Q2 2021 European Wax Center Inc Earnings Call

[music].

Okay.

Yeah.

Ladies and gentlemen, thank you for standing back and welcome to the European works in the second quarter fiscal year 2021, earning results conference call.

At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press Star then one on your telephone please be advised that today's conference is being recorded.

If you require any further assistance. Please press star then zero.

I would now like to introduce your first speaker for today.

Here, you got a Jew, Vice President of financial planning and Investor Relations you may begin.

Yeah.

Thank you and welcome to European Watson, our second quarter fiscal year 2021 earnings call with me today are David Burke, Chief Executive Officer, David Willis, Chief operating Officer, and Jennifer Vanderbilt Chief financial.

Officer for today's call David Burke will begin with a review of our mission positioning and strategy followed by highlights of our second quarter performance then Jennifer will provide additional details regarding our financial performance and introduce our guidance. After our prepared comments, David Burke, David Willis, Jennifer Vanderbilt Eni, who 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 security law, including statements about the outlook of our business and other matters referenced 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.

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 to eliminate the impact of <unk>.

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 <unk> Center Dot Com I will now turn the call over to David Burke.

Thank you Ramiro and good afternoon, everyone I'm thrilled to speak with you all on our first call as a public company.

As the leader in the out of home Waxing category European WAC centers purpose is to make our guests feel great about themselves. Since 2004, we've delivered a trusted efficacious and accessible service to our guests by providing a consistent and unparalleled experience through our extensively trained WAC spread.

Our stringent hygiene protocols and our proprietary comfort wax these differentiators and our operating model keep our guests coming back on a recurring basis for EWC. The sustainability of our business model has produced a compelling growth algorithm, giving us confidence that we can deliver low double.

Revenue growth and low to mid teen adjusted EBITDA growth in the future.

Becoming a public company represents a significant milestone for us as it further empowers us to expand our leadership position for the benefit of all of our stakeholders.

We are excited to share our company's history to discuss the category, we operate in and to explain why we believe we are poised for sustainable profitable growth in the future.

I want to thank the entire European wax organization, our franchisees, our WAC specialists and all of our associates for their dedication and passion for driving our business and their relentless focus on delighting. Our guests their combined efforts have allowed us to deliver a track record of consistent growth.

And succeed even in the face of a pandemic.

While providing us with a unique and powerful platform to continue our success in both the near and long term and to our guests I also say thank you for trusting us to be your out of home hair removal brand of choice.

As you saw in our earnings release, we delivered strong second quarter results that highlighted growth across all key financial metrics, our second quarter performance accelerated significantly from the first quarter.

Even as the COVID-19 pandemic continues to create some consumer uncertainty results.

Our results were past the expectations, we shared in our prospectus filed with the SEC on August 6th and included Triple digit revenue growth from the second quarter of last year and double digit growth from 2019 team.

We have achieved consistent double digit growth through both favorable and unfavorable economic conditions evidencing our guest belief that our services are a non discretionary and recurring part of their personal care and beauty regimens.

Offering a non discretionary consumer service creates a highly predictable and growing recurring revenue model in the second quarter. We saw an acceleration in guest visits following last year's temporary closures and the easing of mass mandates driven by a 35% increase in transaction count compared to the first.

Quarter of 2021.

At EWC continues capturing market share we are excited to see the trend of positive new guest counts with second quarter 2021, growing by 58% compared to first quarter of 2021, this sequential quarter over quarter improvement speaks to the resilience and growing awareness of our brand.

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Before I share more of the quarter's highlights for those of you new to the European Wax story I'll take a moment to share what makes our company unique.

First and foremost we created and remain the leader in the category of auto home waxing.

The entire executive team and I were attracted to EWC as we saw the same opportunity as the EWC founders sought to unlock in 2004 in the industry of out of home waxing when they realized that waxing wasn't essential and recurring service often performed in salons as an afterthought they.

Produced a consistently high standard of professionalism by creating a business concept solely focused on the wax experience.

The current management team has set the company on a path to unlock the true potential of European Wax center with an asset light replicable high growth franchise model.

Today, our focus continues to be solely on waxing. Our people are experts at it and our training is second to none the quality consistency and trust of our WAC service at a European WAC Center makes a difference our services are affordable safe effective and efficient.

Our average service takes approximately 15 minutes to complete and our rack specialists become more consistent and efficient at completing these services over time, allowing us to optimize the productivity of our WAC suites to the benefit of both franchisees and our guests quite frankly, we deliver a value proposition that is tough to.

Compete against.

We start with a differentiated brand experience every visit every guest in every center or.

Our revenues are recurring because of the need for hair removal is recurring and the investments. We have made a corporate are driving rapid unit growth by our franchisees.

Our scale also allows us to invest in technological enhancements that drive a better customer experience.

Our ability to continue innovating and simplifying the guest experience at our centers further differentiates us from mom and pop competitors, who simply are not able to invest like we are.

The franchise model allows us to be asset light and generate significant cash flow to then further reinvest in the business and the brand and to evaluate opportunities to return shareholder value.

For any franchise model to succeed franchisees must see predictability and unit level performance and ultimately make a great return on their investment.

EWC does just that evidenced by the natural demand from existing franchisees to continue supporting our growth.

Second we operate in a large and growing market the.

The addressable market for hair removal in the United States is $18 billion.

And within that the out of home waxing opportunity is $6 billion and growing at more than two times the rate of the total market.

Out of home waxing is clearly the preferred consumer choice for hair removal.

Day European WAC Center is just a little over 10% of that out of home waxing market and 4% of the overall hair removal market <unk>.

Importantly, the out of home waxing market is highly fragmented with nearly 99% of the service providers today.

Who are mom and pops that either operate standalone waxing locations or provide waxing services at a salon.

As the category leader in this highly fragmented market EWC is able to invest in the guest experience and in technology enable enhancements to that experience in ways that the competition cannot as such our scale and strong free cash flow creates an enviable competitive moat from which we continue to.

Expand.

Third we have significant room for expansion at quarter end, we had 259 franchisees who owned 810 centers, while we owned five corporate centers across 44 states, where we operate and our pipeline for new unit growth is robust.

Longer term, we see the potential to expand to more than 3000 centers and our standard format in the United States and have set a target to grow new center openings in the range of 7% to 10% of our total base per year.

Ewc's unit economics are impressive and enable franchisees to achieve sustained annual cash on cash returns of 60% at maturity, which occurs at year five are centers require a modest upfront investment and follow a highly predictable maturation curve across cohorts and geography.

Fees, providing our franchisees and us as franchise or with a high degree of visibility into the embedded earnings potential of newly opened centers.

Due to the attractiveness of this return profile and the consistency with which these returns have been achieved across center cohorts. We are now.

From sophisticated multi unit operators and well capitalized mid market private equity firms, who want to grow with us as a result, we continue to aggressively build out a strong pipeline of committed future center openings, we have strategically.

25, DMA for growth and we already operate at least one EWC location across 75% of all of our growth markets in the U S.

Fourth we have a predictable business model.

We have a strong pipeline of new centers from which to expand current franchisee operators are opening the majority of our new centers and our centers has seen consistent performance across the U S.

Another proof point is that our same store sales have consistently been in the high single digit or low double digit range with 10 consecutive years of positive same store sales growth through 2019.

We have high guest retention and we encourage guests to schedule future visits regularly while rewarding them for participation in our prepaid wax pass program that provides an economically attractive bundling for our guests and ensures a pipeline of future guest visits for our franchisees our wax pass.

Utilization or a percentage of service transactions that include a wax past redemption approximate 60%.

We also know guests are highly satisfied and devoted to EWC by the continued strength of our net promoter score and we are so confident in our ability to delight that we will always promise all of our guests that they're first wax is free.

Now, let's turn to a review of our second quarter results.

Our accomplishments reflect the continued execution of our strategy against our two focused growth priorities first drive sustained same store sales growth and second grow our national footprint across new and existing markets.

Driving these two growth vectors will naturally expand our profit margins and generate robust free cash flow given the asset light positioning of our brand.

In our second quarter. We are pleased to have made significant progress on each of these priorities.

Given that the majority of our centers were temporarily closed for a portion of 2020 due to pandemic restrictions I will focus my Q2 performance commentary on the sequential growth from Q1, 2021, and the pre pandemic comparative growth to Q2 2019.

In regard to our first priority, we demonstrated significant sequential improvement in our topline revenues supported by strong systemwide and same store sales versus the first quarter of this year as well as compared to the second quarter of 2019.

Specifically total EWC revenue rose by 31% relative to Q1, 2021 and by 11% over the second quarter of 2019.

Our strong topline performance was driven by favorable system wide sales up 39% relative to Q1, 2021, and 15% over the second quarter of 2019 as well as by same store sales, which increased 13 percentage points from the first quarter of 2021.

One delivering a Q2 comparable a positive six 9% from the second quarter of 2019.

Our overall same store sales were strong even as California lagged other geographies given more stringent health mandates during COVID-19 and a tight labor market, partly attributed to a delay in processing of cosmetology licenses for purposes of providing investor clarity around our performance. During this period. We think it is helpful to highlight the Cal.

<unk> negatively impacted our same store sales in Q2, 'twenty, one by 500 basis points, thus and our other 43 states, excluding California, we generated positive same store sales of 11, 9% in Q2 relative to Q2 2019.

As we said when we spoke to you on the Roadshow, we remain very pleased with the guest demand side of our business and we continue to monitor labor based supply constraints across our network in the short term.

Our same store sale increase in the period was driven by higher overall transaction values as mass mandates led to a mix shift favoring higher priced body services, such as leg Bikini and Brazilian waxes versus facial services, we see great loyalty from guests who continue to come for their body services and we believe there are.

Still some sideline guests who returned to their regular routines. When then pandemic related mass mandates abate.

Overall product sales were also strong for the quarter rising 15% relative to the second quarter of 2019, we are seeing success from the launch of our new retail product line in April and remain focused on driving continued productivity, we have enhanced our operational playbooks to focus on consultative selling that.

It easier for our WAC specialists and our guest service associates to attach retail products to our guests service visits.

As it relates to our second priority, we grew our national footprint by adding 41 net new centers from the second quarter of 2101 from the second quarter of 2019, our pipeline continues to be robust and we remain on track to opened 52 net new centers this year as a.

A result of delivering on our two growth vectors, we expanded our profitability and delivered strong free cash flow operating profit grew to $16.0 million up significantly from the $13.0 million in the second quarter of 2019.

As we said when we spoke to you on the Roadshow, we remain very pleased with the favorable guest demand for our services and the sequential growth of our same store sales performance that will continue into Q3 in summary, we remain incredibly excited about the partnership we have with our amazing franchisees and our guests.

<unk> confidence in our brand and in our opportunity to continue to build on our success as the leader in the out of home Waxing category. We expect that our focused execution will continue to drive double digit growth for the benefit of all of our shareholders and now I'd like to turn the call over to Jennifer Van <unk>, Our chief financial.

<unk> Officer to review, our second quarter performance and outlook in more detail John over to you.

Thanks, David and good afternoon, everyone I'm delighted to speak with you on our first earnings conference call as a public company.

I'll begin my discussion with an overview of our business.

Followed by a review of our second quarter results.

Discussing our financial performance I will compare our second quarter fiscal 2021 results to both fiscal year, 2020, which was significantly impacted by temporary pandemic related central closer as well as fiscal 2019, which represented a more normalized year of operation.

I will then introduce our fiscal 2021 outlook.

As David mentioned European last center is the leader in out of home lasting services, a growing and attractive category.

Our asset light operating model delivers a consistent guest experience unpredictable unit economics for our franchise partners.

Our strong track record of growth is driven by these dynamics.

At a corporate level, we are able to achieve our growth objectives with modest investment and working capital requirements.

Resulting in meaningful free cash flow growth.

And as part of our overall capital allocation framework, we will evaluate opportunistic uses of our cash in partnership with our board.

I would now like to turn to.

Great quarter and first half results.

My remarks will focus on our adjusted results, which exclude one time costs related to our initial public offering and assumes our initial public offering occurred at the start of the year.

You can find reconciliation tables in our press release, and 8-K filed with the SEC today.

Ahead of my review I would like to provide a brief definition of the terms we use when describing the performance of our business.

Correct.

Life sales, which represents revenue from the sale of services and products across our network.

System wide sales also includes collections on lastpass cash payments, which I will provide further commentary on momentarily.

It is important to note that system wide sales for our network are primarily generated by our franchisees who operate more than 99% of our centers.

Our asset light business model.

Second same store sales, which reflect the year over year change in sales from lasting services performed and retail products sold for the same store base et cetera open for at least 52 full weeks in.

Accordingly, this measure escalated cash collection from last passes sold until those services are redeemed.

In this way same store sales represent a strong indicator of recurring GAAP service behavior at our center.

Third last past cash payment, which represents cash collected upfront or in equal installments for prepaid services bought in bulk and at a discount to our last path program.

Last past purchases Lat last past redemptions were $21.0 million for the quarter.

Rising 36% versus the second quarter of 2019.

As our guests redeeming services the value of that service is reflected in our same store sales performance.

Accordingly increases and lastpass sales in any given period will eventually be recognized in our comp center sales performance in a future period as the guest uses for Fedex.

In this way last pass sales are a component of future same store sales performance, though there may be timing differences in the cadence with which GAAP redeemed our services and we look at these wack past purchases as a leading indicator for future services.

Lastpass redemption also represent an important opportunity for EWC to attach incremental services or retail products to those services.

And as you heard from David approximately 60% of our annual service transactions include West past redemption and on average guest enroll in our last past program after their third visit.

Increasing lastpass redemption leads to higher guest retention and guest satisfaction and support our predictable recurring business model.

For EWC total revenue, which includes the recurring sale of comfort wax and retail products to our franchisees as well as royalty and marketing fees based on the service revenue generated by our franchisees.

Importantly, royalty and marketing fees are earned by EWC as cash is collected by our franchisees.

Including the cash collected from last past cash payments and any peer.

Got it.

Other revenue consists of our Corporately owned center revenue and other ancillary franchisee.

We are now turning to a review of our second quarter results. We are pleased to report strong second quarter performance highlighted by significant growth in sales margin and adjusted EBITDA compared to the second quarter of fiscal 4039.

We are also pleased by the sequential improvement of our performance from the first quarter of 2021 to the second quarter of 2021 as guests return to our centers.

Second quarter was the first period in which we no longer had mandated closure associated with the COVID-19 pandemic.

I want to thank our entire organization, our franchisees and our Wap specialist for contributing to this performance we are grateful for their dedication and passion for our mission, while enjoying countless hours of training from COVID-19 protocols to preserve and extend our best in class hygiene and cleanliness procedures.

The level of professionalism despite personal hardships through this unprecedented time has been nothing short of extraordinary.

System wide sales for the quarter were $223.0 million rising 443% from $43.0 million in the second quarter of 2020, and an increase of 15% from $194.0 million in the second quarter of 2019.

This represented a significant acceleration from the first quarter, 3% increase in system wide sales versus 2019, Inc.

Increased same store sales, coupled with 81 net new centers drove the revenue increase relative to the same quarter in 2019.

We were pleased to see our guests return for their routine and recurring services as soon as restrictions are eased or lifted.

And while traffic is not back to pre pandemic levels, the mix shift favoring body waxing versus face waxing, which you would expect given masked mandates is helping drive the increase in system wide sales compared to 2019.

These dynamics also delivered a same store sales increase of six 9% above 2019, primarily driven by average transaction value increases as a result of services mixing to those higher priced body offerings.

Total EWC revenue.

343% to $56.0 million from $18.0 million in the prior year period, and 11% from the second quarter of fiscal 2019.

Product sales royalty fees and marketing fees were significantly up compared to the second quarter of 4039.

To this end product sales consisting of both the comfort wax required to perform each service as well as retail products to franchisees sell through to our guest for $31.0 million for the quarter, an increase of 288% from 2020 and rose 15% from 2000 new.

<unk>.

Royalty fees were $12 million, an increase of 473% from 2020 and rose 14% from 2019.

Marketing fees were $12.0 million, an increase of 441% for 2032% from 2019.

Other revenues of $9.0 million, which includes corporately owned central revenue and other ancillary franchisees were up 318% versus last year, but down 25% versus 2019, as we sold seven corporate centers to franchisees and closed one center versus the <unk>.

19 period.

Cost of revenue, which represents the direct cost of products sold to new and existing centers was $16.0 million for the second quarter of fiscal 2021.

Versus $10.0 million a year ago, and 11.3 million for the same period in fiscal 2019.

Gross margin was 75, 9% for the quarter, an increase of 1000 basis points relative to the same quarter in fiscal 2020 as a result of higher sales volume retail margin expansion from our new product lineup and mixed shift on the timing of comfort WAC sales to our network.

Gross margin for this quarter are 200 basis points higher versus the same quarter in fiscal 2019.

SG&A for the quarter was $14.0 million compared to $9.0 million last year and $22.0 million in the second quarter of fiscal 2019.

The $14.0 million increase over last year's second quarter was primarily related to increased payroll costs and benefits expense as well as $10.0 million of professional fees associated with preparing to be a publicly traded company.

The decline in SG&A from the second quarter of 2019 with largely driven by lower commissions as a result of the re acquisition of rights for certain area Representatives.

As a percentage of revenue SG&A was 25%, 59% and 41% in the second quarter of fiscal 2021, 4039, respectively.

Advertising costs increased to $11.0 million in the quarter up from $8.0 million and $8.0 million in the same quarter of fiscal 2020, and 2019, respectively. However.

However, as a percentage of sales advertising costs were in line with our historical late the.

The increase in advertising costs reflects the company's effort to assist and we opening centers during the pandemic and support new franchisee Center.

Depreciation and amortization expenses were $5.

$3 million in the most recent quarter slightly higher than the $5 million recorded in the same period last year and $10.0 million in the second quarter of fiscal 2019.

The increase in depreciation and amortization from the second quarter of fiscal 2019 is primarily driven by the amortization of reacquired rights from the area Representative agreement that the company strategically repurchased in fiscal 2019 in fiscal 2020.

Over time, this increased amortization will diminish and it is important to reiterate the relatively modest level of capital expenditures and associated depreciation required to operate our asset light franchise model.

Total operating expenses for the quarter was $40.0 million up from last year's $24.0 million, reflecting the reopening but were flat compared to the same quarter of 2019.

We are very pleased with our operating performance for the quarter, we posted a second quarter operating profit of $16.0 million, a $19 million improvement versus last year's loss of $15.0 million and significantly ahead of fiscal 2019 second quarter operating income of $13.0 million.

On a GAAP basis net income for the second quarter of fiscal 2021 was $14.0 million compared to a net loss of 11.4 million in the second quarter of fiscal 2020 and up significantly compared to net income of $11.0 million generated in the second quarter of fiscal 2019.

<unk> pre pandemic.

Adjusted net income improved to $18.0 million from an adjusted net loss of $16.0 million in the prior year period, and adjusted net income of $4 million in the second quarter of fiscal 2019.

EBITDA defined as net income or loss before interest taxes, depreciation and amortization expense came in at $23.0 million compared to an EBITDA loss of $9.0 million last year.

Relative to the second quarter of fiscal 2019, EBITDA increased by $9.0 million from 11 three.

$3 million in that quarter.

Adjusted EBITDA, which excludes the impact of certain noncash and other items that are not considered in the evaluation of ongoing operating performance such as one time items related to our initial public offering increased more than $20 million year over year in the quarter from a loss of $1 million to a gain of $27.0 million this year.

Sure.

Our adjusted EBITDA margin was 41, 3% in this quarter up a significant 1490 basis points versus 2019, adjusted EBITDA margin of 26, 4%.

Turning to the balance sheet.

As of June 26, 2021, we had cash and cash equivalents of $37.0 million and there were $272.0 million in borrowings under the company's credit facilities as of the end of the quarter.

As of August 2021, we have entered into a new five year credit agreement expiring in August 2026 comprised of a $40 million revolver, including $5 million for letters of credit and $180 million term loan. We were also able to secure a better rates on our new credit agreement, which will.

<unk> interest expense by approximately $11 million on an annualized basis.

Proceeds from the new loan and the Companys initial public offering were used to repay and terminate our previous credit agreement.

We completed our IPO in early August following the end of our second quarter.

As a result, a total of $14.0 million shares of common stock were sold to the underwriters at $17 per share.

Including two 4 million shares of class a common stock sold by existing stockholders.

The company received gross proceeds.

Of $159.0 million from its issuance and sale of $17.0 million primary shares of class a common stock.

Following our initial public offering our capital structure consists of $70.0 million shares of common stock.

Now to our outlook, we are initiating guidance for the fiscal year 2021.

System wide sales are expected in the range of 788 million to $793 million.

Same store sales are expected to increase in the high single digits. We currently expect same store sales will continue to improve sequentially for the balance of the year.

Given the tight labor market in California, We expect same store sales to be at the lower end of our high single digit range for the full year, implying low double digit same store sales in Q3 and Q4.

We expect to end the year with 848 European wax setters and increase of 52 locations from the 796 centers at the end of fiscal 2020.

Total revenue is expected in the range of $173 million to $178 million.

Adjusted EBITDA is expected in the range of 60 million to $63 million.

Interest expense in the range of $19.0 million to $20.0 million.

Our tax rate is expected to approximate 12, 5%.

Adjusted net income is expected in the range of $31.0 million to $33.0 million.

Depreciation and amortization is expected in the range of $23.0 million to $25.0 million and total capital expenditures are expected in the range of $6.0 million to $7.0 million.

Over the next three to five years, our long range growth algorithm contemplate compounding annual growth.

High single digit unit growth high single digit same store sales growth low double digit EWC revenue growth and low to mid teens adjusted EBITDA growth.

As David mentioned, we have incorporated an appropriate level of prudence into our guidance for the balance of the year. However, our outlook does not contemplate a meaningful change in consumer behavior, driven by renewed concerns about the COVID-19 pandemic nor does it include further impacts from incremental tightening in the labor market.

But beyond what we see today.

This concludes our prepared remarks, and we will now turn the call back over to the operator for questions operator.

Thank you.

Ladies and gentlemen, as a reminder to ask a question you will need to press Star then one on your telephone.

Draw your question press the pound key.

Again, Thats star one to ask the question.

I ask that you limit yourself to one question and one follow up you might queue up to ask any additional questions. Please standby, while we compile the Q&A roster.

Yeah.

Our first question comes from the line of Randy <unk> with Jefferies. Your line is open.

Okay.

Yes, Thanks, a lot and good afternoon, everyone. Just wanted to really first talk a little bit more about the implementation of technology gave you touched on it a little bit in your remarks so.

<unk> will be really helpful is to give us some perspective on how the business was run before your tech stack was basically augmented and then talk to us about how technology helps the <unk>.

Franchisees run their business better how has technology helps you consume the customers' experience improves.

To us about how technology has really keen data analytics at the corporate the corporate office.

Hey, Randy. Thank you. Thank you very much for your question.

We understand that we might have had some breakup on per agenda, so apologies for that.

I assure you Randy that are a suite technology is ahead of our conference call technology. So we'll make sure that that.

The discussion on the.

Topic was I think it was depreciation and amortization, primarily we will get to the crusher. So apologies for that for the folks on the call. Okay. Thanks. Thanks for your question Randy Let me just maybe start with kind of what we've done and really had been allowed to do given our scale.

But candidly our competitors can't do with I'll start I'll start and so we don't try to address your questions on both franchisees customer then they.

Corporate health problems, helping us run Randy to make sure.

And the answer first of all learnt from an incentive standpoint, and in particularly in Sweden standpoint, or within the last week.

There is an iPad that we put into every every wax rates of the whack specialists have the ability to look at the history of our GAAP see what services. They have had in the past.

Allows them the opportunity to add on services suggests new services.

As well as our attach retail products to them, so having kind of that diagnosis prior to the guests coming into the well actually we think is an excellent opportunity for us to continue to increase the average ticket.

We watch a mobile app here over the past few months today allow us for virtual checks for our guests and allows our guests to rebook on the App.

It provides us the opportunity to give a notification to be attached to the to the guest reservation that allows the guests to respond to guest surveys customer satisfaction surveys and NPS.

The survey that we ask for them after their visit.

There's some really nice advance with on the mobile App I think the biggest opportunity there is where we make appointments, we're seeing more and more of our our guests are utilizing our mobile app to do that up next we will have actual auto check in and checkout available to our guests. So those are some of those continued investments that we've made.

Randy to answer your question sort of how we're using that how we can utilize that to help our franchisees. We have the technology today to capture our guest behavior and the data Foundation that we're building allows that yesterday to be appended to each individual guest record on that is going to enable us to really get to that personalized.

101, marketing and we've been very very purposeful about the investments that we've made that are going to drive an enhanced guest experience. It ultimately will drive stickiness and lifetime value of the gas. So that's being shared with our franchisees we have.

Data scientists that we hired in the last the last quarter.

Our goal and our team's goal is really to make sure that we're utilizing that information doing the proper analytics around it. So we can get over the guest experience team.

To ensure that we continue to drive that sort of lifetime value of our guests.

Super helpful. I, just have one little follow up.

Any any learnings on new service initiatives, such as men or new services in general such as break I think the waxy nature was in pilots just any color on that would be super helpful. Thanks, guys.

Yes, Randy.

Its franchise or it's our obligation to continue to innovate.

The analog era to the restaurant menu, we've got to make sure that we continue to provide offerings that it makes sense for our guests where the brand gives us permission to where our guests give us permission as you know in a franchise model we want to make sure that this is executable across all of our 800 plus centers. So we're very very focused on staying.

Closer to our expertise and wax.

Great pilot program put in place on New services, we're very encouraged by what we're seeing in terms of the mail service opportunity that we really launched.

Some gusto here in the past few months.

Thank the WAC powered beneficial we talked about in <unk> comments about some of the mix shift that we've seen to more full body services I think theres been a bit of reticence in terms of.

Services under mass so we continue to be.

Michael and studying our wax Howard fast visual but again, we think differentiates us from other.

Other waxing.

Competitive set.

And Randy we will just continue to innovate in those areas, but ensure that if something that is very executable across all of our all of our locations and ensure that we have that's an amazing guest experience in whatever service we're providing.

Very helpful. Thanks.

Okay. Thank you.

Thank you.

Our next question comes from the line of Lorraine Hutchinson with Bank of America. Your line is open.

Thanks, Good afternoon.

I wanted to focus my questions around around New center growth can you talk a little bit about how confident you are in executing on the 52 centers. This year and then what line of sight do you have in hitting that high single digit growth in 2022 and beyond.

David Thanks for the question I'm going to ask David Willis, Our Chief operating officer to address that please sure.

We feel very confident about the full year of 52, New center openings are our development pipeline is really robust status at the end of the second quarter.

We had 226 licenses in the pipeline and we continue to make progress on executing the multi unit development agreements, we've talked about on the roadshow.

We're probably most excited that we're seeing growth and that is from franchisees of all sizes small medium and large franchisees are all committing to further develop these multi unit development agreements. Wang you may recall go out about three or four years. So we're feeling quite confident about delivering 52 centers this year and equally confident in going forward.

We can edit our 7% to 10% unit growth per year growth metrics.

Thank you.

Thank you.

Our next question comes from the line of Simeon Gutman with Morgan Stanley. Your line is open.

Hi, Thanks for taking the question this is actually Hannah on for Simeon.

Wanted to ask a question around market share so in <unk>.

Of the total.

The total lot of hair out of home hair removal you are a little over 10% is there a way to think about the range from your highest <unk> centers to your lowest what local market share looks like for that that range is that how we should think about market share potential over time.

Yes.

How are you. Thanks for the question just just to be clear the 10% share is the art of waxing category. The overall hair removal is around 4% just just just for clarity there.

We don't drive down to our local markets today.

Turning to our market share, but I think the important point here is that this is such a highly fragmented market deal 90, 90, plus percent of the business as mom and Pops.

I think we shared earlier, we commissioned a very.

Well known International Research group at the beginning of the year to evaluate.

Orben opportunities they came up with.

This kind of the Tam that we've addressed.

And Additionally, they opined that 5% to 10% of those smaller mom and pop shops were not going to survive Covid, we're seeing that in some of our new guest acquisition were one in five of our guests in the quarter are coming from our competitive set. So we do believe were taking market share and we'll continue to we'll continue to watch those numbers to make sure that we know where those.

Those guests are coming from.

And maybe a quick follow up if you have the time.

Out of home waxing currently sitting at about a third of the total hair removal market. Obviously, it's growth is outpacing the larger market. So.

That penetration should kind of pick up do you have a sense for where.

Out of home waxing penetration of overall hair removal kind of mixes out long term.

And so I beg your pardon I lost you with sort of the.

$6 billion of the $18 billion out of home and that is growing faster than we last year I'm sorry.

Oh I just was wondering if you have a sense for where and why.

<unk> penetration land in the long term as a percentage of all hair removal.

Well, we certainly see it I mean, we're excited obviously then it's the fastest growing modality hair removal.

Is it going to be half of it.

<unk> will moderate and that's part of our job is to try to get it there.

We're just excited that it is growing faster.

<unk> a leader in that category.

And I think again, we just keep focused on making sure that we're driving our market share across all of the.

The DNA is where we operate but we have not sort of done analysis analysis to say of that 18 billion could that for that for that market and out of home waxing growth.

Significant iron out we believe there's great opportunity within the space that we're operating right now.

Makes sense. Thank you.

Thanks Anna.

Thank you.

Our next question comes from the line of John <unk> with Guggenheim. Your line is open.

Hey, guys.

Focus on the opportunity right to accelerate maturation of our centers. So let me talk to that a little bit whether it's a network effect marketing.

Loss cell.

And.

The degree to which you think you can get to a million.

Dollars quicker than Europe five.

Yeah.

Hey, John how are you. Thanks for the question I'm going to ask David will.

Follow up on that please.

Good to talk to you.

The accelerating the maturation of the centers is really front and center negative score.

Squarely on the operations team. So we're identifying those kpis levers that we that we can execute it camps that are going to drive faster breakeven and 25% plus EBITDA you may recall from the on the road show the average share profitability of Maturations of about 20% EBITDA, but our top performers are 25%.

We're trying to institutionalize those things that those folks are doing well across the rest of the network. We have seen some early early very encouraging signs in terms of new center openings in the pace upon which their revenues are ramping.

Both in 2020 and in 2021 in terms of New center openings. So variety of initiatives that our teams are focused on working with franchisees, but any simple terms, we're simply trying to institutionalize our best operators are doing across the rest of the network.

And maybe to add a little bit to that.

The performance of our cohort by vintage year, and you're seeing some great outperformance and the vintages the 2020 in 2020 one.

2021, obviously in its first year really performing last 60% to 70% higher for stock overall trend in 2020, if you think about that that's about 10% against our 1000 staff.

Wanting to provide for additional clarity, we now ready with our issuer, but.

I do think some of the things that are pushing on the operation side of market. We believe we're going to continue to work.

And then just real quick.

You've talked about the I.

I guess the labor shortage lease in California, maybe just quick in terms of supply demand for wax specialists right and you should be an employer of choice. So is that just sort of a timing issue just in California when.

When you think about the availability of specialists.

John This is David.

Primarily in California, you're right, that's where we're seeing it.

The short very short and we think thats really because California's lagging the rest of the country are coming back online.

When container prices are noteworthy arsenal of tools that enable them to recruit blacks fresh a west coast from beauty schools and other avenues and we're candidly seeing momentum.

We're seeing more hires by our franchisees of black specialist market where months. So we're encouraged but certainly to your point, we're seeing the labor shortage is more in California than we are rest of the country.

Thank you.

Thanks, John.

Thank you.

Our next question comes from the line of Jonathan Komp with Baird. Your.

Your line is open.

Yes, thank you very much.

David or Janet I'm wondering as you look forward to the balance of 2021 and into 'twenty. Two could you maybe rank order. The biggest drivers of your same store sales that you see and then more near term can you share any commentary on the behavior of your guests just over the last few months I know, we're past the typical peak, but given.

Delta and Covid I'm curious what you are seeing behavior away from your guests.

Hey, John I'll start with kind of what we're seeing from guest behavior, and then I'm going to ask Jeff to speak to the same store sales comps as we look forward I think we continue to be really pleased with the consumer response, certainly following the lift of Covid restrictions so that the overall demand side of the business.

We are encouraged about.

I think this just continues to demonstrate the trust that our guests have with our brands and the non discretionary and recurring nature of our services. So we saw that when centers open back up and that's continued along so that the demand side is very robust as we kind of think about our outlook we continue to see.

Sequential improvement in same store sales in the back half of this year with comp sales up in low double digits. In Q3, Q4, so that consumer responses, it's strong as David alluded to and we talked about in the prepared remarks, California's lagging Apple we hope that certainly is California catches up with that that's going to be upside for us as we look forward so from our Arkansas.

<unk> trend standpoint.

We're encouraged by what we've seen we're obviously very mindful of any kind of variance that might come on or additional government mandates.

But right now we continue to be very optimistic about the consumers coming back into the business. John do you want to talk a bit about sort of drivers same store next year, absolutely. So John Let me, let me tackle the second part of your question.

We have seen over the course of sequential quarter over quarter guidance, if I had to contend.

You just heard that David.

We are pleased with how the customer has readout rebounded and continued to rebound in terms of transaction, but during the quarter mix related from that same store sales in Q2, and we continue to see that kind of differential in terms of the R&D services for instance, we expect that to continue for the balance of the year.

Against that transactions continue Joe could you know you've heard some really good news from US today in terms of how happy we are with our new guidance from God sequential guidance that I would tell you that when we talk about California in terms of a demand versus supply we actually seeing the main growth in California.

New customers over indexing that plus 58%, that's really comfortable that we've got with them. They add on a go forward basis.

And then how do we think about 2022, I don't want to provide that outlet.

Continue to feel comfortable and confident in our long range growth algorithm that we've always said, it's going to be driven more by transactions in the long run. So I think that's been a bit and when you think about the mix shift we've seen during the COVID-19 lapping that in time and really the end of the transaction still coming into our system.

Central upside as those customers that may still be sidelined pipeline continue to reactivate around me.

That sort of thing that we've seen kind of COVID-19 restrictions debate.

We're going to stay hyper focused on our two growth initiatives to drive unit count.

Throughout the U S and in second to drive sustained same store sales comps in that.

It really broken down into those three buckets that we talked with you all about that is to attract more guests. How do we continue to drive and guests for our centers second how do we get them to buy more and third how do we get them to stay loyal longer we're launching a new loyalty program at the end of this month that we're incredibly excited about that's going to allow us to reward our best guess.

Right perfect time, we think as we go into November and December sort of high spend months to really get our guests excited about the new loyalty program that will enhance the stickiness that we've got with our guests longer term.

Yeah, that's great and then just one other follow up the point that wax pass sales are exceeding the redemptions could you maybe just clarify what's driving that and then maybe the broader financial implications longer term.

As you grow the wax passed penetration thank you.

Sure John I think we will.

Do you want to talk about the drivers in terms of the pipeline of future SEC.

Let me see if I had to look at this relationship is a really important one.

B periods, I will say, where the differential that we're seeing this period in terms of black box purchases lot redemptions being positive maybe trying to the other direction and that just means that all of the CRM albertsons or David or talked about are working we're driving that engagement historically, we see extremely low breakage rates around ASP.

This is the area that grows back every period and so we feel really confident that when we talk about a differential in terms of vessel. This number on a go forward basis, but that is totally filling that very robust pipeline of future service business and as we look at things today, we got all of that is kind of waiting waiting to come on the newer centers against service.

And I felt really comfortable that this business is.

Different from many others you may see that such a high proportion of the total service dollars coming in off that lifestyle program and I think what we're reporting today, which is up 36% is just evidence of that.

Okay.

Yeah.

Thanks, John.

Thank you.

Our next question comes from the line of Dana Telsey with Telsey Advisory Group. Your line is open.

Good afternoon, everyone.

Hi, Hi, David Hi, Jennifer you talked about the labor component what are you seeing in the labor component country and.

And in the U S. How do you see those costs and the impact of SG&A and then we had talked previously freight was a topic and just wondering any updates on freight getting goods in and how that's being passed onto the franchisees or what youre seeing in terms of pricing.

Any changes there thank you.

Yes Dana.

David So on that on the labor component you may recall from our prior conversations that by and large.

The wax specialists are making more than state or federal minimum wage they have a.

Base rate and then most of our franchisees before I payroll programs that have a significant amount of their compensation tied to incentives several percentage of service revenue. So in terms of the inflation on wages, we haven't seen that directly impact our franchisees because we were kind of already paying higher than normal minimum wages as it relates to the trade.

We're seeing iron.

As I think.

Everyone is that we've been able to manage that we don't envision that will impact the margins on our P&L.

Got it and then Jennifer just one follow up on the cadence of the third and the fourth quarter and what you talked about with sales any difference in how we should break down third and fourth quarter or how you how you think about it.

Sure David.

This is John.

What we tried to do that would be kind of spoken remarks talk about <unk>.

For the balance of the year, when we think about how to help us being at the lower end of that high single digit range I think as you kind of roll forward before here that doesn't really imply that low double digit in terms of same.

Same store sales, but we've certainly been talking about that.

Great robust demand that we're seeing in this quarter and that sequential improvement we see over time for that sells itself.

System wide sales, which when you think about the length of that is a non-GAAP metric for health of the total network and how that then translates.

In outperformance for EWC, that's going to be operating them more directly and continue to feel very comfortable there.

Yeah.

Thank you.

Thank you.

Our next question comes from the line of Kelly Crago with Citi. Your line is open.

Hi, Thanks for taking my question I'm, just curious what specifically is driving a need for operations same store sales in the back half of 'twenty. One is it California catching up to the rest of the chain is it a sequential improvement in traffic and transactions and since we're so far into three can you just hoping you could help us understand you know what.

What's driving that acceleration and why it's sustainable into the fourth quarter.

Sure Kelly this is John I'll take that offline.

But we feel very comfortable about in terms of what's driving that sequential growth is exactly what you're alluding to when you're thinking about that that the mix between transaction purchase price I think what you're hearing us say is that we believe that the mix shifts in terms of that price components and dollars per service on body services that will continue for the balance of the year.

As reflected in our outlook, we have provided but we continue to see GAAP will cover in terms of transaction count and that's what's kind of driving that I will say in terms of if you are looking at FY <unk> on a stacked basis for Q4, the comparative just gets a little higher there that's more of a function of what was in Q4 of 19 one box.

Back in that time period, you can have a a malware incident that the company has kind of taken meaningful strides to invest in cyber security on a go forward basis, but I think the best way to see a bit more of an increase there.

We'll say it again to reemphasize that our consolidated for the full year outlook in terms of the lower end of our high single digit range imply that's a function of public at a time, but I will say and it's the lower end of that range given some great guest demand. We're seeing is just a little bit of a picture.

By that we are actively partnering with our franchisees.

Thank you and just following up on the on a labor side, it's great to hear that youre, not really seeing the inflationary headwinds yet or your franchisees are seeing them, but I'm just curious if we get to a point where you.

You know the labor market is so tight that your franchisees start to see some of these inflationary pressures.

Do you have available to you sort of help them absorb those costs are.

Anything happened on the pricing side to help helping franchisees also offset those headwinds just anything else.

You can tell that to you that that could help us understand that.

Ultimately.

Ultimately there is a price soared yet right.

We see it in select markets, where labor rates are.

Our incredibly high we can ultimately with British privacy to guess.

You may recall, we had multiple price tiers.

No surprise, the higher labor cost markets have higher service prices for our guests. So that's probably the biggest lever and our franchisees.

Canada angle.

Got it thank you.

Thanks, Joe.

Thank you.

Our final question comes from the line of Bill Chapell with Truth. Your line is open.

Well thanks for thanks, Chris.

Just following back up on California.

You may have given us the percentage of the sales is the state of California, and then did you see any change intra quarter I mean did it improve throughout the quarter and as we moved into this quarter or is it pretty much.

Same level throughout.

Yes, Bill we don't have that sales broken out like that I will tell you that California, given their center count accounts for about 15% of our network. So it does there is an impact on our overall financial metrics, when California needs a bit.

And we certainly saw in the quarter month over month improvement.

As we went through the quarter.

And we talk to investors.

I would just say one thing I know, we've spoken a lot about California, our franchisees I think a positive trend there is about 25% of our new centers year to date and 25% of centers opened over the last four quarters are actually in California. So notwithstanding.

They are navigating some challenges are little slower to come back online versus the rest of the the rest of the country. There are some encouraging signs of franchisees are committed to further developing that suit.

Okay.

Gotcha, and then a follow up.

And then you may have covered this but you mentioned that there were some licensing I guess delays that were affecting labor probably more than climbing labor. So.

Is that cleared up or is that still something that did impact the next few months.

Yes, so bill what we shared.

Cosmetology schools actually shutdown and then they they were not issuing licenses for repetitions when they reopen.

Understand or catching up on that.

Industry relations team Thats very close with our franchisees and we're saying you talked with the cosmetology and who've been beauty Judy schools out there to ensure that.

The faster we can get those licenses after the U S petition to better it's going to be pushed so they are catching up on that.

So that's the three Q4 too we should be back to normal.

That we are with respect to what the California governments can do I'm not going to opine on that I certainly hope so.

They can get caught up for us.

Got it thanks, so much bye bill thank you.

Thank you.

I would now like to turn the call back over to Mr. David Burke for closing remarks.

Well, we thank you all very much for joining our inaugural Q2 earnings call as a public company. We appreciate everybody's interest and we will look forward to speaking with you about Q3 in November. Thank you all very much.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

[music].

[music].

Ladies and gentlemen, thank you for standing by and welcome to the European works in our second quarter fiscal year 2021, earning results conference call.

At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press Star then one on your telephone please be advised that today's conference is being recorded.

If you require any further assistance. Please press star then zero.

I would now like to introduce your first speaker for today.

Here, you got a Jew, Vice President of financial planning and Investor Relations you may begin.

Yeah.

Thank you and welcome to European Watson, our second quarter fiscal year 2021 earnings call with me today are David Burke, Chief Executive Officer, David Willis, Chief operating officer, and Jennifer vendor about Chief financial.

Officers for today's call David Burke will begin with a review of our mission positioning and strategy followed by highlights of our second quarter performance and then Jennifer will provide additional details regarding our financial performance and introduce our guidance. After our prepared comments, David Burke, David Willis, Jennifer banner, Bill 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 security law.

Including statements about the outlook of our business and other matters referenced 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.

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 to eliminate the impact of <unk>.

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 <unk> Center Dot Com I will now turn the call over to David Burke.

Thank you Ramiro and good afternoon, everyone I'm thrilled to speak with you all on our first call as a public company.

As the leader in the out of home Waxing category European WAC centers purpose is to make our guests feel great about themselves. Since 2004, we've delivered a trusted efficacious and accessible service to our guests by providing a consistent and unparalleled experience through our extensively trained WAC spread.

Our stringent hygiene protocols and our proprietary comfort wax these differentiators and our operating model keep our guests coming back on a recurring basis for EWC. The sustainability of our business model has produced a compelling growth algorithm, giving us confidence that we can deliver low double digit.

Revenue growth and low to mid teen adjusted EBITDA growth in the future.

Becoming a public company represents a significant milestone for us as it further empowers us to expand our leadership position for the benefit of all of our stakeholders.

We are excited to share our company's history to discuss the category, we operate in and to explain why we believe we are poised for sustainable profitable growth in the future.

I want to thank the entire European wax organization, our franchisees, our WAC specialists and all of our associates for their dedication and passion for driving our business and our relentless focus on delighting our guests their combined efforts have allowed us to deliver a track record of consistent growth.

And succeed even in the face of a pandemic, while providing us with a unique and powerful platform to continue our success in both the near and long term and to our guests I also say thank you for trusting us to be your out of home hair removal brand of choice.

As you saw in our earnings release, we delivered strong second quarter results that highlighted growth across all key financial metrics, our second quarter performance accelerated significantly from the first quarter, even as the COVID-19 pandemic continues to create some consumer uncertainty.

Results surpassed the expectations, we shared in our prospectus filed with the SEC on August six and included Triple digit revenue growth from the second quarter of last year and double digit growth from 2009 team.

We have achieved consistent double digit growth through both favorable and unfavorable economic conditions evidencing. Our guests believe that our services are a non discretionary and recurring part of their personal care and beauty regimens.

Offering a non discretionary consumer service creates a highly predictable and growing recurring revenue model.

In the second quarter, we saw an acceleration in guest visits following last year's temporary closures and the easing of mass mandates driven by a 35% increase in transaction count compared to the first quarter of 2021.

As EWC continuous capturing market share we are excited to see the trend of positive new guest counts with second quarter 2021, growing by 58% compared to first quarter of 2021, this sequential quarter over quarter improvement speaks to the resilience and growing awareness of our brand.

<unk>.

Before I share more of the quarter's highlights for those of you new to the European WAC story I'll take a moment to share what makes our company unique.

First and foremost we created and remain the leader in the category of out of home waxing.

The entire executive team and I were attracted to EWC as we saw the same opportunity as the EWC founders sought to unlock in 2004 in the industry of out of home waxing when they realize that waxing wasn't essential and recurring service often performed in salons as an afterthought they.

Introduced a consistently high standard of professionalism by creating a business concept solely focused on the wax experience.

The current management team has set the company on a path to unlock the true potential of European WAC Center with an asset light replicable high growth franchise model.

Today, our focus continues to be solely on waxing. Our people are experts at it and our training is second to none the quality consistency and trust of our WAC service at a European WAC Center makes a difference our services are affordable safe effective and efficient.

Our average service takes approximately 15 minutes to complete and our WAC specialists become more consistent and efficient at completing these services over time.

Allowing us to optimize the productivity of our WAC suites to the benefit of both franchisees and our guests quite frankly, we deliver a value proposition that is tough to compete against.

We start with a differentiated brand experience every visit every guest in every center or.

Our revenues are recurring because of the need for hair removal is recurring and the investments. We have made a corporate are driving rapid unit growth by our franchisees.

Our scale also allows us to invest in technological enhancements that drive a better customer experience our ability to continue innovating and simplifying the guest experience at our centers further differentiates us from mom and pop competitors, who simply are not able to invest like we are the.

The franchise model allows us to be asset light and generate significant cash flow to then further reinvest in the business and the brand and to evaluate opportunities to return shareholder value.

For any franchise model to succeed franchisees must see predictability and unit level performance and ultimately make a great return on their investment.

WC does just that evidenced by the natural demand from existing franchisees to continue supporting our growth.

Second we operate in a large and growing market.

The addressable market for hair removal in the United States is $18 billion and within that the out of home waxing opportunity is $6 billion and growing at more than two times the rate of the total market.

Out of home waxing is clearly the preferred consumer choice for hair removal.

De European WAC Center is just a little over 10% of that out of home waxing market and 4% of the overall hair removal market in.

Importantly, the auto home waxing market is highly fragmented with nearly 99% of the service providers today, who are mom and pops that either operate standalone waxing locations or provide waxing services at a salon.

As the category leader in this highly fragmented market EWC is able to invest in the guest experience and in technology enable enhancements to that experience in ways that the competition cannot as such our scale and strong free cash flow creates an enviable competitive moat from which we continue to.

Expanding.

Third we have significant room for expansion at quarter end, we had 259 franchisees who owned 810 centers, while we owned five corporate centers across 44 states, where we operate and our pipeline for new unit growth is robust.

Longer term, we see the potential to expand to more than 3000 centers and our standard format in the United States and have set a target to grow new center openings in the range of 7% to 10% of our total base per year.

Ewc's unit economics are impressive and enable franchisees to achieve sustained annual cash on cash returns of 60% at maturity, which occurs at year five are centers require a modest upfront investment and follow a highly predictable maturation curve across cohorts and geography.

Fees, providing our franchisees and also this franchise or with a high degree of visibility into the embedded earnings potential of newly opened centers.

Due to the attractiveness of this return profile and the consistency with which these returns have been achieved across center cohorts. We are now.

From sophisticated multi unit operators and well capitalized mid market private equity firms, who want to grow with us as a result, we continue to aggressively build out a strong pipeline of committed future center openings, we have strategically.

Yes, 25, DMA for growth and we already operate at least one EWC location across 75% of all of our growth markets in the U S.

Fourth we have a predictable business model.

We have a strong pipeline of new centers from which to expand current franchisee operators are opening the majority of our new centers and our centers has seen consistent performance across the U S.

Another proof point is that our same store sales have consistently been in the high single digit or low double digit range with 10 consecutive years of positive same store sales growth through 2019.

We have high guest retention and we encourage guests to schedule future visits regularly while rewarding them for participation in our prepaid wax pass program that provides an economically attractive bundling for our guests and ensures a pipeline of future guest visits for our franchisees our wax path.

Utilization or a percentage of service transactions that include a rackspace redemption approximate 60%.

We also know guests are highly satisfied and devoted to EWC by the continued strength of our net promoter score and we are so confident in our ability to delight that we will always promise all of our guests that they're first wax is free.

Now, let's turn to a review of our second quarter results.

Our accomplishments reflect the continued execution of our strategy against our two focused growth priorities first drive sustained same store sales growth and second grow our national footprint across new and existing markets.

Driving these two growth vectors will naturally expand our profit margins and generate robust free cash flow given the asset light positioning of our brand.

In our second quarter. We are pleased to have made significant progress on each of these priorities.

Given that the majority of our centers were temporarily closed for a portion of 2020 due to pandemic restrictions I will focus my Q2 performance commentary on the sequential growth from Q1 2021.

And the pre pandemic comparative growth to Q2 2019.

In regard to our first priority, we demonstrated significant sequential improvement in our topline revenues supported by strong systemwide and same store sales versus the first quarter of this year as well as compared to the second quarter of 2019.

Specifically total EWC revenue rose by 31% relative to Q1, 2021 and by 11% over the second quarter of 2019.

Our strong top line performance was driven by favorable system wide sales up 39% relative to Q1, 2021, and 15% over the second quarter of 2019 as well as by same store sales, which increased 13 percentage points from the first quarter of 2021.

One delivering a Q2 comparable a positive six 9% from the second quarter of 2019.

Our overall same store sales were strong even as California lagged other geographies given more stringent health mandates during COVID-19 and a tight labor market, partly attributed to a delay in processing of cosmetology licenses for purposes of providing investors clarity around our performance. During this period. We think it is helpful to highlight the <unk>.

<unk> negatively impacted our same store sales in Q2, 'twenty, one by 500 basis points, thus and our other 43 states, excluding California, we generated positive same store sales of 11, 9% in Q2 relative to Q2 2019.

As we said when we spoke to you on the Roadshow, we remain very pleased with the guest demand side of our business and we continue to monitor labor based supply constraints across our network in the short term.

Our same store sale increase in the period was driven by higher overall transaction values as mass mandates led to a mix shift favoring higher priced body services, such as leg bikini and Brazilian waxes versus facial services we.

Great loyalty from guests, who continue to come for their body services and we believe there are still some sideline guests who returned to their regular routines when the pandemic related mass mandates abate.

Overall product sales were also strong for the quarter rising 15% relative to the second quarter of 2019, we are seeing success from the launch of our new retail product line in April and we remain focused on driving continued productivity.

We have enhanced our operational playbooks to focus on consultative selling that makes it easier for our WAC specialists and our guest service associates to attach retail products to our guests service visits.

As it relates to our second priority, we grew our national footprint by adding 41 net new centers from the second quarter of 2101 from the second quarter of 2019, our pipeline continues to be robust and we remain on track to opened 52 net new centers this year.

As a result of delivering on our two growth vectors, we expanded our profitability and delivered strong free cash flow operating profit grew to $16.0 million up significantly from the $13.0 million in the second quarter of 2019.

As we said when we spoke to you on the Roadshow, we remain very pleased with the favorable guest demand for our services and the sequential growth of our same store sales performance that will continue into Q3.

In summary, we remain incredibly excited about the partnership we have with our amazing franchisees and our guests confidence in our brand.

And in our opportunity to continue to build on our success as the leader in the out of home Waxing category. We expect that our focused execution will continue to drive double digit growth for the benefit of all of our shareholders and now I would like to turn the call over to Jennifer Van <unk>, Our Chief Financial Officer to review, our second quarter performance.

And outlook in more detail John over to you.

Thanks, David and good afternoon, everyone I am delighted to speak with you on our first earnings conference call as a public company.

I'll begin my discussion with an overview of our business followed by a review of our second quarter results.

While discussing our financial performance I will compare our second quarter fiscal 2021 results to both fiscal year, 2020, which was significantly impacted by temporary pandemic related central closer as well.

2019, which represented a more normalized year of operations for US I will then introduce our fiscal 2021 outlook.

As David mentioned European WAC Center as the leader in out of home lasting services, a grilling and attractive category.

Our asset light operating model delivers a consistent guest experience and predictable unit economics for our franchise partners.

Our strong track record of growth is driven by these dynamics.

At a corporate level, we are able to achieve our growth objectives with modest investment and working capital requirements, resulting in meaningful free cash flow.

And as part of our overall capital allocation framework, we will evaluate opportunistic uses of our cash in partnership with our board.

I would now like to turn to.

Great quarter and first half results.

My remarks will focus on our adjusted results, which exclude one time costs related to our initial public offering and assumes our initial public offering occurred at the start of the year.

You can find reconciliation tables in our press release, and 8-K filed with the SEC today.

How does my review and I would like to provide a brief definitions of the terms we use when describing the performance of our business.

Correct Systemwide sales, which represents revenue from the sale of services and products across our network.

Systemwide sales also includes collections on lastpass cash payments, which I will provide further commentary on momentarily.

It is important to note that system wide sales for our networks are primarily generated by our franchisees who operate more than 99% of our centers given our asset light business model.

Second same store sales, which reflect a year over year change in sales from Lapsing services performed and retail products sold for the same store base of centers open for at least 52 full weeks in.

Accordingly, this measure escalated cash collections from last passes sold until those services are redeemed.

In this way same store sales represent a strong indicator of recurring GAAP service behavior at our center.

Third last past cash payment, which represents cash collected upfront or in equal installments for prepaid services bought in bulk and at a discount to our last path program.

Last past purchases Lat last past redemptions were $21.0 million for the quarter.

Rising 36% versus the second quarter of 2019.

As our guests redeeming services the value of that service is reflected in our same store sales performance.

Accordingly increases and lastpass sales in any given period will eventually be recognized in our comp center sales performance in a future period as the guest uses for service.

In this way last pass sales are a component of future same store sales performance. So there may be timing differences in the cadence with which GAAP redeem those services and we look at these last past purchases at a leading indicator for future services.

Last past redemptions also represent an important opportunity for EWC to attach incremental services or retail products to those services.

And as you heard from David approximately 60% of our annual service transactions include a whack past redemption and on average guests enroll in our last pass program after their third visit.

Increasing last past redemptions leads to higher guest retention and guest satisfaction and support our predictable recurring business model.

For EWC total revenue, which includes the recurring sale of comfort wax and retail products to our franchisees as well as royalty and marketing fees based on the service revenues generated by our franchisees.

Importantly, royalty and marketing fees are earned by EWC as cash is collected by our franchisees.

Including the cash collected from last past cash payments in any period.

Other revenue consists of our Corporately owned center revenue and other ancillary franchising.

We will now turn to a review of our second quarter results. We are pleased to report strong second quarter performance highlighted by significant growth in sales margin and adjusted EBITDA compared to the second quarter of fiscal 4039.

We are also pleased by the sequential improvement of our performance from the first quarter of 2021 to the second quarter of 2021 as guests return to our centers.

The second quarter was the first period in which we no longer had mandated closure associated with the COVID-19 pandemic.

I want to thank our entire organization, our franchisees and our Wap specialists for contributing to this performance we are grateful for their dedication and passion for our mission, while enjoying countless hours of training on COVID-19 protocols to preserve and extend our best in class hygiene and cleanliness procedures.

The level of professionalism despite personal hardships through this unprecedented time has been nothing short of extraordinary.

System wide sales for the quarter were $223.0 million rising 443% from $43.0 million in the second quarter of 2020, and an increase of 15% from $194 million in the second quarter of 2019.

This represented a significant acceleration from the first quarter, 3% increase in system wide sales versus 2019.

Increased same store sales, coupled with 81 net new centers drove the revenue increase relative to the same quarter in 2019.

We were pleased to see our guest return for their routine and recurring services as soon as restrictions were eased or lifted.

And while traffic is not back to pre pandemic levels, the mix shift favoring body waxing versus base waxing, which you would expect given masks mandates is helping drive the increase in system wide sales compared to 2019.

These dynamics also delivered a same store sales increase of six 9% above 2019, primarily driven by average transaction value increases as a result of services mixing to those higher priced body offerings.

Total EWC revenue rose, 343% to $56.0 million from $18.0 million in the prior year period, and 11% from the second quarter of fiscal 2019.

<unk> sales royalty fees and marketing fees were significantly up compared to the second quarter of 4039.

To this end product sales consisting of both the comfort wax required to perform each service as well as retail products to franchisees sell through to our guests were $31.0 million for the quarter, an increase of 288% from 2020 and rose 15% from 2019.

<unk>.

Royalty fees were $12 million, an increase of 473% from 2020 and rose 14% from 2019.

Marketing fees were $12.0 million, an increase of 441% for 2032% from 2019.

Other revenues of $9.0 million, which includes corporately owned central revenues and other ancillary franchise fees were up 318% versus last year, but down 25% versus 2019, as we sold seven corporate centers to franchisees and closed one center versus the <unk>.

19 period.

Cost of revenue, which represents the direct cost of products sold to new and existing centers was $16.0 million for the second quarter of fiscal 2021.

Versus $10.0 million, a year ago and $11 three.

<unk> 3 million for the same period in fiscal 2019.

Gross margin was 75, 9% for the quarter, an increase of 1000 basis points relative to the same quarter in fiscal 2020, as a result of higher sales volume.

Retail margin expansion from our new product lineup and mix shift on the timing of comfort wax sales to our network.

Margins for this quarter are 200 basis points higher versus the same quarter in fiscal 2019.

SG&A for the quarter was $14.0 million compared to $9.0 million last year and $22.0 million in the second quarter of fiscal 2019.

The $14.0 million increase over last year's second quarter was primarily related to increased payroll costs and benefits expense as well as $10.0 million of professional fees associated with preparing to be a publicly traded company.

The decline in SG&A from the second quarter of 2019 with largely driven by lower commissions as a result of the re acquisition of rights for certain area Representatives.

As a percentage of revenue SG&A was 25%, 59% and 41% in the second quarter of fiscal 2021, 4039, respectively.

Advertising costs increased to $11.0 million in the quarter up from $8.0 million and $8.0 million in the same quarter of fiscal 2020, and 2019, respectively. However.

However, as a percentage of sales advertising costs were in line with our historical late the.

The increase in advertising costs reflects the company's efforts to assist and we opening centers during the pandemic and support new franchisee Center.

Depreciation and amortization expenses were $5.

<unk> million dollars in the most recent quarter slightly higher than the $5 million recorded in the same period last year and $10.0 million in the second quarter of fiscal 2019.

The increase in depreciation and amortization from the second quarter of fiscal 2019 is primarily driven by the amortization of reacquired rights from the area Representative agreement that the company strategically repurchased in fiscal 2019 in fiscal 2020.

Over time, this increased amortization will diminish and it is important to reiterate the relatively modest level of capital expenditures and associated depreciation required to operate our asset light franchise model.

Total operating expenses for the quarter were $40.0 million up from last year's $24.0 million, reflecting the reopening but were flat compared to the same quarter of 2019.

We are very pleased with our operating performance for the quarter, we posted a second quarter operating profit of $16.0 million, a $19 million improvement versus last year's loss of $15.0 million and significantly ahead of fiscal 2019 second quarter operating income of $13.0 million.

On a GAAP basis net income for the second quarter of fiscal 2021 was $14.0 million compared to a net loss of $15.0 million in the second quarter of fiscal 2020 and up significantly compared to net income of $11.0 million generated in the second quarter of fiscal 2019.

<unk> pre pandemic.

Adjusted net income improved to $18.0 million from an adjusted net loss of $16.0 million in the prior year period, and adjusted net income of $4 million in the second quarter of fiscal 2019.

EBITDA defined as net income or loss before interest taxes, depreciation and amortization expense came in at $23.0 million compared to an EBITDA loss of $9.0 million last year relative.

Relative to the second quarter of fiscal 2019, EBITDA increased by $9.0 million from 11.

Three $8 million in that quarter.

Adjusted EBITDA, which excludes the impact of certain noncash and other items that are not considered in the evaluation of ongoing operating performance such as one time items related to our initial public offering increased more than $20 million year over year in the quarter from a loss of $1 million to a gain of $27.0 million this year.

Sure.

Our adjusted EBITDA margin was 41, 3% in this quarter up a significant 1490 basis points versus 2019, adjusted EBITDA margin of 26, 4%.

Turning to the balance sheet.

As of June 26, 2021, we had cash and cash equivalents of $37.0 million and there were $272.0 million in borrowings under the company's credit facilities as of the end of the quarter.

As of August 2021, we have entered into a new five year credit agreement expiring in August 2026 comprised of a $40 million revolver, including $5 million for letters of credit and $180 million term loan. We were also able to secure better rates on our new credit agreement, which will reduce.

<unk> interest expense by approximately $11 million on an annualized basis.

<unk> from the new loan and the Companys initial public offering were used to repay and terminate our previous credit agreement.

We completed our IPO in early August following the end of our second quarter.

As a result, a total of $14.0 million shares of common stock were sold to the underwriters at $17 per share, including two 4 million shares of class a common stock sold by existing stockholders.

The company received gross proceeds.

$159.0 million from its issuance and sale of $17.0 million primary shares of class a common stock.

Following our initial public offering our capital structure consists of $70.0 million shares of common stock.

Now to our outlook, we are initiating guidance for the fiscal year 2021.

System wide sales are expected in the range of $788 million to $793 million.

Same store sales are expected to increase in the high single digits. We currently expect same store sales will continue to improve sequentially for the balance of the year.

Given the tight labor market in California, We expect same store sales to be at the lower end of our high single digit range for the full year, implying low double digit same store sales in Q3 and Q4.

We expect to end the year with 848 European Whacked centers, an increase of 52 locations from the 796 centers at the end of fiscal 2020.

Total revenue is expected in the range of $173 million to $178 million.

Adjusted EBITDA is expected in the range of 60 million to $63 million.

Interest expense in the range of $19.0 million to $20.0 million.

Our tax rate is expected to approximate 12, 5%.

Adjusted net income is expected in the range of $31.0 million to $33.0 million.

Depreciation and amortization is expected in the range of $23.0 million to $25.0 million and total capital expenditures are expected in the range of $6.0 million to $7.0 million.

Over the next three to five years, our long range growth algorithm contemplates compounding annual growth up high single digit unit growth high single digit same store sales growth low double digit EWC revenue growth and low to mid teens adjusted EBITDA growth.

As David mentioned, we have incorporated an appropriate level of prudence into our guidance for the balance of the year. However, our outlook does not contemplate a meaningful change in consumer behavior, driven by renewed concerns about the COVID-19 pandemic nor does it include further impacts from incremental tightening in the labor market.

But beyond what we see today.

This concludes our prepared remarks, and we will now turn the call back over to the operator for questions operator.

Thank you.

Ladies and gentlemen, as a reminder to ask a question you will need to press Star then one on your telephone.

Draw your question press the pound key.

Again, Thats star one to ask the question.

I ask that you limit yourself to one question and one follow up you might queue up to ask any additional questions. Please standby, while we compile the Q&A roster.

Our first question comes from the line of Randy <unk> with Jefferies. Your line is open.

Okay.

Yes, Thanks, a lot and good afternoon, everyone. Just wanted to really first talk a little bit more about the implementation of technology Gabe touched on it a little bit Europe.

Remarks so.

It will be really helpful. If you give us some perspective on how the business was run before your tech stack was basically augmented and then talk to us about how technology helps the <unk>.

Franchisees run their business better how has technology healthier the.

The customer experience improves and then talk to us about how technology has really keen data analytics at the corporate the corporate office.

Hey, Randy. Thank you thanks very much for your question.

I appreciate that we understand that we might've had some.

Break up on part of Jim's remarks, I'll apologies for that.

Sorry, Randy that are a suite technology is ahead of our conference call technology. So we will make sure that that guidance.

That discussion.

The topic is I think it was depreciation and amortization, primarily we will get that aggressive so apologies for that for the folks on the call. Okay. Thanks. Thanks for your question Randy Let me just maybe start with kind of what we've done and really had been allowed to do given kind of our scale.

Candidly, our competitors that can't do with I'll start I'll start and so we don't try to address your questions on both franchisees customer then.

Corporate health problems, helping us run Randy to make sure.

And the answer first of all welcome a new center in standpoint, particularly suite standpoint or within the last week.

There is an iPad that we put into every different actually.

<unk> has the ability to look at the history of our gas see what services. They have had in the past.

And the opportunity to add on services suggests new services.

Well as attached retail products to them, so having kind of that diagnosis prior to the guests coming into the well actually we think is an excellent opportunity for us to continue to increase the average ticket.

We watch a mobile app here over the past few months today allow us for virtual checking for our guests and allows our guests to rebook on the App.

It provides us the opportunity to give a notification to be attached to the to the guest reservation that allows the guests respond to guest surveys customer satisfaction surveys and NPS.

The survey that we have with them after their visit so we've made some really nice advance on mobile app.

The biggest opportunity there is where we make appointments.

We're seeing more and more of our guests are utilizing our mobile app to do that.

Next we will have actual auto check in and checkout available to our guests. So those are some of the those continued investments that we've made.

Randy to answer your question sort of how we're using that how we can utilize that to help our franchisees. We have the technology today to capture our guest behavior and the data Foundation that we're building allows that guest data to be appended to each individual guests record on that is going to enable us to really get to that personalized.

One to one marketing.

And we've been very very purposeful about the investments that we've made that are going to drive an enhanced guest experience that ultimately will drive stickiness and lifetime value of the gas. So that's being shared with our franchisees we have.

Data scientists that we hired in the last the last quarter.

Our goal and our team's goal is really to make sure that we're we're utilizing that information doing the proper analytics around it. So we can get over the guest experience Steve.

To ensure that we continue to drive that the lifetime value of our guests.

Super helpful. I, just have one little follow up.

Any learnings on new service initiatives, such as men or new services in general such as like I think the waxy nature was in pilots just any color on there would be super helpful. Thanks, guys.

Yeah, Randy I think franchise or it's our obligation to continue to innovate.

At the end of analog era to the restaurant menu, we've got to make sure that we continue to provide.

Our offerings that it makes sense for our guests where the brand gives us permission to where our guests give us permission as you know in a franchise model we want to make sure that this is executable across all of our 800 plus centers. So we're very very focused on staying close to our expertise and wax.

We have a great pilot program put in place on New services, we're very encouraged by what we're seeing in terms of the mail service opportunity that we really launched.

With some gusto here in the past few months I think the WAC power fast visual we've talked about in <unk> comments about some of the mixed shift that we've seen to more full body services I think theres been a bit of reticence in terms of.

Services under mass so we continue to be.

Mindful and studying our wax Howard fast visual but again, we think differentiates us from other <unk>.

Other waxing.

Competitive set.

Randy we will just continue to innovate in those areas, but ensure that is something that is very executable across all of our all of our locations and ensure that we have that same amazing guest experience in whatever service we're providing.

Very helpful. Thanks, guys.

Thank you.

Thank you.

Our next question comes from the line of Lorraine Hutchinson with Bank of America. Your line is open.

Thanks, Good afternoon.

I wanted to focus my questions around around New center growth can you talk a little bit about how confident you are in executing on the 52 centers. This year and then what line of sight do you have in hitting that high single digit growth in 2022 and beyond.

David Thanks for the question I'm going to ask David Willis, Our Chief operating officer to address that please sure.

We feel very confident about the full year safety to New center openings are our development pipeline is really robust status at the end of the second quarter. We had 226 licenses in the pipeline and we continue to make progress on executing the multi unit development agreements, we talked about on the roadshow.

Probably most excited that we're seeing.

And that is from franchisees of all sizes small medium and large franchisees are all committing to further develop these multi unit development agreements along as you may recall go out about three or four years. So we're feeling quite confident about delivering 52 centers. This year and equally confident going forward that we can hit our 7% to 10% unit growth.

Year growth metric.

Thank you.

Thank you.

Thanks, Brian. Our next question comes from the line of Simeon Gutman with Morgan Stanley. Your line is open.

Hi, Thanks for taking the question this is actually Hannah on for Simeon.

Wanted to ask a question around market share so in terms of the total.

A lot of hair out of home hair removal you are a little over 10% is there a way to think about the range from your highest <unk>.

Centers to your lowest.

Local market share looks like for that that range is that how we should think about market share potential over time.

Yes.

Thanks for the question just just to be clear the 10% share is the out of home waxing category. The overall hair removal is around 4% just just just for clarity, though we don't we don't drive down to our local markets today in terms of our market share, but I think the important point here is that this is such a highly fragmented market the 190 <unk>.

90, plus percent of the business as mom and Pops.

We shared earlier that we commissioned a very well known international research group at the beginning of the year to evaluate.

Marvin opportunities they came up with.

This kind of the.

Canada that we've addressed and additionally, they opined that 5% to 10%.

Those smaller mom and pop shops were not going to survive COVID-19, we're seeing that in some of our new guest count acquisitions were one in five of oil and gas in the quarter are coming from our competitive set. So we do believe were taking market share and we'll continue to we'll continue to watch those numbers to make sure that we know where those those guests are coming from.

And maybe a quick follow up if you have the time.

Out of home waxing currently sitting at about a third of the total hair removal market. Obviously, it's growth is outpacing the larger market. So that penetration should kind of pick up do you have a sense for where.

Out of home waxing penetration of overall hair removal kind of mix of that long term.

And so I beg your pardon I lost you with sort of the.

$6 billion of the $18 billion out of home and that is growing faster than we last year I'm sorry.

Oh I just was wondering if you have a sense for where I'm waxing penetration land in the long term as a percentage of all hair removal.

Well, we certainly see it I mean, we're excited obviously that it's the fastest growing modality hair removal.

Is it going to be half of it.

<unk>, that's part of our job is to try to get it there.

We're just excited that it's growing faster.

<unk> a leader in that category.

And I think again, we just keep focused on making sure that we're driving our market share across all of the.

The DNA, where we operate but we have not sort of done analysis analysis to say of that 18 billion could that could that serve that market and article waxing growth.

Two a significant higher now we believe there is great opportunity within the space that we're operating right now.

Makes sense. Thank you.

Thanks Anna.

Thank you.

Our next question comes from the line of John <unk> with Guggenheim. Your line is open.

Hey, guys.

Focus on the opportunity right to accelerate maturation of our centers. So let me talk to that a little bit whether it's network effect marketing.

Cross sell.

And.

The degree to which you think you can get to $1 billion quicker than Europe five.

Hey, John how are you.

Thanks for the question I'm going to ask David will follow.

Follow up on that please.

Good to talk to you.

The accelerating the maturation of the centers is really front and center vendors for this.

Squarely on the operations team.

Identify those kpis levers that we that we can execute it camps that are going to drive faster breakeven and 25% with slightly EBITDA you may recall from the on the road show the average share profitability of Maturations of about 20% in EBITDA at our top performers are 25%, we're trying to institutionalize the other things that those folks are.

Doing well across the rest of the network. We have seen some early early very encouraging signs in terms of new center openings in the pace upon which their revenues are ramping.

In 2020 and in 2021 in terms of New center openings. So variety of initiatives that our teams are focused on working with franchisees, but any simple terms, we're simply trying to institutionalize.

Operators are doing across the rest of the network.

And maybe maybe John.

Add a little bit to that.

The performance of our cohorts by vintage year income, great outperformance and the vintages. The 2020 in 2020 one as we think about 2021, obviously in this first year really performing last 60% to 70% higher overall trend in 2020, if you think about that that's about 10% to 20% higher. So again these are onetime SaaS.

I was wanting to provide for additional clarity, we now revenue repower issuer, but I do think some of the things that are pushing on the operation side of the market. We believe we're going to continue to work.

Alright, and then just real quick do you guys have talked about.

I guess the labor.

At least in California, maybe just quick in terms of supply demand for wax specialists right.

Should be an employer of choice. So is that just sort of a timing issue just in California.

When you think about the availability of specialists.

John This is David.

Maryland, California, you're right, that's where we're seeing it.

The short very short and we think thats really because California's lagging the rest of the country are coming back online.

We maintained our noteworthy arsenal of tools that enable them to recruit blacks pressure less post for beauty schools and other avenues and we're candidly seeing momentum.

We're seeing more hires by our franchisees of black specialist market where months. So we're encouraged but certainly to your point, we're seeing the labor shortages in northern California than we are rest of the country.

Thank you.

Thanks, John.

Thank you.

Our next question comes from the line of Jonathan Komp with Baird. Your.

Your line is open.

Yes, thank you very much.

David or Janet I'm wondering as you look forward to the balance of 2021 and into 'twenty. Two could you maybe rank order. The biggest drivers of your same store sales that you see and then more near term can you share any commentary on the behavior of your guests just over the last few months I know, we're past the typical peak, but given.

Delta and Covid I'm curious what you are seeing behavior away from your guest.

Hey, John I'll start with kind of what we're seeing from guest behavior, and then ask Jeff to speak to the same store sales comps as we look forward I think we continue to be really pleased with the consumer response, certainly following the lift of Covid restrictions so that the overall demand side of the business.

We are encouraged about.

I think this just continues to demonstrate the trust that our guests have with our brands and the non discretionary and recurring nature of our services. So we saw that when centers open back up and that's continued along so the demand is very robust as we kind of think about our outlook we continue to see.

Sequential improvement in same store sales in the back half of this year with comp sales up in low double digits. In Q3 Q4. So that consumer response is strong as David alluded to and we talked about in the prepared remarks, California's lagging that where we hope that certainly is California catches up with that that's going to be upside for us as we look forward so from our Arkansas.

<unk> trend standpoint.

We're encouraged by what we've seen we're obviously very mindful of any kind of variant that might come on or additional government mandates.

But right now we continue to be very optimistic about the consumers coming back into the businesses. John do you want to talk a bit about sort of drivers for same store next year, absolutely. So John Let me, let me tackle the second part of your question.

We have seen over the course of sequential quarter over quarter growth, if I had to continue to adjust for that David.

We are pleased with how the customer has readout rebounded and continued to rebound in terms of transaction, but in the quarter mix related from that same store sales in Q2, and we continue to see that kind of differential in terms of that body services versus the face we expect that to continue for the balance of the year.

Against that transactions continue Joe you've heard some really good news from US today in terms of how happy we are with our new guidance on a sequential guidance that I would tell you that when we talk about California in terms of a demand versus supply we actually seeing the main growth in California.

Customers are over indexing that plus 58% and that's really comfortable that we've got the demand on a go forward basis.

And then as we think about 2022, I don't want to provide that outlook, yet, but we continue to feel comfortable and confident in our long range growth algorithm that we've always said, it's going to be driven more by transactions in the long run. So I think it's a bit of it and when you think about the mix shift we've seen during the COVID-19 lapping that in time and really the end.

The transaction still coming into our system.

Actual upside as those customers that may still be sidelined pipeline continue to reactivate around me.

That sort of things that we've seen kind of COVID-19.

Hey, John we're going to stay hyper focused on our two growth initiatives to drive unit count.

Throughout the U S and in second to drive sustained same store sales comps in that.

Really broken down into those three buckets that we talked with you all about that is to attract more guests. How do we continue to drive and guests for our centers second how do we get them to buy more and third how do we get them to stay loyal longer we're launching a new loyalty program at the end of this month and we're incredibly excited about that's going to allow us to reward our best guess.

Right perfect time, we think as we go into November and December sort of high spend months to really get our guests excited about the new loyalty program that will fill in asset stickiness that we've got with our guests longer term.

Yeah, that's great and then just one other follow up the point that wax pass sales are exceeding the redemptions could you maybe just clarify what's driving that and then maybe the broader financial implications longer term.

As you grow the wax passed penetration thank you.

Sure John I think.

We really want to talk about the drivers in terms of the pipeline of future SEC.

I have to look at this relationship is a really important one.

I'll be periods, I will say, where the differential that we're seeing this period in terms of lastpass purchases lots redemptions being in positive may turn the other direction and that just means that all of the CRM efforts you've heard David Barak talked about are working we're driving that engagement historically, we see extremely low breakage rates around.

This is the area that grows back every period and so we feel really confident that when we talk about a differential in terms of debt. This number on a go forward basis, but that is really building that very robust pipeline of future service business and as we look at things today, we got all of that is kind of waiting waiting to come on as over against service.

And I felt really comfortable that this business is.

Different from many others you may see.

Is that such a high proportion of the total service dollars coming in on that lifestyle program and I think what we're reporting today, which is up 36% is just evidence of that.

Okay.

Yeah.

Yeah.

Thanks, John.

Thank you.

Our next question comes from the line of Dana Telsey with Telsey Advisory Group. Your line is open.

Good afternoon, everyone.

Hi, Hi, David Hi, Jennifer as you talked about the labor component what are you seeing in the labor component country.

And in the U S. How do you see those costs and the impact of SG&A and then we had talked previously freight was a topic and just wondering any updates on freight getting goods in and how that's being passed onto the franchisees or what youre seeing in terms of pricing or any changes there. Thank you.

Thanks, Dan.

Yeah, Dana as David So on the on the Labor component as you may recall from our prior conversations that by and large.

Black specialists are likely more than state or federal minimum wage.

Thanks, Ray and then most of our franchisees before I payroll programs that have a significant amount of their compensation tied to incentives several percentage of service revenue. So in terms of the inflation on wages, we haven't seen that directly impact our franchisees because we were kind of already paying higher than normal minimum wages as it relates to the trade.

We're seeing higher ocean freight as I think.

Everyone is that we've been able to manage that we don't envision that.

Will impact the margins on our P&L.

Got it and then Jennifer just one follow up on the cadence of the third and the fourth quarter and what you talked about with sales any difference in how we should breakdown third and fourth quarter or how you how you think about it.

Sure.

This is John.

What we tried to do it would be kind of spoken remarks talk about for the balance of the year. When we think about how box being at the lower end of that high single digit range I think as you kind of roll forward before here that doesn't really imply that low double digit in terms of same store sales, but we certainly they're talking about.

Grateful box demand that we're seeing in this quarter and that sequential improvement, we see overtime so that sells itself.

System wide sales, which when you think about the length of that is a non-GAAP metric for health of the total network and how that translates to P&L performance for TWC, that's going to be partly in more directly and continue to feel very comfortable there.

Thank you.

Sure.

Thank you.

Our next question comes from the line of Kelly Crago with Citi. Your line is open.

Yes.

Hi, Thanks for taking my question I'm, just curious what specifically is driving that.

<unk> same store sales in the back half of 'twenty, one is it California catching up to the rest of the chain is it a sequential improvement in traffic and transactions and since youre. So far into <unk>, just hoping you could help us understand you know what.

What's driving that acceleration and why it's sustainable into the fourth quarter.

Sure Kelly this is John I'll take that offline.

We feel very comfortable about in terms of what's driving that sequential growth is exactly what you are alluding to when you think about that that the mix between transaction purchase price I think what you're hearing US say is that we believe that the mix shift in terms of that price components and dollars per service on body services that will continue through the balance of the year aggregates.

Reflected in our outlook, we have provided but we continue to see gaps will cover in terms of transaction count and that's what's kind of driving that I will say in terms of if you are looking at us like on a stacked basis for Q4, the comparative just gets a little higher there that's more of a function of what was in Q4 of 19 one.

Back in that period, because it has a.

I'll now there isn't it that the company has kind of taken meaningful strides to invest in cyber security on a go forward basis, but I think that that's going to be a bit more of an increase there I will say again to reemphasize that.

For the full year outlook in terms of the lower end of our high single digit range implies that sequential growth over time, but I just will say.

The lower end of that range given the great guest demand. We're seeing is just a little bit of a pinch it turns out.

By that we are actively partnering with our franchisees.

Thank you and just following up on the on a labor side, it's great to hear that youre not really seeing the inflationary.

Headwinds yet or your franchisees are seeing them, but I'm just curious if we get to a point where you had.

The labor market is so tight that your franchisees start to see some of these inflationary pressures what tools do you have available to you sort of help them absorb those costs are.

Anything happened on the pricing side to help help these franchisees also offset those headwinds just anything else.

You could talk to that that could help us understand that.

Ultimately.

Ultimately there is price soared yet right.

Select markets, where labor rates are.

Our incredibly high we can ultimately with great products to the guests.

You may recall, we had multiple price tiers.

No surprise, the higher labor cost markets have higher service prices for our guests. So that's probably the biggest lever that our franchisees.

Canada angle.

Got it thank you.

Thanks, Joe.

Thank you.

Our final question comes from the line of Bill Chapell with Truth. Your line is open.

Yes.

Thanks Bruce.

Thanks, Chris.

Following back up on California may have given us with what percentage of the sales is the state of California, and then did you see any change intra quarter I mean did it improve throughout the quarter and as we moved into this quarter or is it pretty much.

Same level throughout.

Yes, Bill we don't have that sales broken out like that I will tell you that California, given their center now accounts for about 15% of our network. So it does there is an impact on our overall financial metrics when California neither of the bid.

We certainly saw in the quarter month over month improvement.

As we went through the quarter.

And invesco.

I would just say one thing I know, we've spoken a lot about California, our franchisees I think a positive trend there is about 25% of our new centers opened year to date and 25% of centers opened over the last four quarters are actually in California. So notwithstanding.

Navigating some challenges are little slower to come back online versus the rest of the the rest of the country. There are some encouraging signs our franchisees are committed to further developing that.

Okay.

Gotcha, and then a follow up.

And then you may have covered this but you mentioned that there were some licensing I guess delays that were affecting labor probably more than climbing labor. So is.

Is that cleared up or is that still something that did impact. The next few months yes.

Yes, so bill what we shared.

Cosmetology schools actually shutdown, alright, and then they say, we're not issuing licenses for acquisitions when they reopen.

I understand you're catching up on that we have.

Industry relations team Thats very close with our franchisees and we're staying in touch with the cosmetology who've been beauty Judy schools out there to ensure that.

The faster we can get those licenses often use petition to that opportunity for us. So they are catching up on that.

So thats <unk> <unk> should be back to normal.

That we are with respect to what the California governments can do I'm not going to opine on that I certainly hope so.

They can get caught up for us.

Got it thanks, so much bye bill thank you.

Thank you.

I would now like to turn the call back over to Mr. David Burke for closing remarks.

We thank you all very much for joining our inaugural Q2 earnings call as a public company. We appreciate everybody's interest and we will look forward to speaking with you about Q3 in November. Thank you all very much.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.