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Item 1. Financial Statements

2024-11-06 compared with 2024-05-01 · 169 added, 167 removed, 317 unchanged (51% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

As of March 31, 2024 and June 30, 2023

As of September 30, 2024, and June 30, 2024

(Dollars in thousands, except per share data)

September 30,

2024 June 30,

3 unchanged sentences

Receivables, net 9,082 9,434

Inventories, net 720 1,681

Other current assets 20,085 22,550

8 unchanged sentences

Total assets $ 508,931 $ 530,496

LIABILITIES AND SHAREHOLDERS' DEFICIT

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

11 unchanged sentences

Commitments and contingencies (Note 6)

Shareholders' deficit:

Shareholders' equity:

Common stock, $ 0.05 par value;

issued and outstanding, 2,279,948 and 2,277,828 common shares at March 31, 2024 and June 30, 2023, respectively (Note 1)

Additional paid-in capital (Note 1) 68,040 66,764

issued and outstanding, 2,282,395 and 2,279,948 common shares at September 30, 2024, and June 30, 2024, respectively

Additional paid-in capital 69,972 69,660

Accumulated other comprehensive income 8,736 8,584

Accumulated deficit ( 22,424 ) ( 21,571 )

Total shareholders' deficit ( 35,822 ) ( 36,730 )

Total liabilities and shareholders' deficit $ 543,707 $ 607,377

Total shareholders' equity 56,398 56,787

Total liabilities and shareholders' equity $ 508,931 $ 530,496

_______________________________________________________________________________

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

For the Three and Nine Months Ended March 31, 2024 and 2023

For the Three Months Ended September 30, 2024, and 2023

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

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

2024 2023 2024 2023

Three Months Ended September 30,

Royalties $ 15,646 $ 16,528

8 unchanged sentences

Cost of product sales to franchisees — 359

Inventory reserve — — — 1,228

General and administrative 14,034 10,729

Rent (Note 8)

1,766 2,077 4,257 5,920

Advertising fund expense 5,641 7,226

8 unchanged sentences

Other, net 677 ( 200 )

Loss from operations before income taxes ( 2,367 ) ( 2,402 ) ( 2,431 ) ( 6,753 )

Income tax (expense) benefit ( 54 ) 241 201 213

Loss from continuing operations ( 2,421 ) ( 2,161 ) ( 2,230 ) ( 6,540 )

(Loss) income from operations before income taxes ( 2,035 ) 1,046

Income tax benefit 225 148

(Loss) income from continuing operations ( 1,810 ) 1,194

Income from discontinued operations (Note 3) 957 —

Net loss $ ( 2,332 ) $ ( 1,643 ) $ ( 141 ) $ ( 2,582 )

Net loss per share:

Basic and diluted:

Loss from continuing operations $ ( 1.03 ) $ ( 0.93 ) $ ( 0.95 ) $ ( 2.83 )

Net (loss) income $ ( 853 ) $ 1,194

Net (loss) income per share:

(Loss) income from continuing operations $ ( 0.77 ) $ 0.51

Income from discontinued operations 0.41 —

Net loss per share (2) $ ( 1.00 ) $ ( 0.71 ) $ ( 0.06 ) $ ( 1.12 )

Net (loss) income per share (2) $ ( 0.36 ) $ 0.51

(Loss) income from continuing operations $ ( 0.77 ) $ 0.51

Income from discontinued operations 0.41 —

Net (loss) income per share, diluted (2) $ ( 0.36 ) $ 0.51

Weighted average common and common equivalent shares outstanding:

Basic and diluted 2,342 2,315 2,338 2,308

Basic 2,343 2,332

Diluted 2,343 2,362

_______________________________________________________________________________

5 unchanged sentences

REGIS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)

For the Three and Nine Months Ended March 31, 2024 and 2023

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

For the Three Months Ended September 30, 2024, and 2023

(Dollars in thousands)

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

2024 2023 2024 2023

Net loss $ ( 2,332 ) $ ( 1,643 ) $ ( 141 ) $ ( 2,582 )

Three Months Ended September 30,

Net (loss) income $ ( 853 ) $ 1,194

Foreign currency translation adjustments 152 ( 289 )

Comprehensive loss $ ( 2,562 ) $ ( 1,614 ) $ ( 368 ) $ ( 3,279 )

Comprehensive (loss) income $ ( 701 ) $ 905

_______________________________________________________________________________

1 unchanged sentence

REGIS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT (Unaudited)

For the Three and Nine Months Ended March 31, 2024 and 2023

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) (Unaudited)

For the Three Months Ended September 30, 2024, and 2023

(Dollars in thousands)

Three Months Ended March 31, 2024

Common Stock Additional

Capital Accumulated

Comprehensive

Income (Loss) Accumulated Deficit Total

Shares Amount

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

Net loss — — — — ( 2,332 ) ( 2,332 )

Foreign currency translation — — — ( 230 ) — ( 230 )

Stock-based compensation — — 333 — — 333

Net restricted stock activity 498 — ( 3 ) — — ( 3 )

Balance, March 31, 2024 2,279,948 $ 114 $ 68,040 $ 8,796 $ ( 112,772 ) $ ( 35,822 )

Three Months Ended March 31, 2023

Three Months Ended September 30, 2024

Common Stock Additional

3 unchanged sentences

Shares Amount

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

Net loss — — — — ( 1,643 ) ( 1,643 )

Foreign currency translation — — — 29 — 29

Stock-based compensation — — 502 — — 502

Net restricted stock activity 106 — — — — —

Balance, March 31, 2023 2,277,751 $ 114 $ 66,209 $ 8,758 $ ( 107,828 ) $ ( 32,747 )

Nine Months Ended March 31, 2024

Common Stock Additional

Capital Accumulated

Comprehensive

Income (Loss) Accumulated Deficit Total

Shares Amount

Balance, June 30, 2024 2,279,948 $ 114 $ 69,660 $ 8,584 $ ( 21,571 ) $ 56,787

3 unchanged sentences

Net restricted stock activity 2,447 — ( 23 ) — — ( 23 )

Balance, March 31, 2024 2,279,948 $ 114 $ 68,040 $ 8,796 $ ( 112,772 ) $ ( 35,822 )

Nine Months Ended March 31, 2023

Balance, September 30, 2024 2,282,395 $ 114 $ 69,972 $ 8,736 $ ( 22,424 ) $ 56,398

Three Months Ended September 30, 2023

Common Stock Additional

4 unchanged sentences

Balance, June 30, 2023 2,277,828 $ 114 $ 66,764 $ 9,023 $ ( 112,631 ) $ ( 36,730 )

Net loss — — — — ( 2,582 ) ( 2,582 )

Net income — — — — 1,194 1,194

Foreign currency translation — — — ( 289 ) — ( 289 )

1 unchanged sentence

Net restricted stock activity 651 — ( 6 ) — — ( 6 )

Balance, March 31, 2023 2,277,751 $ 114 $ 66,209 $ 8,758 $ ( 107,828 ) $ ( 32,747 )

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

_______________________________________________________________________________

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

For the Nine Months Ended March 31, 2024 and 2023

For the Three Months Ended September 30, 2024, and 2023

(Dollars in thousands)

Nine Months Ended March 31,

Cash flows from operating activities:

Net loss $ ( 141 ) $ ( 2,582 )

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

Three Months Ended September 30,

Cash flows used in operating activities:

Net (loss) income $ ( 853 ) $ 1,194

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

Gain from sale of OSP (Note 3) ( 957 ) —

Depreciation and amortization 425 375

Long-lived asset impairment 170 36

Deferred income taxes ( 221 ) ( 59 )

Inventory reserve — 1,228

Non-cash interest 1,264 640

Long lived asset impairment 352 —

Stock-based compensation 1,430 630

3 unchanged sentences

Net cash used in operating activities ( 1,344 ) ( 2,824 )

Cash flows from investing activities:

Cash flows provided by (used in) investing activities:

Capital expenditures ( 16 ) ( 163 )

Proceeds from sale of OSP, net of fees 957 —

Net cash provided by investing activities 1,628 4,161

Cash flows from financing activities:

Borrowings on credit facility 4,000 11,357

Net cash provided by (used in) investing activities 941 ( 163 )

Cash flows (used in) provided by financing activities:

Borrowings on revolving credit facility 4,326 2,000

Repayments of revolving credit facility ( 10,237 ) —

Repayments of long-term debt ( 263 ) ( 162 )

1 unchanged sentence

Taxes paid for shares withheld ( 23 ) ( 6 )

Net cash used in financing activities ( 1,067 ) ( 2,552 )

Net cash (used in) provided by financing activities ( 6,495 ) 1,680

Effect of exchange rate changes on cash and cash equivalents 27 ( 42 )

9 unchanged sentences

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 March 31, 2024 and for the three and nine months ended March 31, 2024 and 2023, reflect, in the opinion of management, all adjustments necessary to fairly state the consolidated financial position of the Company as of March 31, 2024 and its consolidated results of operations, comprehensive loss, shareholders' deficit and cash flows for the interim periods.

The unaudited interim Condensed Consolidated Financial Statements of Regis Corporation (the Company) as of September 30, 2024 and for the three months ended September 30, 2024 and 2023, reflect, in the opinion of management, all adjustments necessary to fairly state the consolidated financial position of the Company as of September 30, 2024 and its consolidated results of operations, comprehensive (loss) income, shareholders' equity (deficit) and cash flows for the interim periods.

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

4 unchanged sentences

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.

An interim impairment analysis was not required in the three months ended September 30, 2024.

As of September 30, 2024, and June 30, 2024, the franchise reporting unit had goodwill of $ 173.4 million and $ 173.1 million, respectively, and the company-owned reporting unit had no goodwill for both periods.

Reverse stock split:

11 unchanged sentences

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

By adopting the Plan, the Board 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.

The Board 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.

Depreciation:

Depreciation expense in the three months ended March 31, 2024 and 2023 includes $ 0.4 million and $ 0.2 million, respectively, and for the nine months ended March 31, 2024 and 2023 includes $ 0.5 million and $ 0.6 million, respectively, of asset retirement obligations, which are cash expenses.

The Rights and the Plan will expire on the earliest of (i) the close of business on January 29, 2025 (or such later date as may be established by the Board of Directors prior to the Expiration Date as long as the extension is submitted to the shareholders of the Company for ratification at the next annual or special meeting of shareholders succeeding such extension), (ii) the time at which the Rights are redeemed or exchanged pursuant to the Plan, (iii) the time at which the Rights (other than Rights owned by an Acquiring Person) are exchanged pursuant to the Plan, (iv) the repeal of Section 382 of the Code or any successor statute if the Board determines that the Plan is no longer necessary or desirable for the preservation of the Tax Benefits, or (v) the beginning of a taxable year to which the Board determines that no Tax Benefits may be carried forward.

Recently Issued Accounting Standards Not Yet Adopted:

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which requires disclosure of significant segment expenses that are regularly provided to the chief operating

decision maker (CODM) and a description of other segment items (the difference between segment revenue less the segment expenses disclosed under the significant expense principle and each reported measure of segment profit or loss) by reportable segment, as well as disclosure of the title and position of the entity’s CODM and an explanation of how the CODM uses the reported measures of segment profit or loss in assessing segment performance and deciding how to allocate resources.

The pronouncement is effective for annual reporting periods in fiscal years beginning after December 15, 2023, and for interim periods in fiscal years beginning after December 15, 2024.

We do not expect the adoption of this pronouncement to impact our consolidated financial statements beyond the expansion of our reportable segment disclosures.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.” The ASU includes amendments requiring enhanced income tax disclosures, primarily related to standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction.

The ASU is effective for fiscal years beginning after December 15, 2024, and shall be applied prospectively.

The Company is evaluating the standard and determining the extent of additional disclosures that will be required.

REVENUE RECOGNITION:

8 unchanged sentences

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 it has no impact on net income.

The Company recognizes franchise rental income and expense when it is due to the landlord.

Revenue recognized at point of sale

2 unchanged sentences

Gift cards issued by the Company are recorded as a liability (deferred revenue) upon sale and recognized as revenue upon redemption by the guest.

Gift card breakage, the amount of gift cards which will not be redeemed, is recognized proportional to redemptions using estimates based on historical redemption patterns.

Product sales to franchisees and other partners are recorded at the time product is delivered.

Gift card breakage, the amount of gift cards which will not be redeemed, is recognized based on gift card balances with no activity over a 36-month basis.

Product sales to franchisees are recorded at the time product is delivered to the franchisee.

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

September 30,

2024 June 30,

12 unchanged sentences

The receivables balance is presented net of an allowance for expected credit losses (i.e., doubtful accounts).

Provisions for credit losses are recorded based on management’s judgment regarding our ability to collect as well as the age of the receivables.

Receivable are written off when they are deemed uncollectible.

As of March 31, 2024 and June 30, 2023, the allowance for doubtful accounts was $ 6.9 million and $ 7.3 million, respectively.

The Company monitors the financial condition of its franchisees and records provisions for estimated losses on receivables when it believes franchisees are unable to make their required payments based on factors such as delinquencies and aging trends.

The allowance for credit losses is the Company's best estimate of the amount of probable credit losses related to existing accounts and notes receivables.

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

Included in other assets is a receivable of $ 0.8 million, partially offset by a credit loss reserve of $ 0.2 million, related to this financing program.

The following table is a rollforward of the allowance for credit losses for the period:

Three Months Ended September 30,

(Dollars in thousands)

Balance at beginning of period $ 6,227 $ 7,297

Provision for doubtful accounts 689 211

Provision for franchisee rent 127 167

Recoveries ( 237 ) ( 237 )

Write-offs ( 142 ) ( 991 )

Other (1) 243 ( 56 )

Balance at end of period $ 6,907 $ 6,391

________________________________________________________________________________________

(1) Includes currency fluctuation.

Broker fees are the costs associated with using external brokers to identify new franchisees.

1 unchanged sentence

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

Nine Months Ended March 31,

Three Months Ended September 30,

(Dollars in thousands)

4 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 March 31, 2024 and 2023 was $ 1.7 million and $ 1.6 million, respectively, and for the nine months ended March 31, 2024 and 2023 was $ 5.0 million and $ 4.8 million, respectively.

Estimated revenue expected to be recognized in the future related to deferred franchise fees for open salons as of March 31, 2024 is as follows (dollars in thousands):

Franchise fee revenue for the three months ended September 30, 2024, and 2023 was $ 1.6 million and $ 1.7 million, respectively.

Estimated revenue expected to be recognized in the future related to deferred franchise fees for open salons as of September 30, 2024, is as follows (dollars in thousands):

Remainder of 2025 $ 3,412

2 unchanged sentences

DISCONTINUED OPERATIONS:

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

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

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, which were paid to the Company in January 2024.

In the three months ended September 30, 2024, the Company received $ 957 thousand of proceeds related to the number of salons migrating to Soham's Zenoti product.

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

Cash used in operations includes $ 0.1 million of cash from discontinued operations.

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

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

2024 2023 2024 2023

(Dollars in thousands)

Discontinued operations:

OSP fees $ — $ — $ — $ ( 226 )

General and administrative — — — ( 27 )

Rent — — — ( 341 )

Other income 89 — 89 —

Gain from sale of OSP — 518 2,000 4,552

Income from OSP discontinued operations, net $ 89 $ 518 $ 2,089 $ 3,958

SHAREHOLDERS' DEFICIT:

Cash provided by operations includes $ 957 thousand of cash from discontinued operations.

SHAREHOLDERS' EQUITY (DEFICIT):

Stock-Based Employee Compensation:

During the three and nine months ended March 31, 2024, the Company granted restricted stock units as follows:

Three Months Ended March 31, 2024 Nine Months Ended March 31, 2024

During the three months ended September 30, 2024, and 2023, the Company granted restricted stock units as follows:

Three Months Ended September 30,

Restricted stock units (RSUs) — 12,970

The RSUs granted during the nine months ended March 31, 2024, 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 million and $ 0.6 million for the three months ended March 31, 2024 and 2023, respectively, and $ 1.2 and $ 1.7 million for the nine months ended March 31, 2024 and 2023, respectively, was recorded within general and administrative on the unaudited Condensed Consolidated Statements of Operations.

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 $ 1.4 million and $ 0.6 million for the three months ended September 30, 2024, and 2023, respectively, was recorded within general and administrative on the unaudited Condensed Consolidated Statements of Operations.

Stock Warrants Issued in Connection with Long-Term Debt:

In connection with the 2024 Credit agreement (as defined in Note 9 to the unaudited Condensed Consolidated Financial Statements), the Company issued detachable warrants to affiliates of TCW Asset Management Company, LLC, and Asilia Investments.

Pursuant to the warrants, the holders can purchase up to an aggregate 407,542 shares of the Company’s common stock, par value $ 0.05 per share, at an exercise price equal to $ 7.00 per share.

The warrants are exercisable for a seven-year period beginning June 24, 2024.

The warrants may also be exercised on a cashless basis under certain circumstances under the agreement.

In addition, in connection with the issuance of the warrants, the Company granted an exemption in favor of each holder pursuant to Section 36 of the Tax Benefits Preservation Plan (the Plan), dated January 29, 2024 , among the Company and Equiniti Trust Company, LLC, such that neither holder was deemed to be an “Acquiring Person” (as defined in the Plan) solely in connection with (i) the issuance of the warrants nor (ii) the acquisition of beneficial ownership of securities of the Company pursuant to the exercise of the warrants.

The warrants and the shares of common stock issuable upon the exercise of such warrants have not been registered under the Securities Act of 1933, as amended (the Securities Act), and may not be sold absent registration or an applicable exemption from the registration requirements of the Securities Act.

Based in part upon the representations of each holder in each warrant, the offering and sale of each warrant is exempt from registration under Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D promulgated under the Securities Act.

The warrants are valued at $ 1.5 million using a relative fair value method and were accounted for through additional paid-in capital.

Further, the related financing fees incurred as a result of warrant issuance is recorded through a contra-equity account and amounts to $ 0.2 million.

Prior to the second anniversary of the issue date, the Company may call for cancellation up to an aggregate 203,771 shares of common stock underlying the warrants for consideration equal to $ 15.00 per share;

provided, that the volume weighted average price on the trading day immediately preceding the date the Company delivers a written call notice to a holder exceeds $ 20.00 .

As of September 30, 2024, the Company has no intentions of exercising this call provision.

The Company will reassess this provision on a quarterly basis.

Share Issuance Program:

In fiscal year 2021, the Company filed a $ 150.0 million shelf registration statement and $ 50.0 million prospectus supplement (collectively, the Share Issuance Program) 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 and nine months ended March 31, 2024 and 2023, the Company did no t issue any shares under this prospectus.

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

During the three months ended September 30, 2023, the Company did no t issue any shares under this prospectus.

The Share Issuance Program expired on February 10, 2024.

INCOME TAXES:

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

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

_______________________________________________________________________________ 2024 2023 2024 2023

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

Three Months Ended September 30,

(Dollars in thousands)

Income tax (expense) benefit $ ( 54 ) $ 241 $ 201 $ 213

Income tax benefit $ 225 $ 148

Effective tax rate 11.1 % ( 14.1 ) %

The recorded tax provision and effective tax rate for the three and nine months ended March 31, 2024 and 2023 were different than what would normally be expected, primarily due to the impact of the deferred tax valuation allowance.

In addition, the Company recognized a one-time tax benefit of $ 0.2 million in fiscal year 2024 as a result of an income tax audit of foreign subsidiaries.

The recorded tax provision and effective tax rate for the three months ended September 30, 2024, and 2023 were different than what would normally be expected, primarily due to the impact of the deferred tax valuation allowance.

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, 2013, and 2016, respectively.

6 unchanged sentences

Although the actions are being vigorously defended, the Company could incur judgments in the future or enter into settlements of claims that could have a material adverse effect on its results of operations in any particular period.

The Company owns a majority stake in Empire Education Group, Inc.

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 EEG 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.

A program that fails either metric in a single year will be required to provide warnings to current and prospective students that it could be at risk of losing Title IV program eligibility.

A program that fails to meet the same metric twice in a three-year period will lose Title IV program eligibility.

The first measurement will be assessed in fiscal year 2025.

Upon a loss of institutional or programmatic eligibility, EEG’s students would lose access to Title IV program funds and that could be detrimental to EEG's business model.

Additionally, EEG students who are unable to complete their educational program with EEG, or who do not accept a teach-out opportunity with another institution, may be eligible for discharges of their federal student loan debt.

Those discharged loan amounts and other Title IV funds disbursed to EEG students that do not complete their program, as well as other Title IV program funds, may constitute liabilities to the Department of Education.

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 March 31, 2024, EEG had $ 10.8 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.

The Company does not believe that it is probable that it would be liable for a material portion of these liabilities because there is time for EEG to reduce its exposure to these liabilities and therefore has not recorded any accrual for this potential liability.

CASH, CASH EQUIVALENTS AND RESTRICTED CASH:

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,

2024 June 30,

12 unchanged sentences

Total rent includes the following:

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

2024 2023 2024 2023

Three Months Ended September 30,

(Dollars in thousands)

Office rent (1) $ 726 $ 825

Lease termination (benefit) expense ( 39 ) 266 122 1,571

Lease termination expense (benefit) 52 ( 13 )

Lease liability benefit (2) ( 62 ) ( 128 )

3 unchanged sentences

_______________________________________________________________________________

(1) The company leases four floors at its corporate office location.

Three of the four floors have been subleased to third party tenants.

Rental income associated with the sublease of the corporate office space is recorded in other income and was $ 0.2 million and $ 0 for the three months ended September 30, 2024, and 2023, respectively.

(2) Upon termination of previously impaired leases, the Company derecognizes the corresponding ROU assets and lease liabilities, which results in a net gain.

In addition, the Company recognizes a benefit from lease liabilities decreasing in excess of previously impaired ROU assets for ongoing leases that were previously impaired.

(2) Franchise salon rent is lower in the nine months ended March 31, 2024 due to settlements with landlords for less than previously accrued.

(3) Franchise salon rent is a benefit in the three months ended September 30, 2023, due to settlements with landlords for less than previously accrued.

The Company leases salon premises in which the majority of its franchisees operate and has entered into corresponding sublease arrangements with franchisees.

1 unchanged sentence

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 and nine months ended March 31, 2024 and 2023, franchise rental income and franchise rent expense were $ 23.8 million and $ 26.6 million, and $ 72.5 million and $ 85.8 million, respectively.

For the three months ended September 30, 2024, and 2023, franchise rental income and franchise rent expense were $ 21.6 million and $ 24.7 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 5.15 and 5.52 years, and the weighted average discount rate was 4.99 % and 4.55 % for all salon operating leases as of March 31, 2024 and June 30, 2023, respectively.

As of March 31, 2024, 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 4.91 and 5.05 years, and the weighted average discount rate was 5.26 % and 5.13 % for all salon operating leases as of September 30, 2024, and June 30, 2024, respectively.

As of September 30, 2024, 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 March 31,

2024 March 31,

Three Months Ended September 30, 2024 Fiscal Year Balance at

September 30, 2024 Balance at

June 30, 2024

(Fiscal Year) (Interest rate %) (Dollars in thousands)

(Average cash interest rate %) (Dollars in thousands)

Term loan 9.10 % 9.68 % $ 104,738 $ 105,000

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Paid-in-kind interest 1,341 53

Fair value of warrants issued to lenders ( 1,501 ) ( 1,501 )

Total long-term debt, net $ 95,176 $ 99,545

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 leverage and fixed-charge coverage ratio covenants.

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

The margin applicable to term secured overnight financing rate (SOFR) loans was 3.875 % through March 27, 2023.

Effective March 27, 2023, the margin increased to 6.25 %, of which 4.25 % is paid currently in cash and 2.00 % is PIK interest (added to the principal balance and thereafter accruing interest).

Effective March 27, 2024, the margin increased to 7.25 %, of which 4.25 % will be paid currently in cash and 3.00 % will be PIK interest.

The margin applicable to base rate loans will be 100 basis points ( 1.00 %) less than the margin applicable to term SOFR loans.

Interest expense is recorded based on a weighted average effective interest rate method.

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 and nine months ended March 31, 2024 and 2023 was $ 4.7 million and $ 14.2 million, and $ 4.0 million and $ 10.9 million, respectively.

At March 31, 2024, 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 March 31, 2024, total liquidity and available credit under the $ 55.0 million revolving credit facility, as defined by the amended agreement, were $ 36.7 million and $ 30.9 million, respectively.

As of March 31, 2024, the Company had cash and cash equivalents of $ 5.9 million and current liabilities of $ 109.1 million.

The Company was in compliance with its covenants and other requirements of the financing arrangements as of March 31, 2024.

In June 2024, the Company entered into a new credit agreement (the “2024 Credit Agreement”).

The 2024 Credit Agreement includes a $ 105.0 million term loan and a $ 25.0 million revolving credit facility, with a $ 10.0 million minimum liquidity covenant and matures June 24, 2029.

The Company incurred $ 14.2 million of refinancing fees (including $ 3.9 million of Original Issue Discount fee) that will be amortized on a straight-line basis over the term of the agreement.

As of September 30, 2024, the Company had outstanding standby letters of credit under the revolving credit facility of $ 9.2 million, primarily related to the Company's self-insurance program.

As of September 30, 2024, total available liquidity and available credit under the $ 25.0 million revolving credit facility, as defined by the amended agreement, were $ 11.9 million and $ 15.7 million, respectively.

As of September 30, 2024, the Company had cash and cash equivalents of $ 6.3 million and current liabilities of $ 101.0 million.

The interest rate on the 2024 Credit Agreement is based on secured overnight financing rate (SOFR) plus margin.

The margin applicable to the 2024 Credit Agreement is subject to change based on the Company's total leverage ratio, remeasured annually on a predetermined date set by the lender.

When the Company's total leverage ratio is greater than or equal to 3.75 to 1.00, the margin applicable to the new term loan and revolving credit facility is 9.00 %.

If the Company's leverage ratio is less than 3.75 to 1.00, the margin rate is 8.50 %.

In either scenario, 4.5 % of the margin is paid-in-kind (PIK) interest (added to the principal balance and thereafter accruing interest), and the remainder is paid in cash.

The SOFR base rate applicable to the debt has a floor of 2.5 % per annum.

The margin applicable to any letter of credit is 5.25 % and paid in cash.

The agreement contains typical provisions and financial covenants regarding maximum leverage and minimum fixed-charge coverage and a minimum liquidity threshold of $ 10.0 million.

In connection with the 2024 Credit Agreement, the Company issued detachable stock warrants to the debt lenders.

The Company was in compliance with its covenants and other requirements of the financing arrangements as of September 30, 2024.

The Company's assets serve as collateral to the new credit facility.

The agreement includes scheduled quarterly payments totaling $ 1.1 million in fiscal years 2025 and 2026.

In fiscal years 2027, 2028 and 2029, scheduled payments total $ 2.6 million.

Additionally, excess cash swept annually per terms of the agreement.

FAIR VALUE MEASUREMENTS:

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Assets and Liabilities Measured at Fair Value on a Recurring Basis

As of March 31, 2024 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 September 30, 2024, and June 30, 2024, 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

We measure certain assets, including the Company's equity method investments, tangible fixed and other assets and goodwill, at fair value on a nonrecurring basis when they are deemed to be other than temporarily impaired.

We measure certain assets, including the Company's tangible fixed and other assets, and goodwill, at fair value on a nonrecurring basis when they are deemed to be other than temporarily impaired.

The fair values of these assets are determined, when applicable, based on valuation techniques using the best information available, and may include quoted market prices, market comparables and discounted cash flow projections.

EARNINGS PER SHARE:

The Company's basic earnings per share is calculated as net 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 loss 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 (loss) 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 (loss) income divided by weighted average common shares and common share equivalents outstanding, which includes shares issued under the Company's stock-based compensation plans and warrants issued in connection with the June 2024 refinancing.

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 218,904 and 214,684 of stock-based awards during the three months ended March 31, 2024 and 2023, respectively, and excluded 216,727 and 194,093 of stock-based awards during the nine months ended March 31, 2024 and 2023, respectively, as they were not dilutive under the treasury stock method.

The computation of weighted average shares outstanding, assuming dilution, excluded 194,612 and 208,819 of stock-based awards during the three months ended September 30, 2024, and 2023, respectively, as they were not dilutive under the treasury stock method.

The following table sets forth the presentation of shares outstanding used in the calculation of basic and diluted earnings per share (EPS):

Three Months Ended September 30,

(Shares in thousands)

Denominator for basic EPS - weighted average common shares 2,343 2,332

Dilutive shares associated with option plans — 30

Denominator for diluted EPS - weighted average common shares and dilutive potential common shares 2,343 2,362

Options excluded from EPS calculation - anti-dilutive 195 209

SEGMENT INFORMATION:

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

September 30,

2024 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 that the CODM’s primary measures of segment performance are revenue and segment adjusted EBITDA.

In 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.

1 unchanged sentence

Segment adjusted EBITDA is defined as income from continuing operations before interest, income taxes, depreciation, amortization, and impairment.

Beginning in fiscal year 2025, management determined that stock-based compensation expenses will be excluded from adjusted EBITDA.

This change has been retrospectively applied to all prior periods presented in this report.

C onsistent with our internal management reporting, unallocated expenses include certain items impacting comparability.

1 unchanged sentence

They are based on how management views the business, makes financial, operating and planning decisions and evaluates the Company's ongoing performance and are not attributable to either segment.

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 March 31, Nine Months Ended March 31,

2024 2023 2024 2023

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

Three Months Ended September 30,

(Dollars in thousands)

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Long-lived asset impairment ( 352 ) —

Stock-based compensation ( 1,430 ) ( 630 )

Interest expense ( 4,846 ) ( 6,188 )

Income tax (expense) benefit ( 54 ) 241 201 213

Income tax benefit 225 148

Income from discontinued operations 957 —

Total net loss $ ( 2,332 ) $ ( 1,643 ) $ ( 141 ) $ ( 2,582 )

Total net (loss) income (2) $ ( 853 ) $ 1,194

_______________________________________________________________________________

(1) Unallocated expenses for the three months ended September 30, 2024, includes severance expenses of $ 2.3 million.

(2) Total is a recalculation;

line items calculated individually may not sum to total due to rounding.

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