 905 $ 610

Comprehensive income (loss) $ 1,289 $ ( 2,275 ) $ 2,194 $ ( 1,665 )

_______________________________________________________________________________

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CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT (Unaudited)

For the Three Months Ended September 30, 2023 and 2022

For the Three and Six Months Ended December 31, 2023 and 2022

(Dollars in thousands)

Three Months Ended September 30, 2023

Three Months Ended December 31, 2023

Common Stock Additional

3 unchanged sentences

Shares Amount

Balance, June 30, 2023 45,566,228 $ 2,278 $ 64,600 $ 9,023 $ ( 112,631 ) $ ( 36,730 )

Balance, September 30, 2023 2,278,479 $ 114 $ 67,325 $ 8,734 $ ( 111,437 ) $ ( 35,264 )

Net income — — — — 997 997

2 unchanged sentences

Net restricted stock activity 971 — ( 7 ) — — ( 7 )

Balance, December 31, 2023 2,279,450 $ 114 $ 67,710 $ 9,026 $ ( 110,440 ) $ ( 33,590 )

Three Months Ended December 31, 2022

Common Stock Additional

Capital Accumulated

Comprehensive

Income Accumulated Deficit Total

Shares Amount

Balance, September 30, 2022 2,276,343 $ 114 $ 65,207 $ 8,597 $ ( 103,778 ) $ ( 29,860 )

Three Months Ended September 30, 2022

Net loss — — — — ( 2,407 ) ( 2,407 )

Foreign currency translation — — — 132 — 132

Stock-based compensation — — 524 — — 524

Net restricted stock activity 1,302 — ( 24 ) — — ( 24 )

Balance, December 31, 2022 2,277,645 $ 114 $ 65,707 $ 8,729 $ ( 106,185 ) $ ( 31,635 )

Six Months Ended December 31, 2023

Common Stock Additional

8 unchanged sentences

Net restricted stock activity 1,622 — ( 13 ) — — ( 13 )

Balance, September 30, 2022 45,536,525 $ 2,277 $ 63,044 $ 8,597 $ ( 103,778 ) $ ( 29,860 )

Balance, December 31, 2023 2,279,450 $ 114 $ 67,710 $ 9,026 $ ( 110,440 ) $ ( 33,590 )

Six Months Ended December 31, 2022

Common Stock Additional

Capital Accumulated

Comprehensive

Income Accumulated Deficit Total

Shares Amount

Balance, June 30, 2022 2,275,029 $ 114 $ 64,724 $ 9,455 $ ( 105,246 ) $ ( 30,953 )

Net loss — — — — ( 939 ) ( 939 )

Foreign currency translation — — — ( 726 ) — ( 726 )

Stock-based compensation — — 1,020 — — 1,020

Net restricted stock activity 2,616 — ( 37 ) — — ( 37 )

Balance, December 31, 2022 2,277,645 $ 114 $ 65,707 $ 8,729 $ ( 106,185 ) $ ( 31,635 )

_______________________________________________________________________________

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

For the Three Months Ended September 30, 2023 and 2022

For the Six Months Ended December 31, 2023 and 2022

(Dollars in thousands)

Three Months Ended September 30,

Six Months Ended December 31,

Cash flows from operating activities:

Net income $ 1,194 $ 1,468

Adjustments to reconcile net income to cash used in operating activities:

Net income (loss) $ 2,191 $ ( 939 )

Adjustments to reconcile net income (loss) to cash used in operating activities:

Gain from sale of OSP (Note 3) ( 2,000 ) ( 4,034 )

Depreciation and amortization 1,005 4,647

Long-lived asset impairment 170 —

Deferred income taxes ( 29 ) 28

Inventory reserve — 1,228

Non-cash interest 1,290 —

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BASIS OF PRESENTATION OF UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The unaudited interim Condensed Consolidated Financial Statements of Regis Corporation (the Company) as of September 30, 2023 and for the three months ended September 30, 2023 and 2022, reflect, in the opinion of management, all adjustments necessary to fairly state the consolidated financial position of the Company as of September 30, 2023 and its consolidated results of operations, comprehensive income, shareholders' deficit and cash flows for the interim periods.

The unaudited interim Condensed Consolidated Financial Statements of Regis Corporation (the Company) as of December 31, 2023 and for the three and six months ended December 31, 2023 and 2022, reflect, in the opinion of management, all adjustments necessary to fairly state the consolidated financial position of the Company as of December 31, 2023 and its consolidated results of operations, comprehensive income (loss), shareholders' deficit and cash flows for the interim periods.

Adjustments consist only of normal recurring items, except for any discussed in the notes below.

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The unaudited interim Condensed Consolidated Financial Statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended June 30, 2023 and other documents filed or furnished with the SEC during the current fiscal year.

As of September 30, 2023 and June 30, 2023, the Franchise reporting unit had $ 173.3 and $ 173.8 million, respectively, of goodwill.

The change in goodwill for the three months ended September 30, 2023 is due to foreign currency translation.

The Company assesses goodwill impairment on an annual basis, during the Company's fourth fiscal quarter, and between annual assessments if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.

An interim impairment analysis was not required in the three months ended September 30, 2023.

The Company determined a triggering event occurred related to a decrease in the Company's stock price, resulting in a quantitative impairment test performed over goodwill.

Accordingly, the Company engaged a third-party valuation specialist to perform an impairment analysis on the Franchise reporting unit of the business as of November 30, 2023.

For the goodwill impairment analysis, management utilized a combination of both a discounted cash flows approach and market approach to evaluate the Franchise reporting unit.

The discounted cash flows model reflects management's assumptions regarding discount rates, revenue growth rates, economic and market trends, cost structure, and other expectations about the anticipated short-term and long-term operating results.

These assumptions are inherently uncertain.

An increase in the discount rate or a decrease in revenue growth rate or market trends would have a negative impact on the fair value of the reporting unit which could be material.

As a result of the impairment testing, the Franchise reporting unit was determined to have a fair value in excess of its carrying value of 6 %, resulting in no goodwill impairment charge.

As of December 31, 2023 and June 30, 2023, the Franchise reporting unit had goodwill of $ 173.8 million.

Reverse stock split:

On November 29, 2023, the Company effected a one-for-20 reverse stock split of its outstanding common stock, par value $ 0.05 per share.

As a result of the reverse stock split, every 20 shares of common stock issued and outstanding was converted into one share of common stock.

The reverse stock split affected all shareholders uniformly and did not alter any shareholder’s percentage interest in the Company’s equity.

No fractional shares were issued in connection with the reverse stock split.

Shareholders who would otherwise be entitled to a fractional share of common stock were instead entitled to receive a proportional cash payment.

All common share and per share amounts presented in the consolidated financial statements and accompanying notes have been retroactively adjusted to reflect the reverse stock split.

The reverse stock split affected all issued and outstanding shares of the Company’s common stock, as well as the number of shares of common stock available for issuance under the Company’s outstanding stock options and stock unit awards.

The reverse stock split reduced the number of shares of common stock issuable upon the exercise of stock options outstanding and the vesting of stock unit awards outstanding immediately prior to the reverse stock split and correspondingly increased the respective exercise prices or other price dependent terms.

Depreciation:

Depreciation expense in the three months ended September 30, 2023 and 2022 includes $ 0.0 and $ 0.2 million, respectively, of asset retirement obligations, which are cash expenses.

Depreciation expense in the three months ended December 31, 2023 and 2022 includes $ 0.0 and $ 0.2 million, respectively, and for the six months ended December 31, 2023 and 2022 includes $ 0.04 and $ 0.4 million, respectively, of asset retirement obligations, which are cash expenses.

REVENUE RECOGNITION:

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Franchise rental income is a result of the Company signing leases on behalf of franchisees and entering into sublease arrangements with the franchisees.

The Company recognizes franchise rental income and expense when it is due to the landlord and has no impact on net income.

The Company recognizes franchise rental income and expense when it is due to the landlord and it has no impact on net income.

Revenue recognized at point of sale

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Information about receivables, broker fees and deferred revenue subject to the current revenue recognition guidance is as follows:

September 30,

2023 June 30,

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Receivable are written off when they are deemed uncollectible.

The following table is a rollforward of the allowance for doubtful accounts for the periods indicated:

Three Months Ended September 30,

(Dollars in thousands)

Balance at beginning of period $ 7,297 $ 6,559

Provision for doubtful accounts 211 461

Provision for franchisee rent 167 19

Recoveries ( 237 ) —

Write-offs ( 991 ) ( 725 )

Reclass of accrued rent (1) — 60

Other (2) ( 56 ) —

Balance at end of period $ 6,391 $ 6,374

_______________________________________________________________________________

(1) The reclass of accrued rent represents franchisee rent obligations guaranteed by the Company that were unbilled and deemed unrecoverable as of June 30, 2022, and subsequently billed, so the related accruals were reclassified to allowance for doubtful accounts.

(2) Includes currency fluctuation.

As of December 31, 2023 and June 30, 2023, the allowance for doubtful accounts was $ 6.3 million and $ 7.3 million, respectively.

The Company offers financing to Smartstyle franchisees when they remodel their salons.

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The following table is a rollforward of the broker fee balance for the periods indicated:

Three Months Ended September 30,

Six Months Ended December 31,

(Dollars in thousands)

Balance at beginning of period $ 12,471 $ 15,592

Additions — —

Amortization ( 1,415 ) ( 1,586 )

2 unchanged sentences

Deferred franchise fees related to open salons are generally recognized on a straight-line basis over the term of the franchise agreement.

Franchise fee revenue for the three months ended September 30, 2023 and 2022 was $ 1.7 and $ 1.5 million, respectively.

Estimated revenue expected to be recognized in the future related to deferred franchise fees for open salons as of September 30, 2023 is as follows (dollars in thousands):

Franchise fee revenue for the three months ended December 31, 2023 and 2022 was $ 1.6 million and $ 1.7 million, respectively, and for the six months ended December 31, 2023 and 2022 was $ 3.3 million and $ 3.2 million, respectively.

Estimated revenue expected to be recognized in the future related to deferred franchise fees for open salons as of December 31, 2023 is as follows (dollars in thousands):

Remainder of 2024 $ 2,521

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On June 30, 2022, the Company sold its Opensalon ® Pro (OSP) solution to Soham Inc.

The Company received $ 13.0 million in proceeds in June 2022 and received $ 5.0 million in fiscal year 2023, offset by a $ 0.5 million transaction fee.

As a result of the sale, the Company classified the OSP business as discontinued operations in the financial statements for all periods presented.

The Company received $ 13.0 million in proceeds in June 2022 and received $ 5.0 million in fiscal year 2023, offset by a $ 0.5 million transaction fee.

In the quarter ended December 31, 2023, the Company earned $ 2.0 million of proceeds that had been previously held back.

The Company received the $ 2.0 million in January 2024.

The Company recorded the $ 2.0 million gain and receivable in the quarter ended December 31, 2023.

No income taxes have been allocated to discontinued operations based on the methodology required by accounting for income taxes guidance.

The following summarizes the results of discontinued operations for the periods presented:

Three Months Ended September 30,

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

2023 2022 2023 2022

(Dollars in thousands)

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Stock-Based Employee Compensation:

During the three months ended September 30, 2023, the Company granted restricted stock units as follows:

Three Months Ended September 30, 2023

During the three and six months ended December 31, 2023, the Company granted restricted stock units as follows:

Three Months Ended December 31, 2023 Six Months Ended December 31, 2023

Restricted stock units (RSUs) — 12,970

The RSUs granted during the three months ended September 30, 2023, vest in equal amounts over a three-year period subsequent to the grant date.

Total compensation cost for stock-based payment arrangements totaling $ 0.6 and $ 0.5 million for the three months ended September 30, 2023 and 2022, respectively, was recorded within general and administrative on the unaudited Condensed Consolidated Statements of Operations.

The RSUs granted during the six months ended December 31, 2023, vest in equal amounts over a three-year period subsequent to the grant date.

Total compensation cost for stock-based payment arrangements totaling $ 0.3 and $ 0.6 million for the three months ended December 31, 2023 and 2022, respectively, and $ 0.9 and $ 1.1 million for the six months ended December 31, 2023 and 2022, respectively, was recorded within general and administrative on the unaudited Condensed Consolidated Statements of Operations.

Share Issuance Program:

In fiscal year 2021, the Company filed a $ 150.0 million shelf registration statement and $ 50.0 million prospectus supplement with the Securities and Exchange Commission (SEC) under which it may offer and sell, from time to time, up to $ 50.0 million worth of its Class A common stock in "at-the-market" offerings.

During the three months ended September 30, 2023 and 2022, the Company did no t issue any shares.

As of September 30, 2023, $ 11.6 million remains under the prospectus supplement, which equates to 16.5 million shares based on the share price as of September 30, 2023.

During the three and six months ended December 31, 2023 and 2022, the Company did no t issue any shares under this prospectus.

As of December 31, 2023, $ 11.6 million remains under the prospectus supplement, which equates to 1.2 million shares based on the Company's share price as of December 31, 2023.

The program expires on February 10, 2024.

INCOME TAXES:

A summary of the income tax benefit (expense) and corresponding effective tax rates is as follows:

Three Months Ended September 30,

A summary of the income tax benefit (expense) and corresponding effective tax rate is as follows:

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

_______________________________________________________________________________ 2023 2022 2023 2022

(Dollars in thousands)

1 unchanged sentence

Effective tax rate (1) 9.6 % — % 398.4 % ( 0.6 ) %

The recorded tax provision and effective tax rate for the three months ended September 30, 2023 and 2022 were different than what would normally be expected, primarily due to the impact of the deferred tax valuation allowance.

(1) The recorded tax provision and effective tax rate for the three and six months ended December 31, 2023 and 2022 were different than what would normally be expected, due to the impact of the deferred tax valuation allowance in addition to the impact of a one-time tax benefit in fiscal year 2024 recognized as a result of an income tax audit of foreign subsidiaries.

With limited exceptions, due to net operating loss carryforwards, our federal, state, and foreign tax returns are open to examination for all years since 2014, 2012 and 2016, respectively.

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Additionally, because the Company may be the tenant under a master lease for a location subleased to a franchisee, the Company has faced allegations of nonpayment of rent and associated charges.

Further, similar to other large retail employers, the Company has faced, and may continue to face, allegations of purported class-wide consumer and wage and hour violations.

Further, similar to other retail employers, the Company has faced, and may continue to face, allegations of purported class-wide consumer and wage and hour violations.

Litigation is inherently unpredictable, and the outcome of these matters cannot presently be determined.

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To be eligible to participate in Title IV programs, the schools operated by EEG must comply with specific standards and procedures set forth in the Higher Education Act and the regulations issued thereunder by the Department of Education.

On October 10, 2023, the Department of Education issued a final rule applicable to “gainful employment” programs, which under the Higher Education Act, include all programs offered by the Empire Education Group schools and other proprietary institutions.

Under this final rule, which becomes effective July 1, 2024, the continued Title IV eligibility of such programs will be based on meeting both a debt-to-earnings metric and an earnings premium metric.

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Because the Company holds a majority ownership interest in EEG and is a co-signatory to the Title IV program participation agreements of the EEG schools with the Department of Education, the Department of Education could hold the Company responsible for EEG's Title IV program liabilities.

As of September 30, 2023, EEG had $ 8.7 million of Title IV liabilities.

As of December 31, 2023, EEG had $ 10.1 million of Title IV liabilities.

If EEG is unable to meet the required metrics for gainful employment programs and subsequently unable to allow students to complete their programs, then it is possible the Company could be liable for all or some of the Title IV liabilities.

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The table below reconciles the cash and cash equivalents balances and restricted cash balances recorded within other current assets on the unaudited Condensed Consolidated Balance Sheets to the amount of cash, cash equivalents and restricted cash reported on the unaudited Condensed Consolidated Statements of Cash Flows:

September 30,

2023 June 30,

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Total rent includes the following:

Three Months Ended September 30,

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

2023 2022 2023 2022

(Dollars in thousands)

Office rent $ 748 $ 834 $ 1,574 $ 1,706

Lease termination (benefit) expense ( 13 ) 458

Lease termination expense 174 848 161 1,306

Lease liability benefit (1) ( 95 ) ( 615 ) ( 223 ) ( 1,217 )

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The Company records the rental payments due from franchisees as franchise rental income and the corresponding amounts owed to landlords as franchise rent expense on the unaudited Condensed Consolidated Statements of Operations.

For the three months ended September 30, 2023 and 2022, franchise rental income and franchise rent expense were $ 24.7 and $ 30.3 million, respectively.

For the three and six months ended December 31, 2023 and 2022, franchise rental income and franchise rent expense were $ 24.1 million and $ 28.9 million, and $ 48.8 million and $ 59.2 million, respectively.

These leases generally have lease terms of approximately five years .

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The Company uses the portfolio approach in applying the discount rate based on the original lease term.

The weighted average remaining lease term was 5.65 years and 5.52 years and the weighted average discount rate was 4.60 % and 4.55 % for all salon operating leases as of September 30, 2023 and June 30, 2023, respectively.

As of September 30, 2023, future operating lease commitments, including one renewal option for leases expected to be renewed, to be paid and received by the Company were as follows (dollars in thousands):

The weighted average remaining lease term was 5.28 years and 5.52 years, and the weighted average discount rate was 4.84 % and 4.55 % for all salon operating leases as of December 31, 2023 and June 30, 2023, respectively.

As of December 31, 2023, future operating lease commitments, including one renewal option for leases expected to be renewed, to be paid and received by the Company were as follows (dollars in thousands):

Fiscal Year Leases for Franchise Salons Leases for Company-owned Salons Corporate Leases Total Operating Lease Payments Sublease Income to be Received from Franchisees Net Rent Commitments

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The Company's debt consists of the following:

Maturity Date September 30,

2023 September 30,

Maturity Date December 31,

2023 December 31,

2023 June 30,

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The Company's credit facility matures in August 2025.

In addition to a $ 10.0 million minimum liquidity covenant, 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.

In addition to a $ 10.0 million minimum liquidity covenant, the amended credit agreement includes typical provisions and financial covenants, including leverage, and fixed-charge coverage ratio covenants.

The agreement utilizes an interest rate margin that is subject to annual increases.

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The significant assumptions used in the weighted average estimate are the future SOFR rates and debt balance, as well as the length of time the debt will be outstanding.

Cash interest paid in the three months ended September 30, 2023 and 2022 was $ 4.8 and $ 3.2 million, respectively.

At September 30, 2023, the Company had outstanding standby letters of credit under the revolving credit facility of $ 9.8 million, primarily related to the Company's self-insurance program.

As of September 30, 2023, total liquidity and available credit under the revolving credit facility, as defined by the agreement, were $ 42.4 and $ 33.1 million, respectively.

As of September 30, 2023, the Company had cash and cash equivalents of $ 9.3 million and current liabilities of $ 117.2 million.

The Company was in compliance with its covenants and other requirements of the financing arrangements as of September 30, 2023.

Cash interest paid in the three and six months ended December 31, 2023 and 2022 was $ 4.8 and $ 3.8 million, and $ 9.6 and $ 6.9 million, respectively.

At December 31, 2023, the Company had outstanding standby letters of credit under the revolving credit facility of $ 9.8 million, primarily related to the Company's self-insurance program.

As of December 31, 2023, total liquidity and available credit under the revolving credit facility, as defined by the amended agreement, were $ 38.1 million and $ 31.0 million, respectively.

As of December 31, 2023, the Company had cash and cash equivalents of $ 7.2 million and current liabilities of $ 114.9 million.

The Company was in compliance with its covenants and other requirements of the financing arrangements as of December 31, 2023.

FAIR VALUE MEASUREMENTS:

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Assets and Liabilities Measured at Fair Value on a Recurring Basis

As of September 30, 2023 and June 30, 2023, the estimated fair value of the Company's cash, cash equivalents, restricted cash, receivables, inventory, deferred compensation assets, accounts payable and debt approximated their carrying values.

As of December 31, 2023 and June 30, 2023, the estimated fair value of the Company's cash, cash equivalents, restricted cash, receivables, inventory, deferred compensation assets, accounts payable and debt approximated their carrying values.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

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EARNINGS PER SHARE:

The Company's basic earnings per share is calculated as net income divided by weighted average common shares outstanding, excluding unvested outstanding stock options (SOs), stock appreciation rights (SARs), restricted stock units (RSUs) and stock-settled performance units (PSUs).

The Company's diluted earnings per share is calculated as net income divided by weighted average common shares and common share equivalents outstanding, which includes shares issued under the Company's stock-based compensation plans.

The Company's basic earnings per share is calculated as net income (loss) divided by weighted average common shares outstanding, excluding unvested outstanding stock options (SOs), stock appreciation rights (SARs), restricted stock units (RSUs) and stock-settled performance units (PSUs).

The Company's diluted earnings per share is calculated as net income (loss) divided by weighted average common shares and common share equivalents outstanding, which includes shares issued under the Company's stock-based compensation plans.

Stock-based awards with exercise prices greater than the average market price of the Company's common stock are excluded from the computation of diluted earnings per share.

The computation of weighted average shares outstanding, assuming dilution, excluded 4,176,371 and 3,211,485 of stock-based awards during the three months ended September 30, 2023 and 2022, respectively, as they were not dilutive under the treasury stock method.

The computation of weighted average shares outstanding, assuming dilution, excluded 219,945 and 160,574 of stock-based awards during the three months ended December 31, 2023 and 2022, respectively, and excluded 215,656 and 160,574 of stock-based awards during the six months ended December 31, 2023 and 2022, respectively, as they were not dilutive under the treasury stock method.

SEGMENT INFORMATION:

1 unchanged sentence

The Company's reportable operating segments consisted of the following salons:

September 30,

2023 June 30,

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Segment information is presented in the same way that the Company internally organizes the business for assessing performance and making decisions regarding allocation of resources.

In the second quarter of fiscal year 2023, the Company revised its internal reporting such the CODM’s primary measures of segment performance are revenue and segment adjusted EBITDA.

In the second quarter of fiscal year 2023, the Company revised its internal reporting such that the CODM’s primary measures of segment performance are revenue and segment adjusted EBITDA.

Revenue and segment adjusted EBITDA are regularly reviewed by the CODM to make decisions about resources to be allocated to the segments, assess current performance, and forecast future performance.

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Unallocated fees include one-time professional fees and settlements, severance expense, the benefit from lease liability decreases in excess of previously impaired ROUA, lease termination fees and asset retirement obligation costs.

Three Months Ended September 30,

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

2023 2022 2023 2022

(Dollars in thousands)

8 unchanged sentences

Depreciation and amortization ( 677 ) ( 3,793 ) ( 1,047 ) ( 5,044 )

Long-lived asset impairment ( 170 ) — ( 170 ) —

Interest expense ( 6,188 ) ( 4,519 ) ( 12,376 ) ( 8,336 )

1 unchanged sentence

Income from discontinued operations 2,000 134 2,000 3,440

Total net income $ 1,194 $ 1,468

Total net income (loss) $ 997 $ ( 2,407 ) $ 2,191 $ ( 939 )

SUBSEQUENT EVENTS:

On January 28, 2024, the Board of Directors of the Company, authorized and declared a dividend of one preferred stock purchase right (a “Right”) for each outstanding share of Common Stock.

The dividend is payable on February 9, 2024 (the “Record Date”), to the holders of record of shares of Common Stock as of the close of business on the Record Date.

The description and terms of the Rights are set forth in a Tax Benefits Preservation Plan, dated as of January 29, 2024, as the same may be amended from time to time (the “Plan”), between the Company and Equiniti Trust Company, LLC, as Rights Agent.

By adopting the Plan, the Board of Directors is seeking to protect the Company’s ability to use its net operating loss carryforwards (“NOLs”) and other tax attributes to offset potential future income tax liabilities.

The Company’s ability to use such NOLs and other tax attributes would be substantially limited if the Company experiences an “ownership change,” as defined in Section 382 of the Internal Revenue Code (the “Code”).

Generally, an “ownership change” occurs if the percentage of the Company’s stock owned by one or more “five percent stockholders” increases by more than fifty percentage points over the lowest percentage of stock owned by such stockholders at any time during the prior three-year period or, if sooner, since the last “ownership change” experienced by the Company.

The Plan is intended to make it more difficult for the Company to undergo an ownership change by deterring any person from acquiring 4.95 % or more of the outstanding shares without the approval of the Board of Directors.

The Board of Directors believes it is in the best interest of the Company and its stockholders to reduce the likelihood of an ownership change, which could harm the Company’s future operating results by effectively increasing the Company future tax liabilities.

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 1. Financial Statements