截至2022年6月30日，公司已將其Opensalon® Pro (OSP) 軟件即服務解決方案出售給了Soham, Inc. 由於這一出售，公司將OSP業務分類爲基本報表中所有報告期的終止運營。在截至2024年9月30日的三個月內，公司收到了$957 千的收益，涉及遷移到Soham的Zenoti產品的沙龍數量。根據所得稅指南中所要求的方法，終止運營未分配任何所得稅。運營提供的現金包括$957 千來自終止運營的現金。
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.
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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.
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.
Depreciation and Amortization
Depreciation and amortization remained unchanged during the three months ended September 30, 2024.
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.
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
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. 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. See Note 3 to the unaudited Condensed Consolidated Financial Statements.
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Results of Operations by Segment
Based on our internal management structure, we report two segments: franchise and company-owned salons. See Note 12 to the unaudited Condensed Consolidated Financial Statements. Significant results of continuing operations are discussed below with respect to each of these segments.
(1)Total is a recalculation; line items calculated individually may not sum to total due to rounding.
(2)Franchise same-store sales are calculated as the total change in sales for franchise locations that were open on a specific day of the week during the current period and the corresponding prior period. Quarterly franchise same-store sales are the sum of the franchise same-store sales computed on a daily basis. Franchise salons that do not report daily sales are excluded from same-store sales. Franchise same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation.
Three Months Ended September 30, 2024, Compared with Three Months Ended September 30, 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 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.
(1)Total is a recalculation; 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
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 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.
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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.
Sources of Liquidity
Funds generated by operating activities, available cash and cash equivalents and our credit agreement are our most significant sources of liquidity. The Company believes it has sufficient liquidity, cash on hand and borrowing capacity to meet its obligations in the next twelve months and until maturity of the credit agreement in 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. 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.
Uses of Cash
The Company closely manages its liquidity and capital resources. The Company's liquidity requirements depend on key variables, including the performance of the business, the level of investment needed to support its business strategies, credit facilities and borrowing arrangements, and working capital management.
Cash Requirements
The Company's most significant contractual cash requirements as of September 30, 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.
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Cash Flows
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.
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.
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.
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.
Debt to Capitalization Ratio
Our debt to capitalization ratio, calculated as the principal amount of debt, including paid-in-kind interest accrued, as a percentage of the principal amount of debt and shareholders' equity (deficit) at fiscal quarter end, was as follows:
(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. 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. The Company does not anticipate repurchasing shares of common stock for the foreseeable future.
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SAFE HARBOR PROVISIONS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Quarterly Report on Form 10-Q, as well as information included in, or incorporated by reference from, future filings by the Company with the Securities and Exchange Commission and information contained in written material, press releases and oral statements issued by or on behalf of the Company contains or may contain "forward-looking statements" within the meaning of the federal securities laws, including statements concerning anticipated future events and expectations that are not historical facts. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements in this document reflect management's best judgment at the time they are made, but all such statements are subject to numerous risks and uncertainties, which could cause actual results to differ materially from those expressed in or implied by the statements herein. Such forward-looking statements are often identified herein by use of words including, but not limited to, "may," "will," "believe," "project," "forecast," "expect," "estimate," "anticipate," and "plan." These uncertainties include a potential material adverse impact on our business and results of operations as a result of changes in consumer shopping trends and changes in manufacturer distribution channels; laws and regulations could require us to modify current business practices and incur increased costs including increases in minimum wages; changes in general economic environment; changes in consumer tastes, hair product innovation, fashion trends and consumer spending patterns; compliance with Nasdaq listing requirements; reliance on franchise royalties and overall success of our franchisees’ salons; our salons' dependence on a third-party supplier agreement for merchandise; our franchisees' ability to attract, train and retain talented stylists and salon leaders; the success of our franchisees, which operate independently; data security and privacy compliance and our ability to manage cyber threats and protect the security of potentially sensitive information about our guests, franchisees, employees, vendors or Company information; the ability of the Company to maintain a satisfactory relationship with Walmart; marketing efforts to drive traffic to our franchisees' salons; our ability to maintain and enhance the value of our brands; reliance on legacy information technology systems; reliance on external vendors; the use of social media; the effectiveness of our enterprise risk management program; ability to generate sufficient cash flow to satisfy our debt service obligations; compliance with covenants in our financing arrangement; premature termination of agreements with our franchisees; the continued ability of the Company to implement cost reduction initiatives and achieve expected cost savings; continued ability to compete in our business markets; reliance on our management team and other key personnel; the continued ability to maintain an effective system of internal control over financial reporting; changes in tax exposure; the ability of our Tax Preservation Plan to protect the future availability of the Company's tax assets; potential litigation and other legal or regulatory proceedings; or other factors not listed above. Additional information concerning potential factors that could affect future financial results is set forth under Item 1A on Form 10-K. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, your attention is directed to any further disclosures made in our subsequent annual and periodic reports filed or furnished with the SEC on Forms 10-K, 10-Q, and 8-K and Proxy Statements on Schedule 14A.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk from changes in interest rates and changes in foreign currency exchange rates. There has been no material change to the factors discussed within Part II, Item 7A in the Company's June 30, 2024, Annual Report on Form 10-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in the reports filed or submitted under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate, to allow timely decisions regarding required disclosure. Management, with the participation of the CEO and CFO, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act), at the end of the period. Based on their evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2024.
Changes in Internal Control Over Financial Reporting
There were no material changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a defendant in various lawsuits and claims arising out of the normal course of business. Like certain other franchisors, the Company has been faced with allegations of franchise regulation and agreement violations. Additionally, because the Company may be the tenant under a master lease for a location subleased to a franchisee, the Company faces allegations of non-payment of rent and associated charges. Litigation is inherently unpredictable, and the outcome of these matters cannot presently be determined. Although the actions are being vigorously defended, the Company could, in the future, incur judgments or enter into settlements of claims that could have a material adverse effect on its results of operations in any particular period.
Item 1A. Risk Factors
There have been no material changes in our risk factors from those disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2024.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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. All repurchased shares become authorized but unissued shares of the Company. The Company last purchased shares in fiscal year 2020. As of September 30, 2024, a total accumulated 1.5 million shares have been repurchased for $595.4 million. At September 30, 2024, $54.6 million remain outstanding under the approved stock repurchase program. The Company does not expect to repurchase shares in fiscal year 2025.
Item 5. Other Information
During the three months ended September 30, 2024, no director or officer of the Company adopted, modified, or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K.
Certificate of Designation of Series A Junior Participating Preferred Stock (Incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K filed on January 30, 2024.)
Tax Benefits Preservation Plan, dated as of January 29, 2024, between Regis Corporation and Equiniti Trust Company, LLC (which includes the Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock of Regis Corporation as Exhibit A to the Plan, the Form of Rights Certificate as Exhibit B to the Plan, and the Summary of Rights to Purchase Series A Junior Participating Preferred Stock as Exhibit C to the Plan) (Incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K filed on January 30, 2024.)
Chief Executive Officer and Chief Financial Officer of Regis Corporation: Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 101
The following financial information from Regis Corporation's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2024, formatted in Inline Xtensible Business Reporting Language (iXBRL) and filed electronically herewith: (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Operations; (iii) the Condensed Consolidated Statements of Comprehensive (Loss) Income; (iv) the Condensed Consolidated Statements of Shareholders' Equity (Deficit); (v) the Condensed Consolidated Statements of Cash Flows; and (vi) the Notes to Condensed Consolidated Financial Statements.
Exhibit 104
The cover page from Regis Corporation's Quarterly Report on Form 10-Q for the quarterly and year-to-date period ended September 30, 2024, formatted in iXBRL (included as Exhibit 101).
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: November 6, 2024
By:
/s/ KERSTEN D. ZUPFER
Kersten D. Zupfer,
Executive Vice President and Chief Financial Officer