European Wax Center, Inc.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the European WAC Center's fourth quarter fiscal 2022 earnings call. At this time, all participants are in listening 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 session. If you have additional questions, you may rejoin the queue. At this time, I'd like to turn the conference over to Bethany Johns, Director of Investor Relations. Ma'am, you may begin.

Thank you and welcome to European WAC Center's fourth quarter fiscal 2022 earnings call. With me today are David Berg, Chief Executive Officer, and 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 and discuss our priorities for fiscal 2023. Then David Willis will provide additional details regarding our fiscal 2022 financial performance and our fiscal 2023 outlook. Following the prepared remarks, David Berg and David Willis will be available to take questions. 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 on the investor relations section of our website at investors.waccenter.com. I will now turn the call over to David Berg.

Thank you, Bethany, and good morning, everyone. Thank you for joining the call today. We are incredibly pleased to deliver a strong Q4 performance and equally strong fiscal year. We continue to believe it's important that our says and do's match, and we delivered record top and bottom line results in line with the annual guidance we gave at the beginning of last year, despite a significant change in the consumer landscape during 2022. Generating $899 million in system-wide sales and $71.6 million in adjusted EBITDA, representing 13% and 12% growth respectively. The European WAC Center business model remains consistent. Our performance is anchored by the recurring nature of hair growth and our strong relationships with guests who continue to prioritize their personal care routines in our clean, hygienic centers with a predictable, efficient, and professional service that only our highly trained WAC specialists can provide. I would like to thank our associates and our franchisee partners for driving our continued success in 2022 and for their steadfast commitment to living our values each and every day. We were recently certified by Great Places to Work, a recognition we share proudly with our team members. Thanks to their efforts, we've extended our leadership position in this highly fragmented, out-of-home waxing category that European Wax Center created nearly 20 years ago. Let me give a quick recap on 2022. Throughout last year, I updated you on the progress we made against some of our 2022 priorities. First, we grew our pipeline of current and future WAC specialists, planting the seeds that will support both existing centers and new center openings in the future. Second, we leveraged our scale to support our network by mitigating or offsetting much of their supply chain cost headwinds. Third, we optimized our capital structure through a whole business securitization and returned approximately $220 million to shareholders through dividends and buybacks. Fourth, we implemented an enterprise data warehouse that will serve as the backbone for enhanced marketing outreach to drive incremental engagement from our guests. And finally, and most importantly, We delivered on both of our key growth vectors, unit growth and in-center sales growth. We generated over 10% new center growth and ended the year with our deepest pipeline ever. We also grew system-wide sales by 13% and same-store sales by 10.4%. Let me spend a minute and talk about the health of our guests. In 2022, our guests demonstrated their commitment to their waxing routines. despite a difficult year for the consumer at large. Our highly trained wax specialists performed over 22 million services last year for more than 3.5 million people. We continue to attract new guests to the brand, converting them into repeat guests and ultimately into WaxPass guests. Our WaxPass program engenders brand loyalty with WaxPass sales representing commitments to the brand that generate predictable visit frequency. Wax pass holders represent nearly 40% of total guests and generate two-thirds of our annual visits and system-wide sales dollars. Compared to 2021, these guests have increased their frequency to nearly seven and a half visits per year, more than double the frequency and annual spend of our episodic non-wax pass holders. WaxPass adoption remained robust in 2022, with 16% growth in WaxPass sales during our customary Q4 promo period. The bottom line is that our most loyal guests are driving the majority of our network sales and have not changed their waxing routines, demonstrating that they continue to view our services as non-discretionary, even in a highly inflationary environment. We believe there is a continued opportunity to drive new guests to the brand and further engage existing guests. And I'll touch on those strategies in a few minutes. Overall, we are pleased with how our core guest is engaging with the brand. As David Willis will cover shortly in our 2023 outlook, we expect mature center transaction trends to remain consistent with the second half of 2022. That stability and the loyalty of our WaxPass guests have continued into 2023 and are key assumptions in our outlook for this year. Before I dive into our priorities for 2023, let me remind you where we fit into the highly fragmented hair removal landscape. European Wax Center created the category for professionalized out-of-home waxing. We are six times larger than our closest branded competitor in unit count and 11 times larger by system-wide sales. Today, we remain the only nationwide brand in this space, and we will continue to leverage our scale to extend our leadership position. We deliver a trusted service to our guests by providing a consistent, elevated experience through our highly trained wax specialists, our unparalleled hygiene protocols, and our proprietary comfort wax. These differentiators in our operating model keep guests coming back to European Wax Center on a recurring basis. As we expand, we continue to penetrate a growing $18 billion addressable market and feel confident we are capturing our fair share of it. Despite our dominance, we have yet to reach one-third of our unit growth potential. We have significant white space for our continued expansion on our expected path to more than 3,000 locations in the US. Our franchisees are investing their own capital to develop this white space. In fact, 99% of our new centers in 2022 were opened by existing franchisees. Our significant market opportunity is the foundation for our two growth vectors. First, expanding our footprint through new center growth, and second, driving in-center sales, which benefits both system-wide and same-store sales growth. I'll start with our unit growth vector. At over 400 licenses, our new center pipeline is the deepest in our brand's history. We delivered more than 10% unit growth year over year in 2022 and expect to deliver another 10% growth rate in 2023. Nearly all of our 2023 openings will be located in existing markets with a focus on California, Texas, Florida, Illinois, and Georgia. As of today's call, two-thirds of our targeted 95 to 100 new centers are already open or under construction. Our franchisees are well capitalized. Coupled with the modest cost to build, elevated interest rates have not impacted their appetite for expansion. Franchisee demand, especially among growth partners and multi-unit developers, remains robust. To support new centers, we will build on the momentum generated in 2022 by continuing to refine tools to help our franchisees recruit and optimize their WAC specialist pipeline and enhance our already best-in-class unit economics. Our average center generates nearly $500,000 in sales in its first year of operations and nearly $800,000 in year two. It breaks even in month 14 and reaches maturity in year five. generating $1.1 million in sales with over 60% cash-on-cash returns. Make no mistake, these returns are already phenomenal, but we plan to put even more rigor around the pre-opening playbook for new centers to drive faster break-even sales. Our most recent cohorts are opening at higher initial volumes than our historical average. We plan to leverage their best practices with a network to drive more momentum. We also recently launched enhanced reporting that enables better access to real-time performance analytics. Ultimately, strong unit economics translate to a growing license pipeline to support our long-term unit growth targets. Existing franchisees make up more than 90% of our pipeline. Our smaller operators, who opened almost half of our 2022 new centers are the backbone of our brand and continue to be critical to our success. We continue to have growing interest from our institutional growth partners who represent 40% of existing centers, but 70% of our future pipeline. Both of these groups continue to demonstrate their steadfast commitment to our long-term growth. Turning to our second growth vector, driving in-center sales growth, which benefits both system-wide and same-store sales growth. We are excited to drive even deeper engagement with our guests this year through our three-pillared attract more, buy more, and visit more strategy. The attract more pillar is focused on attracting new guests to European WAC Center. First, we are helping our network optimize their local marketing spend by increasing the number of regions in key states. By working together in regions, centers reduce the cost of acquiring new guests by more than 20%. Second, we recently engaged a new creative agency recognized in 2022 as the small ad agency of the year to enhance our creative assets and campaigns that reinforce EWC as the category killer in the space. In Q2, we will launch a new campaign that celebrates inclusivity, reinforces our brand differentiators, and projects irresistible confidence for everyone. And lastly, because our retention rates remain strong, we will shift more of our digital media spend to early 2023 to attract new guests sooner and retain them all year long. We are pleased with the traction we've seen thus far from our first quarter spend. Our second pillar, Buy More, focuses on increasing the average ticket in centers. We will roll out strategic service recommendations in 2023 through both online booking and our app, suggesting incremental services for guests to seamlessly add to their reservations. We are also elevating our retail strategy for 2023. It's better informed by guest behavior and seasonal considerations with focused limited time offers that sell out and drive product attachment. As a reminder, sales of retail products are a small piece of system-wide sales, but represent a larger portion of our product revenue as a franchisor. We believe both of these initiatives will work together to increase average dollars per ticket this year. Our third pillar, Visit More, is designed to increase frequency among our existing guests. Our network-facing contest in 2022 successfully generated higher rebooking rates in-center, which translates to more visits per guest per year, so we will carry on that initiative in 2023. We have also invested in resources to develop an integrated multi-channel customer journey later this year, enabled by our enterprise data warehouse that we established in 2022. Our data and technology enhancements will enable us to leverage our enhanced CRM capabilities to deliver the right message to the right guest at the right time via the right platform. We kicked off this effort by rolling out SMS messaging capabilities a few weeks ago. We believe our CRM efforts will be the most effective driver of incremental guest behavior, especially amongst more episodic guests, that present the biggest opportunity. Our fragmented competitive set simply cannot make these types of investments, and it gives us the opportunity to continue to take market share. Lastly, we have refined and optimized our loyalty program for 2023 to reward the desired behaviors we seek, specifically maximizing rebookings and referrals while minimizing the financial cost to the network. While EWC Rewards is a great tool, we recognize that our Wax Pass program is our most powerful loyalty driver and the leading indicator of future visits to our centers. As we execute on our Attract More, Buy More, and Visit More initiatives, we expect to attract new guests to the brand, convert them into repeat guests, and drive valuable Wax Pass adoption. We expect these efforts coupled with our strong unit growth to drive 7% to 10% top-line growth in 2023. And from a long-term standpoint, our expanding network footprint drives continued revenue growth for us as a franchisor and gives us the ability to leverage our fixed cost profile, delivering margin expansion and generating significant cash flow. Over time, this translates to significant value creation for European Wax Center's franchisees, and our shareholders. Before I hand it over to David Willis, our CFO and COO, I want to highlight the executive leadership changes we announced earlier this morning, which reflects our commitment to building a strong bench of leaders that will continue to execute on our growth strategy and propel European WAC Center forward. We have appointed Stacey Shirley as our next Chief Financial Officer, and she will begin her role effective March 27th. Stacey will succeed David, who has been promoted to president of the company. David, Stacey, and I will work closely together over the next few months to ensure a seamless transition. We are thrilled to welcome Stacey as our next CFO. She is a proven leader with over 20 years of consumer industry and franchise expertise, and she brings a unique understanding of our business and the guests we serve. The Board and I have complete confidence in her, and I look forward to introducing her to many of you soon. David, on behalf of the entire European WAC Center family, we thank you for your invaluable contributions to the success of our business and the execution of our financial objectives while wearing both CFO and COO hats. You stepped back into this role last year and have done a tremendous job searing us through our first full year as a public company. We have incredible confidence in you as president to execute on our growth strategy and further expand our footprint as a category leader in out-of-home waxing. And I look forward to our continued partnership. With that, I'd like to turn the call over to you, David, to review our financial performance and our guidance details for fiscal 2023.