Roosters franchise agreements have a ten-year term with a ten-year option to renew (at the option of the franchisee). New franchisees enter into a franchise agreement concurrent with the opening of their first store, along with a development agreement under which they havewith the right to open two additional locations.

The Company believes diversity of thoughts, backgrounds, experiences, and ideas help it deliver a world-class system of technology-enabled hair salons. As of June 30, 2021, racial minorities consist of over 46% of the Company's U.S. workforce, which is summarized below.

Nearly 100 years ago, the Company began as a family business and its support of families continues today. It offers up to 16 weeks of parental leave so that parents have time to focus on their newest family members. It also offers flexible work options, ranging from occasional work at home to full-time telecommuting. Additionally, the Company offers flexible paid time off, which allows employees to control their time away from work based on individual needs, not years of service. The Company also observes 13 U.S. holidays, including Martin Luther King Jr. Day (MLK Day of Service) and Good Friday, which were added in fiscal year 2021.

The Company also takes care of its people by offering competitive compensation and benefits packages that meet the needs of its employees and their families, including short- and long-term incentive packages, an employee relationsstock purchase plan, retirement plans, health, dental, and vision benefits, basic life insurance, long-term disability coverage, and wellness and employee assistance programs. The Company analyzes market trends and monitors its own compensation practices to attract, retain, and promote employees and reduce turnover and associated costs. In addition, its short- and long-term incentive plans are amicable.aligned with its core values and key business objectives, which are intended to motivate strong performance.

Our operations expose us to risks associated with public health crises and epidemics/pandemics, such as the novel strain of coronavirus (COVID-19) that has spread globally. COVID-19 has had, and may continue to have, an adverse impact on our operations. The pandemic may affect the health and welfare of our stylist community, customers, franchise partners or headquarters personnel. As of the date of this filing, our salons across essentially all geographies are allowed to be open; however, states may again decide to require the closure of salons as the level of COVID-19 positive cases continues to fluctuate, as we have already seen in Canada. Each time we are required to close and re-open salons, we will continue to experience the risks and business impacts described here, and further requirements to again close salons or limit and/or modify services or operations may exacerbate these impacts.

In addition, some of our franchisees, many of whom were in the processearly stages of implementingdeveloping their businesses prior to the onset of the pandemic, have chosen, or may choose, not to resume operation of their salons and/or are facing challenges rehiring employees, reestablishing operations with their landlords and other vendors, and attracting customers back to their salons. As a new strategy, prioritiesresult, many of our franchisees requested reductions or other modifications to their royalty payments or other amounts due to us, which may be critical to their ability to reestablish operations, and initiativesthey may simply be unable or unwilling to make lease, royalty or other payments to us and any inabilitymay be unable to executecontinue to operate or may need to close their salons. The removal or reduction of these payments, including the added expense associated with closed locations where we may have residual lease liability, has continued, and evolve our strategy over time couldis expected to continue, to adversely impact our revenues and cash flows. Customers and employees have been cautious about returning to personal service providers, and we and our franchisees are incurring substantial additional costs to ensure the safety of our employees and customers. Furthermore, as a result of the pandemic, many of our customers have themselves experienced adverse financial impacts, including loss of disposable income, which may limit their spending on personal care, including purchasing of beauty products, or have identified other means for hair care. The trend of increased remote work and utilization of advanced video-conferencing technology has led to a less-formal work environment, which could impact the frequency of our hair care services. In addition, COVID-19 may cause additional workers' compensation claims and customer claims associated with the pandemic. Regarding support for our franchisees, the pandemic could impact workers at our headquarters and/or compromise the performance of our technology center in Fremont, California.

In addition to employment and franchise laws, we are also subject to a wide range of federal, state, provincial and local laws and regulations in the jurisdictions in which we operate, including those affecting public companies, product manufacturing and sale and those governing the franchisee/franchisor relationship. Compliance with new, complex, and changing laws may cause our expenses to increase. In addition, any non-compliance with laws or regulations could result in penalties, fines, product recalls and enforcement actions or otherwise restrict our ability to market certain products or attract or retain employees, which could adversely affect our business, financial condition and results of operations.

Changes to the Beautiful Group ("TBG")U.S., which operates these locationsCanadian and U.K.'s economies have an impact on our business. General economic factors that are beyond our control, such as franchised locations; closed 597 non-performing company-owned SmartStylerecession, inflation, deflation, tax rates and policy, energy costs, unemployment trends, extreme weather patterns, viruses, pandemics, stay-at-home orders and other casualty events that influence consumer confidence and spending, may impact our business. In particular, visitation patterns to our salons (including 8 TGF salons) as part of the operational restructuring of the SmartStyle portfolio;can be adversely impacted by increases in unemployment rates and implemented various initiatives intended to stabilize performancedecreases in discretionary income levels.

Our success depends, in part, on our ability to growanticipate, gauge and react in a timely manner to changes in consumer tastes, hair product innovation, fashion trends and consumer spending patterns. If we do not timely identify and properly respond to evolving trends and changing consumer demands for hair care or services, our franchise model, including attractingsales may decline. As a result of the global COVID-19 pandemic, there has been an increase in remote work and retaining qualified franchisees. We announced plansschooling, which reduces traffic in fiscal year 2017downtowns, city centers, and other business districts where our salons are located and reduces our revenue. Furthermore, we may accumulate additional inventory and be required to expand the franchise side ofmark down unsold inventory to prices that are lower than normal prices, which could adversely impact our margins and could further adversely impact our business, including byfinancial condition and results of operations.

We have been successful in selling our company-owned salons to franchise owners and, as a result, our inability to re-engineer the SmartStyle brand throughoutinfrastructure and reduce our costs in time and in amounts necessary to effectively support a fully-franchised salon portfolio may reduce the U.S. foranticipated economic benefit of the first time. In October 2017, we soldtransformation in the near term.

We are now substantially alldependent on franchise royalties and the overall success of our mall-basedfranchisees' salons. It customarily takes new franchisees time to develop their salons consisting of 858 Regis Salons and MasterCuts locations, and substantially allincrease their sales. Further, a number of our International business to ahistorically successful and more experienced franchisees are onboarding new single franchisee, TBG. Growthsalon operations or recovering from the impacts of COVID-19. This could adversely impact our revenue and developmentprofitability during this next stage of our franchise model is ongoing. During fiscal year 2018, excluding the TBG transactions, new and existing franchisees opened 525 salons, of which 77 were organic and 448 were the sale of a company-owned salon to a franchisee. The potential growth of our franchise model will take time to execute and may create additional costs, expose us to additional legal and compliance risks, cause disruption to our current business and impact our short-term operating results. Further, intransformation. In order to support and enhance services to its franchisees, the Companyour franchisees' businesses, we may need to invest in certain unanticipated new capabilities and/or services.

We are exiting the wholesale distribution model and have entered into preferred supplier agreements with two suppliers. This change will reduce our future revenue and we may incur significant costs related to the transition. In addition, if our new suppliers are unable to a new Presidentsource the products at the prices expected by our franchisees, our franchisees' profitability and Chief Executive Officer, since April 2017 we have appointed a new Presidentour profitability may be adversely impacted. Further, economic instability and other impactful events and circumstances in the regions in which our suppliers and their manufacturers are located (such as in the ongoing COVID-19 pandemic), the financial instability of Franchise, Chief Financial Officer, Chief Marketing Officer, Chief Human Resources Officer, General Counsel, Chief Technology Officer, Senior Vice Presidentour suppliers, our suppliers' failure to meet our terms and conditions or our supplier standards, product safety and quality issues, disruption or delay in the transportation of Merchandiseproducts from our suppliers and Vice President Creative. The process of integrating new talenttheir manufacturers to our salons, transport availability and implementing any new strategies, prioritiescost, transport security, inflation and initiatives involves inherent risks, including timing risks,other factors relating to the suppliers and the changes we implement could harmareas in which they are located are beyond our culture, relationships with customers, franchisees, suppliers, employees or other third parties and may be disruptive to our business. While we believe the pursuit of these changes will have a positive effect on our business in the long term, we cannot provide assurance that these changes will lead to the desired results. If we do not effectively and successfully execute on these changes, it could have a material adverse effect on our business.control.

Guest loyalty is strongly dependent upon the stylists who serve our guests and the customer experience in our company-owned and franchised salons. Qualified, trained stylists are a key to a memorable guest experience that creates loyal customers. In order to profitably grow our business, it is important for our company-owned salons and franchisees to attract, train and retain talented stylists and salon leaders and to adequately staff our salons. Because the salon industry is highly fragmented and comprised of many independent operators, the market for stylists is typically highly competitive. In addition, labor shortages, increases in minimum wage requirements may impact the number of stylists considering careers outside the beauty industry. There is also a low unemployment rate and high competition for employees in the service industry, particularly licensed employees, which drives increased competition for stylists and could result in retention and hiring difficulties. In somemost markets, we and our franchisees have experienced a shortage of qualified stylists.stylists or a reduction in the hours stylist will work. Offering competitive wages, benefits, education, and training programs are important elements to attracting and retaining qualified stylists. In addition, due to challenges facing the for-profit education industry, cosmetology schools including our joint venture EEG, have experienced declines in enrollment, revenues, and profitability in recent years. If the cosmetology school industry sustains further declines in enrollment or some schools close entirely, or if stylists leave the beauty industry, we expect that we and our franchisees would have increased difficulty staffing our salons in some markets. In addition, we have observed that some stylists are not comfortable coming back to the salon environment during the COVID-19 pandemic and the enhanced unemployment amounts provided by the federal government during the COVID-19 pandemic, in some cases, decreases stylists' incentive to come back to work or return to their full workload. If our company-owned salons or franchisees are not successful in attracting, training and retaining

As of June 30, 2018,2021, approximately 50%95.3% of our salons were franchised locations and we intend to expand our number of franchised locations, where we believe it will enhance shareholder value.locations. We derive revenues associated with our franchised locations primarily from royalties service fees and product sales to franchised locations.fees. Our financial results are therefore substantially dependent in part upon the operational and financial success of our franchisees. As a franchise business, we increase our focusare dependent on our franchise business, our dependence on our franchisees grows.franchisees.

We have limited control over how our franchisees’franchisees' businesses are run.operated. Though we have established operational standards and guidelines, theyfranchisees own, operate, and oversee the daily operations of their salon, locations.including employee-related matters and pricing. If franchisees do not successfully operate their salons in compliance with our standards, our brand reputation and image could be harmed, and our financial results could be affected. We could experience greater risks as the scale of our franchise ownersfranchised salons increases. Further, some franchise owners may not successfully execute the rebranding and/or turnaround of under-performing salons whichthat we have transferred to them.them, particularly in the post-COVID environment.

In addition, our franchisees are subject to the same general economic risks as our Company, and their results are influenced by competition for both guests and stylists, market trends, price competition and disruptions in their markets and business operations due to public health issues, including pandemics, severe weather and other external events. Like us, they rely on external vendors for some critical functions and to protect their company data. They may also be limited in their ability to open new locations by an inability to secure adequate financing, especially sincebecause many of them are small businesses with much more limited access to financing than our Company, or by the limited supply of favorable real estate for new salon locations.locations, or by government-mandated restrictions on salon operations due to COVID-19 or other pandemics. They may also experience financial distress as a result of over-leveraging, which could negatively affect our operating results as a result ofdue to delayed paymentsor non-payments to us. The bankruptcy, default, abandonment, or other default or breach by or of a franchisee could also expose us to liability under leases, which are generally sub-leased by us to our franchisees.

A deterioration in the financial results of our franchisees, or a failure of our franchisees to renew their franchise agreements or closure of locations could adversely affect our operating results through decreased royalty payments fees and product revenues.

In addition, challenges in supporting our expanding franchise system could cause our operating results to suffer. If we are unable to effectively select and train new franchisees and support and manage our growing franchisee base, it could affect our brand standards, cause disputes between us and our franchisees, and potentially lead to material liabilities.

On December 31, 2019, we re-acquired certain assets that were used in the transaction from deliveringoperation of the anticipated benefits and enhancing shareholder value.

While we believe the salons transferred back to us have been able to continue operations without any significant disruptions so far, except for the impacts arising out of COVID-19, these salons have experienced significant changes in recent years. As a result, there is a risk of increased levels of employee attrition, customer losses, and supplier interruption. A loss of key personnel or material erosion of the employee base, particularly our stylists, as well as fruition of other risks could adversely affect our results of operations and could diminish the value of the salons in any future transfer of the ownership of these salons untilto new ownership as part of our continued commitment to converting to a fully-franchised model. If we are not able to successfully operate these salons, we may not be able to generate sufficient revenue to cover the endlease liabilities for these salons. As a result, we may be compelled to close certain salons or sell the assets at depressed values. In the meantime, we expect that our operation of their various terms, and we could be required to make payments if TBG fails to do so, which couldthese salons may adversely impact our results of operations or cash flows.

The normal operations of our business and our investments in technology involve processing, transmitting and storing potentially sensitive personal information about our guests, employees, franchisees, vendors and our Company, all of which require the appropriate and secure utilization of such information and subjects us to increased focus regarding our data security compliance. Cyber-attacks, including ransomware, designed to gain access to sensitive information by breaching mission critical systems of large organizations (and their third-party vendors) are constantly evolving and high-profile electronic security breaches leading to unauthorized release of sensitive information have occurred at a number of large U.S. companies in recent years. Furthermore, there has been heightened legislative and regulatory focus on data security in the U.S. and abroad, including requirements for varying levels of customer notification in the event of a data breach. These laws are changing rapidly and vary among jurisdictions. We will continue our efforts to meet any applicable privacy and data security obligations; however, it is possible that certain new obligations may be difficult to meet and could preventincrease our costs. We rely on commercially available systems, software, and tools to provide security for processing, transmitting, and storing of sensitive information. As this risk of cyber-attacks increases, our related insurance premiums may also increase. Despite the transaction from deliveringsecurity measures and processes we have in place, our efforts (and those of our third-party vendors), to protect sensitive guest, employee, franchisee, vendor, and Company information may not be successful in preventing a breach in our systems or detecting and responding to a breach on a timely basis. As a result of a security incident or breach in our systems, our systems could be interrupted or damaged, and/or sensitive information could be accessed by third parties. If that occurred, our guests could lose confidence in our ability to protect their information, which could cause them to stop visiting our salons altogether or our franchisees could exit the anticipated benefitssystem due to lack of confidence. Such events could also lead to lost future sales and shareholder value.adversely affect our results of operations. In addition, as the regulatory environment relating to retailers and other companies' obligations to protect sensitive data becomes stricter, a material failure on our part to comply with applicable regulations could potentially subject us to fines, penalties, other regulatory sanctions, or lawsuits with the possibility of substantial damages. The costs to remediate security incidents or breaches that may occur could be material. Also, as cyber criminals become more frequent, intense, and sophisticated, the costs of proactive defensive measures may increase. Furthermore, while our franchisees are independently responsible for data security at their franchised salon locations, a security incident or breach at a franchised salon location could negatively affect public perception of our brands. More broadly, our incident response preparedness and disaster recovery planning efforts may be inadequate or ill-suited for a security incident and we could suffer disruption of operations or adverse effects to our operating results.

AtAs of June 30, 2018,2021, we had 2,2211,757 SmartStyle or Cost Cutters salons within Walmart locations, including 2 salons opened during fiscal year 2018 (net of relocations).locations. Walmart is by far our largest landlord, and we believe we are Walmart’sWalmart's largest tenant. Our business within each of those 2,2211,757 salons relies primarily on the traffic of visitors to the Walmart in which it is located,location, so our success is tied to Walmart’sWalmart's success in bringing shoppers into their stores. We have limited control over the locations and markets in which we open new SmartStyles,SmartStyle locations, as we only have potential opportunities in locations offered to us by Walmart. Furthermore, Walmart has the right to close up to 100 of our salons per year for any reason, upon payment of certain penalties;penalties, to terminate lease agreements for breach, such as if we failed to conform with required operating hours, subject to a notice and cure period;period, and to terminate the lease if the Walmart store in which it sits is closed. DuringIn fiscal year 2017, we began franchising select SmartStyle branded locations.salons. Future franchising activity will require, and be limited, by the approval of Walmart.Walmart on a location-by-location basis. Walmart may not give its approval to franchise some or all of our company-owned salons. Further, Walmart may attempt to impose changes to the terms and conditions of our agreements, which may be contrary to our economic interests. Operating both company-owned and franchised SmartStylesSmartStyle salons adds complexity in overseeing franchise compliance and coordination with Walmart.

Our future growth and profitability may depend on the effectiveness, efficiency and spending levels of our marketing and advertising efforts to drive awareness and traffic to our salons. In addition, delivering a quality guest experience is crucial in order to drive repeat visits to our salons. We are developing our marketing and advertising strategies, including national and local campaigns, to build awareness, drive interest, consideration and traffic to our salons. We are also focusing on improving guest experiences to provide brand differentiation and preference as well as ensure our guests' needs are met. If our marketing, advertising, and improved guest experience efforts do not generate sufficient customer traffic and repeat visits to our company-owned and franchise-owned salons, our business, financial condition, and results of operations may be adversely affected. Our future growth and profitability may depend on the effectiveness, efficiency and spending levels of our marketing and advertising efforts to drive awareness and traffic to our salons. In addition, delivering a quality guest experience is crucial to drive repeat visits to our salons. We are developing our marketing and advertising strategies, including national and local campaigns, to build awareness and drive interest, consideration and traffic to our salons. We are also focusing on improving guest experiences to provide brand differentiation and preference, and to ensure we meet our guests’ needs.guests' needs are met. If our marketing, advertising, and improved guest experience efforts do not generate sufficient customer traffic and repeat visits to our salons, our business, financial condition, and results of operations may be adversely affected.

Our success is dependent,depends, in large part, uponon our ability to maintain and enhance the value of our brands, our customers’customers' connection to our brands and a positive relationship with our franchisees. Declining franchisee revenue reduces the advertising funds available to invest in the brands and a decline in the Company's investment in its brands could reduce brand awareness and the overall value of our brands. Brand value can be severely damaged even by isolated incidents, particularly if the incidents receive considerable negative publicity, including via social media or if they result in litigation. Some of these incidents may relate to the way we manage our relationshiprelationships with our franchisees, our growth strategies, our development efforts or the ordinary course of our, or our franchisees’,franchisees' business. Other incidents may arise from events that are or may be beyond our ability to control and may damage our brands, such as actions taken (or not taken) by one or more franchisees or their employees relating to health, safety, welfare or otherwise;otherwise, litigation and claims;claims, security breaches or other fraudulent activities associated with our back-office management or payment systems;systems, and illegal activity targeted at us or others. Consumer demand for our products and services and our brands’brands' value could diminish significantly if any such incidents or other matters erode consumer confidence in us or our products or services, which would likelyservices. This could result in lower sales and, ultimately, lower royalty income, which in turn could materially and adversely affect our business and operating results.