SEC Filing | European Wax Center, Inc.

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10-Q

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


☐	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

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.

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.

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.

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	—	—	—	—	794	—	—	(794)	—
Net income	—	—	—	—	—	2,941	—	1,253	4,194
Balance at September 30, 2023	50,131,924	$—	12,306,072	$—	$227,845	$(111,992)	$(16,449)	$36,067	$135,471

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