Regis (RGS) - 2023 Q2 - Quarterly Report

Part I. Financial Information This section provides the company's unaudited financial statements, management's discussion, market risk disclosures, and internal controls Item 1. Financial Statements (Unaudited) This section presents the unaudited Condensed Consolidated Financial Statements for Regis Corporation as of December 31, 2022, and for the three and six-month periods then ended, reflecting a net loss of $0.9 million for the six months ended December 31, 2022, and a total shareholders' deficit of $31.6 million Condensed Consolidated Balance Sheet This section provides a snapshot of the company's assets, liabilities, and shareholders' deficit as of December 31, 2022, and June 30, 2022 Condensed Consolidated Balance Sheet Summary (in thousands) | Account | Dec 31, 2022 | June 30, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $9,406 | $17,041 | | Goodwill | $173,337 | $174,360 | | Total assets | $687,676 | $769,300 | | Liabilities & Shareholders' Deficit | | | | Total current liabilities | $138,907 | $152,840 | | Long-term debt, net | $174,846 | $179,994 | | Total liabilities | $719,311 | $800,253 | | Total shareholders' deficit | $(31,635) | $(30,953) | Condensed Consolidated Statement of Operations This section details the company's revenues, expenses, and net loss for the three and six months ended December 31, 2022, and 2021 Statement of Operations Summary (in thousands, except per share amounts) | Metric | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $59,967 | $69,270 | $121,838 | $146,088 | | Operating income (loss) | $730 | $(488) | $3,200 | $(5,373) | | Net loss | $(2,407) | $(4,928) | $(939) | $(15,306) | | Net loss per share, diluted | $(0.05) | $(0.11) | $(0.02) | $(0.37) | Condensed Consolidated Statement of Cash Flows This section outlines the cash inflows and outflows from operating, investing, and financing activities for the six months ended December 31, 2022, and 2021 Statement of Cash Flows Summary (in thousands) | Cash Flow Category | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(6,914) | $(24,328) | | Net cash provided by (used in) investing activities | $3,639 | $(2,947) | | Net cash (used in) provided by financing activities | $(1,596) | $43,628 | | (Decrease) increase in cash, cash equivalents, and restricted cash | $(5,006) | $16,219 | Notes to Condensed Consolidated Financial Statements The notes provide detailed explanations of the company's accounting policies and financial statement line items, including the sale of Opensalon Pro, revenue recognition, amended credit facility, and segment reporting - Goodwill, primarily related to the Franchise reporting unit, was $173.3 million as of December 31, 2022[25] - The company recorded a $2.6 million accelerated depreciation charge in the three and six months ended December 31, 2022, related to the consolidation of corporate office space[26] - On June 30, 2022, the company sold its Opensalon Pro (OSP) solution, classifying it as a discontinued operation, receiving an additional $4.5 million in proceeds in the six months ended December 31, 2022, resulting in a $3.4 million gain from discontinued operations[34] - As of December 31, 2022, the company had 5,196 franchise salons and 75 company-owned salons, comprising 98.6% and 1.4% of the total, respectively[66] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's transition to an asset-light franchise model and a third-party product distribution strategy, with consolidated revenue decreasing 13.4% for the quarter, while both segments showed improved adjusted EBITDA and system-wide same-store sales grew 4.5% Management's Overview and Strategy This section outlines the company's strategic shift towards an asset-light franchise model and a third-party product distribution approach - As of December 31, 2022, Regis Corporation franchised, owned, or held interests in 5,347 worldwide locations, operating under brands like Supercuts and SmartStyle[71] - The company shifted its product business from a wholesale to a third-party distribution model in fiscal year 2022, aiming to reduce product sales revenue while providing franchisees with better pricing and support through rebates[72] Results of Operations Consolidated revenue for the three and six months ended December 31, 2022, decreased by 13.4% and 16.6% respectively, primarily due to salon closures and reduced product sales, while operating income improved significantly System-wide Same-Store Sales Growth | Concept | Three Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2022 | | :--- | :--- | :--- | | Supercuts | 7.2% | 8.0% | | SmartStyle | (2.9)% | (3.1)% | | Portfolio Brands | 6.0% | 4.8% | | Consolidated System-wide | 4.5% | 4.5% | - Consolidated revenue decreased by $9.3 million (13.4%) for the quarter and $24.3 million (16.6%) for the six months, primarily due to lower company-owned salon revenue, product sales to franchisees, and franchise rental income[83] - General and administrative expenses decreased by $3.4 million (22.5%) for the quarter, attributed to headcount reductions, lower distribution center costs, and a favorable actuarial adjustment[92] - Franchise segment adjusted EBITDA improved by $1.8 million to $7.5 million for the quarter, driven by higher average royalty revenues and lower G&A expenses[107][110] - Company-owned salon adjusted EBITDA improved by $3.4 million to a positive $0.3 million for the quarter, primarily due to the closure of unprofitable salons and a $1.1 million COVID-19 relief grant[113][115] Liquidity and Capital Resources The company secured its financial position by amending its credit agreement in August 2022, extending maturity to August 2025, and improving cash used in operations to $6.9 million for the six-month period - In August 2022, the credit agreement was amended, converting the facility into a $180.0 million term loan and a $55.0 million revolving credit facility, with maturity extended to August 2025[118] Liquidity Position as of Dec 31, 2022 | Metric | Amount (in millions) | | :--- | :--- | | Cash and cash equivalents | $9.4 | | Unused available credit | $34.3 | | Total liquidity (per agreement) | $43.7 | - Cash used in operating activities for the six months ended December 31, 2022, was $6.9 million, a significant improvement from the $24.3 million used in the same period last year[125] - $11.6 million remains available under the company's "at-the-market" share issuance program as of December 31, 2022[121][132] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company states that there have been no material changes to its market risk exposures, including interest rates and foreign currency exchange rates, from what was disclosed in its Annual Report on Form 10-K for the fiscal year ended June 30, 2022 - The company is exposed to market risk from changes in interest rates and foreign currency exchange rates, with no material changes reported since the June 30, 2022 Annual Report[137] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of December 31, 2022, with no material changes to internal controls over financial reporting during the most recent fiscal quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[139] - There were no material changes in internal controls over financial reporting during the quarter ended December 31, 2022[140] Part II. Other Information This section covers legal proceedings, risk factors, equity security sales, and exhibits filed with the report Item 1. Legal Proceedings The company is involved in various lawsuits arising from the normal course of business, including allegations of franchise regulation violations and non-payment of rent for locations subleased to franchisees - The company faces legal claims related to franchise regulation violations, breach of agreements, and non-payment of rent for locations subleased to franchisees[142] - Claims related to non-payment of rent by franchisees have increased since the start of the COVID-19 pandemic due to decreased salon revenue[142] Item 1A. Risk Factors The company reports that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the fiscal year ended June 30, 2022 - There have been no material changes in risk factors from those disclosed in the Annual Report on Form 10-K for the fiscal year ended June 30, 2022[143] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the status of the company's share issuance and repurchase programs, noting $11.6 million remained available under the 'at-the-market' program and no shares were issued during the quarter - As of December 31, 2022, $11.6 million remains available for sale under the company's "at-the-market" common stock offering program, with no shares issued in the six months ended December 31, 2022[145] - The company has $54.6 million remaining under its authorized stock repurchase program but does not anticipate repurchasing shares in fiscal year 2023[146] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications pursuant to the Sarbanes-Oxley Act of 2002 and financial statements formatted in iXBRL - Exhibits filed include CEO and CFO certifications under Sarbanes-Oxley Sections 302 and 906, and financial data in Inline XBRL format[148] Signatures This section contains the required signatures for the filing, certifying the accuracy and completeness of the report