Regis Corporation

and thank you for standing by. Welcome to the Regis Corporation second quarter fiscal 2020 earnings call. My name is Brittany and I will be your conference facilitator today. At this time, all participants are in a listen only mode. Following management's presentation, we will conduct a question and answer session. If you would like to ask a question during this time, please press star one on your push button telephone. If you would wish to withdraw your question, please press star 2. As a reminder, this call is being recorded for playback and will be available by approximately 12 p.m. Central time today. I'll now turn the conference call over to Biz McShane, AVP Finance. Please go ahead.

Thank you, Brittany. Good morning, everyone, and thank you all for joining us. On the call with me today, we have Hugh Sawyer, our Chief Executive Officer, Kirsten Zupfer, our Executive Vice President and Chief Financial Officer, Eric Bakken, President of Franchise Segment, and Amanda Russin, our General Counsel. Before turning the call over to you, there are a few housekeeping items I'd like to address. First, yesterday's earnings release and today's conference call include forward-looking statements within the meeting of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of performance and by their nature are subject to inherent risk and uncertainties that could cause actual results to differ materially from such forward-looking statements. Please refer to the company's current earnings release and recent SEC filings, including our most recent 10-Q and June 30, 2019 10-K, for more information on these risks and uncertainties. The company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call. Second, this morning's conference call must be considered in conjunction with the earnings release we issued yesterday and our previous SEC filings, including our most recent 10-K. On today's call, we will be discussing non-GAAP as adjusted financial results that exclude the impact of certain business events and other discrete items. These non-GAAP financial measures are provided to facilitate meaningful year-over-year comparisons, but should not be considered superior to or to substitute for our GAAP financial measures. and should be read in conjunction with GAAP financial measures for the period. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in yesterday's release, which is available on our website at www.regiscorp.com backslash investor relations. With that, I will now turn the call over to Hugh.

Thank you, Biz, and good morning, everyone. Our guiding principle at Regus is to generate long-term value for our shareholders and key stakeholders. In that regard, I was honored to be asked to chair our company's board of directors in addition to my continuing role as president and chief executive officer. I believe that assuming the chairman's role will help ensure continuity of leadership in our multi-phase transformational strategy during a period of ongoing change. The second quarter does represent an important milestone where we gained greater clarity into the end date of our portfolio transformation based on our year-to-date results and a robust pipeline of potential transactions. We now believe that our transition to a fully franchised business will be substantially complete by the end of this calendar year. This improved visibility into the cadence of our portfolio transition enabled us to begin meaningful reductions in our cost structure and to initiate other plans we have for the business, including reengineering our capital structure so that it will be appropriate for a fully franchised capital-like growth platform. We are pleased to report this quarter that we continue to make meaningful progress in our ongoing strategic transformation to a capital like. High growth franchise company. In August of 2019, we estimated that it would take us 18 to 24 months to complete our conversion to a fully franchised portfolio. However, due to the success we've had in the first half of fiscal year 2020. we expect that we will substantially complete this conversion at a somewhat earlier date than we originally anticipated. In the first half of fiscal 2020, we have converted 988 salons to franchise owners with line of sight to the sale of approximately 900 additional salons. This means that net of closing roughly 350 to 500 underperforming salons which typically occurs at lease expiration, we have approximately 50% of the remaining company-owned salon portfolio in the pipeline at various stages of transition. As of December 31st, nearly 70% of our portfolio is now franchised. And you may recall that when I began my tenure as CEO in April of 2017, Our salon portfolio was roughly 28% franchised and 72% company-owned. So, by any measure, very significant progress in our portfolio transformation. As I mentioned, our transition to a fully franchised model has been occurring at a rapid pace, and as a result, we have been thoughtful and intentional in our plans to begin more aggressive expense reductions In January, we announced actions that will reduce G&A by approximately $19 million on an annualized basis. As we considered the magnitude of these planned G&A reductions, we decided to schedule our actions at the beginning of the third quarter. And, of course, we recognized that scheduling the execution of these G&A reductions in January would dilute our second quarter results, given the increased pace of our venditions. However, we wanted to ensure that our actions to reduce expense did not create an unacceptable level of risk to the stability of our company-owned salons and corporate operations. We expect to consider further G&A reductions as we draw closer to the end date of our transition and gain additional visibility into our path to sustainable growth. Further, we believe it is the right time to redesign our capital structure so that our debt facility is better suited for a company that is now 70% franchised. We recently engaged Guggenheim Securities to help us design the optimal capital structure for what is now a franchise business. Guggenheim has an outstanding track record of success in working with large franchisors and assuming continued favorable market conditions We anticipate that this process will be successful and that we will complete our replacement financing no later than the fourth quarter. Once we have completed our financing, we anticipate that we will continue to make investments to prepare the company for the growth phase of our multi-phase transformation. This could include additional investments in the following franchisor capabilities. frictionless customer-facing technology, the company's new internally developed back-office salon management system, which is now in beta, disruptive marketing and advertising, trend-driven merchandise, including investments we have made in a new private label brand we've named Blossom, and the relaunch of our historically successful design line brand. Ongoing investments in stylists recruiting and education and in stylists and franchise partner education will also be considered. We may also utilize our cash in the next 18 months to complete any remaining elements of our multi-year restructuring, including closing non-performing company-owned salons when it's justified by the economics, although our operational bias is typically to manage these salons to lease expiration. Paying down some debt, we determined that it's wise to do so, supporting our ongoing G&A reductions through severance programs and, if needed, capital investments in salon refurbishments and remodels as we consolidated our various brands into what we have called the Fab Five. And as you all know, we have utilized cash to repurchase our shares in circumstances where we believed it would be in the best interest of our shareholders. We decided to push the pause button on share repurchases during the second quarter in order to reduce our debt levels and continue investments in other growth initiatives. Upon completion of our refinancing, management and the Board will continue to assess our capital allocation strategies on a periodic basis as we have done historically. Despite the inherent variability and near-term risks associated with our transformational strategy, we remain convinced that a fully franchised business has the potential to generate a higher return on its capital and will prove to be in the best long-term interests of our shareholders and franchise constituents. We do have a significant amount of work ahead of us in order to substantially complete the portfolio transformational phase of our strategy by calendar year-end. However, We are determined to bring this phase to a conclusion so that we can continue to shift our time and energy and our talent toward the organic growth phase of our strategy. Although conditions could change, we have growing confidence in our plan and our ability to successfully execute our multi-phase transformation. Our restructuring and portfolio transformational phases are each moving rapidly toward their end dates. and we intend for Regis to be well positioned for its growth phase, a period we expect to generate sustainable revenue and earnings in the years ahead. With that, I'll ask Kirsten Zupfert, our Chief Financial Officer, to take us through the numbers. Kirsten.