Good morning. And thank you for joining the Regis Second Quarter 2022 Earnings Release Conference Call. All participants are in a listen-only mode. The prepared remarks by our Interim Chief Executive Officer, Matthew Doctor, and Executive Vice President and Chief Financial Officer, Kersten Zupfer, are accompanied by slides to help participants follow along. After the prepared remarks, we will have time for questions. Please use the chat feature or raise your hand feature to ask a question. Also joining Matt and Kersten on this call is Jim Lain, our Chief Operations Officer. I am your host, Biz McShane, Vice President and Controller. As a reminder, this conference is being recorded. I would like to remind everyone that the language on forward-looking statements, including in our earnings release and 8-K filing also apply to our comments made on the call today. These documents, along with our presentation today, can be found on our website, www.regiscorp.com/investorrelations, along with a reconciliation of any non-GAAP financial measures mentioned on today’s call with their corresponding GAAP measures. Today's slides are located in the supplemental financial section of the investor site. With that, I will now turn the call over to Matt.

Thanks, Biz. Good morning, everyone. Let me just start by saying how excited I am to be given the opportunity to step in as interim CEO here at Regis. Since I'm new in this role, let me share a bit about my background before I discuss our second quarter performance, and why I believe we are well positioned for future growth . Additionally, I'd like to spend more time on this call than we have historically showing what this business can deliver on a more normalized go-forward basis, given the many actions we've taken in fiscal 2021 and our move to a fully franchise model. We've made many announcements over the course of the past year regarding organizational changes, product distribution model changes, our operating company wind down, the rollout of Opensalon PRO, our G&A guidance, but we've never quite tied that all together into what that means from a profitability perspective. And I think we owe that to you all. I will also discuss our priorities to continue to drive our business forward. By way of background, I started my career as an investment banker in New York. After spending several years there, I looked to do something completely different and ended up in entering the world of franchising and I haven't looked back. I joined the Restaurant Brands International in 2014 and held several roles there, mainly focused on development and franchising, having led global development and franchisee performance for the Burger King brand, as well as leading development efforts for Tim Hortons. While I was progressing my career, I always had in the back of my mind the desire to be an entrepreneur. I just never knew what the opportunity would look like. And then it hit me. After years of selling the benefits of large scale…

Thanks, Matt. And good morning. Yesterday, we reported, on a consolidated basis, second quarter revenues that reflect our transition to a fully franchise business model and the continuing impact of the pandemic on the labor market. Total revenues of $70 million declined $34 million from the prior year due to 97% of our salons being franchised now compared to the 84% in the prior year. Second quarter revenues were below our expectations and reflect continued labor shortages and the persistence of the pandemic. We are encouraged by salons that have increased stylist hours quarter-over-quarter and have seen their sales improve. For example, 20% of our salons increased hours by 10% and saw approximately a 10% increase in comps. As Matt noted, addressing labor issues is one of our top priorities. Our systemwide revenue, which includes total sales at franchise and company owned salons, increased $43 million from prior year, driven by an improvement in comparable same store sales of 22%. On a two-year basis, a comparison to pre-COVID, systemwide comps were down 17% in the quarter. We reported an operating loss of $1 million during the quarter, which is a significant improvement from an operating loss of $27 million in the prior-year quarter. The improvement results from an increase in systemwide sales, our G&A savings initiatives, wind down of our company-owned salons, and a few one-time non-cash benefits. On an adjusted basis, second quarter consolidated adjusted EBITDA was $2 million compared to a loss of $18 million in the prior year's quarter. Adjusted EBITDA improved due to higher operating income, higher systemwide sales and lower costs. Additionally, the quarter benefited from a couple of non-cash benefits amounting to approximately $3 million that we do not expect to reoccur next quarter. Our core Franchise business achieved adjusted EBITDA of $5.5 million…

Thanks, Kersten. As I mentioned earlier, I'd like to frame what this business looks like on a normalized go-forward basis and how we get there from here. This is what gets our internal team excited and certainly relevant for you all to know. I also want to be clear, this isn't a model that calls for any major shifts or additional change, but rather what EBITDA looks like assuming the exact platform and infrastructure we have in place today, assuming we at least maintain our current store count, get back to 2019 sales levels, as this is a pre-COVID sales level that we've demonstrated being able to achieve, and assuming we complete the rollout of Opensalon PRO. Starting with royalties. Taking our current franchise salon count to 5,553, if these salons get back to within 10% of 2019 levels, resulting royalties are $76 million. If the salons achieve plus 10% versus 2019 levels, resulting royalties are $92 million. Moving to fees, which primarily consists of Opensalon PRO, franchise fees and product rebates from our distribution partners. At the full rollout of Opensalon PRO at set monthly rate, plus the franchise fees and product rebate fees that are currently flowing through our P&L, the resulting revenue is $22 million. For this exercise, we'll assume that our legacy company-owned salons and distribution business are wound down, so no financial impact here. And lastly, our cost structure. We've given guidance that G&A is generally going to be between $65 million and $70 million. And as Kersten mentioned, we feel confident, and as in our latest results, that this will come in closer to the lower end of the range. I also want to reiterate this G&A includes both the corporate resources for our franchise business, as well as the infrastructure for Opensalon PRO.…

Our first question through the Q&A is, can you please speak to your plans for recruiting and retaining stylists?

As I kind of mentioned through our top priorities, this is a key one as it relates to our brand and brand growing initiatives. And for the stylist, it's all about becoming a preferred place for them to work in a destination there. And it's not just hiring new, but we have to retain the ones we have as well. So, the key initiatives we have are around making life as easy as possible for them in the salon. And that can be done through technology, creating a great environment and culture for them to work in, providing those career development opportunities through training. Our training platforms need to be best in class and we need to not only provide that training on the job at the start, but also kind of the continuous ongoing career development and progression training, which is pretty differentiated to get inside of a salon environment. Also, just things that we can do to fill the pipeline and hire quickly. Beauty school enrollment is back up. So we need to ensure that we're ahead of that, leveraging our scale, getting back into beauty schools and ensuring we're converting stylists at a higher rate to work in our salons. And also, just giving them an environment where they can make good money and earn a competitive wage. So, those are the things we're working on. We're working on these with our franchisees. We're receiving feedback all the time and look forward to bringing these to bear and use this as a tool to recruit new and retain the ones we have.

Our next question from the chat is, what obstacles exists to the total adoption of Opensalon PRO? If a franchisee is resisting, what reasons are given?

No, that's another good question. And again, as I mentioned, just top of mind here is the intent of OSP is a great one. For us to have this and build this out, to provide a differentiator for our salons in a world where value proposition is key. And that is really going to be filled with salon culture, customer experience and ultimately technology. So, to have this is a great tool to have, but it needs to meet the reality of what we're intending it to do. And as I said, now that it's actually been working for the last several months in franchisee businesses, there has been feedback of things that we could be doing better to ensure this meets their operational needs, it is meeting exactly what it is they're expecting, things from back office tools and for greater integration there, things as it relates to checking in and the nuances between appointments and queue times. So again, all these things that are great points. And we want this to be something the franchisees want, not something that we're just pushing onto them. So, what we've done is we've taken the feedback, taking it back, and the good thing is the fact that we do have this platform and we do control the development roadmap that we can work that in and quickly solve those issues. So, between quickly solving those issues and the new rollout of the Web-based POS system, which will be a really great cost effective option to be rolled out, these are the two things and continuous iteration with the franchisees around this just to ensure the product is working as it should be is going to be the path forward here.

We are now going to take a live question from Grace Menk from Jeffries.

So, a couple of questions actually. Firstly, on the system sales, just want to check in and see where we're at on an AUV basis relative to the pre-pandemic levels.

I can take that grace. So, as we mentioned in the script, on a two-year stack, we're down approximately 17% to pre-COVID levels.

On the fees revenue, are you able to break out how much of that is the tech fees versus the franchise one-time rendition fees?

Grace, as it relates to Matt's deck, is that what you're talking about? Are you talking about the…

Either one in the kind of the forecasts that you're looking at or in the current quarter. That would be helpful.

It's Matt here. So, on the go forward fees, we're talking about the $22 million bucket, so around half of that is, call it, Opensalon PRO tech fees. Maybe roughly around a third or a little less than a third are comprised of the franchise fees. And the rest are, call it, product rebates and training.

Lastly, the G&A that you're talking to as a run rate puts you at a level that we had expected. And I think you had signaled previously to be 6, 12 months out from today. So we're kind of wondering if you could just elaborate a little bit more on the cuts you're able to find? Were you able to just trim things earlier? Or did you find new areas to cut costs?

No, the guidance that we've given previously, the $65 million to $70 million, I think we've been able to narrow that down to the lower end of that range. And we had always had that expectation that we'd be hitting that run rate in Q4 of this fiscal year. So, as you know, we continuously evaluated G&A at the end of the last fiscal year, throughout this fiscal year, but it is meeting our expectations in terms of when we thought we would be there.

It's Matt. When we put out that range, we felt that we would always be kind of in that lower end of the range. And after kind of going through a few quarters and living it, we feel way more confident that that's where we're going to be.

Our next question coming through the chat is, can you talk about driving more traffic? And how will the marketing and advertising be paid for?

This is a big one that goes hand in hand with stylists. It's one thing to bring the stylists back. But it's walking that road to ensure that we have the customer demand there as well. And I think some of the numbers that we look at gets us very excited, is we actually have pretty good natural occurring traffic levels that are low hanging fruit for us to go after. What we've seen is we haven't necessarily done as great of a job of retaining the existing customers we do have. So, when we think about near term traffic drivers, there's a really big opportunity for those that are coming within our salons to come back within 90 days. We're seeing a bit of a drop off there versus pre-COVID levels. This is kind of in the below 40% range today. Whereas pre-COVID, this was 50 plus. And those salons that we see that have that 90-day retention level kind of in that 40, 50, 60, 70 plus level are at sales levels back to those to those 2019 levels. So, as we think about where we should put effort in, it's encouraging that we have natural traffic. So, when we think about marketing dollars and ROI is going to attract traffic, we can move that 90-day retention number up through targeted ads, through CRM campaigns, through continuing the chats and the customer journey when after they leave their salons and really give them reasons to come back. There's just constant communication being top of mind when that decision is made to get a haircut or to provide promotions to incentivize them to come back to that extent time has lapsed. The fact that we can move the existing traffic we have will go a long way into addressing kind of the near-term traffic levels. There's a good thing about that, too. Not only does it help with the near term, but converting those customers to repeat retained folks for the long term is foundational to and helps reset the baseline. So, when we add new and keep retaining the new then, they start building on each other. So, this is a big kind of near term priority for us as it relates to near-term traffic drive.

Thank you very much, Matt. Those are our questions for today. Thank you for joining the Regis earnings call. Have a wonderful day.