REVENUE RECOGNITION

9 Months Ended

Mar. 31, 2021

Revenue from Contract with Customer [Abstract]

REVENUE RECOGNITION

REVENUE RECOGNITION:

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, 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 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 unaudited Condensed Consolidated Statement of Operations. The gross presentation increases both the 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, typically ten years. Franchise rental income is a result of the Company signing leases on behalf of franchisees and entering into a sublease arrangement with the franchisee. 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, 2021				Three Months Ended March 31, 2020
	Franchise		Company-owned		Franchise		Company-owned
	(Dollars in thousands)
Revenue recognized at a point in time:
Service	$	—	$	24,645	$	—	$	78,387
Product	13,079		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	$	—	$	16,487	$	—
Advertising fund fees (refunds), net (1)	5,580		—		(7,789)		—
Franchise rental income	31,317		—		31,821		—
Total revenue recognized over time	54,852		—		40,519		—
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.

	Nine Months Ended March 31, 2021				Nine Months Ended March 31, 2020
	Franchise		Company-owned		Franchise		Company-owned
	(Dollars in thousands)
Revenue recognized at a point in time:
Service	$	—	$	90,040	$	—	$	322,133
Product	41,057		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	$	—	$	52,721	$	—
Advertising fund fees	14,804		—		13,341		—
Franchise rental income	95,885		—		96,875		—
Total revenue recognized over time	157,278		—		162,937		—
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 fees	19,599		20,516		Other assets
Deferred revenue:
Current
Gift card liability	$	2,336	$	2,543	Accrued expenses
Deferred franchise fees unopened salons	80		77		Accrued expenses
Deferred franchise fees open salons	5,929		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 salons	33,001		33,623		Other non-current liabilities
Total non-current deferred revenue	$	40,657	$	45,478

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, 2020	$	6,899
Provision for doubtful accounts (1)	792
Provision for franchisee rent (2)	907
Write-offs	(1,436)
Balance as of March 31, 2021	$	7,162

_______________________________________________________________________________

(1)The provision for doubtful accounts is recognized as General and administrative expense in the unaudited Condensed Consolidated Statement of Operations.

(2)The provision for franchisee rent is recognized as Rent in the unaudited Condensed Consolidated Statement of Operations.

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

Balance as of June 30, 2020	$	20,516
Additions	1,573
Amortization	(2,369)
Write-offs	(121)
Balance as of March 31, 2021	$	19,599

Deferred revenue includes the gift card liability and deferred franchise fees for unopened salons and open salons. Gift card revenue for the three months ended March 31, 2021 and 2020 was $0.3 and $0.8 million, respectively, and for the nine months ended March 31, 2021 and 2020 was $0.7 and $2.3 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 three months ended March 31, 2021 and 2020 was $1.6 and $1.4 million, respectively, and for the nine months ended March 31, 2021 and 2020 was $4.9 and $3.8 million, respectively. Estimated revenue expected to be recognized in the future related to deferred franchise fees for open salons as of March 31, 2021 is as follows (in thousands):

Remainder of 2021	$	1,505
2022	5,901
2023	5,725
2024	5,483
2025	5,092
Thereafter	15,224
Total	$	38,930