Regis Corporation

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Regis Corporation fourth quarter fiscal 2020 earnings call. My name is Ryan, and I will be your conference facilitator today. At this time, all participants are currently in a listen-only mode. Following management's presentation, we will conduct a question and answer session. If you'd like to ask a question during this time, you can press star 1 on your telephone keypad If you wish to withdraw your question, please press star two. As a reminder, this call is being recorded for playback and will be available approximately 12 p.m. Central Time today. I will now turn the conference over to Biz McShane, AVP of Finance. Please go ahead.

Thank you, Ryan. 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 Zepfer, our Chief Executive Officer, Kirsten Zepfer, our Executive Vice President and Chief Financial Officer, Eric Bakken, President of our Franchise Segment, and Amanda Rustin, our General Counsel. Before turning the call over to Hugh, there are a few housekeeping items I'd like to address. First, today's earnings release and conference calls include forward-looking statements within the meaning 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 risks 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 Form 10-K for the year ended June 30, 2020, 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 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 measure 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.

Good morning, everyone. I want to begin my remarks by thanking our stylist community. franchise partners in our field and corporate employees who have all performed in a remarkable and courageous manner during this terrible pandemic. I am grateful to each one of you for your many contributions to our business while confronted with these extraordinary, unprecedented conditions. There's little doubt that the most important event of the quarter was the company's successful amendment of its revolving credit facility in the month of May, an amendment that expires in March of 2023. Among other things, these negotiations removed all prior financial covenants, including the net leverage ratio and fixed charge coverage ratio, and added a minimum liquidity covenant while providing the lender security in the company's assets. This covenant-like facility is expected to provide the long-term flexibility we need to see our transformational strategy through to completion and at the same time enable us to successfully navigate the uncertainties caused by the pandemic. We were pleased with this outcome, particularly given all of the uncertainty related to the pandemic and the state of the economy in North America. Broadly speaking, We expect the amended credit facility will enable us to move forward. Move forward to embrace the full potential of our growth strategy, which includes among other elements, completing our conversion to a capital life franchise platform, transforming our company with technology, focusing on the value salon sector and our core brands, eliminating costs while continuing to invest in capabilities needed for a better future and upgrading our marketing and ongoing digital education efforts. As to the current state of our salon operations, with the exception of our salons in California, which opened and then were closed again due to a state mandate, and several company-owned salons we elected not to open, our salons have substantially reopened. As I understand it, Governor Newsom announced on Friday that salons in California can reestablish indoor operations subject to county approval. We believe this is late-breaking good news for us given our significant populations of salons in California. But as of today at month end, roughly 82% of our total salon portfolio was open for business, including both franchise and company-owned salons. Of course, we expect the number of open salons will begin to increase as California and its individual counties begin to reopen. Excluding the salons in California that are temporarily closed due to state mandate, 90% of our franchise salons and about 88% of our company-owned salons representing approximately 90% of the company's portfolio have reopened. So normalizing for California folks, we are substantially reopened. And we just got a little bit of good news on late last week out of Governor Newsom. I think you would be interested to know that we've been working very closely with our franchisees, our franchise councils, and our company's operating teams to identify ideas new ideas to adjust our operations to a post-COVID reality while keeping the safety of our stylists and customers as our top priority. As we previously shared with you, we worked with infectious disease specialists at the University of Minnesota to assure that the health and safety of our customers and stylists would be at the forefront of our salon operating procedures. As I mentioned earlier, while adjusting to the impact of this pandemic, we are trying creative new ideas to help build traffic while maintaining social distancing and our safety protocols. For example, collaborating with one of our leading Supercuts franchisees, we recently introduced an outdoor salon concept in Southern California in a format somewhat similar to a sidewalk cafe. While it's still early days, we really like the new concept and believe it may ultimately prove to have a longer-term application in other locations and perhaps brands. While our post-COVID volumes are down, our scale confers significant benefits that's not shared by most of the salon sector. And we certainly believe that consumer interest in good grooming is something that has long-term sustainability. It's important to consider that despite constantly changing external conditions, Regus has been around for almost 100 years now. We have survived in spite of multiple recessions, a Great Depression, and the Second World War. I believe that with advances in the treatment of COVID-19, better testing, and the potential introduction of new vaccines in the months ahead, Our customers and their families will return to a more normal lifestyle that will include visits to our salons. Although much has changed since we embarked on our multi-year strategy, we remain committed to our transformation to a capital-like growth platform. We originally believed we would complete our re-franchising process by the end of this calendar year, and that was the trajectory. No one expected this pandemic, and the timing of our transition will likely be delayed a few months by the disease. Given the impact of the pandemic, we now expect to be substantially complete with the re-franchising effort on or before the end of fiscal year 2021. In other words, we think we'll finish the process no later than next summer. At this point in the transition, we also anticipate that the one-time cash proceeds generated by this last phase of our re-franchising process will be lower due to the uncertainty and traffic erosion created by the pandemic. However, as you may expect, these assumptions could change depending on the length or severity of the pandemic and the potential impact of advances in treatment, better testing, and the introduction of new vaccines. Although we have more work to do and must find effective ways to adapt to this new reality, we believe the core elements of our strategy and our continuing evolution to a technology enabled growth platform will, in the long run, enhance shareholder value. In order to support our growth strategy and provide enhanced capabilities to our franchisees and to establish frictionless customer relationships, we kept our promise and made a long-term commitment to strategic technology investments, which we shared with you today. In August, the company launched its proprietary cloud-based salon management and point of commerce solution, Open Salon Pro. Open Salon Technology now powers customer-facing booking and information delivery on branded platforms. This follows a wider initiative launch in 2019 to enable booking directly from Google, Facebook Messenger, and Amazon Alexa. We overhauled and launched the Supercuts mobile app, which improves same-day check-in and the ability to book services for the following day. This update represents an alternative to the traditional walk-in model that consumers and even some states are demanding, particularly in the face of COVID-19 restrictions and wider consumer preferences. And finally, during the quarter, we also launched the new Cost Cutters mobile app on iOS and Android and a new Cost Cutters website. With the ability to book an appointment up to three days out, the new mobile app will also be at the center of brand-wide loyalty and rewards programs at Cost Cutters. When downloading the app, customers will be able to earn points in our salons for discounts on future services or towards purchase of Regus's exclusive private label retail products. And we've also kept our promises regarding expense rationalization. In June, we took further action to eliminate administrative costs and personnel with an expected annualized savings of $6 million. And during the year, we made a number of, frankly, painful decisions to eliminate nonessential G&A costs as we continued our transition to a fully franchised portfolio. On a full year basis, our G&A expense was approximately $45.3 million lower than last year, primarily due to the transition of company-operated salons to franchise salon closures and furloughs resulting from the COVID-19 pandemic, among other factors. In closing, I want to take a moment to acknowledge the pain and suffering that our nation has endured this year. Please know that our company rejects racism, inequality, cruelty, and hatred of any kind. My thoughts and prayers are also with our healthcare workers and first responders who are helping fight this pandemic, the victims of Hurricane Laura, and our firefighters in California. May God bless them all. I'm also grateful to each one of you for your continued interest in Regis, and I'll now turn the call over to Kirsten, who will take you through the numbers.