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, 2023 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 (NasdaqGM:RGS) is a leader in the beauty salon industry. As of March 31, 2024, the Company franchised or owned 4,557 locations, primarily in North America. Our locations consisted of 4,537 franchised salons and 20 company-owned salons. Regis’ franchised and corporate locations operate under concepts such as Supercuts ® , SmartStyle ® , Cost Cutters ® , Roosters ® and First Choice Haircutters ® . As of March 31, 2024, the Company had 296 employees. Merchandising Strategy As part of the Company's transformation to focus on managing and nurturing its 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 fee from the third-party distributor, which is included in fees on the interim unaudited Condensed Consolidated Statements of Operations. As a result of the change, product sales to franchisees and cost of product sales to franchisees will continue to decrease and are expected to be immaterial for the remainder of fiscal year 2024. Corporate Strategy Update On November 1, 2023, the Company announced that the Board has initiated a strategic review to proactively assess the Company’s capital structure with the support of legal and financial advisors. The Board has established a Special Committee to evaluate the various strategic alternatives and initiatives. The Company is continuing with such strategic review and there is no set timetable for this process, and there can be no assurances as to the results of the review. The Company does not intend to comment further on developments or status of this process until it deems further disclosure is appropriate or required by law. Tax Benefit Preservation Plan On January 28, 2024, the Board adopted a Tax Benefits Preservation Plan (the “Plan”). By adopting the Plan, the Board is seeking to protect the Company’s ability to use its net operating loss carryforwards and other tax attributes to offset potential future income tax liabilities. See Note 1 of the unaudited Condensed Consolidated Financial Statements. CRITICAL ACCOUNTING ESTIMATES The interim unaudited Condensed Consolidated Financial Statements are prepared in conformity with U.S. GAAP. 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. Goodwill 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 March 31, 2024. As of March 31, 2024 and June 30, 2023, the Franchise reporting unit had goodwill of $173.3 million and $173.8 million, respectively 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, 2023 Annual Report on Form 10-K. There have been no changes to our critical accounting policies from those disclosed on our Form 10-K for the year ended June 30, 2023. 22 RESULTS OF OPERATIONS System-wide results 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. In the nine months ended March 31, 2024, a net 258 franchise salons have closed, which will reduce future royalty income. The following table summarizes system-wide revenue and system-wide same-store sales by concept: Three Months Ended March 31, Nine Months Ended March 31, 2024 2023 2024 2023 (Dollars in Millions) System-wide revenue $ 286.8 $ 299.3 $ 885.4 $ 918.7 Supercuts 1.6 % 7.6 % 2.2 % 7.9 % SmartStyle (4.2) (0.5) (2.9) (2.2) Portfolio Brands 1.9 8.8 3.0 6.1 Total system-wide same-store sales (1) 0.5 % 6.0 % 1.4 % 5.0 % _______________________________________________________________________________ (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 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. 23 Condensed Consolidated Results of Operations (Unaudited) The following table sets forth, for the periods indicated, certain information derived from our unaudited Condensed Consolidated Statements 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, 2024 2023 2024 2023 2024 2023 2024 2023 ($ in millions) % of Total Revenues (1) Increase (Decrease) ($ in millions) % of Total Revenues (1) Increase (Decrease) Royalties $ 15.7 $ 16.0 31.9 % 28.7 % 320 $ 48.0 $ 49.4 31.3 % 27.9 % 340 Fees 2.6 2.5 5.3 4.6 70 7.7 8.3 5.0 4.7 30 Product sales to franchisees — 0.6 — 1.1 (110) 0.5 2.2 0.3 1.2 (90) Advertising fund contributions 5.8 7.8 11.8 14.0 (220) 19.8 24.0 12.9 13.5 (60) Franchise rental income 23.8 26.6 48.4 47.7 70 72.5 85.8 47.2 48.3 (110) Company-owned salon revenue 1.3 2.2 2.6 3.9 (130) 5.0 7.9 3.3 4.4 (110) Cost of product sales to franchisees (1) — 1.0 — 166.7 N/M 0.4 2.8 80.0 127.3 (4,730) Inventory reserve — — — — — — 1.2 — 0.7 (70) General and administrative 11.2 13.1 22.8 23.5 (70) 33.7 39.2 22.0 22.1 (10) Rent 1.8 2.1 3.7 3.8 (10) 4.3 5.9 2.8 3.3 (50) Advertising fund expense 5.8 7.8 11.8 14.0 (220) 19.8 24.0 12.9 13.5 (60) Franchise rent expense 23.8 26.6 48.4 47.7 70 72.5 85.8 47.2 48.3 (110) Company-owned salon expense (2) 1.5 2.1 3.0 3.8 (80) 4.3 7.3 2.8 4.1 (130) Depreciation and amortization 1.0 1.0 2.0 1.8 20 2.1 6.1 1.4 3.4 (200) Long-lived asset impairment — — — — — 0.2 — 0.1 — 10 Operating income (3) 4.1 2.0 8.3 3.6 470 16.3 5.2 10.6 2.9 770 Interest expense (6.2) (4.8) (12.6) (8.6) (400) (18.5) (13.1) (12.1) (7.4) (470) Other, net (0.3) 0.4 (0.6) 0.7 (130) (0.2) 1.2 (0.1) 0.7 (80) Income tax (expense) benefit (4) (0.1) 0.2 (2.3) 10.0 N/A 0.2 0.2 8.3 3.2 N/A Loss from continuing operations (2.4) (2.2) (4.9) (3.9) (100) (2.2) (6.5) (1.4) (1.2) (20) Income from discontinued operations 0.1 0.5 0.2 0.9 (70) 2.1 4.0 1.4 2.3 (90) Net loss (3) (2.3) (1.6) (4.7) (2.9) (180) (0.1) (2.6) (0.1) (1.5) 140 _______________________________________________________________________________ (1) Cost of product sales to franchisees is computed as a percent of product sales to franchisees. The basis point change is not meaningful. (2) Includes cost of services and products sold to guests in our Company-owned salons. Excludes general and administrative expense, rent and depreciation and amortization related to Company-owned salons. (3) Total is a recalculation; line items calculated individually may not sum to total due to rounding. (4) Computed as a percent of loss from continuing operations before income taxes. The income tax basis point change is noted as not applicable (N/A) because the discussion within the MD&A is related to the effective income tax rate. 24 Three and Nine Months Ended March 31, 2024 Compared with Three and Nine Months Ended March 31, 2023 Royalties During the three and nine months ended March 31, 2024, royalties decreased $0.3 million and $1.4 million, or 2.2% and 2.7%, respectively, primarily due to a decrease in franchise salon count. Fees During the three months ended March 31, 2024, fees increased $0.1 million due to an increase in terminated development agreements in the current year quarter. During the nine months ended March 31, 2024, fees decreased $0.6 million, primarily due to a decrease in terminated development agreements and lower fees from franchise product vendors. Product Sales to Franchisees Product sales to franchisees in the three and nine months ended March 31, 2024 decreased $0.6 million and $1.7 million, or 100.0% and 79.4%, respectively, compared to the three and nine months ended March 31, 2023. The decreases are primarily due to the Company's shift in its product business from a wholesale model to a third-party distribution model. Product sales to franchisees are not expected to be material for the remainder of fiscal year 2024. Advertising Fund Contributions Advertising fund contributions decreased $2.0 million and $4.2 million, or 25.9% and 17.5%, during the three and nine months ended March 31, 2024, respectively, primarily due to the decrease in franchise salon count and lower contribution rates. Franchise Rental Income During the three and nine months ended March 31, 2024, franchise rental income decreased $2.8 million and $13.3 million, or 10.7% and 15.5%, respectively, primarily due to the decrease in franchise salon count and franchisees signing their own leases. Company-Owned Salon Revenue During the three and nine months ended March 31, 2024, company-owned salon revenue decreased $0.9 million and $2.9 million, or 38.9% and 36.2%, respectively, due to the decrease in company-owned salon count. Cost of Product Sales to Franchisees The decrease in cost of product as a percent of product revenues during the three and nine months ended March 31, 2024 was primarily due to the Company's shift in its product business from a wholesale model to a third-party distribution model. Cost of product sales to franchisees is not expected to be material for the remainder of fiscal year 2024. Inventory Reserve There were no inventory reserve charges in the three months ended March 31, 2024 or 2023. In the nine months ended March 31, 2023, the Company recorded an inventory reserve charge of $1.2 million related to slow moving products. There were no similar charges during the nine months ended March 31, 2024. General and Administrative General and administrative expense for the three and nine months ended March 31, 2024 decreased $1.9 million and $5.5 million, or 14.1% or 13.9%, respectively, primarily due to lower headcount resulting in lower compensation expense and lower legal, insurance and professional fees. Rent Rent expense decreased $0.3 million and $1.6 million, or 15.0% and 28.1%, during the three and nine months ended March 31, 2024, respectively, primarily due to a reduction in company-owned salon count. Advertising Fund Expense Advertising fund expense decreased $2.0 million and $4.2 million, or 25.6% and 17.5%, during the three and nine months ended March 31, 2024, respectively, primarily due to the decrease in franchise salon count and and lower contribution rates. 25 Franchise Rent Expense During the three and nine months ended March 31, 2024, franchise rent expense decreased $2.8 million and $13.3 million, or 10.7% and 15.5%, respectively, primarily due to the decrease in franchise salon count and franchisees signing their own leases. Company-Owned Salon Expense Company-owned salon expense, for the three and nine months ended March 31, 2024, decreased $0.6 million and $3.0 million, or 28.0% and 41.0%, respectively, primarily due to the reduction in company-owned salon count. Depreciation and Amortization Depreciation and amortization was $1.0 million in the three months ended March 31, 2024 and 2023. Depreciation and amortization decreased $4.0 million, or 66.0%, during the nine months ended March 31, 2024. The decrease was primarily due to a $2.6 million accelerated depreciation charge related to the consolidation of office space within the Company's corporate headquarters in the second quarter of fiscal year 2023 and the decrease in company-owned salon count. Long-Lived Asset Impairment In the three months ended March 31, 2024 and 2023, there were no significant long-lived asset impairment charges. In the nine months ended March 31, 2024, the Company recorded a long-lived asset impairment charge of $0.2 million related to the right-of-use asset associated with the corporate office lease. There were no similar charges recorded in the nine months ended March 31, 2023. Interest Expense The $1.4 million and $5.4 million increase in interest expense for the three and nine months ended March 31, 2024, respectively, was primarily due to a higher weighted average interest rate on outstanding borrowings. Cash interest increased $0.7 million and $3.3 million in the three and nine months ended March 31, 2024, respectively. Other, Net Other, net decreased $0.7 million for the three months ended March 31, 2024, primarily due to fluctuations in the Canadian dollar. Other, net decreased $1.4 million in the nine months ended March 31, 2024, primarily due to a $1.1 million grant received in fiscal year 2023 from the state of North Carolina related to COVID-19 relief. Income Tax (Expense) Benefit During the three months ended March 31, 2024, the Company recognized a tax expense of $0.1 million, with a corresponding effective tax rate of (2.3)%, as compared to recognizing a tax benefit of $0.2 million during the three months ended March 31, 2023, for an effective tax rate of 10.0%. During the nine months ended March 31, 2024, the Company recognized a tax benefit of $0.2 million, with a corresponding effective tax rate of 8.3%, as compared to recognizing a tax benefit of $0.2 million, with a corresponding effective tax rate of 3.2% during the nine months ended March 31, 2023. See Note 5 to the unaudited Condensed Consolidated Financial Statements. Income from Discontinued Operations Income from discontinued operations decreased $0.4 million in the three months ended March 31, 2024 due to sales proceeds in the prior year of $0.5 million. Income from discontinued operations decreased $1.9 million in the nine months ended March 31, 2024, due primarily to the recognition of $5.0 million of sales proceeds in fiscal year 2023 compared to $2.0 million in fiscal year 2024. 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 Salons Three Months Ended March 31, Nine Months Ended March 31, 2024 2023 (Decrease) Increase (1) 2024 2023 (Decrease) Increase (1) (Dollars in millions) (Dollars in millions) Royalties $ 15.7 $ 16.0 $ (0.3) $ 48.0 $ 49.4 $ (1.4) Fees 2.6 2.5 0.1 7.7 8.3 (0.6) Product sales to franchisees — 0.6 (0.6) 0.5 2.2 (1.7) Advertising fund contributions 5.8 7.8 (2.0) 19.8 24.0 (4.2) Franchise rental income 23.8 26.6 (2.8) 72.5 85.8 (13.3) Total franchise revenue (1) $ 47.9 $ 53.6 $ (5.7) $ 148.6 $ 169.7 $ (21.1) Franchise same-store sales (2) 0.5 % 6.0 % 1.3 % 5.1 % Franchise adjusted EBITDA $ 5.8 $ 4.8 $ 1.0 $ 20.1 $ 17.3 $ 2.8 Total franchise salons 4,537 5,057 (520) _______________________________________________________________________________ (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 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. Three and Nine Months Ended March 31, 2024 Compared with Three and Nine Months Ended March 31, 2023 Franchise Revenue Franchise revenue decreased $5.7 million and $21.1 million during the three and nine months ended March 31, 2024, respectively. The decreases in franchise revenue during the three and nine months ended March 31, 2024 were primarily due to the decrease in franchise salon count. During the twelve months ended March 31, 2024, franchisees opened (net of relocations) and closed 10 and 540 franchise salons, respectively, and and purchased (net of Company buybacks) 10 salons from the Company during the same period.. Franchise Adjusted EBITDA During the three and nine months ended March 31, 2024, franchise adjusted EBITDA totaled $5.8 million and $20.1 million, respectively, an increase of $1.0 million and $2.8 million compared to the three and nine months ended March 31, 2023, respectively. The improvement in both periods was primarily due to a decrease in general and administrative expense, partially offset by a decrease in royalties and fees. 27 Company-Owned Salons Three Months Ended March 31, Nine Months Ended March 31, 2024 2023 Decrease (1) 2024 2023 Decrease (1) (Dollars in millions) (Dollars in millions) Company-owned salon revenue $ 1.3 $ 2.2 $ (0.9) $ 5.0 $ 7.9 $ (2.9) Company-owned salon adjusted EBITDA $ (0.8) $ (0.6) $ (0.2) $ (1.6) $ (1.5) $ (0.1) Total Company-owned salons 20 70 (50) _______________________________________________________________________________ (1) Total is a recalculation; line items calculated individually may not sum to total due to rounding. Three and Nine Months Ended March 31, 2024 Compared with Three and Nine Months Ended March 31, 2023 Company-Owned Salon Revenue Company-owned salon revenue decreased $0.9 million and $2.9 million during the three and nine months ended March 31, 2024, respectively, primarily due to the decrease in company-owned salon count. Company-Owned Salon Adjusted EBITDA During the three months ended March 31, 2024, company-owned salon adjusted EBITDA decreased $0.2 million due primarily to expenses associated with closing Canadian salons in the quarter. In the nine months ended March 31, 2024, company-owned salon adjusted EBITDA decreased $0.1 million, primarily due to the lapping of a North Carolina COVID-19 relief grant of $1.1 million received in the prior fiscal year, partially offset by the closure of loss-generating company-owned salons. 28 LIQUIDITY AND CAPITAL RESOURCES The Company's credit agreement in August 2022, the facility matures on August 31, 2025. 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. 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 credit agreement 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 until maturity of the credit agreement in August 2025. In conducting the Company’s current operations, all cash in excess of the amounts needed to support existing operating activities is used to pay the interest on the amounts outstanding under the credit agreement, and we are periodically borrowing additional amounts to cover these costs. As of March 31, 2024, cash and cash equivalents were $5.9 million, with $5.0 million and $0.9 million within the United States and Canada, respectively. As of March 31, 2024, the Company's borrowing arrangements include a $169.8 million term loan, $4.1 million of paid-in-kind interest and a $55.0 million revolving credit facility that matures in August 2025. As of March 31, 2024, the unused available credit under the revolving credit facility was $30.9 million, the credit agreement has a minimum liquidity covenant of $10.0 million, and total liquidity per the agreement was $36.7 million. See Note 9 to the unaudited Condensed Consolidated Financial Statements. On June 30, 2022, the Company sold its OSP software-as-a-service solution to Soham Inc. for a purchase price of $20.0 million in cash plus additional cash proceeds contingent upon the number of salons that migrate to Soham's Zenoti product as their salon technology platform. As of March 31, 2024, the Company has received $20 million in cash proceeds. The Company is not expecting any additional proceeds in fiscal year 2024 and overall is expecting less proceeds than the maximum amount contemplated under the contract due to the decrease in salon count and the longer than anticipated migration period. Uses of Cash The Company closely manages its liquidity and capital resources. The Company's liquidity requirements depend on key variables, including the performance of the business, the level of investment needed to support its business strategies, credit facilities and borrowing arrangements, and working capital management. The Company has a disciplined approach to capital allocation, which focuses on ensuring we can meet our interest obligations and investing in key priorities to support the Company's strategic plan as discussed within Part I, Item 1 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2023. Cash Requirements The Company's most significant contractual cash requirements as of March 31, 2024 were lease commitments and interest payments. See Notes 8 and 9 to the unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. 29 Cash Flows Cash Flows from Operating Activities During the nine months ended March 31, 2024, cash used in operating activities was $7.1 million compared to an $8.5 million cash use in the nine months ended March 31, 2023. Cash used in operating activities improved year over year due primarily to our lower cost structure, resulting from a lower headcount. Cash Flows from Investing Activities During the nine months ended March 31, 2024, cash provided by investing activities of $1.6 million was primarily due to $2.0 million of OSP sales proceeds, offset by salon capital improvements. During the nine months ended March 31, 2023, cash provided by investing activities of $4.2 million was primarily due to cash received of $5.0 million from the sale of OSP, net of a $0.5 million transaction fee. Cash Flows from Financing Activities During the nine months ended March 31, 2024, cash used in financing activities was $1.1 million, primarily as a result of fees associated with our strategic review, partially offset by net borrowings of $1.5 million under 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. 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, 2024 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, 2023 for additional information regarding our financing arrangements. Debt to Capitalization Ratio Our debt to capitalization ratio, calculated as the principal amount of debt, including paid-in-kind interest accrued, 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, 2024 123.6 % June 30, 2023 125.1 % _______________________________________________________________________________ (1) Excludes the long-term lease liability as that liability is offset by the ROU asset. The decrease in the debt to capitalization ratio as of March 31, 2024 was primarily due to the increase in outstanding debt. 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 common stock in "at-the-market" offerings. During the nine months ended March 31, 2024, the Company did not issue shares under the prospectus supplement. The Share Issuance Program expired on February 10, 2024. 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, 2024, 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, 2024, the Company did not repurchase any shares. As of March 31, 2024, approximately 1.5 million shares have been cumulatively repurchased for $595.4 million, and $54.6 million remains outstanding under the approved stock repurchase program. The Company does not anticipate repurchasing shares of common stock for the foreseeable future. 30 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," "will," "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 changes in consumer shopping trends and changes in manufacturer distribution channels; laws and regulations could require us to modify current business practices and incur increased costs; our potential responsibility for Empire Education Group, Inc.'s liabilities; changes in general economic environment; changes in consumer tastes, hair product innovation, fashion trends and consumer spending patterns; compliance with listing requirements; reliance on franchise royalties and overall success of our franchisees’ salons; our salons' dependence on a third-party supplier agreement for merchandise; our franchisees' ability to attract, train and retain talented stylists and salon leaders; the success of our franchisees, which operate independently; data security and privacy compliance and 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; the effectiveness of our enterprise risk management program; ability to generate sufficient cash flow to satisfy our debt service obligations ; compliance with covenants in our financing arrangement, access to the existing revolving credit facility, and acceleration of our obligation to repay our indebtedness; the completion and/or results of the strategic alternatives review; limited resources to invest in our business; premature termination of agreements with our franchisees; financial performance of Empire Education Group, Inc.; our ability to close the sale of our ownership stake in 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 control 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; future goodwill impairment 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. 31 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, 2023 Annual Report on Form 10-K.