European Wax Center, Inc.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the European WAC Center's third quarter fiscal year 2021 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a Q&A session. In order to facilitate as many participants as possible, we ask that you please limit yourself to one question and one follow-up during the Q&A session. If you have additional questions, you may rejoin the queue. If you have any further assistance, please press star then zero. At this time, I would like to turn the conference over to Amir Yeganaju, Vice President of Financial Planning and Investor Relations. Sir, you may begin.

Thank you and welcome to European WAC Center's third quarter fiscal year 21 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 third quarter performance and highlight the accomplishments toward our strategy. Then Jennifer will provide additional details regarding our financial performance and guidance. Following our prepared remarks, 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 laws, 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 obligation 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, Amir, and good afternoon, everyone. Thank you for joining us today. I'm excited to speak with you and share our strong third quarter performance. It is clear from our results both this quarter and year to date that our long-term business strategy is delivering. Our brand, which is synonymous with trust, accessibility, and best-in-class customer service resonates with our guests. Combined with our asset-light business model, which delivers capital-efficient growth and significant free cash flow, we have a powerful platform that enables ongoing sales growth and margin expansion, consistent with the long-term targets we shared with you at the time of our IPO a couple of months ago. As a result of the strong momentum we're seeing in our centers, we are very pleased to raise our top and bottom-line outlook for fiscal year 2021. which Jennifer will cover on the second half of today's call. Regarding the third quarter, Jennifer and I will both refer to certain growth rates versus the same period of 2019, as we believe this is a more accurate depiction for comparison purposes, given that a majority of our centers were temporarily closed for a portion of 2020 due to pandemic restrictions. Briefly touching on some of the highlights in the third quarter. Let me first remind you that our top-line growth is fueled by two priorities, sales at existing centers and continued new center openings. Our third quarter results demonstrate that we continue to deliver on both of these growth vectors. System-wide sales rose 21 percent in 2-3-2021 over 2019. Same-store sales increased 10.6 percent, which represents a significant and continued sequential acceleration. Since Q1 of this year, we have generated a 16.8 percentage point increase in same-store sales, from negative 6.2 percent in Q1 to positive 6.9 percent in Q2 and positive 10.6 percent in Q3. And as we look ahead to Q4, we expect another quarter of sequential improvement and double-digit same-store sales growth versus 2019. Turning to new center openings, We accelerated our pace sequentially with 18 net new centers opened in the quarter. We ended the period with 833 total centers, and we are raising our fiscal 2021 outlook for net openings to 57 from 52 due to favorable development timing. During the third quarter, we continue to build out our new center pipeline. Our franchise network has incredible brand loyalty. In fact, nearly all of our licenses for centers to be developed are with our existing franchise partners, and over half are associated with multi-unit development agreements. The depth of our multi-year pipeline, coupled with the overwhelming interest from existing franchisees, sophisticated multi-unit operators, and well-capitalized mid-market private equity firms gives us confidence in addressing our white space as we work towards our long-term goal of 3,000 centers across the United States. Finally, in Q3, we grew adjusted EBITDA by 39% versus 2019 to $16.5 million and generated strong operating cash flow. Let me spend a minute and turn to the drivers of our sales and profit performance. European WAC Center continues to benefit from increased loyalty and heightened awareness, which was fueled by more than a 30% increase in new guests versus the third quarter of 2019. These new guests are purchasing Wax Passes at a healthy rate. In fact, Q3 Wax Pass sales, less redemptions, more than doubled versus the third quarter of 2019. As a reminder, approximately 60% of our service transactions include a Wax Pass redemption. Therefore, we view Wax Pass sales as a leading indicator of the future strength of our business and are very encouraged about our current momentum. Retention rates accelerated in Q3 as well, which also speaks to the quality of guests we are acquiring. We believe strong acquisition and retention reflect the trust we have built with guests for providing a consistent, positive experience through our expertly trained wax specialists and the utilization of our proprietary comfort wax in a clean, safe environment across our 800-plus centers in the United States. Our same-store sales increase continued to be driven by higher transaction values, primarily due to service mix and an increase in service prices implemented earlier in 2021. We believe that pandemic-related mask mandates led to a mix shift, favoring higher-priced body services such as leg, bikini, and Brazilian waxes versus facial services. We see great loyalty from our guests who continue to come for their body services and And we believe there are still some sidelined guests who will return to their routines when the pandemic restrictions abate. Within our same-store sales base, we have seen transactions improve sequentially since Q1 of this year and are encouraged by these trends. We are monitoring the pandemic's impact, including variants and mask and vaccination mandates, while continuing to uphold rigorous safety and hygiene standards. Same-store sales of 10.6% were strong, even as California continues to lag other geographies due to the more stringent COVID-related mandates and associated labor tightening. As a result, our California centers were a 470 basis point drag on same-store sales in Q3, slightly better than the 500 basis point drag in Q2. Excluding California, our remaining 43 states generated 15.3% positive same-store sales in Q3 2021 relative to Q3 of 2019. And all of our cohorts performed well on a two-year basis, once again demonstrating the strength of our brand across the country. On the labor front, while we are not yet back to optimal staffing levels everywhere, we are starting to see some improvement in the availability of WAC specialists. As we shared during our Q2 earnings call, we launched several initiatives, including virtual job fairs and a recruitment campaign to drive awareness for European WAC Center as the preferred place to have a career as a WAC specialist. Most of our California-based franchisees have begun to see traction in their hiring efforts, and we will continue to monitor and report out until California's performance catches up with the balance of our network. Product sales were also strong for the quarter, rising 25% relative to the third quarter of 2019. You will recall that product sales are comprised of selling both our comfort wax and our proprietary retail products into our growing franchise base. Therefore, our product sales, like our royalty fees, are a recurring stream of revenue. We have enhanced our operational playbook to focus on consultative selling that makes it easier for our WAC specialists and guest service associates to attach retail products to our guest service visits. We remain pleased with the strong launch of our new retail product that launched in April of this year, and we recently released two new products at the beginning of this quarter, fourth quarter, that we are really excited about. These products treat some of our guests' biggest concerns, the appearance of discoloration and irritations. in an ingrown hair serum formula they know and love. On the marketing front, we are excited to have launched our new EWC loyalty program known as EWC Rewards in the latter half of October. The program enables guests to earn reward points for spending on European Wax Center's products and services, for referring a friend, for rebooking in person at a center, and then allows them to redeem those points for discounts on future visits. Compared to our previous program, Guests can earn reward points faster and enjoy an enhanced app and digital experience. EWC Rewards is a more aspirational program that will create a higher reward visibility and therefore guest engagement. Over time, we will develop a more robust guest profile which should, in turn, facilitate a more personalized guest experience and drive increased guest visits and transaction value. Finally, on the technology front, we remain focused on providing our franchise operators with the tools to connect more closely with guests and ensure a seamless experience. In October, we launched a new app that provides guests more visibility to reward points, convenience-added features like QuickBook for frequent services, self-check-in, and digitalization of primary guest forms that reduces the need for paper and creates a contactless environment. We expect these enhancements to allow our franchisees to more efficiently serve our guests and ultimately increase center productivity. In summary, we are pleased with the performance of our business and equally excited about the opportunities that lie ahead to capitalize on our leadership position in the out-of-home waxing category. We are monitoring the potential impacts created by the pandemic, especially as it relates to our centers in California. Higher freight costs and supply chain disruptions are also impacting much of the globe. However, our service-focused offering helps mitigate many of these challenges. We will continue to monitor and adjust our business as appropriate, proactively implementing our plans with a keen eye toward mitigation strategies. We are fortunate to operate a business that has proven strength in various economic environments. Our guests view waxing as non-discretionary. That translates to a recurring revenue stream for our network. We have a strong pipeline of centers to provide for our continued expansion and a team that is dedicated to delivering the superior guest experience for which we are known. And we continue to innovate our offering to increase guest loyalty and engagement, making it easier for our guests to find us and book services, increase product purchases, and drive repeat visits. Overall, we expect the continued implementation of our focused and proven strategy to to lead to increased value for all stakeholders. And now, I'd like to turn the call over to Jennifer to review our third quarter performance and outlook in more detail. Jen, over to you.