REVENUE RECOGNITION

9 Months Ended

Mar. 31, 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 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 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 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:

	March 31, 2023		June 30, 2022		Balance Sheet Classification
	(Dollars in thousands)
Receivables from contracts with customers, net	$	10,107	$	10,263	Receivables, net
Broker fees	13,218		15,592		Other assets
Deferred revenue:
Current
Gift card liability	$	1,865	$	2,037	Accrued expenses
Deferred franchise fees open salons	5,446		5,770		Accrued expenses
Total current deferred revenue	$	7,311	$	7,807
Non-current
Deferred franchise fees unopened salons	$	2,563	$	3,211	Other non-current liabilities
Deferred franchise fees open salons	22,518		26,827		Other non-current liabilities
Total non-current deferred revenue	$	25,081	$	30,038

Receivables relate primarily to payments due for royalties, advertising fees, rent, 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 periods indicated:

	Nine Months Ended March 31,
	2023		2022
	(Dollars in thousands)
Balance at beginning of period	$	6,559	$	7,774
Provision for doubtful accounts	545		(88)
Provision for franchisee rent (1)	15		847
Reclass of accrued rent (2)	74		396
Write-offs	(1,632)		(1,600)
Balance at end of period	$	5,561	$	7,329

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

(2)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 billed in fiscal years 2023 and 2022 and the related accrual were reclassified to 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:

	Nine Months Ended March 31,
	2023		2022
	(Dollars in thousands)
Balance at beginning of period	$	15,592	$	19,254
Additions	—		25
Amortization	(2,374)		(2,398)
Write-offs	—		(366)
Balance at end of period	$	13,218	$	16,515

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, 2023 and 2022 was $1.6 and $1.6 million, respectively, and for the nine months ended March 31, 2023 and 2022 was $4.8 and $4.9 million, respectively. Estimated revenue expected to be recognized in the future related to deferred franchise fees for open salons as of March 31, 2023 is as follows (dollars in thousands):

Remainder of 2023	$	1,362
2024	5,390
2025	5,002
2026	4,536
2027	4,073
Thereafter	7,601
Total	$	27,964