REVENUE RECOGNITION

3 Months Ended

Sep. 30, 2023

Revenue from Contract with Customer [Abstract]

REVENUE RECOGNITION

REVENUE RECOGNITION:

Revenue Recognition and Deferred Revenue:

Revenue recognized over time

Royalty and advertising fund revenues represent sales-based royalties that are recognized in the period in which the sales occur. Generally, royalty and advertising fund revenues are billed and collected monthly in arrears. Advertising fund revenues and expenditures, which must be spent on marketing and related activities per the franchise agreements, are recorded on a gross basis within the unaudited Condensed Consolidated Statements of Operations. The treatment increases both the gross amount of reported revenue and expense and generally has no impact on operating income and net income. Franchise fees are billed and received upon the signing of the franchise agreement. Recognition of these fees is deferred until the salon opens and is then recognized over the term of the franchise agreement, which is typically 10 years. Franchise rental income is a result of the Company signing leases on behalf of franchisees and entering into sublease arrangements with the franchisees. The Company recognizes franchise rental income and expense when it is due to the landlord and has no impact on net income.

Revenue recognized at point of sale

Company-owned salon revenues are recognized at the time when the services are provided, or the guest receives and pays for the merchandise. Revenues from purchases made with gift cards are also recorded when the guest takes possession of the merchandise or services are provided. Gift cards issued by the Company are recorded as a liability (deferred revenue) upon sale and recognized as revenue upon redemption by the guest. Gift card breakage, the amount of gift cards which will not be redeemed, is recognized proportional to redemptions using estimates based on historical redemption patterns. Product sales to franchisees and other partners are recorded at the time product is delivered.

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

	September 30, 2023		June 30, 2023		Balance Sheet Classification
	(Dollars in thousands)
Receivables from contracts with customers, net	$	6,426	$	5,683	Receivables, net
Broker fees	11,623		12,471		Other assets
Deferred revenue:
Current
Gift card liability	$	1,764	$	1,823	Accrued expenses
Deferred franchise fees open salons	5,175		5,325		Accrued expenses
Total current deferred revenue	$	6,939	$	7,148
Non-current
Deferred franchise fees unopened salons	$	2,217	$	2,312	Other non-current liabilities
Deferred franchise fees open salons	19,323		20,839		Other non-current liabilities
Total non-current deferred revenue	$	21,540	$	23,151

Receivables relate primarily to payments due for royalties, advertising fees and rent. The receivables balance is presented net of an allowance for expected losses (i.e., doubtful accounts). Provisions for credit losses are recorded based on management’s judgment regarding our ability to collect as well as the age of the receivables. Receivable are written off when they are deemed uncollectible. The following table is a rollforward of the allowance for doubtful accounts for the periods indicated:

	Three Months Ended September 30,
	2023		2022
	(Dollars in thousands)
Balance at beginning of period	$	7,297	$	6,559
Provision for doubtful accounts	211		461
Provision for franchisee rent	167		19
Recoveries	(237)		—
Write-offs	(991)		(725)
Reclass of accrued rent (1)	—		60
Other (2)	(56)		—
Balance at end of period	$	6,391	$	6,374

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(1)The reclass of accrued rent represents franchisee rent obligations guaranteed by the Company that were unbilled and deemed unrecoverable as of June 30, 2022, and subsequently billed, so the related accruals were reclassified to allowance for doubtful accounts.

(2)Includes currency fluctuation.

The Company offers financing to Smartstyle franchisees when they remodel their salons. Included in Other assets is a receivable of $0.9 million, partially offset by a credit loss reserve of $0.2 million, related to this financing program.

Broker fees are the costs associated with using external brokers to identify new franchisees. These fees are paid upon the signing of the franchise agreement and recognized as general and administrative expense over the term of the franchise agreement. The following table is a rollforward of the broker fee balance for the periods indicated:

	Three Months Ended September 30,
	2023		2022
	(Dollars in thousands)
Balance at beginning of period	$	12,471	$	15,592
Additions	—		—
Amortization	(739)		(827)
Write-offs	(109)		—
Balance at end of period	$	11,623	$	14,765

Deferred franchise fees related to open salons are generally recognized on a straight-line basis over the term of the franchise agreement. Franchise fee revenue for the three months ended September 30, 2023 and 2022 was $1.7 and $1.5 million, respectively. Estimated revenue expected to be recognized in the future related to deferred franchise fees for open salons as of September 30, 2023 is as follows (dollars in thousands):

Remainder of 2024	$	3,881
2025	4,889
2026	4,420
2027	3,959
2028	3,276
Thereafter	4,073
Total	$	24,498