European Wax Center(EWCZ) - 2021 Q4 - Annual Report

Part I Business European Wax Center is the largest U.S. franchisor of out-of-home waxing services, operating an asset-light model with 853 locations - As of December 25, 2021, the company is the largest franchisor of OOH waxing services in the U.S. with 853 locations across 44 states, of which 848 are franchised[6] - The business model is asset-light and capital-efficient, with 99% of centers owned and operated by franchisees. Revenue is primarily derived from product sales (58%), royalty payments (25%), and marketing fund contributions (14%) from franchisees in fiscal year 2021[6][14] - The company operates in an estimated $18 billion total addressable domestic market and is approximately six times larger than its closest waxing-focused competitor by center count[10] - Key growth strategies include expanding the national footprint, growing brand awareness, driving same-store sales through initiatives like the Wax Pass program and new product launches, and expanding profit margins through operating leverage[18][19][20] Risk Factors The company faces risks from its franchise model, competition, cybersecurity, holding company structure, and TRA obligations - Business risks are heavily tied to the financial results and operational success of franchisees, as a substantial portion of revenue comes from royalties and product sales to them[46][52] - The company faces high competition from over 10,000 independent waxing operators and nearly 100,000 beauty salons, as well as alternative hair removal methods[35][62] - Cybersecurity incidents, data breaches of guest information, and failures of IT systems pose significant threats to operations, reputation, and financial condition[67][68] - The holding company structure and the Tax Receivable Agreement (TRA) create potential conflicts of interest and significant payment obligations to pre-IPO members, which could amount to an estimated $357.2 million over 18 years under certain assumptions[114][116][120] - The COVID-19 pandemic has previously affected and may continue to affect financial performance due to potential center closures, reduced guest traffic, and supply chain disruptions[81] Unresolved Staff Comments The company reports no unresolved staff comments - None[136] Properties As of December 2021, the company's network includes 853 centers, with 5 corporate-owned, and leases its headquarters - As of December 25, 2021, there were 853 total centers, with 5 being corporate-owned and operating. The company leases its corporate headquarters in Plano, Texas, along with its corporate-owned centers and other office/training facilities[137] Legal Proceedings The company is subject to various legal proceedings but does not anticipate a material financial impact - The company is subject to various legal proceedings in the normal course of business but does not anticipate any to have a material impact on its financial condition[138][139] Mine Safety Disclosures This item is not applicable to the company - None[139] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's Class A common stock trades on Nasdaq, completed IPO and secondary offerings, and expects a special dividend - The company's Class A common stock is traded on the Nasdaq Stock Market LLC under the symbol "EWCZ"[142] - The company completed its IPO on August 9, 2021, raising net proceeds of $155.4 million, and a secondary offering on November 15, 2021, raising net proceeds of $67.9 million[146] - A one-time special dividend to equityholders is expected following the consummation of an announced whole business securitization[143] Cumulative Total Return Comparison (August 5, 2021 - December 31, 2021) | | 8/5/21 | 8/31/21 | 9/30/21 | 10/31/21 | 11/30/21 | 12/31/21 | |---|---:|---:|---:|---:|---:|---:| | European Wax Center, Inc. | $100.00 | $113.84 | $130.95 | $149.04 | $126.09 | $141.89 | | NASDAQ Composite | $100.00 | $104.08 | $98.60 | $105.79 | $106.14 | $106.93 | | Russell 2000 | $100.00 | $102.24 | $99.22 | $103.44 | $99.13 | $101.35 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's strong 2021 financial recovery, with revenue and net income growth, and a planned refinancing Key Business Metrics (Fiscal Years 2021 vs. 2020) | Metric | FY 2021 | FY 2020 | |---|---:|---:| | Number of system-wide centers (at period end) | 853 | 796 | | System-wide sales ($) | $796.5M | $468.8M | | Same-store sales (vs. 2019) | 6.7% | (35.6)% | | New center openings | 57 | 46 | | Average Unit Volume (AUV) ($) | $966K | $606K | Consolidated Results of Operations (in thousands, Fiscal Years 2021 vs. 2020) | (in thousands) | FY 2021 | FY 2020 | |---|---:|---:| | Total revenue | $178,678 | $103,407 | | Income (loss) from operations | $24,367 | $(3,219) | | Net income (loss) | $3,967 | $(21,495) | | Adjusted EBITDA | $64,125 | $20,001 | - The company plans a refinancing in Q2 2022, replacing its existing credit agreement with a new securitized facility expected to include $400.0 million in senior fixed-rate term notes and $40.0 million in variable funding notes[158][334] - The company has a Tax Receivable Agreement (TRA) liability of $59.2 million recorded as of Dec 25, 2021, with total expected future payments under the TRA estimated at $115.0 million related to purchases through that date[185][200] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate sensitivity on its variable-rate debt, partially mitigated by an interest rate cap - The primary market risk is interest rate sensitivity from its variable-rate term loan. This is mitigated by an interest rate cap agreement fixing the LIBOR component at a maximum of 4.5% on $175.0 million of debt through September 2024[204][288] - The company has exposure to commodity price risk as the price of wax from its key suppliers can be adjusted based on raw material costs[206] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2021 and 2020, with auditor's report - The report from the independent registered public accounting firm, Deloitte & Touche LLP, expresses an opinion that the financial statements are presented fairly in all material respects in conformity with U.S. GAAP[211] Consolidated Balance Sheet Highlights (in thousands, As of Dec 25, 2021) | (in thousands) | Amount | |---|---:| | Assets | | | Cash and cash equivalents | $43,301 | | Total current assets | $75,307 | | Goodwill | $328,551 | | Intangible assets, net | $201,995 | | Total Assets | $613,439 | | Liabilities & Equity | | | Total current liabilities | $31,966 | | Long-term debt, net | $172,607 | | Tax receivable agreement liability | $59,167 | | Total Liabilities | $272,198 | | Total Stockholders' Equity | $341,241 | Consolidated Statement of Operations Highlights (in thousands, Year Ended Dec 25, 2021) | (in thousands) | Amount | |---|---:| | Total revenue | $178,678 | | Cost of revenue | $46,841 | | Selling, general and administrative | $61,812 | | Income from operations | $24,367 | | Interest expense | $20,286 | | Net Income | $3,967 | Consolidated Statement of Cash Flows Highlights (in thousands, Year Ended Dec 25, 2021) | (in thousands) | Amount | |---|---:| | Net cash provided by operating activities | $41,346 | | Net cash used in investing activities | $(8,203) | | Net cash used in financing activities | $(26,562) | | Net increase in cash | $6,581 | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting or financial disclosure - None[337] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of December 2021 - Management concluded that as of December 25, 2021, the company's disclosure controls and procedures were effective at a reasonable assurance level[337] - The annual report does not include a management assessment or auditor attestation on internal control over financial reporting, as permitted for newly public companies[338] Other Information The company reports no other information - None[338] Part III Directors, Executive Officers, Corporate Governance, Compensation, Security Ownership, and Certain Relationships Information for Items 10-14, covering governance, compensation, and security ownership, is incorporated by reference - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the company's Definitive Proxy Statement for its annual meeting to be held on June 8, 2022[341][342][343] Part IV Exhibits, Financial Statement Schedules This section lists all exhibits filed with the Form 10-K, including key agreements related to reorganization and IPO - This section lists all exhibits filed with the Form 10-K, including key agreements such as the Credit Agreement, Tax Receivable Agreement, and various IPO-related documents[346] Form 10-K Summary The company reports no Form 10-K summary - None[347]