Regis Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the Regis Corporation second quarter fiscal 2020 earnings call. My name is Gail and I will be your conference facilitator today. At this time, all participants are in a lesson-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 1 on your push button telephone. If you wish to redraw 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 over to Bis Makshin, AVP Finance. Please go ahead.

Thank you, Gayle. Good morning, everyone, and thank you 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 our franchise segment, and Amanda Russin, our general counsel. Before turning the call over to Hugh, there are a few housekeeping items to address. First, today'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 guaranteed a performance. and by their nature are subject to inherent risk and uncertainty 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 10-2 and June 30th, 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 day of this call. Second, this morning's conference call must be considered in conjunction with the earnings release we issued this morning 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 as a 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 this morning'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 day. Although a lot has changed in the world and in our business since our last earnings call, we remain committed to a strategy, a strategy that we believe will enhance shareholder value. I expect Regus to become a company with significant long-term potential, a business we can all be proud to own. Our multi-year strategy is built around completing a re-franchising plan to transition our company-owned salons to a capital-light model while positioning the company for sustainable growth in units, sales, and profitability. The key elements of our strategy are unchanged and include converting company-owned salons to a franchise platform. As we reported today, approximately 74% of our portfolio has already been franchised. Transforming the business with technology, particularly customer-facing technology, improved salon management systems, and digital training. eliminating non-essential, non-strategic G&A. In January, we eliminated approximately $19 million in annualized G&A costs, and we do intend to do more to rationalize our costs when the time is right to do so. We've been upgrading stylist recruiting and training with an emphasis, as I mentioned, on digital training. We've been restructuring our portfolio in order to focus on five core brands, the Fab Five, which we expect to improve the precision and efficiency of our marketing. And we've been revitalizing our merchandise business, focusing on own brands like DesignLine and Blossom. Now, although our core strategy has not changed, we have intelligently adapted our salon operations from the new normal with an intense focus on safety. In March of this year, various state and local government mandates resulting from the COVID-19 pandemic forced us to close, to hibernate a substantial majority of our franchise and company-owned salons. These closures significantly impacted our fiscal third quarter results and will continue to negatively impact our results in the fiscal fourth quarter as the majority of our salons in both our franchise portfolio and company-owned portfolio remain closed during the months of April and May. Now, to mitigate the negative impacts of these salon closures, you may recall that we took immediate action, including a furlough program, wage reductions, and aggressive management of our purchasing and payable cycles. As of the beginning of this week, approximately 68% of our portfolio has reopened. That's a combination of both our franchise and company-owned salons. We are relaunching our salons safely but at a brisk pace, and we expect to reopen roughly 81% of our salons by the end of June, the end of this month. As we reopen salons, the health and safety of our customers and stylists has been and continues to be our highest priority. As we previously reported, a cross-functional Regus team led by Eric Bakken that also included a number of our franchisees worked with infectious disease specialists at the University of Minnesota's medical school to ensure that the health and safety of our customers and stylists would be at the forefront of our salon reopening plans. These physicians provided recommendations on the proper PPE and additional safety measures that have been communicated throughout the company's entire salon portfolio in order to help educate and prepare the company's franchise partners and stylists for operating salons with a safety emphasis in a COVID-19 environment. Moreover, in a manner consistent with our company values, James Townsend and our team and merchandise, including Andrew Priyatka, proactively invested a very significant amount of capital in the personal protective equipment required to safely reopen our salons. In retrospect, that proved to be a very good decision here at Regus. Our new internal slogan is Safety First. and Hare Second, which I think emphasizes the company's focus on the moral imperative in doing the right thing, because it's never wrong to do the right thing. Despite the hibernation period caused by the pandemic, we continued to make meaningful progress in all areas of our strategy and remain committed to our transformation to a fully franchised Capital Light model on an ambitious timetable. During the quarter, we sold 375 company-owned salons and transferred these salons to our asset-light franchise portfolio. At the end of the quarter, as we reported, approximately 74% of our salon portfolio has been franchised. We've also previously reported that we expected to substantially complete our re-franchising by the end of this calendar year in 2020. Given the hibernation of our business during the pandemic, This goal may be somewhat delayed, but frankly, I'm still optimistic we will substantially complete the transformation on an ambitious timetable. Our team is doing great work despite the challenges of the pandemic. In May, Kirsten and our finance team, working with advisors at Guggenheim, successfully amended our credit facility that expires in March of 2023. We believe the amendment of our $295 million revolving credit facility will give us the flexibility and debt capacity to manage the business through our strategic transformation, as well as the ongoing uncertainty that's generated by the COVID-19 pandemic. We think we're in great shape as it relates to that new amendment and our ballot sheet. As we continue previously said, the amendment is covenant-like. And being covenant-like means we were able to remove all prior financial covenants, including the net leverage ratio and fixed charge coverage ratio, and we only added a minimum liquidity covenant that we are comfortable with. Additionally, the amendment provides the company's lenders security in the company's assets. In closing, I want to thank our franchisees and associates for their many contributions to our business during this extraordinary period in the company's nearly 100-year history. I also want to recognize the University of Minnesota's medical school and acknowledge their support during this tragic pandemic. I'm also grateful to each one of you for your continued interest and support. I'll now turn the call over to Kirsten to take you through the numbers. Kirsten.