REVENUE RECOGNITION

3 Months Ended

Sep. 30, 2021

Revenue from Contract with Customer [Abstract]

REVENUE RECOGNITION

REVENUE RECOGNITION:

Revenue Recognition and Deferred Revenue:

Revenue recognized at point of sale

Product sales to franchisees are 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. 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.

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 Statement 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 opening and is then recognized over the term of the franchise agreement, which is typically ten years. Software fees are recognized over the term of the SaaS agreement. 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.

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

	September 30, 2021		June 30, 2021		Balance Sheet Classification
	(Dollars in thousands)
Receivables from contracts with customers, net	$	14,612	$	19,112	Receivables, net
Broker fees	18,272		19,254		Other assets
Deferred revenue:
Current
Gift card liability	$	2,150	$	2,240	Accrued expenses
Deferred franchise fees unopened salons	31		40		Accrued expenses
Deferred franchise fees open salons	5,901		5,884		Accrued expenses
Total current deferred revenue:	$	8,082	$	8,164
Non-current
Deferred franchise fees unopened salons	$	5,824	$	6,571	Other non-current liabilities
Deferred franchise fees open salons	31,101		32,365		Other non-current liabilities
Total non-current deferred revenue	$	36,925	$	38,936

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, 2021	$	7,774
Provision for doubtful accounts (1)	237
Provision for franchisee rent (2)	364
Reclass of accrued rent (3)	396
Write-offs	(102)
Balance as of September 30, 2021	$	8,669

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(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.

(3)The reclass of accrued rent represents franchisee rent obligations guaranteed by the Company that were unbilled and deemed unrecoverable as of June 30, 2021. The amounts were billed in fiscal year 2022 and the related accrual was reclassified to the allowance for doubtful accounts.

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 (in thousands):

Balance as of June 30, 2021	$	19,254
Additions	25
Amortization	(862)
Write-offs	(145)
Balance as of September 30, 2021	$	18,272

Deferred revenue includes the gift card liability and deferred franchise fees for unopened salons and open salons. 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, 2021 and 2020 was $1.6 and $1.6 million, respectively. Estimated revenue expected to be recognized in the future related to deferred franchise fees for open salons as of September 30, 2021 is as follows (in thousands):

Remainder of 2022	$	4,391
2023	5,866
2024	5,631
2025	5,246
2026	4,776
Thereafter	11,092
Total	$	37,002