Regis (RGS) - 2020 Q1 - Quarterly Report

Part I. Financial Information This section provides the unaudited condensed consolidated financial statements and management's analysis of financial condition Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements and detailed notes on accounting policies and segment information Condensed Consolidated Balance Sheet This section provides a snapshot of the company's financial position, detailing assets, liabilities, and shareholders' equity Condensed Consolidated Balance Sheet (Thousands USD) | ASSETS | September 30, 2019 (Thousands USD) | June 30, 2019 (Thousands USD) | | :------------------------ | :-------------------------------- | :----------------------------- | | Cash and cash equivalents | $58,902 | $70,141 | | Total current assets | $194,454 | $210,822 | | Property and equipment, net | $71,442 | $78,090 | | Goodwill | $313,251 | $345,718 | | Right of use asset (Note 10) | $930,784 | — | | Total assets | $1,556,717 | $682,837 | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | Total current liabilities | $276,867 | $128,283 | | Long-term debt, net | $90,000 | $90,000 | | Long-term lease liability (Note 10) | $781,134 | — | | Total liabilities | $1,272,978 | $358,592 | | Total shareholders' equity | $283,739 | $324,245 | | Total liabilities and shareholders' equity | $1,556,717 | $682,837 | - Total assets significantly increased from $682.8 million to $1,556.7 million, primarily due to the recognition of Right of Use assets upon adoption of new lease accounting standards[10] - Total liabilities increased from $358.6 million to $1,273.0 million, mainly driven by the new lease liabilities recognized[10] Condensed Consolidated Statement of Operations This section details the company's financial performance, including revenues, operating results, and net loss for the period Condensed Consolidated Statement of Operations (Thousands USD) | Item | Three Months Ended September 30, 2019 (Thousands USD) | Three Months Ended September 30, 2018 (Thousands USD) | | :----------------------------------- | :--------------------------------------------------- | :--------------------------------------------------- | | Revenues: | | | | Service | $141,941 | $207,848 | | Product | $45,656 | $57,591 | | Royalties and fees | $28,017 | $22,396 | | Franchise rental income (Note 10) | $31,424 | — | | Total Revenues | $247,038 | $287,835 | | Operating (loss) income | $(9,906) | $3,429 | | Loss from continuing operations before income taxes | $(17,034) | $(1,177) | | Income tax benefit | $2,856 | $714 | | Loss from continuing operations | $(14,178) | $(463) | | Income (loss) from discontinued operations, net of income taxes (Note 3) | $373 | $(264) | | Net loss | $(13,805) | $(727) | | Net loss per share (Basic and Diluted) | $(0.38) | $(0.02) | - Total revenues decreased by $40.8 million (14.2%) year-over-year, from $287.8 million in Q3 2018 to $247.0 million in Q3 2019[11][89] - The company shifted from an operating income of $3.4 million in Q3 2018 to an operating loss of $(9.9) million in Q3 2019[11] - Net loss significantly increased from $(0.7) million in Q3 2018 to $(13.8) million in Q3 2019[11] Condensed Consolidated Statement of Comprehensive (Loss) Income This section presents the company's net loss and other comprehensive income components, leading to total comprehensive (loss) income Condensed Consolidated Statement of Comprehensive (Loss) Income (Thousands USD) | Item | Three Months Ended September 30, 2019 (Thousands USD) | Three Months Ended September 30, 2018 (Thousands USD) | | :----------------------------------- | :--------------------------------------------------- | :--------------------------------------------------- | | Net loss | $(13,805) | $(727) | | Foreign currency translation adjustments | $(403) | $1,081 | | Comprehensive (loss) income | $(14,208) | $354 | - Comprehensive income shifted from a gain of $354 thousand in Q3 2018 to a loss of $(14.2) million in Q3 2019[14] Condensed Consolidated Statement of Shareholders' Equity This section outlines changes in shareholders' equity, including net loss and stock repurchase activities Condensed Consolidated Statement of Shareholders' Equity (Thousands USD) | Item | Balance, June 30, 2019 (Thousands USD) | Balance, September 30, 2019 (Thousands USD) | | :-------------------------- | :------------------------------------ | :--------------------------------------- | | Total Shareholders' Equity | $324,245 | $283,739 | | Net loss | — | $(13,805) | | Stock repurchase program | — | $(26,356) | - Total shareholders' equity decreased by $40.5 million from $324.2 million at June 30, 2019, to $283.7 million at September 30, 2019[16] - The company repurchased $26.4 million of common stock during the three months ended September 30, 2019[16][48] Condensed Consolidated Statement of Cash Flows This section details cash inflows and outflows from operating, investing, and financing activities for the period Condensed Consolidated Statement of Cash Flows (Thousands USD) | Cash Flow Activity | Three Months Ended September 30, 2019 (Thousands USD) | Three Months Ended September 30, 2018 (Thousands USD) | | :----------------------------------- | :--------------------------------------------------- | :--------------------------------------------------- | | Net cash used in operating activities | $(13,480) | $(17,164) | | Net cash provided by investing activities | $32,027 | $25,781 | | Net cash used in financing activities | $(30,303) | $(21,255) | | Decrease in cash, cash equivalents, and restricted cash | $(11,753) | $(12,250) | | End of period cash, cash equivalents, and restricted cash | $80,626 | $136,524 | - Net cash used in operating activities decreased by $3.7 million, from $(17.2) million in Q3 2018 to $(13.5) million in Q3 2019[18][123] - Net cash provided by investing activities increased by $6.2 million, from $25.8 million in Q3 2018 to $32.0 million in Q3 2019, primarily due to proceeds from salon asset sales[18][124] - Net cash used in financing activities increased by $9.0 million, from $(21.3) million in Q3 2018 to $(30.3) million in Q3 2019, mainly due to common stock repurchases[18][125] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of the accounting policies, significant estimates, and specific financial statement line items 1. Basis of Presentation and Significant Accounting Policies This section outlines the basis of financial statement presentation and key accounting policies, including recent standard adoptions - The company adopted ASU 2016-02, 'Leases (Topic 842)' on July 1, 2019, using the modified retrospective method, resulting in the recognition of a Right of Use Asset of $980.8 million and a Lease Liability of $993.7 million[29][30] Goodwill (Millions USD) | Goodwill (Millions USD) | September 30, 2019 | June 30, 2019 | | :--------------------- | :----------------- | :------------ | | Franchise reporting unit | $227.8 | $227.9 | | Company-owned reporting unit | $85.4 | $117.8 | - Non-current assets held for sale, representing the corporate headquarters land and buildings, totaled $5.276 million as of September 30, 2019[28] 2. Revenue Recognition This section details the company's revenue streams and recognition policies, including the impact of new accounting standards - Franchise rental income of $31.4 million was recognized in Q3 2019 due to the adoption of Topic 842, which now requires gross presentation of these revenues[31][34] Revenue Type (Thousands USD) | Revenue Type (Thousands USD) | Q3 2019 Franchise | Q3 2019 Company-owned | Q3 2018 Franchise | Q3 2018 Company-owned | | :-------------------------- | :---------------- | :-------------------- | :---------------- | :-------------------- | | Service | — | $141,941 | — | $207,848 | | Product | $13,105 | $32,551 | $15,629 | $41,962 | | Royalty and other franchise fees | $17,592 | — | $14,420 | — | | Advertising fund fees | $10,425 | — | $7,976 | — | | Franchise rental income | $31,424 | — | — | — | | Total Revenue | $72,546 | $174,492 | $38,025 | $249,810 | Estimated Future Revenue from Deferred Franchise Fees (Open Salons, Thousands USD) | Estimated Future Revenue from Deferred Franchise Fees (Open Salons, Thousands USD) | | :---------------------------------------------------------------- | | Remainder of 2020 | $3,327 | | 2021 | $4,498 | | 2022 | $4,378 | | 2023 | $4,202 | | 2024 | $3,967 | | Thereafter | $12,922 | | Total | $33,294 | 3. TBG Restructuring and Discontinued Operations This section discusses restructuring charges related to TBG and the financial impact of discontinued operations - The company recorded $1.5 million in TBG restructuring charges in Q3 2019 to assist The Beautiful Group (TBG) with operating expenses and mitigate default risk on TBG's lease obligations[39][101] - Regis Corporation remains liable for up to $35 million associated with remaining TBG salon lease commitments[40] Income (Loss) from Discontinued Operations (Thousands USD) | Item | Three Months Ended September 30, 2019 (Thousands USD) | Three Months Ended September 30, 2018 (Thousands USD) | | :----------------------------------- | :--------------------------------------------------- | :--------------------------------------------------- | | Income (loss) from discontinued operations, net of income taxes | $373 | $(264) | 4. Earnings Per Share This section presents the basic and diluted earnings per share calculations, including the impact of discontinued operations Earnings Per Share | Item | Three Months Ended September 30, 2019 | Three Months Ended September 30, 2018 | | :----------------------------------- | :------------------------------------ | :------------------------------------ | | Loss from continuing operations | $(0.39) | $(0.01) | | Income (loss) from discontinued operations | $0.01 | $(0.01) |\n| Net loss per share (Basic and Diluted) | $(0.38) | $(0.02) | | Weighted average common and common equivalent shares outstanding | 36,249 | 44,730 | - 902,478 common stock equivalents were excluded from diluted EPS calculations in Q3 2019 due to the net loss from continuing operations[42] 5. Shareholders' Equity This section details changes in shareholders' equity, including stock-based compensation and share repurchase activities Shareholders' Equity (Thousands USD) | Item | Three Months Ended September 30, 2019 (Thousands USD) | Three Months Ended September 30, 2018 (Thousands USD) | | :-------------------------- | :--------------------------------------------------- | :--------------------------------------------------- | | Stock-based compensation | $1,807 | $2,335 | | Stock repurchase program | $(26,356) | $(19,337) | - The company repurchased 1.5 million shares for $26.4 million in Q3 2019, compared to 1.1 million shares for $19.3 million in Q3 2018[48] - $54.6 million remains outstanding under the approved stock repurchase program as of September 30, 2019[48] 6. Income Taxes This section provides information on income tax benefits and the effective tax rate, highlighting factors influencing tax expense Income Taxes (Thousands USD) | Item | Three Months Ended September 30, 2019 (Thousands USD) | Three Months Ended September 30, 2018 (Thousands USD) | | :----------------- | :--------------------------------------------------- | :--------------------------------------------------- | | Income tax benefit | $2,856 | $714 | | Effective tax rate | 16.8% | 60.7% | - The effective tax rate decreased significantly from 60.7% in Q3 2018 to 16.8% in Q3 2019, primarily due to the impact of the deferred tax valuation allowance and global intangible low-taxed income (GILTI)[49] 7. Commitments and Contingencies This section outlines the company's legal commitments and potential liabilities from ongoing lawsuits and claims - The company is a defendant in various lawsuits and claims, including allegations of class-wide consumer and wage and hour violations, with outcomes that are inherently unpredictable and could have a material adverse effect on results of operations[51] 8. Cash, Cash Equivalents, and Restricted Cash This section details the composition of cash and cash equivalents, including restricted cash balances and their purposes Cash, Cash Equivalents, and Restricted Cash (Thousands USD) | Item | September 30, 2019 (Thousands USD) | June 30, 2019 (Thousands USD) | | :----------------------------------- | :-------------------------------- | :----------------------------- | | Cash and cash equivalents | $58,902 | $70,141 | | Restricted cash, included in other current assets | $21,724 | $22,238 | | Total cash, cash equivalents and restricted cash | $80,626 | $92,379 | - Restricted cash primarily relates to consolidated advertising cooperatives funds and contractual obligations to collateralize the company's self-insurance programs[52] 9. Goodwill and Other Intangibles This section provides details on goodwill and other intangible assets, including changes from derecognition events Goodwill, net (Thousands USD) | Goodwill, net (Thousands USD) | Franchise | Company-owned | Consolidated | | :--------------------------- | :-------- | :------------ | :----------- | | At June 30, 2019 | $227,928 | $117,790 | $345,718 |\n| Derecognition related to sale of salon assets to franchisees | — | $(32,083) | $(32,083) | | At September 30, 2019 | $227,843 | $85,408 | $313,251 | - Goodwill derecognition of $32.1 million was primarily due to the sale of salon assets to franchisees[53] Other Intangible Assets (Net, Thousands USD) | Other Intangible Assets (Net, Thousands USD) | September 30, 2019 | June 30, 2019 | | :------------------------------------------ | :----------------- | :------------ | | Brand assets and trade names | $3,169 | $3,250 | | Franchise agreements | $1,633 | $1,726 | | Lease intangibles | $3,254 | $3,425 | | Other | $360 | $360 |\n| Total | $8,416 | $8,761 | 10. Right of Use Asset and Lease Liabilities This section details the company's Right of Use assets and lease liabilities, reflecting the adoption of new lease accounting standards - The weighted average remaining lease term for salon operating leases was 6.87 years, with a weighted-average discount rate of 3.95% as of September 30, 2019[57] Future Operating Lease Commitments (Thousands USD) | Future Operating Lease Commitments (Thousands USD) | | :------------------------------------------------ | | Total future obligations | $1,077,965 | | Less amount representing interest | $135,424 | | Present value of lease liabilities | $942,541 | | Less: current lease liabilities | $161,407 | | Long-term lease liabilities | $781,134 | - A new corporate headquarters lease, commencing October 1, 2019, with total expected payments of $13.5 million over 10.75 years, is not yet reflected in the tables[58] 11. Financing Arrangements This section outlines the company's long-term debt and financing liabilities, including available credit and covenant compliance Long-term Debt (Thousands USD) | Long-term Debt (Thousands USD) | September 30, 2019 | June 30, 2019 | | :---------------------------- | :----------------- | :------------ | | Revolving credit facility | $90,000 | $90,000 | - The company had $183.5 million of unused available credit under its $295.0 million revolving credit facility as of September 30, 2019[59] Long-term Financing Liabilities (Thousands USD) | Long-term Financing Liabilities (Thousands USD) | September 30, 2019 | June 30, 2019 | | :--------------------------------------------- | :----------------- | :------------ | | Financial liability- Salt Lake City Distribution Center | $17,187 | $17,354 | | Financial liability- Chattanooga Distribution Center | $11,532 | $11,556 | | Total Long-term financing liability | $28,719 | $28,910 | - The company was in compliance with all covenants and requirements of its financing arrangements as of and during the three months ended September 30, 2019[63] 12. Fair Value Measurements This section discusses the fair value of financial instruments and reports on impairments of long-lived assets - The estimated fair value of the company's cash, cash equivalents, restricted cash, receivables, accounts payable, debt, and long-term financial liabilities approximated their carrying values[65] Impairments (Thousands USD) | Impairments (Thousands USD) | Three Months Ended September 30, 2019 | Three Months Ended September 30, 2018 | | :------------------------- | :------------------------------------ | :------------------------------------ | | Long-lived assets | $1,517 | $1,831 | 13. Segment Information This section provides financial data segmented by salon type, including salon counts, revenues, and operating income Salon Type | Salon Type | September 30, 2019 | June 30, 2019 | | :----------------------------------- | :----------------- | :------------ | | Total Franchise Salons | 4,456 | 3,951 | | Total Company-owned salons | 2,551 | 3,108 | | Franchise salons as a percent of total | 63.6% | 56.0% | Segment Revenues (Thousands USD) | Segment Revenues (Thousands USD) | Q3 2019 Franchise | Q3 2019 Company-owned | Q3 2018 Franchise | Q3 2018 Company-owned | | :------------------------------ | :---------------- | :-------------------- | :---------------- | :-------------------- | | Total Revenues | $72,546 | $174,492 | $38,025 | $249,810 | | Operating income (loss) | $10,209 | $5,401 | $9,720 | $19,576 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition, results of operations, and liquidity, focusing on the asset-light franchise model transition Management's Overview This section provides an overview of the company's business model and strategic direction, including its salon operations - Regis Corporation franchises, owns, and operates 7,092 beauty salon locations worldwide as of September 30, 2019[74] - The company is transitioning to an asset-light franchise platform, which will increasingly impact its financial results through system-wide sales[80] Critical Accounting Policies This section highlights key accounting policies and estimates that significantly impact the company's financial reporting - Critical accounting policies include the valuation of goodwill, long-lived assets, and estimates related to tax liabilities and deferred taxes[76] - The company adopted the amended leasing guidance, Topic 842, on July 1, 2019, using the modified retrospective method[77] Results of Operations This section analyzes the company's financial performance, including revenue, expenses, and profitability drivers Impact of salons sold to franchisees on operations This section examines the operational and financial effects of selling company-owned salons to franchisees Salons Sold to Franchisees (Thousands USD) | Item (Thousands USD) | Three Months Ended September 30, 2019 | Three Months Ended September 30, 2018 | Increase (Thousands USD) | | :------------------------------------------ | :------------------------------------ | :------------------------------------ | :----------------------- | | Salons sold to franchisees | 545 | 124 | 421 | | Cash proceeds received in quarter | $37,945 | $12,422 | $25,523 | | Loss on sale of salon assets to franchisees, net | $(5,860) | $(3,960) | $(1,900) | - The company sold 545 company-owned salons to franchisees in Q3 2019, a significant increase from 124 in Q3 2018[79] System-wide results This section provides an overview of system-wide sales performance across different salon concepts System-wide Same Store Sales | Concept | Three Months Ended September 30, 2019 | Three Months Ended September 30, 2018 | | :-------------- | :------------------------------------ | :------------------------------------ | | SmartStyle | (2.2)% | 1.0% | | Supercuts | 0.2% | 0.8% | | Signature Style | (1.7)% | 0.6% | | Consolidated system-wide same store sales | (1.1)% | 0.8% | - Consolidated system-wide same-store sales decreased by (1.1)% in Q3 2019, a decline from a 0.8% increase in Q3 2018[81] Condensed Consolidated Results of Operations (Unaudited) This section presents a summary of the unaudited consolidated operating results, including key revenue and expense items Condensed Consolidated Results of Operations (Millions USD) | Item | Q3 2019 (Millions USD) | Q3 2018 (Millions USD) | Q3 2019 % of Total Revenues | Q3 2018 % of Total Revenues | | :------------------------------------------ | :---------------------- | :---------------------- | :-------------------------- | :-------------------------- | | Service revenues | $141.9 | $207.8 | 57.5% | 72.2% | | Product revenues | $45.7 | $57.6 | 18.5% | 20.0% | | Royalties and fees | $28.0 | $22.4 | 11.3% | 7.8% | | Franchise rental income | $31.4 | — | 12.7% | — | | Operating loss (income) | $(9.9) | $3.4 | (4.0)% | 1.2% | | Loss on sale of salon assets to franchisees, net | $(5.9) | $(4.0) | (2.4)% | (1.4)% | - Consolidated revenues decreased by 14.2% year-over-year, while operating income shifted to a loss of (4.0)% of total revenues[84] Consolidated Revenues This section analyzes the drivers of consolidated revenue changes, including service, product, and franchise income - Consolidated revenue decreased by $40.8 million in Q3 2019, primarily due to a $65.9 million decrease in service revenue and an $11.9 million decrease in product revenue, largely resulting from the sale of salons to franchisees[89] - The decline was partially offset by a $5.6 million increase in royalty and fee revenue due to an increased number of franchised locations, and a $31.4 million increase in franchise rental income due to the adoption of Topic 842[89][92][93] Consolidated Revenues by Salon Type (Thousands USD) | Salon Type | Q3 2019 Revenue (Thousands USD) | Q3 2018 Revenue (Thousands USD) | | :-------------------------- | :----------------------------- | :----------------------------- | | Total Franchise salons | $72,546 | $38,025 | | Total Company-owned salons | $174,492 | $249,810 | | Consolidated revenues | $247,038 | $287,835 | | Percent change from prior year | (14.2)% | (8.8)% | Cost of Service This section examines the factors contributing to changes in the cost of service as a percentage of service revenues - Cost of service as a percent of service revenues increased by 520 basis points in Q3 2019, driven by higher minimum wages, commissions, and health insurance claims[94] Cost of Product This section analyzes the changes in cost of product as a percentage of product revenues and factors influencing product margins - Cost of product as a percent of product revenues increased by 180 basis points in Q3 2019, primarily due to a shift into lower margin wholesale product sales and product discounting in salons[95] Product Margins | Product Margins | Q3 2019 | Q3 2018 | | :---------------- | :------ | :------ | | Retail product sales | 50.7% | 52.9% | | Wholesale product sales | 21.6% | 20.6% | Site Operating Expenses This section discusses the changes in site operating expenses, influenced by salon counts and advertising campaigns - Site operating expenses decreased by $3.9 million in Q3 2019 due to a net reduction in salon counts, partially offset by costs associated with a new SmartStyle advertising campaign[96] General and Administrative This section analyzes changes in general and administrative expenses, including salaries, bonuses, and stock compensation - General and administrative expenses decreased by $7.1 million in Q3 2019, primarily due to lower administrative and field management salaries and bonuses, and lower stock compensation[97] Rent This section details the decrease in rent expense, primarily driven by a reduction in company-owned salon counts - Rent expense decreased by $11.7 million in Q3 2019, primarily due to the net reduction in company-owned salon counts, partly offset by rent inflation[98] Franchise Rent Expense This section explains the increase in franchise rent expense due to the adoption of new lease accounting standards - The increase in franchise rent expense is due to the adoption of Topic 842 in fiscal year 2020, which requires gross reporting of franchise rental income and expense[99] Depreciation and Amortization This section analyzes the decrease in depreciation and amortization, primarily due to a reduced salon base and lower impairment charges - Depreciation and amortization decreased by $0.8 million in Q3 2019, primarily due to the reduced salon base and lower fixed asset impairment charges[100] TBG Restructuring This section details the restructuring charges incurred to support The Beautiful Group (TBG) and mitigate lease default risks - The company incurred $1.5 million in TBG restructuring charges in Q3 2019 to assist TBG with operating expenses and mitigate the risk of default associated with TBG's lease obligations[101] Interest Expense This section explains the increase in interest expense, driven by long-term financing liabilities and higher credit facility rates - Interest expense increased by $0.4 million in Q3 2019, primarily due to interest charges associated with long-term financing liabilities and a higher interest rate on the credit facility[102] Loss on sale of salon assets to franchisees, net This section analyzes the net loss from selling salon assets to franchisees, including the impact of goodwill derecognition - The net loss on sale of salon assets to franchisees increased in Q3 2019 due to a $21.0 million increase in non-cash goodwill derecognition, partially offset by higher sales proceeds[103] Interest Income and Other, net This section discusses the decrease in net interest income and other income, primarily due to a prior-year life insurance gain - Interest income and other, net, decreased by $0.2 million in Q3 2019, primarily due to a life insurance gain in the prior year[104] Income Taxes This section details the income tax benefit and effective tax rate, highlighting factors influencing tax expense - The company recognized a tax benefit of $2.9 million with an effective tax rate of 16.8% in Q3 2019, compared to a tax benefit of $0.7 million with an effective tax rate of 60.7% in Q3 2018[105] Income (Loss) from Discontinued Operations This section reports on the income or loss generated from discontinued operations, including specific contributing factors - Income from discontinued operations was $0.4 million in Q3 2019, primarily due to insurance reserve adjustments, compared to a loss of $0.3 million in Q3 2018[106] Results of Operations by Segment This section provides a detailed breakdown of financial performance across the company's different operating segments Franchise Salons This section analyzes the financial performance of franchise salons, including revenue growth and same-store sales trends Franchise Salons Performance (Millions USD) | Item (Millions USD) | Q3 2019 | Q3 2018 | Increase/(Decrease) (Millions USD) | | :----------------- | :------ | :------ | :------------------ | | Total product | $13.1 | $15.6 | $(2.5) | | Royalties and fees | $28.0 | $22.4 | $5.6 | | Franchise rental income | $31.4 | — | $31.4 | | Total franchise salons revenue | $72.5 | $38.0 | $34.5 | | Franchise same-store sales | (0.1)% | 1.2% | (1.3)% | | Operating income | $10.2 | $9.1 | $1.1 | - Franchise salon revenues increased by $34.5 million to $72.5 million in Q3 2019, primarily due to $31.4 million from Topic 842 adoption and a $5.6 million increase in royalties, ad fund revenue, fees, and product sales due to higher franchise salon counts[113] - Franchise same-store sales decreased by (0.1)% in Q3 2019, compared to a 1.2% increase in Q3 2018[108][112] Company-owned Salons This section examines the financial performance of company-owned salons, including revenue declines and same-store sales trends Company-owned Salons Performance (Millions USD) | Item (Millions USD) | Q3 2019 | Q3 2018 | (Decrease) Increase (Millions USD) | | :----------------- | :------ | :------ | :------------------ | | Total revenue | $174.5 | $249.8 | (30.2)% | | Company-owned same-store sales | (2.0)% | 0.5% | | | Operating income | $5.4 | $19.6 | (72.4)% | - Company-owned salon revenues decreased by $75.3 million in Q3 2019, primarily due to the sale of 1,143 company-owned salons (net of buybacks) and the closure of 147 salons[117] - Company-owned same-store sales decreased by (2.0)% in Q3 2019, driven by a 5.0% decrease in same-store guest transactions[117] Corporate This section analyzes the corporate operating loss, highlighting factors such as administrative expenses and convention costs - Corporate operating loss decreased by $0.4 million in Q3 2019, primarily driven by lower general and administrative salaries and bonuses, partially offset by franchise convention costs[119] Liquidity and Capital Resources This section discusses the company's sources and uses of cash, along with its overall liquidity and capital structure Sources of Liquidity This section identifies the primary sources of funds available to the company, including cash, asset sales, and credit facilities - Primary sources of liquidity include funds from operating activities, available cash and cash equivalents ($58.9 million as of September 30, 2019), proceeds from salon asset sales, and borrowing agreements[120] - The company had $183.5 million of unused available credit under its $295.0 million revolving credit facility as of September 30, 2019[121] Uses of Cash This section outlines the company's cash requirements for strategic investments, capital expenditures, and working capital management - Liquidity requirements are dependent on strategic investments, business performance, capital expenditures, credit facilities, and working capital management[122] Cash Flows This section analyzes cash flows from operating, investing, and financing activities, highlighting key changes and drivers - Cash used in operating activities was $13.5 million in Q3 2019, a $3.7 million decrease compared to the prior comparable period, primarily due to lower annual bonus payments[123] - Cash provided by investing activities was $32.0 million in Q3 2019, an increase of $6.2 million, mainly from $37.9 million in cash proceeds from salon asset sales[124] - Cash used in financing activities was $30.3 million in Q3 2019, an increase of $9.0 million, primarily due to $28.2 million in common stock repurchases[125] Financing Arrangements This section describes the company's debt and credit facilities, including terms and compliance with covenants Debt to Capitalization Ratio This section presents the company's debt to capitalization ratio and explains the factors influencing its change Debt to Capitalization Ratio | As of | Debt to Capitalization | | :----------------- | :--------------------- | | September 30, 2019 | 29.5% | | June 30, 2019 | 26.8% | - The debt to capitalization ratio increased by 270 basis points to 29.5% as of September 30, 2019, primarily due to decreases in shareholders' equity from share repurchases and liabilities associated with sale-leasebacks[127] Share Repurchase Program This section details the company's share repurchase activities, including the number of shares bought back and remaining authorization - The company repurchased 1.5 million shares for $26.3 million during Q3 2019 under its approved stock repurchase program[128] - $54.6 million remains outstanding under the approved stock repurchase program as of September 30, 2019[128] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section states that there have been no material changes to the company's market risk factors since its Annual Report on Form 10-K for the fiscal year ended June 30, 2019 - No material changes to market risk factors have occurred since the June 30, 2019 Annual Report on Form 10-K[132] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures and details the implementation of new internal controls and system modifications related to the adoption of new lease accounting guidance - The company's disclosure controls and procedures were evaluated and concluded to be effective as of September 30, 2019[134] - New internal controls, business processes, and modified information technology systems were implemented to facilitate the adoption and ongoing application of the new lease accounting guidance (Topic 842)[135] Part II. Other Information This section includes legal proceedings, risk factors, equity security sales, and a list of exhibits Item 1. Legal Proceedings This section reiterates the company's involvement in various lawsuits and claims, including class-wide consumer and wage and hour violations, emphasizing the unpredictable nature of these matters and their potential material impact on financial results - The company is a defendant in various lawsuits and claims, including allegations of class-wide consumer and wage and hour violations, with outcomes that are inherently unpredictable and could have a material adverse effect on results of operations[136] Item 1A. Risk Factors This section updates the company's risk factors, specifically detailing the ongoing challenges with The Beautiful Group (TBG) and its inability to successfully operate salons, which could adversely affect Regis Corporation's business, financial condition, and cash flows, including potential lease liabilities and the reversion of divested salons - TBG's inability to operate its salons successfully could adversely affect Regis's business, financial condition, and cash flows, including potential contingent lease liabilities[138] - As of September 30, 2019, Regis remains liable for up to $35 million associated with remaining TBG salon lease commitments[138] - Regis expects TBG to default on its obligations, potentially requiring Regis to satisfy liabilities for approximately 225 stores in the US and Canada, and TBG's UK business is subject to administration proceedings, increasing the likelihood of Regis reverting approximately 200 UK stores[139][141] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section provides details on the company's ongoing stock repurchase program, including the number of shares repurchased during the quarter and the remaining authorization under the program - The company repurchased 1.5 million shares for $26.3 million during the three months ended September 30, 2019[144] - $54.6 million remains outstanding under the approved stock repurchase program as of September 30, 2019[144] Stock Repurchase Program | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--------------- | :----------------------------- | :--------------------------- | | 7/1/19 - 7/31/19 | 908,200 | $17.71 | | 8/1/19 - 8/31/19 | — | — | | 9/1/19 - 9/30/19 | 595,800 | $17.19 | | Total | 1,504,000 | $17.50 | Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including various certifications and the financial information presented in iXBRL format - Exhibits include certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 from the President and CEO, and Executive Vice President and CFO[146] - The financial information, including Condensed Consolidated Balance Sheets, Statements of Operations, Comprehensive Income, Cash Flows, and Notes, is provided in Inline Xtensible Business Reporting Language (iXBRL) format[146] Signatures This section contains the official signatures of the company's authorized officers, certifying the submission of the Quarterly Report on Form 10-Q - The report was signed on October 29, 2019, by Andrew H. Lacko, Executive Vice President and Chief Financial Officer, and Kersten D. Zupfer, Senior Vice President and Chief Accounting Officer[150]