Regis Reports First Quarter 2019 Results and Profitable Sale, Excluding Goodwill Derecognition, of 124 Company Owned Salons to Franchisees

Regis Reports First Quarter 2019 Results and Profitable Sale, Excluding Goodwill Derecognition, of 124 Company Owned Salons to Franchisees

  • First Quarter Loss Per Share From Continuing Operations of ($0.01), Which Includes A Non-Cash Goodwill Derecognition Charge Related To The Sale and Conversion of 124 Company Owned Salons to Franchise Operations During the Quarter; Adjusted Diluted Earnings Per Share Of $0.25 Increased $0.20 Versus Prior Year
  • Adjusted EBITDA of $25.1 Million is $2.8 Million, or 12.6% Favorable Year-Over-Year and Includes a $7.1 Million Gain From the Sale of Salons To Franchisees During the Quarter
  • The Company Reports Positive Same-Store Sales of 0.5% in the Quarter
  • The Company Repurchased 1.1M Shares of Its Common Stock in the Quarter

MINNEAPOLIS - (BUSINESS WIRE) - October 30, 2018 - Regis Corporation (NYSE: RGS):

    Three Months Ended
    September 30,
(Dollars in thousands)   2018   2017 (1)
Consolidated Revenue   $287,835   $315,464
Consolidated Same-Store Sales Comps   0.5%   0.4%
         
Net (Loss) Income From Continuing Operations   $(463)   $8,445
Diluted (Loss) Earnings per Share From Continuing Operations   $(0.01)   $0.18
EBITDA   $9,767   $(5,370)
as a percent of revenue   3.4%   (1.7)%
         
As Adjusted(2)        
Net Income, as Adjusted   $11,317   $2,363
Diluted Earnings per Share, as Adjusted   $0.25   $0.05
EBITDA, as Adjusted   $25,134   $22,315
as a percent of revenue, as adjusted   8.7%   7.1%

____________________________________

(1)   Amounts for fiscal year 2018 have been adjusted to account for the adoption of "ASC 606 - Revenue From Contracts With Customers."
(2)   See GAAP to non-GAAP reconciliations, within the attached section titled "Non-GAAP Reconciliations".
     

Regis Corporation (NYSE: RGS), a leader in the haircare industry, whose primary business is owning, operating and franchising hair salons, today reported first quarter 2019 net loss from continuing operations of $0.5 million, or $0.01 per diluted share as compared to net income from continuing operations of $8.4 million, or $0.18 per diluted share in the first quarter of 2018. The Company’s reported results include $11.1 million of non-cash goodwill derecognition associated with the sale of 124 salons to Franchisees and $4.0 million of other discrete costs, partially offset by $3.3 million of related tax benefits. Excluding discrete items, and the losses from discontinued operations, the Company reported first quarter 2019 as adjusted net income of $11.3 million, or $0.25 earnings per diluted share versus net income of $2.4 million, or $0.05 earnings per diluted share, for the same period last year.

Total revenue in the quarter of $287.8 million decreased $27.6 million, or 8.8%, year-over-year driven primarily by the net closure of 681 unprofitable salons and the conversion of 477 company-owned salons to franchised locations over the past 12 months. These reductions were offset by revenue growth in the Company's Franchise segment and a 50 basis point improvement in same-store sales in Company-owned salons. The positive same store sales performance was the result of a 4.2% increase in ticket partially offset by a 3.7% decline in year-over-year traffic, which the Company defines as total transactions.

First quarter adjusted EBITDA of $25.1 million was $2.8 million, or 12.6% favorable versus the same period last year. Excluding the $7.1 million gain from the sale of salons during the quarter, adjusted EBITDA was $18.0 million.

Hugh Sawyer, President and Chief Executive Officer, commented, "We continue to see signs of progress in our ongoing efforts to transform our business thanks to the efforts of our dedicated associates and franchisees."

First Quarter Segment Results

       

 

       

Company-Owned Salons

       
         
   

Three Months Ended
September 30,

 

(Decrease)
Increase

(Dollars in millions) (1)   2018   2017 (2)  
             
Total Revenue, as Adjusted   $ 249.8     $ 288.9     (13.5)%
Same-Store Sales Comps, as Adjusted   0.5

 %

  0.4 %   10 bps
Year-over-Year Ticket change   4.2

 %

       

Year-over-Year Traffic(3) change

  (3.7 )%        
             

Gross Profit, as Adjusted(4)

  108.5     124.6     (12.9)%
as a percent of revenue, as
adjusted
  43.5

 %

  43.1 %   40 bps
             
EBITDA, as Adjusted   27.6     33.3     (17.1)%

as a percent of revenue, as adjusted

  11.0

 %

  11.5 %   (50) bps

____________________________________

(1)   Variances calculated on amounts shown in millions may result in rounding differences.
(2)   Amounts for fiscal year 2018 have been recast to account for the adoption of "ASC 606 - Revenue From Contracts With Customers."

(3)

 

Defined as total transactions

(4)

  Gross profit, as Adjusted, excludes depreciation and amortization.
     

First quarter revenue, as adjusted, for the Company-owned salon segment decreased $39.1 million, or 13.5%, versus the prior year to $249.8 million. The year-over-year decline in revenue was driven by the decrease of approximately 1,158 salons over the past 12 months and unfavorable foreign currency impacts, partially offset by an increase in same-store sales of 0.5%. The year-over-year increase in same store sales was driven by a 4.2% increase in average ticket, partially offset by a decrease in traffic of 3.7%.

First quarter adjusted EBITDA of $27.6 million decreased $5.7 million, or 17.1% versus the same period last year driven primarily by the sale of salons to franchisees over the past 12 months, stylist minimum wage and commission increases and strategic investments in marketing and advertising, including the support of our Supercuts MLB sponsorship partially offset by management initiatives.

Franchise

       
         
   

Three Months Ended
September 30,

 

Increase
(Decrease)

(Dollars in millions) (1)   2018   2017 (2)  
             
Revenue            
Product   $ 10.1     $ 7.7     31.0%
Product sold to The Beautiful Group   5.5         N/A
Total product   $ 15.6     $ 7.7     102.4%
Royalties and fees   22.4     18.9     18.6%
Total Revenue   $ 38.0     $ 26.6     43.0%
             
EBITDA, as Adjusted   9.9     8.6     15.4%
as a percent of revenue   26.0 %   32.2 %   (620) bps

____________________________________

(1)   Variances calculated on amounts shown in millions may result in rounding differences.
(2)   Amounts for fiscal year 2018 have been recast to account for the adoption of "ASC 606 - Revenue From Contracts With Customers."
     

First quarter Franchise revenue was $38.0 million, a $11.4 million, or 43.0%, increase compared to the prior year quarter. Royalties and fees were $22.4 million, a $3.5 million, or 18.6% increase versus the same period last year. Royalties and fees increased 18.6% driven primarily by positive same-store revenue and increased franchise salon counts. Product sales to franchisees of $15.6 million increased $7.9 million versus the same period last year.

Franchise adjusted EBITDA of $9.9 million improved $1.3 million, or 15.4% year-over-year.

At the close of the quarter approximately 52.4% of the Company’s salon portfolio is franchised (including the salons that make up The Beautiful Group) and 47.6% is company-owned salons.

Other Company Updates

Adoption of New Accounting Standard
On July 1, 2018, the Company adopted amended revenue recognition guidance. For comparability the Company has adjusted prior reporting periods, including the three months ended September 30, 2017. As a result, future financial statements we issue will be comparable to the prior year results, but they will not be comparable to the financial results issued previously.

Consolidated Year-Over-Year General & Administrative ("G&A") Comparability
The Company realigned its field leadership team by brand during the prior year first fiscal quarter. An outcome of this reorganization is that the costs associated with senior district leaders were moved out of cost of goods sold and site operating expense, where the expense had historically been recorded, and into G&A. The Company notes that this change, which affected one month of comparability during the quarter, does not impact the overall consolidated results but does result in an $2.8 million decrease in cost of goods sold and site expense, and a corresponding $2.8 million increase to G&A this quarter, when compared to the comparable period last year. The Company noted that it expects that the first quarter of fiscal 2019 will be the last quarter in which its year-over-year comparability will be impacted due to this prior year field leadership realignment.

Transformational Strategy Update
The Company continued to make progress implementing its transformational strategy and operational turnaround initiatives focused on improving the performance of Company-owned salons, while at the same time accelerating the growth of its franchise portfolio. During the quarter, the Company:

  • Repurchased 1,100,000 common shares at a total price of $19.3 million. During the quarter, as previously disclosed, the Company's Board of Directors authorized an additional $200 million for share repurchases.
  • Executed a number of operational initiatives, building on its previously discussed management initiatives, to stabilize performance and establish a platform for longer-term revenue and earnings growth in Company-owned salons. The Company estimates the initiatives delivered benefit in a range of $3 million to $5 million in the first quarter of fiscal 2019.
  • Converted 124 Company-owned salons to franchise locations. The impact of these transactions is as follows:
    Three Months Ended
    September 30,
(Dollars in thousands)   2018   2017   Increase
             
Salons sold to franchisees   124     92     32  
Cash proceeds received in quarter   $ 12,422     $ 1,472     $ 10,950  
             
Gain on sale of venditions, excluding goodwill derecognition   $ 7,132     $ 392     $ 6,740  
Non-cash goodwill derecognition   (11,092 )   (270 )   (10,822 )
(Loss) gain from sale of salon assets to franchisees, net   $ (3,960 )   $ 122     $ (4,082 )
                         

Non-GAAP reconciliations:

For GAAP to non-GAAP reconciliations, please refer to attached section titled "Non-GAAP Reconciliations." A complete reconciliation of reported earnings to adjusted earnings is included in this press release and is available on the Company’s website at www.regiscorp.com.

Earnings Webcast

Regis Corporation will host a conference call via webcast discussing first quarter results today, October 30, 2018, at 9 a.m., Central time. Interested parties are invited to participate in the live webcast by logging on to www.regiscorp.com or participate via telephone by dialing (800) 458-4121 and entering access code 7919424. A replay of the presentation will be available later that day. The replay phone number is (888) 203-1112, access code 7919424.

About Regis Corporation

Regis Corporation (NYSE:RGS) is a leader in beauty salons and cosmetology education. As of September 30, 2018, the Company owned, franchised or held ownership interests in 8,115 worldwide locations. Regis’ corporate and franchised locations operate under concepts such as Supercuts®, SmartStyle®, MasterCuts®, Regis Salons®, Sassoon®, Cost Cutters®, Roosters® and First Choice Haircutters®. Regis maintains an ownership interest in Empire Education Group in the U.S. For additional information about the Company, including a reconciliation of certain non-GAAP financial information and certain supplemental financial information, please visit the Investor Information section of the corporate website at www.regiscorp.com. To join Regis Corporation’s email alert list, go to this link:

http://www.b2i.us/irpass.asp?BzID=913&to=ea&Nav=1&S=0&L=1

This press release contains or may contain “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’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,” and “plan.” In addition, the following factors could affect the Company’s actual results and cause such results to differ materially from those expressed in forward-looking statements. These factors include the continued ability of the Company to implement its strategy, priorities and initiatives; our ability to attract, train and retain talented stylists; financial performance of our franchisees; acceleration of sale of certain salons to franchisees; The Beautiful Group's ability to transition and operate its salons successfully, as well as maintain adequate working capital; the ability of the Company to maintain a satisfactory relationship with Walmart; marketing efforts to drive traffic; 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; our ability to manage cyber threats and protect the security of sensitive information about our guests, employees, vendors or Company information; reliance on information technology systems; reliance on external vendors; competition within the personal hair care industry; changes in tax exposure; changes in healthcare; changes in interest rates and foreign currency exchange rates; failure to standardize operating processes across brands; consumer shopping trends and changes in manufacturer distribution channels; financial performance of Empire Education Group; the continued ability of the Company to implement cost reduction initiatives; compliance with debt covenants; changes in economic conditions; changes in consumer tastes and fashion trends; exposure to uninsured or unidentified risks; ability to attract and retain key management personnel; reliance on our management team and other key personnel or other factors not listed above. Additional information concerning potential factors that could affect future financial results is set forth in the Company’s Annual Report on Form 10-K for the year ended June 30, 2018. 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.

REGIS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)

(Dollars in thousands, except share data)

         
    September 30,  

     June 30,     

    2018   2018
ASSETS        
Current assets:        
Cash and cash equivalents   $ 115,729   $ 110,399
Receivables, net   29,096   52,430
Inventories   87,626   79,363
Other current assets   33,462   47,867
Total current assets   265,913   290,059
         
Property and equipment, net   101,264   105,860
Goodwill   402,202   412,643
Other intangibles, net   10,322   10,557
Other assets   40,922   37,616
Total assets   $ 820,623   $ 856,735
         
LIABILITIES AND SHAREHOLDERS’ EQUITY        
Current liabilities:        
Accounts payable   $ 55,994   $ 57,738
Accrued expenses   85,384   100,716
Total current liabilities   141,378   158,454
         
Long-term debt   90,000   90,000
Other noncurrent liabilities   120,888   121,843
Total liabilities   352,266   370,297
Commitments and contingencies        
Shareholders’ equity:        
Common stock, $0.05 par value; issued and outstanding 44,328,127 and 45,258,571 common shares at September 30, 2018 and June 30, 2018 respectively   2,217   2,263
Additional paid-in capital   175,983   194,436
Accumulated other comprehensive income   10,737   9,656
Retained earnings   279,420   280,083
         
Total shareholders’ equity   468,357   486,438
         
Total liabilities and shareholders’ equity   $ 820,623   $ 856,735
             

REGIS CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)

For The Three months ended September 30, 2018 and 2018

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

     
    Three Months Ended
    September 30,
    2018   2017
Revenues:        
Service   $ 207,848     $ 235,630  
Product   57,591     60,958  
Royalties and fees   22,396     18,876  
    287,835     315,464  
Operating expenses:        
Cost of service   121,497     139,836  
Cost of product   32,181     30,162  
Site operating expenses   36,821     40,029  
General and administrative   47,727     35,166  
Rent   35,978     42,416  
Depreciation and amortization   10,202     12,255  
Total operating expenses   284,406     299,864  
         
Operating income   3,429     15,600  
         
Other (expense) income:        
Interest expense   (1,006 )   (2,138 )
(Loss) gain from sale of salon assets to franchisees, net   (3,960 )   122  
Interest income and other, net   360     420  
         
(Loss) income from continuing operations before income taxes   (1,177 )   14,004  
         
Income tax benefit (expense)   714     (5,559 )
         
(Loss) income from continuing operations   (463 )   8,445  
         
Loss from discontinued operations, net of taxes   (264 )   (33,767 )
         
Net loss   $ (727 )   $ (25,322 )
         
Net loss per share:        
Basic:        
(Loss) income from continuing operations   $ (0.01 )   $ 0.18  
Loss from discontinued operations   (0.01 )   (0.72 )
Net loss per share, basic (1)   $ (0.02 )   $ (0.54 )
Diluted:        
(Loss) income from continuing operations   $ (0.01 )   $ 0.18  
Loss from discontinued operations   (0.01 )   (0.72 )
Net loss per share, diluted (1)   $ (0.02 )   $ (0.54 )
         
Weighted average common and common equivalent shares outstanding:        
Basic   44,730     46,677  
Diluted   44,730     46,900  
             
(1)   Total is a recalculation; line items calculated individually may not sum to total due to rounding.
     

REGIS CORPORATION (NYSE: RGS)

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

(Dollars in thousands)

     
    Three Months Ended
    September 30,
    2018   2017
Net loss   $ (727 )   $ (25,322 )
Foreign currency translation adjustments   1,081     2,652  
Comprehensive income (loss)   $ 354     $ (22,670 )
                 

REGIS CORPORATION (NYSE: RGS)

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW (Unaudited)

(Dollars in thousands)

     
    Three Months Ended
    September 30,
    2018   2017
Cash flows from operating activities:        
Net loss   $ (727 )   $ (25,322 )
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:        
Non-cash impairment and other adjustments related to discontinued operations   (427 )   29,169  
Depreciation and amortization   8,371     9,975  
Depreciation related to discontinued operations       2,129  
Deferred income taxes   (875 )   4,504  
Gain on life insurance       (7,986 )
Loss (gain) from sale of salon assets to franchisees, net (1)   3,960     (122 )
Salon asset impairments   1,831     2,280  
Stock-based compensation   2,335     2,030  
Amortization of debt discount and financing costs   69     351  
Other non-cash items affecting earnings   (26 )   75  
Changes in operating assets and liabilities, excluding the effects of asset sales   (32,053 )   (8,079 )
Net cash (used in) provided by operating activities   (17,542 )   9,004  
         
Cash flows from investing activities:        
Capital expenditures   (11,258 )   (6,126 )
Capital expenditures related to discontinued operations       (1,007 )
Proceeds from sale of assets to franchisees (1)   12,422     1,472  
Proceeds from company-owned life insurance policies   24,617      
Net cash provided by (used in) investing activities   25,781     (5,661 )
         
Cash flows from financing activities:        
Proceeds on issuance of common stock   378      
Repurchase of common stock   (19,337 )    
Taxes paid for shares withheld   (1,918 )   (1,530 )
Net cash used in financing activities   (20,877 )   (1,530 )
         
Effect of exchange rate changes on cash and cash equivalents   388     680  
         
(Decrease) increase in cash, cash equivalents, and restricted stock   (12,250 )   2,493  
         
Cash, cash equivalents and restricted cash:        
Beginning of period   148,774     208,634  
Cash, cash equivalents and restricted cash included in current assets held for sale       1,352  
Beginning of period, total cash, cash equivalents and restricted cash   148,774     209,986  
End of period   $ 136,524     $ 212,479  

_____________________________

(1)   Excludes transaction with The Beautiful Group.
     

SAME-STORE SALES (1):

   
    For the Three Months Ended
    September 30, 2018   September 30, 2017
    Service   Retail   Total   Service   Retail   Total
SmartStyle   1.4     0.3     1.1     0.7     0.2     0.6  
Supercuts   0.7     (5.8 )   0.2     2.6     (5.9 )   1.8  
Signature Style   0.4     (1.2 )   0.2     (0.3 )   (5.5 )   (0.8 )
Consolidated   0.8 %   (0.9 )%   0.5 %   0.9 %   (1.5 )%   0.4 %

____________________________________

(1) Same-store sales are calculated on a daily basis as the total change in sales for company-owned locations that were open on a specific day of the week during the current period and the corresponding prior period. Quarterly and year-to-date same-store sales are the sum of the 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 open in the prior period. Same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation.

REGIS CORPORATION (NYSE: RGS)

System-wide location counts

         
    September 30, 2018  

    June 30, 2018    

COMPANY-OWNED SALONS:        
         
SmartStyle/Cost Cutters in Walmart Stores   1,622     1,660  
Supercuts   865     928  
Signature Style   1,335     1,378  
Total Company-owned Salons   3,822     3,966  
as a percent of total Company-owned and Franchise salons   47.6 %   49.1 %
         
FRANCHISE SALONS:        
         
SmartStyle/Cost Cutters in Walmart Stores   596     561  
Supercuts   1,812     1,739  
Signature Style   753     745  
Total franchise locations, excluding TBG   3,161     3,045  
as a percent of total Company-owned and Franchise salons   39.4 %   37.7 %
         
TBG   781     807  
as a percent of total Company-owned and Franchise salons   9.7 %   10.0 %
         
Total North American Salons   3,942     3,852  
         
Total International TBG Salons (1)   263     262  
as a percent of total Company-owned and Franchise salons   3.3 %   3.2 %
         
Total Franchise Salons   4,205     4,114  
as a percent of total Company-owned and Franchise salons   52.4 %   50.9 %
         
OWNERSHIP INTEREST LOCATIONS:        
         
Equity ownership interest locations   88     88  
         
Grand Total, System-wide   8,115     8,168  

____________________________________

(1)   Canadian and Puerto Rican salons are included in the North American salon totals.
     

Non-GAAP Reconciliations

We believe our presentation of non-GAAP operating income, net income, net income per diluted share, and other non-GAAP financial measures provides meaningful insight into our ongoing operating performance and an alternative perspective of our results of operations. Presentation of the non-GAAP measures allows investors to review our core ongoing operating performance from the same perspective as management and the Board of Directors. These non-GAAP financial measures provide investors an enhanced understanding of our operations, facilitate investors’ analyses and comparisons of our current and past results of operations and provide insight into the prospects of our future performance. We also believe the non-GAAP measures are useful to investors because they provide supplemental information research analysts frequently use to analyze financial performance.

The method we use to produce non-GAAP results is not in accordance with U.S. GAAP and may differ from methods used by other companies. These non-GAAP results should not be regarded as a substitute for corresponding U.S. GAAP measures but instead should be utilized as a supplemental measure of operating performance in evaluating our business. Non-GAAP measures do have limitations in that they do not reflect certain items that may have a material impact upon our reported financial results. As such, these non-GAAP measures should be viewed in conjunction with both our financial statements prepared in accordance with U.S. GAAP and the reconciliation of the selected U.S. GAAP to non-GAAP financial measures, which are located in the Investor Information section of the corporate website at www.regiscorp.com.

Non-GAAP reconciling items for the three ended months ended September 30, 2018 and 2017:

The following information is provided to give qualitative and quantitative information related to items impacting comparability. Items impacting comparability are not defined terms within U.S. GAAP. Therefore, our non-GAAP financial information may not be comparable to similarly titled measures reported by other companies. We determine which items to consider as “items impacting comparability” based on how management views our business, makes financial, operating and planning decisions and evaluates the Company’s ongoing performance. The following items have been excluded from our non-GAAP results:

  • Severance expense.
  • Professional fees.
  • Gain on life insurance proceeds.
  • Executive transition costs.
  • Goodwill derecognition.
  • Discontinued operations.

REGIS CORPORATION

Reconciliation of selected U.S. GAAP to non-GAAP financial measures

(Dollars in thousands, except per share data)

(unaudited)

 
Reconciliation of U.S. GAAP operating income and U.S. GAAP net (loss) to equivalent non-GAAP measures
        Three Months Ended
        September 30,
    U.S. GAAP financial line item   2018   2017
U.S. GAAP revenue       $ 287,835     $ 315,464  
             
U.S. GAAP operating income       $ 3,429     $ 15,600  
             
Non-GAAP operating expense adjustments (1)            
Severance   General and administrative   2,720     534  
Professional fees   General and administrative   1,291     829  
Gain on life insurance proceeds   General and administrative       (7,986 )
Executive transition costs   General and administrative       271  
Total non-GAAP operating expense adjustments       4,011     (6,352 )
             
Non-GAAP operating income (1)       $ 7,440     $ 9,248  
             
U.S. GAAP net loss       $ (727 )   $ (25,322 )
             
Non-GAAP net loss adjustments:            
Non-GAAP operating expense adjustments       4,011     (6,352 )
Goodwill derecognition   Interest income and other, net   11,092     270  
Income tax impact on Non-GAAP adjustments (2)   Income taxes   (3,323 )    
Discontinued operations, net of income tax   Loss from discontinued operations, net of tax   264     33,767  
Total non-GAAP net loss adjustments       12,044     27,685  
Non-GAAP net income       $ 11,317     $ 2,363  

____________________________________

Notes:

(1)   Adjusted operating margins for the three months ended September 30, 2018, and 2017, were 2.6% and 2.9%, respectively, and are calculated as non-GAAP operating income divided by U.S. GAAP revenue for each respective period.
 
(2)  

Based on projected statutory effective tax rate analyses, the non-GAAP tax provision was calculated to be approximately 22% for the three months ended September 30, 2018, for all non-GAAP operating expense adjustments. Non-GAAP operating expense adjustments recognized during the first quarter of fiscal year 2018 were not tax effected as a result of the valuation allowance.

     

REGIS CORPORATION

Reconciliation of selected U.S. GAAP to non-GAAP financial measures

(Dollars in thousands, except per share data)

(Unaudited)

 
Reconciliation of U.S. GAAP net loss per diluted share to non-GAAP net income per diluted share
  Three Months Ended
  September 30,
  2018   2017
U.S. GAAP net loss per diluted share   $ (0.016 )   $ (0.540 )
Severance (1) (2)   0.046     0.011  
Professional fees (1) (2)   0.022     0.017  
Gain on life insurance proceeds (1) (2)       (0.170 )
Executive transition costs (1) (2)       0.006  
Goodwill derecognition (1) (2)   0.190     0.006  
Discontinued operations, net of tax   0.006     0.720  
Non-GAAP net income per diluted share (2) (3)   $ 0.248     $ 0.050  
         
U.S. GAAP Weighted average shares - basic   44,730     46,677  
U.S. GAAP Weighted average shares - diluted   44,730     46,900  
Non-GAAP Weighted average shares - diluted (3)   45,661     46,900  

____________________________________

Notes:

(1)  

Based on projected statutory effective tax rate analyses, the non-GAAP tax provision was calculated to be approximately 22% for the three months ended September 30, 2018, for all non-GAAP operating expense adjustments. Non-GAAP operating expense adjustments recognized during the first quarter of fiscal year 2018 were not tax effected as a result of the valuation allowance.

 
(2)  

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

 
(3)   Non-GAAP net income per share reflects the weighted average shares associated with non-GAAP net income, which includes the dilutive effect of common stock equivalents. The earnings per share impact of the adjustments for the three months ended September 30, 2018 included additional shares for common stock equivalents of 0.9 million. The impact of the adjustments described above result in the effect of the common stock equivalents to be dilutive to the non-GAAP net income per share.
     

REGIS CORPORATION

Summary of Pre-Tax, Income Taxes and Net Income Impact for Q1 FY19 Discrete Items

(Dollars in thousands)

(Unaudited)

             
    Pre-Tax   Income Taxes   Net Income
Severance   $ 2,720     $ (598 )   $ 2,122
Professional fees   1,291     (284 )   1,007
Goodwill derecognition   11,092     (2,441 )   8,651
    $ 15,103     $ (3,323 )   $ 11,780
             
Discontinued operations, net of tax   $     $     $ 264
             
Total   $ 15,103     $ (3,323 )   $ 12,044
                       

REGIS CORPORATION
Reconciliation of reported U.S. GAAP net income (loss) to adjusted EBITDA, a non-GAAP financial measure
(Dollars in thousands)
(unaudited)

Adjusted EBITDA
EBITDA represents U.S. GAAP net income (loss) for the respective period excluding interest expense, income taxes and depreciation and amortization expense. The Company defines adjusted EBITDA, as EBITDA excluding identified items impacting comparability for each respective period. For the three months ended September 30, 2018, the items impacting comparability consisted of the items identified in the non-GAAP reconciling items for the respective periods. The impacts of the income tax provision adjustments associated with the above items are already included in the U.S. GAAP reported net income (loss) to EBITDA reconciliation, therefore there is no adjustment needed for the reconciliation from EBITDA to adjusted EBITDA.

    Three Months Ended September 30, 2018
   

Company-
owned

  Franchise (1)   Corporate   Consolidated (1)
Consolidated reported net income (loss), as reported (U.S. GAAP)   $ 19,576     $ 9,720     $ (30,023 )   $ (727 )
Interest expense, as reported           1,006     1,006  
Income taxes, as reported           (714 )   (714 )
Depreciation and amortization, as reported   8,057     158     1,987     10,202  
EBITDA (as defined above)   $ 27,633     $ 9,878     $ (27,744 )   $ 9,767  
                 
Severance           2,720     2,720  
Professional fees           1,291     1,291  
Goodwill derecognition           11,092     11,092  
Discontinued operations, net of tax           264     264  
Adjusted EBITDA, non-GAAP financial measure   $ 27,633     $ 9,878     $ (12,377 )   $ 25,134  
     
    Three Months Ended September 30, 2017
   

Company-

owned

  Franchise   Corporate   Consolidated (1)
Consolidated reported net income (loss), as reported (U.S. GAAP)   $ 23,440     $ 8,471     $ (57,233 )   $ (25,322 )
Interest expense, as reported           2,138     2,138  
Income taxes, as reported           5,559     5,559  
Depreciation and amortization, as reported   9,894     92     2,269     12,255  
EBITDA (as defined above)   $ 33,334     $ 8,563     $ (47,267 )   $ (5,370 )
                 
Severance           534     534  
Professional fees           829     829  
Gain on life insurance proceeds           (7,986 )   (7,986 )
Executive Transition Costs           271     271  
Goodwill derecognition           270     270  
Discontinued operations           33,767     33,767  
Adjusted EBITDA, non-GAAP financial measure   $ 33,334     $ 8,563     $ (19,582 )   $ 22,315  

____________________________________

Notes:

(1)   Consolidated EBITDA margins for the three months ended September 30, 2018, and 2017, were 3.4% and (1.7)%, respectively, and are calculated as EBITDA (as defined above) divided by U.S. GAAP revenue for each respective period.
     

REGIS CORPORATION
Reconciliation by reportable segment of reported U.S. GAAP gross profit (excluding depreciation and amortization) to adjusted gross profit (excluding depreciation and amortization), a non-GAAP financial measure
(Dollars in thousands)
(Unaudited)

Gross profit
The Company defines gross profit as service and product revenues less cost of service and cost of product, excluding depreciation and amortization. Non-GAAP gross profit is gross profit, as defined by the Company, adjusted for items impacting comparability for each respective period.

    Three Months Ended September 30, 2018
    Company-            
    owned   Franchise   Corporate   Consolidated
Revenues:                
Service   $ 207,848     $     $     $ 207,848
Product   41,962     15,629         57,591
    249,810     15,629         265,439
                 
Cost of service   121,497             121,497
Cost of product   19,768     12,413         32,181
    141,265     12,413         153,678
                 
U.S. GAAP and Non-GAAP gross profit(1)   $ 108,545     $ 3,216     $     $ 111,761
     

(1) Gross profit excludes depreciation and amortization.

     
    Three Months Ended September 30, 2017
    Company-            
    owned   Franchise   Corporate   Consolidated
Revenues:                
Service   $ 235,630     $     $     $ 235,630
Product   53,236     7,722         60,958
    288,866     7,722         296,588
                 
Cost of service   139,836             139,836
Cost of product   24,447     5,715         30,162
    164,283     5,715         169,998
                 
U.S. GAAP and Non-GAAP gross profit(1)   $ 124,583     $ 2,007     $     $ 126,590
                               

(1) Gross profit excludes depreciation and amortization.

REGIS CORPORATION

Reconciliation of reported U.S. GAAP revenue change to same-store sales

(unaudited)

   
  Three Months Ended
  September 30,
  2018   2017
Revenue decline, as reported (U.S. GAAP)   (8.8 )%   (2.9 )%
Effect of new company-owned stores   0.0     (0.6 )
Effect of closed salons   5.6     2.0  
Effect of salons sold to franchisees   6.7     1.6  
Franchise   (2.8 )   (0.4 )
Foreign currency   0.3     (0.3 )
Other   (0.1 )   1.1  
Advertising fund   (0.4 )   (0.1 )
Same-store sales, non-GAAP   0.5 %   0.4 %

Contact:

Andrew Lacko
Regis Corporation
952-918-4175
investorrelations@regiscorp.com

SOURCE Regis Corporation

###

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