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 MarchDecember 31, 2021
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)
Minnesota41-0749934
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
3701 Wayzata Boulevard,MinneapolisMinnesota55416
(Address of principal executive offices)(Zip Code)

 (952) 947-7777
(Registrant’sRegistrant'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 ☒ 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 ☒ 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"large accelerated filer,” “accelerated" "accelerated filer,” “smaller" "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 ☒  
Title of each classTrading symbolName of exchange
Common Stock, $0.05 par valueRGS NYSE
Indicate the number of shares outstanding of each of the issuer’sissuer's classes of common stock as of April 30, 2021: 35,789,820
January 28, 2022: 45,490,592

REGIS CORPORATION
 
INDEX
 
    
  
   
  
2
    
  
3
    
  
4
    
5
  
76
    
  
87
    
 
2823
    
 
4234
    
 
4234
    
4335
    
 
4335
    
 
4335
    
 
4436
 
4437
    
  
4538



PART I - FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
REGIS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
(Dollars in thousands, except share data)
 March 31,
2021		June 30,
2020
ASSETS  
Current assets:  
Cash and cash equivalents$34,510 $113,667 
Receivables, net31,254 31,030 
Inventories38,221 62,597 
Other current assets14,082 19,138 
Total current assets118,067 226,432 
Property and equipment, net27,080 57,176 
Goodwill (Note 9)229,221 227,457 
Other intangibles, net4,186 4,579 
Right of use asset (Note 10)629,006 786,216 
Other assets40,423 40,934 
Total assets$1,047,983 $1,342,794 
LIABILITIES AND SHAREHOLDERS’ EQUITY  
Current liabilities:  
Accounts payable$28,840 $50,918 
Accrued expenses51,164 48,825 
Short-term lease liability (Note 10)123,224 137,271 
Total current liabilities203,228 237,014 
Long-term debt, net (Note 11)177,500 177,500 
Long-term lease liability (Note 10)536,234 680,454 
Long-term financing liabilities (Note 11)0 27,981 
Other non-current liabilities81,517 94,142 
Total liabilities998,479 1,217,091 
Commitments and contingencies (Note 7)00
Shareholders’ equity:  
Common stock, $0.05 par value; issued and outstanding 35,789,825 and 35,625,716 common shares at March 31, 2021 and June 30, 2020, respectively1,789 1,781 
Additional paid-in capital23,672 22,011 
Accumulated other comprehensive income9,092 7,449 
Retained earnings14,951 94,462 
Total shareholders’ equity49,504 125,703 
Total liabilities and shareholders’ equity$1,047,983 $1,342,794 
 December 31,
2021		June 30,
2021
ASSETS  
Current assets:  
Cash and cash equivalents$35,442 $19,191 
Receivables, net16,624 27,372 
Inventories16,008 22,993 
Other current assets15,439 17,103 
Total current assets83,513 86,659 
Property and equipment, net22,244 23,113 
Goodwill229,028 229,582 
Other intangibles, net3,474 3,761 
Right of use asset (Note 7)548,598 611,880 
Other assets39,301 41,388 
Total assets$926,158 $996,383 
LIABILITIES AND SHAREHOLDERS' EQUITY  
Current liabilities:  
Accounts payable$18,579 $27,157 
Accrued expenses39,041 54,857 
Short-term lease liability (Note 7)110,597 116,471 
Total current liabilities168,217 198,485 
Long-term debt, net (Note 8)194,177 186,911 
Long-term lease liability (Note 7)457,924 518,866 
Other non-current liabilities67,552 75,075 
Total liabilities887,870 979,337 
Commitments and contingencies (Note 5)00
Shareholders' equity:  
Common stock, $0.05 par value; issued and outstanding 45,490,074 and 35,795,844 common shares at December 31, 2021 and June 30, 2021, respectively2,277 1,790 
Additional paid-in capital61,601 25,102 
Accumulated other comprehensive income9,105 9,543 
Accumulated deficit(34,695)(19,389)
Total shareholders' equity38,288 17,046 
Total liabilities and shareholders' equity$926,158 $996,383 
_______________________________________________________________________________ 
The accompanying notes are an integral part of the unaudited Condensed Consolidated Financial Statements.
2

REGIS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
For The Three And NineSix Months Ended MarchDecember 31, 2021 And 2020
(Dollars and shares in thousands, except per share data amounts)
 Three Months Ended March 31,Nine Months Ended March 31,
 2021202020212020
Revenues:
Service$24,645 $78,387 $90,040 $322,133 
Product20,770 34,877 68,665 124,516 
Royalties and fees23,535 8,698 61,393 66,062 
Franchise rental income (Note 10)31,317 31,821 95,885 96,875 
Total revenue100,267 153,783 315,983 609,586 
Operating expenses:
Cost of service15,821 54,824 66,441 212,664 
Cost of product21,268 21,672 54,840 75,257 
Site operating expenses13,366 3,660 36,955 62,932 
General and administrative24,582 31,871 77,419 105,187 
Rent (Note 10)8,001 18,665 34,128 63,424 
Franchise rent expense31,317 31,821 95,885 96,875 
Depreciation and amortization3,620 10,359 17,384 27,486 
Long-lived asset impairment833 0 9,817 0 
TBG mall location restructuring (Note 3)0 146 0 2,368 
Goodwill impairment0 40,164 0 40,164 
Total operating expenses118,808 213,182 392,869 686,357 
Operating loss(18,541)(59,399)(76,886)(76,771)
Other (expense) income:
Interest expense(3,163)(1,712)(10,626)(4,615)
Loss from sale of salon assets to franchisees, net(4,575)(7,858)(8,463)(26,125)
Interest income and other, net15,099 148 15,616 3,188 
Loss from continuing operations before income taxes(11,180)(68,821)(80,359)(104,323)
Income tax benefit333 979 1,368 5,783 
Loss from continuing operations(10,847)(67,842)(78,991)(98,540)
Income from discontinued operations, net of taxes (Note 3)0 301 0 753 
Net loss$(10,847)$(67,541)$(78,991)$(97,787)
Net loss per share:
Basic and diluted:
Loss from continuing operations$(0.30)$(1.89)$(2.20)$(2.74)
Income from discontinued operations0.00 0.01 0.00 0.02 
Net loss per share, basic and diluted (1)$(0.30)$(1.88)$(2.20)$(2.72)
Weighted average common and common equivalent shares outstanding:
Basic and diluted36,011 35,815 35,929 35,958 
 Three Months Ended December 31,Six Months Ended December 31,
 2021202020212020
Revenues:
Royalties$16,125 $12,749 $32,726 $24,154 
Fees4,867 2,438 8,132 4,480 
Product sales to franchisees2,428 14,236 10,436 27,978 
Advertising fund contributions8,021 4,715 16,136 9,224 
Franchise rental income (Note 7)33,772 32,285 67,534 64,568 
Company-owned salon revenue5,043 37,897 13,048 85,312 
Total revenue70,256 104,320 148,012 215,716 
Operating expenses:
Cost of product sales to franchisees3,419 11,324 11,532 22,003 
General and administrative15,984 26,690 37,773 52,837 
Rent (Note 7)3,088 12,902 4,891 26,127 
Advertising fund expense8,021 4,715 16,136 9,224 
Franchise rent expense33,772 32,285 67,534 64,568 
Company-owned salon expense (1)5,067 33,611 13,011 76,554 
Depreciation and amortization1,980 6,388 3,849 13,764 
Long-lived asset impairment52 3,160 215 8,984 
Total operating expenses71,383 131,075 154,941 274,061 
Operating loss(1,127)(26,755)(6,929)(58,345)
Other (expense) income:
Interest expense(3,449)(3,701)(6,755)(7,463)
Loss from sale of salon assets to franchisees, net(615)(3,226)(1,695)(3,888)
Interest income and other, net99 403 (140)517 
Loss from operations before income taxes(5,092)(33,279)(15,519)(69,179)
Income tax benefit164 400 213 1,035 
Net loss$(4,928)$(32,879)$(15,306) $(68,144)
Net loss per share:
Basic and diluted:
Net loss per share, basic and diluted (2)$(0.11)$(0.92)$(0.37)$(1.90)
Weighted average common and common equivalent shares outstanding:
Basic and diluted45,721 35,931 41,274 35,889 

(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.
3

REGIS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS (Unaudited)
For The Three And NineSix Months Ended MarchDecember 31, 2021 And 2020
(Dollars in thousands)
Three Months Ended March 31,Nine Months Ended March 31, Three Months Ended December 31,Six Months Ended December 31,
2021202020212020 2021202020212020
Net lossNet loss$(10,847)$(67,541)$(78,991)$(97,787)Net loss$(4,928)$(32,879)$(15,306)$(68,144)
Foreign currency translation adjustmentsForeign currency translation adjustments306 (2,482)1,643 (2,344)Foreign currency translation adjustments36 835 (438)1,337 
Comprehensive lossComprehensive loss$(10,541)$(70,023)$(77,348)$(100,131)Comprehensive loss$(4,892)$(32,044)$(15,744)$(66,807)
_______________________________________________________________________________ 
 The accompanying notes are an integral part of the unaudited Condensed Consolidated Financial Statements.
4

REGIS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited)
For The Three And NineSix Months Ended MarchDecember 31, 2021 And 2020
(Dollars in thousands)
Three Months Ended December 31, 2021
 Common StockAdditional
Paid-In
Capital		Accumulated
Other
Comprehensive
Income		Accumulated DeficitTotal
 SharesAmount
Balance, September 30, 202143,964,489 $2,198 $58,310 $9,069 $(29,767)$39,810 
Net loss— — — — (4,928)(4,928)
Foreign currency translation— — — 36 — 36 
Issuance of common stock, net of offering costs1,223,314 61 4,931 — — 4,992 
Stock-based compensation— — (1,374)— — (1,374)
Net restricted stock activity302,271 18 (266)— — (248)
Balance, December 31, 202145,490,074 $2,277 $61,601 $9,105 $(34,695)$38,288 
Three Months Ended March 31, 2021Three Months Ended December 31, 2020
Common StockAdditional
Paid-In
Capital		Accumulated
Other
Comprehensive
Income		Retained
Earnings		Total Common StockAdditional
Paid-In
Capital		Accumulated
Other
Comprehensive
Income		Retained EarningsTotal
SharesAmount SharesAmount
Balance, December 31, 202035,768,086 $1,788 $22,076 $8,786 $25,798 $58,448 
Balance, September 30, 2020Balance, September 30, 202035,665,783 $1,783 $20,596 $7,951 $59,211 $89,541 
Net lossNet loss— — — — (10,847)(10,847)Net loss— — — — (32,879)(32,879)
Foreign currency translationForeign currency translation— — — 306 — 306 Foreign currency translation— — — 835 — 835 
Exercise of SARs3,775 — (24)— — (24)
Stock-based compensationStock-based compensation— — 1,703 — — 1,703 Stock-based compensation— — 1,314 — — 1,314 
Net restricted stock activityNet restricted stock activity17,964 1 (83)— — (82)Net restricted stock activity102,303 5 166 — — 171 
Balance, March 31, 202135,789,825 $1,789 $23,672 $9,092 $14,951 $49,504 
Minority interestMinority interest— — — — (534)(534)
Balance, December 31, 2020Balance, December 31, 202035,768,086 $1,788 $22,076 $8,786 $25,798 $58,448 

Six Months Ended December 31, 2021
 Common StockAdditional
Paid-In
Capital		Accumulated
Other
Comprehensive
Income		Accumulated DeficitTotal
 SharesAmount
Balance, June 30, 202135,795,844 $1,790 $25,102 $9,543 $(19,389)$17,046 
Net loss— — — — (15,306)(15,306)
Foreign currency translation— — — (438)— (438)
Issuance of common stock, net of offering costs9,295,618 465 36,720 — — 37,185 
Stock-based compensation— — 305 — — 305 
Net restricted stock activity398,612 22 (526)— — (504)
Balance, December 31, 202145,490,074 $2,277 $61,601 $9,105 $(34,695)$38,288 
Three Months Ended March 31, 2020
 Common StockAdditional
Paid-In
Capital		Accumulated
Other
Comprehensive
Income		Retained
Earnings		Total
 SharesAmount
Balance, December 31, 201935,563,611 $1,778 $21,230 $9,480 $235,534 $268,022 
Net loss— — — — (67,541)(67,541)
Foreign currency translation— — — (2,482)— (2,482)
Stock-based compensation— — (25)— — (25)
Net restricted stock activity2,595 — (19)— — (19)
Minority interest— — — — 38 38 
Balance, March 31, 202035,566,206 $1,778 $21,186 $6,998 $168,031 $197,993 

5

REGIS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited)
For The Three And Nine Months Ended March 31, 2021 And 2020 (Continued)
(Dollars in thousands)
Nine Months Ended March 31, 2021
 Common StockAdditional
Paid-In
Capital		Accumulated
Other
Comprehensive
Income		Retained
Earnings		Total
 SharesAmount
Balance, June 30, 202035,625,716 $1,781 $22,011 $7,449 $94,462 $125,703 
Net loss— — — — (78,991)(78,991)
Foreign currency translation— — — 1,643 — 1,643 
Exercise of SARs3,775 — (24)— — (24)
Stock-based compensation— — 1,792 — — 1,792 
Net restricted stock activity160,334 8 (107)— — (99)
Minority interest— — — — (520)(520)
Balance, March 31, 202135,789,825 $1,789 $23,672 $9,092 $14,951 $49,504 

Nine Months Ended March 31, 2020Six Months Ended December 31, 2020
Common StockAdditional
Paid-In
Capital		Accumulated
Other
Comprehensive
Income		Retained
Earnings		Total Common StockAdditional
Paid-In
Capital		Accumulated
Other
Comprehensive
Income		Retained EarningsTotal
SharesAmount SharesAmount
Balance, June 30, 201936,869,249 $1,843 $47,152 $9,342 $265,908 $324,245 
Balance, June 30, 2020Balance, June 30, 202035,625,716 $1,781 $22,011 $7,449 $94,462 $125,703 
Net lossNet loss— — — — (97,787)(97,787)Net loss— — — — (68,144)(68,144)
Foreign currency translationForeign currency translation— — — (2,344)— (2,344)Foreign currency translation— — — 1,337 — 1,337 
Stock repurchase program(1,504,000)(75)(26,281)— — (26,356)
Exercise of SARs1,776 — 28 — — 28 
Stock-based compensationStock-based compensation— — 2,114 — — 2,114 Stock-based compensation— — 89 — — 89 
Net restricted stock activityNet restricted stock activity199,181 10 (1,827)— — (1,817)Net restricted stock activity142,370 7 (24)— — (17)
Minority interestMinority interest— — — — (90)(90)Minority interest— — — — (520)(520)
Balance, March 31, 202035,566,206 $1,778 $21,186 $6,998 $168,031 $197,993 
Balance, December 31, 2020Balance, December 31, 202035,768,086 $1,788 $22,076 $8,786 $25,798 $58,448 
_______________________________________________________________________________ 
The accompanying notes are an integral part of the unaudited Condensed Consolidated Financial Statements.
65

REGIS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
For The NineSix Months Ended MarchDecember 31, 2021 And 2020
(Dollars in thousands)
 Nine Months Ended March 31,
 20212020
Cash flows from operating activities:  
Net loss$(78,991)$(97,787)
Adjustments to reconcile net loss to cash used in operating activities: 
Non-cash adjustments related to discontinued operations0 (967)
Depreciation and amortization13,968 23,635 
Salon asset impairment0 3,851 
Long-lived asset impairment9,817 0 
Deferred income taxes(806)(6,469)
Inventory reserve6,875 0 
Gain from disposal of distribution center assets(14,878)0 
Gain from sale of company headquarters, net0 (2,513)
Loss from sale of salon assets to franchisees, net8,463 26,125 
Goodwill impairment0 40,164 
Stock-based compensation1,792 2,114 
Amortization of debt discount and financing costs1,313 206 
Other non-cash items affecting earnings183 (442)
Changes in operating assets and liabilities, excluding the effects of asset sales (1)(27,743)(38,938)
Net cash used in operating activities(80,007)(51,021)
Cash flows from investing activities: 
Capital expenditures(9,609)(32,331)
Proceeds from sale of assets to franchisees7,743 87,916 
Costs associated with sale of salon assets to franchisees(242)(1,887)
Proceeds from company-owned life insurance policies1,200 0 
Proceeds from sale of company headquarters0 8,996 
Net cash (used in) provided by investing activities(908)62,694 
Cash flows from financing activities: 
Borrowings on revolving credit facility0 213,000 
Repayments of revolving credit facility0 (30,000)
Repurchase of common stock0 (28,246)
Taxes paid for shares withheld(316)(1,968)
Minority interest buyout(562)0 
Distribution center lease payments(724)(677)
Net cash (used in) provided by financing activities(1,602)152,109 
Effect of exchange rate changes on cash and cash equivalents6 (379)
(Decrease) increase in cash, cash equivalents, and restricted cash(82,511)163,403 
Cash, cash equivalents and restricted cash: 
Beginning of period122,880 92,379 
End of period$40,369 $255,782 
 Six Months Ended December 31,
 20212020
Cash flows from operating activities:  
Net loss$(15,306)$(68,144)
Adjustments to reconcile net loss to cash used in operating activities: 
Depreciation and amortization3,284 11,123 
Long-lived asset impairment215 8,984 
Deferred income taxes(529)(669)
Loss from sale of salon assets to franchisees, net1,695 3,888 
Stock-based compensation305 89 
Amortization of debt discount and financing costs920 875 
Other non-cash items affecting earnings551 202 
Changes in operating assets and liabilities, excluding the effects of asset sales (1)(15,463)(21,812)
Net cash used in operating activities(24,328)(65,464)
Cash flows from investing activities: 
Capital expenditures(2,947)(7,502)
Proceeds from sale of assets to franchisees— 7,148 
Costs associated with sale of salon assets to franchisees— (222)
Proceeds from company-owned life insurance policies— 1,200 
Net cash (used in) provided by investing activities(2,947)624 
Cash flows from financing activities: 
Borrowings on revolving credit facility10,000 — 
Repayments of revolving credit facility(2,734)— 
Proceeds from issuance of common stock, net of offering costs37,185 — 
Taxes paid for shares withheld(823)(212)
Minority interest buyout— (562)
Distribution center lease payments— (478)
Net cash provided by (used in) financing activities43,628 (1,252)
Effect of exchange rate changes on cash and cash equivalents(134)(68)
Increase (decrease) in cash, cash equivalents, and restricted cash16,219 (66,160)
Cash, cash equivalents and restricted cash: 
Beginning of period29,152 122,880 
End of period$45,371 $56,720 
_______________________________________________________________________________        
(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.
76

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 MarchDecember 31, 2021 and for the three and ninesix months ended MarchDecember 31, 2021 and 2020, reflect, in the opinion of management, all adjustments necessary to fairly state the consolidated financial position of the Company as of MarchDecember 31, 2021 and its consolidated results of operations, comprehensive loss, shareholders' equity 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’sCompany's Annual Report on Form 10-K for the year ended June 30, 20202021 and other documents filed or furnished with the SEC during the current fiscal year.
Impact of COVID-19 on Business Operations:Impact:
During the period ended MarchDecember 31, 2021, the global coronavirus pandemic (COVID-19) had an adverse impact on operations, including prolonged government-mandated salon closures in California and Ontario, in addition to other U.S. states and Canadian provinces during the three and nine months ended March 31, 2021.operations. The COVID-19 pandemic continues to impact salon guest visits and franchisee staffing, resulting in a significant reduction in revenue and traffic. Dueprofitability. In response to COVID-19, the U.S. employee retention payroll tax credit, Canada Emergency Wage Subsidy (CEWS) and Canada Emergency Rent Subsidy (CERS) were introduced for eligible employers. In fiscal year 2021, the Company recorded a $1.5 million benefit related to the economic disruption caused byU.S. employee retention tax credit. In fiscal years 2022 and 2021, the Company received $1.4 and $1.6 million, respectively, in CEWS and $1.2 and $0.0 million, respectively, in CERS that partially cover expenses incurred in Canada during those years. Overall, COVID-19 has, and may continue to have, a negative effect on revenue and profitability. The ultimate impact of the COVID-19 pandemic in both the Company faces a greater degreeshort and long term is not currently estimable due to the uncertainty surrounding the duration of uncertainty than normal in making judgmentsthe pandemic, the availability and estimates neededacceptance of preventative vaccines, the emergence and impact of new COVID-19 variants and changing government restrictions. Additional impacts to apply the Company's significant accounting policies. Actual results and outcomesbusiness may differ from management's estimates and assumptions.arise that we are not aware of currently.
Inventory:Inventories:
The Company has inventory valuation reserves for excess and obsolete inventories or other factors that may render inventories unmarketable at their historical costs. ForIn fiscal year 2021, the Company announced it would transition away from its wholesale product distribution model in favor of a third-party distribution model. As a result, the Company exited its distribution centers in fiscal year 2022. To facilitate the exit, the Company sold and continues to sell inventory at discounts and dispose of hard-to-sell products. Additionally, the reduction in company-owned salons decreases the Company's ability to re-distribute inventory from closed locations to other salons to be sold or used. The inventory valuation reserve as of December 31, 2021 and June 30, 2021 was $7.8 and $11.8 million, respectively. Included in Company-owned salon expense is an inventory reserve charge of $1.2 and $1.5 million in the three and ninesix months ended MarchDecember 31, 2021, the Company recorded $5.3respectively. Included in Company-owned salon expense is an inventory reserve charge of $1.1 and $6.9$1.6 million of inventory excess and obsolescence charges, respectively. The increase in the reserve in the three and six months ended MarchDecember 31, 2021 was related to management's decision to exit its product sales business and wind down operations at the Company's two distribution centers. The expense was recorded to Cost of product in the unaudited Condensed Consolidated Statement of Operations and is a non-cash add back to Net loss on the unaudited Condensed Consolidated Statement of Cash Flows.2020, respectively.
87

Salon Long-Lived Asset and Right of Use Asset Impairment Assessments:
The Company assesses impairment of long-lived salon assets and right of use (ROU) assets at the individual salon level, as this is the lowest level for which identifiable cash flows are largely independent of other groups of assets and liabilities, when events or changes in circumstances indicate the carrying value of the assets or the asset grouping may not be recoverable. Factors considered in deciding when to perform an impairment review include significant under-performance of an individual salon in relation to expectations, significant economic or geographic trends, and significant changes or planned changes in the use of the assets. The first step is to assess recoverability, and in doing that, the undiscounted salon cash flows are compared to the carrying value of the salon assets. If the undiscounted estimated cash flows are less than the carrying value of the assets, the Company calculates an impairment charge based on the difference between the carrying value of the asset group and its fair value. The fair value of the salon long-lived asset group is estimated using market participant methods based on the best information available. See Note 107 of the unaudited Condensed Consolidated Financial Statements for further discussion related to the ROU asset impairment.
Judgments made by management related to the expected useful lives of long-lived assets and the ability to realize undiscounted cash flows in excess of the carrying amounts of such assets are affected by factors such as changes in economic conditions and changes in operating performance. As the ongoing expected cash flows and carrying amounts of long-lived assets are assessed, these factors could cause the Company to realize material impairment charges.
Long-lived assetGoodwill:
During the three months ended December 31, 2021, the Company determined a triggering event occurred, resulting in a quantitative impairment charges, including ROUtest performed over goodwill. This determination was made considering the sustained decrease in share price and salon property and equipment, of $0.8 and $9.8 million were recordeda change in the Company's chief operating decision maker in the three and nine months ended MarchDecember 31, 2021, respectively, on the unaudited Condensed Consolidated Statement of Operations. Of the total long-lived asset impairment charges, $0.3 and $6.3 million, respectively, were allocated2021.
Due to the ROU asset and $0.5 and $3.5 million, respectively, were allocated to salon property and equipment. Long-lived salon property and equipment asset impairment charges of $1.2 and $3.9 million were recorded during the three and nine months ended March 31, 2020, respectively, and are recorded in Depreciation and amortizationtriggering event experienced in the unaudited Condensed Consolidated Statement of Operations.
9

Goodwill:
As of March 31, 2021 and June 30, 2020, the Franchise reporting unit had $229.2 and $227.5 million, respectively, of goodwill. For further information, see Note 9 of the unaudited Condensed Consolidated Financial Statements. The Company assesses goodwill impairment on an annual basis, during the Company's fourth fiscalsecond 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 three and nine months ended March 31, 2021. The COVID-19 pandemic, which began in March 2020, was an interim triggering event in fiscal year 2020. The Company assessed its goodwill as of March 31, 2020 and determined that the Company-owned goodwill was fully impaired. As a result, the Company recordedengaged a goodwill impairment charge of $40.2 million in the three and nine months ended March 31, 2020.
The Company performs its annual impairment assessment as of April 30. For the fiscal year 2020 annual impairment assessment, duethird-party valuation specialist to the impact of the COVID-19 pandemic, the Company elected to forgo the optional Step 0 assessment and performed the quantitativeperform an impairment analysis on the Franchise reporting unit. The Company compared the carrying valueunit of the reporting unit, including goodwill, to the estimated fair value. The result of the assessment indicated that the estimated fair value of the Company's reporting unit exceeded its carrying value by approximately 50 percent.business. For the goodwill impairment analysis, management utilized a combination of both a discounted cash flows approach and market approach to evaluate the Franchise reporting unit. The discounted cash flow model reflects management's assumptions regarding revenue growth rates, economic and market trends, cost structure, and other expectations about the anticipated short-term and long-term operating results. The discount rate of 18.5% was also a market approach. The key assumptionsassumption utilized in the analysis werediscounted cash flow.
As a result of the number of salons to be sold to franchisees and the discount rate. If a future triggering event occurs or if during the Company's annual impairment assessment the fair value oftesting, the Franchise reporting unit, which has decreased significantly, it may result ingoodwill of $229.0 million, was determined to have a non-cash impairment chargefair value that reduces theexceeded its carrying value by 15% as of goodwill.December 31, 2021. At the time of the Company's annual goodwill impairment test in the fourth quarter of fiscal year 2021, the fair value exceeded the book value by 30%. The decrease in headroom is primarily due to an increase in the company-specific risk factor that drove an increase in discount rate from 14% to 18.5%. As of June 30, 2021, the Franchise reporting unit had goodwill of $229.6 million. The change in goodwill for the six months ended December 31, 2021 is due to foreign currency translation.
8

Classification of Revenue and Expenses:
Beginning in the first quarter of fiscal year 2022, the Company adjusted its Statement of Operations for both periods presented to align the presentation of results to its franchise-focused business. Below is a summary of the changes to the financial statement captions. The change does not have a financial impact on the Company's reported revenue, operating loss, reported net loss or cash flows from operations.
Royalties - sales-based royalty received from franchisees. In prior years, these fees were included in Royalties and Fees and disclosed in the footnotes.
Fees - fees received from franchisees and third parties, including franchise fees, software and hardware fees related to Opensalon® Pro and fees received from the third-party distributors.
Product sales to franchisees - wholesale product sales to franchisees. This caption equates to Product sales in the Franchise segment in prior years. The Company is changing its franchise product sales business in fiscal year 2022 from a wholesale distribution model to a third-party distribution model. This revenue is expected to decrease significantly during fiscal year 2022.
Advertising fund contributions - sales-based advertising fund contributions received from franchisees. In prior years, these fees were included in Royalties and Fees and disclosed in the footnotes.
Company-owned salon revenue - service revenue and revenue derived from sales of product in Company-owned salons. This caption equates to revenue reported in the Company-owned segment in prior periods.
Cost of product sales to franchisees - direct cost of inventory and freight and other costs of sales. In prior years, these sales were included in the Franchise segment cost of product and site operating expenses.
Company-owned salon expense - cost of service and product sold to guests in our Company-owned salons and other salon-related costs. In prior years, these costs were classified as Company-owned segment cost of service, cost of product and site operating expenses. Excluded from this caption are general and administrative expense, rent and depreciation and amortization related to company-owned salons.
Depreciation:
Depreciation expense in the three and nine months ended MarchDecember 31, 2021 includes $0.8 and $3.42020 include $0.3 and $1.4 million, respectively, and for the six months ended December 31, 2021 and 2020 include $0.6 and $2.7 million, respectively, of asset retirement obligations, which are cash expenses.
Minority Interest:
In December 2020, the Company purchased its non-controlling interest in Roosters from the minority shareholders. The Company paid $0.6 million to obtain 100% ownership. The payment is recorded in cash used in financing activities on the unaudited Condensed Consolidated Statement of Cash Flows.
109

2.    REVENUE RECOGNITION:
Revenue Recognition and Deferred Revenue:
Revenue recognized at point of sale
Product sales to franchisees are recorded at the time product is delivered to the franchisee. Payment for franchisee product revenue is generally collected within 30 to 90 days of delivery. Company-owned salon revenues are recognized at the time when the services are provided. Product revenues for company-owned salons are recognized whenprovided 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 customer.guest. 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, including sales of the hardware related to our proprietary cloud-based management and point-of-sale commerce solution, to franchisees are included within product revenues in the unaudited 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 to 90 days of delivery.
Revenue recognized over time
Franchise revenues primarily include royalties, advertising fund cooperatives 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 isrevenues 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 Statement of Operations. The gross presentationtreatment 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. Recognition of these fees is deferred until the salon opening and is then recognized over the term of the franchise agreement, which is typically ten years. Software fees are recognized over the term of the SaaS agreement. Franchise rental income is a result of the Company signing leases on behalf of franchisees and entering into a sublease arrangementarrangements with the franchisee.franchisees. The Company recognizes franchise rental income and expense when it is due to the landlord.
The following table disaggregates revenue by timing of revenue recognition and is reconciled to reportable segment revenues as follows:
Three Months Ended March 31, 2021Three Months Ended March 31, 2020
 FranchiseCompany-ownedFranchiseCompany-owned
(Dollars in thousands)
Revenue recognized at a point in time:
Service$0 $24,645 $0 $78,387 
Product13,079 7,691 15,318 19,559 
Total revenue recognized at a point in time$13,079 $32,336 $15,318 $97,946 
Revenue recognized over time:
Royalty and other franchise fees$17,955 $0 $16,487 $0 
Advertising fund fees (refunds), net (1)5,580 0 (7,789)0 
Franchise rental income31,317 0 31,821 0 
Total revenue recognized over time54,852 0 40,519 0 
Total revenue$67,931 $32,336 $55,837 $97,946 

(1)Fiscal year 2020 includes the refund of $14.9 million of previously collected cooperative advertising fees. Cooperative advertising fees were not refunded in fiscal year 2021.
11

Nine Months Ended March 31, 2021Nine Months Ended March 31, 2020
 FranchiseCompany-ownedFranchiseCompany-owned
(Dollars in thousands)
Revenue recognized at a point in time:
Service$0 $90,040 $0 $322,133 
Product41,057 27,608 45,287 79,229 
Total revenue recognized at a point in time$41,057 $117,648 $45,287 $401,362 
Revenue recognized over time:
Royalty and other franchise fees$46,589 $0 $52,721 $0 
Advertising fund fees14,804 0 13,341 0 
Franchise rental income95,885 0 96,875 0 
Total revenue recognized over time157,278 0 162,937 0 
Total revenue$198,335 $117,648 $208,224 $401,362 

Information about receivables, broker fees and deferred revenue subject to the current revenue recognition guidance is as follows:
March 31,
2021		June 30,
2020		Balance Sheet Classification
(Dollars in thousands)
Receivables from contracts with customers, net$22,106 $22,991 Accounts receivable, net
Broker fees19,599 20,516 Other assets
Deferred revenue:
     Current
Gift card liability$2,336 $2,543 Accrued expenses
Deferred franchise fees unopened salons80 77 Accrued expenses
Deferred franchise fees open salons5,929 5,537 Accrued expenses
Total current deferred revenue:$8,345 $8,157 
     Non-current
Deferred franchise fees unopened salons$7,656 $11,855 Other non-current liabilities
Deferred franchise fees open salons33,001 33,623 Other non-current liabilities
Total non-current deferred revenue$40,657 $45,478 

December 31,
2021		June 30,
2021		Balance Sheet Classification
(Dollars in thousands)
Receivables from contracts with customers, net$9,238 $19,112 Receivables, net
Broker fees17,288 19,254 Other assets
Deferred revenue:
     Current
Gift card liability$2,131 $2,240 Accrued expenses
Deferred franchise fees unopened salons21 40 Accrued expenses
Deferred franchise fees open salons5,897 5,884 Accrued expenses
Total current deferred revenue$8,049 $8,164 
     Non-current
Deferred franchise fees unopened salons$4,128 $6,571 Other non-current liabilities
Deferred franchise fees open salons29,761 32,365 Other non-current liabilities
Total non-current deferred revenue$33,889 $38,936 
1210

Receivables relate primarily to payments due for royalties, franchise fees, advertising fees, rent, franchise product sales and sales of salon services and product paid by credit card. The receivables balance is presented net of an allowance for expected losses (i.e., doubtful accounts), primarily related to receivables from franchisees. The following table is a rollforward of the allowance for doubtful accounts for the period (in thousands):
Balance as of June 30, 20202021$6,8997,774 
Provision for doubtful accounts (1)792 (41)
Provision for franchisee rent (2)907811 
Reclass of accrued rent (3)396 
Write-offs(1,436)(589)
Balance as of MarchDecember 31, 2021$7,1628,351 
_______________________________________________________________________________

(1)The provision for doubtful accounts is recognized as Generalgeneral and administrative expense in the unaudited Condensed Consolidated Statement of Operations.
(2)The provision for franchisee rent is recognized as Rentrent in the unaudited Condensed Consolidated Statement of Operations.
(3)The reclass of accrued rent represents franchisee rent obligations guaranteed by the Company that were unbilled and deemed unrecoverable as of June 30, 2021. The amounts were billed in fiscal year 2022 and the related accrual was reclassified to the allowance for doubtful accounts.
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 Generalgeneral 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 (in thousands):
Balance as of June 30, 20202021$20,51619,254 
Additions1,57325 
Amortization(2,369)(1,625)
Write-offs(121)(366)
Balance as of MarchDecember 31, 2021$19,59917,288 

Deferred revenue includes the gift card liability andThe decrease in non-current deferred franchise fees for unopened salons and open salons. Gift card revenue forfrom June 30, 2021 to December 31, 2021 is primarily due to $1.7 million of deferred fees related to terminated development agreements being recognized as fees in the threeunaudited Condensed Consolidated Statement of Operations in the six months ended MarchDecember 31, 2021, and 2020of which $1.5 million was $0.3 and $0.8 million, respectively, and forrecognized in the nine months ended March 31, 2021 and 2020 was $0.7 and $2.3 million, respectively.second quarter. 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 MarchDecember 31, 2021 and 2020 was $1.6 and $1.4$1.6 million, respectively, and for the ninesix months ended MarchDecember 31, 2021 and 2020 was $4.9$3.2 and $3.8$3.3 million, respectively. Estimated revenue expected to be recognized in the future related to deferred franchise fees for open salons as of MarchDecember 31, 2021 is as follows (in thousands):
Remainder of 2021$1,505 
20225,901 
Remainder of 2022Remainder of 2022$3,034 
202320235,725 20235,724 
202420245,483 20245,489 
202520255,092 20255,096 
202620264,630 
ThereafterThereafter15,224 Thereafter11,685 
TotalTotal$38,930 Total$35,658 


1311

3.    TBG RESTRUCTURING AND DISCONTINUED OPERATIONS:
In October 2017, the Company sold substantially all of its mall-based salon business in North America, representing 858 salons, to The Beautiful Group (TBG). The Company classified the results of its mall-based business as discontinued operations in the unaudited Condensed Consolidated Statement of Operations. Included in discontinued operations in fiscal year 2020 are adjustments to actuarial assumptions related to the discontinued operations. Other than the items presented in the unaudited Consolidated Statement of Cash Flows, there were no other significant non-cash operating activities or non-cash investing activities related to discontinued operations for the nine months ended March 31, 2021 and 2020.
For the three and nine months ended March 31, 2020, the Company recorded $0.1 and $2.4 million of professional fees and restructuring charges related to the Company assisting TBG with operating expenses to mitigate the risk of default associated with TBG's lease obligations. In the second quarter of fiscal year 2020, TBG transferred 207 of its North American mall-based salons to the Company. The 207 North American mall-based salons transferred were the salons that the Company was the guarantor of the lease obligation. As of March 31, 2021, prior to any mitigation efforts which may be available, the Company remains liable for up to approximately $12 million related to its mall-based salon lease commitments on the 62 salons that remain open, an $11 million reduction from June 30, 2020. The commitments are included in our lease liabilities.


4.EARNINGS PER SHARE:
The Company’s basic earnings per share is calculated as net loss divided by weighted average common shares outstanding, excluding unvested outstanding stock options (SOs), restricted stock units (RSUs) and stock-settled performance units (PSUs). The Company’s diluted earnings per share is calculated as net loss divided by weighted average common shares and common share equivalents outstanding, which includes shares issued under the Company’s stock-based compensation plans. Stock-based awards with exercise prices greater than the average market price of the Company’s common stock are excluded from the computation of diluted earnings per share.
For the three and nine months ended March 31, 2021, there were 972,485 and 511,970, respectively, and for the three and nine months ended March 31, 2020 there were 663,636 and 1,145,053, respectively, common stock equivalents of dilutive common stock excluded in the diluted earnings per share calculations due to the net loss from continuing operations.
The computation of weighted average shares outstanding, assuming dilution, excluded 1,261,200 and 670,997 of stock-based awards during the three months ended March 31, 2021 and 2020, respectively, and 2,240,743 and 174,698 of stock-based awards during the nine months ended March 31, 2021 and 2020, respectively, as they were not dilutive under the treasury stock method.
14

5.SHAREHOLDERS’SHAREHOLDERS' EQUITY:
Stock-Based Employee Compensation:
During the three and ninesix months ended MarchDecember 31, 2021, the Company granted various equity awards including RSUs, PSUsSOs, and SOs.
A summary of equity awards granted isSARs as follows:
Three Months Ended March 31, 2021Nine Months Ended March 31, 2021
Restricted stock units47,303 891,825 
Performance-based restricted stock units0 62,290 
Stock option units0 1,458,680 

Three Months Ended December 31, 2021Six Months Ended December 31, 2021
Restricted stock units (RSUs)770,309 773,296 
Stock options (SOs)537,500 537,500 
Stock appreciation rights (SARs)487,500 487,500 
The RSUs granted to employees during the three and nine months ended MarchDecember 31, 2021 vest in equal amounts20%,20%,60% over a three-year period subsequent to the grant date cliff vest after a one-year period, cliff vest after a three-year period or cliff vest after a five-yearone-year period subsequent to the grant date. The CEO, who was appointed in October 2020, was granted 0.4 million "sign-on" RSUs that vest pro-rated over one year.
The PSUs granted to employees have a three-year performance period ending June 30, 2023 linked to the Company's stock price reaching a specified volume weighted average closing price for a 50-day period that ends on June 30, 2023. The PSUs granted have a maximum vesting percentage of 200% based on the level of performance achieved for the respective award.
The SOs granted during the ninefirst quarter of fiscal year 2022 were granted to a Board member who joined the Company during the quarter and vested on October 27, 2021. The SOs and SARs granted during the three months ended MarchDecember 31, 2021 were granted in connection with the appointment of the Company's CEO and consist of options to purchase shares of the Company's common stock. The SOs are subject to bothvest 20%,20%,60% over a four-year service-based vesting condition and a performance-based vesting condition. Additionally, 0.4 million SOs are matching options that vest on the fourth anniversary of employment upthree-year period subsequent to the number of RSUs the CEO still holds of the "sign-on" RSUs.grant date.
Total compensation cost for stock-based payment arrangements totaling $1.7$(1.4) and $0.0$1.3 million for the three months ended MarchDecember 31, 2021 and 2020, respectively, and $1.8$0.3 and $2.1$0.1 million for the ninesix months ended MarchDecember 31, 2021 and 2020, respectively, waswere recorded within Generalgeneral and administrative expense on the unaudited Condensed Consolidated Statement of Operations. In the ninethree months ended MarchDecember 31, 2021 and 2020, stock compensation includes a $2.4 million benefit from the forfeiture of awards related to executive forfeitures of $2.0 and $0.3 million, respectively. In the departuresix months ended December 31, 2021 and 2020, stock compensation includes a benefit related to executive forfeitures of the Company's former CEO.$2.0 and $2.7 million, respectively.
Share Repurchases:Issuance Program:
In fiscal year 2021, the Company filed a $150.0 million shelf registration statement and $50.0 million prospectus supplement with the Securities and Exchange Commission (SEC) under which it may offer and sell, from time to time, up to $50.0 million worth of its Class A common stock in "at-the-market" offerings. During the ninethree and six months ended MarchDecember 31, 2021, the Company did 0t repurchasereceived gross proceeds of $5.2 and $38.4 million, respectively, related to the "at-the-market" offering and paid fees to sales agents and other fees of $0.2 and $1.2 million, respectively. Net proceeds from sales of shares under the previously approved stock repurchase program. During the nine months ended March 31, 2020, the Company repurchased 1.5 million shares for $26.4 million under a previously approved stock repurchase program. At March 31, 2021, $54.6 million remains outstanding under the approved stock repurchase program."at-the-market" program, if any, may be used to, among other things, fund working capital requirements, repay debt and support growth strategies.
1512

6.4.     INCOME TAXES:
 A summary of income tax benefits and corresponding effective tax rates is as follows:
Three Months Ended March 31,Nine Months Ended March 31,
2021202020212020
(Dollars in thousands)
Income tax benefit$333 $979 $1,368 $5,783 
Effective tax rate3.0 %1.4 %1.7 %5.5 %

Three Months Ended December 31,Six Months Ended December 31,
2021202020212020
(Dollars in thousands)
Income tax benefit$164 $400 $213 $1,035 
Effective tax rate3.2 %1.2 %1.4 %1.5 %
The recorded tax provisions and effective tax rates for the three and ninesix months ended MarchDecember 31, 2021 and 2020 were different than what would normally be expected primarily due to the impact of the deferred tax valuation allowance.
The Company is no longer subject to IRS examinations for years before 2014. Furthermore, with limited exceptions, the Company is no longer subject to state and international income tax examinations by tax authorities for years before 2012.


7.5.     COMMITMENTS AND CONTINGENCIES:
The Company is a defendant in various lawsuits and claims arising out of the normal course of business. Like certain other franchisors, the Company has been faced with allegations of franchise regulation and agreement violations. Additionally, similar to other large retail employers, the Company has been faced with allegations of purported class-wide consumer and wage and hour violations. LitigationIn the three months ended December 31, 2021, the Company recorded $1.0 million of settlement and legal fees related to litigation in the quarter. Other 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 incur judgments or enter into settlements of claims that could have a material adverse effect on its results of operations in any particular period. The Company is a defendant in two wage and hour lawsuits in California. The first, a class action in US District Court, alleges various violations of the California Labor Code, including, but not limited to failure to pay wages, failure to permit rest breaks, failure to pay all wages due on termination of employment, waiting time penalties, failure to provide accurate wage statements and violation of the business and professions code. This case has been preliminarily settled, pending approval of the court and class, for $2.1 million. The second, a class action filed in California Superior Court, alleges various violations of the California Labor Code as well as PAGA penalties. Barring successful objection from plaintiffs’ attorneys to the first class action, the second case will be subsumed into the first case’s settlement. As of June 30, 2020 and March 31, 2021, $2.1 million was included within accrued expenses on the unaudited Condensed Consolidated Balance Sheet related to these class action lawsuits. In addition, our existing point-of-sale system supplier hashad challenged the development of certain parts of our technology systems in litigation brought in the Northern District of California, case No. 20-cv-02181-MMC. We have vigorously denied the allegations made by this third-party supplier and have asserted certain counterclaims against the third party. However, the dispute regarding our ownership and involvement of certain key personnel may be costly and distracting,The Company and the outcome is currently uncertain. supplier entered into an agreement, effective June 25, 2021, that provided for the dismissal of the lawsuit and set forth a commercial services agreement pursuant to which the supplier will assist in the transfer of franchise salons from its point-of-sale system to the Company's salon management system, Opensalon® Pro. The Company has not recorded an expenseCompany's accrual related to damages in connection with these matters because any potential loss is not currently probable or reasonably estimable under U.S. GAAP. Additionally, the Company is unable to reasonably estimate the rangeagreement was $2.7 and $3.0 million as of loss, if any, that may result from these matters.December 31, 2021 and June 30, 2021, respectively.
1613

8.6.    CASH, CASH EQUIVALENTS AND RESTRICTED CASH:
The table below reconciles the cash and cash equivalents balances and restricted cash balances, recorded inwithin other current assets fromon the unaudited Condensed Consolidated Balance Sheet to the amount of cash, cash equivalents and restricted cash reported on the unaudited Condensed Consolidated Statement of Cash flows:
March 31,
2021		June 30,
2020		December 31,
2021		June 30,
2021
(Dollars in thousands)(Dollars in thousands)
Cash and cash equivalentsCash and cash equivalents$34,510 $113,667 Cash and cash equivalents$35,442 $19,191 
Restricted cash, included in Other current assets (1)5,859 9,213 
Restricted cash, included in other current assets (1)Restricted cash, included in other current assets (1)9,929 9,961 
Total cash, cash equivalents and restricted cashTotal cash, cash equivalents and restricted cash$40,369 $122,880 Total cash, cash equivalents and restricted cash$45,371 $29,152 

(1)Restricted cash within Otherother 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.


9.    GOODWILL:
The table below contains details related to the Company's goodwill:
Franchise Reporting Unit
(Dollars in thousands)
Goodwill, net at June 30, 2020$227,457 
Translation rate adjustments1,764 
Goodwill, net at March 31, 2021$229,221 

1714

10.    LEASES7.    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 some of its corporate facilities under operating leases. The original terms of the salon leases range from 1 to 20 years with many leases renewable for an additional 5 to 10 year10-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 Rentrent includes the following:
Three Months Ended March 31,Nine Months Ended March 31,
2021202020212020
(Dollars in thousands)
Minimum rent$8,400 $13,571 $28,605 $48,638 
Percentage rent based on sales3 298 78 2,145 
Real estate taxes and other expenses1,989 3,672 7,147 9,842 
Lease termination (benefit) expense (1)(154)44 6,484 123 
Lease liability benefit (2)(3,009)0 (11,295)0 
Corporate segment rent671 904 2,046 1,909 
Franchise segment non-reimbursable rent101 176 1,063 767 
Total$8,001 $18,665 $34,128 $63,424 
Three Months Ended December 31,Six Months Ended December 31,
2021202020212020
(Dollars in thousands)
Office and warehouse rent$1,248 $1,194 $2,917 $2,397 
Lease termination expense (1)238 1,117 1,578 6,670 
Lease liability benefit (2)(496)(2,226)(2,927)(8,286)
Franchise salon rent246 440 575 1,158 
Company-owned salon rent1,852 12,377 2,748 24,188 
Total$3,088 $12,902 $4,891 $26,127 

(1)During the three and nine months ended MarchDecember 31, 2021, the Company terminated the leases for 15 and 244 company-ownedincurred costs of $0.2 million to exit salons respectively, before the lease end dates.date in order to relieve the Company of future lease obligations. During the three and ninesix months ended MarchDecember 31, 2020,2021, the Company terminated the leases for 3 and 60 company-owned salons, respectively,paid $0.9 million to exit its distribution centers before the lease end dates.dates and incurred costs of $0.7 million to exit salons before the lease end date in order to relieve the Company of future lease obligations. For the three and ninesix months ended MarchDecember 31, 2021,2020, lease termination fees include $0.3includes $2.2 and $4.9$4.6 million, respectively, of early termination payments to close salons before the lease end date to relieve the Company of future lease obligations. For the threeobligations and nine months ended March 31, 2021, lease termination fees also include $(0.5)$(1.1) and $1.5$2.0 million, respectively, of adjustments to accrue future lease payments for salons that are no longer operating. The early termination payments made in the nine months ended March 31, 2021 decreased the future minimum rent liability by $9.5 million plus saved the Company from the associated real estate taxes and other lease expenses.
(2)For the three and nine months ended March 31, 2021, uponUpon termination of previously impaired leases, the Company derecognizedderecognizes the corresponding ROU assets of $3.2 and $13.3 million, respectively, and lease liabilities of $5.2 and $19.7 million, respectively, that resultedwhich results in a net gain of $2.0 and $6.4 million, respectively.gain. In addition, the Company recognizedrecognizes a benefit from lease liabilities decreasing in excess of previously impaired ROU assets. The benefit recognized was $1.0 and $4.9 million in the three and nine months ended March 31, 2021, respectively.assets for ongoing leases that were previously impaired.
The Company leases salon premises in which the majority of its franchisees operate and has entered into corresponding sublease arrangements with franchisees. All leaselease-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 Statement of Operations. For the three months ended MarchDecember 31, 2021 and 2020, franchise rental income and franchise rent expense were $31.3$33.8 and $31.8$32.3 million, respectively. Forrespectively and $67.5 and $64.6 million, respectively, for the ninesix months ended MarchDecember 31, 2021 and 2020, franchise rental income and franchise rent expense were $95.9 and $96.9 million.2020. These leases generally have lease terms of approximately 5five years. The Company expects to renew SmartStyle and Supercutssome franchise leases upon expiration. Other leases are expected to be renewed by the franchisee upon expiration. This represents a Board-approved change in estimate that occurred in the second quarter of fiscal year 2021 and was intended to reduce lease exposure. The change in estimate resulted in a decrease to lease liabilities and right of use assets of $72.9 million, with no impact to net income.
1815

For franchise and company-owned salon 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 any accrued lease payments and unamortized lease incentives received, if any. The Company's consolidated ROU asset balance was $629.0 and $786.2 million as of March 31, 2021 and June 30, 2020, respectively. For leases classified as operating leases, 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 6.446.26 and 6.876.44 years and the weighted average discount rate was 4.07%4.17% and 3.95%4.11% for all salon operating leases as of MarchDecember 31, 2021 and June 30, 2020,2021, respectively.
A lessee’slessee's ROU asset is subject to the same asset impairment guidance in ASC 360, Property, Plant, and Equipment, applied to other elements of property, plant, and equipment. The Company has identified its asset groups at the individual salon level as this represents the lowest level that identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Poor salon performance, primarily due to the COVID-19 pandemic, resulted in an ASC 360-10-35-21 triggering event. As a result, management assessed underperforming salon asset groups, which included the related ROU assets, for impairment in accordance with ASC 360.
The first step in the impairment test under ASC 360 is to determine whether the long-lived assets are recoverable, which is determined by comparing the net carrying value of the salon asset group to the undiscounted net cash flows to be generated from the use and eventual disposition of that asset group. Estimating cash flows for purposes of the recoverability test is subjective and requires significant judgment. Estimated future cash flows used for the purposes of the recoverability test were based upon historical cash flows for the salons, adjusted for expected changes in future market conditions related to the COVID-19 pandemic, and other factors. The period of time used to determine the estimates of the future cash flows for the recoverability test was based on the remaining useful life of the primary asset of the group, which was the ROU asset in all cases.
Step twoThe second step of the long-lived asset impairment test requires that the fair value of the asset group be estimated when determining the amount of any impairment loss. For the salon asset groups that failed the recoverability test, an impairment loss was measured as the amount by which the carrying amount of the asset group exceeds its fair value. The Company applied the fair value guidance within ASC 820-10 to determine the fair value of the asset group from the perspective of a market-participant considering, among other things, appropriate discount rates, multiple valuation techniques, the most advantageous market, and assumptions about the highest and best use of the asset group. To determine the fair value of the salon asset groups, the Company utilized market-participant assumptions rather than the Company’sCompany's own assumptions about how it intends to use the asset group. The significant judgments and assumptions utilized to determine the fair value of the salon asset groups include;include: the market rent of comparable properties based on recently negotiated leases as applicable, the asset group’sgroup's projected sales for properties with no recently negotiated leases, and a discount rate.
Assessing the long-lived assets for impairment requires management to make assumptions and to apply judgment which can be affected by economic conditions and other factors that can be difficult to predict. The ultimate severity and longevity of the COVID-19 pandemic is unknown and therefore, if actual results are not consistent with the estimates and assumptions used in the calculations, the Company may be exposed to future impairment losses that could be material. In the three and nine months ended MarchDecember 31, 2021 and 2020, the Company recognized a long-lived impairment charge of $0.8$0.1 and $9.8$3.2 million, respectively, which included $0.3$0.0 and $6.3$1.5 million, respectively, related to the rightROU assets, in the unaudited Condensed Consolidated Statement of useOperations. In the six months ended December 31, 2021 and 2020, the Company recognized a long-lived impairment charge of $0.2 and $9.0 million, respectively, which included $0.2 and $6.0 million, respectively, related to the ROU assets, in the unaudited Condensed Consolidated Statement of Operations. The impairments recorded for the three and nine months ended March 31, 2021 were primarily the result of triggering events identified on certain underperforming salons, salons that were identified to close in the year, and certain salons where franchisees were unable to fulfill their rent obligations. Assessing the long-lived assets for impairment requires management to make assumptions and to apply judgment, 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 for its long-lived assets, including its ROU assets. Our projections of future operating performance do not anticipate future salon closures due to the COVID-19 pandemic. However, the ultimate severity and longevity of the COVID-19 pandemic is unknown, therefore; if actual results are not consistent with the estimates and assumptions used in the calculations, the Company may be exposed to future impairment losses that could be material.
1916

As of MarchDecember 31, 2021, 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 (in thousands):
Fiscal YearLeases for Franchise SalonsLeases for Company-owned SalonsCorporate LeasesTotal Operating Lease PaymentsSublease Income To Be Received From FranchiseesNet Rent Commitments
Remainder of 2021$30,985 $6,537 $976 $38,498 $(30,985)$7,513 
2022116,803 22,514 3,566 142,883 (116,803)26,080 
2023103,418 16,936 3,550 123,904 (103,418)20,486 
202491,108 11,803 3,616 106,527 (91,108)15,419 
202577,655 5,911 3,683 87,249 (77,655)9,594 
Thereafter216,156 12,559 27,331 256,046 (216,156)39,890 
Total future obligations$636,125 $76,260 $42,722 $755,107 $(636,125)$118,982 
Less amounts representing interest78,998 6,462 10,189 95,649 
Present value of lease liabilities$557,127 $69,798 $32,533 $659,458 
Less current lease liabilities99,351 21,705 2,168 123,224 
Long-term lease liabilities$457,776 $48,093 $30,365 $536,234 

Fiscal YearLeases for Franchise SalonsLeases for Company-owned SalonsCorporate LeasesTotal Operating Lease PaymentsSublease Income To Be Received From FranchiseesNet Rent Commitments
Remainder of 2022$64,122 $2,548 $1,163 $67,833 $(64,122)$3,711 
2023116,691 4,361 2,365 123,417 (116,691)6,726 
2024102,001 2,579 1,486 106,066 (102,001)4,065 
202585,465 808 1,525 87,798 (85,465)2,333 
202672,253 447 1,563 74,263 (72,253)2,010 
Thereafter180,236 499 6,498 187,233 (180,236)6,997 
Total future obligations$620,768 $11,242 $14,600 $646,610 $(620,768)$25,842 
Less amounts representing interest75,330 619 2,140 78,089 
Present value of lease liabilities$545,438 $10,623 $12,460 $568,521 
Less current lease liabilities104,122 4,606 1,869 110,597 
Long-term lease liabilities$441,316 $6,017 $10,591 $457,924 
2017

11.8.    FINANCING ARRANGEMENTS:
The Company’sCompany's long-term debt consists of the following:
Revolving Credit Facility
 Maturity DateMarch 31,
2021		March 31,
2021		June 30,
2020
 (Fiscal Year)(Interest rate %)(Dollars in thousands)
Revolving credit facility20235.00%$177,500 $177,500 

 Maturity DateDecember 31,
2021		December 31,
2021		June 30,
2021
 (Fiscal Year)(Interest rate %)(Dollars in thousands)
Revolving credit facility20235.125%$194,177 $186,911 
At MarchDecember 31, 2021, cash and cash equivalents totaled $34.5$35.4 million. As of MarchDecember 31, 2021, the Company has $177.5$194.2 million of outstanding borrowings under a $295.0$291.7 million revolving credit facility. The credit facility decreased $2.7 million from $294.4 million as of June 30, 2021 in accordance with the bulk sale provisions in the revolving credit facility agreement, due to the sale of secured inventory related to our transition to third-party distribution partners. At MarchDecember 31, 2021, the Company hashad outstanding standby letters of credit under the revolving credit facility of $18.7$15.7 million, primarily related to the Company's self-insurance program. The unused available credit under the revolving credit facility was $98.8$81.8 million as of MarchDecember 31, 2021. The Company's liquidity whichper the agreement includes the unused available balance under the credit facility, and unrestricted cash and cash equivalents totaled $133.3and the shortfall in the gap in expected proceeds from the sale of salon assets of $20.9 million as of MarchDecember 31, 2021. Total liquidity per the agreement was $138.1 million as of December 31, 2021. The revolving credit facility has a minimum liquidity covenant of $75.0 million. As of MarchDecember 31, 2021, the Company had cash, cash equivalents and restricted cash of $40.4$45.4 million and current liabilities of $203.2$168.2 million.
The Company iswas in compliance with all covenants and other requirements of the financing arrangements as of MarchDecember 31, 2021 and believes it will continue to be in compliance for at least one year from ourthe filing date.
Sale and Leaseback Transaction
The Company’s long-term financing liabilities consists of the following:
 Maturity DateInterest RateMarch 31,
2021		June 30,
2020
 (Fiscal Year) (Dollars in thousands)
Financial liability - Salt Lake City Distribution Center20343.30%$0 $16,773 
Financial liability - Chattanooga Distribution Center20343.70%0 11,208 
Long- term financing liability$0 $27,981 

In fiscal year 2019, the Company sold its Salt Lake City and Chattanooga Distribution Centers to an unrelated party. At the time of the sale, the transactions were considered failed sale and leaseback transactions, as the Company had planned to lease the property for more than 75% of its economic life. The sale proceeds received from the buyer-lessor were recognized as a financial liability, which was reduced based on the rental payments made under the lease that were allocated between principal and interest. In the third quarter of fiscal year 2021, as a result of the Company exiting its wholesale product sales business, the Company informed the landlord of its intention to exit the leased spaces. Because the Company no longer plans to lease the distribution centers for the majority of the assets’ useful lives, these transactions are subsequently considered sale and leaseback transactions. As a result, the Company derecognized the financial liability of $28.5 million and the carrying value of the related assets of $13.6 million and recognized a gain of $14.9 million for the difference between the liability and asset. The gain on distribution centers was recorded to Interest income and other, net in the unaudited Condensed Consolidation Statement of Operations. As the leases for the 2 distribution centers meet the sale and leaseback criteria, the Company recognized a right of use asset and lease liability of $20.3 million on the unaudited Condensed Consolidated Balance Sheet as of March 31, 2021.
2118

12.9.    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).
Assets and Liabilities Measured at Fair Value on a Recurring Basis
As of MarchDecember 31, 2021 and June 30, 2020,2021, the estimated fair value of the Company’sCompany's cash, cash equivalents, restricted cash, receivables, inventory, deferred compensation assets and accounts payable debt and long-term financial liabilities approximated their carrying values. The estimated fair values of the Company's debt and long-term financial liability areis based on Level 2 inputs.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
We measure certain assets, including the Company’sCompany's equity method investments, tangible fixed and other assets and goodwill, at fair value on a nonrecurring basis when they are deemed to be other than temporarily impaired. The fair values of these assets are determined, when applicable, based on valuation techniques using the best information available, and may include quoted market prices, market comparables and discounted cash flow projections.
The following impairments were based on fair values using Level 3 inputs:
Three Months Ended March 31,Nine Months Ended March 31,
2021202020212020
(Dollars in thousands)
Goodwill$0 $40,164 $0 $40,164 
Long-lived asset impairment (1)833 1,208 9,817 3,851 
Three Months Ended December 31,Six Months Ended December 31,
2021202020212020
(Dollars in thousands)
Long-lived asset impairment (1)$52 $3,160 $215 $8,984 

(1)Long-lived asset impairment charges, including right of use and salon property and equipment, are separately stated on the unaudited Condensed Consolidated Statement of Operations for the three and nine months ended March 31, 2021. Long-lived salon property and equipment asset impairment charges are recorded in Depreciation and amortization in the unaudited Condensed Consolidated Statement of Operations for the three and nine months ended March 31, 2020. See Note 1 to the unaudited Condensed Consolidated Financial Statements.
2219

13.10.    SEGMENT INFORMATION:
Segment information is prepared on the same basis that the chief operating decision maker reviews financial information for operational decision-making purposes. Beginning in fiscal year 2022, corporate costs are included within the Franchise segment to reflect how the chief operating decision maker reviews the business. The Company re-assessed its chief operating decision maker conclusion in the second quarter of fiscal year 2022 as part of the CEO transition. The Company concluded the Interim CEO was the chief operating decision maker.
The Company’sCompany's reportable operating segments consisted of the following salons:
March 31,
2021		June 30,
2020		December 31,
2021		June 30,
2021
FRANCHISE SALONS:FRANCHISE SALONS:FRANCHISE SALONS:
SmartStyle/Cost Cutters in Walmart StoresSmartStyle/Cost Cutters in Walmart Stores1,569 1,317 SmartStyle/Cost Cutters in Walmart Stores1,676 1,666 
SupercutsSupercuts2,357 2,508 Supercuts2,345 2,386 
Portfolio Brands (1)Portfolio Brands (1)1,233 1,217 Portfolio Brands (1)1,386 1,357 
Total North American salonsTotal North American salons5,159 5,042 Total North American salons5,407 5,409 
Total International salons (2)(1)Total International salons (2)(1)158 167 Total International salons (2)(1)146 154 
Total Franchise salonsTotal Franchise salons5,317 5,209 Total Franchise salons5,553 5,563 
as a percent of total Franchise and Company-owned salonsas a percent of total Franchise and Company-owned salons86.6 %76.1 %as a percent of total Franchise and Company-owned salons97.4 %95.3 %
COMPANY-OWNED SALONS:COMPANY-OWNED SALONS:COMPANY-OWNED SALONS:
SmartStyle/Cost Cutters in Walmart StoresSmartStyle/Cost Cutters in Walmart Stores373 751 SmartStyle/Cost Cutters in Walmart Stores63 91 
SupercutsSupercuts124 210 Supercuts22 35 
Portfolio Brands (1)Portfolio Brands (1)267 505 Portfolio Brands (1)65 150 
Mall-based (3)62 166 
Total Company-owned salonsTotal Company-owned salons826 1,632 Total Company-owned salons150 276 
as a percent of total Franchise and Company-owned salonsas a percent of total Franchise and Company-owned salons13.4 %23.9 %as a percent of total Franchise and Company-owned salons2.6 %4.7 %
OWNERSHIP INTEREST LOCATIONS:OWNERSHIP INTEREST LOCATIONS:OWNERSHIP INTEREST LOCATIONS:
Equity ownership interest locationsEquity ownership interest locations78 82 Equity ownership interest locations76 78 
Grand Total, System-wideGrand Total, System-wide6,221 6,923 Grand Total, System-wide5,779 5,917 

(1)Portfolio Brands was previously referred to as Signature Style.
(2)Canadian and Puerto Rican salons are included in the North American salon totals.
(3)The mall-based salons were acquired from TBG on December 31, 2019. They are included in continuing operations under the Company-owned operating segment from January 1, 2020.
As of MarchDecember 31, 2021, the Franchise operating segment is comprised primarily of Supercuts®, SmartStyle®, Cost Cutters®, First Choice Haircutters®, Magicuts®, and Roosters® concepts and the Company-owned operating segment is comprised primarily of SmartStyle®, Supercuts®, Cost Cutters®, and other regional trade names.
2320

Financial information concerning the Company's reportable operating segments is shown in the following tables:
 Three Months Ended December 31, 2021
FranchiseCompany-ownedConsolidated
 (Dollars in thousands)
Revenues:
Royalties$16,125 $— $16,125 
Fees4,867 — 4,867 
Product sales to franchisees2,428 — 2,428 
Advertising fund contributions8,021 — 8,021 
Franchise rental income33,772 — 33,772 
Company-owned salon revenue— 5,043 5,043 
Total revenue65,213 5,043 70,256 
Operating expenses:
Cost of product sales to franchisees3,419 — 3,419 
General and administrative14,922 1,062 15,984 
Rent1,355 1,733 3,088 
Advertising fund expense8,021 — 8,021 
Franchise rent expense33,772 — 33,772 
Company-owned salon expense— 5,067 5,067 
Depreciation and amortization1,503 477 1,980 
Long-lived asset impairment128 (76)52 
Total operating expenses63,120 8,263 71,383 
Operating income (loss)$2,093 $(3,220)$(1,127)
 Three Months Ended March 31, 2021
FranchiseCompany-ownedCorporateConsolidated
 (Dollars in thousands)
Revenues:
Service$0 $24,645 $0 $24,645 
Product13,079 7,691 0 20,770 
Royalties and fees23,535 0 0 23,535 
Franchise rental income31,317 0 0 31,317 
Total revenue67,931 32,336 0 100,267 
Operating expenses:
Cost of service0 15,821 0 15,821 
Cost of product11,148 10,120 0 21,268 
Site operating expenses5,600 7,766 0 13,366 
General and administrative7,450 1,525 15,607 24,582 
Rent101 7,229 671 8,001 
Franchise rent expense31,317 0 0 31,317 
Depreciation and amortization333 1,687 1,600 3,620 
Long-lived asset impairment22 811 0 833 
Total operating expenses55,971 44,959 17,878 118,808 
Operating income (loss)11,960 (12,623)(17,878)(18,541)
Other (expense) income:
Interest expense0 0 (3,163)(3,163)
Loss from sale of salon assets to franchisees, net0 0 (4,575)(4,575)
Interest income and other, net0 0 15,099 15,099 
Income (loss) from continuing operations before income taxes$11,960 $(12,623)$(10,517)$(11,180)

 Three Months Ended March 31, 2020
FranchiseCompany-ownedCorporateConsolidated
 (Dollars in thousands)
Revenues:
Service$0 $78,387 $0 $78,387 
Product15,318 19,559 0 34,877 
Royalties and fees8,698 0 0 8,698 
Franchise rental income31,821 0 0 31,821 
Total revenue55,837 97,946 0 153,783 
Operating expenses:
Cost of service0 54,824 0 54,824 
Cost of product11,452 10,220 0 21,672 
Site operating expenses(7,789)11,449 0 3,660 
General and administrative8,657 4,566 18,648 31,871 
Rent176 17,585 904 18,665 
Franchise rent expense31,821 0 0 31,821 
Depreciation and amortization292 9,799 268 10,359 
TBG mall location restructuring146 0 0 146 
Goodwill impairment0 40,164 0 40,164 
Total operating expenses44,755 148,607 19,820 213,182 
Operating income (loss)11,082 (50,661)(19,820)(59,399)
Other (expense) income:
Interest expense0 0 (1,712)(1,712)
Loss from sale of salon assets to franchisees, net0 0 (7,858)(7,858)
Interest income and other, net0 0 148 148 
Income (loss) from continuing operations before income taxes$11,082 $(50,661)$(29,242)$(68,821)

 Three Months Ended December 31, 2020
FranchiseCompany-ownedConsolidated
 (Dollars in thousands)
Revenues:
Royalties$12,749 $— $12,749 
Fees2,438 — 2,438 
Product sales to franchisees14,236 — 14,236 
Advertising fund contributions4,715 — 4,715 
Franchise rental income32,285 — 32,285 
Company-owned salon revenue— 37,897 37,897 
Total revenue66,423 37,897 104,320 
Operating expenses:
Cost of product sales to franchisees11,324 — 11,324 
General and administrative24,255 2,435 26,690 
Rent1,058 11,844 12,902 
Advertising fund expense4,715 — 4,715 
Franchise rent expense32,285 — 32,285 
Company-owned salon expense— 33,611 33,611 
Depreciation and amortization2,077 4,311 6,388 
Long-lived asset impairment94 3,066 3,160 
Total operating expenses75,808 55,267 131,075 
Operating loss$(9,385)$(17,370)$(26,755)
2421

 Nine Months Ended March 31, 2021
FranchiseCompany-ownedCorporateConsolidated
 (Dollars in thousands)
Revenues:
Service$0 $90,040 $0 $90,040 
Product41,057 27,608 0 68,665 
Royalties and fees61,393 0 0 61,393 
Franchise rental income95,885 0 0 95,885 
Total revenue198,335 117,648 0 315,983 
Operating expenses:
Cost of service0 66,441 0 66,441 
Cost of product33,117 21,723 0 54,840 
Site operating expenses14,858 22,097 0 36,955 
General and administrative23,055 6,936 47,428 77,419 
Rent1,063 31,019 2,046 34,128 
Franchise rent expense95,885 0 0 95,885 
Depreciation and amortization896 11,080 5,408 17,384 
Long-lived asset impairment726 9,091 0 9,817 
Total operating expenses169,600 168,387 54,882 392,869 
Operating income (loss)28,735 (50,739)(54,882)(76,886)
Other (expense) income:
Interest expense0 0 (10,626)(10,626)
Loss from sale of salon assets to franchisees, net0 0 (8,463)(8,463)
Interest income and other, net0 0 15,616 15,616 
Income (loss) from continuing operations before income taxes$28,735 $(50,739)$(58,355)$(80,359)
 Six Months Ended December 31, 2021
FranchiseCompany-ownedConsolidated
 (Dollars in thousands)
Revenues:
Royalties$32,726 $— $32,726 
Fees8,132 — 8,132 
Product sales to franchisees10,436 — 10,436 
Advertising fund contributions16,136 — 16,136 
Franchise rental income67,534 — 67,534 
Company-owned salon revenue— 13,048 13,048 
Total revenue134,964 13,048 148,012 
Operating expenses:
Cost of product sales to franchisees11,532 — 11,532 
General and administrative36,165 1,608 37,773 
Rent3,032 1,859 4,891 
Advertising fund expense16,136 — 16,136 
Franchise rent expense67,534 — 67,534 
Company-owned salon expense— 13,011 13,011 
Depreciation and amortization3,125 724 3,849 
Long-lived asset impairment128 87 215 
Total operating expenses137,652 17,289 154,941 
Operating loss$(2,688)$(4,241)$(6,929)

 Nine Months Ended March 31, 2020
FranchiseCompany-ownedCorporateConsolidated
 (Dollars in thousands)
Revenues:
Service$0 $322,133 $0 $322,133 
Product45,287 79,229 0 124,516 
Royalties and fees66,062 0 0 66,062 
Franchise rental income96,875 0 0 96,875 
Total revenue208,224 401,362 0 609,586 
Operating expenses:
Cost of service0 212,664 0 212,664 
Cost of product34,804 40,453 0 75,257 
Site operating expenses13,341 49,591 0 62,932 
General and administrative25,990 22,263 56,934 105,187 
Rent767 60,748 1,909 63,424 
Franchise rent expense96,875 0 0 96,875 
Depreciation and amortization662 21,844 4,980 27,486 
TBG mall location restructuring2,368 0 0 2,368 
Goodwill impairment0 40,164 0 40,164 
Total operating expenses174,807 447,727 63,823 686,357 
Operating income (loss)33,417 (46,365)(63,823)(76,771)
Other (expense) income:
Interest expense0 0 (4,615)(4,615)
Loss from sale of salon assets to franchisees, net0 0 (26,125)(26,125)
Interest income and other, net0 0 3,188 3,188 
Income (loss) from continuing operations before income taxes$33,417 (46,365)$(91,375)$(104,323)

 Six Months Ended December 31, 2020
FranchiseCompany-ownedConsolidated
 (Dollars in thousands)
Revenues:
Royalties$24,154 $— $24,154 
Fees4,480 — 4,480 
Product sales to franchisees27,978 — 27,978 
Advertising fund contributions9,224 — 9,224 
Franchise rental income64,568 — 64,568 
Company-owned salon revenue— 85,312 85,312 
Total revenue130,404 85,312 215,716 
Operating expenses:
Cost of product sales to franchisees22,003 — 22,003 
General and administrative47,426 5,411 52,837 
Rent2,337 23,790 26,127 
Advertising fund expense9,224 — 9,224 
Franchise rent expense64,568 — 64,568 
Company-owned salon expense— 76,554 76,554 
Depreciation and amortization4,371 9,393 13,764 
Long-lived asset impairment704 8,280 8,984 
Total operating expenses150,633 123,428 274,061 
Operating loss$(20,229)$(38,116)$(58,345)
2522

14.REVISION OF THIRD QUARTER 2020 UNAUDITED RESULTS:
During the fourth quarter of 2020, the Company identified an error in the calculation of the goodwill derecognition associated with the sale of salons to franchisees in the second quarter and third quarter. During the third quarter, goodwill derecognition was overstated by $2.4 million. As of March 31, 2020, the Company fully impaired its remaining Company-owned goodwill with the amount of goodwill impairment being overstated by $4.4 million in the third quarter. The Company assessed the applicable guidance issued by the Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB) and concluded these misstatements were not material, individually or in the aggregate, to the Company’s Unaudited Condensed Consolidated Financial Statements for the aforementioned interim periods. However, to facilitate comparisons among periods, the Company has decided to revise its previously issued second and third quarter unaudited condensed consolidated financial information.
Three Months Ended March 31, 2020
As Previously ReportedAdjustmentsAs Revised
(Dollars in thousands, except per share amounts)
Rent expense (1)$19,243 $(578)$18,665 
Goodwill impairment (2)44,529 (4,365)40,164 
Operating loss(64,342)4,943 (59,399)
Loss from sale of salon assets to franchisees, net(10,208)2,350 (7,858)
Interest income and other, net(1,329)1,477 148 
Loss from continuing operations before income taxes(77,591)8,770 (68,821)
Income tax benefit2,253 (1,274)979 
Net loss(75,037)7,496 (67,541)
Net loss per share(2.10)0.22 (1.88)
Comprehensive loss(77,519)7,496 (70,023)
26


Nine Months Ended March 31, 2020
As Previously ReportedAdjustmentsAs Revised
(Dollars in thousands, except per share amounts)
Rent expense (1)$64,002 $(578)$63,424 
Goodwill impairment (2)44,529 (4,365)40,164 
Operating loss(81,714)4,943 (76,771)
Loss from sale of salon assets to franchisees, net(21,760)(4,365)(26,125)
Interest income and other, net3,188 0 3,188 
Loss from continuing operations before income taxes(104,901)578 (104,323)
Income tax benefit5,904 (121)5,783 
Net loss(98,244)457 (97,787)
Net loss per share(2.73)0.01 (2.72)
Comprehensive loss(100,588)457 (100,131)

The Company revised the amounts originally reported for the third quarter of fiscal year 2020 for the following items:
(1)Adjusted third quarter rent expense includes a $0.6 million benefit related to leases signed in the third quarter, but not identified until the fourth quarter. The net loss for the three and nine months ended March 31, 2020 were both impacted by the misstatement.
(2)During the third quarter, goodwill derecognition was overstated by $2.4 million. As of March 31, 2020, the Company impaired its remaining Company-owned goodwill, with the amount of goodwill impairment being overstated by $4.4 million. As the second quarter error which understated goodwill derecognition was not identified until the fourth quarter, goodwill impairment and loss from the sale of salons to franchisees, net were misstated in the third quarter. The Company recorded a $4.4 million decrease to goodwill impairment and a $2.4 million decrease to loss from the sale of salon assets to franchisees, net to correct the error. Net loss for the nine months ended March 31, 2020 was not misstated. However, goodwill impairment and the loss from the sales of salons to franchisees, net were misstated in the nine months ended March 31, 2020, with goodwill impairment overstated by $4.4 million and loss from the sale of salons to franchisees, net understated by $4.4 million.
27

Item 2.  Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations
Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide a reader of our consolidated financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. This MD&A should be read in conjunction with the MD&A included in our June 30, 20202021 Annual Report on Form 10-K and other documents filed or furnished with the Securities and Exchange Commission (SEC)SEC during the current fiscal year.
MANAGEMENT’SMANAGEMENT'S OVERVIEW
Regis Corporation (RGS) franchises owns,technology-enabled hairstyling and operates beauty salons.hair care salons throughout the United States, Canada, Puerto Rico and the United Kingdom. As of MarchDecember 31, 2021, the Company franchised, owned or held ownership interests in 6,2215,779 worldwide locations. Our locations consisted of 6,1435,703 system-wide North American and Internationalinternational salons, and in 7876 locations we maintained a non-controlling ownership interest less than 100 percent. Each of the Company’sCompany's salon concepts generally offer similar salon products and services and serve the mass market. As of MarchDecember 31, 2021, wethe Company had approximately 4,000 corporate853 employees worldwide.
Impact of COVID-19 on Business OperationsImpact
During the period ended MarchDecember 31, 2021, the global coronavirusCOVID-19 pandemic (COVID-19) had an adverse impact on operations, including prolonged government-mandated salon closures in California and Ontario, in addition to other U.S. states and Canadian provinces during the three and nine months ended March 31, 2021.operations. The COVID-19 pandemic continues to impact salon guest visits and franchisee staffing, resulting in a significant reduction in revenue and traffic. Dueprofitability. In response to COVID-19, the U.S. employee retention payroll tax credit, Canada Emergency Wage Subsidy (CEWS) and Canada Emergency Rent Subsidy (CERS) were introduced for eligible employers. In fiscal year 2021, the Company recorded a $1.5 million benefit related to the economic disruption caused byU.S. employee retention payroll tax credit. In fiscal years 2022 and 2021, the Company received $1.4 and $1.6 million, respectively, in CEWS and $1.2 and $0.0 million, respectively, in CERS that partially cover expenses incurred in Canada during those years. Overall, COVID-19 has, and may continue to have, a negative effect on revenue and profitability. The ultimate impact of the COVID-19 pandemic in both the Company faces a greater degreeshort and long term is not currently estimable due to the uncertainty surrounding the duration of uncertainty than normal in making judgmentsthe pandemic, the availability and estimates neededacceptance of preventative vaccines, the emergence and impact of new COVID-19 variants, and changing government restrictions. Additional impacts to apply the Company's significant accounting policies. Actual results and outcomesbusiness may differ from management's estimates and assumptions.arise that we are not aware of currently.
Merchandising Strategy
As part of the Company's transformation to focus on managing and nurturing brands, and in line with its capital-light business, a new merchandise strategy to outsource product distribution was adopted in the third quarter.quarter of fiscal year 2021. The Company plans to shiftsis shifting its product business from a whole-salewholesale model to a third-party distribution model. Management expects the change will positively impact franchisees by providing them access to industry-leading pricing, loyalty programs, promotional benefits, educational assets, and ongoing support. The Company will receive a fee from the third-party distributors which is included in fees on the interim unaudited Condensed Consolidated Statement of Operations. The change will resultsis expected to result in a decrease inproduct sales to franchisees providing significantly less revenue costby the end of product and general and administrative expense going forward.fiscal year 2022.
CRITICAL ACCOUNTING POLICIES
The interim unaudited Condensed Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America. In preparing the interim unaudited Condensed Consolidated Financial Statements, we are required to make various judgments, estimates and assumptions that could have a significant impact on the results reported in the interim unaudited Condensed Consolidated Financial Statements. We base these estimates on historical experience and other assumptions believed to be reasonable under the circumstances. Estimates are considered to be critical if they meet both of the following criteria: (1) the estimate requires assumptions about material matters that are uncertain at the time the accounting estimates are made and (2) other materially different estimates could have been reasonably made or material changes in the estimates are reasonably likely to occur from period to period. Changes in these estimates could have a material effect on our interim unaudited Condensed Consolidated Financial Statements.
Our significant accounting policies can be found in Note 1 to the Consolidated Financial Statements contained in Part II, Item 8 of the June 30, 20202021 Annual Report on Form 10-K, as well as Notes 1 and 2 to the unaudited Condensed Consolidated Financial Statements contained within this Quarterly Report on Form 10-Q. We believe the accounting policies related to the valuation of goodwill, the valuation and estimated useful lives of long-lived assets, estimates used in relation to tax liabilities and deferred taxes are most critical to aid in fully understanding and evaluating our reported financial condition and results of operations. Discussion of each of these policies is contained under “Critical"Critical Accounting Policies”Policies" in Part II, Item 7 of our June 30, 20202021 Annual Report on Form 10-K. Our policies related to revenue recognition guidance ASC Topic 606, can be found in Note 2 to the unaudited Condensed Consolidated Financial Statements.
2823

RESULTS OF OPERATIONS
Impact of salons sold to franchisees on operations.
In the three and nine months ended March 31, 2021, the Company sold 126 and 408, respectively, company-owned salons to franchisees. The impact of these transactions are as follows:
 Three Months Ended March 31,Increase (Decrease)Nine Months Ended March 31,Increase (Decrease)
2021202020212020
(Dollars in thousands)
Salons sold to franchisees126 375 (249)408 1,363 (955)
Cash proceeds received$595 $18,502 $(17,907)$7,743 $87,916 $(80,173)
(Loss) gain on venditions, excluding goodwill derecognition$(4,575)$9,628 $(14,203)$(8,463)$50,841 $(59,304)
Non-cash goodwill derecognition— (17,486)17,486 — (76,966)76,966 
Loss from sale of salon assets to franchisees, net$(4,575)$(7,858)$3,283 $(8,463)$(26,125)$17,662 

System-wide results
As we continue to transition to an asset-light franchise platform, our results will be moreare impacted by our system-wide sales, which include sales by all points of distribution, whether owned by our franchisees or the Company or our franchisees.Company. While we do not record sales by franchisees as revenue, and such sales are not included in our consolidated financial statements,unaudited Condensed Consolidated Financial Statements, we believe that this operating measure is important in obtaining an understanding of our financial performance. We believe system-wide sales information aids in understanding how we derive royalty revenue and in evaluating performance.
System-wide same-store sales (1) by concept are detailed in the table below:
Three Months Ended March 31,Nine Months Ended March 31,Three Months Ended December 31,Six Months Ended December 31,
20212020202120202021202020212020
SmartStyleSmartStyle(19.6)%(9.5)%(28.7)%(4.8)%SmartStyle13.2 %(32.2)%15.1 %(33.0)%
SupercutsSupercuts(22.3)(3.7)(29.9)(1.4)Supercuts30.8 (32.9)30.6 (33.2)
Portfolio BrandsPortfolio Brands(17.9)(4.8)(26.6)(2.7)Portfolio Brands16.6 (30.0)17.6 (30.1)
Consolidated system-wide same store sales(20.7)%(5.4)%(28.7)%(2.7)%
Consolidated system-wide same-store salesConsolidated system-wide same-store sales22.1 %(32.0)%22.6 %(32.3)%

(1)System-wideFiscal year 2022 system-wide same-store sales are calculated as the total change in sales for system-wide franchise and company-owned locations that were open on a specific day of the week during the current period and the corresponding prior period. Fiscal year 2021 system-wide same-store sales are calculated as the total change in sales for system-wide franchise and company-owned locations for more than one year that were open on a specific day of the week during the current period and the corresponding prior period. Quarterly and year-to-date system-wide same-store sales are the sum of the system-wide same-store sales computed on a daily basis. Franchise salons that do not report daily sales are excluded from same-store sales. Locations relocated within a one-mile radius are included in same-store sales as they are considered to have been open in the prior period. System-wide same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation.
2924

Condensed Consolidated Results of Operations (Unaudited)
The following table sets forth, for the periods indicated, certain information derived from our unaudited Condensed Consolidated Statement of Operations. The percentages are computed as a percent of total consolidated revenues, except as otherwise indicated, and the increase (decrease) increase is measured in basis points.
Three Months Ended March 31,Nine Months Ended March 31,Three Months Ended December 31,Six Months Ended December 31,
2021202020212020202120212020202120202021 2021202020212020202120212020202120202021
($ in millions)% of Total
Revenues (1)		(Decrease)
Increase		($ in millions)% of Total
Revenues (1)		(Decrease)
Increase		 ($ in millions)% of Total
Revenues (1)		Increase (Decrease)($ in millions)% of Total
Revenues (1)		Increase (Decrease)
Service revenues$24.6 $78.4 24.5 %51.0 %(2,650)$90.0 $322.1 28.6 %52.8 %(2,420)
Product revenues20.8 34.9 20.8 22.7 (190)68.7 124.5 21.7 20.4 130 
Royalties and fees23.5 8.7 23.5 5.7 1,780 61.4 66.1 19.4 10.8 860 
RoyaltiesRoyalties$16.1 $12.7 23.0 %12.2 %1,080 $32.7 $24.2 22.1 %11.2 %1,090 
FeesFees4.9 2.4 7.0 2.3 470 8.1 4.5 5.5 2.1 340 
Product sales to franchiseesProduct sales to franchisees2.4 14.2 3.4 13.6 (1,020)10.4 28.0 7.0 13.0 (600)
Advertising fund contributionsAdvertising fund contributions8.0 4.7 11.4 4.5 690 16.1 9.2 10.9 4.3 660 
Franchise rental incomeFranchise rental income31.3 31.8 31.2 20.7 1,050 95.9 96.9 30.3 15.9 1,440 Franchise rental income33.8 32.3 48.1 31.0 1,710 67.5 64.6 45.7 29.9 1,580 
Company-owned salon revenueCompany-owned salon revenue5.0 37.9 7.1 36.4 (2,930)13.0 85.3 8.8 39.5 (3,070)
Cost of service (2)15.8 54.8 64.2 69.9 (570)66.4 212.7 73.8 66.0 780 
Cost of product (2)21.3 21.7 102.4 62.2 4,020 54.8 75.3 79.8 60.5 1,930 
Site operating expenses13.4 3.7 13.4 2.4 1,100 37.0 62.9 11.7 10.3 140 
Cost of product sales to franchisees (2)Cost of product sales to franchisees (2)3.4 11.3 141.7 79.6 6,210 11.5 22.0 110.6 78.6 3,200 
General and administrativeGeneral and administrative24.6 31.9 24.6 20.7 390 77.4 105.2 24.5 17.3 720 General and administrative16.0 26.7 22.8 25.6 (280)37.8 52.8 25.6 24.5 110 
RentRent8.0 18.7 8.0 12.2 (420)34.1 63.4 10.8 10.4 40 Rent3.1 12.9 4.4 12.4 (800)4.9 26.1 3.3 12.1 (880)
Advertising fund expenseAdvertising fund expense8.0 4.7 11.4 4.5 690 16.1 9.2 10.9 4.3 660 
Franchise rent expenseFranchise rent expense31.3 31.8 31.2 20.7 1,050 95.9 96.9 30.3 15.9 1,440 Franchise rent expense33.8 32.3 48.1 31.0 1,710 67.5 64.6 45.7 29.9 1,580 
Company-owned salon expenseCompany-owned salon expense5.1 33.6 7.3 32.2 (2,490)13.0 76.6 8.8 35.5 (2,670)
Depreciation and amortizationDepreciation and amortization3.6 10.4 3.6 6.8 (320)17.4 27.5 5.5 4.5 100 Depreciation and amortization2.0 6.4 2.8 6.1 (330)3.8 13.8 2.6 6.4 (380)
Long-lived asset impairmentLong-lived asset impairment0.8 — 0.8 — N/A9.8 — 3.1 — N/ALong-lived asset impairment0.1 3.2 0.1 3.1 (300)0.2 9.0 0.1 4.2 (410)
TBG restructuring— 0.1 — 0.1 (10)— 2.4 — 0.4 (40)
Goodwill impairment— 40.2 — 26.1 (2,610)— 40.2 — 6.6 (660)
Operating loss (3)Operating loss (3)(18.5)(59.4)(18.5)(38.6)2,010 (76.9)(76.8)(24.3)(12.6)(1,170)Operating loss (3)(1.1)(26.8)(1.6)(25.7)2,410 (6.9)(58.3)(4.7)(27.0)2,230 
Interest expenseInterest expense(3.2)(1.7)(3.2)(1.1)(210)(10.6)(4.6)(3.4)(0.8)(260)Interest expense(3.4)(3.7)(4.8)(3.5)(130)(6.8)(7.5)(4.6)(3.5)(110)
Loss from sale of salon assets to franchisees, netLoss from sale of salon assets to franchisees, net(4.6)(7.9)(4.6)(5.1)50 (8.5)(26.1)(2.7)(4.3)160 Loss from sale of salon assets to franchisees, net(0.6)(3.2)(0.9)(3.1)220 (1.7)(3.9)(1.2)(1.8)60 
Interest income and other, netInterest income and other, net15.1 0.1 15.1 0.1 1,500 15.6 3.2 4.9 0.5 440 Interest income and other, net0.1 0.4 0.1 0.4 (30)(0.1)0.5 (0.1)0.2 (30)
Income tax benefit (4)Income tax benefit (4)0.3 1.0 3.0 1.4 N/A1.4 5.8 1.7 5.5 N/AIncome tax benefit (4)0.2 0.4 3.2 1.2 N/A0.2 1.0 1.4 1.5 N/A
Income from discontinued operations, net of income taxes— 0.3 — 0.2 (20)— 0.8 — 0.1 (10)
Net loss (3)Net loss (3)(4.9)(32.9)(7.0)(31.6)2,460 (15.3)(68.1)(10.4)(31.6)2,120 

(1)Cost of service is computed as a percent of service revenues. Cost of product sales to franchisees is computed as a percent of product revenues.sales to franchisees.
(2)Excludes depreciation and amortization expense.
(3)Total is a recalculation; line items calculated individually may not sum to total due to rounding.
(4)Computed as a percent of loss from continuing operations before income taxes. The income taxes basis point change is noted as not applicable (N/A) as the discussion within MD&A is related to the effective income tax rate.
3025

Three and Six Months Ended December 31, 2021 Compared with Three and Six Months Ended December 31, 2020
Consolidated Revenues
Consolidated revenues are comprised of royalties, fees, advertising fund contributions, franchise product sales, rental income and company-owned salon revenue.
Consolidated revenue decreased $34.0 and $67.7 million, or 32.6% and 31.4%, for the three and six months ended December 31, 2021, respectively. Royalty revenue increased $3.4 and $8.5 million, respectively, in the three and six months ended December 31, 2021 due to higher franchise system-wide sales and higher franchise salon counts. During the twelve months ended December 31, 2021, 560 salons were sold to franchisees and 628 and 25 system-wide salons were closed and constructed, respectively (2022 Net Salon Count Changes). During the three and six months ended December 31, 2021, company-owned salon revenue decreased $32.9 and $72.3 million, respectively, due primarily include revenuesto the sale of company-owned salons productto franchisees and equipmentsalon closures. For the three and six months ended December 31, 2021, the impact to consolidated revenue due to the sale of salons to franchisees and closure of salons was $28.8 and $64.0 million, respectively.
Royalties
During the three and six months ended December 31, 2021, royalties increased $3.4 and $8.5 million, or 26.8% and 35.1%, respectively, primarily due to the increase in franchise salons and higher franchise system-wide sales. Total franchised locations open at December 31, 2021 were 5,553 as compared to 5,269 at December 31, 2020.
Fees
During the three and six months ended December 31, 2021, fees increased $2.5 and $3.6 million, respectively, primarily due to the increase in franchise salons, an increase in salons running Opensalon® Pro and an increase in terminated development agreements (see Note 3 to the unaudited Condensed Consolidated Financial Statements).
Product Sales to Franchisees
Product sales to franchisees decreased $11.8 and $17.6 million, or 83.1% and 62.9%, respectively, during the three and six months ended December 31, 2021, primarily due to the Company's shift to third-party distribution partners. The Company expects revenue from product sales to decrease significantly during fiscal year 2022.
Advertising Fund Contributions
Advertising fund contributions increased $3.3 and $6.9 million, or 70.2% and 75.0%, respectively, during the three and six months ended December 31, 2021, primarily due to the increase in franchise royaltiessalon count and feessystem-wide sales.
Franchise Rental Income
During the three and six months ended December 31, 2021, franchise rental income. income increased $1.5 and $2.9 million, or 4.6% and 4.5%, respectively, primarily due to the increase in franchise salon count.
Company-owned Salon Revenue
During the three and six months ended December 31, 2021, company-owned salon revenue decreased $32.9 and $72.3 million, or 86.8% and 84.8%, respectively, due to the decrease in Company-owned salons as a result of the sale of salons to franchisees and salon closures, a decline in product sales, and exiting our third-party logistic revenue.
Cost of Product Sales to Franchisees
The following tables summarize6,210 and 3,200 basis point increases in cost of product as a percent of product revenues during the three and same-store salessix months ended December 31, 2021, respectively, were primarily due to the Company reducing prices to liquidate inventory at its distribution centers to facilitate exiting the distribution centers.
General and Administrative
The decreases of $10.7 and $15.0 million, or 40.1% and 28.4%, in general and administrative expense during the three and six months ended December 31, 2021, respectively, were primarily due to lower administrative and field management compensation due to reductions in headcount as we align our cost structure with our asset-light franchise model, partially offset by concept, as well as$1.0 million of legal expenses (see Note 5 to the reasonsunaudited Condensed Consolidated Financial Statements). Additionally, the provision for doubtful accounts expense also contributed to the decline in the six months ended December 31, 2021.
26

Rent
The decreases of $9.8 and $21.2 million, or 76.0% and 81.2%, in rent expense during the three and six months ended December 31, 2021, respectively, were primarily due to the net reduction in the number of company-owned salons. Partially offsetting the decrease in the six month period was a $0.9 million broker fee incurred in the six months ended December 31, 2021 related to exiting the Company's distribution centers.
Advertising Fund Expense
Advertising fund expense increased $3.3 and $6.9 million, or 70.2% and 75.0%, during the three and six months ended December 31, 2021, respectively, primarily due to the increase in franchise salon count and system-wide sales.
Franchise Rent Expense
During the three and six months ended December 31, 2021, franchise rent expense increased $1.5 and $2.9 million, or 4.6% and 4.5%, respectively, primarily due to the increase in franchise salon count.
Company-owned Salon Expense
Company-owned salon expense for the percentage change:three and six months ended December 31, 2021 decreased $28.5 and $63.6 million, or 84.8% and 83.0%, respectively, primarily due to the reduction in company-owned salons, a decline in product sales, and exiting third-party logistics.
 Three Months Ended March 31,Nine Months Ended March 31,
 2021202020212020
 (Dollars in thousands)
Franchise salons:
Product$13,079 $15,318 $41,057 $45,287 
Royalties and fees23,535 8,698 61,393 66,062 
Franchise rental income31,317 31,821 95,885 96,875 
Total, Franchise salons$67,931 $55,837 $198,335 $208,224 
Franchise salon same-store sales decrease (1)(19.3)%(4.1)%(27.6)%(1.8)%
Company-owned salons:  
SmartStyle$11,056 $46,277 $43,802 $197,912 
Supercuts5,743 11,743 17,562 53,063 
Portfolio Brands15,537 39,926 56,284 150,387 
Total, Company-owned salons$32,336 $97,946 $117,648 $401,362 
Company-owned salon same-store sales decrease (2)(28.8)%(7.9)%(33.8)%(3.9)%
Consolidated revenues$100,267 $153,783 $315,983 $609,586 
Percent change from prior year(34.8)%(40.5)%(48.2)%(25.7)%
Depreciation and Amortization
The decreases of $4.4 and $10.0 million, or 68.8% and 72.5%, in depreciation and amortization during the three and six months ended December 31, 2021, respectively, were primarily due to the net reduction in company-owned salon counts and no depreciation expense in the current year related to the distribution center assets that were derecognized in the third quarter of fiscal year 2021.
Long-Lived Asset Impairment
In the three months ended December 31, 2021 and 2020, the Company recorded a long-lived asset impairment charge of $0.1 and $3.2 million, respectively, which included an ROU asset impairment charge of $0.0 and $1.5 million, respectively. In the six months ended December 31, 2021 and 2020, the Company recorded a long-lived asset impairment charge of $0.2 and $9.0 million, respectively, which included an ROU asset impairment charge of $0.2 and $6.0 million, respectively. The decreases in long-lived asset impairment were primarily due to more salons being impaired in prior periods.
Interest Expense
The $0.3 and $0.7 million decreases in interest expense for the three and six months ended December 31, 2021, respectively, were primarily due to a lower average interest rate in fiscal year 2022.
Loss from Sale of Salon Assets to Franchisees, net
The $2.6 and $2.2 million decreases in the loss from the sale of salon assets to franchisees, net in the three and six months ended December 31, 2021, respectively, were primarily due to fewer salons sold in fiscal year 2022.
Interest Income and Other, net
The decrease of $0.3 million in interest income and other, net during the three months ended December 31, 2021 was primarily due to the foreign exchange gains of $0.3 million in the three months ended December 31, 2020 compared to no gain in the three months ended December 31, 2021. The decrease of $0.6 million in interest income and other, net during the six months ended December 31, 2021 was primarily due to the foreign exchange losses of $0.3 million in the six months ended December 31, 2021 compared to foreign exchange gains of $0.3 million in the six months ended December 31, 2020.
Income Tax Benefit
During the three and six months ended December 31, 2021, the Company recognized tax benefits of $0.2 and $0.2 million, respectively, with corresponding effective tax rates of 3.2% and 1.4% as compared to recognizing tax benefits of $0.4 and $1.0 million, respectively, with corresponding effective tax rates of 1.2% and 1.5% during the three and six months ended December 31, 2020.
See Note 4 to the unaudited Condensed Consolidated Financial Statements.
27

Results of Operations by Segment
Based on our internal management structure, we report two segments: Franchise and Company-owned salons. See Note 10 to the unaudited Condensed Consolidated Financial Statements. Significant results of operations are discussed below with respect to each of these segments.
Franchise
Three Months Ended December 31,Six Months Ended December 31,
20212020Increase (Decrease) (1)20212020Increase (Decrease) (1)
(Dollars in millions)(Dollars in millions)
Royalties$16.1 $12.7 $3.4 $32.7 $24.2 $8.5 
Fees4.9 2.4 2.5 8.1 4.5 3.6 
Product sales to franchisees2.4 14.2 (11.8)10.4 28.0 (17.6)
Advertising fund contributions8.0 4.7 3.3 16.1 9.2 6.9 
Franchise rental income33.8 32.3 1.5 67.5 64.6 2.9 
Total franchise revenue (1)$65.2 $66.4 $(1.2)$135.0 $130.4 $4.6 
Franchise same-store sales (2)22.4 %(31.1)%23.0 %(31.5)%
Operating income (loss)$2.1 $(9.4)$11.5 $(2.7)$(20.2)$17.5 

(1)Total is a recalculation; line items calculated individually may not sum to total due to rounding.
(2)Franchise same-store sales in fiscal year 2022 are calculated as the total change in sales for salonsfranchise locations that have beenwere open on a specific day of the week during the current period and the corresponding prior period. Franchise same-store sales in fiscal year 2021 are calculated as the total change in sales for franchise locationlocations for more than one year that were open on a specific day of the week during the current period and the corresponding prior period. Quarterly and year-to-date franchise same-store sales are the sum of the franchise same-store sales computed on a daily basis. Franchise salons that do not report daily sales are excluded from same-store sales. Locations relocated within a one-mile radius are included in same-store sales as they are considered to have been open in the prior period. Franchise same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation.
(2)Company-owned same-store sales are calculated as the total change in sales for company-owned locations that were open on a specific day of the weekFranchise Revenues
Franchise revenues decreased $1.2 million during the current periodthree months ended December 31, 2021 and increased $4.6 million during the correspondingsix months ended December 31, 2021. The decrease in franchise salon revenue during the three months ended December 31, 2021 was primarily due to the decrease in product sales to franchisees due to the Company's shift to third-party distributors, partially offset by higher royalties and advertising fund contributions. The increase in franchise revenue during the six months ended December 31, 2021 was primarily due to higher royalties and advertising contributions due to an increase in salon count and system-wide sales. During the twelve months ended December 31, 2021, franchisees constructed (net of relocations) and closed 23 and 299 franchise salons, respectively, and purchased 560 salons from the Company during the same period. The increases in royalties and advertising contributions were partially offset by a decline in franchise product sales, which the Company expects revenue to significantly decrease throughout fiscal year 2022 due to the Company exiting its whole-sale product business.
Franchise Operating Income (Loss)
During the three and six months ended December 31, 2021, franchise salon operations generated operating income of $2.1 million and operating loss of $2.7 million, an $11.5 and $17.5 million improvement from the prior comparable period. Quarterly and year-to-date company-owned same-store sales are the sum of the company-owned same-store sales computed on a daily basis. Locations relocated within a one-mile radius are included in same-store sales as they are considered to have been openThe improvement in the prior period. Company-owned same-store sales are calculatedthree and six months ended December 31, 2021 was primarily due to increases in local currenciesroyalties and reduced general and administrative expense related primarily to remove foreign currency fluctuations from the calculation.cost saving initiatives.
3128

Three and Nine Months Ended March 31, 2021 Compared with Three and Nine Months Ended March 31, 2020
Consolidated Revenues
Consolidated revenues are primarily comprised of service and product revenues, as well as franchise royalties and fees, advertising and rental income.
Consolidated revenue decreased $53.5 and $293.6 million, or 34.8% and 48.2%, for the three and nine months ended March 31, 2021, respectively. Service revenue and product revenue decreased $53.8 and $14.1 million, respectively, in the three months ended March 31, 2021 and decreased $232.1 and $55.8 million, respectively, in the nine months ended March 31, 2021. The decline in service and product revenue is primarily due to the Company's sale of salons to franchisees. During the twelve months ended March 31, 2021, 519 salons were sold to franchisees, net of buy backs and 833 and 35 system-wide salons were closed and constructed, respectively (2021 Net Salon Count Changes). For the three and nine months ended March 31, 2021, the impact to consolidated revenue due to the sale of salons to franchisees and closure of salons was $44.9 and $214.0 million, respectively. System-wide sales also declined, primarily due to fewer guest visits and government-mandated closures related to the COVID-19 pandemic, in the three and nine months ended March 31, 2021, which also contributed to the decline in service, product and royalties and fees revenue. In the three months ended March 31, 2020, the Company refunded $14.9 million of previously collected cooperative advertising fees, which reduced royalties and fees in the prior period.
Service Revenues
The decreases of $53.8 and $232.1 million, or 68.6% and 72.0%, in service revenues during the three and nine months ended March 31, 2021, respectively, were primarily due to the 2021 Net Salon Count Changes. For the three and nine months ended March 31, 2021, the impact to service revenue due to the sale of salons to franchisees and closure of salons was $35.0 and $172.5 million, respectively. The remaining decrease in service revenue relates primarily to fewer guest visits as a result of the COVID-19 pandemic.
Product Revenues
The decreases of $14.1 and $55.8 million, or 40.4% and 44.9%, in product revenues during the three and nine months ended March 31, 2021, respectively, were primarily due to the 2021 Net Salon Count Changes. For the three and nine months ended March 31, 2021, the impact to product revenue due to the sale of salons to franchisees and closure of salons was $9.9 and $41.5 million, respectively. Additionally, franchise same-store product sales declined 20.0% and 24.2% for the three and nine months ended March 31, 2021, respectively, contributing to the decline.
Royalties and Fees
During the three months ended March 31, 2021, royalties and fees increased $14.8 million, or 170.6%, primarily due to the Company refunding cooperative advertising fund contributions in the third quarter of fiscal year 2020. During the nine months ended March 31, 2021, royalties and fees decreased $4.7 million, or 7.1%, primarily due to a $1.5 million decline in cooperative advertising funds charged to franchisees during the nine months ended March 31, 2021. For the three and nine months ended March 31, 2021, cooperative advertising funds were temporarily reduced as part of our COVID-19 pandemic relief effort and also declined due to lower same-store sales. The declines in cooperative advertising are offset in site expense and have no impact on operating income. Royalties and fees were also impacted by the decreases in franchise same-store sales of 19.3% and 27.6% for the three and nine months ended March 31, 2021, respectively, partially offset by an increase in franchise salons. Total franchised locations open at March 31, 2021 were 5,317 as compared to 5,126 at March 31, 2020.
Franchise Rental Income
During the three and nine months ended March 31, 2021, franchise rental income decreased $0.5 and $1.0 million, or 1.6% and 1.0%, respectively. The decrease in the three months ended March 31, 2021 is primarily due to an increase in rent considered uncollectible and to the change in the lease renewal assumption. The decrease in the nine months ended March 31, 2021 is due to the rental income from TBG salons included in fiscal year 2020 and an increase in rent considered uncollectible.
Cost of Service
During the three months ended March 31, 2021, cost of service as a percent of service revenues decreased 570 basis points, primarily due to payroll related COVID-19 relief tax credits. During the nine months ended March 31, 2021, cost of service as a percent of service revenues increased 780 basis points, primarily due to inefficient and non-productive stylist hours as a result of reduced guest visits related to the COVID-19 pandemic and higher minimum wages.
32

Cost of Product
The 4,020 and 1,930 basis point increases in cost of product as a percent of product revenues during the three and nine months ended March 31, 2021, respectively, were primarily due to a $5.3 million reserve for excess and obsolete inventory related to the change in the Company's merchandising strategy and the shift from retail sales to franchise product sales. Excluding the excess and obsolescence reserve, margins on retail product sales were 37.4% and 47.7% in the three months ended March 31, 2021 and 2020, respectively. Margins on franchise product sales were 14.8% and 25.2% in the three months ended March 31, 2021 and 2020, respectively. Excluding the excess and obsolescence reserve, margins on retail product sales were 46.2% and 48.9% in the nine months ended March 31, 2021 and 2020, respectively. Margins on franchise product sales were 19.3% and 23.1% in the nine months ended March 31, 2021 and 2020, respectively. Decreases in franchise product margins were primarily driven by a shift to lower-margin customers and products.
Site Operating Expenses
Site operating expenses increased $9.7 million, or 265.2%, during the three months ended March 31, 2021 and decreased $25.9 million, or 41.3%, during the nine months ended March 31, 2021. Site operating expenses during the three months ended March 31, 2020 were reduced by the refunding of $14.9 million of previously collected advertising fees in the prior period, as noted above in Royalties and fees. Excluding the refund, site operating expenses decreased due to a net reduction in salon counts and decreases in marketing spend. The decrease in site operating expenses during the nine months ended March 31, 2021 was primarily due to a net reduction in salon counts and decreases in marketing spend, partially offset by a $1.5 million increase in cooperative advertising expense, as noted above in Royalties and fees.
General and Administrative
The decreases of $7.3 and $27.8 million, or 22.9% and 26.4%, in general and administrative (G&A) during the three and nine months ended March 31, 2021, respectively, were primarily due to lower administrative and field management salaries due to reductions in headcount as we align our cost structure with our transition to an asset-light franchise model. A benefit from the forfeiture of equity awards related to the departure of the Company's former CEO contributed $2.4 million to the decrease in the nine months ended March 31, 2021. Additionally, $1.3 million of the decline in the nine months ended March 31, 2021 is due to the Company not holding its annual franchise convention in fiscal year 2021 due to the COVID-19 pandemic.
Rent
The decreases of $10.7 and $29.3 million, or 57.1% and 46.2%, in rent expense during the three and nine months ended March 31, 2021, respectively, were primarily due to the net reduction in the number of company-owned salons associated with the Company's transformation to a fully-franchised portfolio.
Franchise Rent Expense
During the three and nine months ended March 31, 2021, franchise rent expense decreased $0.5 and $1.0 million, or 1.6% and 1.0%, respectively. The decrease in the three months ended March 31, 2021 is primarily due to an increase in rent considered uncollectible and the change in the lease renewal assumption. The decrease in the nine months ended March 31, 2021 is due to the rental income from TBG salons included in fiscal year 2020 and an increase in rent considered uncollectible.
Depreciation and Amortization
The decreases of $6.8 and $10.1 million, or 65.1% and 36.8%, in depreciation and amortization during the three and nine months ended March 31, 2021, respectively, were primarily due to the net reduction in company-owned salon counts. Additionally, salon asset impairment of $1.2 and $3.9 million were recorded to depreciation expense in the three and nine months ended March 31, 2020, respectively. Salon asset impairment in fiscal year 2021 was recorded to long-lived asset impairment.
Long-Lived Asset Impairment
In the three and nine months ended March 31, 2021, the Company recorded a long-lived asset impairment charge of $0.8 and $9.8 million, respectively, which included a right of use asset impairment charge of $0.3 and $6.3 million, respectively, and salon asset impairment of $0.5 and $3.5 million, respectively. Prior to the COVID-19 pandemic that began in fiscal year 2020, the Company had not recorded a right of use asset impairment charge.

33

TBG Mall Location Restructuring
In the three and nine months ended March 31, 2020, the Company recorded $0.1 and $2.4 million, respectively, of TBG restructuring charges, which related to professional fees and the Company assisting TBG with operating expenses to mitigate the risk of default associated with TBG's lease obligations. See Note 3 to the unaudited Condensed Consolidated Financial Statements.
Goodwill Impairment
The Company recorded $40.2 million of goodwill impairment for the three and nine months ended March 31, 2020. Management concluded that the COVID-19 pandemic in March 2020 was a triggering event requiring an assessment of the Company’s goodwill. The Company concluded the carrying value of the Company-owned reporting unit exceeded its fair value resulting in a full impairment.
Interest Expense
The increases of $1.5 and $6.0 million in interest expense for the three and nine months ended March 31, 2021, respectively, were primarily due to the increased interest rate and greater levels of debt.
Loss from sale of salon assets to franchisees, net
In the three and nine months ended March 31, 2021, the loss from sale of salon assets to franchisees was $4.6 and $8.5 million, respectively. In the three and nine months ended March 31, 2020, the loss from the sale of salon assets to franchisees was $7.9 and $26.1 million, respectively, including non-cash goodwill derecognition of $17.5 and $77.0 million, respectively. There was no goodwill derecognition in fiscal year 2021 due to the company-owned goodwill impairment in the third quarter of fiscal year 2020.
Interest Income and Other, net
The increases of $15.0 and $12.4 million, respectively, in interest income and other, net during the three and nine months ended March 31, 2021 were primarily due to the gain associated with the leases for the Company's distribution centers (see Note 11 to the unaudited Condensed Consolidated Financial Statements), partially offset by the sale of the Company's headquarters recorded in the period ended December 31, 2019.
Income Taxes
During the three and nine months ended March 31, 2021, the Company recognized tax benefits of $0.3 and $1.4 million, respectively, with corresponding effective tax rates of 3.0% and 1.7% as compared to recognizing tax benefits of $1.0 and $5.8 million, respectively, with corresponding effective tax rates of 1.4% and 5.5% during the three and nine months ended March 31, 2020.
See Note 6 to the unaudited Condensed Consolidated Financial Statements.
Income from Discontinued Operations
Income from discontinued operations was $0.3 and $0.8 million during the three and nine months ended March 31, 2020, respectively, due to actuarial insurance reserve adjustments. Similar adjustments did not occur in the three and nine months ended March 31, 2021.
34

Salons
Results of Operations by Segment
Based on our internal management structure, we report two segments: Franchise salons and Company-owned salons. See Note 13 to the unaudited Condensed Consolidated Financial Statements. Significant results of operations are discussed below with respect to each of these segments.
Franchise Salons
Three Months Ended March 31,Nine Months Ended March 31,
20212020Increase (Decrease)20212020Increase (Decrease)
(Dollars in millions)(Dollars in millions)
Revenue
Product13.1 15.3 (2.2)41.1 45.3 (4.2)
Royalties and fees23.5 8.7 14.8 61.4 66.1 (4.7)
Franchise rental income31.3 31.8 (0.5)95.9 96.9 (1.0)
Total franchise salons revenue (1)$67.9 $55.8 $12.1 $198.3 $208.2 $(9.9)
Franchise same-store sales (2)(19.3)%(4.1)%(27.6)%(1.8)%
Operating income$12.0 $11.2 $0.8 $28.7 $35.8 $(7.1)
Operating loss from TBG restructuring— (0.1)0.1 — (2.4)2.4 
Total operating income (1)$12.0 $11.1 $0.9 $28.7 $33.4 $(4.7)
Three Months Ended December 31,Six Months Ended December 31,
20212020(Decrease) Increase (1)20212020(Decrease) Increase (1)
(Dollars in millions)(Dollars in millions)
Total revenue$5.0 $37.9 $(32.9)$13.0 $85.3 $(72.3)
Operating loss$(3.2)$(17.4)$14.2 $(4.2)$(38.1)$33.9 
Total company-owned salons150 1,037 (887)

(1)Total is a recalculation; line items calculated individually may not sum to total due to rounding.
(2)Franchise same-store sales are calculated as the total change in sales for salons that have been a franchise location for more than one year that were open on a specific day of the week during the current period and the corresponding prior period. Quarterly and year-to-date franchise same-store sales are the sum of the franchise same-store sales computed on a daily basis. Franchise salons that do not report daily sales are excluded from same-store sales. Locations relocated within a one-mile radius are included in same-store sales as they are considered to have been open in the prior period. Franchise same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation.

Franchise same-store sales by concept are detailed in the table below:
Three Months Ended March 31,Nine Months Ended March 31,
2021202020212020
SmartStyle(18.1)%(10.9)%(25.8)%(8.6)%
Supercuts(21.5)(3.3)(29.4)(0.9)
Portfolio Brands(15.1)(3.5)(24.6)(1.7)
Total(19.3)%(4.1)%(27.6)%(1.8)%


35

Franchise Salon Revenues
Franchise salon revenues increased $12.1 million during the three months ended March 31, 2021 and decreased $9.9 million during the nine months ended March 31, 2021. The increase in franchise salon revenue during the three months ended March 31, 2021 was primarily due to the refund of previously collected contributions to the cooperative advertising funds in the third quarter of fiscal year 2020. The decrease in franchise salon revenue during the nine months ended March 31, 2021 was primarily due to decreases in royalties and cooperative fund contributions due to the COVID-19 pandemic. During the twelve months ended March 31, 2021, franchisees constructed (net of relocations) and closed 31 and 359 Franchise-owned salons, respectively, and purchased (net of Company buybacks) 519 salons from the Company during the same period.
Franchise Salon Operating Income
During the three months ended March 31, 2021, franchise salon operations generated operating income of $12.0 million, an increase of $0.9 million compared to the prior comparable period. During the nine months ended March 31, 2021, franchise salon operations generated operating income of $28.7 million, a decrease of $4.7 million compared to the prior comparable period. The increase in the three months ended March 31, 2021 was primarily due to an increase in franchise fees due to the increase in salon count. The decrease in the nine months ended March 31, 2021 was primarily due to the decrease in royalties due to the COVID-19 pandemic.
36

Company-owned Salons
Three Months Ended March 31,Nine Months Ended March 31,
20212020Increase (Decrease) (1)20212020Increase (Decrease) (1)
(Dollars in millions)(Dollars in millions)
Total revenue$32.3 $97.9 $(65.6)$117.6 $401.4 $(283.7)
Company-owned same-store sales(28.8)%(7.9)%(33.8)%(3.9)%
Operating loss$(12.6)$(50.7)$38.0 $(50.7)$(46.4)$(4.4)

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

Company-owned same-store sales by concept are detailed in the table below:
 Three Months Ended March 31,Nine Months Ended March 31,
 2021202020212020
SmartStyle(24.4)%(9.0)%(33.3)%(3.8)%
Supercuts(34.1)(6.7)(38.0)(4.9)
Portfolio Brands(28.4)(6.5)(32.4)(3.5)
Total(28.8)%(7.9)%(33.8)%(3.9)%

Company-owned Salon Revenues
Company-owned salon revenues decreased $65.6$32.9 and $283.7$72.3 million during the three and ninesix months ended MarchDecember 31, 2021, respectively, primarily due to the 20212022 Net Salon Count Changes and a decline in sales as a result of the COVID-19 pandemic. Company-owned same-store sales decreased 28.8% and 33.8% during the three and nine months ended March 31, 2021, respectively, due primarily to decreases in same-store guest transactions.Changes.
Company-owned Salon Operating Loss
During the three and six months ended MarchDecember 31, 2021, company-owned salon operating loss decreased $38.0improved $14.2 and $33.9 million, to a loss of $12.6 million, and during the nine months ended March 31, 2021, company-owned salon operating loss increased $4.4 million to a loss of $50.7 millionrespectively, compared to the prior comparable period. The decreaseimprovement in the loss during the three and six months ended MarchDecember 31, 2021 was primarily due to the goodwill impairment of $40.2 million recorded in the third quarter of fiscal year 2020. The increase in the loss during the nine months ended March 31, 2021 was primarily due to the overall decline in margin related primarily to COVID-19 and a $5.3 million inventory reserve charge recorded in the third quarter of fiscal year 2021, partially offset by the goodwill impairment recorded in the third quarter of fiscal year 2020.
Corporate
Corporate Operating Loss
Corporate operating loss decreased $1.9 million during the three months ended March 31, 2021, primarily driven by lapping stock compensation benefits associated with a change in performance awards assumptions and executive departures in fiscal year 2020, as well as higher severance costs in fiscal year 2021. Corporate operating loss decreased $8.9 million during the nine months ended March 31, 2021, primarily driven by lowerreduced general and administrative expense primarily related to salaries, due to lower headcounta decrease in depreciation and long-lived asset impairment and the cancellationexiting of the traditional in-person franchise convention in fiscal year 2021.loss making company-owned salons.


3729

LIQUIDITY AND CAPITAL RESOURCES
Sources of Liquidity
Funds generated by operating activities, available cash and cash equivalents proceeds from sale of salon assets to franchisees, and our borrowing agreements are our most significant sources of liquidity.
As of MarchDecember 31, 2021, cash and cash equivalents were $34.5$35.4 million, with $32.0$33.1 and $2.5$2.3 million within the United States and Canada, respectively.
The Company's borrowing arrangements include a $295.0$291.7 million five-year revolving credit facility that expires in March 2023, of which $98.8$81.8 million was available as of MarchDecember 31, 2021. The Company's liquidity whichper the agreement includes the unused available balance under the credit facility, and unrestricted cash and cash equivalents totaled $133.3and the shortfall in the gap in expected proceeds from the sale of salon assets of $20.9 million as of MarchDecember 31, 2021. AsTotal liquidity per the agreement was $138.1 million as of MarchDecember 31, 2021, the2021. The revolving credit facility has a minimum liquidity covenant of $75.0 million (see Note 118 to the unaudited Condensed Consolidated Financial Statements). In accordance with the credit agreement, beginning with periods ending June 30, 2021, the Company’s minimum liquidity calculation will be adjusted related to certain net cash proceeds generated from historical venditions. The Company expects that as of June 30, 2021, after using the vendition proceeds adjustment, the minimum liquidity covenant will change such that the unused available balance under the credit facility and unrestricted cash and cash equivalents be in the range of $53-$55 million.
OnAdditionally, on February 3, 2021, the Company filed a $150$150.0 million shelf registration statement and $50$50.0 million prospectus supplement with the Securities and Exchange CommissionSEC under which it may offer and sell, from time to time, up to $50$50.0 million worth of its of its Class A common stock in “at-the-market"at-the-market offerings.”" Net proceeds from sales of shares under the “at-the-market”"at-the-market" program, if any, may be used to, among other things, fund working capital requirements, repay debt and support of our growth strategies. Such strategies may include positioning the Company for potential expansion through targeted industry acquisitions and alternatives to fund additional capital investment requirements related to potential partnership opportunities to facilitate continued growth of our proprietary technology, Opensalon® Opensalon® Pro. The timing and amount of sales of shares, if any, will depend on a variety of factors, including prevailing market conditions,During the trading price ofsix months ended December 31, 2021, the Company issued 9.3 million shares and other factors as determined by the Company. No shares have been issued under the shelf registration.received net proceeds of $37.2 million.
Uses of Cash
The Company closely manages its liquidity and capital resources. The Company's liquidity requirements depend on key variables, including the level of investment needed to support its business strategies, the performance of the business, capital expenditures, credit facilities and borrowing arrangements, and working capital management. Capital expenditures are a component of the Company's cash flow and capital management strategy, which can be adjusted in response to economic and other changes to the Company's business environment. The Company has a disciplined approach to capital allocation, which focuses on investing in key priorities to support the Company's response to the COVID-19 pandemic, as well as its multi-year strategic plan as discussed within Part I, Item 1 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2020.2021.

3830

Cash Flows
Cash Flows from Operating Activities
During the ninesix months ended MarchDecember 31, 2021, cash used in operating activities was $80.0$24.3 million. Cash used in operations increasedimproved due to higher royalties, lower revenuesgeneral and margins, payments of $14.0 million to catch up on payables related to fiscal year 2020,administrative expense and the CEO sign-on bonusexiting of $2.5 million,loss making company-owned salons. These improvements were partially offset by the elimination$2.5 million of certain general and administrative costs and a $0.8 million COVID-19 payroll relief payment from the Canadian government receivedsocial security contributions remitted in the thirdsecond quarter of fiscal year 2021.that had been deferred under the CARES Act.
Cash Flows from Investing Activities
During the ninesix months ended MarchDecember 31, 2021, cash used in investing activities of $0.9$2.9 million was due to capital expenditures primarily related to internally-developed capitalized software. During the six months ended December 31, 2020, cash provided by investing activities of $0.6 million was primarily capital expenditures of $9.6 million, of which approximately $3.0 million was internally developed capitalized software, partially offset bydue to proceeds from the sale of salon assets, of $7.7 million.partially offset by capital expenditures.
Cash Flows from Financing Activities
During the ninesix months ended MarchDecember 31, 2021, cash provided by financing activities was $43.6 million, primarily as a result of net proceeds of $37.2 million related to the issuance of common stock and a net $7.3 million draw on the Company's revolving credit facility. During the six months ended December 31, 2020, cash used in financing activities was $1.6$1.3 million, comparedprimarily due to cash provided by financing activitiesthe Company's purchase of $152.1 million inits non-controlling interest from the prior comparable period. In the nine months ended March 31, 2020, the Company borrowed a net $183.0 million and used $28.2 million to purchase common stock.minority shareholders.
Financing Arrangements
The Company's existing revolving credit facility is due in March 2023 and management expects to refinance the debt prior to the expiration date. Uncertainty in the business, including the impact of COVID-19, may reduce our borrowing options and increase the interest rate. An increase to the rate or a decrease to the facility may impact our ability to achieve our strategic objectives and may materially impact our operations. Additionally, the Company may need to look to other sources of financing, including additional use of the Company's At-The-Market (ATM) offering or other equity offerings that may be dilutive to shareholders. See Note 118 of the Notes to the unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for the quarter ended MarchDecember 31, 2021 and Note 8 of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020,2021, for additional information regarding our financing arrangements.
39

Debt to Capitalization Ratio
Our debt to capitalization ratio, calculated as the principal amount of debt as a percentage of the principal amount of debt and shareholders’shareholders' equity at fiscal quarter end, was as follows:
Debt to
Capitalization (1)
December 31, 202183.5 %
June 30, 202191.6 %
_______________________________________________________________________________
As ofDebt to
Capitalization (1)		Basis Point Increase (Decrease) (2)
March 31, 202178.2 %1,620 
June 30, 202062.0 %3,520 

(1)Debt includes long-term debt and financing liabilities.debt. It excludes the long-term lease liability as that liability is offset by the right of useROU asset.
(2)Represents the basis point change in debt to capitalization as compared to the prior fiscal year end (June 30, 2020 and June 30, 2019, respectively).
The 1,620 basis point increasedecrease in the debt to capitalization ratio as of MarchDecember 31, 2021 as compared to June 30, 2020,2021, was primarily due to the decreasesincrease in shareholders' equity as a result of the losscommon stock issued in the first quarter.

31

Share Issuance Program
On February 3, 2021, the Company filed a $150.0 million shelf registration statement and $50.0 million prospectus supplement with the SEC under which it may offer and sell, from operations, partially offset bytime to time, up to $50.0 million worth of its Class A common stock in "at-the-market" offerings. During the decrease in debt as a resultthree and six months ended December 31, 2021, the Company issued 1.2 and 9.3 million shares for net proceeds of the derecognition of the Company's financing lease liability (see Note 11 to the unaudited Condensed Consolidated Financial Statements).$5.0 and $37.2 million, respectively.
Share Repurchase Program
In May 2000, the Company’s Board of Directors (Board) approved a stock repurchase program with no stated expiration date. Since that time and through MarchDecember 31, 2021, the Board has authorized $650.0 million to be expended for the repurchase of the Company's stock under this program. All repurchased shares become authorized, but unissued shares of the Company. The timing and amounts of any repurchases depend on many factors, including the market price of the common stock and overall market conditions. During the three and ninesix months ended MarchDecember 31, 2021, the Company did not repurchase any shares. As of MarchDecember 31, 2021, 30.0 million shares have been cumulatively repurchased for $595.4 million, and $54.6 million remains outstanding under the approved stock repurchase program.
4032

SAFE HARBOR PROVISIONS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Quarterly Report on Form 10-Q, as well as information included in, or incorporated by reference from, future filings by the Company with the Securities and Exchange Commission and information contained in written material, press releases and oral statements issued by or on behalf of the Company contains or may contain “forward-looking statements”"forward-looking statements" within the meaning of the federal securities laws, including statements concerning anticipated future events and expectations that are not historical facts. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements in this document reflect management’smanagement's best judgment at the time they are made, but all such statements are subject to numerous risks and uncertainties, which could cause actual results to differ materially from those expressed in or implied by the statements herein. Such forward-looking statements are often identified herein by use of words including, but not limited to, “may,” “believe,” “project,” “forecast,” “expect,” “estimate,” “anticipate,”"may," "believe," "project," "forecast," "expect," "estimate," "anticipate," and “plan.”"plan." These uncertainties include a potential material adverse impact on our business and results of operations as a result of the uncertain duration and severity of the COVID-19 pandemic, as well asincluding any adverse impact from Delta, Omicron and other variants; the healthimpact of the COVID-19 pandemic on our key suppliers; consumer shopping trends and risk appetite of our stylists, customerschanges in manufacturer distribution channels; changes in regulatory and employeesstatutory laws including increases in minimum wages; laws and regulations could require us to return to the salon environment;modify current business practices and incur increased costs; changes in economic conditions; changes in consumer tastes and fashion trends; the continued ability of the Company to implement its strategy, priorities and initiatives including the re-engineering of our corporate and field infrastructure; Opensalon® Pro may not yield the intended results on timing and amounts due to the COVID-19 pandemic, efforts by our current third-party back office management system vendor to make it difficult for our franchisees to convert to our new company-owned system and the pending litigation with that third-party vendor; the impact of the COVID-19 pandemic on our key suppliers; the ability to address rent obligations incurred during the government-mandated hibernation of our salons related to the COVID-19 pandemic and the ability to obtain long-term rent concessions; the ability to operate or sell the salons transferred back from TBG; the outcome of the review by the administrator in TBG's insolvency proceedings in the United Kingdom; compliance with credit facility covenants and access to the existing revolving credit facility; our andmerchandising strategy; our franchisees' ability to attract, train and retain talented stylists; financial performance of our franchisees; success of the sale ofability to operate or sell the salons to franchisees; if our capital investments in technology do not achieve appropriate returns;transferred back from TBG; our ability to manage cyber threats and protect the security of potentially sensitive information about our guests, employees, vendors or Company information; the ability of the Company to maintain a satisfactory relationship with Walmart; the impact of recent actions by Walmart; marketing efforts to drive traffic to our franchisees' salons; changes in regulatory and statutory laws including increases in minimum wages; our ability to maintain and enhance the value of our brands; premature termination of agreements with our franchisees; reliance on information technology systems; reliance on external vendors; consumer shopping trendsthe use of social media; failure to standardize operating processes across brands; exposure to uninsured or unidentified risks; Opensalon® Pro may not yield the intended results; compliance with credit facility covenants and changesaccess to the existing revolving credit facility; ability to re-finance our existing credit facility, including our ability to re-finance at a similar rate, and our ability to raise additional debt or equity capital; our capital investments in manufacturer distribution channels; competition withintechnology may not achieve appropriate returns; premature termination of agreements with our franchisees; financial performance of Empire Education Group; the personal hair care industry;continued ability of the Company to implement cost reduction initiatives and achieve expected cost savings; continued ability to compete in our business markets; reliance on our management team and other key personnel; the continued ability to maintain an effective system of internal controls over financial reporting; changes in tax exposure; failure to standardize operating processes across brands; financial performance of Empire Education Group; the continued ability of the Company to implement cost reduction initiatives; changes in economic conditions; changes in consumer tastespotential litigation and fashion trends; failure at our distribution centers; exposure to uninsuredother legal or unidentified risks; relianceregulatory proceedings could have an adverse effect on our management team and other key personnel; new merchandising strategy business or other factors not listed above. Additional information concerning potential factors that could affect future financial results is set forth under Item 1A on Form 10-K. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, your attention is directed to any further disclosures made in our subsequent annual and periodic reports filed or furnished with the SEC on Forms 10-K, 10-Q and 8-K and Proxy Statements on Schedule 14A.
4133

Item 3.  Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk from changes in interest rates and changes in foreign currency exchange rates. There has been no material change to the factors discussed within Part II, Item 7A in the Company’sCompany's June 30, 20202021 Annual Report on Form 10-K.
 
Item 4.  Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its Securities Exchange Act of 1934, as amended (the "Exchange Act”)Exchange Act) reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’sCommission's rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate, to allow timely decisions regarding required disclosure.
Management, with the participation of the CEO and CFO, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of the end of the period. Based on their evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of MarchDecember 31, 2021.
Changes in Internal Controls over Financial Reporting
There were no material changes in our internal controlcontrols over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controlcontrols over financial reporting.

4234

PART II — OTHER INFORMATION
 
Item 1.  Legal Proceedings
The Company is a defendant in various lawsuits and claims arising out of the normal course of business. Our existing point-of-sale system supplierLike certain other franchisors, the Company has challenged the developmentbeen faced with allegations of certain parts of our technology systems (See Note 7 to the Condensed Consolidated Financial Statements)franchise regulation and agreement violations. Additionally, similar to certain other large retail employers, the Company has been faced with allegations of purported class-wide consumer and wage and hour violations.violations (See Note 5 to the unaudited Condensed Consolidated Financial Statements). Litigation is inherently unpredictable, and the outcome of these matters cannot presently be determined. Although the actions are being vigorously defended, the Company could in the future, incur judgments or enter into settlements of claims that could have a material adverse effect on its results of operations in any particular period.
 
Item 1A.  Risk Factors
There have been no material changes in our risk factors from those disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2020, except for the revision to the thirty-third risk factor listed below and the addition of the last risk factor listed below.
We rely on our management team and other key personnel.
We depend on the skills, working relationships, and continued services of key personnel, including our management team and others throughout our organization. We are also dependent on our ability to attract and retain qualified personnel, for whom we compete with other companies both inside and outside our industry. Our business, financial condition or results of operations may be adversely impacted by the unexpected loss of any of our management team or other key personnel, or more generally if we fail to identify, recruit, train and/or retain talented personnel. Effective October 5, 2020, our new Chief Executive Officer commenced his employment as part of a leadership transition. Any transition in senior executive leadership can impact relationships with our suppliers, franchisees, and employees and can lead to shifts in our operations.
We adopted a new merchandising strategy under which the Company will outsource product distribution to third-party distributors.
The Company is in the process of implementing our new merchandising strategy where we will exit the product distribution business and outsource distribution to third-party distributors.
Our success depends, in part, on our ability to rely upon third-party distributors to procure and deliver beauty products in quantities sufficient to meet the needs of our customers. Any material delay in the delivery of beauty products, and/or any reduction to, or material change in, the assortment of beauty products supplied to our salons could result in reduced retail sales and service offerings. In addition, disruptions and delays in the beauty supply chain, as a result of COVID-19 or otherwise, could adversely impact the third-party distributors’ abilities to meet our customer demands, which could negatively impact our business and operating results.2021.
4335

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
Share Issuance Program
On February 3, 2021, the Company filed a $150.0 million shelf registration statement and $50.0 million prospectus supplement with the SEC under which it may offer and sell, from time to time, up to $50.0 million worth of its Class A common stock in "at-the-market" offerings. During the three and six months ended December 31, 2021, the Company issued 1.2 million and 9.3 million shares for proceeds of $5.2 million and $38.4 million offset by fees of $0.2 million and $1.2 million, respectively.
The following table shows the stock issuance activity for the three months ended December 31, 2021:
Period Total Number of Shares Issued (1) Average Price per Share Total Number of Shares Issued As Part of Publicly Announced Plans Gross Proceeds Received in Q2
10/1/21 - 10/31/211,223,314 $4.25 9,295,618 $5,197,617 
11/1/21 - 11/30/21— — 9,295,618 — 
12/1/21 - 12/31/21— — 9,295,618 — 
Total 1,223,314  $4.25  9,295,618  $5,197,617 
_______________________________________________________________________________
(1)These shares were issued before September 30, 2021, but settled in the second quarter due to timing.
On December 31, 2021, $11.6 million remains under the prospectus supplement, which equates to 6.6 million shares based on the share price as of December 31, 2021.
Share Repurchase Program
In May 2000, the Company’s Board of Directors (Board) approved a stock repurchase program with no stated expiration date. Since that time and through MarchDecember 31, 2021, the Board has authorized $650.0 million to be expended for the repurchase of the Company's stock under this program. All repurchased shares become authorized but unissued shares of the Company. The timing and amounts of any repurchases depend on many factors, including the market price of the common stock and overall market conditions. During the three and nine months ended March 31, 2021, the Company did not repurchase any shares.last purchased shares in fiscal year 2020. As of MarchDecember 31, 2021, a total accumulated 30.0 million shares have been repurchased for $595.4 million. At MarchDecember 31, 2021, $54.6 million remains outstanding under the approved stock repurchase program.
The following table shows the stockCompany does not expect to repurchase activity by the Company or any “affiliated purchaser” of the Company, as definedshares in Rule 10b-18(a)(3) under the Exchange Act, by month for the three months ended March 31, 2021:
Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs (in thousands)
1/1/21 - 1/31/21— $— 29,974,657 $54,573 
2/1/21 - 2/28/21— — 29,974,657 54,573 
3/1/21 - 3/31/21— — 29,974,657 54,573 
Total —  $—  29,974,657  $54,573 
fiscal year 2022.


36

Item 6.  Exhibits
Offer letter, between Matthew Doctor and Regis Corporation, dated December 22, 2021.
Offer letter, between Jim B. Lain and Regis Corporation, dated December 22, 2021.
President and Chief Executive Officer of Regis Corporation: Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Executive Vice President and Chief Financial Officer of Regis Corporation: Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Chief Executive Officer and Chief Financial Officer of Regis Corporation: Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 101
The following financial information from Regis Corporation's Quarterly Report on Form 10-Q for the quarterly and year-to-date periods ended MarchDecember 31, 2021, formatted in Inline Xtensible Business Reporting Language (iXBRL) and filed electronically herewith: (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Earnings;Operations; (iii) the Condensed Consolidated Statements of Comprehensive Income;Loss; (iv) the Condensed Consolidated Statements of Shareholders' Equity; (v) the Condensed Consolidated Statements of Cash Flows; and (v)(vi) the Notes to the Condensed Consolidated Financial Statements.
Exhibit 104The cover page from Regis Corporation's Quarterly Report on Form 10-Q for the quarterly and year-to-date periods ended MarchDecember 31, 2021, formatted in iXBRL (included as Exhibit 101).
4437

SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
  
Date: May 6, 2021February 3, 2022By:/s/ Kersten D. Zupfer
  Kersten D. Zupfer
  Executive Vice President and Chief Financial Officer
  (Principal Accounting Officer)
  

4538