What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-02-12 compared with 2024-11-06 · 89 added, 76 removed, 172 unchanged (49% of the section changed)

4 unchanged sentences

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

As of September 30, 2024, the Company franchised or owned 4,359 locations, primarily in North America.

As of December 31, 2024, the Company franchised or owned 4,248 locations, primarily in North America.

Our locations consisted of 3,925 franchised salons and 323 company-owned salons.

Regis’ franchised and corporate locations operate under concepts such as Supercuts ® , SmartStyle ® , Cost Cutters ® , Roosters ® , and First Choice Haircutters ® .

As of September 30, 2024, the Company had 203 employees.

As of December 31, 2024, the Company had 1,945 employees, of which 1,750 were acquired as part of the Alline acquisition.

CRITICAL ACCOUNTING ESTIMATES

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Changes in these estimates could have a material effect on our interim unaudited Condensed Consolidated Financial Statements.

Business Combinations

We account for our business combinations using the acquisition method of accounting, which requires, among other things, allocation of the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed at their estimated fair values on the acquisition date.

The excess of the fair value of purchase consideration over the values of these identifiable assets and liabilities is recorded as goodwill.

When determining the fair value of assets acquired and liabilities assumed, we make significant estimates and assumptions, especially with respect to intangible assets.

Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

Once the purchase accounting is finalized, any subsequent adjustments are reflected in the consolidated statements of operations.

Acquisition costs, such as legal and consulting fees, are expensed as incurred.

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, 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.

An interim impairment analysis was not required in the three months ended December 31, 2024.

As of December 31, 2024, and June 30, 2024, the franchise reporting unit had goodwill of $172.4 million and $173.1 million, respectively, and the company-owned reporting unit had goodwill of $16.6 million and $0 as of December 31, 2024, and June 30, 2024, 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, 2024, 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, 2024.

There have been no changes to our critical accounting policies from those disclosed on our Form 10-K for the year ended June 30, 2024, except as noted above.

RESULTS OF OPERATIONS

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

In the three months ended September 30, 2024, a net 41 franchise salons have closed, which will reduce future royalty income.

In the six months ended December 31, 2024, a net 152 franchise salons have closed, in addition to the 314 salons acquired as part of the Alline Acquisition, which will reduce future royalty income.

The Alline acquisition will increase future company-owned salon revenue and expenses.

The following table summarizes system-wide revenue and system-wide same-store sales by concept:

Three Months Ended September 30,

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

2024 2023 2024 2023

(Dollars in millions)

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

Three Months Ended September 30,

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

2024 2023 2024 2023 2024 2023 2024 2023

($ in millions) % of Total

(Dollars in millions) % of Total

Revenue (1) (5) Increase (Decrease) (Dollars in millions) % of Total

Revenue (1) (5) Increase (Decrease)

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Company-owned salon revenue 3.5 1.8 7.4 3.5 390 4.2 3.7 4.6 3.6 100

Cost of product sales to franchisees (1) — 0.4 — 100.0 N/M

Cost of product sales to franchisees (1) — 0.1 — 100.0 N/M — 0.4 — 100.0 N/M

General and administrative 11.2 11.8 23.9 23.1 80 25.2 22.5 27.1 21.5 560

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Other, net (0.3) 0.3 (0.7) 0.6 (130) 0.4 0.1 0.4 0.1 30

Income tax benefit (4) 0.2 0.1 11.1 (14.1) N/A

(Loss) income from continuing operations (1.8) 1.2 (3.9) 2.3 (620)

Income tax (expense) benefit (4) (0.1) 0.1 39.8 9.6 N/A 0.1 0.3 5.3 398.4 N/A

Income (loss) from continuing operations (3) 0.2 (1.0) 0.4 (2.0) 240 (1.6) 0.2 (1.7) 0.2 (190)

Income from discontinued operations 7.4 2.0 15.9 3.9 1,200 8.4 2.0 9.0 1.9 710

Net (loss) income (3) (0.9) 1.2 (2.0) 2.3 (430)

Net income (3) 7.6 1.0 16.4 2.0 1,440 6.8 2.2 7.3 2.1 520

_______________________________________________________________________________

(1) Cost of product sales to franchisees is computed as a percent of product sales to franchisees.

The basis point change is not meaningful.

The basis point change is not meaningful (N/M).

(2) Includes cost of services and products sold to guests in our company-owned salons.

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

(4) Computed as a percent of (loss) income from continuing operations before income taxes.

(4) Computed as a percent of income (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.

Three Months Ended September 30, 2024, Compared with Three Months Ended September 30, 2023

During the three months ended September 30, 2024, royalties decreased $0.9 million, or 5.5%, primarily due to a decrease in franchise salon count and negative same-store-sales.

During the three months ended September 30, 2024, fees decreased $0.2 million, or 10.6%, primarily due to lower option fees and lower rebate fees from franchise product vendors.

Product Sales to Franchisees

Product sales to franchisees in the three months ended September 30, 2024, decreased $0.4 million, or 100.0%, compared to the three months ended September 30, 2023, primarily due to the Company's shift in its product business from a wholesale model to a third-party distribution model.

(5) Amounts from prior periods may not equal those per the prior period financials due to rounding from updating formulas for consistency purposes.

Three and Six Months Ended December 31, 2024, Compared with Three and Six Months Ended December 31, 2023

During the three and six months ended December 31, 2024, royalties decreased $1.0 million and $1.9 million, or 6.3% and 5.9%, respectively, primarily due to a decrease in franchise salon count and negative same-store sales.

During the three and six months ended December 31, 2024, fees increased $0.4 million and $0.1 million, or 16.1% and 2.8%, respectively, primarily due to terminated franchise fees related to Alline salons, partially offset by lower option fees and lower rebate fees from franchise product vendors.

Advertising Fund Contributions

Advertising fund contributions decreased $1.6 million, or 21.9%, during the three months ended September 30, 2024, primarily due to the decrease in franchise salon count and lower contribution rates.

Advertising fund contributions decreased $1.3 million and $2.9 million, or 19.1% and 20.7%, during the three and six months ended December 31, 2024, respectively, primarily due to the decrease in franchise salon count and lower contribution rates.

Franchise Rental Income

During the three months ended September 30, 2024, franchise rental income decreased $3.1 million, or 12.3%, primarily due to the decrease in franchise salon count and franchisees signing their own leases.

During the three and six months ended December 31, 2024, franchise rental income decreased $4.1 million and $7.1 million, or 17.0% and 14.6%, respectively, primarily due to the decrease in franchise salon count and franchisees signing their own leases.

Company-Owned Salon Revenue

During the three months ended September 30, 2024, company-owned salon revenue decreased $1.1 million, or 59.5%, 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 months ended September 30, 2024, was primarily due to the Company's shift in its product business from a wholesale model to a third-party distribution model.

During the three and six months ended December 31, 2024, company-owned salon revenue increased $1.7 million and $0.5 million, or 95.6% and 13.5%, respectively, primarily due to the acquisition of Alline.

General and Administrative

General and administrative expense for the three months ended September 30, 2024, increased $3.3 million, or 30.8%, primarily due to severance costs of $2.3 million and stock-based compensation expense of $0.8 million.

Rent expense remained unchanged during the three months ended September 30, 2024.

General and administrative expense decreased $0.6 million, or 5.1%, for the three months ended December 31, 2024, primarily due to lower headcount resulting in lower compensation expense, partially offset by $1.2 million of acquisition costs associated with the Alline acquisition.

General and administrative expense, for the six months ended December 31, 2024, increased $2.7 million, or 11.9%, primarily due to severance costs of $2.3 million and $1.2 million of acquisition costs associated with the Alline acquisition.

Rent expense increased $0.8 million and $0.8 million, or 57.4% and 28.1%, during the three and six months ended December 31, 2024, respectively.

The increase is primarily due to lapping of prior year franchisee rent benefit resulting from settlements with landlords for less than previously accrued.

Advertising Fund Expense

Advertising fund expense decreased $1.6 million, or 21.9%, during the three months ended September 30, 2024, primarily due to the decrease in franchise salon count and lower contribution rates.

Advertising fund expense decreased $1.3 million and $2.9 million, or 19.1% and 20.7%, during the three and six months ended December 31, 2024, respectively, primarily due to the decrease in franchise salon count and lower contribution rates.

Franchise Rent Expense

During the three months ended September 30, 2024, franchise rent expense decreased $3.1 million, or 12.3%, primarily due to the decrease in franchise salon count and franchisees signing their own leases.

During the three and six months ended December 31, 2024, franchise rent expense decreased $4.1 million and $7.1 million, or 17.0% and 14.6%, 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 months ended September 30, 2024, decreased $0.7 million, or 49.5%, primarily due to the reduction in company-owned salon count.

Company-owned salon expense increased $0.6 million, or 45.9%, for the three months ended December 31, 2024, primarily due to the Alline acquisition.

Company-owned salon expense for the six months ended December 31, 2024, remained consistent with the same period in the prior year.

Depreciation and Amortization

Depreciation and amortization remained unchanged during the three months ended September 30, 2024.

Depreciation and amortization decreased $0.2 million and $0.1 million, or 29.5% and 9.6%, for the three and six months ended December 31, 2024, respectively, primarily due to other company-owned salon closures, partially offset by the Alline acquisition.

Long-Lived Asset Impairment

In the three months ended September 30, 2024, the Company recorded a long-lived asset impairment charge of $0.4 million related to the right-of-use asset associated with the corporate office lease.

There were no similar charges recorded in the three months ended September 30, 2023.

During the three and six months ended December 31, 2024, the Company recorded long-lived asset impairment charges of $0 and $0.4 million, respectively, related to the right-of-use asset associated with the corporate office lease.

Long-lived asset impairment charges for the three and six months ended December 31, 2023, were $0.2 million.

Interest Expense

The $1.4 million decrease in interest expense for the three months ended September 30, 2024, was primarily due to less debt outstanding compared to the three months ended September 30, 2023.

Cash interest decreased $1.8 million to $3.0 million for the three months ended September 30, 2024.

Other, net increased $0.9 million in the three months ended September 30, 2024, primarily due to a favorable currency adjustment, unclaimed property, and corporate office sublease income.

Income Tax Benefit

During the three months ended September 30, 2024, the Company recognized a tax benefit of $0.2 million, with a corresponding effective tax rate of 11.1%, as compared to recognizing a tax benefit of $0.1 million, with a corresponding effective tax rate of (14.1)% during the three months ended September 30, 2023.

The negative effective tax rate during the three months ended September 30, 2023 was a result of an income tax benefit during a period in which the Company had income from operations.

Interest expense was $4.8 million and $9.7 million, which included non-cash interest of $1.2 million and $2.5 million in the three and six months ended December 31, 2024.

The $1.3 million and $2.7 million decreases in interest expense for the three and six months ended December 31, 2024, respectively, were primarily due to less debt outstanding compared to the three and six months ended December 31, 2023.

Other, net decreased $0.6 million in the three months ended December 31, 2024, primarily due to an unfavorable currency adjustment.

Other, net increased $0.3 million in the six months ended December 31, 2024, primarily due to unclaimed property and corporate office sublease income, partially offset by an unfavorable currency adjustment.

Income Tax (Expense) Benefit

During the three months ended December 31, 2024, the Company recognized a tax expense of $0.1 million, with a corresponding effective tax rate of 39.8%, as compared to recognizing a tax benefit of $0.1 million during the three months ended December 31, 2023, with an effective tax rate of 9.6%.

During the six months ended December 31, 2024, the Company recognized a tax benefit of $0.1 million, with a corresponding effective tax rate of 5.3%, as compared to recognizing a tax benefit of $0.3 million, with a corresponding effective tax rate of 398.4% during the six months ended December 31, 2023.

See Note 5 to the unaudited Condensed Consolidated Financial Statements.

Income from Discontinued Operations

Income from discontinued operations increased $1.0 million in the three months ended September 30, 2024, due primarily to receiving proceeds from the sale of OSP related to the number of salons migrating to the Zenoti platform.

Income from discontinued operations increased $5.4 million and $6.4 million in the three and six months ended December 31, 2024, respectively, due primarily to receiving proceeds from the sale of OSP related to the number of salons migrating to the Zenoti platform.

See Note 3 to the unaudited Condensed Consolidated Financial Statements.

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Franchise Salons

Three Months Ended September 30,

2024 2023 Decrease (1)

(Dollars in millions)

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

2024 2023 (Decrease) Increase (1) 2024 2023 (Decrease) Increase (1)

(Dollars in millions) (Dollars in millions)

Royalties $ 14.8 $ 15.8 $ (1.0) $ 30.5 $ 32.3 $ (1.8)

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

Three Months Ended September 30, 2024, Compared with Three Months Ended September 30, 2023

Three and Six Months Ended December 31, 2024, Compared with Three and Six Months Ended December 31, 2023

Franchise Revenue

Franchise revenue decreased $6.1 million during the three months ended September 30, 2024.

The decrease in franchise revenue during the three months ended September 30, 2024, was primarily due to the decrease in franchise salon count and negative same-store-sales.

Franchise revenue decreased $6.0 million and $12.2 million during the three and six months ended December 31, 2024, respectively.

The decreases in franchise revenue during the three and six months ended December 31, 2024, were primarily due to the decrease in franchise salon count and negative same-store sales.

Franchise Adjusted EBITDA

During the three months ended September 30, 2024, franchise adjusted EBITDA totaled $8.0 million, a decrease of $0.6 million compared to the three months ended September 30, 2023.

The decline was primarily due to a decrease in royalties and fees.

During the three and six months ended December 31, 2024, franchise adjusted EBITDA totaled $6.4 million and $14.4 million, a decrease of $0.2 million and $0.8 million compared to the three and six months ended December 31, 2023, respectively.

The decline was primarily due to a decrease in royalties, partially offset by a reduction in general and administrative expenses.

Company-Owned Salons

Three Months Ended September 30,

2024 2023 (Decrease) Increase (1)

(Dollars in millions)

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

2024 2023 Increase (1) 2024 2023 Increase (1)

(Dollars in millions) (Dollars in millions)

Company-owned salon revenue $ 3.5 $ 1.8 $ 1.7 $ 4.2 $ 3.7 $ 0.5

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

Three Months Ended September 30, 2024, Compared with Three Months Ended September 30, 2023

Three and Six Months Ended December 31, 2024, Compared with Three and Six Months Ended December 31, 2023

Company-Owned Salon Revenue

Company-owned salon revenue decreased $1.1 million during the three months ended September 30, 2024, primarily due to the decrease in company-owned salon count.

Company-owned salon revenue increased $1.7 million and $0.5 million during the three and six months ended December 31, 2024, respectively.

The increases are primarily driven by the Alline acquisition, partially offset by other company-owned store closures.

Company-Owned Salon Adjusted EBITDA

In the three months ended September 30, 2024, company-owned salon adjusted EBITDA loss improved $0.2 million, primarily due to the wind-down of under performing salons.

In the three and six months ended December 31, 2024, company-owned salon adjusted EBITDA improved $1.0 million and $1.2 million, respectively, primarily due to the Alline acquisition, partially offset by the wind-down of underperforming company-owned stores

LIQUIDITY AND CAPITAL RESOURCES

In June 2024, the Company entered into a new credit agreement with TCW Asset Management Company, LLC, and MidCap Financial Trust, which matures in June 2029.

The Company has a credit agreement with TCW Asset Management Company, LLC, and MidCap Financial Trust, which matures in June 2029.

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

The agreement was amended in December 2024 in connection with the Alline Acquisition.

Sources of Liquidity

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The Company believes it has sufficient liquidity, cash on hand and borrowing capacity to meet its obligations in the next twelve months and until maturity of the credit agreement in June 2029.

As of September 30, 2024, cash and cash equivalents were $6.3 million, with $5.4 million and $0.9 million within the United States and Canada, respectively.

As of September 30, 2024, the Company's borrowing arrangements include a $104.7 million term loan, $1.3 million of paid-in-kind interest and a $25.0 million revolving credit facility that matures in June 2029.

As of September 30, 2024, the unused available credit under the revolving credit facility was $15.7 million, the credit agreement has a minimum liquidity covenant of $10.0 million, and total available liquidity per the agreement was $11.9 million.

As of December 31, 2024, cash and cash equivalents were $10.2 million, with $9.4 million and $0.8 million within the United States and Canada, respectively.

As of December 31, 2024, the Company's borrowing arrangements include a $119.5 million term loan, $2.6 million of paid-in-kind interest and a $25.0 million revolving credit facility that matures in June 2029.

As of December 31, 2024, the unused available credit under the revolving credit facility was $15.7 million, the credit agreement has a minimum liquidity covenant of $10.0 million, and total available liquidity per the agreement was $15.9 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 September 30, 2024, the Company has received $21.0 million in cash proceeds.

The Company expects additional proceeds in fiscal year 2025 of approximately $7.0 to $7.5 million.

As of December 31, 2024, the Company has received $28.5 million in cash proceeds related to the sale of and completed migration to the Zenoti platform.

The Company closely manages its liquidity and capital resources.

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Cash Requirements

The Company's most significant contractual cash requirements as of September 30, 2024, were lease commitments and interest payments.

The Company's most significant contractual cash requirements as of December 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.

Cash Flows from Operating Activities

During the three months ended September 30, 2024, cash used in operating activities was $1.3 million compared to a $2.8 million cash use in the three months ended September 30, 2023.

Cash used in operating activities improved year over year due primarily to our lower cost structure, resulting primarily from a lower headcount in addition to less cash used for working capital.

During the six months ended December 31, 2024, cash provided by operating activities was $0.8 million compared to a $6.9 million cash use in the six months ended December 31, 2023.

Cash used in operating activities improved year over year due primarily to our lower cost structure in addition to less cash used for working capital.

Cash Flows from Investing Activities

During the three months ended September 30, 2024, cash provided by investing activities of $0.9 million was primarily due to OSP sale proceeds of $957 thousand.

During the three months ended September 30, 2023, cash used in investing activities of $0.2 million was primarily due to salon capital improvements.

During the six months ended December 31, 2024, cash used in investing activities of $10.6 million was primarily due to cash used in the acquisition of Alline of $18.6 million, partially offset by the receipt of OSP sale proceeds of $8.5 million.

During the six months ended December 31, 2023, cash used in investing activities of $0.3 million was primarily due to salon capital improvements.

Cash Flows from Financing Activities

During the three months ended September 30, 2024, cash used in financing activities was $6.5 million, primarily as a result of the repayment of long-term debt of $0.3 million and repayments of the revolving credit facility of $10.2 million, partially offset by $4.3 million of borrowings under the revolving credit facility.

During the three months ended September 30, 2023, cash provided by financing activities was $1.7 million, primarily as a result of debt refinancing fees of $0.2 million, partially offset by $2.0 million in borrowings under the Company's revolving credit facility.

During the six months ended December 31, 2024, cash provided by financing activities was $7.7 million, primarily as a result of $15.0 million in proceeds from issuance of long-term debt, partially offset by net payments on the revolving credit facility of $5.9 million.

During the six months ended December 31, 2023, cash provided by financing activities was $2.3 million, primarily as a result of $4.0 million borrowing under the Company's revolving credit facility, partially offset by $0.5 million of debt repayments and $1.2 million used for debt refinancing fees.

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 September 30, 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, 2024 for additional information regarding our financing arrangements.

See Note 9 of the Notes to the unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for the quarter ended December 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, 2024 for additional information regarding our financing arrangements.

Debt to Capitalization Ratio

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Capitalization (1)

September 30, 2024 66.2 %

December 31, 2024 65.5 %

June 30, 2024 67.0 %

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

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 could offer and sell, from time to time, up to $50.0 million worth of its common stock in "at-the-market" offerings.

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 September 30, 2024, the Board has authorized $650.0 million to be expended for the repurchase of the Company's stock under this program.

Since that time and through December 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 three months ended September 30, 2024, the Company did not repurchase any shares.

As of September 30, 2024, approximately 1.5 million shares have been cumulatively repurchased for $595.4 million, and $54.6 million remain outstanding under the approved stock repurchase program.

During the six months ended December 31, 2024, the Company did not repurchase any shares.

As of December 31, 2024, approximately 1.5 million shares have been cumulatively repurchased for $595.4 million, and $54.6 million remain outstanding under the approved stock repurchase program.

The Company does not anticipate repurchasing shares of common stock for the foreseeable future.

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compliance with Nasdaq listing requirements;

our ability to realize the anticipated benefits of the Alline Acquisition;

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;

our and our franchisees' ability to attract, train and retain talented stylists and salon leaders;

the success of our franchisees, which operate independently;

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the effectiveness of our enterprise risk management program;

our ability to minimize risks associated with owning and operating additional salons;

ability to generate sufficient cash flow to satisfy our debt service obligations;

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continued ability to compete in our business markets;

potential liabilities related to the employee retention credit received by Alline;

changes in trade policies, treaties, tariffs and customs duties and taxes;

reliance on our management team and other key personnel;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis