REVENUE RECOGNITION

3 Months Ended

Sep. 30, 2024

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.

Revenue recognized at point of sale

Company-owned salon revenues are recognized at the time when the services are provided, or the guest receives and pays for the merchandise. Revenues from purchases made with gift cards are also recorded when the guest takes possession of the merchandise or services are provided. Gift cards issued by the Company are recorded as a liability (deferred revenue) upon sale and recognized as revenue upon redemption by the guest. Gift card breakage, the amount of gift cards which will not be redeemed, is recognized based on gift card balances with no activity over a 36-month basis. Product sales to franchisees are recorded at the time product is delivered to the franchisee.

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

	September 30, 2024		June 30, 2024		Balance Sheet Classification
	(Dollars in thousands)
Receivables from contracts with customers, net	$	6,799	$	6,887	Receivables, net
Broker fees	8,560		9,369		Other assets
Deferred revenue:
Current
Gift card liability	$	334	$	366	Accrued expenses
Deferred franchise fees open salons	4,549		4,738		Accrued expenses
Total current deferred revenue	$	4,883	$	5,104
Non-current
Deferred franchise fees unopened salons	$	1,755	$	1,783	Other non-current liabilities
Deferred franchise fees open salons	13,608		14,972		Other non-current liabilities
Total non-current deferred revenue	$	15,363	$	16,755

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

	Three Months Ended September 30,
	2024		2023
	(Dollars in thousands)
Balance at beginning of period	$	6,227	$	7,297
Provision for doubtful accounts	689		211
Provision for franchisee rent	127		167
Recoveries	(237)		(237)
Write-offs	(142)		(991)
Other (1)	243		(56)
Balance at end of period	$	6,907	$	6,391

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(1)Includes currency fluctuation.

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

	Three Months Ended September 30,
	2024		2023
	(Dollars in thousands)
Balance at beginning of period	$	9,369	$	12,471
Amortization	(617)		(739)
Write-offs	(192)		(109)
Balance at end of period	$	8,560	$	11,623

Deferred franchise fees related to open salons are generally recognized on a straight-line basis over the term of the franchise agreement. Franchise fee revenue for the three months ended September 30, 2024, and 2023 was $1.6 million and $1.7 million, respectively. Estimated revenue expected to be recognized in the future related to deferred franchise fees for open salons as of September 30, 2024, is as follows (dollars in thousands):

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