Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the European Wax Center's First Quarter Fiscal 2022 Earnings Conference Call. All this time, all participants are in a listen-only mode. After the speakers presentation, there will be a Q&A session. In order to facilitate as many participants as possible, we ask that you please limit yourselves to one question and one follow-up during the Q&A session. If you have additional questions you may rejoin the queue. At this time, I would like to turn the conference over to Amir Yeganehjoo, Senior Vice President of Financial Planning and Investor Relations. Sir, you may begin.

Thank you, and welcome to European Wax Center's first quarter fiscal '22 earnings call. With me today are David Berg, Chief Executive Officer; David Willis, Chief Operating and Chief Financial Officer. For today's call, David Berg will begin with a brief review of our first-quarter performance and discuss the progress against our fiscal '22 priorities. Then David Willis, will provide additional details regarding our financial performance, our recently completed recapitalization and our updated guidance. Following our prepared remarks, David Berg, David Willis and I will be available to take questions you have for us today. Before we start, I would like to remind you of our legal disclaimer. We will make certain statements today, which are forward-looking within the meaning of the Federal Securities Laws, including statements about the outlook of our business and other matters preference in our earnings release issued today. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially, please refer to our SEC filings, as well as our earnings release issued today for a more detailed description of the risk factors that may affect our results. Please also note that these forward-looking statements reflect our opinions only as of the date of this call and we take no obligation to revise or publicly release the results of any revision to our forward-looking statements in light of new information or future events. Also during this call we will discuss non-GAAP financial measures, which adjust our GAAP results eliminate the impact of certain items. You will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP to GAAP measures in our earnings release. A live broadcast of this call is also available on the Investor Relations section of our website at investors.waxcenter.com. I will now turn the call over to David Berg.

Thank you, Amir, and good afternoon everyone. Thank you for joining us today. Before discussing our first quarter performance and expectations for the remainder of the year, I'd like to remind everyone about European Wax Center's tremendous business model. As the category creator, we have built a leading Personal Care franchise brand that has revolutionized the growing highly fragmented market for out-of-home hair removal. The simplicity and scale of our asset-light franchise platform enables us to deliver 10s of millions of trusted, efficacious and accessible wax services each year. We are proud of everything we've accomplished to date and remain on track to deliver our long-term growth targets. I would like to thank all of our associates and franchisee partners for continuing to flawlessly execute our growth initiatives while delighting our guests with an unparalleled waxing experience. It's clear from our first-quarter performance that fiscal 2022 is off to a solid start reflecting the strength of our business, consumer demand for our services and continued recovery from COVID-related headwinds we experienced early in fiscal 2021. While we reported fourth quarter results just a few weeks ago, we have continued to make progress against our strategic priorities for fiscal 2022. Most notably, we completed the refinancing of our capital structure at the beginning of April, and look forward to issuing a $3.30 per share special dividend in the coming days. Turning to our Q1 results. We delivered on both of our primary growth drivers--opening new centers and driving positive same-store sales. We opened 21 net new centers ending the quarter with 874 centers in 44 states. Our development pipeline is deeper than ever and continues to grow as we generate increased interest from multi-unit operators and existing franchisees who are excited to expand their portfolios within European Wax Center. From a…

Thanks, David and good afternoon everyone. As a quick reminder, my remarks will focus on our adjusted results which exclude cost related to our initial public offering and other one-time costs. You can find reconciliation tables to the most comparable GAAP figures in our press release and 8-K filed with the SEC today. As David Berg mentioned, we are very pleased to share our results with you today. Since last year, we've acquired a significant number of new guests increase the number of retained guest by double-digit rates and taking market share from independent competitors. We have strategically and thoughtfully managed cost increases on behalf of our network and raise prices on body services to preserve four-wall EBITDA without seeing an impact on traffic. Lastly, we have been disciplined with expenses while investing in the necessary capabilities to help us achieve long-term success as a public company. We believe all of these factors played a role in driving our solid performance in the first quarter of fiscal 2022. Q1 system-wide sales increased 31.9% million to $207 million and total revenue rose 23.9% from Q1 last year. We opened 21 net new centers during the first quarter and delivered 29% same-store sales growth. Most of our network was rebounding from COVID-related shutdowns and closures in Q1 of last year, so we expected Q1 2022 growth, well above our long-term targets. However, robust Wax Pass redemptions across the network drove same-store sales performance above the low 20's outlook we shared in mid-March. California was particularly constrained last year and contributed approximately a third of our same-store sales growth. California has achieved its expected 2022 run rate faster than we had anticipated, which also contributed to our strong Q1 results. We are pleased with California's recovery so far, it is still trending slightly…

[Operator Instructions] And the first question comes from Randy Konik with Jefferies. Please go ahead.

Thanks a lot, and good afternoon, everybody. I guess my first question is, I wanted to get some perspective on how service patterns are changing at mass have been coming off broadly even on the plane. So have the customers started to kind of increase upper lip, brow or wax facial services and if so, is that contributing to more services per visit higher transaction value per visit, just curious on what you're seeing there?

Thanks for the question. I think that the ease of the mass mandate is still pretty early. So we have not seen a substantial mix shift from what we've reported before, which was heavily indexed towards body services, we continue to expect that we will see facial services become a bigger part of our mix going forward, but in Q1, I think it was just too early to tell, and you will see as we talk to our guests again, just reminding them that it's safe not only to come back in, but it's also safe to come back in and get those facial services. So it's an emphasis of how we are looking at this as we go forward.

Got it. And then just with the strength in the same-store sales and productivity in the units, obviously, it looks like you're continuing to gain market share against a fragmented landscape of competition, any sense of kind of share transfer you're seeing out there in any types of geographies you're particularly seeing it more pointed versus other geographies anything to note there?

I don't think there is any specifics. As you know, we're a little bit more heavily skewed in the suburban areas. We do know Randy that from our research that one and five guests coming to us in 2021, was coming from a competitor, we know probably up to 10% of the Mom and Pops salons did not reopen coming out of COVID. I think probably that there are well-known history of focus on hygiene and training if you were at all concerned about that in your previous provider is probably someone was driving- coming to our brand and candidly we think as sort of things get a little bit tougher, our customer demographic, SKUs more towards that household income over $100,000 and there a bit more immune from some of the higher prices that they're experiencing in other places and we've just seen the brand continue to show its dominance as folks continue to make this part of their non-discretionary beauty regimen. So we think we'll continue to take market share because of our superior value proposition

The next question comes from Jonathan Komp with Baird. Please go ahead.

Thank you. I want to ask a follow-up on the comps outlook for the year and I know you highlighted, more difficult comparisons after the first quarter. And my question is, are you seeing the business go against those tougher comparisons that are ready now, and how are the comps reacting or are you assuming the comps slow from sort of the run rate trajectory that you're on today?

Hi Jon. David Willis. Thanks for the question. We're just trying to call out as we had candidly, a bit of a softball comps in the first quarter with California Center just starting to come back online in the first quarter of 2021. Our California started getting some momentum in the second quarter, in the third quarter and the rest of the country did as well. So, the only thing we wanted to call out is we're just lapping a tougher comp in the second quarter and third quarter of 2021, but no, we wanted to be clear, we don't see any degradation and kind of our long-term targets there.

Okay, that's very helpful and then just one follow-up on the cost and the EBITDA projections. I know you, David Willis, highlighted some of the shifts quarter to quarter, but are you baking in any discrete inflation impacts during the balance of the year or could you just comment more broadly, how inflation is impacting the business, if it is? Thanks.

Yes, you bet. Jon. So the item that we called out strategic decision on our part, we are seeing higher freight cost towards the wax that we're importing over from Europe. So the ocean freight rates continue to escalate. You may recall, previously we had passed on a freight surcharge to our network and our wax price increased to our network. We in turn took pricing in the four-wall center to protect four-wall EBITDA in both of those instances. What we're seeing in terms and which we have factored into our guidance are increased higher freight cost for the Wax that we're importing from Europe. We made the decision to absorb that, to candidly protect four-wall economics. We will continue to monitor this, if costs go up. We're also committed to delivering the street, the numbers that we had communicated. So if costs go up more than what we are forecasting, we'll evaluate, when if we have to pass on those higher cost to our franchisees.

The next question comes from Dana Telsey with Telsey Advisory Group. Please go ahead.

Good afternoon and congratulations on the progress. Just want to get any updates. I think the gross margin guidance that we've talked to in the past for this year was around 71% to 71.5%. Are you still looking at that and how do you think about that go forward? And on the aestheticians or the Wax Specialists, are you finding them now more so in California and how our labor rates versus your plan? Thank you.

Dana, I'll start on the gross margin. So in terms of our guidance for the full year, we outperformed in the first quarter relative to expectations. You may recall the medical supply arrangement that we put in place in the first quarter was gross margin, gross profit dollars accretive, but gross margin percentage diluted. We implemented that a few weeks later than we had anticipated. So we had a few weeks of kind of higher gross margin percentage in the first quarter relative to our initial expectations. On the margin, we still think the overall year is going to be at the gross margin profile that we had previously guided to. With respect to Wax Specialists, we are seeing continued momentum in our California centers in terms of our franchisee's ability. They are not to optimal staffing levels yet with pre-COVID staffing levels yet but our franchisees continue to make good progress there. So we're encouraged by that. And with respect to labor rate, I think we touched on this, Dana, bit in March. The average franchise EBITDA margins were actually higher in 2021 than they were in 2019. So thus far our franchisees have been able to manage inflationary rates with respect to labor. We'll continue to monitor that obviously, our franchisees dictate the compensation they pay to their Wax Specialists and their guest service associates but thus far, they've been able to kind of weather that without an issue.

Got it. And then just lastly on the topic of inflation, do you see it at all any different in different areas of the country in terms of the perceived impact on the consumer and how you planning pricing going forward, when do you plan to pass on any cost increases and to what magnitude? Thank you.

Sure, Dana. So we did implement price increase for our body services earlier this year. You may recall we have seven different price tiers throughout the country. So, by design, we charge a little bit more for services in those markets that have higher wage rates and higher rent expense. We currently do not plan to implement across the board service price increases for the balance of the year. However, we do allow our franchisees to raise rates if they want to outside of our standardized price increases, so nothing is planned in our guidance, but we wouldn't prohibit or franchisee if they saw hyperinflation and give the market, we would not prohibit them the ability to take price within that market.

The next question comes from Simeon Gutman with Morgan Stanley. Please go ahead.

Last quarter we quantified the California drag somewhere between the 400 to 500 basis point impact. Did you say that the drag is completely gone? And then as it moves through the year, the drag- it just you have tougher compares, so even if the drag has gone, it's just not going to be the same year-over-year benefit to the overall comp.

Yes, Simeon. So last year in 2021, all of our comps were against 2019 pre-COVID levels, we thought comping against 2020 would be a bit confusing. This year in 2022, we're now comping against 2021. So as you think about last year California was a drag relative to 2019. Given the momentum there when they started reopening in 2021, it's actually an improvement to comp this year. So, that relationship has essentially --it's the inverse of what we talked about last year.

Got it.

I think we had mentioned Simeon in our prepared remarks to kind of frame range that --of our overall 29% comp in the quarter, about a third of that is driven from our California center and about two-thirds of that's driven from rest of network.

Okay. That's right. Okay. And then if you look at the mix of the comp between appointment center growth and then ticket, can you share? It sounds like the appointment center's picked up, there were several comments around that. It sounds like the mix of that would have increased in the quarter, is that fair? And I guess I don't know if there's a way that we should think about that going forward.

Yes. So, good question. Last year was a consistent story. The comp was overweighted with price lesser on tickets. In the first quarter of this year tickets or traffic accounted for about 70% overall comp and 30% price. Now, I think that we'll see that more balance out throughout the year, because first quarter was so heavyweight with California recovering, but we are pleased to see a much more balanced view that we're seeing and tickets and traffic drive more of our comps and just price.

The next question comes from Lorraine Hutchinson with Bank of America. Please go ahead.

Thanks, good afternoon. I wanted to first follow-up on the comments you made around the supply chain inflation, these are the freight understanding you are digesting those cost yourself, just wondering if you're having any difficulty receiving any of your suppliers or simply it's just costing more?

Lorraine. We're not and we feel fortunate. Candidly, we're not importing thousands of SKUs from all over the world, we're importing handful SKUs from Europe. So thus far, we did see port congestion early in the year that's been a bit more decluttered. You may recall we maintain kind of four to five and some case of six months of wax as a bit of an insurance policy. So, earlier in the year, we saw probably more Wax on the water than what we would like that has since decluttered and we have more Wax in DC. So we will continue to monitor that, the port congestion for the ports that we're accessing have gotten better but our supply chain team is looking at that every day.

Thank you. And then I wanted to follow up on the ramp and advertising in 2Q and 3Q, will that look different than what you, how you marketed before, are you testing in or using any new channels? I was just hoping for a little bit more detail there.

Yes. We typically. Lorraine, this is David--we typically ramp in Q2 and Q3, if there is any seasonality of the business and it's very marginal as we've explained previously. But we'll spend more in those months. And we continue to look at our media mix, we skew heavily towards digital and social net, and that's the way we'll continue to do it. As we get deeper CRM and better analytics, we're getting to a much greater ability to get personalize and get into subsets of our guests to target those guests. So you will see that the consistent ramp that we have in years past and targeted across those digital mediums.

The next question comes from John Heinbockel with Guggenheim. Please go ahead.

Good afternoon, this is Julio Marquez on for John Heinbockel for today. Just a couple of quick questions. You have any update on customer segmentation in terms of average visitation and spend by the most loyal customer versus the average customer and following up over the last three quarters, you've averaged about 20 center openings, how conservative is the full-year targeted? Is there anything that's can come up in the second half that might impact openings, it is an upside or downside? Thanks.

Mark, thanks for the question. It was all address the customer segmentation. We've segmented our customers, we've got kind of five key customer segments that we go after. We mentioned in our prepared remarks that we-- the enterprise data warehouse has gone live and we are really excited about getting much deeper and robust profiles around our guests and will share in more detail around guest metrics and customer segments as we go forward. But we do know as we sort of alluded to in some of the calls about questions around inflation is that our guests do skew that a higher income level, a little bit more muted in terms of the elasticity of prices of our services and we've been very, very pleased with kind of the robustness and the traffic that we've seen but you're more to come on sort of specific customer segments as we go forward in the year.

And I'll just touch on development. So we're pleased with the net 21 centers delivered in the first quarter, we had a nice balanced mix of both from franchisees and geographies. So with 17 franchisees opening centers in 13 different states. So we feel good overall about our pipeline in our construction process. Having said that, we're still seeing permitting delays in some markets. So we'll continue to monitor that, but we feel really good where we're sitting here today on May 4 and that we've opened 21 and we have a decent amount that are actively under construction.

[Operator Instructions] The next question comes from Beth Reed with Truist Securities. Please go ahead.

Hi, thanks. Good evening. I guess just given the uncertain macro environment, can you talk about what the business experience from a demand perspective, during the '08-'09 recession, recognizing obviously that was much earlier days, as well as what sort of impact you've historically seen when implementing price increases.

Yes, Beth thanks for the question. I. You're right, I mean in '08-'09 that the brand was very, very young. We comp positively during that period of time and we continue to open new centers during that time period. So we feel good, of our, a little bit of history that we've got in an actual recession. I think the other learning point for us is certainly how quickly we rebounded coming out of COVID, that guests came back and not just sort of at that pent-up demand for that first visit but got back into their regular beauty care regimen and visit us on their on their regular basis. So we feel, we feel good about--whether it's recession-proof, recession resiliency of the brand as an evidence by our history. I think one of the things that we do believe that just kind of given our scale that we've got the ability to weather the storm and probably actually would be a share beneficiary in some inflationary periods versus the smaller players that don't have kind of scale advantage.

Got it. That's helpful. Thank you. And then just quickly, if I could ask, just talk about maybe some effort to generate more brand awareness either before center opens or right after, in order to improve that year one productivity, you mentioned in the past 20% new guests are coming from a competitor, I guess. Any efforts to get that other 80% into European Wax Center more quickly?

Yes. From an operation standpoint, one of our key priorities is how do we get our franchisees to break even faster. The other is how do we get them at north of 25% four-wall EBITDA. So our operations team led by Julie Hauser-Blanner is hyper-focused on driving that ramp in that first year, Beth. We've revamped our new store grand opening package to include local marketing, more directed marketing to try to build that book in advance of centers being opened. So I think we're pleased with some of the early results that we've seen in terms of the ramping of our centers. As you know, our centers ramp across cohort, very, very consistently and we've seen some improvement in those earlier years. And we continue to believe as we focus on that--that will show continued improvement.

The next question comes from Paul Matthews with Citigroup. Please go ahead.

It's Tracy Kogan filling in for Paul. I had a question about the new audiences you guys mentioned that you'd be targeting. I was wondering, maybe if you could talk about how big the market size is, I think in men's? And I think you said the ethnic audience, but maybe if you could talk about the market sizes versus your current female market and then specifically on what you think the growth rates will be in those markets? Thanks.

Yes, sure. Hey, Tracy. Thanks for the question. As you know, today we're in 97 plus percent female in the guests in European Wax Center. So we did some work last year around where there are opportunities and an overall $18 billion total addressable market here in the US that we could go after and we identified the two categories that we talked about. So this is additive, right. So the male category makes up about $3.5 billion of that $18 billion TAM and multicultural. I can't give you the exact number, but it's a significant portion of our guests that just has been underserved candidly in the whole out-of-home waxing industry. We believe that we're the right people to go after that. We're really going to ramp up as we talked about in our prepared remarks, our advertising and focus campaign on those two categories of guests as we approach as we get into the summer months here in Q2 and Q3. So we're excited about some of the early returns as we sort of a soft launch in the late fall and really with much more earnest and much more focus, you'll see those efforts from a marketing standpoint ramp up here in the coming months.

We have no further questions. So this concludes our question-and-answer session. Also, the conference is back over to management for any closing remarks.

Thanks, Tom. Thanks, everybody for joining us today. Obviously, we're very proud of the start that we're off to, we will look forward to speaking with you all in early August, as we report on Q2. Have a great rest of the day. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.