rgs-20240930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the quarterly period ended September 30, 2024
			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.)

3701 Wayzata Boulevard,

Minneapolis

Minnesota

55416

(Address of principal executive offices)

(Zip Code)

(952) 947-7777

(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol

Name of exchange on which registered

Common Stock, $0.05 par value

RGS

The Nasdaq Global Market

Rights to Purchase Series A Junior Participating Preferred Stock, $0.05 par value

RGS

The Nasdaq Global Market

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ 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

☐

Accelerated filer

☐

Non-accelerated filer

☒

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 ☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of October 30, 2024: 2,282,395

REGIS CORPORATION

INDEX


Part I.	Financial Information

	Item 1.	Financial Statements (Unaudited):

		Condensed Consolidated Balance Sheets as of September 30, 2024, and June 30, 2024	3

		Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2024, and 2023	4

		Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three Months Ended September 30, 2024, and 2023	5

		Condensed Consolidated Statements of Shareholders' Equity (Deficit) for the Three Months Ended September 30, 2024, and 2023	6

		Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2024, and 2023	7

		Notes to Condensed Consolidated Financial Statements	8

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	22

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32

	Item 4.	Controls and Procedures	32

Part II.	Other Information		33

	Item 1.	Legal Proceedings	33

	Item 1A.	Risk Factors	33

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34

	Item 5.	Other Information	34



	Item 6.	Exhibits	35

	Signatures		36

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

REGIS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

As of September 30, 2024, and June 30, 2024

(Dollars in thousands, except per share data)


	September 30, 2024		June 30, 2024

ASSETS
Current assets:
Cash and cash equivalents (Note 7)	$	6,259	$	10,066
Receivables, net	9,082		9,434
Other current assets	20,085		22,550
Total current assets	35,426		42,050

Property and equipment, net	3,342		3,664
Goodwill (Note 1)	173,386		173,146
Other intangibles, net	2,377		2,427
Right of use asset (Note 8)	273,970		287,912
Other assets	20,430		21,297

Total assets	$	508,931	$	530,496

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	15,181	$	12,747
Accrued expenses	18,615		21,644

Short-term lease liability (Note 8)	67,161		69,127
Total current liabilities	100,957		103,518

Long-term debt, net (Note 9)	95,176		99,545
Long-term lease liability (Note 8)	218,105		230,607

Other non-current liabilities	38,295		40,039
Total liabilities	452,533		473,709
Commitments and contingencies (Note 6)
Shareholders' equity:
Common stock, $0.05 par value; issued and outstanding, 2,282,395 and 2,279,948 common shares at September 30, 2024, and June 30, 2024, respectively	114		114
Additional paid-in capital	69,972		69,660
Accumulated other comprehensive income	8,736		8,584
Accumulated deficit	(22,424)		(21,571)
Total shareholders' equity	56,398		56,787
Total liabilities and shareholders' equity	$	508,931	$	530,496

_______________________________________________________________________________

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

REGIS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

For the Three Months Ended September 30, 2024, and 2023

(Dollars and shares in thousands, except per share amounts)


	Three Months Ended September 30,
	2024		2023

Revenues:
Royalties	$	15,646	$	16,528
Fees	2,352		2,631
Product sales to franchisees	—		384
Advertising fund contributions	5,641		7,226
Franchise rental income (Note 8)	21,636		24,667
Company-owned salon revenue	785		1,936
Total revenue	46,060		53,372
Operating expenses:
Cost of product sales to franchisees	—		359

General and administrative	14,034		10,729
Rent (Note 8)	1,064		1,097
Advertising fund expense	5,641		7,226
Franchise rent expense	21,636		24,667
Company-owned salon expense (1)	753		1,490
Depreciation and amortization	446		370
Long-lived asset impairment	352		—

Total operating expenses	43,926		45,938

Operating income	2,134		7,434

Other (expense) income:
Interest expense	(4,846)		(6,188)

Other, net	677		(200)

(Loss) income from operations before income taxes	(2,035)		1,046

Income tax benefit	225		148

(Loss) income from continuing operations	(1,810)		1,194

Income from discontinued operations (Note 3)	957		—

Net (loss) income	$	(853)	$	1,194

Net (loss) income per share:
Basic:
(Loss) income from continuing operations	$	(0.77)	$	0.51
Income from discontinued operations	0.41		—
Net (loss) income per share (2)	$	(0.36)	$	0.51




Diluted:
(Loss) income from continuing operations	$	(0.77)	$	0.51
Income from discontinued operations	0.41		—
Net (loss) income per share, diluted (2)	$	(0.36)	$	0.51

Weighted average common and common equivalent shares outstanding:
Basic	2,343		2,332
Diluted	2,343		2,362

_______________________________________________________________________________

(1)Includes cost of service and product sold to guests in our company-owned salons. Excludes general and administrative expense, rent, and depreciation and amortization related to company-owned salons.

(2)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.

REGIS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited)

For the Three Months Ended September 30, 2024, and 2023

(Dollars in thousands)


	Three Months Ended September 30,
	2024		2023

Net (loss) income	$	(853)	$	1,194
Foreign currency translation adjustments	152		(289)
Comprehensive (loss) income	$	(701)	$	905

_______________________________________________________________________________

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

REGIS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) (Unaudited)

For the Three Months Ended September 30, 2024, and 2023

(Dollars in thousands)






























	Three Months Ended September 30, 2024
	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total
	Shares	Amount

Balance, June 30, 2024	2,279,948	$	114	$	69,660	$	8,584	$	(21,571)	$	56,787
Net loss	—	—		—		—		(853)		(853)
Foreign currency translation	—	—		—		152		—		152


Stock-based compensation	—	—		335		—		—		335
Net restricted stock activity	2,447	—		(23)		—		—		(23)

Balance, September 30, 2024	2,282,395	$	114	$	69,972	$	8,736	$	(22,424)	$	56,398

	Three Months Ended September 30, 2023
	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total
	Shares	Amount

Balance, June 30, 2023	2,277,828	$	114	$	66,764	$	9,023	$	(112,631)	$	(36,730)
Net income	—	—		—		—		1,194		1,194
Foreign currency translation	—	—		—		(289)		—		(289)


Stock-based compensation	—	—		567		—		—		567
Net restricted stock activity	651	—		(6)		—		—		(6)

Balance, September 30, 2023	2,278,479	$	114	$	67,325	$	8,734	$	(111,437)	$	(35,264)

_______________________________________________________________________________

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

REGIS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

For the Three Months Ended September 30, 2024, and 2023

(Dollars in thousands)


	Three Months Ended September 30,
	2024		2023

Cash flows used in operating activities:
Net (loss) income	$	(853)	$	1,194
Adjustments to reconcile net (loss) income to cash used in operating activities:
Gain from sale of OSP (Note 3)	(957)		—
Depreciation and amortization	425		375

Deferred income taxes	(221)		(59)



Non-cash interest	1,264		640

Long lived asset impairment	352		—

Stock-based compensation	1,430		630
Amortization of debt discount and financing costs	719		747
Other non-cash items affecting earnings	(80)		238
Changes in operating assets and liabilities, excluding the effects of asset sales (1)	(3,423)		(6,589)
Net cash used in operating activities	(1,344)		(2,824)

Cash flows provided by (used in) investing activities:
Capital expenditures	(16)		(163)



Proceeds from sale of OSP, net of fees	957		—
Net cash provided by (used in) investing activities	941		(163)

Cash flows (used in) provided by financing activities:
Borrowings on revolving credit facility	4,326		2,000
Repayments of revolving credit facility	(10,237)		—
Repayments of long-term debt	(263)		(162)
Debt refinancing fees	(298)		(152)


Taxes paid for shares withheld	(23)		(6)



Net cash (used in) provided by financing activities	(6,495)		1,680

Effect of exchange rate changes on cash and cash equivalents	27		(42)

Decrease in cash, cash equivalents, and restricted cash	(6,871)		(1,349)

Cash, cash equivalents and restricted cash:
Beginning of period	29,312		21,396
End of period	$	22,441	$	20,047

_______________________________________________________________________________

(1)Changes in operating assets and liabilities exclude assets and liabilities sold.

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

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 September 30, 2024 and for the three months ended September 30, 2024 and 2023, reflect, in the opinion of management, all adjustments necessary to fairly state the consolidated financial position of the Company as of September 30, 2024 and its consolidated results of operations, comprehensive (loss) income, shareholders' equity (deficit) 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 unaudited interim 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, 2024, and other documents filed or furnished to the SEC during the current fiscal year.

Goodwill:

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 value. An interim impairment analysis was not required in the three months ended September 30, 2024. As of September 30, 2024, and June 30, 2024, the franchise reporting unit had goodwill of $173.4 million and $173.1 million, respectively, and the company-owned reporting unit had no goodwill for both periods.

Reverse stock split:

On November 29, 2023, the Company effected a one-for-20 reverse stock split of its outstanding common stock, par value $0.05 per share. As a result of the reverse stock split, every 20 shares of common stock issued and outstanding was converted into one share of common stock. The reverse stock split affected all shareholders uniformly and did not alter any shareholder’s percentage interest in the Company’s equity. No fractional shares were issued in connection with the reverse stock split. Shareholders who would otherwise be entitled to a fractional share of common stock were instead entitled to receive a proportional cash payment. All common share and per share amounts presented in the unaudited condensed consolidated financial statements and accompanying notes have been retroactively adjusted to reflect the reverse stock split.

The reverse stock split affected all issued and outstanding shares of the Company’s common stock, as well as the number of shares of common stock available for issuance under the Company’s outstanding stock options and stock unit awards. The reverse stock split reduced the number of shares of common stock issuable upon the exercise of stock options outstanding and the vesting of stock unit awards outstanding immediately prior to the reverse stock split and correspondingly increased the respective exercise prices or other price dependent terms.

Tax Benefits Preservation Plan:

On January 28, 2024, the Board authorized and declared a dividend of one preferred stock purchase right (a Right) for each outstanding share of common stock. The dividend was payable on February 9, 2024 (the Record Date) to the holders of record of shares of common stock as of the close of business on the Record Date. The description and terms of the Rights are set forth in a Tax Benefits Preservation Plan (the Plan), dated as of January 29, 2024, as the same may be amended from time to time between the Company and Equiniti Trust Company, LLC, as Rights Agent. The Rights and the Plan will expire on the earliest of (i) the close of business on January 29, 2025 (or such later date as may be established by the Board of Directors prior to the Expiration Date as long as the extension is submitted to the shareholders of the Company for ratification at the next annual or special meeting of shareholders succeeding such extension), (ii) the time at which the Rights are redeemed or exchanged pursuant to the Plan, (iii) the time at which the Rights (other than Rights owned by an Acquiring Person) are exchanged pursuant to the Plan, (iv) the repeal of Section 382 of the Code or any successor statute if the Board determines that the Plan is no longer necessary or desirable for the preservation of the Tax Benefits, or (v) the beginning of a taxable year to which the Board determines that no Tax Benefits may be carried forward.

Recently Issued Accounting Standards Not Yet Adopted:

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires disclosure of significant segment expenses that are regularly provided to the chief operating

decision maker (CODM) and a description of other segment items (the difference between segment revenue less the segment expenses disclosed under the significant expense principle and each reported measure of segment profit or loss) by reportable segment, as well as disclosure of the title and position of the entity’s CODM and an explanation of how the CODM uses the reported measures of segment profit or loss in assessing segment performance and deciding how to allocate resources. The pronouncement is effective for annual reporting periods in fiscal years beginning after December 15, 2023, and for interim periods in fiscal years beginning after December 15, 2024. We do not expect the adoption of this pronouncement to impact our consolidated financial statements beyond the expansion of our reportable segment disclosures.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The ASU includes amendments requiring enhanced income tax disclosures, primarily related to standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. The ASU is effective for fiscal years beginning after December 15, 2024, and shall be applied prospectively. The Company is evaluating the standard and determining the extent of additional disclosures that will be required.

2. REVENUE RECOGNITION:

Revenue Recognition and Deferred Revenue:

Revenue recognized over time

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 revenues are billed and collected monthly in arrears. Advertising fund revenues and expenditures, which must be spent on marketing and related activities per the franchise agreements, are recorded on a gross basis within the unaudited Condensed Consolidated Statements of Operations. The treatment increases both the gross amount of reported revenue and 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. Recognition of these fees is deferred until the salon opens and is then recognized over the term of the franchise agreement, which is typically 10 years. Franchise rental income is a result of the Company signing leases on behalf of franchisees and entering into sublease arrangements with the franchisees. The Company recognizes franchise rental income and expense when it is due to the landlord.

Revenue recognized at point of sale

Company-owned salon revenues are recognized at the time when the services are provided, or 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 guest. Gift card breakage, the amount of gift cards which will not be redeemed, is recognized based on gift card balances with no activity over a 36-month basis. Product sales to franchisees are recorded at the time product is delivered to the franchisee.

Information about receivables, broker fees and deferred revenue subject to the current revenue recognition guidance is as follows:


	September 30, 2024		June 30, 2024		Balance Sheet Classification

	(Dollars in thousands)

Receivables from contracts with customers, net	$	6,799	$	6,887	Receivables, net
Broker fees	8,560		9,369		Other assets

Deferred revenue:
Current
Gift card liability	$	334	$	366	Accrued expenses

Deferred franchise fees open salons	4,549		4,738		Accrued expenses
Total current deferred revenue	$	4,883	$	5,104
Non-current
Deferred franchise fees unopened salons	$	1,755	$	1,783	Other non-current liabilities
Deferred franchise fees open salons	13,608		14,972		Other non-current liabilities
Total non-current deferred revenue	$	15,363	$	16,755

Receivables relate primarily to payments due for royalties, advertising fees and rent. The receivables balance is presented net of an allowance for expected credit losses (i.e., doubtful accounts). The Company monitors the financial condition of its franchisees and records provisions for estimated losses on receivables when it believes franchisees are unable to make their required payments based on factors such as delinquencies and aging trends. The allowance for credit losses is the Company's best estimate of the amount of probable credit losses related to existing accounts and notes receivables. The Company offers financing to SmartStyle® franchisees when they remodel their salons. Included in other assets is a receivable of $0.8 million, partially offset by a credit loss reserve of $0.2 million, related to this financing program. The following table is a rollforward of the allowance for credit losses for the period:


	Three Months Ended September 30,
	2024		2023

	(Dollars in thousands)

Balance at beginning of period	$	6,227	$	7,297
Provision for doubtful accounts	689		211
Provision for franchisee rent	127		167
Recoveries	(237)		(237)
Write-offs	(142)		(991)

Other (1)	243		(56)
Balance at end of period	$	6,907	$	6,391

________________________________________________________________________________________

(1)Includes currency fluctuation.

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 franchise agreement. The following table is a rollforward of the broker fee balance for the periods indicated:


	Three Months Ended September 30,
	2024		2023

	(Dollars in thousands)

Balance at beginning of period	$	9,369	$	12,471

Amortization	(617)		(739)
Write-offs	(192)		(109)
Balance at end of period	$	8,560	$	11,623

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 September 30, 2024, and 2023 was $1.6 million and $1.7 million, respectively. Estimated revenue expected to be recognized in the future related to deferred franchise fees for open salons as of September 30, 2024, is as follows (dollars in thousands):


Remainder of 2025	$	3,412
2026	4,176
2027	3,717
2028	3,037
2029	2,046
Thereafter	1,769
Total	$	18,157

3. DISCONTINUED OPERATIONS:

On June 30, 2022, the Company sold its Opensalon® Pro (OSP) software-as-a-service solution to Soham, Inc. As a result of the sale, the Company classified the OSP business as discontinued operations in the financial statements for all periods presented. In the three months ended September 30, 2024, the Company received $957 thousand of proceeds related to the number of salons migrating to Soham's Zenoti product. No income taxes have been allocated to discontinued operations based on the methodology required by accounting for income taxes guidance. Cash provided by operations includes $957 thousand of cash from discontinued operations.

4. SHAREHOLDERS' EQUITY (DEFICIT):

Stock-Based Employee Compensation:

During the three months ended September 30, 2024, and 2023, the Company granted restricted stock units as follows:


	Three Months Ended September 30,
	2024	2023

Restricted stock units (RSUs)	—	12,970

The RSUs granted during the three months ended September 30, 2023, vest in equal amounts over a three-year period subsequent to the grant date.

Total compensation cost for stock-based payment arrangements totaling $1.4 million and $0.6 million for the three months ended September 30, 2024, and 2023, respectively, was recorded within general and administrative on the unaudited Condensed Consolidated Statements of Operations.

Stock Warrants Issued in Connection with Long-Term Debt:

In connection with the 2024 Credit agreement (as defined in Note 9 to the unaudited Condensed Consolidated Financial Statements), the Company issued detachable warrants to affiliates of TCW Asset Management Company, LLC, and Asilia Investments. Pursuant to the warrants, the holders can purchase up to an aggregate 407,542 shares of the Company’s common stock, par value $0.05 per share, at an exercise price equal to $7.00 per share. The warrants are exercisable for a seven-year period beginning June 24, 2024. The warrants may also be exercised on a cashless basis under certain circumstances under the agreement.

In addition, in connection with the issuance of the warrants, the Company granted an exemption in favor of each holder pursuant to Section 36 of the Tax Benefits Preservation Plan (the Plan), dated January 29, 2024 , among the Company and Equiniti Trust Company, LLC, such that neither holder was deemed to be an “Acquiring Person” (as defined in the Plan) solely in connection with (i) the issuance of the warrants nor (ii) the acquisition of beneficial ownership of securities of the Company pursuant to the exercise of the warrants.

The warrants and the shares of common stock issuable upon the exercise of such warrants have not been registered under the Securities Act of 1933, as amended (the Securities Act), and may not be sold absent registration or an applicable exemption from the registration requirements of the Securities Act. Based in part upon the representations of each holder in each warrant, the offering and sale of each warrant is exempt from registration under Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D promulgated under the Securities Act.

The warrants are valued at $1.5 million using a relative fair value method and were accounted for through additional paid-in capital. Further, the related financing fees incurred as a result of warrant issuance is recorded through a contra-equity account and amounts to $0.2 million.

Prior to the second anniversary of the issue date, the Company may call for cancellation up to an aggregate 203,771 shares of common stock underlying the warrants for consideration equal to $15.00 per share; provided, that the volume weighted average price on the trading day immediately preceding the date the Company delivers a written call notice to a holder exceeds $20.00. As of September 30, 2024, the Company has no intentions of exercising this call provision. The Company will reassess this provision on a quarterly basis.

Share Issuance Program:

In fiscal year 2021, the Company filed a $150.0 million shelf registration statement and $50.0 million prospectus supplement (collectively, the Share Issuance Program) with the Securities and Exchange Commission (SEC) under which it could offer and sell, from time to time, up to $50.0 million worth of its common stock in "at-the-market" offerings. During the three months ended September 30, 2023, the Company did not issue any shares under this prospectus. The Share Issuance Program expired on February 10, 2024.

5. INCOME TAXES:

A summary of the income tax benefit and corresponding effective tax rate is as follows:


	Three Months Ended September 30,
	2024			2023

	(Dollars in thousands)




Income tax benefit	$	225		$	148
Effective tax rate	11.1		%	(14.1)		%

The recorded tax provision and effective tax rate for the three months ended September 30, 2024, and 2023 were different than what would normally be expected, primarily due to the impact of the deferred tax valuation allowance.

With limited exceptions, due to net operating loss carryforwards, our federal, state, and foreign tax returns are open to examination for all years since 2014, 2013, and 2016, respectively.

6. COMMITMENTS AND CONTINGENCIES:

The Company is a plaintiff or defendant in various lawsuits and claims arising out of the normal course of business. Like certain other franchisors, the Company has faced allegations of franchise regulation and agreement violations. Additionally, because the Company may be the tenant under a master lease for a location subleased to a franchisee, the Company has faced allegations of nonpayment of rent and associated charges. Further, similar to other retail employers, the Company has faced, and may continue to face, allegations of purported class-wide consumer and wage and hour violations.

Litigation is inherently unpredictable, and the outcome of these matters cannot presently be determined. Although the actions are being vigorously defended, the Company could incur judgments in the future or enter into settlements of claims that could have a material adverse effect on its results of operations in any particular period.

7. CASH, CASH EQUIVALENTS AND RESTRICTED CASH:

The table below reconciles the cash and cash equivalents balances and restricted cash balances recorded within other current assets on the unaudited Condensed Consolidated Balance Sheets to the amount of cash, cash equivalents and restricted cash reported on the unaudited Condensed Consolidated Statements of Cash Flows:


	September 30, 2024		June 30, 2024

	(Dollars in thousands)

Cash and cash equivalents	$	6,259	$	10,066
Restricted cash, included in other current assets (1)	16,182		19,246
Total cash, cash equivalents and restricted cash	$	22,441	$	29,312

_______________________________________________________________________________

(1)Restricted cash within other current assets primarily relates to consolidated advertising cooperatives funds, which can only be used to settle obligations of the respective cooperatives, and contractual obligations to collateralize the Company's self-insurance programs.

8. LEASES:

At contract inception, the Company determines whether a contract is, or contains, a lease by determining whether it conveys the right to control the use of the identified asset for a period of time. If the contract provides the Company the right to substantially all of the economic benefits from the use of the identified asset and the right to direct the use of the identified asset, the Company considers it to be, or contain, a lease. The Company leases its company-owned salons and its corporate facilities under operating leases. The original terms range from one to 11 years with many leases renewable for an additional five to 10-year term at the option of the Company. In addition to the obligation to make fixed rental payments for the use of the salons, the Company also has variable lease payments that are based on sales levels. For most leases, the Company is required to pay real estate taxes and other occupancy expenses. Total rent includes the following:


	Three Months Ended September 30,
	2024		2023

	(Dollars in thousands)

Office rent (1)	$	726	$	825
Lease termination expense (benefit)	52		(13)
Lease liability benefit (2)	(62)		(128)
Franchise salon rent (3)	71		(337)
Company-owned salon rent	277		750
Total	$	1,064	$	1,097

_______________________________________________________________________________

(1)The company leases four floors at its corporate office location. Three of the four floors have been subleased to third party tenants. Rental income associated with the sublease of the corporate office space is recorded in other income and was $0.2 million and $0 for the three months ended September 30, 2024, and 2023, respectively.

(2)Upon termination of previously impaired leases, the Company derecognizes the corresponding ROU assets and lease liabilities, which results in a net gain. In addition, the Company recognizes a benefit from lease liabilities decreasing in excess of previously impaired ROU assets for ongoing leases that were previously impaired.

(3)Franchise salon rent is a benefit in the three months ended September 30, 2023, due to settlements with landlords for less than previously accrued.

The Company leases salon premises in which the majority of its franchisees operate and has entered into corresponding sublease arrangements with franchisees. All lease-related costs are passed through to the franchisees. The Company records the rental payments due from franchisees as franchise rental income and the corresponding amounts owed to landlords as franchise rent expense on the unaudited Condensed Consolidated Statements of Operations. For the three months ended September 30, 2024, and 2023, franchise rental income and franchise rent expense were $21.6 million and $24.7 million, respectively. These leases generally have lease terms of approximately five years. The Company expects to renew the SmartStyle master lease and some leases for locations subleased to our franchisees upon expiration of those leases. Other leases are expected to be renewed by the franchisee upon expiration.

All the Company's leases are operating leases. The lease liability is initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date, including one lease term option when the lease is expected to be renewed. The ROU asset is initially and subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, less accrued lease payments and unamortized lease incentives received, if any. Expense for lease payments is recognized on a straight-line basis over the lease term, including the lease renewal option when the lease is expected to be renewed. Generally, the non-lease components, such as real estate taxes and other occupancy expenses, are separate from rent expense within the lease and are not included in the measurement of the lease liability because these charges are variable.

The discount rate used to determine the present value of the lease payments is the Company's estimated collateralized incremental borrowing rate, based on the yield curve for the respective lease terms, as the interest rate implicit in the lease cannot generally be determined. The Company uses the portfolio approach in applying the discount rate based on the original lease term. The weighted average remaining lease term was 4.91 and 5.05 years, and the weighted average discount rate was 5.26% and 5.13% for all salon operating leases as of September 30, 2024, and June 30, 2024, respectively.

As of September 30, 2024, future operating lease commitments, including one renewal option for leases expected to be renewed, to be paid and received by the Company were as follows (dollars in thousands):


Fiscal Year	Leases For Franchise Salons		Leases For Company-Owned Salons		Corporate Leases		Total Operating Lease Payments		Sublease Income to be Received from Franchisees		Net Rent Commitments

Remainder of 2025	$	59,802	$	500	$	1,003	$	61,305	$	(59,802)	$	1,503
2026	68,758		500		1,367		70,625		(68,758)		1,867
2027	58,678		295		1,401		60,374		(58,678)		1,696
2028	49,238		286		1,436		50,960		(49,238)		1,722
2029	38,466		126		1,472		40,064		(38,466)		1,598
Thereafter	38,604		12		1,509		40,125		(38,604)		1,521
Total future obligations	$	313,546	$	1,719	$	8,188	$	323,453	$	(313,546)	$	9,907
Less amounts representing interest	37,102		175		910		38,187
Present value of lease liability	$	276,444	$	1,544	$	7,278	$	285,266
Less short-term lease liability	65,533		564		1,064		67,161
Long-term lease liability	$	210,911	$	980	$	6,214	$	218,105

9. FINANCING ARRANGEMENTS:

The Company's debt consists of the following:


	Three Months Ended September 30, 2024	Fiscal Year	Balance at September 30, 2024		Balance at June 30, 2024
		2024

	(Average cash interest rate %)		(Dollars in thousands)

Term loan	9.10%	9.68%	$	104,738	$	105,000
Deferred financing fees			(13,728)		(14,244)
Term loan, net			91,010		90,756
Revolving credit facility	9.10%	9.68%	4,326		10,237
Paid-in-kind interest			1,341		53
Fair value of warrants issued to lenders			(1,501)		(1,501)
Total long-term debt, net			$	95,176	$	99,545

In June 2024, the Company entered into a new credit agreement (the “2024 Credit Agreement”). The 2024 Credit Agreement includes a $105.0 million term loan and a $25.0 million revolving credit facility, with a $10.0 million minimum liquidity covenant and matures June 24, 2029. The Company incurred $14.2 million of refinancing fees (including $3.9 million of Original Issue Discount fee) that will be amortized on a straight-line basis over the term of the agreement. As of September 30, 2024, the Company had outstanding standby letters of credit under the revolving credit facility of $9.2 million, primarily related to the Company's self-insurance program. As of September 30, 2024, total available liquidity and available credit under the $25.0 million revolving credit facility, as defined by the amended agreement, were $11.9 million and $15.7 million, respectively. As of September 30, 2024, the Company had cash and cash equivalents of $6.3 million and current liabilities of $101.0 million.

The interest rate on the 2024 Credit Agreement is based on secured overnight financing rate (SOFR) plus margin. The margin applicable to the 2024 Credit Agreement is subject to change based on the Company's total leverage ratio, remeasured annually on a predetermined date set by the lender. When the Company's total leverage ratio is greater than or equal to 3.75 to 1.00, the margin applicable to the new term loan and revolving credit facility is 9.00%. If the Company's leverage ratio is less than 3.75 to 1.00, the margin rate is 8.50%. In either scenario, 4.5% of the margin is paid-in-kind (PIK) interest (added to the principal balance and thereafter accruing interest), and the remainder is paid in cash. The SOFR base rate applicable to the debt has a floor of 2.5% per annum. The margin applicable to any letter of credit is 5.25% and paid in cash.

The agreement contains typical provisions and financial covenants regarding maximum leverage and minimum fixed-charge coverage and a minimum liquidity threshold of $10.0 million. In connection with the 2024 Credit Agreement, the Company issued detachable stock warrants to the debt lenders. The Company was in compliance with its covenants and other requirements of the financing arrangements as of September 30, 2024. The Company's assets serve as collateral to the new credit facility.

The agreement includes scheduled quarterly payments totaling $1.1 million in fiscal years 2025 and 2026. In fiscal years 2027, 2028 and 2029, scheduled payments total $2.6 million. Additionally, excess cash swept annually per terms of the agreement.

10. FAIR VALUE MEASUREMENTS:

Fair value measurements are categorized into one of three levels based on the lowest level of significant input used: Level 1 (unadjusted quoted prices in active markets); Level 2 (observable market inputs available at the measurement date, other than quoted prices included in Level 1); and Level 3 (unobservable inputs that cannot be corroborated by observable market data).

SEC Form 10-Q filed by Regis Corporation