What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-09-03 compared with 2024-08-28 · 81 added, 106 removed, 256 unchanged (42% of the section changed)

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See discussion within Part I, Item 1 of this Form 10-K.

As part of the Company's strategic transition to a fully franchised model, the Company sold salons to franchisees.

The impact of these transactions is as follows:

2024 2023 2022

(Dollars in thousands)

Salons sold to franchisees 10 1 110

Cash proceeds received $ — $ — $ —

Loss from sale of salon assets to franchisees, net $ — $ — $ (2,334)

In December 2024, the Company acquired the Alline Salon Group (the Alline Acquisition), its largest franchisee, consisting of 314 salons.

The transaction provides Regis with a turn-key operating infrastructure and gets the Company closer to salon operations alongside franchisees, and the salon portfolio provides a testing ground for brand and operational initiatives.

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

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

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

In fiscal year 2024, the Company received an additional $2.0 million of proceeds that had been previously held back for general indemnity provisions.

In fiscal year 2025, the Company expects additional proceeds related to salons migrating to Zenoti.

The Zenoti migration was successfully completed in early first quarter, fiscal year 2025.

In fiscal year 2025, the Company received $8.5 million in additional proceeds related to salons migrating to Zenoti.

The Zenoti migration was successfully completed in fiscal year 2025.

As a result of the sale, the Company classified the OSP business as discontinued operations in the financial statements as discussed in Note 3 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.

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This change has significantly decreased both the Company's franchise product revenue and general and administrative expense, including the franchise distribution costs discussed in Note 1 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.

In fiscal years 2024, 2023, and 2022, the Company experienced the following charges related to the exit of the distribution centers:

2024 2023 2022

Financial Statement Caption (Dollars in thousands)

Inventory reserve (1) Inventory reserve $ — $ 1,228 $ 7,655

Inventory valuation adjustment (2) Company-owned salon expense — — 2,823

____________________________________________________________________________

(1) Includes charges in the third and fourth quarter of fiscal year 2022 associated with the liquidation of distribution center inventory, which primarily related to reserving for personal protective equipment acquired as a result of the COVID-19 pandemic.

(2) Due to the reduction in company-owned salons, the Company cannot redistribute inventory from closed salons causing an increase to the reserve.

In fiscal year 2023, the Company experienced an inventory reserve charge of $1.2 million related to the exit of the distribution centers.

RESULTS OF OPERATIONS

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The global coronavirus pandemic (COVID-19) had an adverse impact on operations.

As a result, the Company received Canadian rent relief, Canadian wage relief, U.S.

employee retention payroll tax credits and a grant from the state of North Carolina.

In fiscal years 2024, 2023, and 2022, the Company received the following financial assistance:

2024 2023 2022

Financial Statement Caption (Dollars in thousands)

Canadian rent relief Rent $ — $ — $ 1,235

Canadian wage relief Company-owned salon expense — — 1,966

North Carolina COVID-19 grant Other, net — 1,106 —

Additionally, in December 2022, the Company paid $2.5 million of social security contributions that had been deferred under the CARES Act.

As a result, in fiscal year 2023, the Company received a $1.1 million grant from the state of North Carolina included in Other, net on the Consolidated Statements of Operations in Part II, Item 8, of this Form 10-K.

System-wide results

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

In fiscal year 2024, a net 404 franchise salons have closed, which reduces future royalty income.

In fiscal year 2025, a net 430 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:

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2025 2024 2023 2025 2024 2023 2025 2024

(Dollars in millions) % of Total Revenues (1) Increase (Decrease)

(Dollars in millions) % of Total Revenues (1) (Decrease) Increase

Royalties $ 58.2 $ 64.1 $ 66.0 27.7 % 31.6 % 28.4 % (390) 320

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Company-owned salon revenue 43.7 7.3 10.1 20.8 3.6 4.3 1,720 (70)

Cost of product sales to franchisees 0.4 3.5 17.4 80.0 125.0 115.2 (4,500) 980

Cost of product sales to franchisees — 0.4 3.5 N/A 80.0 125.0 N/A (4,500)

Inventory reserve — — 1.2 — — 0.5 — (50)

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Long-lived asset impairment 0.4 0.8 0.1 0.2 0.4 — (20) 40

Goodwill impairment — — 13.1 — — 4.7 — (470)

Operating income (loss) (2) 20.9 8.8 (28.9) 10.3 3.8 (10.5) 650 1,430

Operating income (2) 19.9 20.9 8.8 9.5 10.3 3.8 (80) 650

Interest expense (20.3) (25.4) (22.1) (9.7) (12.5) (9.5) 280 (300)

Loss from sale of salon assets to franchisees, net — — (2.3) — — (0.8) — 80

Gain on extinguishment of long-term debt, net — 94.6 — — 46.6 — N/A N/A

Other, net 1.8 (0.2) 1.4 0.9 (0.1) 0.6 100 (70)

Income tax (expense) benefit (3) (0.9) 0.7 (2.0) 1.0 5.5 (4.5) N/A N/A

Income (loss) from discontinued operations 2.0 4.0 (39.4) 1.0 1.7 (14.3) (70) 1,600

Income tax benefit (expense) (3) 115.5 (0.9) 0.7 55.0 1.0 5.5 N/A N/A

Income from discontinued operations 6.5 2.0 4.0 3.1 1.0 1.7 210 (70)

Net income (loss) (2) 123.5 91.1 (7.4) 58.8 44.9 (3.2) 1,390 4,810

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Fiscal Year Ended June 30, 2025, Compared with Fiscal Year Ended June 30, 2024

During fiscal year 2024, royalties decreased $1.9 million, or 2.9%, primarily due to a decrease in franchise salon count and unfavorable same store sales traffic.

This was partially offset by increased prices within our same store sales.

During fiscal year 2024, fees decreased $1.1 million, or 9.7%, primarily due to a decrease in terminated development agreements year over year.

During fiscal year 2025, royalties decreased $5.9 million, or 9.2%, mainly due to a decrease in franchise salon count primarily caused by franchise salon closures and the Alline Acquisition.

During fiscal year 2025, fees decreased $0.5 million, or 4.9%, primarily due to salon closures and lower rebate fees from franchise product vendors, offset partially by terminated franchise fees related to the acquisition of the Alline salons.

Product Sales to Franchisees

Product sales to franchisees decreased $2.3 million, or 82.1%, during fiscal year 2024, primarily due to the Company's shift in its product business to a third-party distribution model.

Product sales to franchisees decreased $0.5 million, or 100.0%, during fiscal year 2025, due to the Company's shift in its product business to a third-party distribution model.

Advertising Fund Contributions

Advertising fund contributions decreased $6.0 million, or 18.9%, during fiscal year 2024, primarily due to the decrease in franchise salon count and decrease in advertising fund contribution rates.

Advertising fund contributions decreased $3.8 million, or 14.8%, during fiscal year 2025, primarily due to the decrease in franchise salon count and a decrease in advertising fund contribution rates.

Franchise Rental Income

During fiscal year 2024, franchise rental income decreased $16.1 million, or 14.5%, primarily due to the decrease in franchise salon count.

During fiscal year 2025, franchise rental income decreased $18.7 million, or 19.6%, primarily due to the decrease in franchise salon count and franchisees signing their own leases.

Company-Owned Salon Revenue

During fiscal year 2024, company-owned salon revenue decreased $2.8 million, or 27.7%, due to the decrease in company-owned salon count, partially offset by the recognition of non-cash revenue related to a change in estimate for gift card breakage.

During fiscal year 2025, company-owned salon revenue increased $36.4 million, or 498.6%, due primarily to the Alline Acquisition.

Cost of Product Sales to Franchisees

Cost of product sales to franchisees decreased $3.1 million, or 88.6%, primarily due to the Company's shift in its product business to a third-party distribution model.

Cost of product sales to franchisees decreased $0.4 million, or 100.0%, as a result of the Company's shift in its product business to a third-party distribution model.

General and Administrative

The decrease of $5.4 million, or 10.6%, in general and administrative expense during fiscal year 2024 was primarily due to lower compensation resulting from headcount reductions, lower legal and professional fees and less technical education spend.

The decrease of $3.7 million, or 40.2%, in rent expense during fiscal year 2024 was primarily due to the net reduction in the number of company-owned salons.

The increase of $1.4 million, or 3.1%, in general and administrative expense during fiscal year 2025 was primarily due to acquisition related costs of $1.4 million, as well as operating expenses related to Alline, offset partially by company-wide cost saving measures.

The increase of $5.0 million, or 90.9%, in rent expense during fiscal year 2025 was primarily due to Alline Acquisition salon rent expense.

Advertising Fund Expense

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Franchise Rent Expense

During fiscal year 2024, franchise rent expense decreased $16.1 million, or 14.5%, primarily due to the decrease in franchise salon count.

During fiscal year 2025, franchise rent expense decreased $18.7 million, or 19.6%, primarily due to the decrease in franchise salon count and franchisees signing their own leases.

Company-Owned Salon Expense

Company-owned salon expense decreased $3.7 million, or 42.0%, during fiscal year 2024, primarily due to the reduction in company-owned salon count and a decline in product sales.

Company-owned salon expense increased $26.0 million, or 509.8%, during fiscal year 2025, as a result of the strategic Alline Acquisition.

Depreciation and Amortization

The decrease of $3.8 million, or 49.4%, in depreciation and amortization during fiscal year 2024 was primarily due to a $2.6 million accelerated depreciation charge in the second quarter of fiscal year 2023 related to the consolidation of office space within the Company's corporate headquarters, partially offset by accelerated depreciation charges in the fourth quarter of fiscal year 2024 related to further consolidation of office space within the corporate headquarters and the net reduction in company-owned salon count.

The decrease of $0.9 million, or 23.1%, in depreciation and amortization during fiscal year 2025 was primarily due to company-owned salon closures, partially offset by the Alline Acquisition.

Long-Lived Asset Impairment

The Company recorded long-lived asset impairment charges of $0.4 million and $0.8 million in fiscal years 2025 and 2024, respectively.

The increase in long-lived asset impairment was primarily due to more right-of-use assets being impaired in fiscal year 2024 resulting from subleasing excess corporate office space to unrelated third parties.

The decrease in long-lived asset impairment was primarily due to more right-of-use assets being impaired in fiscal year 2024 resulting from subleasing excess corporate office space to unrelated third parties.

Interest Expense

The $3.3 million increase in interest expense during fiscal year 2024 was primarily due to a higher weighted average interest rate on outstanding borrowings.

The $5.1 million decrease in interest expense during fiscal year 2025 was primarily due to less debt outstanding.

Gain on Extinguishment of Long-Term Debt, Net

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Additionally, the net gain includes the write off of paid-in-kind interest accruals and the write off of unamortized debt financing fees.

Other, net declined $1.6 million in fiscal year 2024, primarily due to a $1.1 million grant received from the state of North Carolina related to COVID-19 relief and a class action settlement in fiscal year 2023.

Income Tax (Expense) Benefit

During fiscal year 2024, the Company recognized an income tax expense of $0.9 million, with a corresponding effective tax rate of 1.0%, compared to recognizing an income tax benefit of $0.7 million, with a corresponding effective tax rate of 5.5% during fiscal year 2023.

Other, net improved $2.0 million in fiscal year 2025, primarily due to unclaimed property and corporate office sublease income.

Income Tax Benefit (Expense)

During fiscal year 2025, the Company recognized an income tax benefit of $115.5 million with a corresponding effective tax rate of (7,519.3)% primarily due to the partial release of the valuation allowance on our deferred tax assets, compared to recognizing an income tax expense of $0.9 million, with a corresponding effective tax rate of 1.0% during fiscal year 2024.

See Note 10 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.

Income (Loss) from Discontinued Operations

The Company recorded income from discontinued operations of $2.0 million and $4.0 million in fiscal years 2024 and 2023, respectively.

Income in fiscal year 2024 is primarily due to the receipt of $2.0 million sales proceeds related to the sale of OSP that had previously been held back for general indemnity provisions.

Income in fiscal year 2023 is primarily due to the receipt of $5.0 million sales proceeds offset by a $0.5 million transaction fee and other expenses from the sale of OSP.

Income from Discontinued Operations, net of tax

The Company recorded income from discontinued operations, net of tax of $6.5 million and $2.0 million in fiscal years 2025 and 2024, respectively.

Income in fiscal year 2025 is due to proceeds from the sale of OSP related to the number of salons migrating to the Zenoti platform, partially offset by a non-cash income tax expense allocated to discontinued operations, and income in fiscal year 2024 is due to the receipt of sales proceeds related to the sale of OSP that had previously been held back for general indemnity provisions.

See Note 3 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.

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2025 2024 2023 2025 2024

(Dollars in millions) Increase (Decrease) (1)

(Dollars in millions) (Decrease) Increase (1)

Royalties $ 58.2 $ 64.1 $ 66.0 $ (5.9) $ (1.9)

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Franchise revenue decreased $29.3 million during fiscal year 2025.

The decrease in franchise revenue was primarily due to the decrease in franchise rental income and advertising fund collections as a result of lower salon count and the decrease in product sales to franchisees due to the Company's shift to a third-party distributor model.

During fiscal year 2024, franchisees purchased 10 salons from the Company and constructed (net of relocations) and closed 15 and 429 franchise salons, respectively.

The decrease in franchise revenue was primarily due to the decrease in franchise rental income, royalties, and advertising fund collections as a result of lower salon count, primarily driven by the Alline portfolio moving to the Company-owned segment.

During fiscal year 2025, franchisees constructed (net of relocations) and closed 18 and 448 franchise salons, respectively.

Franchise Adjusted EBITDA

During fiscal year 2025, franchise adjusted EBITDA totaled $28.4 million, an improvement of $0.6 million compared to fiscal year 2024.

The improvement is primarily due to a decrease in general and administrative expense.

The improvement is primarily due to a decrease in general and administrative expense, partially offset by lower royalties and fees.

Company-Owned Salons

2025 2024 2023 2025 2024

(Dollars in millions) (Decrease) Increase (1)

(Dollars in millions) Increase (Decrease) (1)

Total revenue $ 43.7 $ 7.3 $ 10.1 $ 36.4 $ (2.8)

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Company-Owned Salon Revenue

Company-owned salon revenue declined $2.8 million in fiscal year 2024, primarily due to the closure of loss-generating company-owned salons, partially offset by the recognition of non-cash revenue of $1.3 million due to a change in estimate related to gift card breakage.

Company-owned salon revenue improved $36.4 million in fiscal year 2025, primarily due to the Alline Acquisition, partially offset by the closure of loss-generating company-owned salons.

Company-Owned Salon Adjusted EBITDA

During fiscal year 2024, company-owned salon adjusted EBITDA improved $1.5 million, primarily due to a change in estimate related to gift card breakage in addition to the closure of unprofitable salons.

Fiscal year 2023 also benefited from a $1.1 million grant received from the state of North Carolina related to COVID-19 relief.

During fiscal year 2025, company-owned salon adjusted EBITDA improved $3.5 million, primarily due to the Alline Acquisition, partially offset by the wind-down of underperforming company-owned stores.

Recent Accounting Pronouncements

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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.

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, of which the latter two are not tested until September 30, 2024.

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 2024 Credit Agreement).

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 (the December 2024 Amendment).

See Note 8 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.

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As of June 30, 2025, cash and cash equivalents were $17.0 million, with $16.0 million and $1.0 million within the United States and Canada, respectively.

As of June 30, 2024, the Company's borrowing arrangements include a $105.0 million term loan and a $25.0 million revolving credit facility with a $10.0 million minimum liquidity covenant that expires in June 2029.

As of June 30, 2025, the Company's borrowing arrangements include a $118.9 million term loan, $5.4 million of paid-in-kind interest, and a $25.0 million revolving credit facility with a $10.0 million minimum liquidity covenant that expires in June 2029.

As of June 30, 2025, the unused available credit under the revolving credit facility was $19.0 million and total liquidity per the agreement was $25.9 million.

See additional discussion under Financing Arrangements and Note 8 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.

In February 2021, the Company filed a $150.0 million shelf registration and $50.0 million prospectus supplement with the Securities and Exchange Commission under which it had the ability to offer and sell, from time to time, up to $50.0 million worth of its common stock in "at-the-market" offerings.

In fiscal year 2022, 464,781 shares were issued for $38.4 million under the prospectus.

During fiscal years 2023 and 2024, the Company did not issue any shares under this prospectus.

The share issuance program expired on February 10, 2024.

The Company closely manages its liquidity and capital resources.

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Cash Flows from Operating Activities

During fiscal year 2024, cash used in operating activities was $2.0 million.

Cash used in operations improved due to lower general and administrative expense and less cash used for working capital.

Cash used in fiscal year 2023 included a $2.5 million payment of previously deferred social security contributions.

During fiscal year 2025, cash provided by operating activities was $13.7 million.

Cash provided by operations improved year over year due primarily to an $8.4 million build in restricted ad fund cash, our lower cost structure, less cash used for working capital, and lower cash interest.

Cash Flows from Investing Activities

During fiscal year 2024, cash provided by investing activities of $1.6 million was primarily related to $2.0 million received related to the sale of OSP.

During fiscal year 2025, cash used in investing activities of $11.5 million was primarily related to $18.6 million used in the Alline Acquisition, partially offset by $8.5 million received related to the sale of OSP.

Cash Flows from Financing Activities

During fiscal year 2024, cash provided by financing activities of $8.4 million was primarily a result of cash proceeds from the June 2024 credit agreement, offset by repayment of long-term debt and debt refinancing fees.

During fiscal year 2025, cash provided by financing activities of $3.6 million was primarily a result of proceeds from issuance of long-term debt, partially offset by net payments on the revolving credit facility.

Financing Arrangements

Financing activities are discussed in Note 8 and Note 16 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.

Financing activities are discussed in Note 8 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.

Derivative activities are discussed in Part II, Item 7A, "Quantitative and Qualitative Disclosures about Market Risk."

The Company's financing arrangements consist of the following:

Twelve months ended

Twelve months ended June 30,

2025 2024 2025 2024

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Term loan (1) 9.14% 9.68% $ 118,875 $ 105,000

9.68% 9.54% $ 105,000 $ 172,268

Deferred financing fees (12,174) (14,244)

(14,244) (6,471)

Paid-in-kind interest 5,376 53

Term loan, net 112,077 90,809

90,756 165,797

Revolving credit facility (1) 9.14% 9.68% 1,030 10,237

9.68% 9.54% 10,237 10,000

Paid-in-kind interest

Fair value of warrants issued to lenders (Note 14)

Total long-term debt, net

$ 99,545 $ 176,830

Fair value of warrants issued to lenders (2,314) (1,501)

Total debt, net $ 110,793 $ 99,545

Long-term debt, current portion (1,100) —

Long-term debt, net $ 109,693 $ 99,545

_______________________________________________________________________________

(1) June 30, 2023 term loan and revolving credit facility had a maturity date of August 31, 2025.

(2) June 30, 2024 term loan and revolving credit facility matures on June 24, 2029.

In June 2024, the Company entered into a new credit agreement between TCW Asset Management Company, LLC, and MidCap Financial Trust Company for a $25.0 million revolving credit facility, in addition to a term loan of $105.0 million with a $10.0 million minimum liquidity covenant that expires in June 2029.

The agreement includes typical provisions and financial covenants, including leverage and fixed-charge coverage ratio covenants, of which the latter two are not tested until September 30, 2024.

As of June 30, 2024, the unused available credit under the revolving credit facility was $9.8 million and total liquidity per the agreement was $19.9 million.

The interest rate on the new agreement is based on secured overnight financing rate (SOFR) plus margin.

(1) The term loan and revolving credit facility mature on June 24, 2029.

In June 2024, the Company entered into a new credit agreement between TCW Asset Management Company, LLC, and MidCap Financial Trust Company which includes a $25.0 million revolving credit facility, a term loan of $105.0 million with a $10.0 million minimum liquidity covenant that expires in June 2029.

On December 19, 2024, the Company amended the 2024 Credit Agreement for an additional $15.0 million term loan.

The 2024 Credit Agreement, as amended, includes typical provisions and financial covenants, including leverage and fixed-charge coverage ratio covenants.

As of June 30, 2025, the unused available credit under the revolving credit facility was $19.0 million, outstanding letters of credit were $6.0 million, and total liquidity per the agreement was $25.9 million.

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

The agreement utilizes an interest rate margin that is subject to change year-over-year.

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

The decrease in the debt to capitalization ratio as of June 30, 2024, compared to June 30, 2023, was primarily due to extinguishment of long term debt during fiscal year 2024.

The decrease in the debt to capitalization ratio as of June 30, 2025, compared to June 30, 2024, was primarily due to higher total shareholder's equity as of June 30, 2025, as a result of earnings during the 2025 period.

Contractual Obligations and Commercial Commitments

On-Balance Sheet Obligations

Our debt obligations are primarily composed of our credit agreement at June 30, 2024.

Our debt obligations are primarily composed of our 2024 Credit Agreement, as amended, at June 30, 2025.

Non-current deferred benefits of $5.6 million includes $1.6 million related to a non-qualified deferred salary plan, a salary deferral program of $1.6 million and a bonus deferral plan of $2.4 million related to established contractual payment obligations under retirement and severance agreements for a small number of employees.

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Off-Balance Sheet Arrangements

Under the credit agreement entered into in June 2024, the margin applicable to any letter of credit is 5.25% and is paid currently in cash.

Under the 2024 Credit Agreement, as amended, the margin applicable to any letter of credit is 5.25% and is paid currently in cash.

See Note 8 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.

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The Company has not declared a quarterly dividend payment since December 2013.

Share Issuance Program

In fiscal year 2022, 464,781 shares were issued for $38.4 million under the prospectus.

During fiscal years 2023 and 2024, the Company did not issue any shares under this prospectus.

The share issuance program expired on February 10, 2024.

Share Repurchase Program

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All repurchased shares become authorized but unissued shares of the Company.

The timing and amounts of any repurchases depends on many factors, including the market price of the common stock and overall market conditions.

The timing and amounts of any repurchases depend on many factors, including the market price of the common stock and overall market conditions.

During fiscal year 2025, the Company did not repurchase shares.

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We believe the following accounting policies are most critical to aid in fully understanding and evaluating our reported financial condition and results of operations.

As of June 30, 2024, and 2023, the franchise reporting unit had $173.1 million and $173.8 million of goodwill, respectively, and the company-owned segment had no goodwill at either period.

As of June 30, 2025, and 2024, the franchise reporting unit had $173.2 million and $173.1 million of goodwill, respectively, and the company-owned segment had $10.3 million goodwill relating to the Alline Acquisition as of June 30, 2025.

See Note 5 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.

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The Company has a valuation allowance on its deferred tax assets amounting to $60.5 million and $181.8 million at June 30, 2025, and 2024, respectively.

The decline in fiscal year 2024 is primarily due to utilization of its U.S.

net operating loss and a reduction to the corresponding valuation allowance.

If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make necessary adjustments to the deferred tax asset valuation, which would reduce the provision for income taxes.

Significant changes to the valuation allowance that occurred during fiscal year 2025 are as follows:

• We have determined that it is more likely than not that the majority of our U.S.

federal and state deferred tax assets will be realizable as of June 30, 2025.

In determining the need, or continued need, for a valuation allowance, we considered the weighting of the positive and negative evidence, which includes, among other things, recent historical income and losses, future growth, forecasted earnings and expected future taxable income.

As of June 30, 2025, we achieved three years of cumulative U.S.

income when considering pre-tax income adjusted for permanent differences and other comprehensive losses.

Based on all available positive and negative evidence, having demonstrated sustained profitability, which is objective and verifiable, and taking into account anticipated future earnings, we concluded that it is more likely than not that the majority of our U.S.

federal and state deferred tax assets will be realizable.

As such, we released $110.2 million of our valuation allowance associated with the U.S.

federal and state deferred tax assets.

A valuation allowance will remain on certain U.S.

tax credit carryforwards and state deferred tax assets in which we have concluded that it is more likely than not that they will expire unused.

• We have determined that it is more likely than not that a portion of our Canadian deferred tax assets will be realizable as of June 30, 2025, and released $6.1 million of our Canadian valuation allowance.

The Company reserves for unrecognized tax benefits, interest, and penalties related to anticipated tax audit positions in the U.S.

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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-K

Item 7. Management’s Discussion and Analysis