UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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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.
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).
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 |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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
As of May 8, 2023, the registrant had
Table of Contents
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Page |
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PART I. |
1 |
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Item 1. |
1 |
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Condensed Consolidated Balance Sheets as of April 1, 2023 and December 31, 2022 |
1 |
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2 |
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3 |
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4 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
13 |
Item 3. |
23 |
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Item 4. |
24 |
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PART II. |
25 |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
26 |
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27 |
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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)
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April 1, 2023 |
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December 31, |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Accounts receivable, net |
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Inventory |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Intangible assets, net |
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Goodwill |
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Deferred income taxes |
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Other non-current assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable and accrued liabilities |
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$ |
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$ |
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Long-term debt, current portion |
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Tax receivable agreement liability, current portion |
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Deferred revenue, current portion |
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Operating lease liabilities, current portion |
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Total current liabilities |
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Long-term debt, net |
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Tax receivable agreement liability, net of current portion |
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Deferred revenue, net of current portion |
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Operating lease liabilities, net of current portion |
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Other long-term liabilities |
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Total liabilities |
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Stockholders’ equity: |
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Preferred stock ($ |
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Class A common stock ($ |
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Class B common stock ($ |
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Treasury stock, at cost |
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( |
) |
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( |
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Additional paid-in capital |
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Accumulated deficit |
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( |
) |
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( |
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Total stockholders’ equity attributable to European Wax Center, Inc. |
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Noncontrolling interests |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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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)
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For the Thirteen Weeks Ended |
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April 1, 2023 |
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March 26, 2022 |
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REVENUE |
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Product sales |
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$ |
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$ |
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Royalty fees |
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Marketing fees |
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Other revenue |
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Total revenue |
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OPERATING EXPENSES |
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Cost of revenue |
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Selling, general and administrative |
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Advertising |
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Depreciation and amortization |
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Total operating expenses |
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Income from operations |
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Interest expense |
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Other expense |
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Income (loss) before income taxes |
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( |
) |
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Income tax expense (benefit) |
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( |
) |
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NET INCOME (LOSS) |
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$ |
( |
) |
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$ |
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Less: net income (loss) attributable to noncontrolling interests |
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( |
) |
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NET INCOME (LOSS) ATTRIBUTABLE TO EUROPEAN WAX CENTER, INC. |
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$ |
( |
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$ |
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Net income (loss) per share |
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Basic - Class A Common Stock |
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$ |
( |
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$ |
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Diluted - Class A Common Stock |
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$ |
( |
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$ |
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Weighted average shares outstanding |
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Basic - Class A Common Stock |
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Diluted - Class A Common Stock |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
2
EUROPEAN WAX CENTER, INC. and Subsidiaries
CONDENSED Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
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For the Thirteen Weeks Ended |
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April 1, 2023 |
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March 26, 2022 |
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Cash flows from operating activities: |
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Net income (loss) |
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$ |
( |
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$ |
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Adjustments to reconcile net income (loss) to net cash provided by |
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Depreciation and amortization |
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Amortization of deferred financing costs |
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Gain on interest rate cap |
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( |
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Provision for inventory obsolescence |
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( |
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Provision for bad debts |
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Deferred income taxes |
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( |
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Remeasurement of tax receivable agreement liability |
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Equity compensation |
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Changes in assets and liabilities: |
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Accounts receivable |
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( |
) |
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( |
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Inventory |
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( |
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( |
) |
Prepaid expenses and other assets |
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( |
) |
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( |
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Accounts payable and accrued liabilities |
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( |
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( |
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Deferred revenue |
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( |
) |
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( |
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Other long-term liabilities |
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( |
) |
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( |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Purchases of property and equipment |
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( |
) |
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( |
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Net cash used in investing activities |
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( |
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( |
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Cash flows from financing activities: |
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Principal payments on long-term debt |
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( |
) |
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( |
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Distributions to EWC Ventures LLC members |
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( |
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( |
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Payment of Class A common stock offering costs |
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( |
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Taxes on vested restricted stock units paid by withholding shares |
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( |
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Dividend equivalents to holders of EWC Ventures units |
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( |
) |
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Net cash used in financing activities |
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( |
) |
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( |
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Net increase in cash |
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Cash, cash equivalents and restricted cash, beginning of period |
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Cash, cash equivalents and restricted cash, end of period |
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$ |
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$ |
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Supplemental cash flow information: |
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Cash paid for interest |
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$ |
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$ |
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Cash paid for income taxes |
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$ |
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$ |
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Non-cash investing activities: |
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Property purchases included in accounts payable and accrued liabilities |
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$ |
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$ |
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Right-of-use assets obtained in exchange for operating lease obligations |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
EUROPEAN WAX CENTER, INC. and Subsidiaries
CONDENSED Consolidated Statements of STOCKHOLDERS’ Equity
(Amounts in thousands, except share and per share amounts)
(Unaudited)
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Additional |
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Class A Common Stock |
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Class B Common Stock |
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paid-in |
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Accumulated |
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Treasury |
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Noncontrolling |
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Total |
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Shares |
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Amount |
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Shares |
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Amount |
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capital |
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deficit |
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Stock |
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interest |
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equity |
Balance at December 31, 2022 |
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$ |
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$ |
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$ |
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$( |
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$( |
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$ |
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$ |
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Exchange of Class B Common Stock and EWC Ventures Units for Class A Common Stock |
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— |
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( |
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— |
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— |
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— |
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— |
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— |
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— |
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Vesting of restricted stock units |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Shares withheld for taxes on vested restricted stock units |
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( |
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— |
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— |
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— |
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( |
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— |
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— |
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— |
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( |
Equity compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Distributions to members of EWC Ventures |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
Tax receivable liability and deferred taxes arising from share exchanges |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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— |
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( |
Allocation of equity to noncontrolling interests |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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( |
Balance at April 1, 2023 |
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$ |
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$ |
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$ |
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$( |
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$( |
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$ |
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$ |
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Accumulated |
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Additional |
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other |
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Class A Common Stock |
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Class B Common Stock |
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paid-in |
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Accumulated |
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comprehensive |
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Noncontrolling |
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Total |
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Shares |
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Amount |
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Shares |
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Amount |
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capital |
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deficit |
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loss |
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interest |
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equity |
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Balance at December 25, 2021 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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$ |
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Exchange of Class B Common Stock and EWC Ventures Units for Class A Common Stock |
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— |
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( |
) |
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— |
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— |
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— |
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— |
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— |
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— |
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Vesting of restricted stock units |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Forfeiture of unvested incentive units |
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— |
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— |
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( |
) |
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— |
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— |
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— |
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— |
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— |
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— |
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Equity compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Distributions to members of EWC Ventures |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
|
Establish tax receivable agreement liability |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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— |
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( |
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Reclassification of loss on cash flow hedge to earnings |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Allocation of equity to noncontrolling interests |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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— |
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Net income |
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— |
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— |
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— |
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— |
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— |
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— |
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Balance at March 26, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
— |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
EUROPEAN WAX CENTER, INC. and Subsidiaries
Notes to CONDENSED Consolidated Financial Statements
(Amounts in thousands, except share/unit and per share/unit amounts)
(Unaudited)
1. Nature of business and organization
European Wax Center, Inc. was formed as a Delaware corporation on April 1, 2021. European Wax Center, Inc. and subsidiaries (“the Company”) was formed for the purpose of completing a public offering and related transactions in order to carry on the business of EWC Ventures, LLC (“EWC Ventures”) and its subsidiaries. Through its subsidiaries, the Company is engaged in selling franchises of European Wax Center, distributing unique facial and body waxing products to franchisees which are used to perform waxing services and providing branded facial and body waxing products directly to consumers at various locations throughout the United States.
2. Summary of significant accounting policies
(a) Basis of presentation and consolidation
The accompanying unaudited condensed consolidated financial statements have been presented in conformity with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and pursuant to the rules and regulations of the SEC and includes the operations of the Company and EWC Ventures and its wholly owned subsidiaries. EWC Ventures is considered a variable interest entity. The Company is the primary beneficiary of EWC Ventures. As a result, the Company consolidates EWC Ventures.
The condensed consolidated balance sheet as of December 31, 2022 is derived from the audited consolidated financial statements of the Company but does not include all disclosures required by GAAP. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2022 included in our annual report on Form 10-K.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all normal recurring adjustments necessary for a fair statement of the Company’s financial position, results of operations, and cash flows for the periods presented. All intercompany accounts and transactions have been eliminated in consolidation.
Accounting policies used in the preparation of these unaudited condensed consolidated financial statements are consistent with the accounting policies described in the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2022 included in our annual report on Form 10-K, except as described below relating to our adoption of Accounting Standards Codification (“ASC”) Topic 326, Measurement of Credit Losses on Financial Instruments.
(b) Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on management’s knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results. Significant areas where estimates and judgments are relied upon by management in the preparation of the financial statements include revenue recognition, inventory reserves, the expected life of franchise agreements, the useful life of reacquired rights, valuation of equity-based compensation awards, and the evaluation of the recoverability of goodwill and long-lived assets, including indefinite-lived intangible assets. Actual results could differ from those estimates.
(c) Implications of being an Emerging Growth Company
The Company is an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) and may take advantage of reduced reporting requirements that are otherwise applicable to public companies. Section 107 of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with those standards. The Company has elected to use the extended transition period for complying with new or revised accounting standards. We also intend to take advantage of some of the reduced regulatory and reporting requirements of emerging growth companies pursuant to the JOBS Act so long as we qualify as an emerging growth company, including, but not
5
limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation, and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments.
(d) Comprehensive income (loss)
Comprehensive income (loss) is defined as the change in equity (net assets) of a business entity during a period from transactions and other events and circumstances from nonowner sources. Comprehensive income (loss) is equal to net income (loss) for all periods presented.
(e) Recently adopted accounting pronouncements
In June 2017, the FASB issued ASU 2016-13, Financial Instruments (Topic 326)—Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. The standard replaced the previous incurred loss impairment model with an expected loss methodology, which results in more timely recognition of credit losses. We adopted this guidance on January 1, 2023 (the beginning of fiscal year 2023). The adoption of this guidance did not have a significant impact on our financial statements.
3. Prepaid expenses and other current assets
Prepaid expenses and other current assets consisted of the following:
|
|
April 1, 2023 |
|
|
December 31, |
|
||
Prepaid insurance |
|
$ |
|
|
$ |
|
||
Prepaid rent |
|
|
|
|
|
|
||
Prepaid technology |
|
|
|
|
|
|
||
Prepaid marketing |
|
|
|
|
|
|
||
Prepaid commissions |
|
|
|
|
|
|
||
Prepaid other & other current assets |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
The prepaid other & other current assets amounts are primarily composed of prepaid maintenance contracts and sales taxes.
4. Accounts payable and accrued liabilities
Accounts payable and accrued liabilities consisted of the following:
|
|
April 1, 2023 |
|
|
December 31, |
|
||
Accounts payable |
|
$ |
|
|
$ |
|
||
Accrued inventory |
|
|
|
|
|
|
||
Accrued compensation |
|
|
|
|
|
|
||
Accrued taxes and penalties |
|
|
|
|
|
|
||
Accrued technology and subscription fees |
|
|
|
|
|
|
||
Accrued interest |
|
|
|
|
|
|
||
Accrued professional fees |
|
|
|
|
|
|
||
Accrued marketing fees |
|
|
|
|
|
|
||
Accrued dividend equivalents |
|
|
|
|
|
|
||
Other accrued liabilities |
|
|
|
|
|
|
||
Total accounts payable and accrued liabilities |
|
$ |
|
|
$ |
|
||
6
5. Long-term debt
Long-term debt consists of the following:
|
|
April 1, 2023 |
|
|
December 31, |
|
||
Class A-2 Notes |
|
$ |
|
|
$ |
|
||
Less: current portion |
|
|
( |
) |
|
|
( |
) |
Total long-term debt |
|
|
|
|
|
|
||
Less: unamortized debt discount and deferred financing costs |
|
|
( |
) |
|
|
( |
) |
Total long-term debt, net |
|
$ |
|
|
$ |
|
||
On April 6, 2022 (the “Closing Date”), EWC Master Issuer LLC, a limited-purpose, bankruptcy remote, indirect subsidiary of the Company (the “Master Issuer”), completed a securitization transaction pursuant to which it issued $
In connection with the issuance of the Class A-2 Notes, the Master Issuer also entered into (i) a revolving financing facility that allows for the issuance of up to $
The Class A-2 Notes and the Variable Funding Notes are referred to collectively as the “Notes.” The Notes were issued in a securitization transaction pursuant to which substantially all of the Company’s revenue-generating assets in the United States are held by the Master Issuer and certain other limited-purpose, bankruptcy remote, wholly-owned direct and indirect subsidiaries of EWC Holding Guarantor (including the Master Issuer) (collectively, the “Securitization Entities”) that have pledged substantially all of their assets to secure the Notes and, with respect to the Securitization Entities other than the Master Issuer, act as guarantors of the Notes.
While the Class A-2 Notes are outstanding, payments of principal and interest are required to be made on the Class A-2 Notes on a quarterly basis. The quarterly payments of principal on the Class A-2 Notes may be suspended in the event that the leverage ratio for the Company and its subsidiaries, including the securitization entities, is, in each case, less than or equal to
The legal final maturity date of the Class A-2 Notes is in , but it is anticipated that, unless earlier prepaid to the extent permitted under the Base Indenture, dated
Interest on the Variable Funding Notes will be payable at per annum rates based on term SOFR (plus a credit adjustment spread) or the lenders’ commercial paper funding rate plus
The Notes are secured by a security interest in substantially all of the assets of the Securitization Entities. The assets of the Securitization Entities include substantially all of the Company’s revenue-generating assets in the United States, which principally consist of franchise-related agreements, certain supply, distribution and logistics services agreements, intellectual property and license agreements for the use of intellectual property.
7
amortization events provided for in the Indenture, including events tied to failure to maintain a stated debt service coverage ratio, the sum of system-wide sales being below certain levels on certain measurement dates, certain manager termination events (including in certain cases a change of control of EWC Ventures), an event of default and the failure to repay or refinance the Notes on the applicable anticipated repayment date. The Notes are also subject to certain customary events of default, including events relating to non-payment of required interest, principal or other amounts due on or with respect to the Notes, failure to comply with covenants within certain time frames, certain bankruptcy events, breaches of specified representations and warranties, failure of security interests to be effective and certain judgments.
The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short-term nature of these instruments. Our outstanding Class A-2 Notes had an approximate fair value of $
6. Equity Based Compensation
Restricted Stock Units
During the 13 weeks ended April 1, 2023, we granted
Class A Common Stock Options
During the 13 weeks ended April 1, 2023 we granted
|
|
|
|
|
Expected dividend yield |
|
|
% |
|
Expected volatility |
|
|
% |
|
Risk-free rate |
|
|
% |
|
Suboptimal exercise factor |
|
|
||
A description of each of the inputs to the lattice model is as follows:
Modification of 3.0x Units
During the 13 weeks ended April 1, 2023 we modified the vesting conditions of
8
(iii) the first of December 31, 2022, March 31, 2023, June 30, 2023, September 30, 2023 or December 31, 2023 on which a specific volume weighted average trading price (”VWAP”) of our Class A common stock is achieved.
Our board of directors modified the award to adjust the specified VWAP target described above. The Company’s VWAP exceeded the modified target as of March 31, 2023. As such, all of the 3.0x Units vested on that date. During the 13 weeks ended April 1, 2023 we recognized $
|
|
|
|
|
Expected dividend yield |
|
|
% |
|
Expected volatility |
|
|
% |
|
Risk-free rate |
|
|
% |
|
A description of each of the inputs to the simulation model is as follows:
7. Commitments and contingencies
Litigation
The Company is exposed to various asserted and unasserted potential claims encountered in the normal course of business. Although the outcomes of potential legal proceedings are inherently difficult to predict, the Company does not expect the resolution of these occasional legal proceedings to have a material effect on its financial position, results of operations, or cash flow.
8. Revenue from contracts with customers
Contract liabilities consist of deferred revenue resulting from franchise fees, which are generally recognized on a straight-line basis over the term of the underlying franchise agreement. Also included are service revenues from corporate-owned centers, including customer prepayments in connection with the Wax Pass program. Contract liabilities are classified as deferred revenue on the condensed consolidated balance sheets.
Deferred franchise fees are reduced as fees are recognized in revenue over the term of the franchise license for the respective center. Deferred service revenues are recognized over time as the services are performed.
|
|
Contract liabilities |
|
|
Balance at December 31, 2022 |
|
$ |
|
|
Revenue recognized that was included in the contract liability at the beginning |
|
|
( |
) |
Increase, excluding amounts recognized as revenue during the period |
|
|
|
|
Balance at April 1, 2023 |
|
$ |
|
|
The weighted average remaining amortization period for deferred revenue is
9
The following table illustrates estimated revenues expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of April 1, 2023. The Company has elected to exclude short term contracts, sales-based royalties and any other variable consideration recognized on an “as invoiced” basis.
Contract liabilities to be recognized in: |
|
Amount |
|
|
2023 (from April 2, 2023) |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
|
The summary set forth below represents the balances in deferred revenue as of April 1, 2023 and December 31, 2022:
|
|
April 1, 2023 |
|
|
December 31, |
|
||
Franchise fees |
|
$ |
|
|
$ |
|
||
Service revenue |
|
|
|
|
|
|
||
Total deferred revenue |
|
|
|
|
|
|
||
Long-term portion of deferred revenue |
|
|
|
|
|
|
||
Current portion of deferred revenue |
|
$ |
|
|
$ |
|
||
9. Income Taxes
The Company is subject to U.S. federal income taxes, in addition to state and local income taxes, with respect to its allocable share of any taxable income or loss of EWC Ventures. The remaining share of EWC Ventures income or loss is non-taxable to the Company and is not reflected in current or deferred income taxes.
EWC Ventures is a limited liability company that is treated as a partnership for U.S. federal income tax purposes and for most applicable state and local income tax purposes. As a partnership, EWC Ventures is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by EWC Ventures is passed through to and included in the taxable income or loss of its members on a pro rata basis, subject to applicable tax regulations.
We recorded $
Tax Receivable Agreement
As of April 1, 2023, future payments under the Tax Receivable Agreement (“TRA”) are expected to be $
10. Noncontrolling interest
We are the sole managing member of EWC Ventures and, as a result of this control, and because we have a substantial financial interest in EWC Ventures, we consolidate the financial results of EWC Ventures. We report noncontrolling interests representing the economic interests in EWC Ventures held by the other members of EWC Ventures. Income or loss is attributed to the noncontrolling interests
10
based on their contractual distribution rights, and the relative percentages of EWC Ventures non-voting common units (”EWC Ventures Units”) by us and the other holders of EWC Ventures Units during the period.
The EWC Ventures LLC Agreement permits the members of EWC Ventures to exchange EWC Ventures Units, together with related shares of our Class B common stock, for shares of our Class A common stock on a one-for-one basis or, at the election of the Company, for cash at the current fair value on the date of the exchange. Changes in the Company’s ownership interest in EWC Ventures while retaining control of EWC Ventures will be accounted for as equity transactions. As such, future redemptions or direct exchanges of EWC Ventures Units by the other members will result in a change in ownership and reduce the amount recorded as noncontrolling interest and increase additional paid-in capital. Additionally, certain members of EWC Ventures hold unvested EWC Ventures Units that are subject to service, performance, and/or market conditions. The vesting of EWC Ventures Units will result in a change in ownership and increase the amount recorded as noncontrolling interest and decrease additional paid-in capital.
The following table summarizes the ownership of EWC Ventures as of April 1, 2023:
|
|
April 1, 2023 |
|
|||||
|
|
Units Owned |
|
|
Ownership Percentage |
|
||
European Wax Center, Inc. |
|
|
|
|
|
% |
||
Noncontrolling interest |
|
|
|
|
|
% |
||
Total |
|
|
|
|
|
% |
||
The following table presents the effect of changes in the Company’s ownership interest in EWC Ventures on the Company’s equity for the 13 weeks ended April 1, 2023 and March 26, 2022:
|
|
13 Weeks Ended |
|
|
13 Weeks Ended |
|
||
Net income (loss) attributable to European Wax Center, Inc. |
|
$ |
( |
) |
|
$ |
|
|
Transfers from noncontrolling interests: |
|
|
|
|
|
|
||
Increase (decrease) in additional-paid-in-capital as a result of equity allocations to the noncontrolling interest |
|
|
|
|
|
( |
) |
|
Net increase in equity of European Wax Center, Inc. due to equity interest transactions with noncontrolling interests |
|
$ |
|
|
$ |
|
||
11. Net income (loss) per share
Basic net income (loss) per share of Class A common stock is computed by dividing net income (loss) attributable to Class A common shareholders for the period by the weighted average number of shares of Class A common stock outstanding for the same period. Shares issued during the period and shares reacquired during the period are weighted for the portion of the period in which the shares were outstanding. Diluted net income (loss) per share of Class A common stock is computed by dividing net income (loss) attributable to Class A common shareholders by the weighted-average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive securities using the more dilutive of either the treasury stock method or the if-converted method.
The following table sets forth the computation of basic net income (loss) per share of Class A common stock for the 13 weeks ended April 1, 2023 and March 26, 2022:
|
|
13 Weeks Ended |
|
|
13 Weeks Ended |
|
||
|
|
April 1, 2023 |
|
|
March 26, 2022 |
|
||
(in thousands, except for share and per share amounts) |
|
|
|
|
|
|
||
Net income (loss) |
|
$ |
( |
) |
|
$ |
|
|
Less: net income (loss) attributable to noncontrolling interests |
|
|
( |
) |
|
|
|
|
Net income (loss) applicable to Class A common shareholders |
|
$ |
( |
) |
|
$ |
|
|
Basic weighted average outstanding shares |
|
|
|
|
|
|
||
Class A Common Stock |
|
|
|
|
|
|
||
Basic net income (loss) per share applicable to common shareholders: |
|
|
|
|
|
|
||
Class A Common Stock |
|
$ |
( |
) |
|
$ |
|
|
11
The following table sets forth the computation of diluted net income (loss) per share of Class A common stock for the 13 weeks ended April 1, 2023 and March 26, 2022:
|
|
13 Weeks Ended |
|
|
13 Weeks Ended |
|
||
|
|
April 1, 2023 |
|
|
March 26, 2022 |
|
||
(in thousands, except for share and per share amounts) |
|
|
|
|
|
|
||
Net income (loss) |
|
$ |
( |
) |
|
$ |
|
|
Less: net income (loss) attributable to noncontrolling interests |
|
|
|
|
|
|
||
Net income (loss) applicable to Class A common shareholders |
|
$ |
( |
) |
|
$ |
|
|
Diluted weighted average outstanding shares |
|
|
|
|
|
|
||
Basic weighted average outstanding shares - Class A Common Stock |
|
|
|
|
|
|
||
Effect of dilutive securities: |
|
|
|
|
|
|
||
Class B Common Stock |
|
|
|
|
|
|
||
RSUs |
|
|
|
|
|
|
||
Options |
|
|
|
|
|
|
||
Diluted weighted average outstanding shares - Class A Common Stock |
|
|
|
|
|
|
||
Diluted net income (loss) per share applicable to common shareholders: |
|
|
|
|
|
|
||
Class A Common Stock |
|
$ |
( |
) |
|
$ |
|
|
Shares of Class B common stock do not share in the earnings or losses attributable to the Company and are therefore not participating securities. As such, separate presentation of basic and diluted net income (loss) per share of Class B common stock under the two-class method has not been presented. Shares of Class B common stock are, however, considered potentially dilutive shares of Class A common stock because shares of Class B common stock, together with the related EWC Ventures Units, are exchangeable into shares of Class A common stock on a one-for-one basis. There were
12. Stockholders’ equity
Share Exchange Transactions
During the 13 weeks ended April 1, 2023 certain members of EWC Ventures after our initial public offering (the “EWC Ventures Post-IPO Members”) exercised their exchange rights and exchanged
12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion of our historical performance, financial condition and future prospects in conjunction with the management’s discussion and analysis of financial conditions and results of operations and the audited consolidated financial statements included in our annual report on Form 10-K for the fiscal year ended December 31, 2022. The following discussion and analysis should also be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this quarterly report on Form 10-Q. This discussion contains forward-looking statements that are based on the views and beliefs of our management, as well as assumptions and estimates made by our management. Actual results could differ materially from such forward-looking statements as a result of various risk factors, including those that may not be in the control of management. For further information on items that could impact our future operating performance or financial condition, see Part I, “Item 1A. Risk Factors” included in our annual report on Form 10-K for the fiscal year ended December 31, 2022.
We conduct substantially all of our activities through our subsidiary, EWC Ventures, LLC and its subsidiaries. We operate on a fiscal calendar widely used by the retail industry that results in a given fiscal year consisting of a 52- or 53-week period ending on the Saturday closest to December 31. Our fiscal quarters are composed of 13 weeks each, except for 53-week fiscal years for which the fourth quarter will be composed of 14 weeks.
Overview
We are the largest and fastest-growing franchisor and operator of out-of-home ("OOH") waxing services in the United States by number of centers and system-wide sales. We delivered over 22 million waxing services in 2022 and over 20 million waxing services in 2021 generating $899 million and $797 million of system-wide sales, respectively, across our highly-franchised network. We have a leading portfolio of centers operating in 978 locations across 45 states as of April 1, 2023. Of these locations, 972 are franchised centers operated by franchisees and six are corporate-owned centers.
The European Wax Center brand is trusted, efficacious and accessible. Our culture is obsessed with our guest experience and we deliver a superior guest experience relative to smaller chains and independent salons. We offer guests high-quality, hygienic waxing services administered by our licensed, EWC-trained estheticians (our “wax specialists”), at our accessible and welcoming locations (our “centers”). Our technology-enabled guest interface simplifies and streamlines the guest experience with automated appointment scheduling and remote check-in capabilities, ensuring guest visits are convenient, hassle-free, and consistent across our network of centers. Our well-known, pre-paid Wax Pass program makes payment easy and convenient, fostering loyalty and return visits. Guests view us as a non-discretionary part of their personal-care and beauty regimens, providing us with a highly predictable and growing recurring revenue model.
Our asset-light franchise platform delivers capital-efficient growth, significant cash flow generation, and resilience through economic cycles. Our centers are 99% owned and operated by our franchisees who benefit from superior unit-level economics, with mature centers generating annual cash-on-cash returns in excess of 60%.
In partnership with our franchisees, we fiercely protect our points of differentiation that attract new guests, build meaningful relationships and promote lasting retention. We are so confident in our ability to delight that we have always offered all of our guests their first wax free.
Hair removal solutions are consistently in demand, given the recurring nature of hair growth. The OOH waxing market is the fastest-growing hair removal solution in the United States, defined by a total addressable market of $18 billion with annualized growth that is more than double other hair removal alternatives. European Wax Center has become the category-defining brand within this rapidly growing market and became so by professionalizing a highly fragmented sector where service consistency, hygiene, and customer trust were not historically offered. We are approximately six times larger than the next largest waxing-focused competitor by center count and approximately 11 times larger by system-wide sales. Our unmatched scale enables us to drive broader brand awareness, ensures our licensed wax specialists are universally trained at the highest standards and drive consistent financial performance across each center.
Under the stewardship of our CEO, David Berg, and the other management team members, we have prioritized building a culture of performance, success, and inclusivity. Additionally, we have intensified our focus on enhancing the guest experience and have invested significantly in our corporate infrastructure and marketing capabilities to continue our track record of sustainable growth. The foundation for our next chapter of growth is firmly in place.
Growth Strategy and Outlook
We plan to grow our business primarily by opening new franchised centers and then additionally increasing our system-wide sales and leveraging our corporate infrastructure to expand our profit margins and generate robust free cash flow.
13
We believe our franchisees’ track record of successfully opening new centers and consistently generating attractive unit-level economics validates our strategy to expand our footprint and grow our capacity to serve more guests. Our center count grew 11% and 7% during fiscal year 2022 and fiscal year 2021, respectively, and has grown each year since 2010. Our thoughtful approach to growth ensures each center is appropriately staffed with the high-quality team and licensed, highly-trained wax specialists that our brand has been known for since our initial opening. We believe that none of our existing markets are fully penetrated, and that we have a significant whitespace opportunity of more than 3,000 locations for our standard center format across the United States. Our centers have a long track record of sustained growth delivering consistent positive same-store sales growth with resilient performance through economic cycles.
Our straightforward, asset-light franchise platform and our proven track record of increasing profitability is expected to continue to drive EBITDA margin accretion and free cash flow generation as we expand our national footprint. We have invested in building our scalable support infrastructure, and we currently have the capabilities and systems in place to drive revenue growth and profitability across our existing and planned franchise centers.
Key Business Metrics
We track the following key business metrics to evaluate our performance, identify trends, formulate financial projections, and make strategic decisions. Accordingly, we believe that these key business metrics provide useful information to investors and others in understanding and evaluating our results of operations in the same manner as our management team. These key business metrics are presented for supplemental information purposes only, should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from similarly titled metrics or measures presented by other companies.
Number of Centers. Number of centers reflects the number of franchised and corporate-owned centers open at the end of the reporting period. We review the number of new center openings, the number of closed centers and the number of relocations of centers to assess net new center growth, and drivers of trends in system-wide sales, royalty and franchise fee revenue and corporate-owned center sales.
System-Wide Sales. System-wide sales represent sales from same day services, retail sales and cash collected from wax passes for all centers in our network, including both franchisee-owned and corporate-owned centers. While we do not record franchised center sales as revenue, our royalty revenue is calculated based on a percentage of franchised center sales, which are 6.0% of sales, net of retail product sales, as defined in the franchise agreement. This measure allows us to better assess changes in our royalty revenue, our overall center performance, the health of our brand and the strength of our market position relative to competitors. Our system-wide sales growth is driven by net new center openings as well as increases in same-store sales.
Same-Store Sales. Same-store sales reflect the change in year-over-year sales from services performed and retail sales for the same-store base. We define the same-store base to include those centers open for at least 52 full weeks. If a center is closed for greater than six consecutive days, the center is deemed a closed center and is excluded from the calculation of same-store sales until it has been reopened for a continuous 52 full weeks. This measure highlights the performance of existing centers, while excluding the impact of new center openings and closures. We review same-store sales for corporate-owned centers as well as franchisee-owned centers. Same-store sales growth is driven by increases in the number of transactions and average transaction size.
New Center Openings. The number of new center openings reflects centers opened during a particular reporting period for both franchisee-owned and corporate-owned centers, less centers closed during the same period. Opening new centers is an integral part of our growth strategy, and we expect the majority of our future new centers to be franchisee-owned. Before we obtain the certificate of occupancy or report any revenue from new corporate-owned centers, we incur pre-opening costs, such as rent expense, labor expense and other operating expenses. Some of our centers open with an initial start-up period of higher-than-normal marketing and operating expenses, particularly as a percentage of monthly revenue.
Average Unit Volume (“AUV”). AUV consists of the average annual system-wide sales of all centers that have been open for a trailing 52-week period or longer. This measure is calculated by dividing system-wide sales during the applicable period for all centers being measured by the number of centers being measured. AUV allows management to assess our franchisee-owned and corporate-owned center economics. Our AUV growth is primarily driven by increases in services and retail product sales as centers fill their books of reservations, which we refer to as maturation of centers.
14
Wax Pass Utilization. We define Wax Pass utilization as the adoption of our Wax Pass program by guests, measured as a percentage of total transactions conducted using a Wax Pass. Wax Pass utilization allows management to better assess the recurring nature of our business model because it is an indication of the magnitude of transactions by guests who have made a longer-term commitment to our brand by purchasing a Wax Pass.
|
|
For the Thirteen |
|
|||||
(in thousands, except operating data and percentages) |
|
April 1, 2023 |
|
|
March 26, 2022 |
|
||
Number of system-wide centers (at period end) |
|
|
978 |
|
|
|
874 |
|
System-wide sales |
|
$ |
218,441 |
|
|
$ |
206,969 |
|
Same-store sales |
|
|
4.5 |
% |
|
|
29.0 |
% |
New center openings |
|
|
34 |
|
|
|
21 |
|
The table below presents changes in the number of system-wide centers for the periods indicated:
|
|
For the Thirteen |
|
|||||
|
|
April 1, 2023 |
|
|
March 26, 2022 |
|
||
System-wide Centers |
|
|
|
|
|
|
||
Beginning of Period |
|
|
944 |
|
|
|
853 |
|
Openings |
|
|
35 |
|
|
|
21 |
|
Closures |
|
|
(1 |
) |
|
|
— |
|
End of Period |
|
|
978 |
|
|
|
874 |
|
Significant Factors Impacting Our Financial Results
We believe there are several important factors that have impacted, and that we expect will continue to impact, our business and results of operations. These factors include:
New Center Openings. We expect that new centers will be a key driver of growth in our future revenue and operating profit results. Opening new centers is an important part of our growth strategy, and we expect the majority of our future new centers will be franchisee-owned. Our results of operations have been and will continue to be materially affected by the timing and number of new center openings each period. As centers mature, center revenue and profitability increase significantly. The performance of new centers may vary depending on various factors such as the effective management and cooperation of our franchisee partners, whether the franchise is part of a multi-unit development agreement, the center opening date, the time of year of a particular opening, the number of licensed wax specialists recruited, and the location of the new center, including whether it is located in a new or existing market. Our planned center expansion will place increased demands on our operational, managerial, administrative, financial, and other resources.
System-Wide Sales Growth. System-wide sales growth is a key driver of our business. Various factors affect system-wide sales, including:
Overall Economic Trends. Macroeconomic factors that may affect guest spending patterns, and thereby our results of operations, include employment rates, the rate of inflation, business conditions, changes in the housing market, the availability of credit, interest rates, tax rates and fuel and energy costs. However, we believe that our guests see our services as largely non-discretionary in nature.
15
Therefore, we believe that overall economic trends and related changes in consumer behavior have less of an impact on our business than they may have for other industries subject to fluctuations in discretionary consumer spending.
Guest Preferences and Demands. Our ability to maintain our appeal to existing guests and attract new guests depends on our ability to develop and offer a compelling assortment of services responsive to guest preferences and trends. We also believe that OOH waxing is a recurring need that brings guests back for services on a highly recurring basis which is reflected in the predictability of our financial performance over time. Our guests’ routine personal-care need for OOH waxing is further demonstrated by the top 20% of guests who visit us, on average, approximately every four to five weeks.
Our Ability to Source and Distribute Products Effectively. Our revenue and operating income are affected by our ability to purchase our products and supplies in sufficient quantities at competitive prices. While we believe our vendors have adequate capacity to meet our current and anticipated demand, our level of revenue could be adversely affected in the event we face constraints in our supply chain, including the inability of our vendors to produce sufficient quantities of some products or supplies in a manner that matches market demand from our guests, leading to lost revenue. We depend on two key suppliers to source our Comfort Wax and one key supplier to source our branded retail products and we are thus exposed to concentration of supplier risk.
Our Ability to Recruit and Retain Qualified Licensed Wax Specialists for our Centers. Our ability to operate our centers is largely dependent upon our ability to attract and retain qualified, licensed wax specialists. Our unmatched scale enables us to ensure that we universally train our wax specialists at the highest standards, ensuring that our guests experience consistent level of quality, regardless of the specific center they visit. The combination of consistent service delivery, across our trained base of wax specialists, along with the payment ease and convenience of our well-known, pre-paid Wax Pass program fosters loyalty and return visits across our guest base. Over time, our ability to build and maintain a strong pipeline of licensed wax specialists is important to preserving our current brand position.
Seasonality. Our results are subject to seasonality fluctuations in that services are typically in higher demand in periods leading up to holidays and the summer season. The resulting demand trend has historically yielded higher system-wide sales in the second and fourth quarter of our fiscal year. In addition, our quarterly results may fluctuate significantly, because of several factors, including the timing of center openings, price increases and promotions, and general economic conditions.
Components of Results of Operations
Revenue
Product Sales: Product sales consist of revenue earned from sales of Comfort Wax, other products consumed in administering our wax services and retail merchandise to franchisees, as well as retail merchandise sold in corporate-owned centers. Revenue on product sales is recognized upon transfer of control. Our product sales revenue comprised 55.8% and 54.5% of our total revenue for the 13 weeks ended April 1, 2023 and March 26, 2022, respectively.
Royalty Fees: Royalty fees are earned based on a percentage of the franchisees’ gross sales, net of retail product sales, as defined in the applicable franchise agreement, and recognized in the period the franchisees’ sales occur. The royalty fee is 6.0% of the franchisees’ gross sales for such period and is paid weekly. Our royalty fees revenue comprised 24.8% and 25.1% of our total revenue for the 13 weeks ended April 1, 2023 and March 26, 2022, respectively.
Marketing Fees: Marketing fees are earned based on 3.0% of the franchisees’ gross sales, net of retail product sales, as defined in the applicable franchise agreement, and recognized in the period the franchisees’ sales occur. Additionally, the Company charges a fixed monthly fee to franchisees for search engine optimization and search engine marketing services, which is due on a monthly basis and recognized in the period when services are provided. Our marketing fees revenue comprised 13.8% and 14.2% of our total revenue for the 13 weeks ended April 1, 2023 and March 26, 2022, respectively.
Other Revenue: Other revenue primarily consists of service revenues from our corporate-owned centers and franchise fees, as well as technology fees, annual brand conference revenues and training, which together represent 5.6% and 6.2% of our total revenue for the 13 weeks ended April 1, 2023 and March 26, 2022, respectively. Service revenues from our corporate-owned centers are recognized at the time services are provided. Amounts collected in advance of the period in which service is rendered are recorded as deferred revenue. Franchise fees are paid upon commencement of the franchise agreement and are deferred and recognized on a straight-line basis commencing at contract inception through the end of the franchise license term. Franchise agreements generally have terms of 10 years beginning on the date the center is opened and the initial franchise fees are amortized over a period approximating the term of the agreement. Deferred franchise fees expected to be recognized in periods greater than 12 months from the reporting date are classified as long-term on the condensed consolidated balance sheets. Technology fees, annual brand conference revenues and training are recognized as the related services are delivered and are not material to the overall business.
Costs and Expenses
Cost of Revenue: Cost of revenue primarily consists of the direct costs associated with wholesale product and retail merchandise sold, including distribution and outbound freight costs and inventory obsolescence charges, as well as the cost of materials and labor for services rendered in our corporate-owned centers.
16
Selling, General and Administrative Expenses: Selling, general and administrative expenses primarily consist of wages, benefits and other compensation-related costs, rent, software, and other administrative expenses incurred to support our existing franchise and corporate-owned centers, as well as expenses attributable to growth and development activities. Also included in selling, general and administrative expenses are accounting, legal, marketing, operations, and other professional fees.
Advertising Expenses: Advertising expenses consist of advertising, public relations, and administrative expenses incurred to increase sales and further enhance the public reputation of the European Wax Center brand.
Depreciation and Amortization: Depreciation and amortization includes depreciation of property and equipment and capitalized leasehold improvements, as well as amortization of intangible assets, including franchisee relationships and reacquired area representative rights. Area representative rights represent an agreement with area representatives to sell franchise licenses and provide support to franchisees in a geographic region. From time to time, the Company enters into agreements to reacquire certain area representative rights.
Interest Expense: Interest expense consists of interest on our long-term debt, including amounts outstanding under our revolving credit facility, amortization of debt discount and deferred financing costs and gain and losses on debt extinguishment.
Other Expense: Other expense consists of non-cash gains and losses related to the remeasurement of our tax receivable agreement liability.
Income Tax Expense: We are subject to U.S. federal, state and local income taxes with respect to our allocable share of any taxable income of EWC Ventures and are taxed at the prevailing corporate tax rates. Income tax expense includes both current and deferred income tax expense.
Noncontrolling Interest: We are the sole managing member of EWC Ventures. Because we manage and operate the business and control the strategic decisions and day-to-day operations of EWC Ventures and also have a substantial financial interest in EWC Ventures, we consolidate the financial results of EWC Ventures, and a portion of our net income (loss) is allocated to the noncontrolling interest to reflect the entitlement of the EWC Ventures Post-IPO Members to a portion of EWC Ventures’ net income (loss).
Results of Operations
The following tables presents our condensed consolidated statements of operations for each of the periods indicated (amounts in thousands, except percentages):
|
|
For the Thirteen Weeks Ended |
|
|
|
|
|
|
|
|||||||
|
|
April 1, 2023 |
|
|
March 26, 2022 |
|
|
$ |
|
|
% |
|
||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Product sales |
|
$ |
27,842 |
|
|
$ |
24,778 |
|
|
$ |
3,064 |
|
|
|
12.4 |
% |
Royalty fees |
|
|
12,351 |
|
|
|
11,385 |
|
|
|
966 |
|
|
|
8.5 |
% |
Marketing fees |
|
|
6,902 |
|
|
|
6,450 |
|
|
|
452 |
|
|
|
7.0 |
% |
Other revenue |
|
|
2,797 |
|
|
|
2,813 |
|
|
|
(16 |
) |
|
|
(0.6 |
)% |
Total revenue |
|
|
49,892 |
|
|
|
45,426 |
|
|
|
4,466 |
|
|
|
9.8 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of revenue |
|
|
14,457 |
|
|
|
11,991 |
|
|
|
2,466 |
|
|
|
20.6 |
% |
Selling, general and administrative |
|
|
17,263 |
|
|
|
15,474 |
|
|
|
1,789 |
|
|
|
11.6 |
% |
Advertising |
|
|
7,809 |
|
|
|
6,556 |
|
|
|
1,253 |
|
|
|
19.1 |
% |
Depreciation and amortization |
|
|
5,063 |
|
|
|
5,060 |
|
|
|
3 |
|
|
|
0.1 |
% |
Total operating expenses |
|
|
44,592 |
|
|
|
39,081 |
|
|
|
5,511 |
|
|
|
14.1 |
% |
Income from operations |
|
|
5,300 |
|
|
|
6,345 |
|
|
|
(1,045 |
) |
|
|
(16.5 |
)% |
Interest expense |
|
|
6,862 |
|
|
|
1,507 |
|
|
|
5,355 |
|
|
|
355.3 |
% |
Other expense |
|
|
— |
|
|
|
785 |
|
|
|
(785 |
) |
|
|
(100.0 |
)% |
Income (loss) before income taxes |
|
|
(1,562 |
) |
|
|
4,053 |
|
|
|
(5,615 |
) |
|
|
(138.5 |
)% |
Income tax expense (benefit) |
|
|
(509 |
) |
|
|
27 |
|
|
|
(536 |
) |
|
|
(1,985.2 |
)% |
Net income (loss) |
|
$ |
(1,053 |
) |
|
$ |
4,026 |
|
|
$ |
(5,079 |
) |
|
|
(126.2 |
)% |
Less: net income (loss) attributable to noncontrolling interests |
|
|
(545 |
) |
|
|
2,141 |
|
|
|
(2,686 |
) |
|
|
(125.5 |
)% |
Net income (loss) attributable to European Wax Center, Inc. |
|
$ |
(508 |
) |
|
$ |
1,885 |
|
|
$ |
(2,393 |
) |
|
|
(126.9 |
)% |
17
The following table presents the components of our condensed consolidated statements of operations for each of the periods indicated, as a percentage of revenue:
|
|
For the Thirteen Weeks Ended |
|
|
|||||
|
|
April 1, 2023 |
|
|
March 26, 2022 |
|
|
||
Revenue: |
|
|
|
|
|
|
|
||
Product sales |
|
|
55.8 |
% |
|
|
54.5 |
% |
|
Royalty fees |
|
|
24.8 |
% |
|
|
25.1 |
% |
|
Marketing fees |
|
|
13.8 |
% |
|
|
14.2 |
% |
|
Other revenue |
|
|
5.6 |
% |
|
|
6.2 |
% |
|
Total revenue |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
Costs and expenses: |
|
|
|
|
|
|
|
||
Cost of revenue |
|
|
29.0 |
% |
|
|
26.4 |
% |
|
Selling, general and administrative |
|
|
34.6 |
% |
|
|
34.1 |
% |
|
Advertising |
|
|
15.7 |
% |
|
|
14.5 |
% |
|
Depreciation and amortization |
|
|
10.1 |
% |
|
|
11.1 |
% |
|
Total operating expenses |
|
|
89.4 |
% |
|
|
86.1 |
% |
|
Income from operations |
|
|
10.6 |
% |
|
|
13.9 |
% |
|
Interest expense |
|
|
13.7 |
% |
|
|
3.3 |
% |
|
Other expense |
|
|
— |
|
|
|
1.7 |
% |
|
Income (loss) before income taxes |
|
|
(3.1 |
)% |
|
|
8.9 |
% |
|
Income tax expense (benefit) |
|
|
(1.0 |
)% |
|
|
0.1 |
% |
|
Net income (loss) |
|
|
(2.1 |
)% |
|
|
8.8 |
% |
|
Less: net income (loss) attributable to noncontrolling interests |
|
|
(1.1 |
)% |
|
|
4.7 |
% |
|
Net income (loss) attributable to European Wax Center, Inc. |
|
|
(1.0 |
)% |
|
|
4.1 |
% |
|
Comparison of the Thirteen Weeks Ended April 1, 2023 and March 26, 2022
Revenue
Total revenue increased $4.5 million, or 9.8%, to $49.9 million during the 13 weeks ended April 1, 2023, compared to $45.4 million for the 13 weeks ended March 26, 2022. The increase in total revenue was largely due to 104 new center openings which became operational during the period from March 27, 2022 through April 1, 2023. In addition, total revenue increased due to a 4.5% increase in same-store sales in the 13 weeks ended April 1, 2023 compared to the 13 weeks ended March 26, 2022 and an additional offering of medical products to our centers for use in administering wax services.
Product Sales
Product sales increased $3.0 million, or 12.4%, to $27.8 million during the 13 weeks ended April 1, 2023, compared to $24.8 million for the 13 weeks ended March 26, 2022. The increase in product sales was primarily due to new center openings which became operational during the period from March 27, 2022 to April 1, 2023. In addition, product sales increased due to the increase in same-store sales in the 13 weeks ended April 1, 2023 compared to the 13 weeks ended March 26, 2022 and an additional offering of medical products to our centers for use in administering wax services.
Royalty Fees
Royalty fees increased $1.0 million, or 8.5%, to $12.4 million during the 13 weeks ended April 1, 2023, compared to $11.4 million for the 13 weeks ended March 26, 2022. The increase in royalty fees during the 13 weeks ended April 1, 2023 was the result of the increase in system-wide sales driven by new center openings which became operational during the period from March 27, 2022 to April 1, 2023 as well as the increase in same-store sales in the 13 weeks ended April 1, 2023 compared to the 13 weeks ended March 26, 2022
Marketing Fees
Marketing fees increased $0.4 million, or 7.0%, to $6.9 million during the 13 weeks ended April 1, 2023, compared to $6.5 million for the 13 weeks ended March 26, 2022. Marketing fees increased as a result of the increase in system-wide sales driven by new center openings which became operational during the period from March 27, 2022 to April 1, 2023 as well as the increase in same-store sales in the 13 weeks ended April 1, 2023 compared to the 13 weeks ended March 26, 2022.
18
Other Revenue
Other revenue for the 13 weeks ended April 1, 2023 was consistent with the 13 weeks ended March 26, 2022, decreasing $16 thousand, or 0.6%, to $2.8 million for the 13 weeks ended April 1, 2023.
Costs and Expenses
Cost of Revenue
Cost of revenue increased $2.5 million, or 20.6%, to $14.5 million during the 13 weeks ended April 1, 2023, compared to $12.0 million for the 13 weeks ended March 26, 2022. The increase in cost of revenue was primarily due to higher product sales in the current year period driven by new center openings which became operational during the period from March 27, 2022 to April 1, 2023. In addition, cost of revenue increased due to the increase in same-store sales in the 13 weeks ended April 1, 2023 compared to the same period in 2022 and an additional offering of medical products to our centers for use in administering wax services.
Selling, General and Administrative
Selling, general and administrative expenses increased $1.8 million, or 11.6%, to $17.3 million during the 13 weeks ended April 1, 2023, compared to $15.5 million for the 13 weeks ended March 26, 2022. The increase in selling, general and administrative expenses was primarily due to increases in payroll and benefits and slightly offset by a decrease in professional fee expenses. The increase in payroll and benefits expense was largely due to additional expense incurred during the 13 weeks ended April 1, 2023 resulting from the modification of certain equity awards during the period. The decrease in professional fees was attributable to costs incurred in the prior year period relating to being a newly public company.
Advertising
Advertising expenses increased $1.2 million, or 19.1%, to $7.8 million during the 13 weeks ended April 1, 2023, compared to $6.6 million for the 13 weeks ended March 26, 2022. The increase in advertising expense was attributable to the increase in marketing fee revenues as well as the timing of expenses associated with new marketing campaigns.
Depreciation and Amortization
Depreciation and amortization for the 13 weeks ended April 1, 2023 was largely consistent with the 13 weeks ended March 26, 2022, increasing $3 thousand, or 0.1%, to $5.1 million for the 13 weeks ended April 1, 2023.
Interest Expense
Interest expense increased $5.4 million, or 355.3%, to $6.9 million during the 13 weeks ended April 1, 2023, compared to $1.5 million for the 13 weeks ended March 26, 2022. The increase in interest expense was attributable to the effect of higher average principal balances and interest rates on outstanding debt during the 13 weeks ended April 1, 2023.
Income Tax Expense
We recorded $0.5 million in income tax benefit for the 13 weeks ended April 1, 2023, compared to $27 thousand in income tax expense for the thirteen weeks ended March 26, 2022. The income tax benefit recognized in the first 13 weeks of 2023 differs from the federal statutory income tax rate primarily as a result of non-taxable income attributable to noncontrolling interest, state taxes and the tax effects of stock compensation. Income tax expense recognized in the first 13 weeks of 2022 differs the federal statutory income tax rate primarily as a result of the full valuation allowance against its net federal and state deferred taxes during that period. The valuation allowance was fully released as of December 31, 2022.
We estimate that in future annual periods, our blended statutory tax rate will be approximately 20% of EWC Ventures income or loss before income taxes. This estimated blended statutory tax rate is based on the current capital structure, excludes discrete or other rate impacting adjustments which may impact the company’s income tax provision in the future and is based on our blended federal and state statutory tax rates reduced to exclude our non-taxable noncontrolling interest percentage. We expect this estimated blended statutory tax rate to increase as EWC Ventures Units and the corresponding shares of Class B common stock are exchanged for shares of Class A common stock because our nontaxable noncontrolling interest earnings will decrease.
Non-GAAP Financial Measures
In addition to our GAAP financial results, we believe the non-GAAP financial measures EBITDA and Adjusted EBITDA are useful in evaluating our performance. Our non-GAAP financial measures should not be considered in isolation from, or as substitutes for, financial information prepared in accordance with GAAP. These non-GAAP financial measures are presented for supplemental information purposes only and may be different from similarly titled metrics or measures presented by other companies. A reconciliation of the
19
non-GAAP financial measures to the most directly comparable financial measure stated in accordance with GAAP and a further discussion of how we use non-GAAP financial measures is provided below.
EBITDA and Adjusted EBITDA. We define EBITDA as net income (loss) before interest, taxes, depreciation and amortization. We believe that EBITDA, which eliminates the impact of certain expenses that we do not believe reflect our underlying business performance, provides useful information to investors to assess the performance of our business. We define Adjusted EBITDA as net income (loss) before interest, taxes, depreciation and amortization, adjusted for the impact of certain additional non-cash and other items that we do not consider in our evaluation of ongoing performance of our core operations. These items include exit costs related to leases of abandoned space, IPO-related costs, non-cash equity-based compensation expense, corporate headquarters office relocation, non-cash gains and losses on remeasurement of our tax receivable agreement liability, transaction costs and other one-time expenses. We believe that Adjusted EBITDA is an appropriate measure of operating performance in addition to EBITDA because it eliminates the impact of other items that we believe reduce the comparability of our underlying core business performance from period to period and is therefore useful to our investors in comparing the core performance of our business from period to period. EBITDA and Adjusted EBITDA may not be comparable to other similarly titled captions of other companies due to differences in methods of calculation.
A reconciliation of net income to EBITDA and Adjusted EBITDA is set forth below for the periods indicated:
|
|
For the Thirteen |
|
|||||
|
|
April 1, 2023 |
|
|
March 26, 2022 |
|
||
(in thousands) |
|
|
|
|
|
|
||
Net income (loss) |
|
$ |
(1,053 |
) |
|
$ |
4,026 |
|
Interest expense |
|
|
6,862 |
|
|
|
1,507 |
|
Income tax expense (benefit) |
|
|
(509 |
) |
|
|
27 |
|
Depreciation and amortization |
|
|
5,063 |
|
|
|
5,060 |
|
EBITDA |
|
$ |
10,363 |
|
|
$ |
10,620 |
|
Share-based compensation(1) |
|
|
5,931 |
|
|
|
3,335 |
|
Remeasurement of tax receivable agreement liability (2) |
|
|
— |
|
|
|
785 |
|
Other (3) |
|
|
— |
|
|
|
417 |
|
Adjusted EBITDA |
|
$ |
16,294 |
|
|
$ |
15,157 |
|
Liquidity and Capital Resources
We measure liquidity in terms of our ability to fund the cash requirements of our business operations, including working capital needs, capital expenditures, contractual obligations and debt service with cash flows from operations and other sources of funding. Our primary sources of liquidity and capital resources are cash provided from operating activities, cash and cash equivalents on hand, proceeds from our Class A-2 Notes and Variable Funding Notes and proceeds from the issuance of equity to our members. We had cash and cash equivalents of $45.9 million as of April 1, 2023.
Future payments under the TRA with respect to the purchase of EWC Ventures Units which occurred as part of the IPO and through April 1, 2023 are currently expected to be $207.6 million. Such amounts will be paid when such deferred tax assets are realized as a reduction to income taxes due or payable. That is, payments under the TRA are only expected to be made in periods following the filing of a tax return in which we are able to utilize certain tax benefits to reduce our cash taxes paid to a taxing authority. The impact of any changes in the projected obligations under the TRA as a result of changes in the geographic mix of the Company’s earnings, changes in tax legislation and tax rates or other factors that may impact the Company’s tax savings will be reflected in other expense on the condensed consolidated statements of operations in the period in which the change occurs. During the 13 weeks ended April 1, 2023 there were no material changes in our contractual obligations from those described in our annual report on Form 10-K for the fiscal year ended December 31, 2022.
We believe that our sources of liquidity and capital will be sufficient to finance our continued operations and growth strategy for at least the next twelve months. Our primary requirements for liquidity and capital are working capital, capital expenditures to grow our network
20
of centers, debt servicing costs, and general corporate needs. We have in the past, and may in the future, refinance our existing indebtedness with new debt arrangements and utilize a portion of borrowings to return capital to our stockholders.
Our assessment of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties. Our actual results and our future capital requirements could vary because of many factors, including our growth rate, the timing and extent of spending to acquire new centers and expand into new markets, and the expansion of sales and marketing activities. We may, in the future, enter into arrangements to acquire or invest in complementary businesses, services and technologies. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, results of operations and financial condition would be adversely affected.
Securitized Financing Facility
On April 6, 2022, the Master Issuer completed a securitization transaction pursuant to which it issued $400.0 million in aggregate principal amount of Class A-2 Notes. The net proceeds from the issuance of the Class A-2 Notes were used to repay the 2026 Term Loan, fund certain reserve amounts under the securitized financing facility, pay the transaction costs associated with the securitized financing facility, and fund a one-time special dividend to stockholders.
In connection with the issuance of the Class A-2 Notes, the Master Issuer also entered into (i) a revolving financing facility that allows for the issuance of up to $40.0 million in Variable Funding Notes, and certain letters of credit and (2) an advance funding facility with BofA, whereby BofA and any other advance funding provider thereunder will, in certain specified circumstances, make certain debt service advances and collateral protection advances. The Variable Funding Notes were undrawn at closing and as of April 1, 2023. The Class A-2 Notes and the Variable Funding Notes are referred to collectively as the “Notes.”
The Notes are subject to a series of covenants and restrictions customary for transactions of this type, including (i) that the Master Issuer maintains specified reserve accounts to be used to make required payments in respect of the Notes, (ii) provisions relating to optional and mandatory prepayments and the related payment of specified amounts, including specified make-whole payments in the case of the Class A-2 Notes under certain circumstances, (iii) certain indemnification payments in the event, among other things, the transfers of the assets pledged as collateral for the Notes are in stated ways defective or ineffective and (iv) covenants relating to recordkeeping, access to information and similar matters. The Notes are also subject to customary rapid amortization events provided for in the Base Indenture, dated April 6, 2022 (the “Indenture”), including events tied to failure to maintain a stated debt service coverage ratio, the sum of system-wide sales being below certain levels on certain measurement dates, certain manager termination events (including in certain cases a change of control of EWC Ventures, LLC), an event of default and the failure to repay or refinance the Notes on the applicable anticipated repayment date. The Notes are also subject to certain customary events of default, including events relating to non-payment of required interest, principal or other amounts due on or with respect to the Notes, failure to comply with covenants within certain time frames, certain bankruptcy events, breaches of specified representations and warranties, failure of security interests to be effective and certain judgments.
For additional information regarding our long-term debt activity, see the notes to the condensed consolidated financial statements (Note 5—Long-term debt) contained elsewhere in this quarterly report on Form 10-Q.
Tax Receivable Agreement
Generally, we are required under the TRA, which is described more fully in Part 1 “Item 1A. Risk Factors” in our annual report on Form 10-K for the fiscal year ended December 31, 2022 in the section entitled “Risks Related to Our Organization and Structure—We are required to pay the EWC Ventures’ pre-IPO members for certain tax benefits we may claim, and the amounts we may pay could be significant” to make payments to the EWC Ventures pre-IPO members that are generally equal to 85% of the applicable cash tax savings, if any, that we actually realize (or are deemed to realize, calculated using certain assumptions) as a result of (i) increases in our allocable share of certain existing tax basis of the tangible and intangible assets of the Company and adjustments to the tax basis of the tangible and intangible assets of the Company, in each case as a result of (a) the purchases of EWC Ventures Units (along with the corresponding shares of our Class B common stock) from certain of the EWC Ventures Post-IPO Members using a portion of the net proceeds from the initial and secondary public offerings or in any future offering or (b) Share Exchanges and Cash Exchanges by the EWC Ventures pre-IPO members (or their transferees or other assignees) in connection with or after the initial public offering, (ii) our utilization of certain tax attributes of certain affiliates of General Atlantic (the “Blocker Companies”) (including the Blocker Companies’ allocable share of certain existing tax basis of EWC Ventures’ assets) and (iii) certain other tax benefits related to entering into the TRA, including tax benefits attributable to payments under the TRA.
21
Subject to the discussion in the following paragraph below, payments under the TRA will occur only after we have filed our U.S. federal and state income tax returns and realized the cash tax savings from the favorable tax attributes. Future payments under the TRA in respect of future purchases of EWC Ventures Units, Share Exchanges and Cash Exchanges would be in addition to these amounts. Payments under the TRA are computed by reference to realized tax benefits from attributes subject to the TRA and are expected to be funded by tax distributions made to us by our subsidiaries similar to how cash taxes would be funded to the extent these attributes did not exist. To the extent we are unable to make payments under the TRA for any reason (including because the Company’s securitized financing facility restricts the ability of our subsidiaries to make distributions to us), under the terms of the TRA such payments will be deferred and accrue interest until paid. If we are unable to make payments due to insufficient funds, such payments may be deferred indefinitely while accruing interest until paid, which could negatively impact our results of operations and could also affect our liquidity in future periods in which such deferred payments are made.
Under the TRA, as a result of certain types of transactions and other factors, including a transaction resulting in a change of control, we may also be required to make payments to the EWC Ventures pre-IPO members in amounts equal to the present value of future payments we are obligated to make under the TRA. If the payments under the TRA are accelerated, we may be required to raise additional debt or equity to fund such payments. To the extent that we are unable to make payments under the TRA for any reason (including because the Company’s securitized financing facility restricts the ability of our subsidiaries to make distributions to us), under the terms of the TRA Agreement such payments will be deferred and will accrue interest until paid. If we are unable to make payments due to insufficient funds to make such payments, such payments may be deferred indefinitely while accruing interest until paid, which could negatively impact our results of operations and could also affect our liquidity in future periods in which such deferred payments are made.
Summary Statements of Cash Flows
The following table sets forth the major components of our condensed consolidated statements of cash flows for the periods presented (amounts in thousands):
|
|
For the Thirteen Weeks Ended |
|
|||||
|
|
April 1, 2023 |
|
|
March 26, 2022 |
|
||
Net cash provided by (used in): |
|
|
|
|
|
|
||
Operating activities |
|
$ |
4,181 |
|
|
$ |
5,473 |
|
Investing activities |
|
|
(358 |
) |
|
|
(303 |
) |
Financing activities |
|
|
(2,137 |
) |
|
|
(4,267 |
) |
Net increase in cash |
|
$ |
1,686 |
|
|
$ |
903 |
|
Operating Activities
During the 13 weeks ended April 1, 2023 and March 26, 2022, net cash provided by operating activities was $4.2 million and $5.5 million, respectively, a decrease of $1.3 million. This decrease was largely attributable to the increase in cash interest paid resulting from higher average principal balances and interest rates on outstanding debt in the first 13 weeks of 2023 compared to the first 13 weeks of 2022. However, the decrease in cash flows from operations was partially offset by a lower working capital increase in the current year compared to the prior year as well as an improvement in cash flows generated by our operations.
The increase in working capital in 2023 was primarily attributable to an increase of $2.2 million in inventory and $1.4 million in prepaid expenses and other assets and a decrease of $2.3 million in accounts payable and accrued liabilities. The increase in inventory was primarily due to increased purchases from suppliers to support increased system-wide sales and new center openings. The increase in prepaid expenses and other assets was largely driven by the timing of vendor payments. The decrease in accounts payable and accrued liabilities was largely driven by the payment of accrued bonuses.
Investing Activities
During the 13 weeks ended April 1, 2023 and March 26, 2022, we used $0.4 million and $0.3 million of cash for capital expenditures, respectively.
Financing Activities
Cash used in financing activities was $2.1 million and $4.3 million during the 13 weeks ended April 1, 2023 and March 26, 2022, respectively. Financing activities during the first 13 weeks of 2023 were the result of a $1.0 million repayment on the Class A-2 Notes, $0.7 million in dividend equivalents paid, $0.3 million in tax distribution payments to EWC Ventures members, and $0.1 million in taxes on vested RSUs paid by withholding shares. In the first 13 weeks of 2022 we made $2.3 million in net tax distribution payments
22
to EWC Ventures members other than the Company, repaid $1.1 million in principal on our previous term loan and paid the remaining $0.9 million in costs relating to our secondary offering of Class A common stock which occurred in November 2021.
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates. There have been no changes to our critical accounting policies and use of estimates from those described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
JOBS Act
The Company is an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) and may take advantage of reduced reporting requirements that are otherwise applicable to public companies. Section 107 of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with those standards. We have elected to use the extended transition period for complying with new or revised accounting standards. This may make it difficult to compare our financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used.
Recent Accounting Pronouncements
See Note 2 to the condensed consolidated financial statements included in this quarterly report on Form 10-Q for more information about recent accounting pronouncements, the timing of their adoption and our assessment, to the extent we have made one, of the potential impact of the pronouncements on our financial condition and results of operations and cash flows.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We are exposed to market risk related to changes in interest rates. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our Variable Funding Notes bear interest at a variable rate.
Our Class A-2 Notes bear interest at a fixed rate of 5.50%, and therefore our interest expense related to these notes would not be affected by an increase in market interest rates. Our Variable Funding Notes bear interest at a variable index rate plus an applicable margin. Accordingly, increases in the variable index rate could increase our interest payments under the Variable Funding Notes. However, as the Variable Funding Notes were undrawn as of April 1, 2023 an increase in the variable index rate would not impact on our financial position or results of operations.
Foreign Currency Risk
We are not currently exposed to significant market risk related to changes in foreign currency exchange rates; however, we have contracted with and may continue to contract with foreign vendors. Our operations may be subject to fluctuations in foreign currency exchange rates in the future.
Commodity Price Risk
We are exposed to market risk related to changes in commodity prices. Our primary exposure to commodity price risk is the pricing of our wax purchased from our significant suppliers, which may be adjusted upwards or downwards based on changes in prices of certain raw materials used in the production process.
23
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this quarterly report on Form 10-Q.
There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their control objectives.
Based on that evaluation, our CEO and CFO concluded that as of April 1, 2023, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by the Company in the reports it files or submits with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to our management, including the principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting
There have been no changes in our internal control over financial reporting that occurred during the 13 weeks ended April 1, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
24
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
We may be the defendant from time to time in litigation arising during the ordinary course of business, including, without limitation, employment-related claims, claims based on theories of joint employer liability, data privacy claims, claims involving anti-poaching allegations and claims made by former or existing franchisees or the government. In the ordinary course of business, we are also subject to regulatory and governmental examinations, information requests and subpoenas, inquiries, investigations, and threatened legal actions and proceedings. Although the outcomes of potential legal proceedings are inherently difficult to predict, the Company does not expect the resolution of these occasional legal proceedings to have a material effect on its financial position, results of operations, or cash flow.
Item 1A. Risk Factors
There have been no material changes in our risk factors from those disclosed in Part I, “Item 1A. Risk Factors“ in our annual report on Form 10-K for the year ended December 31, 2022. You should carefully consider the risk factors set forth in our 10-K and the other information set forth in this quarterly report on Form 10-Q. You should be aware that these risk factors and other information may not describe every risk that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
25
Item 6. Exhibits
Exhibit Number |
|
Description |
3.1 |
|
|
10.1+ |
|
|
10.2+ |
|
|
10.3*+ |
|
Offer Letter by and between EWC Corporate, LLC and Stacie Shirley, dated as of March 3, 2023. |
10.4*+ |
|
|
31.1* |
|
|
31.2* |
|
|
32.1** |
|
|
32.2** |
|
|
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
** European Wax Center, Inc. is furnishing, but not filing, the written statement pursuant to Title 18 United States
Code 1350, as added by Section 906 of the Sarbanes Oxley Act of 2002, of David P. Berg, our Chief Executive Officer and Stacie Shirley, our Chief Financial Officer.
+ Indicates management contract or compensatory plan.
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
European Wax Center, Inc. |
|
|
|
|
|
Date: May 10, 2023 |
|
By: |
/s/ DAVID P. BERG |
|
|
|
David P. Berg |
|
|
|
Chief Executive Officer (Principal Executive Officer) |
|
|
|
|
Date: May 10, 2023 |
|
By: |
/s/ STACIE SHIRLEY |
|
|
|
Stacie Shirley |
|
|
|
Chief Financial Officer |
|
|
|
(Principal Financial Officer) |
27
EXHIBIT 10.3
March 3, 2023
Stacie Shirley
Dear Stacie,
EWC Corporate, LLC and its affiliates (collectively, “EWC”, “we”, “us” or “our”), operate and support the European Wax Center franchise system. We are very pleased to offer you the position of “Chief Financial Officer” on the following terms and subject to the conditions outlined in this letter:
While you will initially be designated as an employee of EWC Corporate, LLC, you will provide services for the benefit of various EWC entities. From time to time, we may require you to submit reports to us to allow us to track work performed and amount of time spent on work for our affiliates. Please also understand that as a franchise system, we support franchise locations and area representatives that are individually owned and operated businesses and therefore, while we do provide training and support, we do not control franchisees, area representatives or their personnel.
While we understand that you will be learning a lot about your new position, you are still expected to perform satisfactorily at all times and your performance will be reviewed on an ongoing basis. Even during the introductory employment period, you may be terminated at any time, for any or no reason and for any lawful reason with or without notice. Also, please understand that completion of the introductory employment period does not guarantee continued employment and does not change the at-will nature of the employment relationship.
You will be eligible under our recently adopted Change In Control and Severance Policy, which provides certain benefits upon separation of your employment without cause, for good reason, and under other circumstances. This information will be provided to you in a separate document.
Upon your acceptance, subject to the completion of our pre-employment screening requirements, as applicable, we will confirm your actual start date. If you wish to accept this offer of employment, please sign below and return this offer letter to the Talent team by e-mail at aura.debiase@myewc.com. Unless otherwise withdrawn, this offer is open for you to accept until March 6, 2023, at which time it will be deemed to be withdrawn. If you have any questions about the above details, please don’t hesitate to call me.
We look forward to having you join the European Wax Center team.
Sincerely,
EWC Corporate, LLC
By:
Gavin O’Connor, Chief Legal Officer, Chief Human Resources Officer and Corporate Secretary
By signing below, I accept employment with EWC upon the terms and conditions set forth above and agree that I am not relying on any prior statements or representations not contained within this offer letter. I also represent, warrant and covenant to EWC that I have read this offer letter and the form of Confidentiality, Non-Interference and Proprietary Rights Agreement in their entirety, that I fully understand all of their terms and their significance, that I have signed voluntarily and of my own free will, and that I am not bound, nor will I become bound, by any covenant, contract, agreement or other obligation that conflicts with, or may or does prevent me in any manner from performing my duties while employed with EWC.
In accepting this offer of employment, I also certify my understanding that my employment with EWC will be on an at-will basis; that this letter is not a contract, express or implied; and that this letter does guarantee employment for any specific duration.
|
|
|
Print Name: |
Stacie Shirley____________________
|
Date: |
March 3, 2023 |
|
Signature: |
/s/ STACIE SHIRLEY |
|
|
|
|
|
EXHIBIT 10.4
SEVERANCE PLAN AGREEMENT
WHEREAS, the European Wax Center, Inc. (the “Company”) has adopted the European Wax Center, Inc. Change in Control and Severance Plan, effective February 22, 2023 (the “Severance Plan”), pursuant to which Stacie Shirley (the “Executive”) is entitled to certain severance payments and benefits upon termination of the Executive’s employment by the Company without Cause or by the Executive for Good Reason, as set forth in the Severance Plan and as such terms are defined in the Severance Plan; and
WHEREAS, in consideration of the Executive commencing her employment with the Company on the condition set forth herein and in further consideration of the severance payments and benefits provided pursuant to the terms of the Severance Plan.
NOW, THEREFORE, in consideration of other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the Executive and Company agree as follows:
1
IN WITNESS HEREOF, the Executive has executed this Waiver as of the date written below.
EXECUTIVE
/s/ STACIE SHIRLEY
Stacie Shirley
Date: March 3, 2023
EUROPEAN WAX CENTER, INC.
By:_______________________
Title:_____________________
Date:_____________________
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, David P. Berg, certify that:
Date: May 10, 2023 |
|
By: |
/s/ DAVID P. BERG |
|
|
|
David P. Berg |
|
|
|
Chief Executive Officer |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Stacie Shirley, certify that:
Date: May 10, 2023 |
|
By: |
/s/ STACIE SHIRLEY |
|
|
|
Stacie Shirley |
|
|
|
Chief Financial Officer |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of European Wax Center, Inc. (the “Company”) on Form 10-Q for the period ending April 1, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David P. Berg, as Chief Executive Officer of the Company ,certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
Date: May 10, 2023 |
|
By: |
/s/ DAVID P. BERG |
|
|
|
David P. Berg |
|
|
|
Chief Executive Officer |
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of European Wax Center, Inc. (the “Company”) on Form 10-Q for the period ending April 1, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stacie Shirley, as Chief Financial Officer of the Company ,certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
Date: May 10, 2023 |
|
By: |
/s/ STACIE SHIRLEY |
|
|
|
Stacie Shirley |
|
|
|
Chief Financial Officer |