10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended September 30, 2023

OR

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

For the transition period from ______ to ______

Commission File Number: 001-40714

 

EUROPEAN WAX CENTER, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

86-3150064

(State or other jurisdiction of

incorporation or organization)

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

5830 Granite Parkway, 3rd Floor

Plano, Texas

75024

(Address of principal executive offices)

(Zip Code)

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

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Class A common stock, par value $0.00001 per share

 

EWCZ

 

The Nasdaq Stock Market LLC

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

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

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

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

 

 

 

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

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

As of November 3, 2023, the registrant had 50,135,317 and 12,306,072 shares of Class A and Class B common stock, respectively, $0.00001 par value per share, outstanding.

 

 


 

Table of Contents

 

 

 

Page

 

 

 

PART I.

FINANCIAL INFORMATION

1

 

 

 

Item 1.

Financial Statements (Unaudited)

1

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022

1

 

Condensed Consolidated Statements of Operations for the 13 and 39 weeks ended September 30, 2023, and September 24, 2022

2

 

Condensed Consolidated Statements of Cash Flows for the 39 weeks ended September 30, 2023, and September 24, 2022

3

 

Condensed Consolidated Statements of Stockholders' Equity for the 13 and 39 weeks ended September 30, 2023, and September 24, 2022

4

 

Notes to Unaudited Condensed Consolidated Financial Statements

6

 

 

 

Item 2.

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

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

Item 4.

Controls and Procedures

28

 

 

 

PART II.

OTHER INFORMATION

30

 

 

 

Item 1.

Legal Proceedings

30

Item 1A.

Risk Factors

30

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

30

Item 3.

Defaults Upon Senior Securities

30

Item 4.

Mine Safety Disclosures

30

Item 5.

Other Information

30

Item 6.

Exhibits

31

Signatures

32

 

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)

 

 

September 30, 2023

 

 

December 31, 2022

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

63,959

 

 

$

44,219

 

Restricted cash

 

 

6,544

 

 

 

6,575

 

Accounts receivable, net

 

 

6,764

 

 

 

6,932

 

Inventory, net

 

 

21,702

 

 

 

23,017

 

Prepaid expenses and other current assets

 

 

8,295

 

 

 

5,574

 

Total current assets

 

 

107,264

 

 

 

86,317

 

Property and equipment, net

 

 

2,555

 

 

 

2,747

 

Operating lease right-of-use assets

 

 

4,292

 

 

 

4,899

 

Intangible assets, net

 

 

168,812

 

 

 

183,030

 

Goodwill

 

 

328,551

 

 

 

328,551

 

Deferred income taxes

 

 

139,347

 

 

 

106,187

 

Other non-current assets

 

 

3,561

 

 

 

4,301

 

Total assets

 

$

754,382

 

 

$

716,032

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

16,462

 

 

$

18,547

 

Long-term debt, current portion

 

 

4,000

 

 

 

4,000

 

Tax receivable agreement liability, current portion

 

 

2,467

 

 

 

4,867

 

Deferred revenue, current portion

 

 

4,313

 

 

 

4,084

 

Operating lease liabilities, current portion

 

 

1,263

 

 

 

1,312

 

Total current liabilities

 

 

28,505

 

 

 

32,810

 

Long-term debt, net

 

 

371,639

 

 

 

370,935

 

Tax receivable agreement liability, net of current portion

 

 

206,233

 

 

 

167,293

 

Deferred revenue, net of current portion

 

 

6,850

 

 

 

6,901

 

Operating lease liabilities, net of current portion

 

 

3,621

 

 

 

4,227

 

Other long-term liabilities

 

 

2,063

 

 

 

3,562

 

Total liabilities

 

 

618,911

 

 

 

585,728

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock ($0.00001 par value, 100,000,000 shares authorized, none issued and outstanding as of September 30, 2023 and December 31, 2022.)

 

 

 

 

 

 

Class A common stock ($0.00001 par value, 600,000,000 shares authorized, 51,225,048 and 45,277,325 shares issued and 50,131,924 and 44,561,685 shares outstanding as of September 30, 2023 and December 31, 2022, respectively)

 

 

 

 

 

 

Class B common stock ($0.00001 par value, 60,000,000 shares authorized, 12,306,072 and 18,175,652 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively)

 

 

 

 

 

 

Treasury stock, at cost 1,093,124 and 715,640 shares of Class A common stock as of September 30, 2023 and December 31, 2022, respectively

 

 

(16,449

)

 

 

(10,080

)

Additional paid-in capital

 

 

227,845

 

 

 

207,517

 

Accumulated deficit

 

 

(111,992

)

 

 

(118,437

)

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

 

 

99,404

 

 

 

79,000

 

Noncontrolling interests

 

 

36,067

 

 

 

51,304

 

Total stockholders’ equity

 

 

135,471

 

 

 

130,304

 

Total liabilities and stockholders’ equity

 

$

754,382

 

 

$

716,032

 

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

1


 

EUROPEAN WAX CENTER, INC. and Subsidiaries

CoNDENSED Consolidated Statements of Operations

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

(Unaudited)

 

 

For the Thirteen Weeks Ended

 

 

For the Thirty-Nine Weeks Ended

 

 

 

September 30, 2023

 

 

September 24, 2022

 

 

September 30, 2023

 

 

September 24, 2022

 

REVENUE

 

 

 

 

 

 

 

 

 

 

 

 

Product sales

 

$

31,890

 

 

$

31,565

 

 

$

93,457

 

 

$

86,844

 

Royalty fees

 

 

13,345

 

 

 

13,086

 

 

 

39,843

 

 

 

37,240

 

Marketing fees

 

 

7,551

 

 

 

7,339

 

 

 

22,368

 

 

 

20,964

 

Other revenue

 

 

2,931

 

 

 

3,054

 

 

 

9,031

 

 

 

8,780

 

Total revenue

 

 

55,717

 

 

 

55,044

 

 

 

164,699

 

 

 

153,828

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

15,721

 

 

 

16,313

 

 

 

47,078

 

 

 

43,168

 

Selling, general and administrative

 

 

14,372

 

 

 

13,662

 

 

 

45,769

 

 

 

44,364

 

Advertising

 

 

8,099

 

 

 

8,398

 

 

 

24,592

 

 

 

23,003

 

Depreciation and amortization

 

 

5,040

 

 

 

5,059

 

 

 

15,148

 

 

 

15,173

 

Total operating expenses

 

 

43,232

 

 

 

43,432

 

 

 

132,587

 

 

 

125,708

 

Income from operations

 

 

12,485

 

 

 

11,612

 

 

 

32,112

 

 

 

28,120

 

Interest expense, net

 

 

6,471

 

 

 

6,804

 

 

 

20,095

 

 

 

16,391

 

Other expense (income)

 

 

36

 

 

 

(516

)

 

 

(756

)

 

 

302

 

Income before income taxes

 

 

5,978

 

 

 

5,324

 

 

 

12,773

 

 

 

11,427

 

Income tax expense

 

 

1,784

 

 

 

37

 

 

 

4,038

 

 

 

83

 

NET INCOME

 

$

4,194

 

 

$

5,287

 

 

$

8,735

 

 

$

11,344

 

Less: net income attributable to noncontrolling interests

 

 

1,253

 

 

 

1,765

 

 

 

2,290

 

 

 

4,969

 

NET INCOME ATTRIBUTABLE TO EUROPEAN WAX CENTER, INC.

 

$

2,941

 

 

$

3,522

 

 

$

6,445

 

 

$

6,375

 

Net income per share

 

 

 

 

 

 

 

 

 

 

 

 

Basic - Class A Common Stock

 

$

0.06

 

 

$

0.09

 

 

$

0.12

 

 

$

0.17

 

Diluted - Class A Common Stock

 

$

0.06

 

 

$

0.08

 

 

$

0.12

 

 

$

0.17

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Basic - Class A Common Stock

 

 

50,321,994

 

 

 

39,849,170

 

 

 

49,548,820

 

 

 

38,238,114

 

Diluted - Class A Common Stock

 

 

50,428,170

 

 

 

62,849,257

 

 

 

49,640,509

 

 

 

38,426,968

 

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)

 

 

 

For the Thirty-Nine Weeks Ended

 

 

 

September 30, 2023

 

 

September 24, 2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

8,735

 

 

$

11,344

 

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

 

 

 

 

 

 

Depreciation and amortization

 

 

15,148

 

 

 

15,173

 

Amortization of deferred financing costs

 

 

3,964

 

 

 

2,483

 

Gain on interest rate cap

 

 

 

 

 

(196

)

Provision for inventory obsolescence

 

 

(4

)

 

 

(26

)

Loss on debt extinguishment

 

 

 

 

 

1,957

 

Provision for bad debts

 

 

105

 

 

 

38

 

Deferred income taxes

 

 

3,825

 

 

 

 

Remeasurement of tax receivable agreement liability

 

 

(756

)

 

 

302

 

Loss on disposal of property and equipment

 

 

11

 

 

 

5

 

Equity compensation

 

 

9,489

 

 

 

7,452

 

Changes in assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(189

)

 

 

(137

)

Inventory, net

 

 

1,319

 

 

 

(3,638

)

Prepaid expenses and other assets

 

 

(1,300

)

 

 

1,101

 

Accounts payable and accrued liabilities

 

 

(1,180

)

 

 

(7,623

)

Deferred revenue

 

 

178

 

 

 

289

 

Other long-term liabilities

 

 

(489

)

 

 

(575

)

Net cash provided by operating activities

 

 

38,856

 

 

 

27,949

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(774

)

 

 

(143

)

Net cash used in investing activities

 

 

(774

)

 

 

(143

)

Cash flows from financing activities:

 

 

 

 

 

 

Deferred loan costs

 

 

 

 

 

(12,419

)

Proceeds from long-term debt

 

 

 

 

 

384,328

 

Principal payments on long-term debt

 

 

(3,000

)

 

 

(181,000

)

Payments of debt extinguishment costs

 

 

 

 

 

(77

)

Distributions to EWC Ventures LLC members

 

 

(2,492

)

 

 

(7,280

)

Payment of Class A common stock offering costs

 

 

 

 

 

(870

)

Repurchase of Class A common stock

 

 

(6,369

)

 

 

 

Taxes on vested restricted stock units paid by withholding shares

 

 

(516

)

 

 

(525

)

Dividends to holders of Class A common stock

 

 

 

 

 

(122,227

)

Dividend equivalents to holders of EWC Ventures units

 

 

(2,787

)

 

 

(82,887

)

Payments pursuant to tax receivable agreement

 

 

(3,209

)

 

 

 

Net cash used in financing activities

 

 

(18,373

)

 

 

(22,957

)

Net increase in cash

 

 

19,709

 

 

 

4,849

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

50,794

 

 

 

43,301

 

Cash, cash equivalents and restricted cash, end of period

 

$

70,503

 

 

$

48,150

 

Supplemental cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

16,621

 

 

$

12,886

 

Cash paid for income taxes

 

$

633

 

 

$

96

 

Non-cash investing activities:

 

 

 

 

 

 

Property purchases included in accounts payable and accrued liabilities

 

$

 

 

$

5

 

Right-of-use assets obtained in exchange for operating lease obligations

 

$

368

 

 

$

 

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Class A Common Stock

 

Class B Common Stock

 

paid-in

 

Accumulated

 

Treasury

 

Noncontrolling

 

Total

 

 

Shares

 

Amount

 

Shares

 

Amount

 

capital

 

deficit

 

Stock

 

interest

 

equity

Balance at December 31, 2022

 

44,561,685

 

$

 

18,175,652

 

$

 

$207,517

 

$(118,437)

 

$(10,080)

 

$51,304

 

$130,304

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

 

5,129,351

 

 

(5,129,351)

 

 

 

 

 

 

Vesting of restricted stock units

 

33,546

 

 

 

 

 

 

 

 

Shares withheld for taxes on vested restricted stock units

 

(6,708)

 

 

 

 

(126)

 

 

 

 

(126)

Equity compensation

 

 

 

 

 

5,931

 

 

 

 

5,931

Distributions to members of EWC Ventures

 

 

 

 

 

 

 

 

(276)

 

(276)

Tax receivable liability and deferred taxes arising from share exchanges

 

 

 

 

 

(3,519)

 

 

 

 

(3,519)

Allocation of equity to noncontrolling interests

 

 

 

 

 

12,657

 

 

 

(12,657)

 

Net loss

 

 

 

 

 

 

 

(508)

 

 

(545)

 

(1,053)

Balance at April 1, 2023

 

49,717,874

 

$

 

13,046,301

 

$

 

$222,460

 

$(118,945)

 

$(10,080)

 

$37,826

 

$131,261

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

 

652,558

 

 

(652,558)

 

 

 

 

 

 

Vesting of restricted stock units

 

12,131

 

 

 

 

 

 

 

 

Forfeiture of unvested incentive units

 

 

 

(29,697)

 

 

 

 

 

 

Shares withheld for taxes on vested restricted stock units

 

(1,057)

 

 

 

 

(20)

 

 

 

 

(20)

Equity compensation

 

 

 

 

 

1,826

 

 

 

 

1,826

Repurchase of Class A common stock

 

(51,592)

 

 

 

 

 

 

(819)

 

 

 

(819)

Distributions to members of EWC Ventures

 

 

 

 

 

 

 

 

(938)

 

(938)

Forfeiture of dividend equivalents payable to holders of EWC Ventures Units

 

 

 

 

 

 

 

 

98

 

98

Tax receivable liability and deferred taxes arising from share exchanges

 

 

 

 

 

(421)

 

 

 

 

(421)

Allocation of equity to noncontrolling interests

 

 

 

 

 

1,682

 

 

 

(1,682)

 

Net income

 

 

 

 

 

 

4,012

 

 

1,582

 

5,594

Balance at July 1, 2023

 

50,329,914

 

$

 

12,364,046

 

$

 

$225,527

 

$(114,933)

 

$(10,899)

 

$36,886

 

$136,581

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

 

57,974

 

 

(57,974)

 

 

 

 

 

 

Vesting of restricted stock units

 

90,715

 

 

 

 

 

 

 

 

Forfeiture of unvested incentive units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity compensation

 

 

 

 

 

1,732

 

 

 

 

1,732

Repurchase of Class A common stock

 

(325,892)

 

 

 

 

 

 

(5,550)

 

 

(5,550)

Distributions to members of EWC Ventures

 

 

 

 

 

 

 

 

(1,278)

 

(1,278)

Shares withheld for taxes on vested restricted stock units

 

(20,787)

 

 

 

 

(375)

 

 

 

 

(375)

Tax receivable liability and deferred taxes arising from share exchanges

 

 

 

 

 

167

 

 

 

 

167

Allocation of equity to noncontrolling interests