Company Quick10K Filing
Quick10K
Regis
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$18.65 40 $750
10-Q 2018-12-31 Quarter: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-K 2018-06-30 Annual: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-K 2017-06-30 Annual: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-K 2016-06-30 Annual: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
8-K 2019-01-29 Earnings, Exhibits
8-K 2018-10-30 Earnings, Exhibits
8-K 2018-10-23 Leave Agreement, Officers, Shareholder Vote
8-K 2018-08-30 Officers
8-K 2018-08-21 Earnings, Exhibits
8-K 2018-04-24 Enter Agreement, Off-BS Arrangement, Amend Bylaw, Exhibits
8-K 2018-03-26 Enter Agreement, Leave Agreement, Off-BS Arrangement, Other Events, Exhibits
8-K 2018-02-21 Officers, Exhibits
8-K 2018-01-08 Exit Costs, Exhibits
EDU New Oriental Education & Technology Group
GHC Graham Holdings
UNF UniFirst
TISI Team
EVI Envirostar
CSV Carriage Services
TEDU Tarena
FC Franklin Covey
AMBO Ambow Education Holding
JP Jupai Holdings
RGS 2018-12-31
Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 rgs-20181231xex311.htm
EX-31.2 rgs-20181231xex312.htm
EX-32 rgs-20181231xex32.htm

Regis Earnings 2018-12-31

RGS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 rgs-20181231x10q.htm 10-Q Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended December 31, 2018
OR
¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from             to            
Commission file number 1-12725
Regis Corporation
(Exact name of registrant as specified in its charter)
Minnesota
 
41-0749934
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
7201 Metro Boulevard, Edina, Minnesota
 
55439
(Address of principal executive offices)
 
(Zip Code)
 (952) 947-7777
(Registrant’s telephone number, including area code) 
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to be submit and post such files). Yes x No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer ¨
 
 
 
Non-accelerated filer ¨
 
Smaller reporting company ¨
(Do not check if a smaller reporting company)
 
 
 
 
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act). Yes ¨ No x  
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of January 24, 2019:
Common Stock, $.05 par value
 
40,235,526
Class
 
Number of Shares
 




REGIS CORPORATION
 
INDEX
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2



PART I - FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
REGIS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
(Dollars in thousands, except share data)
 
 
 
December 31,
2018
 
June 30,
2018
ASSETS
 
 

 
 

Current assets:
 
 

 
 

Cash and cash equivalents
 
$
96,954

 
$
110,399

Receivables, net
 
32,329

 
52,430

Inventories
 
85,583

 
79,363

Other current assets
 
34,267

 
47,867

Total current assets
 
249,133

 
290,059

 
 
 
 
 
Property and equipment, net
 
96,133

 
105,860

Goodwill
 
393,774

 
412,643

Other intangibles, net
 
9,736

 
10,557

Other assets
 
40,379

 
37,616

Total assets
 
$
789,155

 
$
856,735

 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 

 
 

Current liabilities:
 
 

 
 

Accounts payable
 
$
57,127

 
$
57,738

Accrued expenses
 
86,634

 
100,716

Total current liabilities
 
143,761

 
158,454

 
 
 
 
 
Long-term debt
 
90,000

 
90,000

Long-term lease liability
 
17,646

 

Other noncurrent liabilities
 
112,738

 
121,843

Total liabilities
 
364,145

 
370,297

Commitments and contingencies (Note 7)
 


 


Shareholders’ equity:
 
 

 
 

Common stock, $0.05 par value; issued and outstanding 41,472,468 and 45,258,571 common shares at December 31, 2018 and June 30, 2018 respectively
 
2,074

 
2,263

Additional paid-in capital
 
128,964

 
194,436

Accumulated other comprehensive income
 
8,145

 
9,656

Retained earnings
 
285,827

 
280,083

 
 
 
 
 
Total shareholders’ equity
 
425,010

 
486,438

 
 
 
 
 
Total liabilities and shareholders’ equity
 
$
789,155

 
$
856,735

 

The accompanying notes are an integral part of the unaudited Condensed Consolidated Financial Statements.

3



REGIS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
For The Three and Six Months Ended December 31, 2018 and 2017
(Dollars and shares in thousands, except per share data amounts)
 
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
 
Service
 
$
190,419

 
$
223,278

 
$
398,267

 
$
458,908

Product
 
61,649

 
71,832

 
119,240

 
132,790

Royalties and fees
 
22,603

 
18,739

 
44,999

 
37,615

 
 
274,671

 
313,849

 
562,506

 
629,313

Operating expenses:
 
 
 
 
 
 
 
 
Cost of service
 
114,931

 
134,850

 
236,428

 
274,686

Cost of product
 
36,350

 
39,864

 
68,531

 
70,026

Site operating expenses
 
35,563

 
38,598

 
72,384

 
78,627

General and administrative
 
45,836

 
48,592

 
93,563

 
83,758

Rent
 
34,642

 
65,473

 
70,620

 
107,889

Depreciation and amortization
 
8,900

 
24,951

 
19,102

 
37,206

Total operating expenses
 
276,222

 
352,328

 
560,628

 
652,192

 
 
 
 
 
 
 
 


Operating (loss) income
 
(1,551
)
 
(38,479
)
 
1,878

 
(22,879
)
 
 
 
 
 
 
 
 
 
Other (expense) income:
 
 
 
 
 
 
 
 
Interest expense
 
(1,072
)
 
(2,169
)
 
(2,078
)
 
(4,307
)
Gain (loss) from sale of salon assets to franchisees, net
 
2,865

 
(104
)
 
(1,095
)
 
18

Interest income and other, net
 
629

 
2,019

 
989

 
2,439

 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations before income taxes
 
871

 
(38,733
)
 
(306
)
 
(24,729
)
 
 
 
 
 
 
 
 
 
Income tax (expense) benefit
 
(454
)
 
80,825

 
260

 
75,266

 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
417


42,092

 
(46
)
 
50,537

 
 
 
 
 
 
 
 
 
Income (loss) from discontinued operations, net of taxes
 
6,113

 
(6,601
)
 
5,849

 
(40,368
)
 
 
 
 
 
 
 
 
 
Net income
 
$
6,530

 
$
35,491

 
$
5,803

 
$
10,169

 
 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
$
0.01

 
$
0.90

 
$
0.00

 
$
1.08

Income (loss) from discontinued operations
 
0.14

 
(0.14
)
 
0.13

 
(0.86
)
Net income per share, basic (1)
 
$
0.15

 
$
0.76

 
$
0.13

 
$
0.22

Diluted:
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
$
0.01

 
$
0.89

 
$
0.00

 
$
1.07

Income (loss) from discontinued operations
 
0.14

 
(0.14
)
 
0.13

 
(0.86
)
Net income per share, diluted (1)
 
$
0.15

 
$
0.75

 
$
0.13

 
$
0.22

 
 
 
 
 
 
 
 
 
Weighted average common and common equivalent shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
43,619

 
46,821

 
44,175

 
46,719

Diluted
 
44,479

 
47,314

 
44,175

 
47,053

_______________________________________________________________________________
(1)
Total is a recalculation; line items calculated individually may not sum to total due to rounding.

 The accompanying notes are an integral part of the unaudited Condensed Consolidated Financial Statements.

4



REGIS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited)
For The Three and Six Months Ended December 31, 2018 and 2017
(Dollars in thousands)
 
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
 
2018
 
2017
 
2018
 
2017
Net income
 
$
6,530

 
$
35,491

 
$
5,803

 
$
10,169

Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
 
Foreign currency translation adjustments during the period:
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
(2,592
)
 
(376
)
 
(1,511
)
 
2,276

Reclassification adjustments for losses included in net income (Note 3)
 

 
6,152

 

 
6,152

Net current period foreign currency translation adjustments
 
(2,592
)
 
5,776

 
(1,511
)
 
8,428

Comprehensive income
 
$
3,938

 
$
41,267

 
$
4,292

 
$
18,597


 
The accompanying notes are an integral part of the unaudited Condensed Consolidated Financial Statements.

5



REGIS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
For The Six Months Ended December 31, 2018 and 2017
(Dollars in thousands)
 
 
Six Months Ended December 31,
 
 
2018
 
2017
Cash flows from operating activities:
 
 

 
 

Net income
 
$
5,803

 
$
10,169

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
 

Non-cash impairment and other adjustments related to discontinued operations
 
176

 
25,095

Depreciation and amortization
 
16,799

 
20,491

Depreciation related to discontinued operations
 

 
3,038

Deferred income taxes
 
(7,915
)
 
(80,691
)
Gain on life insurance
 

 
(7,986
)
Loss (gain) from sale of salon assets to franchisees, net
 
1,095

 
(18
)
Salon asset impairments
 
2,303

 
16,715

Accumulated other comprehensive income reclassification adjustment
 

 
6,152

Stock-based compensation
 
4,552

 
4,618

Amortization of debt discount and financing costs
 
138

 
703

Other non-cash items affecting earnings
 
(681
)
 
(105
)
Changes in operating assets and liabilities, excluding the effects of asset sales
 
(33,223
)
 
(10,593
)
Net cash used in operating activities
 
(10,953
)
 
(12,412
)
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 

Capital expenditures
 
(16,804
)
 
(13,773
)
Capital expenditures related to discontinued operations
 

 
(1,171
)
Proceeds from sale of assets to franchisees
 
24,050

 
2,696

Proceeds from company-owned life insurance policies
 
24,616

 
18,108

Net cash provided by investing activities
 
31,862

 
5,860

 
 
 
 
 
Cash flows from financing activities:
 
 
 
 

Proceeds on issuance of common stock
 
330

 

Repurchase of common stock
 
(65,136
)
 

Settlement of equity awards
 

 
(375
)
Taxes paid for shares withheld
 
(2,305
)
 
(2,039
)
Net proceeds from sale and leaseback transaction
 
18,068

 

Net cash used in financing activities
 
(49,043
)
 
(2,414
)
 
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
 
(174
)
 
253

 
 
 
 
 
Decrease in cash, cash equivalents, and restricted cash
 
(28,308
)
 
(8,713
)
 
 
 
 
 
Cash, cash equivalents and restricted cash:
 
 
 
 

Beginning of period
 
148,774

 
208,634

Cash, cash equivalents and restricted cash included in current assets held for sale
 

 
1,352

Beginning of period, total cash, cash equivalents and restricted cash
 
148,774

 
209,986

End of period
 
$
120,466

 
$
201,273

__________________________________________________________        


The accompanying notes are an integral part of the unaudited Condensed Consolidated Financial Statements.

6



REGIS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1.
BASIS OF PRESENTATION OF UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
The unaudited interim Condensed Consolidated Financial Statements of Regis Corporation (the "Company") as of December 31, 2018 and for the three and six months ended December 31, 2018 and 2017, reflect, in the opinion of management, all adjustments necessary to fairly state the consolidated financial position of the Company as of December 31, 2018 and its consolidated results of operations, comprehensive income and cash flows for the interim periods. Adjustments consist only of normal recurring items, except for any discussed in the notes below. The results of operations and cash flows for any interim period are not necessarily indicative of results of operations and cash flows for the full year.
 
The accompanying interim unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, they do not include all disclosures required by accounting principles generally accepted in the United States of America (GAAP). The unaudited interim Condensed Consolidated Financial Statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended June 30, 2018 and other documents filed or furnished with the SEC during the current fiscal year.

Goodwill:

As of December 31, 2018 and June 30, 2018, the Company-owned reporting unit had $166.9 million and $184.8 million of goodwill, respectively, and the Franchise salons reporting unit had $226.9 million and $227.9 million of goodwill, respectively. See Note 9 to the Consolidated Financial Statements. The Company assesses goodwill impairment on an annual basis, during the Company’s fourth fiscal quarter, and between annual assessments if an event occurs, or circumstances change, that would more likely than not reduce the fair value of a reporting unit below its carrying amount. An interim impairment analysis was not required in the six months ended December 31, 2018.
The Company performs its annual impairment assessment as of April 30. For the fiscal year 2018 annual impairment assessment, due to the transformational efforts completed during the year, the Company elected to forgo the optional Step 0 assessment and performed the quantitative impairment analysis on the Company-owned and Franchise reporting units. The Company compared the carrying value of the reporting units, including goodwill, to their estimated fair value. The results of these assessments indicated that the estimated fair value of our reporting units exceeded their carrying value.  The Franchise reporting unit had substantial headroom and the Company-owned reporting unit had headroom of approximately 24%. The fair value of the Company-owned reporting unit was determined based on a discounted cash flow analysis and comparable market multiples. The assumptions used in determining fair value were the number and pace of salons sold to franchisees, proceeds for salon sales, weighted average cost of capital, general and administrative expenses and utilization of net operating loss benefits. We selected the assumptions by considering our historical financial performance and trends, historical salon sale proceeds and estimated salon sale activities. The preparation of our fair value estimate includes uncertain factors and requires significant judgments and estimates which are subject to change. A 100 basis point increase in our weighted average cost of capital within the Company-owned reporting unit would result in a reduction in headroom to approximately 17%.
Other uncertain factors or events exist which may result in a future triggering event and require us to perform an interim impairment analysis with respect to the carrying value of goodwill for the Company-owned reporting unit prior to our annual assessment. These internal and external factors include but are not limited to the following:
Changes in the company-owned salon strategy,
Franchise expansion and sales opportunities,
Future market earnings multiples deterioration,
Our financial performance falls short of our projections due to internal operating factors,
Economic recession,
Reduced salon traffic, as defined by total transactions, and/or revenue,
Deterioration of industry trends,
Increased competition,
Inability to reduce general and administrative expenses as company-owned salon count potentially decreases,
Other factors causing our cash flow to deteriorate.


7



If the triggering event analysis indicates the fair value of the Company-owned reporting unit has potentially fallen below more than the 24% headroom, we may be required to perform an updated impairment assessment which may result in a non-cash impairment charge to reduce the carrying value of goodwill.
Assessing goodwill for impairment requires management to make assumptions and to apply judgment, including forecasting future sales and expenses, and selecting appropriate discount rates, which can be affected by economic conditions and other factors that can be difficult to predict. The Company does not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions it uses to calculate impairment losses of goodwill. However, if actual results are not consistent with the estimates and assumptions used in the calculations, or if there are significant changes to the Company's planned strategy for company-owned salons, the Company may be exposed to future impairment losses that could be material.
Accounting Standards Recently Adopted by the Company:

Revenue from Contracts with Customers

In May 2014, the FASB issued amended guidance for revenue recognition which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The Company retrospectively adopted these standards on July 1, 2018. The impact of these standards was applied to all periods presented and the cumulative effect of applying the standard was recognized at the beginning of the earliest period presented. See Note 2 to the unaudited Condensed Consolidated Financial Statements for additional information regarding the impact of the adoption of the revenue recognition guidance.

Restricted Cash

In November 2016, the FASB issued cash flow guidance requiring restricted cash and restricted cash equivalents to be included in the cash and cash equivalent balances in the statement of cash flows. Transfers between cash and cash equivalents and restricted cash are no longer presented in the statement of cash flows and a reconciliation between the balance sheet and statement of cash flows must be disclosed. The Company retrospectively adopted this guidance on July 1, 2018. The impact of this standard was applied to all periods presented. As a result of including restricted cash in the beginning and end of period balances, cash, cash equivalents and restricted cash presented in the statement of cash flows increased $38.4 million, $23.5 million and $37.6 million as of June 30, 2018, December 31, 2018 and June 30, 2017, respectively.

Statement of Cash Flows

In August 2016, the FASB issued updated cash flow guidance clarifying cash flow classification and presentation for certain items. The Company retrospectively adopted this guidance on July 1, 2018. The adoption of this standard did not have a material impact on the Company's consolidated statement of cash flows.

Accounting Standards Recently Issued But Not Yet Adopted by the Company:

Leases

In February 2016, the FASB issued updated guidance requiring organizations that lease assets to recognize the rights and obligations created by those leases on the consolidated balance sheet. The new standard is effective for the Company in the first quarter of fiscal year 2020, with early adoption permitted. In July 2018, the FASB issued ASU 2018-11, which provides companies with the option to apply the new lease standard either at the beginning of the earliest comparative period presented or in the period of adoption. The Company will elect this optional transition relief amendment that allows for a cumulative-effect adjustment in the period of adoption and will not restate prior periods.  The Company is leveraging its lease management system to facilitate the adoption of this standard. The Company is continuing to evaluate the effect the new standard will have on the Company's consolidated financial statements but expects this adoption will result in a material increase in the assets and liabilities on the Company's consolidated balance sheet, as substantially all of its operating lease commitments will be subject to the new guidance.


8



2.    REVENUE RECOGNITION:

In May 2014, the FASB issued amended guidance for revenue recognition which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The Company adopted the amended revenue recognition guidance, ASC Topic 606, on July 1, 2018 using the full retrospective transition method which required the adjustment of each prior reporting period presented. The adjusted amounts include the application of a practical expedient that permitted the Company to reflect the aggregate effect of all modifications that occurred prior to fiscal year 2017 when identifying the satisfied and unsatisfied performance obligation, determining the transaction price and allocating the transaction price to the satisfied and unsatisfied performance obligation. As a result of adopting this new standard the Company is providing its updated revenue recognition policies.
    
Revenue Recognition and Deferred Revenue:

Revenue recognized at point of sale
Company-owned salon revenues are recognized at the time when the services are provided. Product revenues are recognized when the guest receives and pays for the merchandise. Revenues from purchases made with gift cards are also recorded when the guest takes possession of the merchandise or services are provided. Gift cards issued by the Company are recorded as a liability (deferred revenue) upon sale and recognized as revenue upon redemption by the customer. Gift card breakage, the amount of gift cards which will not be redeemed, is recognized proportional to redemptions using estimates based on historical redemption patterns. Product sales by the Company to its franchisees are included within product revenues in the Condensed Consolidated Statement of Operations and recorded at the time product is delivered to the franchisee. Payment for franchisee product revenue is generally collected within 30 days of delivery.

Revenue recognized over time
Franchise revenues primarily include royalties, advertising fund fees, franchise fees and other fees. Royalty and advertising fund revenues represent sales-based royalties that are recognized in the period in which the sales occur. Generally, royalty and advertising fund revenue is billed and collected monthly in arrears. Advertising fund revenues and expenditures, which must be spent on marketing and related activities per the franchise agreement, are recorded on a gross basis within the Condensed Consolidated Statement of Operations. This increases both the gross amount of reported franchise revenue and site operating expense and generally has no impact on operating income and net income. Franchise fees are billed and received upon the signing of the franchise agreement. Upon adoption of the new revenue recognition guidance, recognition of these fees is deferred until the salon opening and is then recognized over the term of the franchise agreement, typically ten years. Under previous guidance the initial franchise fees were recognized in full upon salon opening.

The following table disaggregates revenue by timing of revenue recognition and is reconciled to reportable segment revenues as follows:
 
 
Three Months Ended December 31, 2018
 
Three Months Ended December 31, 2017
 
 
Company-owned
 
Franchise
 
Company-owned
 
Franchise
 
 
(in thousands)
Revenue recognized at a point in time:
 
 
 
 
 
 
 
 
Service
 
$
190,419

 
$

 
$
223,278

 
$

Product
 
43,831

 
17,818

 
56,764

 
15,068

Total revenue recognized at a point in time
 
$
234,250

 
$
17,818

 
$
280,042

 
$
15,068

 
 
 
 
 
 
 
 
 
Revenue recognized over time:
 
 
 
 
 
 
 
 
Royalty and other franchise fees
 
$

 
$
14,736

 
$

 
$
12,260

Advertising fund fees
 

 
7,867

 

 
6,479

Total revenue recognized over time
 
$

 
$
22,603

 
$

 
$
18,739

Total revenue
 
$
234,250

 
$
40,421

 
$
280,042

 
$
33,807

 
 
 
 
 
 
 
 
 


9



 
 
Six Months Ended December 31, 2018
 
Six Months Ended December 31, 2017
 
 
Company-owned
 
Franchise
 
Company-owned
 
Franchise
 
 
(in thousands)
Revenue recognized at a point in time:
 
 
 
 
 
 
 
 
Service
 
$
398,267

 
$

 
$
458,908

 
$

Product
 
85,793

 
33,447

 
110,000

 
22,790

Total revenue recognized at a point in time
 
$
484,060

 
$
33,447

 
$
568,908

 
$
22,790

 
 
 
 
 
 
 
 
 
Revenue recognized over time:
 
 
 
 
 
 
 
 
Royalty and other franchise fees
 
$

 
$
29,156

 
$

 
$
24,410

Advertising fund fees
 

 
15,843

 

 
13,205

Total revenue recognized over time
 
$

 
$
44,999

 
$

 
$
37,615

Total revenue
 
$
484,060

 
$
78,446

 
$
568,908

 
$
60,405

 
 
 
 
 
 
 
 
 
Information about receivables, broker fees and deferred revenue subject to the amended revenue recognition guidance is as follows:
 
 
December 31,
2018
 
June 30,
2018
 
Balance Sheet Classification
 
 
(in thousands)
 
 
Receivables from contracts with customers, net
 
$
17,861

 
$
21,504

 
Accounts receivable, net
Broker fees
 
$
15,584

 
$
14,002

 
Other assets
 
 
 
 
 
 
 
Deferred revenue:
 
 
 
 
 
 
     Current
 
 
 
 
 
 
Gift card liability
 
$
4,613

 
$
3,320

 
Accrued expenses
Deferred franchise fees unopened salons
 
172

 
2,306

 
Accrued expenses
Deferred franchise fees open salons
 
3,428

 
3,030

 
Accrued expenses
Total current deferred revenue
 
$
8,213

 
$
8,656

 
 
     Non-current
 
 
 
 
 
 
Deferred franchise fees unopened salons
 
$
13,472

 
$
11,161

 
Other non-current liabilities
Deferred franchise fees open salons
 
20,112

 
18,346

 
Other non-current liabilities
Total non-current deferred revenue
 
$
33,584

 
$
29,507

 
 

Receivables relate primarily to payments due for royalties, franchise fees, advertising fees, and sales of salon services and product. The receivable balance is presented net of an allowance for expected losses (i.e., doubtful accounts), primarily related to receivables from franchisees. As of December 31, 2018 and June 30, 2018, the balance in the allowance for doubtful accounts was $2.0 million and $1.2 million, respectively. Activity in the period was not significant. Broker fees are the costs associated with using external brokers to identify new franchisees. These fees are paid upon the signing of the franchise agreement and recognized as General and Administrative expense over the term of the agreement. The adoption of the amended revenue recognition guidance did not significantly change the Company's accounting for broker fees.

The following table is a rollforward of the broker fee balance for the periods indicated (in thousands):
Balance as of June 30, 2018
 
$
14,002

Additions
 
2,752

Amortization
 
(1,158
)
Write-offs
 
(12
)
Balance as of December 31, 2018
 
$
15,584


10




Deferred revenue includes the gift card liability and deferred franchise fees for unopened salons and open salons. Gift card revenue for the three months ended December 31, 2018 and 2017 was $1.1 million and $1.3 million, respectively, and for the six months ended December 31, 2018 and 2017 was $2.2 million and $2.7 million, respectively. Deferred franchise fees related to open salons are generally recognized on a straight-line basis over the term of the franchise agreement. Franchise fee revenue for the three months ended December 31, 2018 and 2017 was $0.8 million and $0.7 million, respectively, and for the six months ended December 31, 2018 and 2017 was $1.7 million and $1.3 million. Estimated revenue expected to the recognized in the future related to deferred franchise fees for open salons as of December 31, 2018 is as follows (in thousands):

Remainder of 2019
$
1,643

2020
 
3,326

2021
 
3,238

2022
 
3,118

2023
 
2,941

Thereafter
 
9,274

Total
 
$
23,540



11



The amended revenue recognition guidance impacted the Company's previously reported financial statements as follows:

CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
June 30, 2018
(Dollars in thousands)
 
 
 
 
Adjustments for new revenue recognition guidance
 
 
 
 
Previously
 
Franchise
 
Advertising
 
Gift Card
 
 
 
 
 
 
Reported
 
Fees
 
Funds
 
Breakage
 
Taxes
 
Adjusted
ASSETS
 
 

 
 

 
 
 
 
 
 
 
 
Current assets:
 
 

 
 

 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
110,399

 
$

 
$

 
$

 
$

 
$
110,399

Receivables, net
 
52,430

 

 

 

 

 
52,430

Inventories
 
79,363

 

 

 

 

 
79,363

Other current assets
 
47,867

 

 

 

 

 
47,867

Total current assets
 
290,059

 

 

 

 

 
290,059

 
 
 
 
 
 
 
 
 
 
 
 
 
Property and equipment, net
 
105,860

 

 

 

 

 
105,860

Goodwill
 
412,643

 

 

 

 

 
412,643

Other intangibles, net
 
10,557

 

 

 

 

 
10,557

Other assets
 
37,616

 

 

 

 

 
37,616

Total assets
 
$
856,735

 
$

 
$

 
$

 
$

 
$
856,735

 
 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 

 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 

 
 
 
 
 
 
 
 
 
 
Accounts payable
 
$
57,738

 
$

 
$

 
$

 
$

 
$
57,738

Accrued expenses
 
97,630

 
3,030

 

 
56

 

 
100,716

Total current liabilities
 
155,368

 
3,030

 

 
56

 

 
158,454

 
 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt
 
90,000

 

 

 

 

 
90,000

Other noncurrent liabilities
 
107,875

 
18,346

 

 

 
(4,378
)
 
121,843

Total liabilities
 
353,243

 
21,376

 

 
56

 
(4,378
)
 
370,297

Commitments and contingencies (Note 7)
 


 
 
 
 
 
 
 
 
 


Shareholders’ equity:
 
 

 
0

 
 
 
 
 
 
 
 
Common stock
 
2,263

 

 

 

 

 
2,263

Additional paid-in capital
 
194,436

 

 

 

 

 
194,436

Accumulated other comprehensive income
 
9,568

 
88

 

 

 

 
9,656

Retained earnings
 
297,225

 
(21,464
)
 

 
(56
)
 
4,378

 
280,083

 
 
 
 
 
 
 
 
 
 
 
 
 
Total shareholders’ equity
 
503,492

 
(21,376
)
 

 
(56
)
 
4,378

 
486,438

 
 
 
 
 
 
 
 
 
 
 
 
 
Total liabilities and shareholders’ equity
 
$
856,735

 
$

 
$

 
$

 
$

 
$
856,735



12



CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
For The Three Months Ended December 31, 2017
(Dollars and shares in thousands, except per share data amounts)
 
 
 
 
Adjustments for new revenue recognition guidance
 
 
 
 
Previously
 
Franchise
 
Advertising
 
Gift Card
 
 
 
 
 
 
Reported
 
Fees
 
Funds
 
Breakage
 
Taxes
 
Adjusted
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
Service
 
$
223,214

 
$

 
$

 
$
64

 
$

 
$
223,278

Product
 
71,816

 

 

 
16

 

 
71,832

Royalties and fees
 
13,485

 
(1,225
)
 
6,479

 

 

 
18,739

 
 
308,515

 
(1,225
)
 
6,479

 
80

 

 
313,849

Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Cost of service
 
134,850

 

 

 

 

 
134,850

Cost of product
 
39,864

 

 

 

 

 
39,864

Site operating expenses
 
32,119

 

 
6,479

 

 

 
38,598

General and administrative
 
48,592

 

 

 

 

 
48,592

Rent
 
65,473

 

 

 

 

 
65,473

Depreciation and amortization
 
24,951

 

 

 

 

 
24,951

Total operating expenses
 
345,849

 

 
6,479

 

 

 
352,328

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income
 
(37,334
)
 
(1,225
)
 

 
80

 

 
(38,479
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Other (expense) income:
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
(2,169
)
 

 

 

 

 
(2,169
)
Gain from sale of salon assets to franchisees, net
 
(104
)
 

 

 

 

 
(104
)
Interest income and other, net
 
2,466

 

 

 
(447
)
 

 
2,019

 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations before income taxes
 
(37,141
)
 
(1,225
)
 

 
(367
)
 

 
(38,733
)
 
 


 


 


 


 


 


Income tax expense
 
76,462

 

 

 

 
4,363

 
80,825

 
 


 


 


 


 


 


Income from continuing operations
 
39,321

 
(1,225
)
 

 
(367
)
 
4,363

 
42,092

 
 


 


 


 


 


 


Loss from discontinued operations, net of taxes
 
(6,601
)
 

 

 

 

 
(6,601
)
 
 


 


 


 


 


 


Net loss
 
$
32,720

 
$
(1,225
)
 
$

 
$
(367
)
 
$
4,363

 
$
35,491

 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss per share:
 
 
 
 
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
0.84

 
$
(0.03
)
 
$
0.00

 
$
(0.01
)
 
$
0.09

 
$
0.90

Loss from discontinued operations
 
(0.14
)
 
0.00

 
0.00

 
0.00

 
0.00

 
(0.14
)
Net loss per share, basic (1)
 
$
0.70

 
$
(0.03
)
 
$
0.00

 
$
(0.01
)
 
$
0.09

 
$
0.76

Diluted:
 
 
 
 
 
 
 
 
 
 
 
 

Income from continuing operations
 
$
0.83

 
$
(0.03
)
 
$
0.00

 
$
(0.01
)
 
$
0.09

 
$
0.89

Loss from discontinued operations
 
(0.14
)
 
0.00

 
0.00

 
0.00

 
0.00

 
(0.14
)
Net loss per share, diluted (1)
 
$
0.69

 
$
(0.03
)
 
$
0.00

 
$
(0.01
)
 
$
0.09

 
$
0.75

 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average common and common equivalent shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
46,821

 
46,821

 
46,821

 
46,821

 
46,821

 
46,821

Diluted
 
47,314

 
47,314

 
47,314

 
47,314

 
47,314

 
47,314

_____________________________________________________________________________
(1)Total is a recalculation; line items calculated individually may not sum to total due to rounding.




13



CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
For The Six Months Ended December 31, 2017
(Dollars and shares in thousands, except per share data amounts)
 
 
 
 
Adjustments for new revenue recognition guidance
 
 
 
 
Previously
 
Franchise
 
Advertising
 
Gift Card
 
 
 
 
 
 
Reported
 
Fees
 
Funds
 
Breakage
 
Taxes
 
Adjusted
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
Service
 
$
458,773

 
$

 
$

 
$
135

 
$

 
$
458,908

Product
 
132,756

 

 

 
34

 

 
132,790

Royalties and fees
 
26,859

 
(2,449
)
 
13,205

 

 

 
37,615

 
 
618,388

 
(2,449
)
 
13,205

 
169

 

 
629,313

Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Cost of service
 
274,686

 

 

 

 

 
274,686

Cost of product
 
70,026

 

 

 

 

 
70,026

Site operating expenses
 
65,422

 

 
13,205

 

 

 
78,627

General and administrative
 
83,758

 

 

 

 

 
83,758

Rent
 
107,889

 

 

 

 

 
107,889

Depreciation and amortization
 
37,206

 

 

 

 

 
37,206

Total operating expenses
 
638,987

 

 
13,205

 

 

 
652,192

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income
 
(20,599
)
 
(2,449
)
 

 
169

 

 
(22,879
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Other (expense) income:
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
(4,307
)
 

 

 

 

 
(4,307
)
Gain from sale of salon assets to franchisees, net
 
18

 

 

 

 

 
18

Interest income and other, net
 
3,371

 

 

 
(932
)
 

 
2,439

 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations before income taxes
 
(21,517
)
 
(2,449
)
 

 
(763
)
 

 
(24,729
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Income tax expense
 
71,630

 

 

 

 
3,636

 
75,266

 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
 
50,113

 
(2,449
)
 

 
(763
)
 
3,636

 
50,537

 
 
 
 
 
 
 
 
 
 
 
 
 
Loss from discontinued operations, net of taxes
 
(40,368
)
 

 

 

 

 
(40,368
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
9,745

 
$
(2,449
)
 
$

 
$
(763
)
 
$
3,636

 
$
10,169

 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss per share:
 
 
 
 
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
1.07

 
$
(0.05
)
 
$
0.00

 
$
(0.02
)
 
$
0.08

 
$
1.08

Loss from discontinued operations
 
(0.86
)
 
0.00

 
0.00

 
0.00

 
0.00

 
(0.86
)
Net loss per share, basic (1)
 
$
0.21

 
$
(0.05
)
 
$
0.00

 
$
(0.02
)
 
$
0.08

 
$
0.22

Diluted:
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
1.07

 
$
(0.05
)
 
$
0.00

 
$
(0.02
)
 
$
0.08

 
$
1.07

Loss from discontinued operations
 
(0.86
)
 
0.00

 
0.00

 
0.00

 
0.00

 
(0.86
)
Net loss per share, diluted (1)
 
$
0.21

 
$
(0.05
)
 
$
0.00

 
$
(0.02
)
 
$
0.08

 
$
0.22