Q3 2022 European Wax Center Inc Earnings Call

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

[music].

Good afternoon, ladies and gentlemen, and thank you for standing by welcome to European Wax Centers' second quarter fiscal 2022 earnings 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 in order to facilitate that.

Participants as possible, we ask that you. Please limit yourself to one question and one follow up during the Q&A session. If you have additional questions you may rejoin the queue. At this time I would like to turn the conference over to Amir you Gotta do senior Vice President of financial planning and Investor Relations. Sir you may begin.

Thank you and welcome to European <unk> third quarter fiscal 'twenty two earnings call with me today are David Burke, Chief Executive Officer, and David Willis, Chief Financial and Chief Operating Officer for today's call. David Burke will begin with a brief review of our third quarter performance and discuss our progress against our.

Fiscal 'twenty two priority.

Then David will provide additional details regarding our financial performance and our guidance.

Following our prepared remarks, David Burke, David Wilson, I will be available to take your questions.

Before we start I would like to remind you of our legal disclaimer, we will make certain statements today, which are forward looking within the meaning of the federal securities laws, including statements about the outlook of our business and other matters referenced in our earnings release issued today a 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 well as our earnings release issued today for a more detailed description of the risk factors that may affect our results.

Also note that the forward looking statements reflect our opinion only as of date of this call and we take no obligation to revise or publicly release the results of any revision or 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 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.

Live broadcast of this call is also available on the Investor Relations section of our website at investors <unk> Dot Com I will now turn the call over to David Burke.

Thank you Amir and good afternoon, everyone. Thank you for joining us today.

We are pleased to deliver Q3 performance in line with our expectations continuing to demonstrate the strength of the European wax on our business model and our strong guest relationships I'm, especially proud that our phase and dues continued to match in the midst of a very dynamic consumer environment.

I want to thank both our team and our franchise partners, who continue to execute on our initiatives, while delighting our loyal guests with exceptional service even in an uncertain macroeconomic environment, the recurring nature of hair growth and our position as the leader in the out of home hair removal category.

Reinforces our confidence in the strength and resiliency of our model and our long term growth trajectory.

From a top line standpoint, we delivered on our two key growth drivers New center openings and same store sales.

We opened 18, new centers ending the quarter with 911 centers across 45 states with all remaining new fiscal 2022 centers currently under construction and greater visibility to their opening dates we are once again, raising our expectations for fiscal 2002.

92, net new centers to <unk> 88 to 90, which represents a year over year increase of more than 10%.

Turning to our second growth vector, we delivered four 7% same store sales growth driven primarily by pricing actions. We took earlier this year.

In our third quarter, we generated 7% system wide sales growth to $235 million.

12% total revenue growth to $50 million and 13% adjusted EBITDA growth to $18 6 million.

With the first three quarters of the year behind US we have more visibility to the remainder of 2022, and thus are able to narrow our full year outlook within the financial rages, we set in March and raised in May underscoring the durability of our business during a year of macroeconomic challenges.

We believe our strategic priorities for 2022 will pave the way for our continued long term growth as a reminder, those priorities are one expanding our national footprint through new centers to capitalizing on our enhanced marketing and loyalty programs to drive deeper customer.

Engagement.

Three increasing the pipeline of whack specialists to support our long term growth for leveraging our scale to benefit our supply chain and franchisees and five optimizing our capital structure.

To lower our cost of capital and increase flexibility.

I'll cover our progress on the first two initiatives in depth as well as provide an update on steps we are taking to enhance our capital allocation strategy and then turn the call over to David Willis to discuss the remaining priorities and our updated guidance for the year.

First up expanding our national footprint through new centers.

We have the potential to reach 3000 European WAC centers domestically and at just over 900 centers today, we are less than one third penetrated.

We're targeting a long term high single digit unit growth to capitalize on our white space focusing first on the top 20 DMA in the United States.

We are not fully penetrated in any market and with growth opportunities everywhere. Our development team continues to deliver for.

For instance, we are bringing together growth partners and existing operators, who have committed to expand in underpenetrated markets like Los Angeles and Milwaukee. These partnerships are ideal for us as they marry the real estate.

<unk> and broader franchising expertise of an institutional growth partner with the deep European WAC Center knowledge and operational excellence of an existing EWC franchisee, we have nearly a dozen institutional and self funded growth partners, whose multi unit commitments comprised more than two thirds.

Of our development pipeline.

Demand from additional partners remains robust and we continue to work on navigating entry points for these institutions to join the network and grow with us we.

We are still in the early innings of opening centers through these very exciting partnerships.

At the same time commitments from the smaller operators in our network are as strong as ever the majority of our 2022 growth is still coming from these non institutional players.

With our compelling unit economics, including a modest upfront investment of approximately $350000 average unit volumes of over $1 million at maturity and robust four wall margins that remain above pre pandemic levels existing franchisees still make up more than 90% of our <unk>.

<unk>.

In fact, our three largest franchisees each opened their 50 European WAC Center during Q3 and have future growth ahead of them as they continue to sign up for additional licenses.

It's also important to note that both small and large franchisees are well capitalized whether with institutional funds or through the 60% cash on cash returns generated by their existing mature centers.

As a result rising interest rates have not impacted demand for licenses. We recently held our first brand conference since the pandemic began and nearly 90% of our franchisees were represented there.

Feedback was overwhelmingly positive as franchisees gave us a 98% conference satisfaction rating.

After networking with each other sharing best practices viewing our updated centered design and learning new ways to elevate their businesses franchisees are more enthusiastic than ever about growing with European WAC Center.

As I mentioned earlier as a result of this continued momentum we are once again, raising our new center expectations for 2022.

Fixture and permitting constraints also continue to ease and we have even greater visibility to the timing of upcoming center openings. We now expect 88 to 90 net new centers this year and with the continued strength of our pipeline, we see a clear path to open at least 90.

Net new centers in 2023.

In summary, franchisee confidence in our brand business model and leadership position Spurs demand for new centers, which in turn gives us confidence in achieving our high single digit long term growth targets and continuing to take share and our growing highly fragmented.

Industry.

Our second strategic priority is leveraging our marketing and loyalty programs to drive customer acquisition and engagement.

With inflation on the rise we are laser focused on engaging both new and existing guests.

Deepening our relationship with them and driving visits into our centers.

As a reminder, our marketing and loyalty tools are unmatched by other players in the out of home waxing and hair removal category. The vast majority of out of home waxing is performed by independent proprietors, who lack the resources and scale to reach guests in our capacity as the industry leader we are confident.

<unk> that the superiority of our business model and the guest facing actions, we are taking enable us to successfully manage through macroeconomic uncertainty and emerge stronger over the long term.

Our customer demographics skew toward higher earning guest with average household incomes of over $100000 and our most engaged guests have significantly higher household incomes.

For context, our services start at just $12 a service and our average service is about $34, making European WAC center, a highly efficient and cost effective choice for hair removal top quintile guests visit us nearly 10 times per year and continue to drive more.

Then half of our sales dollars.

Importantly, current economic conditions have not impacted.

Our top guests visit frequency and Theyre spending with European WAC Center has actually increased.

This tells us that despite the impact of rising inflation. These guests remain committed to their EWC waxing routines and view our services as non discretionary.

We believe the recurring nature of hair growth and the loyalty of our top quintile meaningful meaningfully limits the impact of a tough macroeconomic backdrop.

As we discussed last quarter in the middle of Q2, we started to see some of our less frequent episodic guests increased their time between waxes transaction volumes rebounded late in the second quarter, but did not fully recover to where they were.

Compared to the beginning of 2022, while both ramping and mature centers continue to comp positively transaction volume has been down low single digits year over year since we exited the second quarter.

In response to these trends, we proactively launched several initiatives for the back half of this year to mitigate the impact let me review these.

First to address the upfront cost of buying a wax passed we offer guests a limited time three plus one wax pass that is purchasing for services for the price of three <unk>.

We believe this promotion would attract guests that might be too cost conscious in this environment to financially commit to our traditional package of 11% to 12 services. We were pleased to see a significant uptake in the three plus one offer that drove higher <unk> volume and conversion year over year.

It also drove incremental frequency since three quarters of guests who purchase a three plus one in August have already used at least two of their services by the end of September we.

We believe these guests are ideal candidates to buy a larger package over once they deplete their three plus one balance. Therefore, we are leveraging our CRM tools to target and incentivize them through loyalty rewards to purchase our semiannual <unk> offering in the fourth quarter.

<unk> pass holders tend to buy more visit more and stay active longer they generate three times the revenue of non wax pass holders visit twice as many times per year and make up nearly 60% of our transactions.

And the $3 one promotion broader wax pass sales for the third quarter also remained strong which underscores the future value of these loyal guests.

Who will help support revenue during economic headwinds.

Our other Q3 levers focused on re bookings new services and referrals with these familiar initiatives. Our franchisees have historically demonstrated an outstanding operational focus that enables them to execute successfully.

First guests are stickier and visit more when they book their next appointment before leaving the center.

We ran a rebooking contest for the network and we're pleased to see a meaningful uptick in rebooking rates.

Second we reintroduced a discount for guests, adding on a new service for the first time not only does this drive incremental revenue through increased services per transaction, but it gives us an additional touch point to introduce wax pass savings to a cost conscious guest.

Lastly to attract new guests, we doubled our referral rewards bonus amount and saw new guests referral rates increased significantly ultimately all of these efforts helped us deliver third quarter financial results in line with our expectations aligning our phase in dos once again.

In terms of the fourth quarter, we are hyper focused on initiatives that have been proven to drive the business, while maintaining strong four wall margins. We are working closely with our franchisees to incentivize wax specialists and associate by extending our Rebooking contest. We have also extended the new service discount to <unk>.

<unk> to drive services per transaction.

As with the three plus one wax past guests, we believe guests, adding on a new service are ideal candidates for an additional wax path.

Therefore, we're targeting them for our traditional nine plus III <unk> offer as well.

In addition, we launched our semi annual nine plus three offer two weeks earlier typically this promotion to buy 12 services for the price of nine takes place annually in May June November and December .

We began offering the nine three package in mid October this year and have seen encouraging early uptake.

We are running a wax pass conversion test in center for both waxed specialists and guest service associates.

Highlighting the promotion on our earned social media challenges and using targeted communications to educate guests on the value of having a wax pass <unk>.

As a reminder, these actions are enabled by our scale as the dominant category leader and a highly fragmented space.

As we continued to deploy levers to drive long term waxed mass adoption recurring frequency and guest loyalty. We believe we are taking the right steps to navigate a challenging environment and continue to take market share.

Finally, I want to highlight that our board of directors has taken an important step underscoring its confidence in the future of our business with the authorization of a $40 million share repurchase program.

Given our asset light capital light business model and ability to generate significant free cash flow. We are confident that this authorization adds an accretive component to our capital allocation strategy and increases our flexibility to continue to deliver long term shareholder value now.

Now I'd like to hand, the call over to David Willis to review, our remaining strategic priorities, our third quarter performance and our guidance for the balance of the year David over to you.

Thanks, David and good afternoon, everyone.

Our third priority, increasing the pipeline of wax specialists.

Sure. The brand has the service providers needed to support our long term unit growth.

As I shared last quarter, we will always focus on engaging and retaining top talent at our franchise locations.

To that end, we've been working to diligently strengthen the European wax and a reputation on two of the top online hiring platforms Glassdoor and indeed.

We're excited that our glass door metrics have been steadily increasing throughout the year and are indeed rating has reached a two year high.

During Q3, we also completed an exciting overhaul of our careers webpage.

Adding a robust career side as critical as it drives twice the conversion rate for interested applicants as compared to third party hiring platforms.

Platform with more than 50000 beauty students graduates and professionals to produce a European Waxed center channel within the platform.

Our content provides awareness and insight around our career and waxing to our target audience and should serve as an ideal way to introduce potential wax specialists to the brand over time.

Government data shows that the industry for cosmetologist and skincare specialists is expected to grow by double digit rates through 2031, and we believe our efforts will enable us to attract this growing pool of talent and deliver on our unit growth targets for years to come.

Our fourth priority is to continue leveraging our scale and enhance our supply chain and share these benefits with our franchisees.

Our scale as the category leader.

<unk> enables us to address supply chain risks in ways smaller players simply cannot.

We have the leverage with both our suppliers and franchisees to mitigate cost increases and protect our gross margins.

While the current environment continues to be dynamic international freight rates have stabilized from second quarter peaks.

Compared to traditional retailers, we have a limited number of skus and minimal inventory obsolescence risk, which we view as a competitive advantage.

We have nearly six months of wax on hand, and a healthy inventory position for our retail products.

Ultimately, we believe we are well positioned in this environment and confident in our ability to manage through inflation and potential disruption with the levers we have in place.

Finally, our fifth priority is to optimize our capital structure.

Our whole business securitization completed in April this year.

It enabled us to advantageously secure a fixed five 5% interest rate.

Importantly, the securitization contains no operating covenants that would constrain our growth.

And the terms afford us tremendous flexibility as we continue to address our white space and expand the brand.

As we continue to optimize our balance sheet, we are adding another lever to our existing capital allocation strategy with the announcement of a share repurchase authorization of up to $40 million of our class a common stock.

Given our fixed rate long term facility and our capital light asset light business model that enables us to generate meaningful free cash flow. We are confident in our liquidity position and an ability to deliver long term shareholder value.

Turning to our Q3 financial performance.

As David mentioned, we delivered solid results in line with our expectations. Thanks in part to the guest facing initiatives, we launched early in the quarter.

Q3 system wide sales increased seven 3% to $235 $2 million.

Total revenue of $55 million Rose 12, 3% from Q3 last year.

Total revenue growth exceeded system wide sales growth due to the medical supply arrangement with franchisees that began early in 2022.

Which should generate approximately $10 million in total revenue for European WAC sooner this year.

In terms of same store sales, new and existing centers generated a combined four 7% increase.

<unk> centers continued to deliver a strong and predictable ramp to maturity, which is a significant contributor to our overall comp performance.

Mature centers are also continuing to generate positive comps driven by the pricing actions. We took earlier this year.

From a transaction standpoint, our third quarter run rate remained consistent with how we exited Q2.

And that continued into Q4.

As David mentioned earlier transaction volume across the network is down low single digits year over year, driven by fewer visits from our lower quintile episodic guests.

However, our top quintile guests, who drive over half of network sales remained strong and active.

Due to the strength of these guests and the initiatives. David described we are able to deliver the third quarter in line with our expectations.

We delivered $18 6 million and adjusted EBITDA up from $16 5 million in Q3 last year.

Adjusted EBITDA margins were flat year over year, largely due to public company costs and our medical supply arrangement with franchisees.

As we said before this arrangement is approximately 250 basis points dilutive to gross margin rates in 2022, but accretive to gross margin dollars.

More importantly, it optimizes the procurement process for our network.

Interest expense decreased to $6 8 million.

Interest expense in the same quarter last year with $9 5 million, which included $6 3 million in debt extinguishment costs related to the refinancing transaction concurrent with our IPO.

Excluding those charges interest expense would have increased $3 $6 million year over year due to higher debt balances and interest rates driven by the five 5% fixed rate refinancing we completed in April of this year.

Income tax expense was negligible as expected due to a valuation allowance and adjusted net income was $6 7 million.

In terms of the balance sheet, we ended the quarter with $41 $6 million in cash.

$399 million outstanding under our senior secured notes and our $40 million revolver remains fully undrawn net.

Net cash provided by operating activities was $27 $9 million year to date compared to only $100000 and investing outflows a hallmark of our asset light capital light model.

Finally, I'd like to provide some detail on our updated outlook for fiscal 2022.

As David described we now have clear visibility into our remaining 2022 New center openings.

As a result, we are raising our outlook to 88 to 90 net new locations. This year.

Compared to previous guidance of 83 to 85 centers.

As a reminder, we began the year with guidance of 70 to 72, net new centers and our growing pipeline combined with an improving construction and permitting environment has given us confidence to continue raising our outlook.

While these incremental 2022 openings would have otherwise open early next year the entire license pipeline is strong and.

And we plan to open at least 90 centers in 2023 as well.

From a modeling standpoint sales at our new centers typically buildup throughout the first year to nearly $500000 in year, one and continue to ramp to more than $1 million in year five when they are considered mature.

Considering this maturity curve, we don't expect a material impact to 2022 sales from the incremental centers this year.

Turning to our financial guidance for 2022 <unk>.

Based on our year to date performance and expectations for the remainder of the year.

We are pleased to be able to narrow our guidance well within the ranges that we set at the beginning of the year before the dynamic macroeconomic landscape became a top headlines.

Our guidance contemplates the slight year over year decline in transaction volumes that we began to see this summer and discussed on our Q2 earnings call.

For fiscal 2022, we now expect systemwide sales between 885 and $895 million.

Total revenue between 202 and $205 million and same store sales of approximately nine 5%.

We expect gross margin of approximately 71, 5% and interest expense of approximately 23, and a $5 million, which.

<unk>, the $2 million of debt extinguishment costs incurred in Q2.

Adjusted net leverage at the end of the year should be at or below five times based on our revised adjusted EBITDA outlook of $70 million to $71 million. This is excluding any leverage impact from potential buybacks.

Given our ownership structure and current valuation allowance our outlook still assumes negligible corporate income tax expense this year.

All in we expect 2022, adjusted net income between 27, five and $28 $5 million.

We are confident in the strength of our business model, our loyal customer base and the recurring nature of hair growth to insulate us from significant shifts in consumer sentiment. However.

However, we are mindful that the macroeconomic environment may not improve in the short term.

As we think ahead to 2023.

We also assume current transaction trends will continue through at least the first half of next year given the current landscape.

We intend to continue leveraging the tools at our disposal marketing outreach network incentives guest facing promotions and service innovation to continue taking share in this highly fragmented category.

We remain laser focused on delivering against our long term growth objectives.

We are pleased that notwithstanding the costs incurred this year to operate as a first time public company 2022 is expected to generate growth at or above our longer term targets.

We recognize that while there may be some noise in the short term over a multiyear period, we expect to deliver compounding annual growth up high single digits for new centers.

High single digits for same store sales low double digits for total revenue and low to mid teens for adjusted EBITDA.

Before we take questions I'd like to turn the call back to David for final remarks, David.

Thanks, David and summary, European WAC centers strong asset light business model is generating significant cash flow and driving results for our guests franchisees and shareholders. We remain the dominant player in a highly fragmented industry based on a recurring need hair removal, while not immune to inflation.

Our core guests remain extremely engaged demonstrating that a challenging macro environment does not change our appetite for our services. Our brand continues to attract top talent along with the unwavering demand to develop new locations throughout our significant white space, we believe that over the long.

Long term these competitive advantages will enable us to continue taking market share regardless of the environment.

I will now turn the call back over to the operator for questions operator.

Ladies and gentlemen, if you have a question or comment at this time. Please press star one one on your telephone keypad.

As stated in the opening we like you. Please limit yourself to one question and one follow up in order to facilitate as many questions as possible again, if you have a question or comment. Please press star one one on your telephone keypad. Please standby, while we compile the Q&A roster.

Okay.

Our first question or comment comes from the line of Jonathan Komp from RW Baird. Mr. Khan. Your line is open.

Yes. Thank you good afternoon.

I wanted to just ask a little bit more about that.

The customer behavior, you are seeing and how you are reflecting that in me and the tightened outlook for the year.

More specifically when I look to the fourth quarter could you just share how are you.

Youre thinking about same store sales for the quarter.

Any insight.

Your expectations to be able to impact with sales trends.

And as we look forward into the first half of 'twenty three.

Any thoughts on additional drivers or other initiatives that might be able to help drive sales here.

Hey, John David Willis Good to talk to you. Thank you for the question.

When we narrowed our guidance, we really were just factoring in what we saw the transaction trends as we exited the second quarter that we talked about on our last call. We really saw those continue throughout the third quarter and as we're one month into the fourth quarter kind of the same trend no better no worse not fully recover to what we saw in Q1 of this year.

But fairly steady and thats coming from our episodic guests kind of our lower quintile guests that are just spreading their visit frequency out a bit David touched on it we took a number of actions in the third quarter. The three plus one wax past promo we think was a successful.

Initiatives to fall 50.

That we did in the third third quarter in terms of giving 50% off that second service to the guests has not had with us and over a year. The Rebooking contest, we had success with that in the third quarter were extending that here into the fourth quarter. So we continue to take actions to drive visit frequency and feel overall very good about the health.

Most of our guests file David touched on it our top quintile gas they haven't changed the routine one bit they represent over half of our system wide sales that are coming at the same frequency and candidly spending a bit more so we're going to keep an eye on it in terms of same store sales comps when you kind of run the math at the midpoint of our guidance I think that kind of takes us.

Samir.

Low single digit for for the fourth quarter, that's right, yes, John if you think about the revised guidance of approximately nine 5% and what we've achieved thus far year to date and keep in mind Q1 had a easy compare in California, and then we saw some pre COVID-19 recovery in Q2, Q3, but that suggests about 3% approximate.

3% for Q4.

For that debt approximately nine 5% guidance just as a reminder.

That's the low single digit.

Comp transaction decline offset by the pricing actions that we took in the quarter, but that youll see that 3%.

Okay, Great and then if I could just ask one follow up.

David Berg I think you mentioned.

The initial outlook for unit development in 2023, which sounded quite strong just wanted to get a little more context, your visibility and confidence to that level.

Especially just given the higher construction cost.

Higher financing our interest rates for our franchisees.

And in uncertain environment just curious.

But what gives you confidence at this stage and projecting a pretty pretty solid outlook.

Yes, John .

For the question.

We feel great about.

What we're looking for.

<unk> for the balance of this year. We're now this is the second or third time, we've been able to raise our new center outlook.

Up to 88 to 90 and really what gives us confidence as we look to 2023, Jon is that because the robustness of the pipeline that we have that we built and we've said this.

Before but it bears repeating which is 90 plus percent of those new centers.

<unk> are from our current franchisee base. So these are folks that either are well capitalized with an institutional partner or there just because of the.

60% cash on cash returns they have in the centers.

Our operating they've got plenty of cash to go go forward and continue to grow with us. So we do not see interest rates as any kind of deterrent the demand is there.

Our construction costs, we've really done a good job in this new center designed to get into that range, where franchisees are comfortable and can still have the kinds of returns and the timelines that we've had in the past so as I stated in my opening comments.

We will get that 88 to 90, this year and that'll be the.

We will do that that next year as well.

Yeah, that's great. Thanks again.

Okay. Thanks, Sean.

Thank you.

Our next question or comment comes from the line of Dana Telsey.

Telsey from the Telsey group Ms. Telsey Your line is open.

Hi, Thank you good afternoon, everyone. When you look at this quarter.

Exit rate.

Second quarter was there any difference in monthly cadence are also performance in California versus the rest of the country.

And then just wanted to touch on the gross margin guidance, which is coming in at the upper end.

There'll be a form of guidance and key drivers there and expectations going forward.

Thank you.

Dana This is David so from California, no material difference from the rest of the network. You may recall, there are still comping off of fairly lower base relative to the other states. So there are going to show transaction trends, a little more favorable to the rest of the network, but not not material.

You want to take yes, so on the gross margin Dana.

Again, hitting the high end of the range you probably have seen in Q3 were a little bit lighter than what we've achieved in the first couple of quarters part of that was the metal medical supplies agreement that we talked about that came into play closer to Q2.

So have a higher mix of our product sales that occur in Q3, and so Q3 was a little bit pressured in terms of gross margin, but we'll see kind of that rebounding in Q4 closer to the approximately 71, 5% and we feel confident in our ability to deliver the approximately 71, 5% for the year.

Got it and then just lastly, with the value offerings that you've been doing lately.

The game plan for the value offerings in the fourth quarter frequency or any changes to that.

Yes, Hey, Dana its David Thanks for the question I think we looked at all of these.

Promotions and actions that we took in Q3 with a win is not just a sort of single transaction, we really had a life lifeline for each of these promotions. So let me let me speak specifically to the $3 one.

The offer that we made at the end of Q3, which was really to go after that value conscious guests were very pleased as we talked about with a meaningful uptake we saw in <unk>.

Three quarters of the folks that bought that had already.

At least two services by the end of September so the timing is right as they use up that three plus one and you will recall that there is an expiration date on those but that falls in line with the $9 three offering that we've got going on through the balance of the year and with respect to those those guests that bought the three plus one wax path we have a special.

Offer using it really our CRM to target a special enhanced offer to them to move up to that $9 three offer similarly, with our 50% off that new second service that we offer guests that we've extended into this quarter. We see that also from a lifeline standpoint that it's an opportunity for us to sell a second <unk>.

<unk> path to those guests so as with the three plus one wax past purchasers those folks that took advantage of the 50% off the additional service will also be targeted with a special offer to buy an additional wax pass.

Some are rewards points loyalty loyalty rewards.

Enhanced for those folks are normal or normal have you also saw that we pulled forward our nine plus offer in Q4, we started that two weeks early we wanted to make sure sort of from from a holiday dollar standpoint that we were able to get share of wallet. We have been very pleased with the uptake that we've seen in the first couple of weeks of that earlier promotion.

We've got about 30% of those guests that had not purchased a wax pass in the last 18 months purchases in the first two weeks of the promotions that were very pleased with with kind of the initial outset and results. We're seeing there we will certainly run our limited time offer in terms of our retail product.

And really kind of unique product offerings holiday gift products that will allow our guests to take advantage of things as well. So we feel good about kind of the again looking holistically at the promotions that we made in Q3 that are going to help continue to drive business for us in Q4 and beyond.

Thank you.

Thanks, Dan.

Our next question or comment comes from the line of Lorraine Hutchinson from Bank of America Ms. Hutchinson. Your line is open good afternoon.

I wanted to follow up on the question earlier about the same store sales growth.

Looking for low single digits in the fourth quarter can you just talk to the key drivers to reaccelerate that trend to get back to the high single digit target next year.

It's really going to be the ticket with our with our wax passed from Lorraine. If you think about.

The size of those tickets and commitment the 90 threes can.

In the neighborhood of $600 ticket so as our guests.

Redeemed those higher value services, we think that that's going to help drive the average ticket here in the in the fourth quarter.

Okay.

Okay.

Thanks, and then as you look forward.

Well.

Maybe let's pivot to the franchisees.

What are you hearing from them about the slightly more promotional cadence that you are offering customers are you hearing any pushback from your franchisees, what's the reaction been.

Yes, Hey, Lorraine, it's David we just as I mentioned in my comments, we just came out of our franchisee conference here at less and less than a month ago and was the first one we've had since since.

Prior to Covid. So it was great to get everybody back together as we mentioned the 98 plus percent satisfaction rate the energy the enthusiasm for the brand was absolutely palpable in really all left.

Energized after we after we got out of that we certainly heard anecdotally about the commitments that folks are making maybe even getting out of other concepts that they might be in double downing and investing in European wax Center, we have a great relationship with our franchisee Advisory Council and we have discussions with them regularly about any kind of promotional activity all of them.

Click on the <unk>.

Right.

Plus one that was incredibly well received by our franchise Advisory Council and by the network of it. This was an opportunity for us to go out and help get that cost conscious guests Ottawa fast. So that we can then articulate them up to the $9 three and a special offer that we're giving them is is kind of a no brainer in terms of getting.

Them hooked into that so we make sure that we always are getting out and getting our franchisees to buy and make sure that they understand.

And one of the most important things that I've said this many times on these calls and in any franchising system.

Got to do things that our franchisees know how to do and know how to execute in anything that we've run. So we'll re booking contest, giving more dollars for referrals selling <unk>. So this is all right in the wheelhouse of the great operational expertise of our franchisees and Thats why I think we've seen such such nice results in terms of the the levers that we pulled in Q3 and we will.

In Q4.

Thank you.

Okay.

Mr. <unk> your line is open.

Hey, guys.

Can you talk to in this environment.

What do you think happens to the the maturation curve of new centers. This year's cohort maybe next year.

Is the is the topline ramp a little slower.

But is the bottom line ramp better right consist if transactions are under pressure.

Maybe you don't need as much wax specialist labor right and that helps the franchise. The P&L is that how do you think about that.

John we've really seen.

Couple of Years' cohorts, including New centers opened this year continue to ramp.

A bit ahead of the historical maturation curve. So I don't know that I would say that it's it's.

Worse in the early years, we've continued to be very pleased with how that how these centers are ramping.

As David had mentioned.

Maybe not mentioned in our prepared remarks, we're in the very early innings all of these fans.

Fantastic New center openings have really come from our historical franchisees were in the very very early innings of <unk>.

<unk> are opening is coming from the institutional capital back operators. They kind of found entry points over the last couple of years, we negotiated multi unit development agreements with them and they are just at the early stages of starting to reopen so.

Not only does that drive confidence in our ability to deliver the NCO targets that we've committed to you guys, but the performance operational performance of those centers, where we're quite confident they will continue to ramp.

And in terms of you touched on this John but in terms of profitability of our franchisees. We've also seen really healthy results. Throughout this year ahead of 2019 results as well so while we've seen the maintenance of the overall maturation curve and topline result, we've also seen an improving.

Bottom line from the four wall standpoint.

And how do you how do you guys think about direct is a balance.

<unk> Densification drives network effect.

It also potentially increases cannibalization.

How do you look at the balance of that again in a in.

Maybe a slower demand environment.

And do you think.

How much do you think cannibalization ramps up.

I don't know if you've quantified lately, but how much that increases right over the next year or two.

Well, John I would say that when we model our white space both from a top down perspective from the demographics and then a DMA trade area by trade area going back up we had modeled kind of five 5% to 10% cannibalization rates. So that's what's driving us ultimately to our target of 3000.

Now what I would tell you is we've seen some franchisees that want to strategically identify a market on an accelerated basis theyre willing to cannibalize their own centers a bit more than that.

We're still comfortable that that 5% to 10% we haven't seen any significant change over the last call. It two to three quarters in terms of <unk>.

Cannibalization rates, where our franchisees are identifying markets.

Okay. Thank you.

Thanks, John .

Thank you. Our next question or comment comes from the line of Kelly Crago from city standby.

Hi, Good morning for taking my question just wanted to follow up on an earlier question around the first half of 'twenty three.

Tom perspective, Youre still planning transaction download sanger or whether he may take to lap the pricing increases. So is it fair to assume that comps would be potentially negative in the first half of next year or.

And they're not thinking about that run rate and then I just have one follow up thanks.

Yes, it's a good question Kelly.

So youre right that we will be lapping, but theres also the maturation curve and the continued.

Growth of our of our centers and so how I would frame it up as you would see about three to 400 basis points pressure.

Our overall comp and so thinking through it, albeit institute too early to guide, we'll kind of learn more and get that for a holistic perspective, but as you look at the the trends I would I would think through three years to 400 basis points of pressure on the overall comp.

Kelly I would just add.

A lever that we've had in our toolkit is taking price we've taken price each of the last couple of years as of right now.

We don't have a set target date for taking price across the network. When we did a postmortem analysis of the price we took earlier this year.

We found that it was quite effective with very nominal attrition now theres a handful of franchisees that took multiple price increases this year and we did see them have some ticket nutrition. So we're going to be very mindful in terms of how we think about price, we're going to be mindful of our cost structure four wall margins.

As we look at this holistically, but as of right now per Premier's comments, we don't have baked into first half of next year and assume price increase.

Got it and just a follow up on that that last 300 to 400 basis points of pressure on the overall comp is that relative to the high single digit comp guidance.

That's out there that's right longer term, okay got it that's exactly right yes.

Got it and I guess and then the other point.

On the.

The price increases I mean, I'm just curious what you think.

And any impact on <unk>.

Transaction this year, especially given.

The inflationary environment overall would that make you think differently.

About price increases.

Given that the weakening macro environment.

And just lastly on that point.

Had to get a little bit more promotional to drive.

Traffic I mean does that have any impact on your margins or is it sort of borne by the franchisees.

Thank you.

Sure. So in terms of the pricing when we did our evaluation of that we found that for those franchisees that tip. The pricing that we recommended those had nominal impact on tickets because I wanted to make sure I'm clear there are handful of franchisees that either took more.

And what we recommended or multiple price increases throughout the first half of the year. Those few centers did have an impact on ticket attrition. So that told US we had it about right are we felt we had it about right in the first quarter, but we are mindful of taking more price against the backdrop of the inflation that everyone that everyone is seeing and in turn.

Of the.

The promotions and the impact on a four wall as you've heard kind of David Berg mentioned, a lot of the promotions are focused on driving long term value for the gap and so you think about the $3 one whack path the running a nine plus three up two weeks earlier and so we see that although it's a very short term slight impact of the four wall, we see that as an overall.

And a positive impact of transaction and in some of the incentives.

That we have run has been supported by the corporate two to drive engagement at the center level around Rebooking some of our surplus per ticket contests, and so it kind of a mixture of both but I would say all of it is focused on driving long term value for the guests.

Maybe one final point I would make we now have the data to better measure and monitor performance of these promotions were not necessarily running more promotions and when we've run historically.

We have better data to measure impact and pilot different options. So we're probably talking about a more but I don't want you to get the impression that we're running.

More promotions and what the brand has historically run.

Alright, Thank you guys.

Thanks Kelly.

Thank you.

Next question or comment comes from the line of Simeon Gutman from Morgan Stanley . Mr. Gutman. Your line is open hey, guys.

Just a little bit at the beginning so part of this if it's repetitive I think you said transaction run rate.

Quarter to date is the same as Q3, but I don't think you gave like any other like total comp quarter to date I guess the question is should that be consistent with the comp and then the implied Q4 are you building in any change in how the consumer is feeling.

Yes. So in terms of Q4, we're not building any we're basically looking at that the run rate that we have seen and factoring that that same run rate through the end of the quarter.

As you know we have our nine plus three promotion.

So Q4 is a relatively important quarter for us and a big quarter for us and the results that we've seen in the first two weeks of launching the nine plus three has been encouraging the transactions that we talked about early on <unk> was being down low single digits in terms of overall transaction comp.

There's an expectation of low single digit growth overall transactions is still.

Growing is in terms of comp.

We are we are down.

Okay.

The second one is around interest rate environment franchisee appetite to new leads et cetera.

Dave you've been in this environment for both David is actually.

So curious when we get a lot of questions on it we don't have that I think about it does this mean does it end up tilting towards some of the larger well capitalized does it mean the diversification plans have to pause how should we think about it.

Yes, Simeon I think the short answer to is there an impact of the rising interest rates on our franchisees and their desire to grow the short answer is no and I think if you if you dissect it in the two groups. The folks that are self funded our great franchisee operators their users utilizing the cash that they're generating.

From their mature centers to reinvest and we talked about it before that the bulk of our growth in 2022 are from those folks it's not from the institutionally backed.

Franchisees. So we will see that we will start to see the benefit of that to John's question earlier, that's part of what gives us confidence in 2023 are those multi year multi unit commitments that we have and with respect to those franchisees that have taken on an institutional capital partner, they're well capitalized and theyre not theyre not over levering. These.

These units again I mean, this is a $350000 build out so the capital requirements are not that great. So we don't.

We don't see it from our franchisees, we don't see it in terms of the pipeline growth that we've we've experienced nor in terms of the excitement about getting getting more units with our current franchisee group that again 90 plus percent of that growth is coming from those folks.

Great. Thank you good luck, okay. Thanks, Amit.

Thank you. Our next question or comment comes from the line of Scot Ciccarelli from Truest. Mr. Ciccarelli. Your line is open.

Good afternoon, guys. So I guess I'm a bit confused on the promotional activity comments, because I guess kind of where you guys were talking about it it did seem like youre, increasing promotional activity. But then you just said there really isn't a difference in cadence can you help clarify specifically what you mean on that.

Got it sorry, this is David I might have been confusing.

On that point, we are not a question was raised where we.

Running incremental promotions is it margin dilutive either to us or to our franchisees.

Are the quantity and the types of promotions are very consistent with what we've done historically, we're tailoring specific promotions.

And we're talking about the more because we have better data to measure them. So.

I just didn't want there to be the impression that everything's on sale. All the time. These are these are all promotional activities that our franchisees are quite familiar with.

And are good at executing.

Got it and so when you talk about transaction activity really hasnt changed from that kind of negative low single digit cadence that you've had over the last several months, we shouldnt assume that display.

Let's call it higher promotional activity, it's just kind of the same run rate both on transactions as well as promos.

Okay.

Yes, what we are trying to do a run those promotions that are going to drive guests into centers get more share of wallet ultimately to drive guest visit frequency, we probably spend more time talking about the wax pass and the positive halo effect of getting guests on the wax past that every one of our promotions is really intended to drive new guest into the center.

Maximize share of wallet, while there and then best case get them on a regular routine so that we get the franchisees get the benefit of that frequency.

Got it okay I understand now thank you.

Thanks Scott.

Thank you. Our next question or comment comes from the line of Corinne Wolf Meyer from PSC. Your line is open.

Hey, good afternoon, all and thanks for taking the question quickly.

Quickly on what Youre seeing on the retail side can you just provide a little perspective on.

How that side of the business have been performing and what you've been doing promotion wise and it does seem like some of the promotional activity has been increase there.

Can you just provide perspective on what the normal promotional activity for.

Retail products.

Sure Corinne we most recent promotion we ran on retail was the buy more save more promotion and we ran.

I think we ran one of those in the first quarter last year, we ran at least one of those.

Last year in 2021.

And we've been pleased with the results retail attach rates have kind of been in that 13% to 15% range. So they've been reasonably consistent.

On the <unk> that we're running here in the fourth quarter are really geared towards holiday product. So.

We've been quite pleased overall with with <unk>.

Results from our recent retail promotions.

Got it. Thank you and then can you just touch on what Youre seeing in terms of like average ticket price on me I know you gave gave that price, but how do you see that developing over the next couple of quarters or even years.

Our opportunity to start pushing from these higher cost services on your existing customers to drive that average ticket price.

How are you thinking about that.

Yes, so in terms of the average order value, we see that around a 55 to $56.

And that is up as you would expect with our with the price increase so it's up about five 6% compared to last year. There is always kind of initiative to to suggest an upsell at the center and by the GSA.

We also have another driver.

Taking up that lever, which is services for ticket and we ran a contest around that in Q3, and we saw a slight increase there as well and so there are promotions and let's call it initiatives around that.

<unk> to recommend and drive that we expect that to normalize absence any price increase next year.

Thank you.

Thanks Grant.

Thank you I'm showing no additional questions in the queue at this time I would like to turn the conference back over to management for any closing comments.

Okay. Thank you and thanks, everybody for taking time on the call today, we certainly look forward to speaking with you in the days and weeks to come in and continuing to deliver on our long term growth objective. So thank you all very much for joining us.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day.

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Good afternoon, ladies and gentlemen, and thank you for standing by welcome to European Wax Centers' second quarter fiscal 2022 earnings.

Paul.

At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session in order to facilitate as many participants as possible. We ask that you. Please limit yourself to one question and one follow up during the Q&A session. If you have additional questions you may rejoin the queue at this time I would like to turn the conference over.

But you Amir you Gotta do senior Vice President of financial planning and Investor Relations. Sir you may begin.

Thank you and welcome to European <unk> third quarter fiscal 'twenty two earnings call with me today are David Burke, Chief Executive Officer, and David Willis, Chief Financial and Chief Operating Officer for today's call. David Burke will begin with a brief review of our third quarter performance and discuss our progress against our peers.

22 priority.

And then David will provide additional details regarding our financial performance and our guidance.

Following our prepared remarks, David Burke, David Willock, and I will be available to take your questions.

Before we start I would like to remind you of our legal disclaimer, we will make certain statements today, which are forward looking within the meaning of the federal securities laws, including statements about the outlook of our business and other matters referenced in our earnings release issued today. The forward looking statements involve a number of risks and uncertainties that could cause actual results differ materially.

Please refer to our SEC filings as well 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 opinion only as of the date of this call and we take no obligation to revise or publicly release the results of any revision or 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 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 got whacked in our Dot Com I will now turn the call over to David Burke.

Thank you Amir and good afternoon, everyone. Thank you for joining us today.

We are pleased to deliver Q3 performance in line with our expectations continuing to demonstrate the strength of the European Blackstone, our business model and our strong guest relationships.

Especially proud that our phase and dues continued to match in the midst of a very dynamic consumer environment.

I want to thank both our team and our franchise partners, who continue to execute on our initiatives, while delighting our loyal guests with exceptional service even in an uncertain macroeconomic environment, the recurring nature of hair growth and our position as the leader in the out of home hair removal category.

Reinforces our confidence in the strength and resiliency of our model and our long term growth trajectory.

From a top line standpoint, we delivered on our two key growth drivers New center openings and same store sales.

We opened 18, new centers ending the quarter with 911 centers across 45 states with all remaining new fiscal 2022 centers currently under construction and greater visibility to their opening dates we are once again, raising our expectations for fiscal 2002.

92, net new centers to <unk> 88 to 90, which represents a year over year increase of more than 10%.

Turning to our second growth vector, we delivered four 7% same store sales growth driven primarily by pricing actions. We took earlier this year.

In our third quarter, we generated 7% system wide sales growth to $235 million.

12% total revenue growth to $50 million and 13% adjusted EBITDA growth to $18 $6 million.

With the first three quarters of the year behind US we have more visibility to the remainder of 2022, and thus are able to narrow our full year outlook within the financial rages, we set in March and raised in May underscoring the durability of our business during a year of macroeconomic challenges.

We believe our strategic priorities for 2022 will pave the way for our continued long term growth as a reminder, those priorities are one expanding our national footprint through new sectors to capitalizing on our enhanced marketing and loyalty programs to drive deeper customer.

Engagement.

Three increasing our pipeline of wax specialists to support our long term growth for leveraging our scale to benefit our supply chain and franchisees and five optimizing our capital structure.

To lower our cost of capital and increase flexibility.

I'll cover our progress on the first two initiatives in depth as well as provide an update on steps we are taking to enhance our capital allocation strategy and then turn the call over to David Willis to discuss the remaining priorities and our updated guidance for the year.

First up expanding our national footprint through new centers.

We have the potential to reach 3000 European WAC centers domestically and at just over 900 centers today, we are less than one third penetrated.

We're targeting a long term high single digit unit growth to capitalize on our white space focusing first on the top 20 DMA in the United States.

We are not fully penetrated in any market and with growth opportunities everywhere. Our development team continues to deliver.

For instance, we are bringing together growth partners and existing operators, who have committed to expand in underpenetrated markets like Los Angeles and Milwaukee. These partnerships are ideal for us as they marry the real estate commercial and broader franchising expertise of an institutional growth partner with the deal.

<unk> European WAC center knowledge and operational excellence of an existing EWC franchisee, we have nearly a dozen institutional and self funded growth partners, who is multi unit commitments comprised more than two thirds of our development pipeline.

Demand from additional partners remains robust and we continue to work on navigating entry points for these institutions to join the network and grow with us we.

We are still in the early innings of opening centers through these very exciting partnerships.

At the same time commitments from the smaller operators in our network are as strong as ever the majority of our 2022 growth is still coming from these non institutional players.

With our compelling unit economics, including a modest upfront investment of approximately $350000 average unit volumes of over $1 million at maturity and robust four wall margins that remain above pre pandemic levels existing franchisees still make up more than 90% of our <unk>.

One.

In fact, our three largest franchisees each opened their fifth European wax center during Q3 and have future growth ahead of them as they continue to sign up for additional licenses.

It's also important to note that both small and large franchisees are well capitalized whether with institutional funds or through the 60% cash on cash returns generated by their existing mature centers.

As a result rising interest rates have not impacted demand for licenses. We recently held our first brand conference since the pandemic began and nearly 90% of our franchisees were represented.

Feedback was overwhelmingly positive as franchisees gave us a 98% confidence satisfaction rating.

After networking with each other sharing best practices viewing our updated center design and learning new ways to elevate their businesses franchisees are more enthusiastic than ever about growing with European WAC Center.

As I mentioned earlier as a result of this continued momentum we are once again, raising our new center expectations for 2022.

Fixture and permitting constraints also continue to ease and we have even greater visibility to the timing of upcoming center openings. We now expect 88 to 90 net new centers this year and with the continued strength of our pipeline, we see a clear path to open at least 90.

Net new centers in 2023.

In summary, franchisee confidence in our brand business model and leadership position Spurs demand for new centers, which in turn gives us confidence in achieving our high single digit long term growth targets and continuing to take share and our growing highly fragmented.

Industry.

Our second strategic priority is leveraging our marketing and loyalty programs to drive customer acquisition and engagement.

With inflation on the rise we are laser focused on engaging both new and existing guests.

Deepening our relationship with them and driving visits into our centers.

As a reminder, our marketing and loyalty tools are unmatched by other players in the out of home waxing and hair removal category the.

The vast majority of out of home waxing is performed by independent proprietors, who lack the resources and scale to reach guests in our capacity as the industry leader we.

We are confident that the superiority of our business model and the guest facing actions. We are taking enable us to successfully manage through macroeconomic uncertainty and emerge stronger over the long term.

Our customer demographics skew toward higher earning guests with average household incomes of over $100000 and our most engaged guests have significantly higher household incomes.

For context, our services start at just $12 our service and our average service is about $34, making European WAC center, a highly efficient and cost effective choice for hair removal.

Top quintile guests visit us nearly 10 times per year and continue to drive more than half of our sales dollars most.

Most importantly, current economic conditions have not impacted.

Our top guests visit frequency and Theyre spending with European WAC Center has actually increased this tells us that despite the impact of rising inflation. These guests remain committed to their EWC waxing routines and view our services as non discretionary we.

We believe the recurring nature of hair growth and the loyalty of our top quintile meaningful meaningfully limits the impact of a tough macroeconomic backdrop.

As we discussed last quarter in the middle of Q2, we started to see some of our less frequent episodic guests increase their time between waxes transaction volumes rebounded late in the second quarter, but did not fully recover to where they were.

Compared to the beginning of 2022, while both ramping and mature centers continue to comp positively transaction volume has been down low single digits year over year since we exited the second quarter.

In response to these trends, we proactively launched several initiatives for the back half of this year to mitigate the impact let me review these.

First to address the upfront cost of buying a wax passed we offer guests a limited time three plus one wax pass that is purchasing for services for the price of three.

We believe this promotion would attract guests that might be too cost conscious in this environment to financially commit to our traditional package of 11% to 12 services.

We were pleased to see a significant uptake in the three plus one offer that drove higher <unk> volume and conversion year over year.

It also drove incremental frequency since three quarters of guests who purchase a three plus one in August have already used at least two of their services by the end of September .

We believe these guests are ideal candidates to buy a larger package over once they deplete their three plus one balance. Therefore, we are leveraging our CRM tools to target and incentivize them through loyalty rewards to purchase our semiannual <unk> offering in the fourth quarter.

Wax pass holders tend to buy more visit more and stay active longer they generate three times the revenue of non wax pass holders visit twice as many times per year and make up nearly 60% of our transactions.

And the $3 one promotion broader wax pass sales for the third quarter also remained strong which underscores the future value of these loyal guests.

Who will help support revenue during economic headwinds.

Our other Q3 levers focused on re bookings new services and referrals with these familiar initiatives. Our franchisees have historically demonstrated an outstanding operational focus that enables them to execute successfully.

First guests are stickier and visit more when they book their next appointment before leaving the center. We ran a rebooking contest for the network and we're pleased to see a meaningful uptick in rebooking rates.

We reintroduced a discount for guests, adding on a new service for the first time not only does this drive incremental revenue through increased services per transaction, but it gives us an additional touch point to introduce wax past savings to a cost conscious guest.

Lastly to attract new guests, we doubled our referral rewards bonus amount and saw new guests referral rates increased significantly.

Ultimately all of these efforts helped us deliver third quarter financial results in line with our expectations aligning our phase in dos once again.

In terms of the fourth quarter, we are hyper focused on initiatives that have been proven to drive the business, while maintaining strong four wall margins. We are working closely with our franchisees to incentivize wax specialists and associates by extending our Rebooking contest. We have also expanded the new service discount to <unk>.

Continued to drive services per transaction as.

As with the three plus one wax past guests, we believe guests, adding on a new service are ideal candidates for an additional wax pass. Therefore, we're targeting now for our traditional nine plus three wax pass offer as well.

In addition, we launched our semi annual $9 three offer two weeks earlier.

Typically this promotion to buy 12 services for the price of nine takes place annually in May June November and December we began offering the nine three package in mid October this year and have seen encouraging early uptake.

We are running a wax past conversion test in center for both WAC specialists and guest service associates highly.

Highlighting the promotion on our earned social media challenges and using targeted communications to educate guests on the value of having a wax pass.

As a reminder, these actions are enabled by our scale as the dominant category leader and a highly fragmented space as.

As we continue to deploy levers to drive long term lastpass adoption recurring frequency and guest loyalty. We believe we are taking the right steps to navigate a challenging environment and continue to take market share.

Finally, I want to highlight that our board of directors has taken an important step.

Underscoring its confidence in the future of our business with the authorization of a $40 million share repurchase program, given our asset light capital light business model and ability to generate significant free cash flow. We are confident that this authorization adds an accretive component to our capital <unk>.

Allocation strategy and increases our flexibility to continue to deliver long term shareholder value.

Now I'd like to hand, the call over to David Willis to review, our remaining strategic priorities, our third quarter performance and our guidance for the balance of the year David over to you.

Thanks, David and good afternoon, everyone.

Our third priority, increasing the pipeline of blacks specialists.

Sure. The brand has the service providers needed to support our long term unit growth.

I shared last quarter, we will always focus on engaging and retaining top talent at our franchise locations.

To that end, we've been working to diligently strengthen the European waxing a reputation on two of the top online hiring platforms Glassdoor and indeed.

We're excited that our glassdoor metrics have been steadily increasing throughout the year and R&D rating has reached a two year high.

During Q3, we also completed an exciting overhaul of our careers webpage.

Having a robust career site is critical as it drives twice the conversion rate for interested applicants as compared to third party hiring platforms.

Online applications to our franchise centers have grown year over year for the past six months straight.

And the brand is now receiving more than 1000 application submissions per month from prospective wax specialists.

More robust site engagement reporting is also helping us design wax specialist content that can be leverage moving forward to promote the brand with targeted associates.

I also shared in Q2 that we implemented new labor utilization reporting for our franchisees.

Through this tool, we're helping franchisees optimize staffing in their centers.

And we saw wax specialists utilization rate continued to improve in Q3.

We are also providing additional resources around in center turnover and retention rates.

At our recent brand conference that David just mentioned two thirds of the sessions focused on employee recruiting management and retention.

And our franchisees shared their enthusiasm for the recent initiatives we have rolled out.

From a long term standpoint, we continue to launch partnerships and produce educational content to support our beauty school outreach programs.

We recently partnered with styles, a social media platform with more than 50000 beauty students graduates and professionals to produce a European Waxed center channel within the platform.

Our content provides awareness and insight around a career and waxing to our target audience and should serve as an ideal way to introduce potential wax specialists to the brand over time <unk>.

Government data shows that the industry for cosmetologist in skin care specialists is expected to grow by double digit rates through 2031.

And we believe our efforts will enable us to attract this growing pool of talent and deliver on our unit growth targets for years to come.

Our fourth priority is to continue leveraging our scale.

And enhance our supply chain and shared these benefits with our franchisees.

Our scale as the category leader enables us to address supply chain risks in ways smaller players simply cannot.

We have the leverage with both our suppliers and franchisees to mitigate cost increases and protect our gross margins.

While the current environment continues to be dynamic international freight rates have stabilized from second quarter peaks.

Compared to traditional retailers, we have a limited number of skus and minimal inventory obsolescence risk, which we view as a competitive advantage.

We have nearly six months of wax on hand, and a healthy inventory position for our retail products.

Ultimately, we believe we are well positioned in this environment and confident in our ability to manage through inflation and potential disruption with the leverage we have in place.

Finally, our fifth priority is to optimize our capital structure.

Our whole business securitization completed in April this year enabled us to advantageously secure a fixed five 5% interest rate.

Importantly, the securitization contains no operating cabinets that would constrain our growth.

And the terms afford us tremendous flexibility as we continue to address our white space and expand the brand.

As we continue to optimize our balance sheet, we are adding another lever to our existing capital allocation strategy with the announcement of a share repurchase authorization.

A $40 million of our class a common stock.

Given our fixed rate long term facility and our capital light asset light business model that enables us to generate meaningful free cash flow. We are confident in our liquidity position and an ability to deliver long term shareholder value.

Turning to our Q3 financial performance.

As David mentioned, we delivered solid results in line with our expectations. Thanks in part to the guest facing initiatives, we launched early in the quarter.

Q3 system wide sales increased seven 3% to $235 2 million in total revenue of $55 million Rose 12, 3% from Q3 last year.

Total revenue growth exceeded systemwide sales growth due to the medical supply arrangement with franchisees that began early in 2022.

Which should generate approximately $10 million in total revenue for European WAC Center this year.

In terms of same store sales, new and existing centers generated a combined four 7% increase.

Data centers continued to deliver a strong and predictable ramp to maturity, which is a significant contributor to our overall comp performance.

Mature centers are also continuing to generate positive comps.

Given by the pricing actions, we took earlier this year.

From a transaction standpoint, our third quarter run rate remained consistent with how we exited Q2.

And that continued into Q4.

As David mentioned earlier transaction volume across the network is down low single digits year over year, driven by fewer visits from our lower quintile episodic guests.

However, our top quintile guests, who drive over half of network sales remained strong and active.

Due to the strength of these guests and the initiatives. David described we are able to deliver the third quarter in line with our expectations.

We delivered $18 $6 million and adjusted EBITDA up.

From $16 5 million in Q3 last year.

Adjusted EBITDA margins were flat year over year, largely due to public company costs and our medical supply arrangement with franchisees.

As we've said before this arrangement is approximately 250 basis points dilutive to gross margin rates in 2022, but accretive to gross margin dollars.

More importantly, it optimizes the procurement process for our network.

Interest expense decreased to $6 8 million.

Interest expense in the same quarter last year with $9 5 million, which included $6 3 million in debt extinguishment costs related to the refinancing transaction concurrent with our IPO.

Excluding those charges interest expense would have increased $3 $6 million year over year due to higher debt balances and interest rates driven by the five 5% fixed rate refinancing we completed in April of this year.

Income tax expense was negligible as expected due to a valuation allowance and adjusted net income was $6 7 million.

In terms of the balance sheet, we ended the quarter with $41 6 million in cash <unk>.

$399 million outstanding under our senior secured notes and our $40 million revolver remains fully undrawn.

Net cash provided by operating activities was $27 $9 million year to date compared to only $100000 and investing outflows a hallmark of our asset light capital light model.

Finally, I'd like to provide some detail on our updated outlook for fiscal 2022.

As David described we now have clear visibility into our remaining 2022 New center openings.

As a result, we are raising our outlook to 88 to 90 net new locations this year compared to previous guidance of 83 to 85 centers.

As a reminder, we began the year with guidance of 70 to 72, net new centers and our growing pipeline combined with an improving construction and permitting environment has given us confidence to continue raising our outlook.

While these incremental 2022 openings would have otherwise open early next year the entire license pipeline is strong.

And we plan to open at least 90 centers in 2023 as well.

From a modeling standpoint sales at our new centers typically build up throughout the first year to nearly $500000 in year, one and continue to ramp to more than $1 million in year five when they are considered mature.

Considering this maturity curve, we don't expect a material impact at 2022 sales from the incremental centers this year.

Turning to our financial guidance for 2022.

Based on our year to date performance and expectations for the remainder of the year. We are pleased to be able to narrow our guidance well within the ranges that we set at the beginning of the year before the dynamic macroeconomic landscape became a top headline.

Our guidance contemplates the slight year over year decline in transaction volumes that we began to see this summer and discussed on our Q2 earnings call.

For fiscal 2022, we now expect systemwide sales between 885 and $895 million.

Total revenue between 202 and $205 million and same store sales of approximately nine 5%.

We expect gross margin of approximately 71, 5% and interest expense of approximately 23 and a $5 million.

Which includes the $2 million of debt extinguishment costs incurred in Q2.

Adjusted net leverage at the end of the year should be at or below five times based on our revised adjusted EBITDA outlook of $70 million to $71 million. This is excluding any leverage impact from potential buybacks.

Given our ownership structure and current valuation allowance our outlook still assumes negligible corporate income tax expense this year.

All in we expect 2022, adjusted net income between 27, five and $28 $5 million.

We are confident in the strength of our business model, our loyal customer base and the recurring nature of hair growth to insulate us from significant shifts in consumer sentiment. However.

However, we are mindful that the macroeconomic environment may not improve in the short term.

As we think ahead to 2023.

We also assume current transaction trends will continue through at least the first half of next year given the current landscape.

We intend to continue leveraging the tools at our disposal marketing outreach network incentives guest facing promotions and service innovation to continue taking share in this highly fragmented category.

We remain laser focused on delivering against our long term growth objectives.

We are pleased that notwithstanding the costs incurred this year to operate as a first time public company 2022 is expected to general rate growth at or above our longer term targets.

We recognize that while there may be some noise in the short term over a multiyear period, we expect to deliver compounding annual growth up high single digits for new centers.

High single digits for same store sales low double digits for total revenue and low to mid teens for adjusted EBITDA.

Before we take questions I'd like to turn the call back to David for final remarks, David.

Thanks, David and summary, European WAC centers strong asset light business model is generating significant cash flow and driving results for our guests franchisees and shareholders. We remain the dominant player in a highly fragmented industry based on a recurring need hair removal, while not immune to inflation.

Our core guests remain extremely engaged demonstrating that a challenging macro environment does not change their appetite for our services. Our brand continues to attract top talent along with the unwavering demand to develop new locations throughout our significant white space.

We believe that over the long term these competitive advantages will enable us to continue taking market share regardless of the environment.

I will now turn the call back over to the operator for questions operator.

Ladies and gentlemen, if you have a question or comment at this time. Please press star one one on your telephone keypad.

As stated at the opening we like you. Please limit yourself to one question and one follow up in order to facilitate as many questions as possible.

If you have a question or comment please press star one one on your telephone keypad. Please standby, while we compile the Q&A roster.

Okay.

Our first question or comment comes from the line of Jonathan Komp from RW Baird. Mr. Khan. Your line is open.

Yes. Thank you good afternoon.

I wanted to just ask a little bit more about the cusp.

Customer behavior, you are seeing and how you are reflecting that in the and the tightened outlook for the year.

More specifically when I look to the fourth quarter could you just share how youre thinking about same store sales for the quarter any insight.

Your expectations to be able to impact the sales trends and as we look forward into first half of 'twenty three just any thoughts on additional drivers or other initiatives that might be able to help drive sales here.

Hey, John David well, it's good to talk to you. Thank you for the question.

When we narrowed our guidance, we really were just factoring in what we saw the transaction trends as we exited the second quarter that we talked about on our last call. We really saw those continue throughout the third quarter and as we're one month into the fourth quarter kind of the same trend no better no worse not fully recovered to what we saw in Q1 of this year.

<unk>.

Fairly steady and Thats coming from our episodic guests kind of our lower quintile guests that are just spreading their visit frequency out a bit David touched on it we took a number of actions in the third quarter. The three plus one wax past promo we think was a successful.

Initiatives to fall 50.

That we did in the third third quarter in terms of giving 50% off that second service to the guests has not had with us and over a year. The Rebooking contest, we had success with that in the third quarter were extending that here into the fourth quarter. So we continue to take actions to drive visit frequency and feel overall very good about the health.

At most of our guests file David touched on it our top quintile gas they haven't changed their routine one bit they represent over half of our system wide sales. They are coming at the same frequency and candidly spending a bit more so we're going to keep keep an eye on it in terms of same store sales comps when you kind of run the math at the midpoint of our guidance I think that kind of takes us.

Mid to low single digit for for the fourth quarter, Yes, right, Yes, I mean, John if you think about the revised guidance of approximately nine 5% and what we've achieved thus far year to date and keep in mind Q1 had a easy compare in California, and then we saw some pre COVID-19 recovery in Q2 Q3, but that suggests about.

3% approximately 3% for Q4.

Toward that that approximately nine 5% guidance just as a reminder.

That's the low single digit comp transaction decline offset by the pricing actions that we took in the quarter, but that youll see that 3%.

Okay, Great and then if I could just ask one follow up about David Berg I think you mentioned.

The initial outlook for unit development in 2023, which sounded quite strong just wanted to get a little more context, your visibility and confidence to that level.

Especially just given the higher construction cost.

Higher financing our interest rates for franchisees just.

Uncertain environment.

Yes.

But what gives you confidence at this stage and projecting a pretty pretty solid outlook.

Yes, John Thanks for the question always good to hear from you.

Feel great about.

What we're looking for.

For the balance of this year. We're now this is the second or third time, we've been able to raise our new center outlook.

Up to 88 to 90 and really what gives us confidence as we look to 2023. Jon is the is the robustness of the pipeline that we have that we built and we said this.

Before but it bears repeating which is 90 plus percent of those new center. The commitments are from our current franchisee base. So these are folks that either are well capitalized with an institutional partner or there just because of the <unk>.

60% cash on cash returns they have in the centers that they are operating they've got plenty of cash to go. We go forward and continue to grow with us. So we do not see interest rates as any kind of deterrent. The demand is there are construction costs, we've really done a good job in this new center designed to get into that range, where franchisees are comes.

Vertebral and can still have the kinds of returns and the timelines that we've had in the past. So as I stated in my opening comments, we will hit that 88 to 90 this year and that'll be the certainly we will do that that next year as well.

Yes, that's good.

Thanks again.

Okay. Thanks, Sean.

Thank you.

Our next question or comment comes from the line of Dana Telsey.

Telsey from the Telsey group Ms. Telsey Your line is open.

Hi, Thank you good afternoon, everyone. When you look at this quarter.

Exit rate.

Second quarter was there any difference in monthly cadence are also performance in California versus the rest of the country.

And then just wanted to touch on the gross margin guidance, which is coming in at the upper end.

There will be a formal guidance and key drivers there and expectations going forward.

Thank you.

Dana This is David from California, No material difference from the rest of the network. You may recall, there are still comping off of fairly lower base relative to the other states. So theyre going to show transaction trends, a little more favorable to the rest of the network, but not not material.

You want to take the yes, so on the gross margin Dana.

Again, hitting the high end of the range that you probably have seen in Q3 were a little bit lighter than what we've achieved in the first couple of quarters part of that was the metal medical supplies agreement that we talked about that came into play closer to Q2.

Also have a higher mix of our product sales that occur in Q3, and so Q3 was a little bit pressured in terms of gross margin, but we'll see kind of that rebounding in Q4 closer to the approximately 71, 5% and we feel confident in our ability to deliver the approximately 71, 5% for the year.

Got it and then just lastly, with the value offerings that you've been doing lately.

The game plan for the value offerings in the fourth quarter frequency or any changes to that.

Yes, Hey, Dana its David Thanks. Thanks for the question I think we looked at all of these.

Promotions and the actions that we took in Q3 with a win is not just a sort of single transaction, we really had a life lifeline for each of these promotions. So let me let me speak specifically to the $3 one.

The offer that we made at the end of Q3, which was really to go after that value conscious guests were very pleased as we talked about with a meaningful uptake we saw in <unk>.

Three quarters of the folks that bought that had already.

At least two services by the end of September so the timing is right as they use up that three plus one and you will recall that there is an expiration date on those but that falls in line with the $9 three offering that we've got going on through the balance of the year and with respect to those those guests that bought the three plus one wax path we have a special.

Offer using it really our CRM to target a special enhanced offer to them to move up to that nine plus three offer similarly, with our 50% off that new second service that we offer guests that we've extended into this quarter. We see that also from a lifeline standpoint that it's an opportunity for us to sell a second <unk>.

<unk> path to those guests so as with the three plus one wax past purchasers those folks that took advantage of the 50% off the additional service will also be targeted with a special offer to buy an additional wax pass.

Some a rewards point loyalty loyalty rewards.

Enhanced for those folks are normal or normal have you also saw that we pulled forward our nine plus offer in Q4, we started that two weeks early we wanted to make sure sort of from from a holiday dollar standpoint that we were able to get share of wallet. We have been very pleased with the uptake that we've seen in the first couple of weeks of that earlier promotion.

We've got about 30% of those guests that had not purchased a wax path in the last 18 months purchases in the first two weeks of the promotions that were very pleased with with kind of the initial outset and results. We're seeing there we will certainly run our limited time offer.

In terms of our retail product.

And really kind of unique product offerings holiday kind of gift products that will allow our guests to take advantage of things as well. So we feel good about kind of again looking holistically at the promotions that we made in Q3 that are going to help continue to drive business for us in Q4 and beyond.

Thank you.

Thanks, Dan.

Our next question or comment comes from the line of Lorraine Hutchinson from Bank of America Ms. Hutchinson. Your line is open good afternoon.

I wanted to follow up on the question earlier about the same store sales growth.

Looking for low single digits in the fourth quarter can you just talk to the key drivers to reaccelerate that trend to get back to the high single digit target next year.

It's really going to be the ticket with our with our wax path from our La <unk>. If you think about.

The size of those tickets and commitments that the nine stories can.

In the neighborhood of $600 ticket so as our guests.

Redeemed those to higher value services, we think thats going to help drive the average ticket here in the in the fourth quarter.

Okay.

Okay.

Thanks, and then as you look forward.

Well.

Maybe let's pivot to the franchisees.

What are you hearing from them about the slightly more promotional cadence that you are offering customers are you hearing any pushback from your franchisees, what's the reaction been.

Yes, Hey, Lorraine, it's David we just as I mentioned in my comments, we just came out of our franchisee conference here at less and less than a month ago and was the first one we've had since since.

Prior to Covid. So it was great to get everybody back together as we mentioned that the 98 plus percent satisfaction rate the energy the enthusiasm for the brand was absolutely palpable in really all left.

Energized after we after we got out of that we certainly heard anecdotally about the commitments that folks are making maybe even getting out of other concepts that they might be on and double downing and investing in European wax Center, we have a great relationship with our franchisee Advisory Council and we have discussions with them regularly about any kind of promotional activity all of them.

Click on the <unk>.

Right.

Plus one that was incredibly well received by our franchise Advisory Council and by the network that this was an opportunity for us to go out and help get that cost conscious guests Ottawa fast. So that we can then articulate them up to the $9 three and a special offer that we're giving them is is kind of a no brainer in terms of getting.

Then hooked into that so we make sure that we always are getting out and getting our franchisees to buy and make sure that they understand.

And one of the most important things that I've said this many times on these calls and any franchising system.

Got to do things that our franchisees know how to do and know how to execute in anything that we've run so a rebooking contest, giving more dollars for referrals selling wax passes. This is all right in the wheelhouse of the great operational expertise of our franchisees and that's why I think we've seen such such nice results in terms of the the levers that we pulled into Q3 and we will.

In Q4.

Thank you.

Okay.

Mr. <unk> your line is open.

Hey, guys.

Can you talk to in this environment.

What do you think happens to the maturation curve of new centers. This year's cohort maybe next year.

Is the is the topline ramp a little slower.

But is the bottom line ramp better right because if transactions are under pressure.

Maybe you don't need as much wax specialist labor right and that helps the franchise. The P&L is that how do you think about that.

John we've really seen.

Couple of Years' cohorts, including New centers opened this year continue to ramp.

A bit ahead of the historical maturation curve. So I don't know that I would say that it's.

Worse in the early years, we've continued to be very pleased with how that how the centers are ramping.

As David had mentioned.

Maybe not mentioned in our prepared remarks, we're in the very early innings of all of these fantastic New center openings have really come from our historical franchisees were in the very very early innings of new center openings coming from the institutional capital back operators kind of found entry points over the last couple of years.

We negotiated multi unit development agreements with them and they are just at the early stages of starting to reopen so.

Not only does that drive confidence in our ability to deliver the NCO targets that we committed to you guys, but the performance operational performance of those centers, where we're quite confident they will continue to ramp positively and in terms of you touched on this John but in terms of profitability of our franchisees. We've also seen really healthy.

<unk>.

Throughout this year ahead of 2019 results as well so while we've seen the maintenance of the overall maturation curve in top line. We thought we've also seen an improving bottom line from the four wall standpoint and.

How do you how do you guys think about direct is a balance.

Densification drives network effect.

It also potentially increase as cannibalization.

How do you look at the balance of that again.

And then maybe a slower demand environment.

And do you think.

How much do you think cannibalization ramps up.

I don't know if you've quantified lately, but how much that increases right over the next year or two.

Well, John I would say that when we model our white space both from a top down perspective from the demographics and then a DMA trade area by trade area going back up we had modeled.

5% to 10% cannibalization rates, so that's what's driving us ultimately to our target of 3000 now.

Now what I would tell you is we've seen some franchisees that want to strategically identify a market on an accelerated basis theyre willing to cannibalize their own centers a bit more than that.

But we're still comfortable that that 5% to 10% we haven't seen any significant change over the last call. It two to three quarters in terms of.

Cannibalization rates, where our franchisees are identifying markets.

Okay. Thank you.

Thanks, John .

Thank you. Our next question or comment comes from the line of Kelly Crago from city standby.

Hi, Good morning. Thanks for taking my question just wanted to follow up on the earlier question around the first half of 'twenty three from a comp perspective.

Youre still planning transactions download thing all that that you might start to lap the pricing increases. So is it fair to assume that the comps would be potentially negative in the first half of next year or.

Am I not thinking about that one right and then I just have one follow up thanks.

Yes, it's a good question Kelly, so youre right that we will be lapping, but theres also the maturation curve and the continued.

Growth of our of our centers and so how I would frame it up as you would see about three to 400 basis points pressure on our overall comp and so thinking through its obviously too early to guide, we'll kind of learned more and then get that holistic perspective, but as you look at the debt.

Brent I would.

I think through $3 to 400 basis points of pressure on the overall comp.

Kelly I would just add.

A lever that we've had in our toolkit is taking price we've taken price each of the last couple of years as of right now.

We don't have.

That target date for taken price across the network. When we did a postmortem analysis of the price we took earlier this year we.

We found that it was quite effective with very nominal attrition now theres a handful of franchisees that took multiple price increases this year and we did see them have some ticket attrition. So we're going to be very mindful in terms of how we think about price, we're going to be mindful of our cost structure four wall margins.

As we look at this holistically, but as of right now per Premier's comments, we don't have baked into the first half of next year and assumed price increase.

Got it and just a follow up on that.

At 300 to 400 basis points of pressure on the overall comp is that relative to the high single digit comp guidance.

That's out there longer term, okay got it that's exactly right yes.

Got it and I guess and then the other point on the.

The price increases I mean, I'm just curious what you think.

And then any impact on transaction this year.

Especially given the.

The inflationary environment overall would that make you think differently.

About price increases.

Given that the weakening macro environment.

And just lastly on that point.

Trying to get a little bit more promotional to drive.

Traffic I mean does that have any impact on your margins or is it is it sort of borne by the franchisees.

Thank you.

Sure. So in terms of the pricing when we did our evaluation of that we found that for those franchisees that took the pricing that we recommended those had nominal impact on tickets I.

I wanted to make sure Im clear there are handful of franchisees that either took more price than what we recommended or multiple price increases throughout the first half of the year. Those few centers did have an impact on ticket attrition. So that told US we had it about right are we felt we had it about right in the first quarter, but we are mindful of taking more price against the backdrop.

But the inflation that everyone that everyone is seeing and in terms of the.

The promotions and the impact on the four wall as you've heard kind of David Berg mentioned, a lot of the promotions are focused on driving long term value for the gap and so you think about the three plus one whack that they're running a nine plus three two weeks earlier and so we see that although it's a very short term slight impact of the four wall, we see that as an overall.

And a positive impact of transaction and in some of the incentives.

That we have run has been supported by the corporate <unk> to drive engagement at the center level around Rebooking. Some of our surplus particular contest and so it's kind of a mixture of both but I would say all of it is focused on driving long term value for the guests.

Maybe one final point I would make we now have the data to better measure and monitor performance of these promotions were not necessarily running more promotions and we've run historically, we have better data to measure impact and pilot different options. So we're probably talking about a more but I don't want.

I need to get the impression that we're running more promotions and what the brand has historically run.

Alright, Thank you guys.

Thanks Kelly.

Thank you. Our next question or comment comes from the line of Simeon Gutman from Morgan Stanley . Mr. Gutman. Your line is open hey.

Hey, guys.

I missed a little bit at the beginning so part of this if it's repetitive I think you said transaction run rate.

Quarter to date is the same as Q3, but I don't think you gave like any other like total comp quarter to date I guess the question is should that be.

<unk> with the comp and then the implied Q4 are you building in any change in how the consumer is feeling.

Yes. So in terms of Q4, we're not building any we're basically looking at that the run rate that we've seen and factoring that same run rate through the end of the quarter.

As you know we have our nine plus three promotion and so Q4 is a relatively important quarter for us and a big quarter for us and the results that we've seen in the first two weeks of launching the nine plus three has been encouraging the transactions that we talked about early on Simeon was being down low single digit in terms of overall.

Auction comp versus an expectation of low single digit growth overall transactions.

Phil It's still growing is in terms of comp.

We are down.

Okay.

The second one is around interest rate environment franchisee appetite to new leads et cetera.

<unk> been in this environment for both David's actually.

So curious when we get a lot of questions on it we don't have Matt I think about it does this mean does it end up tilting towards some of the larger well capitalized does it mean the diversification plans.

How should we think about it.

Yes, I mean, I think the short answer to is there an impact of the rising interest rates and our franchisees and their desire to grow the short answer is no and I think if you if you dissect it into two groups. The folks that are self funded our great franchisee operators their users utilizing the cash that they're generating from.

They're mature centers to reinvest and we talked about it before that the bulk of our growth in 2022 are from those folks it's not from the institutionally backed.

Franchisees.

So we will see that we will start to see the benefit of that that to John's question earlier, that's part of what gives you that confidence in 2023 are those multi year multi unit commitments that we have and with respect to those franchisees that have taken on an institutional capital partner, they're well capitalized and theyre not theyre not over levering. These.

These units again this is a $350000 build out so the capital requirements are not that great. So we don't.

We don't see it from our franchisees, we don't see it in terms of the pipeline growth that we've we've experienced nor in terms of the excitement about getting getting more units with our current franchisee group that again 90 plus percent of that growth is coming from those folks.

Great. Thank you good luck, okay. Thanks, Amit.

Thank you. Our next question or comment comes from the line of Scot Ciccarelli from Truest. Mr. Ciccarelli. Your line is open.

Good afternoon, guys. So I guess I'm a bit confused on the promotional activity.

Because I guess kind of what you guys were talking about it did seem like youre, increasing promotional activity. But then you just said there really isn't a difference in cadence can you help clarify specifically what you mean on that.

Got it sorry. This is David I may have been confusing.

On that point, we are not a question was raised are we running incremental promotions is it margin dilutive either to us or to our franchisees in terms of the quantity and the types of promotions are very consistent with what we've done historically, we're tailoring specific promotions.

And we're talking about the mortgage we have better data to measure them. So.

I just didn't want there to be the impression that everything's on sale. All the time. These are these are all promotional activities that our franchisees are quite familiar with.

And are good at executing.

Got it and so when you talk about transaction activity really hasnt changed from that kind of negative low single digit cadence that you've had over the last several months, we shouldnt assume that despite.

Hi, let's call it higher promotional activity. It just kind of the same run rate both on transactions as well as promos.

Yes, what we are trying to do a run those promotions that are going to drive guests into centers get more share of wallet ultimately to drive guest visit frequency, we probably spend more time talking about the wax pass the <unk>.

That halo effect of getting guests on the wax past that every one of our promotions is really intended to drive first new guests into the center maximize share of wallet, while there and then best case get them on a regular routine so that we get our franchisees get the benefit of that frequency.

Got it okay I understand now thank you.

Thanks Scott.

Thank you. Our next question or comment comes from the line of Corinne Wolf Meyer from PSC. Your line is open.

Hi, good afternoon, all and thanks for taking the question quickly.

Quickly on what Youre seeing on the retail side can you just provide a little perspective on.

How that side of the business have been performing and what you've been doing promotion wise and it does seem like from the promotional activity has been increase there.

Can you just provide perspective on what the normal promotional activity from those retail products.

Sure Karen we most recent promotion we ran on retail was the buy more save more promotion we ran.

We ran one of those in the first quarter last year, we ran at least one of those last.

Last year in 2021.

And we've been pleased with the results retail attach rates have kind of been in that 13% to 15% range. So they've been reasonably consistent.

On the <unk> that we're running here in the fourth quarter are really geared towards holiday product. So.

We've been quite pleased overall with with <unk>.

Results from our recent retail promotions.

Got it. Thank you and then can you just touch on what Youre seeing in terms of like average ticket price on me I know you gave gave that price, but how do you see that developing over the next couple of quarters or even years.

Our opportunity to start question from these higher cost services on your existing customers to drive that average ticket price of just how are you thinking about that.

Yes, so in terms of the average kind of order value.

That around a 55 to $56.

And that is.

You would expect with our with a price increase so it's up about five 6% compared to last year.

There is always kind of initiatives to to suggest an upsell at the center by the GSA.

We also have another driver of taking up that that lever, which is services for ticket. We ran a contest around that in Q3, and we saw a slight increase there as well and so there are promotions and let's call it initiatives around that.

For our DSA to recommend and drive that.

We expect that to normalize absent any price increase next year.

Thank you.

Thanks, Karen.

Thank you I'm showing no additional questions in the queue at this time I would like to turn the conference back over to management for any closing comments.

Okay. Thank you and thanks, everybody for taking time on the call today, we certainly look forward to speaking with you in the days and weeks to come in and US continuing to deliver on our long term growth objectives. So thank you all very much for joining us.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day.