Regis (RGS) - 2023 Q1 - Quarterly Report

Part I - Financial Information Financial Statements (Unaudited) Regis Corporation reported $61.9 million in revenue and $1.5 million net income for Q1 FY2023, reflecting a strategic shift and improved profitability Condensed Consolidated Balance Sheet Total assets decreased to $722.0 million, while total liabilities also fell to $751.9 million, resulting in a slight improvement in the shareholders' deficit to $(29.9) million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 | June 30, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $9,505 | $17,041 | | Total current assets | $43,361 | $48,665 | | Goodwill | $173,057 | $174,360 | | Right of use asset | $461,579 | $493,749 | | Total assets | $722,018 | $769,300 | | Liabilities & Shareholders' Deficit | | | | Total current liabilities | $143,330 | $152,840 | | Long-term debt, net | $171,879 | $179,994 | | Long-term lease liability | $379,915 | $408,445 | | Total liabilities | $751,878 | $800,253 | | Total shareholders' deficit | $(29,860) | $(30,953) | Condensed Consolidated Statement of Operations Operating income turned positive at $2.5 million, despite total revenue declining to $61.9 million, leading to a net income of $1.5 million due to a gain from discontinued operations Statement of Operations Summary (in thousands, except per share data) | Metric | Q1 FY2023 (ended Sep 30, 2022) | Q1 FY2022 (ended Sep 30, 2021) | | :--- | :--- | :--- | | Total Revenue | $61,871 | $76,818 | | Operating Income (Loss) | $2,470 | $(4,884) | | Income (Loss) from Discontinued Operations | $3,306 | $(1,096) | | Net Income (Loss) | $1,468 | $(10,378) | | Net Income (Loss) per Share | $0.03 | $(0.28) | Condensed Consolidated Statement of Cash Flows Net cash used in operating activities improved to $5.1 million, with investing activities providing $3.3 million, resulting in a net decrease of $5.7 million in cash and cash equivalents Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(5,057) | $(12,254) | | Net cash provided by (used in) investing activities | $3,316 | $(1,524) | | Net cash (used in) provided by financing activities | $(3,798) | $40,832 | | (Decrease) increase in cash, cash equivalents, and restricted cash | $(5,705) | $26,906 | Notes to Condensed Consolidated Financial Statements Key notes include the sale of the OSP business, amendment of the credit agreement to extend maturity, and details on revenue recognition and operating segments - The company sold its Opensalon Pro (OSP) solution on June 30, 2022, and has classified the business as discontinued operations, resulting in a gain of $3.3 million for the quarter ended Sep 30, 2022[35] - In August 2022, the company amended its credit agreement, converting $180.0 million of its previous revolving credit facility into a new term loan and reducing the revolving credit facility to $55.0 million, extending maturity to August 2025[61] - The company operates two reportable segments: Franchise Salons (5,323 locations) and Company-Owned Salons (95 locations) as of September 30, 2022[67] Management's Discussion and Analysis of Financial Condition and Results of Operations Consolidated revenue decreased by 19.4% due to a strategic shift, yet operating income improved to $2.5 million driven by cost reductions and higher royalty rates, with liquidity deemed sufficient Management's Overview The company is transitioning to a third-party product distribution model, impacting revenue recognition, and operates 5,494 worldwide locations - The company is shifting its product business from a wholesale model to a third-party distribution model, which will decrease 'Product sales to franchisees' revenue and increase 'Fees' revenue via rebates from distributors[72] - As of September 30, 2022, the company's system consisted of 5,494 worldwide locations, including franchised, owned, and minority-interest locations[71] Results of Operations Consolidated revenue decreased by $14.9 million (19.4%) due to lower product and company-owned salon sales, while operating income improved to $2.5 million driven by reduced G&A expenses System-wide Same-Store Sales Growth | Concept | Q1 FY2023 (ended Sep 30, 2022) | Q1 FY2022 (ended Sep 30, 2021) | | :--- | :--- | :--- | | Supercuts | 8.9% | 30.5% | | SmartStyle | (3.2)% | 17.0% | | Portfolio Brands | 3.6% | 18.5% | | Consolidated System-wide | 4.5% | 23.2% | - Consolidated revenue decreased $14.9 million (19.4%), driven by a $7.6 million drop in product sales to franchisees and a $4.9 million decrease in company-owned salon revenue[85] - General and administrative (G&A) expense decreased by $6.4 million (30.8%) due to headcount reductions and the closure of distribution centers[94] Results of Operations by Segment Franchise segment revenue decreased to $58.8 million but operating income improved to $4.1 million, while Company-owned segment revenue fell to $3.1 million with an increased operating loss of $1.6 million Franchise Segment Performance (in millions) | Metric | Q1 FY2023 | Q1 FY2022 | | :--- | :--- | :--- | | Total franchise revenue | $58.8 | $68.8 | | Operating income (loss) | $4.1 | $(3.9) | Company-owned Segment Performance (in millions) | Metric | Q1 FY2023 | Q1 FY2022 | | :--- | :--- | :--- | | Total revenue | $3.1 | $8.0 | | Operating loss | $(1.6) | $(1.0) | Liquidity and Capital Resources The company extended its credit agreement maturity to August 2025, maintaining $9.5 million in cash and $38.3 million in available credit, affirming sufficient liquidity for the next twelve months - In August 2022, the credit agreement was amended, converting the facility to a $180.0 million term loan and a $55.0 million revolving credit facility, with maturity extended to August 2025[120] - As of September 30, 2022, the company had $9.5 million in cash and cash equivalents and $38.3 million in available credit[121][122] - During the quarter, cash used in financing activities was $3.8 million, primarily due to $4.3 million in debt refinancing fees[129] Quantitative and Qualitative Disclosures about Market Risk No material changes were reported regarding the company's market risk exposures, including interest rate and foreign currency exchange rate risks, since the prior fiscal year-end - There has been no material change to the company's market risk from changes in interest rates and foreign currency exchange rates since the June 30, 2022 Annual Report[139] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal controls over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[141] - No material changes occurred in internal controls over financial reporting during the most recent fiscal quarter[142] Part II - Other Information Legal Proceedings The company faces various lawsuits, including allegations of franchise regulation violations and breach of agreements, with an increase in claims related to franchising and the pandemic - The company faces various lawsuits, including allegations of franchise regulation violations, breach of agreements, and non-payment of rent on subleased locations[144] Risk Factors No material changes in risk factors were reported compared to the Annual Report on Form 10-K for the fiscal year ended June 30, 2022 - No material changes in risk factors were reported compared to the Annual Report on Form 10-K for the fiscal year ended June 30, 2022[145] Unregistered Sales of Equity Securities and Use of Proceeds The company did not issue or repurchase any shares during the quarter, with $11.6 million remaining available for issuance and $54.6 million authorized for future repurchases - The company did not issue any shares under its "at-the-market" program during the quarter; $11.6 million remains available for issuance[147][148] - No shares were repurchased during the quarter. $54.6 million remains authorized for future repurchases, but none are expected in fiscal year 2023[149] Exhibits This section lists exhibits filed with the Form 10-Q, including credit agreement amendments and CEO/CFO certifications - Lists exhibits filed with the report, including Amendment No. 6 to the Credit Agreement and CEO/CFO certifications[151]