MNLX Miniluxe Holding Corp

MiniLuxe Holding Corp. (TSXV: MNLX) today announced its financial results for the 13 weeks ended October 1, 2023 (“Q3 2023”) and the 39 weeks ended October 1, 2023 (“YTD Q3 2023”). The fiscal year of MiniLuxe is a 52-week reporting cycle ending on the Sunday closest to December 31, which periodically necessitates a fiscal year of 53 weeks. FY2022 consisted of a 53-week period while all other fiscal years referred to in this release consist of 52-week periods. All quarters referred to in this release consist of 13-week periods. Unless otherwise specified, all amounts are reported in U.S. dollars.

MiniLuxe is pleased to announce continued double-digit growth in year-over-year (“YoY”) revenue as well as positive traction in cost containment initiatives. Total revenue for Q3 2023 came in at $6.4M representing 15% YoY growth. MiniLuxe’s Core Studios (19 MiniLuxe studios that are 1+ year-old) also achieved 24% same-store organic growth from pre-pandemic (2019) levels, demonstrating the resiliency of the brand and client demand against a less than favorable macro-economic environment. Notably, this YoY growth is attributed to an increase in the volume of transactions and growth in consumer preferences for premium MiniLuxe services, not to price increases. Overall, average unit volume growth in studios remained strong with over 25% of Core Studios achieving revenue levels of over $1,000 / per square foot on a trailing twelve-month basis. Since the end of 2021 (MiniLuxe’s public offering on the TSX Venture Exchange), the company on a trailing twelve-month basis has seen each quarter an average of 5% quarter-over-quarter growth. Contributing to the revenue growth has been the growth of MiniLuxe’s loyal customers with a 7% YoY increase in those customers with ten or more visits per year.

In addition to robust Q3 2023 revenue, the company underwent significant cost reduction and reconfiguration during the quarter. Such efforts, which included reductions in SG&A personnel and non-labor overhead changes, have resulted in a pro-forma savings of more than 30% relative to prior run-rate levels. The timing of realizing the full savings of such changes is impacted in part by contractual agreements (more detail below). The Company commits to continue to look at ways to create greater cost-efficiencies and fixed cost leverage while maintaining brand and client standards. MiniLuxe focuses on growth in gross profit as an indicator in progress to cashflow positive operations. Gross profit for the quarter increased 5% over prior year at $2.6M.

Per a concurrent release with this Third Quarter Earnings release, MiniLuxe completed and closed on a first set of commitments for funding under a convertible debenture. On November 8, 2023 MiniLuxe filed with the TSX Venture Exchange its application to raise capital via an offering of a convertible note with the following key terms: 11.5% simple, paid-in-kind interest, 15% warrant coverage at a strike price of $0.52 (~C$0.70) for an amount up to $10M. As of this release, the Company has signed indications of interest commitments for ~$3.5M and completed a first closing of ~$2.5M.

The Company believes that the significant premium of the strike price of the warrants relative to the 30-day volume-weighted average price of the Company's class A subordinate voting shares is indicative of investor interest in the intrinsic and future value creation potential of MiniLuxe's business. The Company intends to use the gross proceeds of the Offering to bridge to profitability, while focusing on a narrower set of growth investments in the areas of fleet expansion via M&A and franchising and recent product innovation of its Paintbox press-on nails.   All nominated board members are participating in this financing and overall dilution to existing shareholders is under 6% if conversion occurs at 24 months and ~6.6% if conversion occurs at the end of term (42 months). If all warrants were exercised, an incremental US$0.5M would be received by the company. Above and beyond the initial closing of the Offering, the Company will evaluate and potentially close, on a rolling basis, additional tranches of the Offering (above and beyond the amount that it has committed) as it deems strategic based on needs and fit with prospective investors for up to $10M in gross proceeds.

Leadership transition completed in Q3 2023During Q3, MiniLuxe completed the transition of the business’s CEO leadership from Ms. Zoe Krislock to Company Co-Founder and Chairman of the Board of Directors Mr. Anthony Tjan. Mr. Tjan put forth three key priorities for the business (listed below). Related to the material reduction in SG&A costs, all contractual severance related to such reductions is being fully recognized in Q3 (even though from a cash standpoint such severance and continuity payments will be paid out over time). Former CEO Ms. Krislock will be exercising a portion of her vested options. Subsequent to this transition, additional personnel changes were implemented as part of a reconfiguration of the SG&A and commitment to move the business on a more accelerated path to profitability. Key actions taken since the transition include:

Accelerating business contribution

• Studio level focus on key performance indicators including peak day staffing, high-margin premium service mix and control of indirect labor.
• Narrower product focus, including on Paintbox Press-on launch, with highly targeted ROI-focused marketing efforts and a push for scalable wholesale channels

Material cost reduction

• Internal review of all SG&A, leading to an approximate one-third reduction on a pro-forma basis
• Realignment of compensation for certain members of company leadership that is more EBITDA-weighted in terms of qualifying criteria (for future performance-based bonuses) and more equity focused in terms of the form of remuneration.

Financial and human capital strategies

• First closing of convertible bridge note (described above);
• New independent member, Kelley Morrell of Wonder and formerly of Blackstone, appointed to the Board of Directors bringing deep financial and investment acumen; and
• Sean Bock, formerly head of franchising for Dry Bar, added to the team to focus on franchising as a capital-light growth path for studio expansion

Franchising as an expansion pathMiniLuxe has continued to receive interest from outside parties in exploring franchising opportunities with the Company. Given the on-going brand resiliency, growing unit revenue levels for MiniLuxe in-studio service offerings, and opportunity for strong cash-on-cash returns on build-out investments, the Company is investing in the design and development of a franchise program. MiniLuxe has recently retained Sean Bock, a longstanding executive head of franchise development for service retail brands, including Dry Bar and Hey Day. Mr. Bock will serve as MiniLuxe’s Franchise Development Officer and will partner with Company management and the Board to launch a franchising model that has the long-term potential to create capital-light scaled expansion. Efforts to prepare for franchising will begin in 2024. In addition, Mr. Bock will also support the Company’s efforts on any acquisitive conversions (acquisitions of other nail care locations to be converted into MiniLuxe branded units).

Outlook to Remainder of 2023 and 2024 PlanningWith greater rationalization of its cost base and highly-focused initiatives to increase studio-level profitability, MiniLuxe anticipates positive growth in studio-level revenue, gross profit and EBITDA through the balance of 2023 and 2024. As the studio business represents ongoing potential for increased contribution, efforts through 2024 will focus on acceleration of Fleet EBITDA (see “Non-IFRS Measures”). In addition, the Company will explore and take on the most optimal strategy to expand the overall fleet through either through expansion partnerships and/or capital light strategies (e.g., franchising or studio partners)

MiniLuxe’s Board and Executive Team are focused on delivering a plan to achieve long-term cashflow generative operations by:

• Continued compounding of studio economics, particularly Fleet EBITDA, across the Core Studios
• Realigning the cost base to achieve greater fixed cost leverage
• Identifying and executing on a more narrowly-focused set of growth investments that have breakout growth potential, including exploring the potential of the Paintbox acquired product assets and their recently launch ready-to-wear nail art press-ons

“While the macro-economic environment still presents challenges and that there is no shortage of opportunities for areas of improvement, the core base studio business of MiniLuxe and recent positive trends on our product business are good indicators of our long-term value creation potential. Our focus going into 2024 is to compound the cash contribution from our base business, while making the right focused bets on products, partnerships and accretive M&A. We’ve seen a number of inbound opportunities and pleased that we were able to complete a financing from new and existing investors that give us the ability to execute on our top priorities.” said Tony Tjan, Chief Executive Officer and Co-founder of MiniLuxe.

Q3 2023 Financial Highlights

• Total revenue for the quarter of $6.4M, a YoY increase of 15%
• Gross profit of $2.6M, a 5% increase from prior year
• Full Company Adjusted EBITDA of ($2.6M) compared to ($3.0M) for Q3 2022; decreased loss attributable to lower SG&A and initial commencement of fixed cost leverage
• Fleet Adjusted EBITDA of $0.4M, approx. $60K lower than prior year

YTD Q3 2023 Financial Highlights

• Total revenue of $18.0M, a YoY increase of 16%
• Core Studios revenue growth of 12% YoY on same-store basis
• Gross profit of $7.5M, a 5% increase from prior year
• Full Company Adjusted EBITDA of ($7.4M) compared to ($7.7M) for YTD Q3 2022; favorable variance due to lower SG&A and initial commencement of fixed cost leverage
• Fleet Adjusted EBITDA of $1.0M, in line with prior year

Other Items of Note – New Studios

• During Q2 2023, the Company completed construction and commenced operations in a new studio location in downtown Tampa Bay, Florida  
• During H1 2023, the Company signed a lease to open a new studio in Dedham, Massachusetts at the Legacy Place which is controlled by WS Development. This opening was announced in a recent news release

Q3 and YTD Q3 2023 Results

Selected Financial Measures

MiniLuxe notes a change in accounting policy to more accurately reflect revenue generated from talent and product revenue streams to more align with how management analyzes the Company. The change has been retrospectively applied and does not have any effect on revenue recognition principles utilized or total overall revenue recognized.

Results of Operations

The following table outlines the consolidated statements of loss and comprehensive loss for the fiscal quarters and year-to-date periods ended October 1, 2023, and September 25, 2022:

Cash Flows

The following table presents cash and cash equivalents as at October 1, 2023 and June 26, 2022:

Non-IFRS Measures and Reconciliation of Non-IFRS Measures

This press release references certain non-IFRS measures used by management. These measures are not recognized under International Financial Reporting Standards (“IFRS”), do not have a standardized meaning prescribed by IFRS, and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of the Company’s results of operations from management’s perspective. Accordingly, these measures should not be considered in isolation nor as a substitute for analysis of the Company’s financial information reported under IFRS. The non-IFRS measures referred to in this press release are “Adjusted EBITDA” and “Fleet Adjusted EBITDA”.

Adjusted EBITDA

Adjusted EBITDA is used by management as a supplemental measure to review and assess operating performance. Management believes Adjusted EBITDA most accurately reflects the commercial reality of the Company's operations on an ongoing basis by adding back non-cash expenses. Additionally, the rent-related adjustments ensure that studio-related expenses align with revenue generated over the corresponding time periods.

Adjusted EBITDA is calculated by adding back fixed asset depreciation, right-of-use asset depreciation under IFRS 16, asset disposal, and share-based compensation expense to IFRS operating income, then deducting straight-line rent expenses1 net of lease abatements. IFRS operating income is revenue less cost of sales (gross profit), additionally adjusted for general and administrative expenses, and depreciation and amortization expense.

The Company also uses Fleet Adjusted EBITDA to evaluate its fleet performance. This metric is calculated in a similar manner, starting with Talent revenue and adjusting for non-fleet Talent revenue and cost of sales, further adjusted by fleet SG&A and finally subtracting the same straight line rent expense used in the full company Adjusted EBITDA (as the fleet holds all real estate leases). The Company believes that this metric most closely mirrors how management views the fleet portion of the business, as it more accurately correlates to cash flow dynamics.

The following table reconciles Adjusted EBITDA to net loss for the periods indicated:

The following table reconciles Fleet Adjusted EBITDA to net loss for the periods indicated:

About MiniLuxe

MiniLuxe, a Delaware corporation based in Boston, Massachusetts. Miniluxe is a lifestyle brand and talent empowerment platform servicing the beauty and self-care industry. The Company focuses on delivering high-quality nail care and esthetic services and offers a suite of trusted proprietary products that are used in the Company’s owned-and-operated studio services. For over a decade, MiniLuxe has been elevating industry standards through healthier, ultra-hygienic services, a modern design esthetic, socially responsible labor practices, and better-for-you, cleaner products. MiniLuxe’s aims to radically transform a highly fragmented and under-regulated self-care and nail care industry through its brand, standards, and technology platform that collectively enable better talent and client experiences. For its clients, MiniLuxe offers best-in-class self-care services and better-for-you products, and for nail care and beauty professionals, MiniLuxe seeks to become the employer of choice. In addition to creating long-term durable economic returns for our stakeholders, the brand seeks to positively impact and empower one of the most diverse and largest hourly worker segments through professional development and certification, economic mobility, and company ownership opportunities (e.g., equity participation and future franchise opportunities). Since its inception, MiniLuxe has performed over 3.5 million services.

For further information

Christine MastrangeloInvestor Relations, MiniLuxe Holding Corp.cmastrangelo@miniluxe.comminiluxe.com

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Forward-looking statements

This press release contains "forward-looking information" and "forward-looking statements" (collectively, "forward-looking information") concerning the Company and its subsidiaries within the meaning of applicable securities laws. Forward-looking information may relate to the future financial outlook and anticipated events or results of the Company and may include information regarding the Company's financial position, business strategy, growth strategies, acquisition prospects and plans, addressable markets, budgets, operations, financial results, taxes, dividend policy, plans and objectives. Particularly, information regarding the Company's expectations of future results, performance, achievements, prospects or opportunities or the markets in which the Company operates is forward-looking information. In some cases, forward-looking information can be identified by the use of forward-looking terminology such as "plans", "targets", "expects", "budgets", "scheduled", "estimates", "outlook", "forecasts", "projects", "prospects", "strategy", "intends", "anticipates", "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might", or "will" occur. In addition, any statements that refer to expectations, intentions, projections or other characterizations of future events or circumstances contain forward-looking information. Statements containing forward-looking information are not historical facts but instead represent management's expectations, estimates and projections regarding future events or circumstances.

Many factors could cause the Company's actual results, performance, or achievements to be materially different from any future results, performance, or achievements that may be expressed or implied by such forward-looking information, including, without limitation, those listed in the "Risk Factors" section of the Company's filing statement dated November 9, 2021. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results, performance, or achievements could vary materially from those expressed or implied by the forward-looking statements contained in this press release.

Forward-looking information, by its nature, is based on the Company's opinions, estimates and assumptions in light of management's experience and perception of historical trends, current conditions and expected future developments, as well as other factors that the Company currently believes are appropriate and reasonable in the circumstances. Those factors should not be construed as exhaustive. Despite a careful process to prepare and review forward-looking information, there can be no assurance that the underlying opinions, estimates and assumptions will prove to be correct. These factors should be considered carefully, and readers should not place undue reliance on the forward-looking information. Although the Company bases its forward-looking information on assumptions that it believes were reasonable when made, which include, but are not limited to, assumptions with respect to the Company's future growth potential, results of operations, future prospects and opportunities, execution of the Company's business strategy, there being no material variations in the current tax and regulatory environments, future levels of indebtedness and current economic conditions remaining unchanged, the Company cautions readers that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which the Company operates may differ materially from the forward-looking statements contained in this press release. In addition, even if the Company's results of operations, financial condition and liquidity, and the development of the industry in which it operates are consistent with the forward-looking information contained in this press release, those results or developments may not be indicative of results or developments in subsequent periods.

Although the Company has attempted to identify important risk factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other risk factors not presently known to the Company or that the Company presently believes are not material that could also cause actual results or future events to differ materially from those expressed in such forward-looking information. There can be no assurance that such information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, readers should not place undue reliance on forward-looking information, which speaks only as of the date made (or as of the date they are otherwise stated to be made). Any forward-looking statement that is made in this press release speaks only as of the date of such statement.

1Straight-line rent expense for a given payment period is calculated by dividing the sum of all payments over the life of the lease (the figure used in the present value calculation of the right-of-use asset) by the number of payment periods (typically months). This number is then annualized by adding the rent expenses calculated for the payment periods that comprise each fiscal year. For leases signed mid-year, the total straight-line rent expense calculation applies the new lease terms only to the payment periods after the signing of the new lease.