European Wax Center, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the European WAC Center Second Quarter Fiscal Year 2021 Earnings Results Conference Call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star then one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then zero. I would now like to introduce your first speaker for today, Amir Yoganaju, Vice President of Financial Planning and Investor Relations. You may begin.

Thank you and welcome to European WAC Center's second quarter fiscal year 2021 earnings call. With me today are David Berg, Chief Executive Officer, David Willis, Chief Operating Officer, and Jennifer Vanderbilt, Chief Financial Officer. For today's call, David Berg will begin with a review of our mission, positioning, and strategy, followed by highlights of our second quarter performance. Then Jennifer will provide additional details regarding our financial performance and introduce our guidance. After prepared comments, David Berg, David Willis, Jennifer Vanderbilt, and I will be available to take questions you have for us today. Before we start, I would like to remind you of our legal disclaimer. We will make certain statements today which are forward-looking within the meaning of the federal security law, including statements about the outlook of our business and other matters referenced in our earnings release issued today. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings as well as our earnings release issued today for a more detailed description of the risk factors that may affect our results. Please also note that these forward-looking statements reflect our opinions only as of the date of this call, and we take no obligations to revise or publicly release the results of any revision to our forward-looking statements in light of new information or future events. Also during this call, we will discuss non-GAAP financial measures which adjust our GAAP results to eliminate the impact of certain items. You will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP to GAAP measures in our earnings release. A live broadcast of this call is also available on the investor relations section of our website at investors.waxcenter.com. I will now turn the call over to David Berg.

Thank you, Mayor, and good afternoon, everyone. I am thrilled to speak with you all on our first call as a public company. As the leader in the out-of-home waxing category, European Wax Center's purpose is to make our guests feel great about themselves. Since 2004, we've delivered a trusted, efficacious, and accessible service to our guests by providing a consistent and unparalleled experience through our extensively trained wax specialists, our stringent hygiene protocols, and our proprietary comfort wax. These differentiators in our operating model keep our guests coming back on a recurring basis. For EWC, the sustainability of our business model has produced a compelling growth algorithm, giving us confidence that we can deliver low double-digit revenue growth and low to mid-teen adjusted EBITDA growth in the future. Becoming a public company represents a significant milestone for us as it further empowers us to expand our leadership position for the benefit of all of our stakeholders. We are excited to share our company's history, to discuss the category we operate in, and to explain why we believe we are poised for sustainable, profitable growth in the future. I want to thank the entire European Wax Organization, our franchisees, our wax specialists, and all of our associates for their dedication and passion for driving our business and their relentless focus on delighting our guests. Their combined efforts have allowed us to deliver a track record of consistent growth and succeed even in the face of a pandemic, while providing us with a unique and powerful platform to continue our success in both the near and long term. And to our guests, I also say thank you for trusting us to be your out-of-home hair removal brand of choice. As you saw in our earnings release, we delivered strong second quarter results that highlighted growth across all key financial metrics. Our second quarter performance accelerated significantly from the first quarter, even as the COVID-19 pandemic continues to create some consumer uncertainty. Results surpassed the expectations we shared in our prospectus filed with the SEC on August 6th and included triple-digit revenue growth from the second quarter last year and double-digit growth from 2019. We have achieved consistent double-digit growth through both favorable and unfavorable economic conditions, evidencing our guests' belief that our services are a non-discretionary and recurring part of their personal care and beauty regimens. Offering a non-discretionary consumer service creates a highly predictable and growing recurring revenue model. In the second quarter, we saw an acceleration in guest visits following last year's temporary closures and the easing of mask mandates. driven by a 35% increase in transaction count compared to the first quarter of 2021. As EWC continues capturing market share, we are excited to see the trend of positive new guest count with second quarter 2021 growing by 58% compared to first quarter of 2021. This sequential quarter over quarter improvement speaks to the resilience and growing awareness of our brand. Before I share more of the quarter's highlights, for those of you new to the European wax story, I'll take a moment to share what makes our company unique. First and foremost, we created and remain the leader in the category of out-of-home waxing. The entire executive team and I were attracted to EWC as we saw the same opportunity as the EWC founders sought to unlock in 2004 in the industry of out-of-home waxing. when they realized that waxing was an essential and recurring service often performed in salons as an afterthought. They introduced a consistently high standard of professionalism by creating a business concept solely focused on the wax experience. The current management team has set the company on a path to unlock the true potential of European Wax Center with an asset-light, replicable, high-growth franchise model. Today our focus continues to be solely on waxing. Our people are experts at it and our training is second to none. The quality, consistency, and trust of a wax service at a European wax center makes a difference. Our services are affordable, safe, effective, and efficient. Our average service takes approximately 15 minutes to complete and our wax specialists become more consistent and efficient at completing these services over time. allowing us to optimize the productivity of our WAC suites to the benefit of both franchisees and our guests. Quite frankly, we deliver a value proposition that is tough to compete against. We start with a differentiated brand experience. Every visit, every guest, in every center. Our revenues are recurring because the need for hair removal is recurring. And the investments we have made at corporate are driving rapid unit growth by our franchisees. Our scale also allows us to invest in technological enhancements that drive a better customer experience. Our ability to continue innovating and simplifying the guest experience in our centers further differentiates us from mom and pop competitors who simply are not able to invest like we are. The franchise model allows us to be asset light and generate significant cash flow to then further reinvest in the business and the brand, and to evaluate opportunities to return shareholder value. For any franchise model to succeed, franchisees must see predictability in unit-level performance and ultimately make a great return on their investment. EWC does just that, evidenced by the natural demand from existing franchisees to continue supporting our growth. Second, we operate in a large and growing market. The addressable market for hair removal in the United States is $18 billion. And within that, the out-of-home waxing opportunity is $6 billion and growing at more than two times the rate of the total market. Out-of-home waxing is clearly the preferred consumer choice for hair removal. Today, European Wax Center is just a little over 10% of that out-of-home waxing market and 4% of the overall hair removal market. Importantly, the out-of-home waxing market is highly fragmented, with nearly 99% of the service providers today who are mom and pops that either operate standalone waxing locations or provide waxing services at a salon. As the category leader in this highly fragmented market, EWC is able to invest in the guest experience and in technology-enabled enhancements to that experience in ways that the competition cannot. As such, our scale and strong free cash flow creates an enviable competitive moat from which we continue to expand. Third, we have significant room for expansion. At quarter end, we had 259 franchisees who owned 810 centers, while we own five corporate centers across 44 states where we operate. And our pipeline for new unit growth is robust. Longer term, we see the potential to expand to more than 3,000 centers in our standard format in the United States and have set a target to grow new center openings in the range of 7% to 10% of our total base per year. EWC's unit economics are impressive and enable franchisees to achieve sustained annual cash on cash returns of 60% at maturity, which occurs at year five. Our centers require a modest upfront investment and follow a highly predictable maturation curve across cohorts and geographies, providing our franchisees and us as franchisor with a high degree of visibility into the embedded earnings potential of newly open centers. Due to the attractiveness of this return profile and the consistency with which these returns have been achieved across center cohorts, we are now receiving meaningful interest from sophisticated multi-unit operators and well-capitalized mid-market private equity firms who want to grow with us. As a result, we continue to aggressively build out a strong pipeline of committed future center openings. We have strategically identified our top 25 DMAs for growth, and we already operate at least one EWC location across 75% of all of our growth markets in the U.S. Fourth, We have a predictable business model. We have a strong pipeline of new centers from which to expand. Current franchisee operators are opening the majority of our new centers, and our centers have seen consistent performance across the U.S. Another proof point is that our same-store sales have consistently been in the high single-digit or low double-digit range with 10 consecutive years of positive same-store sales growth through 2019. We have high guest retention, and we encourage guests to schedule future visits regularly while rewarding them for participation in our prepaid Wax Pass program that provides an economically attractive bundling for our guests and ensures a pipeline of future guest visits for our franchisees. Our Wax Pass utilization, or percentage of service transactions that include a Wax Pass redemption, approximates 60%. We also know guests are highly satisfied and devoted to EWC by the continued strength of our net promoter score. And we are so confident in our ability to delight that we will always promise all of our guests that their first wax is free. Now let's turn to a review of our second quarter results. Our accomplishments reflect the continued execution of our strategy against our two focused growth priorities. First, drive sustained same-store sales growth, and second, grow our national footprint across new and existing markets. Driving these two growth vectors will naturally expand our profit margins and generate robust free cash flow given the asset-light positioning of our brand. In our second quarter, we are pleased to have made significant progress on each of these priorities. Given that the majority of our centers were temporarily closed for a portion of 2020 due to pandemic restrictions, I will focus my Q2 performance commentary on the sequential growth from Q1 2021 and the pre-pandemic comparative growth to Q2 2019. In regard to our first priority, we demonstrated significant sequential improvement in our top line revenues supported by strong system-wide and same-store sales versus the first quarter of this year, as well as compared to the second quarter of 2019. Specifically, total EWC revenue rose by 31% relative to Q1 2021 and by 11% over the second quarter of 2019. Our strong top-line performance was driven by favorable system-wide sales up 39% relative to Q1 2021, and 15% over the second quarter of 2019, as well as by same-store sales, which increased 13 percentage points from the first quarter of 2021, delivering a Q2 comparable of positive 6.9% from the second quarter of 2019. Our overall same-store sales were strong, even as California lagged other geographies given more stringent health mandates during COVID and a tight labor market, partly attributed to a delay in processing of cosmetology licenses. For purposes of providing investor clarity around our performance during this period, we think it is helpful to highlight that California negatively impacted our same-store sales in Q221 by 500 basis points. Thus, In our other 43 states, excluding California, we generated positive same-store sales of 11.9% in Q2 relative to Q2 2019. As we said when we spoke to you on the roadshow, we remain very pleased with the guest demand side of our business, and we continue to monitor labor-based supply constraints across our network in the short term. Our same store sale increase in the period was driven by higher overall transaction values as mask mandates led to a mixed shift favoring higher priced body services, such as leg, bikini, and Brazilian waxes versus facial services. We see great loyalty from guests who continue to come for their body services, and we believe there are still some sideline guests who return to their regular routines when the pandemic-related mask mandates abate. Overall product sales were also strong for the quarter, rising 15% relative to the second quarter of 2019. We are seeing success from the launch of our new retail product line in April and remain focused on driving continued productivity. We have enhanced our operational playbooks to focus on consultative selling that makes it easier for our WAC specialists and our guest service associates to attach retail products to our guest service visits. As it relates to our second priority, we grew our national footprint by adding 41 net new centers from the second quarter of 2020 and 81 from the second quarter of 2019. Our pipeline continues to be robust and we remain on track to open 52 net new centers this year. As a result of delivering on our two growth vectors, we expanded our profitability and delivered strong free cash flow. Operating profit grew to 12.4 million up significantly from the $7.6 million in the second quarter of 2019. As we said when we spoke to you on the Roadshow, we remain very pleased with the favorable guest demand for our services and the sequential growth of our same-store sales performance that will continue into Q3. In summary, we remain incredibly excited about the partnership we have with our amazing franchisees and our guests' confidence in our brand. and in our opportunity to continue to build on our success as the leader in the out-of-home waxing category. We expect that our focused execution will continue to drive double-digit growth for the benefit of all of our shareholders. And now I'd like to turn the call over to Jennifer Vanderbilt, our Chief Financial Officer, to review our second quarter performance and outlook in more detail. Jen, over to you.