REVENUE RECOGNITION

12 Months Ended

Jun. 30, 2019

Revenue from Contract with Customer [Abstract]

REVENUE RECOGNITION

REVENUE RECOGNITION:

In May 2014, the FASB issued amended guidance for revenue recognition which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The Company adopted the amended revenue recognition guidance, ASC Topic 606, on July 1, 2018 using the full retrospective transition method which required the adjustment of each prior reporting period presented. As a result of adopting this new standard, the Company is providing its updated revenue recognition policies.

Revenue Recognition and Deferred Revenue:

Revenue recognized at point of sale

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

Revenue recognized over time

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

The following table disaggregates revenue by timing of revenue recognition and is reconciled to reportable segment revenues as follows:

	Year ended June 30, 2019				Year ended June 30, 2018
	Company-owned		Franchise		Company-owned		Franchise
	(in thousands)
Revenue recognized at a point in time:
Service	$	749,660	$	—	$	899,345	$	—
Product	165,713		59,905		205,037		53,703
Total revenue recognized at a point in time	$	915,373	$	59,905	$	1,104,382	$	53,703
Revenue recognized over time:
Royalty and other franchise fees	$	—	$	59,688	$	—	$	50,576
Advertising fund fees	—		34,073		—		26,818
Total revenue recognized over time	—		93,761		—		77,394
Total revenue	$	915,373	$	153,666	$	1,104,382	$	131,097

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

	June 30, 2019		June 30, 2018		Balance Sheet Classification
	(in thousands)
Receivables from contracts with customers, net	$	23,210	$	21,504	Accounts receivable, net
Broker fees	$	17,819	$	14,002	Other assets
Deferred revenue:
Current
Gift card liability	$	3,050	$	3,320	Accrued expenses
Deferred franchise fees unopened salons	193		2,306		Accrued expenses
Deferred franchise fees open salons	4,164		3,030		Accrued expenses
Total current deferred revenue	$	7,407	$	8,656
Non-current
Deferred franchise fees unopened salons	$	15,173	$	11,161	Other non-current liabilities
Deferred franchise fees open salons	24,194		18,346		Other non-current liabilities
Total non-current deferred revenue	$	39,367	$	29,507

Receivables relate primarily to payments due for royalties, franchise fees, advertising fees, and sales of salon services and product. The receivables balance is presented net of an allowance for expected losses (i.e., doubtful accounts), primarily related to receivables from franchisees. As of June 30, 2019 and June 30, 2018, the balance in the allowance for doubtful accounts was $2.0 million and $1.2 million, respectively. Broker fees are the costs associated with using external brokers to identify new franchisees. These fees are paid upon the signing of the franchise agreement and recognized as General and Administrative expense over the term of the agreement. The adoption of the amended revenue recognition guidance did not significantly change the Company's accounting for broker fees.

The following table is a rollforward of the broker fee balance for the periods indicated (in thousands):

Balance as of June 30, 2018	$	14,002
Additions	5,976
Amortization	(1,625		)
Write-offs	(534		)
Balance as of June 30, 2019	$	17,819

Deferred revenue includes the gift card liability and deferred franchise fees for unopened salons and open salons. Gift card revenue for the years ended June 30, 2019 and 2018 was $5.3 and $5.8 million, respectively. Deferred franchise fees related to open salons are generally recognized on a straight-line basis over the term of the franchise agreement. Franchise fee revenue for the twelve months ended June 30, 2019 and 2018 was $3.6 and $2.3 million, respectively. Estimated revenue expected to the recognized in the future related to deferred franchise fees for open salons as of June 30, 2019 is as follows (in thousands):

2020	$	4,164
2021	3,898
2022	3,778
2023	3,602
2024	3,367
Thereafter	9,549
Total	$	28,358

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

CONSOLIDATED BALANCE SHEET

June 30, 2018

(Dollars in thousands)

			Adjustments for new revenue recognition guidance
	Previously		Franchise			Advertising		Gift Card
	Reported		Fees			Funds		Breakage			Taxes			As Restated
ASSETS
Current assets:
Cash and cash equivalents	$	110,399	$	—		$	—	$	—		$	—		$	110,399
Receivables, net	52,430		—			—		—			—			52,430
Inventories	79,363		—			—		—			—			79,363
Other current assets	47,867		—			—		—			—			47,867
Total current assets	290,059		—			—		—			—			290,059
Property and equipment, net	99,288		—			—		—			—			99,288
Goodwill	412,643		—			—		—			—			412,643
Other intangibles, net	10,557		—			—		—			—			10,557
Other assets	37,616		—			—		—			—			37,616
Non-current assets held for sale	6,572		—			—		—			—			6,572
Total assets	$	856,735	$	—		$	—	$	—		$	—		$	856,735
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	57,738	$	—		$	—	$	—		$	—		$	57,738
Accrued expenses	97,630		3,030			—		56			—			100,716
Total current liabilities	155,368		3,030			—		56			—			158,454
Long-term debt	90,000		—			—		—			—			90,000
Other noncurrent liabilities	107,875		18,346			—		—			(4,378		)	121,843
Total liabilities	353,243		21,376			—		56			(4,378		)	370,297
Commitments and contingencies
Shareholders’ equity:			0
Common stock	2,263		—			—		—			—			2,263
Additional paid-in capital	194,436		—			—		—			—			194,436
Accumulated other comprehensive income	9,568		88			—		—			—			9,656
Retained earnings	297,225		(21,464		)	—		(56		)	4,378			280,083
Total shareholders’ equity	503,492		(21,376		)	—		(56		)	4,378			486,438
Total liabilities and shareholders’ equity	$	856,735	$	—		$	—	$	—		$	—		$	856,735

CONSOLIDATED STATEMENT OF OPERATIONS

For The Twelve Months Ended June 30, 2018

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

				Adjustments for new revenue recognition guidance
	Previously			Franchise			Advertising		Gift Card
	Reported			Fees			Funds		Breakage			Taxes		Adjusted
Revenues:
Service	$	899,051		$	—		$	—	$	294		$	—	$	899,345
Product	258,666			—			—		74			—		258,740
Royalties and fees	56,357			(5,781		)	26,818		—			—		77,394
	1,214,074			(5,781		)	26,818		368			—		1,235,479
Operating expenses:
Cost of service	530,582			—			—		—			—		530,582
Cost of product	140,623			—			—		—			—		140,623
Site operating expenses	127,249			—			26,818		—			—		154,067
General and administrative	174,045			—			—		—			—		174,045
Rent	183,096			—			—		—			—		183,096
Depreciation and amortization	58,205			—			—		—			—		58,205
Total operating expenses	1,213,800			—			26,818		—			—		1,240,618
Operating income (loss)	274			(5,781		)	—		368			—		(5,139		)
	274			-5781			0		368			0		-5139
Other (expense) income:
Interest expense	(10,492		)	—			—		—			—		(10,492		)
Gain from sale of salon assets to franchisees, net	241			—			—		—			—		241
Interest income and other, net	6,429			—			—		(1,230		)	—		5,199
Loss from continuing operations before income taxes	(3,548		)	(5,781		)	—		(862		)	—		(10,191		)
Income tax benefit	65,434			—			—		—			4,378		69,812
Income from continuing operations	61,886			(5,781		)	—		(862		)	4,378		59,621
Loss from TBG discontinued operations, net of taxes	(53,185		)	—			—		—			—		(53,185		)
Net income (loss)	$	8,701		$	(5,781	)	$	—	$	(862	)	$	4,378	$	6,436
Net loss per share:
Basic:
Income from continuing operations (1)	$	1.33		$	(0.12	)	$	0.00	$	(0.02	)	$	0.09	$	1.28
Loss from TBG discontinued operations	(1.14		)	0.00			0.00		0.00			0.00		(1.14		)
Net loss per share, basic (1)	$	0.19		$	(0.12	)	$	0.00	$	(0.02	)	$	0.09	$	0.14
Diluted:
Income from continuing operations (1)	$	1.32		$	(0.12	)	$	0.00	$	(0.02	)	$	0.09	$	1.27
Loss from TBG discontinued operations	(1.13		)	0.00			0.00		0.00			0.00		(1.13		)
Net loss per share, diluted (1)	$	0.18		$	(0.12	)	$	0.00	$	(0.02	)	$	0.09	$	0.14
Weighted average common and common equivalent shares outstanding:
Basic	46,517			46,517			46,517		46,517			46,517		46,517
Diluted	47,035			47,035			47,035		47,035			47,035		47,035

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