What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2025-05-13 compared with 2025-02-12 · 68 added, 63 removed, 198 unchanged (40% of the section changed)

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This MD&A should be read in conjunction with the MD&A included in our June 30, 2024, Annual Report on Form 10-K and other documents filed or furnished with the SEC during the current fiscal year.

MD&A includes certain non-GAAP measures.

The following items have been excluded from our non-GAAP adjusted EBITDA results:

stock-based compensation expense, discontinued operations, one-time professional fees and legal settlements, severance expense, the benefit from lease liability decreases in excess of previously impaired right of use asset, lease termination fees and asset retirement obligation costs.

MANAGEMENT'S OVERVIEW

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

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

As of March 31, 2025, the Company franchised or owned 4,087 locations, primarily in North America.

Our locations consisted of 3,776 franchised salons and 311 company-owned salons.

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

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

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

As of March 31, 2025, the Company had 1,860 employees, of which 1,666 were acquired as part of the Alline Acquisition.

CRITICAL ACCOUNTING ESTIMATES

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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 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.

An interim impairment analysis was not required in the three months ended March 31, 2025.

As of March 31, 2025, and June 30, 2024, the franchise reporting unit had goodwill of $172.2 million and $173.1 million, respectively, and the company-owned reporting unit had goodwill of $12.1 million and $0.0 million as of March 31, 2025, 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.

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

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.

In the nine months ended March 31, 2025, a net 301 franchise salons, excluding any impact from the Alline Acquisition, have closed.

An additional 314 salons were 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 December 31, Six Months Ended December 31,

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

2025 2024 2025 2024

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

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

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

2025 2024 2025 2024 2025 2024 2025 2024

(Dollars in millions) % of Total

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

Revenue (1) (5) Increase (Decrease)

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

Revenue (5) (Decrease) Increase

Royalties $ 13.5 $ 15.7 23.7 % 31.9 % (820) $ 44.0 $ 48.0 29.4 % 31.3 % (190)

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Income from discontinued operations — 0.1 — 0.2 (20) 8.4 2.1 5.6 1.4 420

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

Net income (loss) (3) 0.3 (2.3) 0.5 (4.7) 520 7.0 (0.1) 4.7 (0.1) 480

_______________________________________________________________________________

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(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.

Three and Nine Months Ended March 31, 2025, Compared with Three and Nine Months Ended March 31, 2024

During the three and nine months ended March 31, 2025, royalties decreased $2.2 million and $4.0 million, or 14.0% and 8.3%, respectively, primarily due to a decrease in franchise salon count and negative same-store sales.

During the three and nine months ended March 31, 2025, fees remained relatively flat year over year, primarily due to terminated franchise fees related to the acquisition of Alline salons, offset by lower rebate fees from franchise product vendors.

Advertising Fund Contributions

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.

Advertising fund contributions decreased $0.6 million and $3.5 million, or 10.3% and 17.7%, during the three and nine months ended March 31, 2025, respectively, primarily due to the decrease in franchise salon count and lower contribution rates.

Franchise Rental Income

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.

During the three and nine months ended March 31, 2025, franchise rental income decreased $6.9 million and $14.0 million, or 29.0% and 19.3%, respectively, primarily due to the decrease in franchise salon count and franchisees signing their own leases.

Company-Owned Salon Revenue

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.

During the three and nine months ended March 31, 2025, company-owned salon revenue increased $17.7 million and $18.2 million, or 1,361.5% and 364.0%, respectively, primarily due to the Alline Acquisition.

General and Administrative

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.

For the three and nine months ended March 31, 2025, general and administrative expense increased $0.0 million and $2.7 million, or 0.0% and 8.0%, respectively, primarily due to severance costs of $0.4 million and $2.7 million, respectively.

Additionally, the nine month period includes $1.4 million of acquisition costs associated with the Alline Acquisition.

Rent expense increased $2.3 million and $3.0 million, or 127.8% and 69.8%, during the three and nine months ended March 31, 2025, respectively.

The increase is primarily due to Alline Acquisition salon rent expense.

Advertising Fund Expense

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.

Advertising fund expense decreased $0.6 million and $3.5 million, or 10.3% and 17.7%, during the three and nine months ended March 31, 2025, respectively, primarily due to the decrease in franchise salon count and lower contribution rates.

Franchise Rent Expense

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.

During the three and nine months ended March 31, 2025, franchise rent expense decreased $6.9 million and $14.0 million, or 29.0% and 19.3%, respectively, primarily due to the decrease in franchise salon count and franchisees signing their own leases.

Company-Owned Salon Expense

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.

Company-owned salon expense increased $12.3 million and $12.2 million, or 820.0% and 283.7% for the three and nine months ended March 31, 2025, respectively, primarily due to the Alline Acquisition.

Depreciation and Amortization

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.

Depreciation and amortization decreased $0.3 million and $0.5 million, or 30.0% and 23.8%, for the three and nine months ended March 31, 2025, respectively, primarily due to company-owned salon closures, partially offset by the Alline Acquisition.

Long-Lived Asset Impairment

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.

During the three and nine months ended March 31, 2025, the Company recorded long-lived asset impairment charges of $0.0 million 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 nine months ended March 31, 2024, were $0.0 million and $0.2 million, respectively.

Interest Expense

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.

Interest expense was $5.1 million and $14.8 million, which included non-cash interest of $1.3 million and $3.8 million in the three and nine months ended March 31, 2025, respectively.

The $1.1 million and $3.7 million decreases in interest expense for the three and nine months ended March 31, 2025, respectively, were primarily due to less debt outstanding compared to the three and nine months ended March 31, 2024.

Other, net increased $0.6 million in the three months ended March 31, 2025, primarily due to a favorable currency adjustment and corporate sublease income.

Other, net increased $0.9 million in the nine months ended March 31, 2025, primarily due to unclaimed property and corporate office sublease income, partially offset by an unfavorable currency adjustment.

Income Tax Benefit (Expense)

During the three months ended March 31, 2025, the Company recognized a tax benefit of $0.0 million, with a corresponding effective tax rate of (0.4)%, as compared to recognizing a tax expense of $0.1 million during the three months ended March 31, 2024, for an effective tax rate of (2.3)%.

During the nine months ended March 31, 2025, the Company recognized a tax benefit of $0.1 million, with a corresponding effective tax rate of 6.2%, as compared to recognizing a tax benefit of $0.2 million, with a corresponding effective tax rate of 8.3% during the nine months ended March 31, 2024.

See Note 5 to the unaudited Condensed Consolidated Financial Statements.

Income from Discontinued Operations

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.

Income from discontinued operations decreased $0.1 million in the three months ended March 31, 2025.

Income from discontinued operations increased $6.3 million in the nine months ended March 31, 2025, 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 December 31, Six Months Ended December 31,

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

2025 2024 (Decrease) Increase (1) 2025 2024 (Decrease) Increase (1)

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

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

Three and Nine Months Ended March 31, 2025, Compared with Three and Nine Months Ended March 31, 2024

Franchise Revenue

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 revenue decreased $9.9 million and $22.1 million during the three and nine months ended March 31, 2025, respectively.

The decreases in franchise revenue during the three and nine months ended March 31, 2025, were primarily due to the decrease in franchise salon count and negative same-store sales, as well as lower franchise rental income and lower advertising fund revenues, which provide no contribution margin.

Franchise Adjusted EBITDA

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.

During the three months ended March 31, 2025, and 2024, franchise adjusted EBITDA increased $0.2 million to $6.3 million.

During the nine months ended March 31, 2025, franchise adjusted EBITDA totaled $20.7 million, a decrease of $0.6 million compared to the nine months ended March 31, 2024.

The decrease was primarily due to a decrease in royalties partially offset by a lower general and administration expense structure.

Company-Owned Salons

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

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

2025 2024 Increase (1) 2025 2024 Increase (1)

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

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

Three and Nine Months Ended March 31, 2025, Compared with Three and Nine Months Ended March 31, 2024

Company-Owned Salon Revenue

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

Company-owned salon revenue increased $17.7 million and $18.2 million during the three and nine months ended March 31, 2025, 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 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

In the three and nine months ended March 31, 2025, company-owned salon adjusted EBITDA improved $1.6 million and $2.8 million, respectively, primarily due to the Alline Acquisition, partially offset by the wind-down of underperforming company-owned stores.

LIQUIDITY AND CAPITAL RESOURCES

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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 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.

As of March 31, 2025, cash and cash equivalents were $13.3 million, with $12.1 million and $1.2 million within the United States and Canada, respectively.

As of March 31, 2025, the Company's borrowing arrangements include a $119.2 million term loan, $3.9 million of paid-in-kind interest and a $25.0 million revolving credit facility that matures in June 2029.

As of March 31, 2025, 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 $19.0 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 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.

As of March 31, 2025, 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 December 31, 2024, were lease commitments and interest payments.

The Company's most significant contractual cash requirements as of March 31, 2025, 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 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.

During the nine months ended March 31, 2025, cash provided by operating activities was $7.0 million compared to cash used in operating activities of $7.1 million during the nine months ended March 31, 2024.

Cash flows from operating activities improved year over year due primarily to our lower cost structure, less cash used for working capital, and lower cash interest.

Cash Flows from Investing Activities

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.

During the nine months ended March 31, 2025, cash used in investing activities of $10.9 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 nine months ended March 31, 2024, cash provided by investing activities of $1.6 million was primarily due to $2.0 million of OSP sale proceeds, partially offset by salon capital improvements.

Cash Flows from Financing Activities

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.

During the nine months ended March 31, 2025, cash provided by financing activities was $7.2 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 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.

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.

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, 2025, 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)

December 31, 2024 65.5 %

March 31, 2025 64.8 %

June 30, 2024 67.0 %

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In May 2000, the Board approved a stock repurchase program with no stated expiration date.

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.

Since that time and through March 31, 2025, 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 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.

During the nine months ended March 31, 2025, the Company did not repurchase any shares.

As of March 31, 2025, 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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the ability of the Company to maintain a satisfactory relationship with Walmart;

marketing efforts to drive traffic to our franchisees' salons;

marketing efforts to drive traffic to our franchisees' and company-owned salons;

our ability to maintain and enhance the value of our brands;

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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