European Wax Center, Inc.

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the European WAC Center's first quarter fiscal 2022 earnings conference call. All 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. At this time, I would like to turn the conference over to Amir Yeganaju, Senior Vice President of Financial Planning and Investor Relations. Sir, you may begin.

Thank you and welcome to European WAC Center's first quarter fiscal 22 earnings call. With me today are David Berg, Chief Executive Officer, David Willis, Chief Operating and Chief Financial Officer. For today's call, David Berg will begin with a brief review of our first quarter performance. and discuss the progress against our fiscal 22 priorities. Then David Willis will provide additional details regarding our financial performance, our recently completed recapitalization, and our updated guidance. Following our prepared remarks, David Burr, 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 adjusts 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. Before discussing our first quarter performance and expectations for the remainder of the year, I'd like to remind everyone about European Wax Center's tremendous business model. As the category creator, we have built a leading personal care franchise brand that has revolutionized the growing, highly fragmented market for out-of-home hair removal. The simplicity and scale of our asset-light franchise platform enables us to deliver tens of millions of trusted, efficacious, and accessible wax services each year. We are proud of everything we've accomplished to date and remain on track to deliver our long-term growth targets. I would like to thank all of our associates and franchisee partners for continuing to flawlessly execute our growth initiatives while delighting our guests with an unparalleled waxing experience. It's clear from our first quarter performance that fiscal 2022 is off to a solid start, reflecting the strength of our business, consumer demand for our services, and continued recovery from COVID-related headwinds we experienced early in fiscal 2021. While we reported fourth quarter results just a few weeks ago, we have continued to make progress against our strategic priorities for fiscal 2022. Most notably, we completed the refinancing of our capital structure at the beginning of April and look forward to issuing a $3.30 per share special dividend in the coming days. Turning to our Q1 results, we delivered on both of our primary growth drivers, opening new centers and driving positive same-store sales. We opened 21 net new centers, ending the quarter with 874 centers in 44 states. Our development pipeline is deeper than ever and continues to grow as we generate increased interest from multi-unit operators and existing franchisees who are excited to expand their portfolios within European WAC Center. From a same-store sales perspective, we expected to deliver growth in the low 20s, since many of our centers nationwide were either closed due to COVID-19 or beginning to rebound in the first quarter of 2021. However, existing centers outperformed our expectations with strong wax-fast sales and redemptions, delivering a 29% same-store sales growth in Q1. California, where COVID closures were more concentrated in early 2021, accelerated its recovery and contributed approximately one-third of our 29% growth in the quarter. Looking beyond California, we are especially proud that our mature centers generated strong double-digit growth driven by traffic and price. In addition to our two growth drivers, system-wide sales of $207 million increased 32%. Total revenue of $45.4 million grew 24%, and adjusted EBITDA of $15.2 million increased 21% year over year. We are pleased to raise our fiscal 2022 top line and bottom line guidance to incorporate our first quarter performance, which David Willis will cover on the second half of today's call. Overall, the continued positive trends in our business give us confidence that both existing and new guests have returned to their personal care routines. While we are pleased with our first quarter results, we remain focused on our long-term growth objectives as supported by our fiscal 2022 priorities, which are expanding our national footprint through new centers, increasing the pipeline of black specialists staffing our centers, capitalizing on our enhanced marketing and loyalty programs to drive deeper, customer engagement, leveraging our scale to benefit our supply chain and franchisees, and finally, optimizing our capital structure to lower our cost of capital and increase flexibility. We have continued to make progress on these priorities since our last earnings call in mid-March. Starting with new center development, we have made investments over the past two years to elevate our approach to unit growth. As we transitioned from European WAC Center's area representative model starting in 2019, we built a development function that allows us to be very thoughtful in how we address our extensive white space opportunity. As a reminder, we have a nationwide potential of more than 3,000 locations compared to the 874 open at the end of Q1. Our pipeline is several years deep and virtually all of our 330 plus licenses are held by existing franchisees with our improved development capabilities. We continue to focus our market planning to prioritize our top market opportunities. We are targeting seven to 10% annual unit growth and expect more than 8% growth in fiscal 2022. Also largely driven by our existing franchisees. Two thirds of our fiscal 2022 pipeline is either open or under construction. which gives us confidence in delivering on our full year goal while mitigating risk from a challenging construction environment. Our second priority, increasing the pipeline of WAC specialists, is directly correlated to our new unit growth objectives as staffing is a critical component. We are passionate about licensed estheticians and cosmetologists delivering unmatched expertise with every service. As we open 70 plus centers per year for the foreseeable future, it is imperative that European Wax Center remains a brand of choice for licensed estheticians. Our brand is already the number one employer for cosmetologist roles based on Indeed.com engagement, and we're seeing early traction on our campaign to further elevate European Wax Center on hiring sites like Indeed and Glassdoor. This spring, we also completed the pilot phase of a beauty school partnership program. which attracts new graduates through educational and learning materials that showcase our brand and encourage students to connect with our local EWC center. Using that positive feedback from pilot participants, we better understand their desired employee value proposition and can share it with our franchisees to ensure a best-in-class workplace. Since the beauty school system is exceptionally fragmented and licensing requirements vary by state, the rollout of our successful pilot program is a long-term initiative that our dedicated operations and industry relations teams are advancing. They also generate significant engagement through large industry events, which helps develop our direct email campaign list with interested candidates. In Q2, we are excited to launch a more robust portion of our website that not only offers insights into a general career in waxing, but also highlights our in-center experience from a wax specialist's perspective. The information we gather from the site will become yet another lever for European WAC Center to target candidates and promote a career with our brand. Turning to our third priority, our marketing and loyalty programs. Our marketing team is focused on three objectives, attract more, buy more, and visit more. Our first marketing objective, attract more, leverages our media strategy to increase brand awareness and drive guests into our centers. Our 2021 media plan reinforced our leadership position using branded content to make meaningful connections and drive nearly 30% more new guests into the center versus 2019. We are using this proven approach in 2022 while also broadening our reach to drive continued sustained growth. Utilizing advanced analytics, we've identified two new audiences, men and multicultural guests. that are predisposed to waxing but are not yet aware of the EWC brand. We are concentrating our messaging to both of these segments during the warmer months, which coincides with our peak season. We are also launching a new brand campaign this spring called A New State of Smooth. Guest insights inform both the content and the creative assets of this campaign, ensuring that it truly resonates with our target audiences both visually and emotionally. Specifically, the content reinforces the three unique pillars of the European Wax Center brand. One, our exclusive focus on waxing and our unique comfort wax. Two, our expertise as the undisputed category leader. And three, the unapologetic confidence our guests feel after leaving a European Wax Center. Recent research indicates that we have been taking market share from independent salons, and we believe that through our Attract More initiative, we will maintain this momentum. We also continue to focus on in-center execution to drive services per transaction and retail product attachment to support our second objective, buy more. Our proprietary retail products have recently earned beauty awards from prestigious publications like Glamour, Elle, and New Beauty. In fact, our award-winning ingrown hair serum and the new calming and brightening extensions that we launched in October have been such a hit with our guests that we launched an ingrown hair patch last month. These ingrown hair patches are the first and only patches on the market that are formulated to address ingrown hair, further demonstrating our drive for innovation and reinforcing our dominance in the category. Finally, In terms of encouraging our guests to buy more and visit more, our top priorities are to increase product attachment and guest retention through CRM programming and our EWC rewards loyalty offering. From a CRM standpoint, the appointment-based nature of our services means that all guests are contactable. As a result, we can deploy timely and targeted messages to any subset of guests. to drive behaviors like purchasing or redeeming a wax pass or coming in for an additional visit. We expect the launch of our unified data foundation later this year to make the design, implementation, and measurement of our CRM initiatives easier than ever before. As we shared a few weeks ago, we are also encouraged by the early reads of our new loyalty program as a major function of our visit more and buy more objectives. We view EWC rewards as a tool to drive positive behavior over time while growing brand affinity among our guests. Additionally, the program differentiates us from the independent service providers making up this highly fragmented category. Guests who have redeemed rewards in the program's first few months are spending more, particularly on our proprietary retail products. We have also seen higher guest frequency over the last six months. While we're still in the program's infancy, we look forward to continuing to analyze and share more updates later this year. Overall, we feel confident that we are taking the right steps to deepen our relationships with our guests, as evidenced by our double-digit growth in retained guests versus Q1 of last year. Our fourth priority is to continue leveraging our scale to enhance our supply chain and share these benefits with our franchisees. European Wax Center's leading market share enables us to support our network through sourcing initiatives that mitigate costs for our franchisees, a distinct competitive advantage versus the independent salons and providers that make up most of the out-of-home waxing category. While we believe we are better positioned than most to navigate the current macro dynamics, inflation continues to impact the supply chain, and we are seeing higher inbound freight costs. and we are currently absorbing those additional costs on behalf of our franchisees. We believe this is the best approach at this time and we will continue to evaluate if costs continue to increase. These higher freight costs are factored into the revised guidance that David Willis will address in a few minutes. We value the relationships with our franchisees and know that their profitability is key to our long-term growth. Our partnership has never been stronger. Over the long term, we believe that being the category leader gives us the pricing power to protect franchisee four wall margins. To date, we have not seen any notable volume impact because of the increased price on body services implemented earlier this year. In fact, despite the pandemic's impact on transaction volume, four wall margins increased from fiscal 2019 to fiscal 2021. We believe that our ability to drive margins higher over time is a hallmark of our appeal to both existing franchisees and private equity firms looking to invest and grow with us. Finally, our fifth priority for fiscal 2022 is to optimize our capital structure. To that end, we launched a whole business securitization in mid-March concurrent with our fourth quarter earnings call. While unique, this structure is used at many of the largest and highest quality franchisors. This debt instrument is especially suited for European WAC Center due to our asset-light nature, recurring revenue model, strong predictable cash flows, and reliable growth trajectory. We closed the transaction in early April and are using the net proceeds plus excess cash from our balance sheet to return capital to shareholders through a special dividend. From a long-term standpoint, we are especially excited that because our asset-light model enables us to deliver quickly as we grow, this financing option gives us the flexibility to deliver shareholder value through special dividends, share buybacks, or strategic investments without the need to restructure. In summary, while we remain watchful of the macroeconomic headwinds that continue to evolve and impact companies around the world, European WAC Center is uniquely positioned to navigate the environment and continue to unlock value. We are seeing strong traffic and increased frequency into our centers as our guests are highly engaged in the category and view waxing as a non-discretionary part of their routine. This translates to a recurring revenue stream for our network and gives us the ability to leverage our pricing power. We have also deployed several initiatives that should provide a pipeline of dedicated wax specialists. And lastly, our strong relationships with our suppliers and our scale enables us to support our franchisees with the tools that they need to provide best-in-class service. We remain inspired by our growth opportunities, both near and long-term. We look forward to leveraging our new center pipeline, marketing initiatives, and the superior guest experience to drive new guests and retain those guests that experienced European WAC Center for the first time last year. 2022 is off to a solid start, and we are well positioned to continue our favorable momentum and deliver another year of strong financial growth and significant accomplishments toward our long-term goals. And with that, I'd like to turn the call over to David Willis to review our first quarter performance and increase guidance for fiscal 2022. David, over to you.