10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 25, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File Number: 001-40714

 

EUROPEAN WAX CENTER, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

86-3150064

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

5830 Granite Parkway, 3rd Floor

Plano, Texas

75024

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (469) 264-8123

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Class A common stock, par value $0.00001 per share

 

EWCZ

 

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

As of August 1, 2022, the registrant had 39,503,811 and 23,943,795 shares of Class A and Class B common stock, respectively, $0.00001 par value per share, outstanding.

 

 

 


 

Table of Contents

 

 

 

Page

 

 

 

PART I.

FINANCIAL INFORMATION

1

 

 

 

Item 1.

Financial Statements (Unaudited)

1

 

 

 

 

Condensed Consolidated Balance Sheets as of June 25, 2022 and December 25, 2021

1

 

Condensed Consolidated Statements of Operations for the 13 and 26 weeks ended June 25, 2022, and June 26, 2021

2

 

Condensed Consolidated Statements of Comprehensive Income for the 13 and 26 weeks ended June 25, 2022 and June 26, 2021

3

 

Condensed Consolidated Statements of Cash Flows for the 26 weeks ended June 25, 2022, and June 26, 2021

4

 

Condensed Consolidated Statements of Mezzanine Equity and Stockholders'/Members’ Equity for the 13 and 26 weeks ended June 25, 2022, and June 26, 2021

5

 

Notes to Unaudited Condensed Consolidated Financial Statements

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.

Controls and Procedures

32

 

 

 

PART II.

OTHER INFORMATION

33

 

 

 

Item 1.

Legal Proceedings

33

Item 1A.

Risk Factors

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34

Item 3.

Defaults Upon Senior Securities

34

Item 4.

Mine Safety Disclosures

34

Item 5.

Other Information

34

Item 6.

Exhibits

35

Signatures

36

 

i


 

PART I-FINANCIAL INFORMATION

Item 1. Financial Statements

EUROPEAN WAX CENTER, INC. and Subsidiaries

Condensed Consolidated Balance Sheets

(Amounts in thousands, except share and per share amounts)

(Unaudited)

 

 

 

June 25,
2022

 

 

December 25,
2021

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

31,190

 

 

$

43,301

 

Restricted cash

 

 

10,866

 

 

 

 

Accounts receivable, net

 

 

9,880

 

 

 

6,656

 

Inventory

 

 

22,979

 

 

 

19,423

 

Prepaid expenses and other current assets

 

 

7,033

 

 

 

5,927

 

Total current assets

 

 

81,948

 

 

 

75,307

 

Property and equipment, net

 

 

3,234

 

 

 

3,863

 

Operating lease right-of-use assets

 

 

5,748

 

 

 

 

Intangible assets, net

 

 

192,508

 

 

 

201,995

 

Goodwill

 

 

328,551

 

 

 

328,551

 

Other non-current assets

 

 

5,141

 

 

 

3,723

 

Total assets

 

$

617,130

 

 

$

613,439

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

22,475

 

 

$

23,155

 

Long-term debt, current portion

 

 

4,000

 

 

 

5,625

 

Deferred revenue, current portion

 

 

3,783

 

 

 

3,004

 

Operating lease liabilities, current portion

 

 

1,628

 

 

 

 

Other current liabilities

 

 

 

 

 

182

 

Total current liabilities

 

 

31,886

 

 

 

31,966

 

Long-term debt, net

 

 

370,489

 

 

 

172,607

 

Tax receivable agreement liability

 

 

64,399

 

 

 

59,167

 

Deferred revenue, net of current portion

 

 

6,429

 

 

 

6,787

 

Operating lease liabilities, net of current portion

 

 

4,848

 

 

 

 

Other long-term liabilities

 

 

4,932

 

 

 

1,671

 

Total liabilities

 

 

482,983

 

 

 

272,198

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock ($0.00001 par value, 100,000,000 shares authorized, none issued and outstanding as of June 25, 2022 and December 25, 2021.)

 

 

 

 

 

 

Class A common stock ($0.00001 par value, 600,000,000 shares authorized, 39,503,811 and 36,932,423 shares issued and outstanding as of June 25, 2022 and December 25, 2021, respectively)

 

 

 

 

 

 

Class B common stock ($0.00001 par value, 60,000,000 shares authorized, 23,943,795 and 26,700,477 shares issued and outstanding as of June 25, 2022 and December 25, 2021, respectively)

 

 

 

 

 

 

Additional paid-in capital

 

 

186,786

 

 

 

182,919

 

Accumulated deficit

 

 

(122,861

)

 

 

(3,487

)

Accumulated other comprehensive loss

 

 

 

 

 

(45

)

       Total stockholders' equity attributable to European Wax Center, Inc.

 

 

63,925

 

 

 

179,387

 

Noncontrolling interests

 

 

70,222

 

 

 

161,854

 

Total stockholders' equity

 

 

134,147

 

 

 

341,241

 

Total liabilities and stockholders' equity

 

$

617,130

 

 

$

613,439

 

The accompanying notes are an integral part of these condensed consolidated financial statements

1


 

EUROPEAN WAX CENTER, INC. and Subsidiaries

CoNDENSED Consolidated Statements of Operations

(Amounts in thousands, except share and per share amounts)

(Unaudited)

 

 

For the Thirteen Weeks Ended

 

 

For the Twenty-Six Weeks Ended

 

 

 

June 25, 2022

 

 

June 26, 2021

 

 

June 25, 2022

 

 

June 26, 2021

 

REVENUE

 

 

 

 

 

 

 

 

 

 

 

 

Product sales

 

$

30,502

 

 

$

26,524

 

 

$

55,279

 

 

$

47,141

 

Royalty fees

 

 

12,769

 

 

 

12,030

 

 

 

24,154

 

 

 

20,880

 

Marketing fees

 

 

7,175

 

 

 

6,632

 

 

 

13,626

 

 

 

11,566

 

Other revenue

 

 

2,912

 

 

 

2,716

 

 

 

5,725

 

 

 

4,972

 

Total revenue

 

 

53,358

 

 

 

47,902

 

 

 

98,784

 

 

 

84,559

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

14,864

 

 

 

11,540

 

 

 

26,854

 

 

 

21,471

 

Selling, general and administrative

 

 

15,227

 

 

 

12,212

 

 

 

30,702

 

 

 

23,278

 

Advertising

 

 

8,049

 

 

 

6,515

 

 

 

14,605

 

 

 

11,399

 

Depreciation and amortization

 

 

5,055

 

 

 

5,271

 

 

 

10,115

 

 

 

10,409

 

Total operating expenses

 

 

43,195

 

 

 

35,538

 

 

 

82,276

 

 

 

66,557

 

Income from operations

 

 

10,163

 

 

 

12,364

 

 

 

16,508

 

 

 

18,002

 

Interest expense

 

 

8,080

 

 

 

4,635

 

 

 

9,587

 

 

 

9,171

 

Other expense

 

 

33

 

 

 

 

 

 

818

 

 

 

 

Income before income taxes

 

 

2,050

 

 

 

7,729

 

 

 

6,103

 

 

 

8,831

 

Income tax expense(1)

 

 

19

 

 

 

 

 

 

46

 

 

 

 

NET INCOME

 

$

2,031

 

 

$

7,729

 

 

$

6,057

 

 

$

8,831

 

Less: net income attributable to EWC Ventures, LLC prior to the Reorganization Transactions

 

 

 

 

 

7,729

 

 

 

 

 

 

8,831

 

Less: net income attributable to noncontrolling interests

 

 

1,063

 

 

 

 

 

 

3,204

 

 

 

 

NET INCOME ATTRIBUTABLE TO EUROPEAN WAX CENTER, INC.

 

$

968

 

 

$

 

 

$

2,853

 

 

$

 

Net income per share (2)

 

 

 

 

 

 

 

 

 

 

 

 

Basic - Class A Common Stock

 

$

0.03

 

 

$

 

 

$

0.09

 

 

$

 

Diluted - Class A Common Stock

 

$

0.03

 

 

$

 

 

$

0.08

 

 

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Basic - Class A Common Stock

 

 

37,911,637

 

 

 

 

 

37,432,586

 

 

 

Diluted - Class A Common Stock

 

 

38,155,439

 

 

 

 

 

 

37,661,978

 

 

 

 

(1) EWC Ventures, our financial reporting predecessor, is not subject to income taxes. As such, there was no income tax expense recorded during the 13 and 26 weeks ended June 26, 2021. See Note 12 for more information.
(2) Basic and diluted net income per share of Class A common stock is applicable only for the 13 and 26 weeks ended June 25, 2022. See Note 14 for the calculation of the numbers of shares used in computation of net income per share of Class A common stock and the basis for computation of net income per share.

The accompanying notes are an integral part of these condensed consolidated financial statements.

2


 

EUROPEAN WAX CENTER, INC. and Subsidiaries

CoNDENSED Consolidated Statements of Comprehensive Income

(Amounts in thousands)

(Unaudited)

 

 

 

 

For the Thirteen Weeks Ended

 

 

For the Twenty-Six Weeks Ended

 

 

 

June 25, 2022

 

 

June 26, 2021

 

 

June 25, 2022

 

 

June 26, 2021

 

NET INCOME

 

$

2,031

 

 

$

7,729

 

 

$

6,057

 

 

$

8,831

 

Items included in other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on cash flow hedge

 

 

 

 

 

80

 

 

 

 

 

 

239

 

TOTAL COMPREHENSIVE INCOME

 

$

2,031

 

 

$

7,809

 

 

$

6,057

 

 

$

9,070

 

Less: total comprehensive income attributable to EWC Ventures, LLC prior to the Reorganization Transactions

 

 

 

 

 

7,809

 

 

 

 

 

 

9,070

 

Less: total comprehensive income attributable to non-controlling interests

 

 

1,063

 

 

 

 

 

 

3,204

 

 

 

 

COMPREHENSIVE INCOME ATTRIBUTABLE TO EUROPEAN WAX CENTER, INC.

 

$

968

 

 

$

 

 

$

2,853

 

 

$

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3


 

EUROPEAN WAX CENTER, INC. and Subsidiaries

CONDENSED Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)

 

 

 

For the Twenty-Six Weeks Ended

 

 

 

June 25, 2022

 

 

June 26, 2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

6,057

 

 

$

8,831

 

Adjustments to reconcile net income to net cash provided by
   operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

10,115

 

 

 

10,409

 

Amortization of deferred financing costs

 

 

1,229

 

 

 

684

 

Gain on interest rate cap

 

 

(196

)

 

 

 

Provision for inventory obsolescence

 

 

(125

)

 

 

 

Loss on debt extinguishment

 

 

1,957

 

 

 

 

Provision for bad debts

 

 

 

 

 

405

 

Remeasurement of tax receivable agreement liability

 

 

818

 

 

 

 

Equity compensation

 

 

5,335

 

 

 

557

 

Changes in assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(3,674

)

 

 

(6,712

)

Inventory

 

 

(3,431

)

 

 

(9,520

)

Prepaid expenses and other assets

 

 

212

 

 

 

(7,562

)

Accounts payable and accrued liabilities

 

 

(964

)

 

 

10,260

 

Deferred revenue

 

 

421

 

 

 

674

 

Other long-term liabilities

 

 

(146

)

 

 

(166

)

Net cash provided by operating activities

 

 

17,608

 

 

 

7,860

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(82

)

 

 

(323

)

Reacquisition of area representative rights

 

 

 

 

 

(7,594

)

Net cash used in investing activities

 

 

(82

)

 

 

(7,917

)

Cash flows from financing activities:

 

 

 

 

 

 

Deferred loan costs

 

 

(12,419

)

 

 

 

Proceeds from long-term debt

 

 

384,328

 

 

 

 

Principal payments on long-term debt

 

 

(180,000

)

 

 

(1,214

)

Payments of debt extinguishment costs

 

 

(77

)

 

 

 

Distributions to EWC Ventures LLC members

 

 

(4,760

)

 

 

 

Contributions from EWC Ventures LLC members

 

 

 

 

 

728

 

Payment of Class A common stock offering costs

 

 

(870

)

 

 

 

Repurchase of Class A Units

 

 

 

 

 

(942

)

Dividends to holders of Class A common stock

 

 

(122,227

)

 

 

 

Dividend equivalents to holders of EWC Ventures units

 

 

(82,746

)

 

 

 

Net cash used in financing activities

 

 

(18,771

)

 

 

(1,428

)

Net decrease in cash

 

 

(1,245

)

 

 

(1,485

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

43,301

 

 

 

36,720

 

Cash, cash equivalents and restricted cash, end of period

 

$

42,056

 

 

$

35,235

 

Supplemental cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

3,042

 

 

$

8,362

 

Cash paid for income taxes

 

$

26

 

 

$

 

Non-cash investing activities:

 

 

 

 

 

 

Property purchases included in accounts payable and accrued liabilities

 

$

5

 

 

$

 

Reacquired rights purchased included in accounts payable and accrued liabilities

 

$

 

 

$

50

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


 

EUROPEAN WAX CENTER, INC. and Subsidiaries

CONDENSED Consolidated Statements of Mezzanine Equity and STOCKHOLDERS'/Members’ Equity

(Amounts in thousands, except share/unit and per share/unit amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Additional

 

 

 

other

 

 

 

 

 

 

Class A Common Stock

 

Class B Common Stock

 

paid-in

 

Accumulated

 

comprehensive

 

Noncontrolling

 

Total

 

 

Shares

 

Amount

 

Shares

 

Amount

 

capital

 

deficit

 

loss

 

interest

 

equity

Balance at December 25, 2021

 

36,932,423

 

$

 

26,700,477

 

$

 

$182,919

 

$(3,487)

 

$(45)

 

$161,854

 

$341,241

Exchange of Class B Common Stock and EWC Ventures Units for Class A Common Stock

 

100,000

 

  —

 

  (100,000)

 

  —

 

  —

 

  —

 

  —

 

  —

 

  —

Vesting of restricted stock units

 

6,042

 

  —

 

  —

 

  —

 

  —

 

  —

 

  —

 

  —

 

  —

Forfeiture of unvested incentive units

 

  —

 

  —

 

  (166,841)

 

  —

 

  —

 

  —

 

  —

 

  —

 

  —

Equity compensation

 

  —

 

  —

 

  —

 

  —

 

3,335

 

  —

 

  —

 

  —

 

3,335

Distributions to members of EWC Ventures

 

  —

 

  —

 

  —

 

  —

 

  —

 

  —

 

  —

 

  (2,272)

 

  (2,272)

Establish tax receivable agreement liability

 

  —

 

  —

 

  —

 

  —

 

  (347)

 

  —

 

  —

 

  —

 

  (347)

Reclassification of loss on cash flow hedge to earnings

 

  —

 

  —

 

  —

 

  —

 

  —

 

  —

 

45

 

  —

 

45

Allocation of equity to noncontrolling interests

 

  —

 

  —

 

  —

 

  —

 

  (1,149)