Regis Corporation

Thank you for joining the quarterly Regis earnings call. We will begin shortly. Thank you for joining the quarterly Regis earnings call. We will begin shortly. Thank you for joining the quarterly Regis earnings call. We will begin shortly. Thank you for joining the quarterly Regis earnings call. We will begin shortly. Thank you for joining the quarterly Regis earnings call. We will begin shortly. Thank you for joining the quarterly Regis earnings call. We will begin shortly. Good morning and thank you for joining the Regis First Quarter 2026 Earnings Conference Call. I am your host, Kirsten Zupfer, Executive Vice President and Chief Financial Officer. I am joined today by our Interim Chief Executive Officer, Jim Lane. All participants are in a listen-only mode and this conference is being recorded. We will be answering questions at the end of the call. Please type your question in the chat feature at any time throughout the call. I would like to remind everyone that the language on forward-looking statements included in our earnings release and 8 filing also apply to our comments made on the call today. These documents can be found on our website, www.regiscorp.com forward slash investor dash relations. With that, I will now turn the call over to Jim Ling.

Good morning everyone and thank you for joining us for Regus Corporation's first quarter fiscal 2026 earnings call. I'm pleased to share our progress as we continue advancing our transformation and strengthening the foundation for sustainable profitable growth. As we begin a new fiscal year our priorities remain clear. We are focused on the holistic transformation of our Supercuts brand and optimizing and growing sales and profitability in our company-owned salon portfolio. I continue to be inspired by the level of engagement across our franchise and corporate networks. Our franchisees, field leaders, and corporate teams are energized and aligned around both the path we have created and the actions we are taking. The Unity is a powerful driver of our progress. For the first quarter of fiscal 2026, consolidated same store sales increased 0.9%, marking another period of growth that was driven by both pricing actions and improved execution at the salon level. Adjusted EBITDA for the first fiscal quarter was $8 million, up from $7.6 million a year ago, a $400,000 improvement. This improvement reflects the benefits of greater revenue contribution from company-owned salons, disciplined cost management, and increasing operational efficiencies. We also generated $2.3 million in positive operating cash flow, a $3.6 million improvement versus last year's first quarter and the fourth consecutive quarter of positive cash from operations. These results reflect continued progress on the fundamentals of growth, improving profitability and cash generation. Our modernization of Supercuts continues to gain traction. Same store sales were up 2.5% for the first fiscal quarter and participation in our loyalty program grew from 36% in the prior quarter to 40% in fiscal Q1. We're reinforcing brand relevance and consistency across every touchpoint, in salon, online, and through marketing, all designed to drive guest traffic and retention. Compliance with brand standards is steady, and franchisees are increasingly embracing the new model. Transparency in pricing, service consistency, digital integration, and salon presentation. Adoption is progressing, though full system alignment will take time. We've also completed a comprehensive customer research study that's now informing an evolved brand story and creative direction, sharpening how Supercuts will differentiate within the industry. Next month, we'll begin pilots that improve digital interaction on our website and app, removing friction and enhancing the guest experience. Execution discipline remains high and our teams are committed to delivering transformation with precision and focus. Turning to our company-owned salon group, this remains a central focus and long-term value driver. We are now three quarters into owning and operating over 300 salons acquired earlier this year. For Q1, we delivered month over month gains in traffic and same store sales and adjusted EBITDA of $1.6 million, which is trending in the right direction as operational discipline strengthens. We've implemented a new stylist pay plan and embedded a productivity-driven operating model. Most importantly, stylist productivity is improving, which has a positive impact on their earnings and contributes to improved stylist retention. As performance stabilizes, we expect our company-owned salons will increasingly serve as a center of excellence, testing, learning, and sharing best practices that can benefit our broader franchise network. In support of these two priorities, we are advancing several key secondary initiatives aimed at positioning Regus for durable system-wide growth, strengthening our people and culture and driving technology and digital acceleration across the business. Together, these efforts are designed to enhance our operational performance, reinforce our brand leadership, and create sustainable long-term value for all stakeholders. In our portfolio brands, we are extending key elements of the Supercuts transformation, including online booking, transparent pricing, and loyalty integration. Rather than waiting for later quarters, we've accelerated this work because the benefits are clear and immediate. We're also piloting brand-specific initiatives designed to strengthen performance across the portfolio. Technology continues to be a critical enabler of transformation as well. We're stabilizing and optimizing our POS and booking platforms while assessing broader modernization opportunities across the enterprise. Our partnership with Forum3 and the expansion of our digital and AI initiatives will help us harness data more effectively to drive marketing efficiency, guest engagement, and operational simplicity. And lastly, our people and our culture are critical to the overall success of our company. At the heart of this is the stylist, the face of our brands and the core of our guest experience. A thriving stylist community drives guest loyalty and business growth. Insights from our recent qualitative research are helping us better understand what fuels stylist engagement and retention in today's styling industry. We're also focused on deepening connection and communication across the organization, ensuring every employee, field leader, and franchise owner understands how their efforts ladder up to our broader goals. When our franchisees thrive, Regus thrives, and that alignment remains fundamental to our success. In summary, we're off to a solid start to fiscal 2026. Our results reflect continued progress on the fundamentals of improving profitability and generating positive cash flow. We are steadily advancing the transformation of Supercuts and our company-owned salons. We are executing with discipline, driving stronger alignment across our teams and franchise partners, and building real momentum behind the strategic priorities we have outlined. While there's more work to do, we are encouraged by the progress and the clear signals that our actions are taking hold. I want to thank our teams, our franchisees, and our stylists for their commitment and resilience. Together, we are building a stronger, more modern, and more unified Regus, positioned for long-term growth and success. With that, I'll turn the call over to Kirsten for a deeper look at the financial results.

Thanks, Jim. Our fiscal 2026 first quarter results include the results of the 281 company-owned salons that we acquired from Align in December of 2024. As a reminder, our results for this quarter reflect contributions from the acquired company-owned salons, but prior year results do not. As Jim shared, our first quarter results reflect meaningful progress in enhancing Regis's financial performance and advancing key initiatives to position Regis for sustainable growth. For the first quarter, we delivered same-source sales growth, a 177% increase in operating income, and our fourth consecutive quarter of positive cash from operations. Total first quarter revenue was $59 million, an increase of 28% or $12.9 million compared to the prior year. This increase was primarily driven by increased revenue from company-owned salons resulting from the acquisition of a line in December of 2024, as well as an increase in same-store sales of 0.9%. This increase was partially offset by lower non-margin franchise rental income and royalties due to fewer franchise locations. As of September 30th, 2025, we had a net decrease of 757 franchise locations compared to September 30th of 2024. Approximately 300 of these locations are related to the aligned salons that converted from franchise to company owned. Sequentially, we had 54 fewer franchise locations compared to the prior fourth quarter of 2025. The 443 net franchise closures year over year, excluding the aligned salons that converted to company owned, primarily involved underperforming stores that had significantly lower trailing 12 months sales volumes than our top performing locations. The performance gap between these closed stores and our highest performing units was approximately $350,000, underscoring the strong potential within our system and highlighting the opportunity we have to further enhance profitability margins and cash flow generation as we continue executing our transformation strategy. We continue to believe fiscal year 2025 was the last year of closures in this order of magnitude. In terms of profitability, we reported gap operating income of $5.9 million, an increase of $3.8 million compared to $2.1 million in the year-ago quarter. This increase was primarily driven by operating income contribution from the acquired company-owned salons, which was partially offset by lower royalty revenues. In addition, our continued focus on discipline cost management led to lower G&A expenses that further supported the improvement in operating income. Income from continuing operations was $1.4 million compared to a loss from continuing operations of 1.8 million in the year-ago quarter. The year-over-year improvement was driven by an increase in company-owned salon revenue, which was partially offset by lower royalties and an increase in net interest expense. The increase in both operating income and income from continuing operations reflect growth in same-store sales, disciplined cost management, and momentum in our core business. Turning to our adjusted results, as a reminder, our adjusted results exclude stock-based compensation expense. We believe this provides a clearer view of our underlying business performance. A reconciliation of our gap to non-gap results is included in our press release. For the first quarter, our consolidated adjusted EBITDA was $8 million, an increase of 4.3% compared to $7.6 million in the prior year quarter. The $400,000 improvement was primarily driven by the EBITDA contribution from the acquired company-owned salons. Our adjusted G&A was $10.4 million in the first quarter of fiscal year 2026, up from $10 million in the year goal quarter. This slight increase resulted from G&A associated with our additional company-owned salons, partly offset by lower G&A expenses resulting from our continued focus on disciplined cost management. Adjusted EBITDA for our franchise segment was $6.4 million in the quarter, a $1.6 million decrease compared to $8 million in the prior year quarter. This decrease was primarily due to lower royalties and fees in the current period, which were partially offset by lower G&A expenses. As a result, franchise adjusted EBITDA as a percentage of franchise revenue was 16.5%, down from 17.6% in the year-ago quarter. Adjusted EBITDA for our company-owned salon segment improved by $1.9 million year-over-year to $1.6 million for the quarter, primarily as a result of increased number of company-owned salons. Turning to cash flows. For the three months ended September 30th, 2025, we generated $2.3 million in cash from operations. which is an improvement of $3.6 million compared to a use of cash by operations of $1.3 million in the prior year period. The increase in cash generation was driven by a net increase in advertising funds and income generated by company-owned salons. As a reminder, when evaluating our reported cash flows, we believe it is important to understand that cash flows are derived from two sources. unrestricted cash from operations, which is available for general corporate use, and restricted cash related to our ad fund, which is sourced from the contributions made by our salons, both franchise and company owned. Ad fund cash is designated specifically for marketing purposes and not available for corporate use. For the first three months of fiscal year 2026, our total reported cash from operations of $2.3 million is comprised of $1.1 million in cash generated for the ad funds, which is restricted, and $1.2 million in cash generated from our core operations, which is unrestricted. Importantly, the business continues to generate positive cash from operations, providing a strong foundation for growth and financial flexibility. For fiscal year 2026, we anticipate a meaningful increase in unrestricted cash generated from our core operations compared to fiscal year 2025. This expected improvement is supported by continued operational strength, a full year of acquired company-owned salon results in the absence of one-time expenses we experienced last fiscal year. Additionally, working capital improvements are expected to further enhance cash generation from our core business. Ad fund cash, which is designated specifically for marketing purposes and not available for corporate use, built up over fiscal year 2025 as we moderated spending to focus on executing our business transformation strategy. Our marketing plans for fiscal year 2026 anticipate deploying this accumulated ad fund cash to support initiatives aimed at driving growth. As a result, we expect unrestricted cash generated from operations to be higher in fiscal year 2026 compared to 2025. Total reported cash from operations may be lower than the prior year due to the planned usage of ad fund cash. In allocating capital, our priorities remain the same, reinvesting in the business to support growth, maintaining disciplined debt management, and evaluating potential strategic opportunities. Turning to our balance sheet, in terms of liquidity, as of September 30th, 2025, we had $25.5 million of available liquidity, including capacity under our revolving credit agreement and $16.6 million in unrestricted cash and cash equivalents. As of the end of the first fiscal quarter, we had outstanding debt of $124.8 million, excluding deferred financing costs and the value of warrants, plus accrued paid and kind interest. As a reminder, in accordance with GAAP, our balance sheet includes approximately $211 million of operating lease liabilities related to our franchise salon leases. These leases have a weighted average remaining term of less than five years, and the associated obligations are serviced directly by our franchisees. Provided that the franchisees continue to meet their lease payments as they historically have, We believe these amounts should not be considered part of our debt position when evaluating our financial leverage. We expect these liabilities will continue to decrease over time as the lease is mature and as we further reduce our use of franchise leases. Finally, we have received questions from shareholders about the potential to refinance our existing debt. Given the terms of our agreement, the economics of refinancing do not support such a move in the near term. It would not be in the best interest of our shareholders. Although our current interest rate is higher than the recent market levels, the impact of certain terms outweighs any interest savings from refinancing. We will continue to assess refinancing opportunities as our debt agreements mature and market conditions evolve. In summary, our fiscal year 2026 first quarter results reflect meaningful progress in strengthening Regis's financial profile. Our adjusted EBITDA and positive operating cash flows demonstrate the benefits of operating leverage and the contributions from the Align acquisition, while our balance sheet and liquidity position provide flexibility to support our strategic initiatives. This concludes our prepared remarks. We will now open the call to any questions. Good morning. We did have a few questions come through the chat. I will read the question for you, Jim. Can you please provide more details about pricing actions you have taken and impact on traffic, if any?