Regis Corporation

Good morning, and thank you for joining the Regis Third Quarter 2026 Earnings Conference Call. I am your host, Kirsten Zupfer, Executive Vice President and Chief Financial Officer. I am joined today by our Chief Executive Officer, Susan Linton-Smith, and our Chief Operating Officer, Jim Lane. All participants are in a listen-only mode, and this conference is being recorded. We will open this call up for questions at the end of our prepared remarks. I would like to remind everyone that the language on forward-looking statements included in our earnings release and 8K filing also applies 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 our CEO, Susan Littensmith.

Hi, good morning, everyone, and thank you for joining us on today's earnings call. Let me start by recognizing our wonderful support team and our franchise partners. I also want to thank our thousands of dedicated stylists who take care of our guests every day. Since this is my first Regis earnings call as CEO, I'll take a few minutes to introduce myself. While new to the CEO role, I am not new to Regis, having been on the board since January 2025, serving most recently as board chair. I have over 35 years of leadership experience with strong consumer brands, primarily in the health and beauty services and restaurant industries. I've led high growth and turnaround businesses. My expertise is in strategic planning, marketing and brand building, leading operations, and running franchise systems. My career has mainly focused on multi-unit retail franchise businesses. leading companies both as franchisor and then also most recently operating a beauty services franchise. My experience has reinforced a simple view. Successful performance in a service business like ours is ultimately driven by strong differentiated brands, staying focused on priorities that can drive sustainable growth, and delivering a great experience in every salon to every guest every day. My approach is franchisee-centric, and our strategic initiatives will be guided by a focus on supporting franchisee success and the guest experience. I am excited to lead Regis and work with an amazing group of people in a great industry. I see the potential of this business. We have a portfolio of category-leading brands and a compelling opportunity to define the future of hair care. I'm fortunate to have joined a company at a time when the business has a solid foundation to build upon and much progress has already been made. This is a great time to move the business from stability to growth. And we can achieve this by strengthening our brand differentiation, attracting new guests, and approving share visits. Powered by a robust CRM loyalty platform, digital innovation programs, and operational excellence. We have three key priorities to help drive our growth plan. The first priority is to grow the Supercuts brand. At a high level, there are three pillars in the transformation plan to grow Supercuts. The first is evolving the brand strategy. The second is modernizing the digital experience. And the third is driving operational excellence. The second priority is our company-owned salons. We will invest more resources in our company-owned salons to make them the best-in-class model of growth and profitability. And the third priority is SmartStyle. This is an underperforming brand that continues to weigh on our overall growth, but one we are committed to improving. In addition to these three growth priorities, We are also taking actions to strengthen our financial foundation. We are actively pursuing refinancing opportunities to reduce our cost of capital and enhance our financial flexibility. This is a high-level overview of our priorities, and we'll go through in more detail later in the call each one of these. Let's move now into fiscal third quarter highlights. Our third quarter results reflect another quarter of strong execution, demonstrated by same-store sales growth, increasing profitability, and solid cash flow generation. The growth in same-store sales reflects benefits from favorable seasonal conditions and the impact of our initiatives. For Q3, we had solid same-store sales growth. Consolidated same-store sales growth increased 2.6%. Supercuts delivered same-store sales growth of 5%, and company-owned salons had same-store sales growth of 9.6%. Pricing actions, specifically in our company-owned salons, supported these sales increases. Our focus across all our salons is on driving traffic, and I'll speak later in the call about our plans to achieve this. As Kristen will cover, We continue to expand profitability and generate meaningful cash flow through disciplined cost management and operational improvements, reinforcing the underlying earnings power of this business and durability of our cash flow. Adjusted EBITDA in the third quarter was $7.7 million, an increase of $600,000 driven year-over-year revenue by continued G&A discipline and contributions from our company salon portfolio. Year-to-date adjusted EBITDA of $23.6 million is up $1.7 million versus the prior year. We generated $5.3 million of unrestricted cash from operations in Q3, bringing the total to $9.3 million year-to-date. Our balance sheet remains solid, and we continue to operate comfortably. within our credit agreement covenants. And with that summary, I'll hand it back to Kirsten to discuss the financial results in more detail.

Thanks, Susan. As Susan begins her tenure as CEO, it is worth taking a moment to reflect on the financial foundation that has been built over the past several years. Through disciplined cost management, we have made meaningful progress reducing G&A, improving profitability, and returning the business to positive cash flow generation. As a result, Redis is operating from a stronger and more flexible financial position as we move into the next phase of growth, Susan outlined. For the third quarter, we delivered a 14% increase in GAAP operating income, generated $7.7 million in consolidated adjusted EBITDA, and produced positive cash from operations for the sixth consecutive quarter. This improvement in profitability and cash flow occurred alongside a decline in total revenue. Total third quarter revenue was $52.4 million, a decrease of 8.1%, or $4.6 million compared to the prior year. This decline was primarily driven by lower non-cash franchise fee recognition in the quarter. Franchise closures have moderated meaningfully in fiscal year 2026 as we continue to strengthen the overall quality of the system. During the first nine months of fiscal year 2026, our franchise location count declined by 150 locations, net of openings, or approximately 50 locations per quarter, and we expect fourth quarter net declines to be generally consistent with that recent run rate. On an annualized basis, that represents a significant improvement compared to net franchise location declines of 414 in fiscal 2024 and 430 in fiscal year 2025. Many of the prior year closures involved underperforming locations that reached the end of their lease life, and their exit has contributed to a stronger, more productive remaining salon base. As of March 31, 2026, our franchise location count was down 279 salons compared to March 31, 2025. The locations that closed were primarily underperforming stores with significantly lower trailing 12-month sales than our top performing units. The average unit volume of the closed locations was approximately $130,000, roughly $350,000 below the average unit volume of stores in our highest-performing quartile. As lower-performing locations exit the system, our remaining salon days become stronger, more productive, and better positioned to support our improved profitability and cash flow over time. We reported GAAP operating income of $5.7 million, a $700,000 increase compared to $5 million in the year-old quarter. This increase was primarily driven by reductions in G&A expenses and benefits from portfolio optimization initiatives in our company-owned salon segment, which contributed to an improved operating margin. Income from continuing operations was $735,000 compared to $250,000 in the yearbook quarter. The year-over-year improvement was primarily driven by reductions in G&A expenses and an increase in company-owned salon contribution, which was partially offset by lower contribution from higher-margin royalty revenues. The increase in both operating income and income from continuing operations reflects positive same-store sales performance in our franchise and company-owned salons, as well as disciplined cost management. 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 GAAP to non-GAAP results is included in our press release. For the third quarter, our consolidated adjusted EBITDA was $7.7 million, an increase of 8.5% compared to $7.1 million in the prior year quarter. The improvement was primarily driven by lower G&A expenses and contributions from company-owned salons, which were partially offset by lower franchise realties and non-cash fee recognition. Our adjusted G&A was $9.5 million in the third quarter of fiscal year 2026, down from $10.2 million in the year-old quarter, reflecting continued cost management disciplines. Adjusted EBITDA for our franchise segment was $6.2 million in the quarter, a $100,000 decrease compared to $6.3 million in the prior year quarter. This decrease was primarily due to lower royalties and non-cash franchise fees in the current period, which were partially offset by lower G&A expenses. Franchise EBITDA as a percentage of franchise revenue was 18.7%, up from 16.5% in the yearable quarter. Adjusted EBITDA for our company-owned salon segment improved by $600,000 year-over-year to $1.4 million for the quarter, primarily as a result of increased pricing and portfolio optimization initiatives. Turning to cash flows, for the nine months ending March 31, 2026, we generated $8.9 million in cash from operations, which is an improvement of $1.9 million compared to $7 million in the prior year period. Of the 8.9 million, 5.3 was generated in the third quarter. This represents our sixth consecutive quarter of positive cash from operations. This increase in cash generation was driven by higher operating income as a percentage of revenue. As a reminder, when we're 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 contributions made by our salons, both franchise and company owned. Ad fund cash is designated specifically for marketing purposes and is not available for corporate use. For the first nine months of fiscal year 2026, our total reported cash from operations of $8.9 million includes $400,000 of cash used for the ad funds. which is restricted, and $9.3 million in cash generated from our core operations, which is unrestricted. The business continues to generate positive cash from operations, providing a strong foundation for growth and financial flexibility. In addition, because of our significant net operating loss carry-forwards, we do not expect to gain meaningful cash taxes in the near term, allowing more of our earnings improvement to translate into cash. For fiscal year 2026, we continue to 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, and the absence of one-time expenses we experienced last fiscal year. We also expect working capital improvements to provide additional support to cash generations. While we expect full-year unrestricted cash generation to increase meaningfully year over year, quarterly cash generation may vary based on the timing of working capital movements and schedule payments. Ad fund cash, which is designated specifically for marketing purposes and not available for corporate use, totals approximately $20 million annually. Since fiscal year 2025, we deliberately accumulated a surplus by moderating spend in order to focus on our business transformation strategy. In the first quarter of fiscal year 2027, we will have new marketing creative ready and will deploy the accumulated ad fund dollars to increase our marketing efforts to help drive awareness and traffic. Turning to our balance sheet, our balance sheet continues to improve through significant quarterly free cash generation. As of March 31, 2026, we had $31.9 million of available liquidity, including capacity under our revolving credit agreement and $22.9 million in unrestricted cash and cash equivalents. This provides flexibility to support ongoing operations while continuing to invest in the initiatives we are executing to drive higher salon traffic and long-term value creation. As of the end of this Third fiscal quarter, we had outstanding debt of $127.1 million, excluding deferred financing costs and the value of warrants plus accrued paid in-kind interest. As a reminder, in accordance with GAAP, our balance sheet includes approximately $175 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 leases mature and as we further reduce our use of franchise leases. From a capital allocation perspective, reducing debt and improving financial flexibility remain key priorities. We are continuing to build cash and strengthen our financial profile, which we believe better positions the company to evaluate refinancing opportunities aimed at reducing our cost of capital over time. With that, I'll turn it back to Susan to discuss our business priorities.