European Wax Center, Inc.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the European WAC Center's fourth quarter fiscal year 2021 earnings call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer 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. If you have additional questions, you may rejoin the queue. At this time, I would like to turn the conference over to Amir Yoganaju, Senior Vice President of Financial Planning and Investor Relations. Sir, you may begin.

Thank you and welcome to European Wax Center's fourth quarter and fiscal year 21 earnings call. With me today are David Berg, Chief Executive Officer, David Willis, Chief Financial and Chief Operating Officer. For today's call, David Berg will begin with a brief review of our fourth quarter and full year performance, highlight our fiscal 21 accomplishments, and discuss the priorities we are focused on as we begin fiscal 22. Then David Willis will provide additional details regarding our financial performance, our capital allocation priorities, including the recapitalization announced today, and our guidance. Following our prepared remarks, David Berg, David Willis, 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 securities 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 at investor relations section of our website at investors.waxcenter.com. I will now turn the call over to David Burt.

Thank you, Amir, and good afternoon, everyone. Thank you for joining us today. The positive momentum in our business exiting in the fourth quarter marked a strong finish to an outstanding year of growth for European Wax Center. Even with the uptick of COVID cases beginning in late November that temporarily constrained labor in certain centers, We exceeded key financial objectives for the past year and advanced our growth initiatives, in turn driving record total revenue and profitability. As the leader in out-of-home waxing, we attribute our ongoing strength to the power of our business model, the recurring nature of our services, and the agility of our network in successfully executing our strategy. I would like to thank all of our associates across the organization for as well as our franchisee partners for their contributions to our success in fiscal 2021, and for their steadfast commitment to living our values every day. Given 2021's strength and the momentum we've already seen in 2022, we remain confident in our ability to deliver robust top and bottom line growth, including low 20% same-store sales growth in Q1. More and more consumers nationwide know and trust European Wax Center to consistently provide excellent service in a clean environment at accessible price points. The non-discretionary nature of our category also provides a clear path to capitalize on the substantial market share opportunity we have in growing the $18 billion hair removal market here in the United States. We are proud of our accomplishments yet equally focused on delivering on our long-term growth objectives and continuing to generate significant cash flow from our high-margin, asset-light business model. Beginning with the highlights of our fiscal year versus fiscal year 2019, system-wide sales and total revenue each increased nearly 16% to $796.5 million and $178.7 million, respectively. Same-store sales increased 6.7%, reflecting sequential acceleration each quarter, and adjusted EBITDA of $64.1 million increased $30.1 million. Looking back on the fourth quarter and the full year, we saw tremendous progress advancing our key strategic priorities to deliver on our two growth vectors. First, opening new centers, and second, driving same-store sales growth. In terms of center development, we opened 20 net new centers in the fourth quarter and 57 during fiscal 2021, bringing our total to 853 centers and achieving our new center opening target, which we increased when we reported third quarter 2021 results. We are incredibly pleased that nearly all new centers in fiscal 2021 were opened by our existing franchisees. Even more exciting is that we ended the year with more than 330 signed new center licenses, which is our deepest pipeline to date and gives us confidence in delivering our target of high single-digit center growth over the next several years. As it relates to same-store sales growth versus 2019, our 13.6% fourth quarter increase was a sequential acceleration of 300 basis points from Q3. As expected... All cohorts, including mature centers, comp positively for Q4 and 2021, excluding California, where we've been addressing concentrated labor tightness. Excluding California, Q4 same-store sales growth would have been 18.1%. As I mentioned on our Q3 call, we have implemented several actions to support our recruitment efforts. We saw continued improvement in California staffing during Q4, which has accelerated further in 2022 as we help our California franchisees achieve optimal staffing levels. The drivers of our Q4 same-store sales growth included strong retention of existing guests, as well as significant new guest acquisition. In fact, for the full year, new guest acquisition was up nearly 30% versus 2019. Guest surveys demonstrate significant that we are not only attracting first-time waxers but also capturing market share from independent salons. We believe that our strong performance with both existing and new guests is proof of our highly effective marketing strategy combined with excellent service and operational execution. Consistent with Q3, fourth quarter wax pass sales were approximately 20% higher versus 2019. We believe this is a great leading indicator of future performance. given that wax passes are included in same-store sales only when redeemed. Over half of our transactions include wax pass redemptions, which is encouraging given that wax pass customers visit more frequently, spend more, and have a higher retention rate than non-wax pass guests. Service mix also contributed to same-store sales growth as we continue to see a shift towards higher-priced body services. Over time, we continue to believe that sideline customers will add facial services back into their routines as guests feel more comfortable without masks. Overall, our compelling fourth quarter performance leaves us well positioned to continue our favorable momentum in fiscal 2022. Moving to our 2022 priorities, they are centered around the following. One, expanding our footprint through new centers. Two, capitalizing on our enhanced marketing and loyalty programs. Three, increasing the pipeline of WAC specialists. Four, leveraging our scale to benefit our supply chain. And finally, optimizing our capital structure. First, regarding new center expansion, the investments we have made in our development team in the last 18 months have given us a strong platform for delivering long-term unit growth. Due to our demonstrated track record of growth and profitability, our existing franchisees are making commitments through multi-unit development agreements to strategically densify markets. Private equity firms and family offices are also quickly seeing the value potential of our consistent center performance and attractive margin profile. In fact, both self-funded and private equity-backed unit operators represented over half of our fiscal 2021 openings. Over time, we expect to develop a balanced mix of franchisees in the network. Approximately one-third of the centers owned by small independent groups, one-third owned by self-funded regional operators, and one-third owned and operated by private equity-backed operators. Turning to our second priority, our marketing and loyalty programs. The success of our brand with both new and existing guests in fiscal 2021 is demonstrates that our comprehensive marketing approach and media mix are driving great results. In fiscal 2022, we will focus on continued optimization and expanding media partners to reach key opportunity segments, especially men and guests with coarse or textured hair during peak seasons. With a significant increase in new guests in 2021, we will be particularly focused on retention this year through our CRM efforts. We continue to see increasing guest engagement as well as higher revenue per guest and increasing frequency among our best guests. We expect that the October 2021 launch of our new loyalty program, EWC Rewards, will enable us to further grow these metrics. While EWC Rewards is still in early stages, we are already seeing encouraging data about its potential to be a meaningful basket driver over time. First, EWC Rewards has higher guest awareness compared to our previous loyalty program. Guests are also telling us that it's easier to earn and redeem points through EWC Rewards, which should lead to higher program engagement. Finally, guests who have redeemed rewards in the program's first few months are spending more, particularly on our proprietary retail products to enhance and extend the life of their services. We are still in the program's early innings, but we will analyze and adapt as we gain a deeper understanding of guest behavior this year. Moving on to our third priority, increasing the pipeline of WAC specialists. In California, where the government-mandated shutdowns and delays in issuing cosmetology and esthetician licenses have had the biggest impact on our network, we are starting to see license issuance accelerate. Our recent brand-level initiatives in California are attracting more WAC specialists as well. We have partnered with recruitment platforms to provide franchisees with resources, educational content, and savings on their recruitment efforts. Our brand remains the number one employer based on engagement for both the esthetician and cosmetologist roles in California on Indeed.com. We also launched a direct email campaign to students and industry professionals, which generated exceptional engagement well above industry standards. Finally, we recently completed the pilot phase of our beauty school partnership program, which had more than 500 participants at the end of January. Given this success, we are launching the program nationally to grow our database and reach more potential associates. As a result of these efforts, WAC specialist staffing in California has improved 30 percent since the end of Q3, and we expect to see continued improvement. We believe we've developed a playbook that can be rolled out nationally to drive interest in our franchise centers as the employer of choice. Our fourth priority is to continue leveraging our scale to enhance the efficiency of our and support infrastructure. As the category leader, and the largest provider of out-of-home waxing services, European wax centers' scale is a competitive advantage compared to the independent players that comprise the majority of our industry. We are always looking for opportunities to better leverage that scale to benefit our franchisees. For example, earlier this year, we began buying wax-related supplies, such as latex gloves and wax applicators. Previously, we negotiated rates on behalf of our network, but the ordering process and financial transaction occurred directly between franchisees and a third-party supplier. Our new program has optimized the procurement process by enabling a seamless platform for franchisees to order supplies as well as EWC's wax and retail products. This program helps ensure the critical supplies remain in stock and makes the order process more efficient for franchisees giving them more time to focus on generating revenue and providing a best-in-class guest experience. Also on the supply chain front, we believe we are well positioned to navigate current disruption and inflationary pressures. We are proud of our great relationship with our suppliers and have invested in additional supply of our wax. While we are not immune to cost pressures, we are able to pass along higher costs to our network if needed. As the category leader, we also have the ability to recommend periodic service price increases, enabling our franchisees to protect their four-wall profitability. Lastly, our fifth priority for fiscal 2022 is to optimize our capital structure. We are extremely proud of European WAC Center's asset-light business model that delivers strong free cash flow with less operating risk. Given our relatively modest capital expenditures and high cash flow generation, we believe that we can sustain higher leverage than other business models while lowering our overall cost of capital. Therefore, we are pursuing a recapitalization of our balance sheet through a whole business securitization. This structure is uniquely best in class for high-quality franchisors and provides us significant capital allocation flexibility as we grow the business. After repaying our existing term loan, we plan to use the net proceeds from the new senior notes to return value to our shareholders through a one-time special dividend. We believe that this whole business securitization will be a component of our long-term shareholder value creation for years to come. As our business grows, we look forward to growing our securitization with it. Before I turn the call over to David Willis, I'd like to briefly touch on our guidance for fiscal 2022. We expect to deliver another year of strong top-line growth, including 70 to 72 net new center openings and same-store sales growth in line with our high single-digit long-term targets. We expect fiscal 2022 system-wide sales consistent with and total revenue growth above our low double-digit long-term targets. Keep in mind that fiscal 2022 is our first full year as a public company, and therefore adjusted EBITDA will include a full year of public company costs. On a pro forma basis, assuming we were a public company for all of fiscal 2021, we expect fiscal year 2022 adjusted EBITDA growth of 13% to 18%, in line with our long-term growth target of low to mid-teens growth. In summary, we are excited about our business prospects in both the near and long term. As we begin 2022, our positive momentum has continued, which is reflected in our Q1 same-store sales outlook of low 20s growth versus 2021. This underlying business performance, coupled with our robust new center pipeline, has poised us to deliver on another year of strong financial growth and significant accomplishments toward our long-term goals. And now I'd like to turn the call over to David to review our fourth quarter and full year performance, provide more detail on our outlook, and give color on the refinancing we announced earlier today.