Q1 2021 Regis Corp Earnings Call
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Ladies and gentlemen, good I feel what's what today's conference call at this time be at assembling to these audiences loved to be on the re shortly thank.
Thank you for your patience and did you say made on the line.
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Ladies and gentlemen, thank you for standing by.
Welcome to the wages Corporation first quarter fiscal year Twentytwenty one earnings calls.
My name is John and I'll be your confidence facilitator today.
At this time, all participants out in the lease to know anymore.
Well the managements presentation, we will conduct a question and that's the session.
If you would like to ask a question. During this time lease got stalled long on your push buttons that affords.
If you wish to withdraw your question. Please press Star then two.
As a reminder, this call is being recorded for lease.
He will be available by approximately 12 PM central time today.
I'll now turn the conference over to be its Maxine ATP Finance. Please go ahead.
Hi, good morning, everyone and thanks for joining us on the call with me today, Yes media right, our Chief Executive Officer Christopher.
But you're right [laughter], you're talking probably [laughter] and Atlanta.
General.
Before I turn the call everybody Bye bye.
I would like to remind everyone that the labor or looking statements included in our earnings release, an 8-K filing also apply trucks probably made on the call today.
These documents are lease on their website.
Www <unk> gross profit.
Oh Gosh Investor Relations.
Lot with any reconciliation of non-GAAP financial measures.
Sure Steve Cole.
Of course money get mature with that I will now.
Sure.
Right.
Thank you Mitch.
Good morning, and thank you for joining us.
My name is probably besides the newly appointed President and CEO.
I could not be more excited to be joining this amazing company.
No. These are all good on certain foreign.
Lease times like these are always open new opportunities.
Before I talk about some of the opportunities I see let me start by sharing my background.
I spent almost a decade restaurant brands international Upper Fayetteville company's future capital and parent company Burger King Tim Hortons in Palm Springs.
Our joint Burger huge lucky altered the BG acquisition and don't positions in marketing operations and development across all three RV rich.
I served as president of <unk> did you watch.
President numbers, if you watch the market and most recently as president of the Americas.
You Gotta kitchen.
I love to watch up the <unk>.
Sandwich gastric stressful.
Your mother brand, resulting from the largest same store sales increase in the history of quick service restaurants.
I also want to recovery following the overarching.
Yeah.
I'm excited about me to transition to be <unk>.
The answer is yes.
We just ran the business, making people look and see what their best.
Harris carries the way people like <unk>.
Maybe could be catered to such an important do you want me.
Well you may ask why Harrah's Las Vegas its parents.
She will be inherently Sean.
Readers, that's already built the foundation that positions us well for growth even in the current environment.
And the opportunities around they are very real.
The way you would you be just today is exactly how it's all Burger King back in what do you want.
In terms of the magnitude of the value creation potential for our shareholders well.
Well I mean should that could be achieved by our franchisees, let me focus on franchise profitability.
You can read just fresh produce weren't good partners or friends and have the right structure called <unk> resources, well have a tremendous opportunity to multiply their footprints, both driving <unk> cost in their territories as well, but yes, consolidators where applicable.
New hospitality focused franchisees pretty different franchise.
Be recorded its army brands help me a little bit.
I worked all sprague's coverage.
We are well on our way to becoming a baby franchise business.
Right.
Just to finish the lease franchisee process started like you, which I plan to do an accelerated speed.
We have seen consistent high interest and there were meaningful losses in the portfolio.
I have been approached by a few perpetual preferred equity players who see the current environment we don't.
Thank you Bill.
Here's a launch which can then served as a platform for future consolidation and aggressive new vehicle.
Hi, I'm encouraged.
To bring in new franchise launch.
Here's a lot of industry North America, right now and it's nice to be in the hands of independent players.
There is a tremendous opportunity for salon chains to earn markets you're right differentiation.
First you should know technology to marketing or do advancement opportunities for our stylists.
We are the largest pearsall dot work into one.
We also minimally clinically into North America.
Strong network of franchisees and a world class in House Technology group.
Not only developing innovative customer facing technology, but also what's how sophisticated business analytics platform.
It's all transactional data from our salons via.
Yes or.
No you watched us.
That's what makes it so much smarter.
You know what what you eat up the device Tropic Robbie initiatives drive.
Dr. Brock attachment in our salons.
<unk> loyalty programs that will keep our customers coming back.
My goal is to make me just it's well ran last topic.
[laughter] supporting franchisees with a strong focus on their unit economics.
In the franchisee world Unsurprisingly, the brands, which have grown the fastest or those that have been the most profit.
I consider this to be my most important learning from my 10 years in the restaurant industry.
So reaches obsession with how it's to be and what would be the.
The ability of our franchisees.
Finally, I want to acknowledge that there's still work to do when it comes to organic as we transition to a fully franchise.
I have engaged an outside consultant, who I have known for many years and where it used to be with you My restaurant days and it was already working with us on the woman fishing, but nobody specially cost is that we just a process, which I have been intimately familiar with in the past.
Zero based budgeting will create better visibility and control over our expenses.
Increased accountability over budgets.
Sure expresses are aligned with our company's new business model its respective priorities.
We just run as one maybe Frank can compete and no longer at corporate.
Cool and franchise.
Thank you very much I appreciate you being on the call.
I'll turn it over to our Chief financial Officer persons.
Hey, good morning.
Today, we reported on a consolidated basis first quarter Ronnie.
11 million, which represented 55% decrease from the prior year.
Decreases the national resolved the transition to an asset light franchise model, coupled with the negative continued impact of carbonate cheap.
We estimate that we lost roughly 44 million about in the first quarter due to the reduced traffic in store closures associated with companies like <unk>.
Today approximately 95%.
Wow, so some wider open and management is evaluating that future on opus, one which may include keeping some spot permanently closed.
We reported an operating loss of $31 million during the quarter the economic disruption caused by the pandemic. They key driver of the spot as it has done in the last quarter.
Oh, yes.
First quarter consolidated adjusted EBITDA loss of 19 November was 48 million unfavorable to the same period last year and was driven primarily by the decrease in the gain associated with the sales company on July $27 million and.
Well the elimination of EBITDA that have been generated in the prior period.
And that 1056 company or one that's just that's all they convert it to the franchise.
For the past 12 months.
And coordinating Oh.
Oh, well significantly contributed to the decline in the first quarter adjusted EBITDA.
Looking at the segment performance, starting with our franchise partners.
First border franchise World, you must be the $18 million decreased $10 million or 36% versus the same quarter last year.
So part of the year over year decline was due to a $6 million reduction in cooperative advertising.
Well actually what has typically charge to include franchisee, but once that company temporarily ingredients I was part of the COVID-19 pandemic really hurt to help ease the financial burden.
Based on our franchise.
The decline about that but right now.
And they have no impact on operating income.
Well she's also declined approximately $7 million, primarily due to call. The 19 certain stage mandatory for all your state mandated operating restriction and pandemic related costs aren't either chico's, which we believe to be temporary.
Offsetting these declines but the growth in our franchise, which now represent 80% of our portfolio.
Product sales to franchisees increased $10 million year over year to $14 million driven by the increase in the franchise.
Well the thing that you plan to use our technology capabilities to make better data driven businesses, leading to higher franchise profitability. We believe product enhancement strategies can be created through better use of transactional data from Oh.
First quarter franchise, adjusted EBITDA $7 million declined approximately $5 million year over year, driven primarily by reduced royalty.
As a result, they call. The 19 has been like and the associated activity that was previously known it personally but.
I mean do you get it.
Looking now at the company on one side and then first quarter revenue was $47 million.
Decreased about 127 million or 73% personally buffer here.
The multi faceted reach and the impact of call. It 18, including increased government regulations, Oh I won't be year over year decrease of 1243 company on slide over the past 12 months when the driver.
The decrease in the company as one can be broken into three main categories.
First the successful conversion of 1060 Southern company on blogs short lease franchise [laughter] one over the course of the <unk>.
Oh Boy <unk> hundred 37 were sold during the first quarter.
[laughter], but holder of approximately 400 young blogging, but of course, what the last 12 months.
What's more underperforming salons that lease expiration and not essential to our future strategy, nor did we believe it would be welcome.
The current franchisee portfolio.
I'm sorry is that company Osborne reductions were partially offset by 2018.
[laughter] Oh franchisees over the last year and no company on organic one opening during the last 12 months.
Which we expect to transition to our franchise portfolio.
First quarter company owned salons segment, adjusted EBITDA decreased 22 million year over year to a lot of $11 million.
And so what the total company consolidated results you have to be.
The whole year over year variance was driven primarily by the elimination of the adjusted EBITDA had been generated in the prior year period.
Many of the lots that were sold into convert it into the franchise.
<unk>.
As it relates to corporate overhead first quarter, adjusted EBITDA decreased $21 million to a loss of 15.
It was driven primarily by the $27 million right now again.
Woody noncash goodwill the recognition in the prior year.
Stay Luxembourg enough company owned salons, partially offset by the impact of management and if you go to eliminate non core non essential GNS.
There's still work to be done and she's not Gordon jumped in here and as Billy mentioned, we have recently initiated a zero based budgeting and organization.
Which will ensure that the airlines are you getting franchise.
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Turning now to cash flow and balance sheet and you heard probably they are top priority as Dennis the refranchising at an accelerated pace.
Finishing cash used during the first quarter was $3.3 million or approximately 27000 Ursula.
We continue to maintain our strong overall liquidity position as of September 30 up liquidity of $184 million. This includes 99, Oh, you have availability under our revolver and $85 million of cash.
Yeah first quarter. We used 29 is not cash operating profit as you may recall at the end of the third quarter during fourth quarter, we utilized cash management strategies, such as modifying payment terms on their t. Olson renegotiating rents either.
Which actually would have no impact on cash used in first quarter and wall will impact second quarter Kashi.
Some of these actions really payments in the second quarter, yes.
Additionally, we used $2.5 million in the first quarter the buyout underperforming blonde early at a discount that will improve future cash flows.
We expect additional cash to be realized in the second quarter as bonus payments that are typically paid its first quarter will be paid in the second quarter. In addition to certain CEO transition and I'm 40 [laughter] lease.
Really our largest uses of cash will occur in the first half of this year, but cash utilization improving in the back half of the fiscal year.
We've had a number of investors ask about that lease liability on our balance sheet.
Would be worth mentioning that if these liabilities on our balance sheet.
Ability for both our corporate and franchise location.
Approximately 80% of reliability service and personally guaranteed by a franchisee.
Additionally, the liability on our balance sheet includes the lease payments for the current term I believe the last one option period for all leases, we expect revenue at our discretion, which overstate rent payments that we just kinda June excluding the option period the lease liabilities like do you know.
$160 million, which is a $300 million.
The 750 million on our balance sheet.
So to take that was the first part only 20% of the 450 million or $92 million is always the exposure of the company on block.
Before wrapping up I thought it was best you've been somewhat you're seeing what that there's nothing really that traffic trend.
As a reminder, a government mandated coal drift started impacting the business in March and we well we started we opening with a few locations suddenly April was more opening in May and June.
Even with these three opening most states don't go as far as the operating limitations, including reduced the line capacity.
The initial reopening surge lasting about a week post real bad and then normalize the traffic patterns reported this quarter.
It's our lowest traffic levels and not yet which was further impacted by significantly reduced after school traffic the.
The business was awful right. They some profit does.
That wasn't Andy eventually close again, the last call, specifically, California, where we have older locations was largely impacted by re closures mandated in mid July lasting through most about it.
Yeah, I wouldn't put a lot more are we closed September and El Paso, Texas recently announced another cheap closure.
We have seen some improvement in traffic across the brands in September and October the best performance took them out of the middle of the country, where there has been relatively locked disruption post reopening nursing better performance in the south and southeast as well likely have neither.
Right.
The northeast markets in Canada, primarily on Ontario, as well as the West Coast holds true closure disruption continue to struggle with building.
I would like to thank you for your continued support and interest in <unk> and I will now turn the call back to the operator for questions.
Thank you Matt if any might then he does intend to then discuss that have been to ask a question.
Well take our first question from lot of sometime from Duke have become.
Go ahead.
Thank you and thanks for the color on the lease exposure.
I'd love to hear since since there's a new CEO in the in the virtual room, what the view is on keeping those leases on reaches its balance sheet as oppose to trying to move them off the balance sheet and in a related question are there ongoing.
Rent negotiations just given the declining revenues out of these locations or are there are the lease discussions with landlords to try to get signed a lease for your franchisees and for the company itself.
Good morning. This is.
First then I'll take that and then I'll kick it over to Eric for for the second half related to the lease negotiation.
Yes, we you know we've continuously looked at our strategy as it relates to read just corporation being on the leases. Then you know we have looked at it for for a number of years and recently, we are looking at making the decision to move off the lease the which is our friend.
<unk> disease, you know more flexibility to beyond the leases and control their relationship with Boeing on board. So so that's that's the direction that we're heading as it relates to you just stay on the strategy as you know historically being on those lease.
[laughter] negotiations, thanks Christian I, Laura Yeah, we are actively as we discussed in the past working on the leases and trying to secure better terms, obviously, that's an exercise and so we're working on your op co locations as wells are franchised locations as we mentioned previously we retain JLL.
Jones, one myself that help us on but we're also utilizing utilizing our internal and our network of franchisees. Many of these have significant experience in Missouri. So we're reasonably pleased with our results. So far we'll continue to work on it as you know when you look at California, and other places out of bed of shutdown.
For a second time, although that creates additional opportunities to not only get deferrals of luck [laughter] future payments. So we'll continue to push hard just to the best deals every job.
Thank you.
Thank you I want to again be does it doesn't matter if he would like to ask a question. Please press star one and we'll take a next question from sports lease.
Think from test fees lease.
Please go ahead.
Thank you good morning, everyone.
Okay I want to start with you were just a couple of initial impression questions. It struck me that you mentioned a number of times in your remarks, just to focus on and I find that profitability you talk a little bit about if you've arrived on the scene, what you've noticed thing about the business model, where you see the opportunities to really enhance that profitability strategy.
And then if you could just help us think through next steps.
In the process. So if you think about technology products services. How do you really helped your franchisee to succeed as were kind of coming out of this period of pressure.
Hi, Thank you for the question look I think one of the main sources of increase anxious profitability is going to come from public knowledge.
So there's a few ways to look at it but you know to one side you know technology will allow us to make you feel better data driven business decisions will allow us to design a initiatives that will drive traffic towards our salons <unk> increase the ability for us to attach no problem.
Ah toward transactions in our salons and would also create a you know one of the programs that would keep your customers.
Coming back also technology can work from a demand generation perspective, so we believe the channels through which we provide bookings for our customers. So for example, you know Google maps, Google search you know to be you can go and what are these platforms in wall Street to you know booking an appointment at one of our salons.
That removes some of the friction from the booking process, making it much easier.
Oh for the customer, but as you know we're developing a a sophisticated salon management solution or did you open to want rule and the idea is worse, that's just our franchisees and improving the operation of their of their salons right. Ultimately we want their friends or do you only have to worry about running great salons and providing great service.
It's a you know to our customers.
It will be a you know that.
Due to the rest of the system can provide insights into a you know the behavior of our customers that can do you know predictive analytics. So they told us.
A lot that we can do.
You know to help our franchisees managed care their businesses better I mean, as I mentioned in my remarks, Stephanie no.
Franchise systems that have grown the fastest start those but increased franchise profitability. So this is going to be our obsession.
Moving forward I think there's a a great opportunity here for both our existing and new.
No.
Platforms launched in which to consolidate.
And grow from there you go.
There's a lot of opportunities for us to build density in some of our markets our brands do better in the markets, where they got more density so a great opportunity for us to build platforms and you know me parcel on the most successful and then we'll talk a little bit [noise].
It's against that for your question.
Yes, Christian can I show a couple more.
Out there and some of the things that were getting asked about one of the things I think that you are just a bit on the lease liability and I appreciate that additional color as well, but could you talk a little bit about the cost structure and then second to that if you project out and look at the recovery curve of some of the salons I know you don't want to get into a lot of clustering, but you did share some read.
You know.
If its cities could you maybe talk about some of your top performing salons, and maybe you're looking at classes or groups of salons, where you see outliers any.
Any insights that that's giving you in terms of how the Republic was named walk some of the strategic initiatives, we put in place around marketing and just reiterating your customers around clean and safe environment. How those things are striking a customer can you just talk a little bit about maybe some of the upper class performer. It does give us a sense of how the recovery might look.
Do you want to start with that on a per farmers then and.
Sure sure so pay stuff, it's Eric so.
So if you look at you know some of our markets I'd open really on Oklahoma would be just as an example of that duct business started out a little bit better than the rest of the portfolio. After the other children's open but it's continued to improve and now that gives us confidence number one.
You know.
No the touch screen views.
Views there, but also just worked for me an open longer they are improving we we try to work [laughter].
[laughter].
Oh gosh takes out some of the noise.
[laughter].
Suddenly.
[noise] lunch.
So.
So.
<unk>.
It doesn't show up some Walt starting a little better, but I would say no to lot better [noise].
Okay.
Other markets.
[laughter] Hurston.
It's a California, Ontario.
[noise] residence.
But you know what.
What to do there for sure.
Got it lease that some of our markets in particular, one but [noise].
Oh.
And then if you are asking about cost structure can you expand on that just a bit to make sure I understand your question I cancer and appropriately.
Yeah, I think you mentioned that you anticipated your cash flow operating cash flow to continue to improve and clearly with the refranchising or they conditioning. Your capex will continue to come down, but just wanted to understand the interior of the Qia now how we should think about the cost structure to support a fully franchise businesses that migration from 80% to.
200%.
Yeah. So.
I don't want to get into too many specifics, but as both sleep and I imagine you know we have engaged a consulting firm that we've started working with already she would do a zero based budgeting and your own base orders or project to really build that up from from scratch right bottoms up and.
In terms of that cost structure, and I don't want to get too far into the details those were really just kicking that off but but that's where we're headed in terms of you know cost structure and then as it relates to cash I Didnt mention that you know, we do expect our second quarter cash to enter.
First quarter cash to be higher use of cash in the fiscal year and that we anticipate [laughter] here.
These two you know there's a lot of the timing of cash payments.
We're.
Our lawn and garden, and even shut down that moves from our third and fourth quarters in the first quarter.
Thank you.
Thank you it appears that I have no further questions at this time Ms. Maxine I'd like to turn the call back to you for any additional closing remarks.
I needed. Thank you. So much this is felipe <unk> I just wanted to thank everyone for participating on the call and I look forward to updating you on our progress next quarter. Thank you so much.
Ladies and gentlemen, this concludes self-confidence calls for today, if you wish to access the replay for this presentation. You may do so by these are things that lease corp. that for them in the Investor Relations section of the upside or by dialing one 882 old.
Sorry, 1.1 to the access code is six so long to eight nine to <unk>. Thank.
Thank you all for participating and have a nice day.
All parties may now disconnect.