Q4 2024 Regis Corp Earnings Call
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Speaker Change: Thank you for joining but for now we redid earnings call we will begin shortly.
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Speaker Change: Thank you for joining us at Florida, we reduced earnings call, we will begin shortly.
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Kirsten suffer: Good morning, and thank you for joining the <unk> fourth quarter and full year of 'twenty 'twenty four earnings conference call I am your host Kirsten suffer executive Vice President and Chief Financial Officer, I am joined today by our President and Chief Executive Officer, Matthew Doctor All participants are in a listen.
Kirsten suffer: Only mode and this conference is being recorded.
Speaker Change: I would like to remind everyone that the language on forward looking statements included in our earnings release and 8-K filing also apply to our comments made on the call today.
Speaker Change: These documents can be found on our website Www Dot Regis Corp, Dotcom forward Slash Investor Dash relations along with the reconciliation of any non-GAAP financial measures mentioned on today's call with the corresponding GAAP measure.
Speaker Change: With that I will now turn the call over to Matt Doctor.
Matt Doctor: Thank you and good morning, everyone.
Matt Doctor: I'm thrilled to be talking to you all today and to share perspectives on our next chapter here at Regis.
Matt Doctor: My third fiscal year end conference call as CEO and I want to begin by reflecting on our recent achievements that have transformed the business and position it for growth.
Matt Doctor: Also marks the first time I'm speaking since the conclusion of our strategic review process, which resulted in the refinancing of our debt with new lender partners TCW and Midcap financial.
Matt Doctor: This is an outstanding result, which has reduced our indebtedness by more than $80 million.
Matt Doctor: Saves us approximately $7 million in cash interest annually.
Matt Doctor: And puts reaches back on solid financial foundation with rightsize leverage of approximately four five times debt to adjusted EBITDA.
Versus close to eight times, just two months ago.
Matt Doctor: This important milestone also has many other benefits the first being the longer duration maturity extending from what was August 2025 to June of 2029.
Matt Doctor: Increased financial flexibility and can develop a capital allocation strategy to invest in the business and pursue growth initiatives that could not have been possible or contemplated otherwise.
Matt Doctor: This removes a major distraction to our employees franchisees and shareholders Importantly management now has increased bandwidth to focus solely on the strategy and execution to grow the business itself alongside our franchisees.
Speaker Change: I can say with confidence that this is a new day in chapter for aegis, and which we can finally operate as a true franchise or as wasn't intended all along when we just set out on that journey to become fully franchise close to seven years ago.
Speaker Change: This is a major step for Regis and all of our stakeholders on our path to sustainable long term growth and value creation.
Speaker Change: Next I want to reflect on the progress we've made during the past few years first and foremost we stabilize the business and returned to profitability and strong adjusted EBITDA margins.
We've gone from highly negative adjusted EBITDA in fiscal year, 'twenty, one to roughly breakeven in fiscal year 2022 to.
The $21 million in fiscal 'twenty $3 million to $26 million in fiscal 2024 with a full year adjusted franchise EBITDA margin of 35%.
Speaker Change: The improvements were driven largely through stabilization of the business coming out of the pandemic.
Speaker Change: Combined with operational rigor around risk and expense management, we've done a lot of work right sizing our G&A to match. The company we have become and this work has continued who will provide an update on our G&A efforts later during this call.
Speaker Change: Second during that period of stabilizing and returning to profitability. We further streamlined our focus and business model with an eye towards the future.
Speaker Change: The sale of our proprietary point of sale software system open Salon produce annuity further ensure that we were able to focus on our core salon business.
Establishing a long term sustainable technology partnership for our franchisees and provided cash proceeds that went towards deleveraging.
Speaker Change: Third the implementation of our NOL rights plan in January 2024, ensure that we can preserve our valuable net operating losses to offset taxable income, which proved to be valuable in a refinancing transaction or the income from the debt forgiveness was tax free.
Operator: Thank you for joining the quarterly Regis earnings call. We will begin shortly. Thank you for joining the quarterly Regis earnings call.
<unk> in our results for the quarter with reported net income of over $91 million.
Speaker Change: Along the journey, we've solidified our leadership team, adding complementary skill sets and franchise experience.
Speaker Change: All of those leaders, who still form the foundation of leaders today, and finally, and importantly, we prioritize earning back trust and building relationships with our franchisees to execute on our business day in and day out to increase dialog and collaboration.
Speaker Change: Admittedly we.
Speaker Change: We still have a lot more work to do here as it is critical for us to continue to rally together to drive franchisee profitability and start getting more wins for their business. While Regis Corporation is in a better state our focus our focus needs to be on driving our core salon business and ensuring that our franchisees are.
Speaker Change: Successful.
Speaker Change: Now all of these purposeful efforts culminated in a shareholder friendly refinancing and our latest financial results, which represents major financial progress for this company.
<unk> is now on its strongest financial footing in years and I am proud of what we've accomplished and I am proud of the resilience and tenacity of the entire <unk> team they've shown along the way I would like to take a moment to acknowledge all of the employees franchisees vendor lenders and shareholders for their dedication passion and patience.
Kersten Zupfer: Good morning and thank you for joining the Regis 4th quarter and full year 2024 earnings conference call. I am your host, Kersten Zupfer. I am joined today by our president and chief executive officer, Matthew Doctor. All participants are in a listen only mode and this conference is being recorded. I would like to remind everyone that the language on forward-looking statements included in our earnings release and AK filing also apply to our comments made on the call today.
Speaker Change: Work and faith shown in our team.
Speaker Change: Let's now turn to our financial results.
Kirsten suffer: Continuing to make strong progress on our key profitability metrics, Kirsten, who will dive deeper into the fourth quarter and full year results. Let me provide a few key highlights on the year.
Kersten Zupfer: These documents can be found on our website, www.regiscorp.com forward slash investor dash relations along with the reconciliation of any non-gap financial measures mentioned on today's call with the corresponding gap measures.
Kirsten suffer: We achieved adjusted EBITDA of $25 9 million versus $21 million a year ago.
Kirsten suffer: This $5 million improvement was driven by our continued focus on expense management, partially offset by lower revenue.
Kirsten suffer: Our operating income of $29 million improved $12 1 million from $8 8 million in fiscal year 2023.
Matthew Doctor: With that, I will now turn the call over to Matt Doctor. Thank you and good morning everyone. I am thrilled to be talking to you all today and to share perspectives on our next chapter here at Regis.
Kirsten suffer: Our cash used in operations for the full year was $2 million, which improved from cash use of $7 9 million in fiscal 2023.
Matthew Doctor: This is my third fiscal year-end conference call CEO and I want to begin by reflecting on our recent achievements that have transformed the business to position it for growth. This also marks the first time I am speaking since the conclusion of our strategic review process which resulted in the refinancing of our debt with new lender partners, KCW and mid cap financial. This is an outstanding result which has reduced our indebtedness by more than $80 million.
Kirsten suffer: I'd like to highlight here the cash from operations in Q4 was positive $5 million, a $4 5 million improvement over the prior year's quarter.
And lastly, the refinancing resulted in a net gain of $94 $6 million due to the extinguishment of our debt, which we were able to utilize our U S federal and state Nols to offset the entire tax liability.
Matthew Doctor: It saves us approximately $7 million in cash interest annually and puts Regis back on solid financial foundation with right-sized leverage of approximately four and a half times in debt to adjusted EBITDA versus close to eight times just two months ago. This important milestone also has many other benefits, the first being the longer duration maturity, extending from what was August 2025 to June of 2029. We have increased financial flexibility and can develop a capital allocation strategy to invest in the business and pursue growth initiatives that could not have been possible or contemplated otherwise. This removes a major distraction to our employees, franchisees, and shareholders. Importantly, management now has increased bandwidth to focus solely on the strategy and execution to grow the business itself alongside our franchisees.
Kirsten suffer: While we're proud of the considerable progress made we have more work to do.
We continue to see significant net store closures as we move towards a smaller, albeit healthier salon network from a sales and profitability perspective.
Kirsten suffer: We need to drive traffic and reverse a trend that has persisted over the last decade.
Kirsten suffer: Customer retention remains a major opportunity in stylist availability, while stable is down over around one full time employee per salon versus four and a half years ago. These.
Kirsten suffer: These are the realities facing our business, which we must continue to work tirelessly to address.
Kirsten suffer: And with that said I am encouraged by the many bright spots in our business and for the first time since I've been CEO.
Kirsten suffer: We're able to go on the offensive and focus on growing the business with our full undivided focus.
Kirsten suffer: Speaking candidly the last three years required a ton of blocking and tackling to fix issues in order to navigate the short term.
Matthew Doctor: I can say with confidence that this is a new day in chapter for Regis and which we can finally operate as a true franchise or as was intended all along when Regis set out on that journey to become fully franchise close to seven years ago. This is a major step for Regis and all of our stakeholders on our path to sustainable, long-term growth and value creation.
Kirsten suffer: Excited to be able to take this opportunity to reset and taking a longer term view and form a vision that is necessary to drive business transformation.
Speaker Change: And as opposed to imparting my views for the sake of this call.
Speaker Change: I wanted to be very respectful of this process ensures that that vision has not only comprised of my thoughts.
Matthew Doctor: Next, I want to reflect on the progress we've made during the past few years. First and foremost, we've stabilized the business and returned to profitability and strong adjusted EBITDA margins. We've gone from highly negative adjusted EBITDA on fiscal year 21 to roughly break even in fiscal year 2022 to 21 million dollars in fiscal 23 to 26 million in fiscal 2024 with a full year adjusted franchise EBITDA margin of 35%. The improvements were driven largely through stabilization of the business coming out of the pandemic combined with operational rigor around risk and expense management. We've done a lot of work right-sizing our GNA to match the company we have become and this work has continued. We'll provide an update on our GNA efforts later during this call.
But utilizes the new data, we now have access to the recent surveys that reflect the voice of the customer.
Matthew Doctor: Second, during that period of stabilizing, returning to profitability, we further streamlined our focus and business model with an eye towards the future. The sale of our proprietary point-of-sale software system open salon Pro-Dezanoti further ensured that we were able to focus on our course salon business, established a long-term, sustainable technology partnership for our franchisees and provided cash proceeds that went towards the leveraging. Third, the implementation of our NLL rights plan in January 2024 ensured that we can preserve our valuable net operating losses to offset taxable income, which proved to be valuable in our refinancing transaction where the income from the debt forgiveness was tax-free and reflected in our results for the quarter with reported net income of over $91 million.
Speaker Change: And most importantly is in collaboration with our franchisees who are longstanding passionate partners to ensure by them.
Speaker Change: While we continue to drive towards that bigger vision of what this all ladders up to.
Speaker Change: We are confident that our focus list of priorities comprises the right ingredients and addressing the challenges facing us in the current environment and forms an important foundational layer as we move towards the future.
Speaker Change: And for the remainder of the call I'd like to update you on the progress related to the Zanotti migration. The further work we've done on G&A management in our organization as well as what those priorities are for the year.
Speaker Change: I am proud to announce that as of the beginning of August.
Speaker Change: This annuity migration is complete and for the first time in years regions now consolidated onto a single point of sale system and can finally utilize all of the scale benefits that come with this platform.
Speaker Change: This milestone solidifies Regis is execution readiness.
Speaker Change: As I have spoken about our CRM efforts for years.
However, the lack of a centralized system has been a major constraint truly managing personalized marketing in the past.
Speaker Change: And while this marks the end of the migration journey now is where the real work begins to utilize the data.
<unk> to drive sales growth.
Speaker Change: <unk> will provide an update on what proceeds we are expecting from these migration efforts and it is important to note that as opposed to under our previous credit agreement, where all proceeds were required to pay down our debt.
Matthew Doctor: Along the journey, we've solidified the leadership team and complimentary skill sets and franchise experience. All those leaders who still form the foundation of leaders today, and finally and importantly, we prioritize earning back trust and building relationships with our franchisees who execute on our business day in and day out to increase dialogue and collaboration. Admittedly, we still have a lot more work to do here as it is critical for us to continue to rally together to drive franchisee profitability and start getting more wins for their business. While Regis Corporation is in a better state, our focus needs to be on driving our course salon business and ensuring that our franchisees are successful. Financial.
Speaker Change: We are no longer required to do so and are able to utilize these funds to invest in our business.
Speaker Change: Regarding our organization in G&A.
Speaker Change: Took this new chapter as an opportunity to look hard at our organization over the last several months.
Speaker Change: Through the lens of what processes do we need to continue what do we need to change what do we need to stop and who is best suited to execute.
Speaker Change: Earlier in this month of August we culminated those efforts by one.
Speaker Change: Further right sizing our organization to match, our functions as franchise or and to ensuring we have the right people in the right roles.
Speaker Change: As a result of those moves we have now gone back to a more brand centric approach with a multiple executive vice present now overseeing our core brands.
Matthew Doctor: Now, all of these purposeful efforts culminated in a shareholder-friendly refinancing and our latest financial results, which represents major financial progress for this company. Regis is now on as strongest financial footing in years, and I am proud of what we've accomplished, and I'm proud of the resilience and tenacity of the entire Regis team that they've shown along the way.
Speaker Change: We created new heads of brand roles under them as well as newly created operational excellence roles to monitor and drive accountability and compliance.
Speaker Change: We will be investing further in systems and partners to aid in these efforts.
Christian: As a result, we do have a net benefit to our G&A that Christian will go into however that in and of itself was not the goal.
Matthew Doctor: I'd like to take a moment to acknowledge all of the employees, franchisees, and vendor lenders, and shareholders for their dedication, passion, patience, work, and faith shown in our team.
Speaker Change: And I do want to take another opportunity in this forum to publicly recognize the difficulty of this decision as these reworks are never easy.
Matthew Doctor: Let's now turn to our financial results. We continue to make strong progress on our key profitability metrics. Kersten will dive deeper into the fourth quarter and four year results, but let me provide a few key highlights on the year. We achieved the adjusted EBITDA of 25.9 million versus 21 million a year ago. This $5 million improvement was driven by a continued focus on expense management, partially offset by lower revenue. Our operating income of 20.9 million improves $12.1 million from $8.8 million in fiscal year 2023.
Speaker Change: I want to thank those long term dedicated employees colleagues and friends for all of their contributions to the region's over the years, we would not have gotten to this point without them.
Speaker Change: Turning to the focus areas for the future, we have significant opportunity to drive traffic back into our salons.
Speaker Change: We will look to do this by building a loyalty to increase repeat visitation from existing guests.
Speaker Change: And fill the funnel with new and lapsed guests as the primary drivers of sales and profitability growth for our franchisees.
Speaker Change: Our priority is to address these goals fall into two main complementary buckets incur.
Matthew Doctor: Our cash use and operations for the full year was $2 million, which improved from cash use of $7.9 million in fiscal 2023. I'd like to highlight here the cash from operations in Q4 was positive $5 million. A $4.5 million improvement over the prior years quarter. And lastly, the refinancing resulted in net gain of $94.6 million due to the extinguishment of our debt, which we were able to utilize our US federal and state NOLs to offset the entire tax liability.
Speaker Change: Increased operational rigor and a focused set of digital marketing initiatives.
Speaker Change: Regarding operational rigor.
Speaker Change: We must go back to basics and focused relentlessly on operational execution and foster a culture of excellence and accountability in our slots.
Speaker Change: We must do this in a targeted manner as there is a lot that we can be doing and quite frankly, we fall into that trap of trying to do too much in the past.
Speaker Change: And I'm trying to be extra cognizant of the changes that are being asked of our franchisees.
Matthew Doctor: A while we're proud of the considerable progress made. We have more work to do. We continue to see significant net store closures as we move towards a smaller albeit healthier salon network from a sales and profitability perspective. We need to drive traffic and reverse a trend that is persisted over the last decade. Customer attention remains a major opportunity and stylist availability while stable is down over around one full time employee personal on versus four and a half years ago.
Speaker Change: Especially just coming off of the recent point of sale conversion and the need to implement changes in a sustainable manner.
Speaker Change: As we enter this new chapter as franchise door with singular focus I've mentioned on prior calls that we're starting with our first major initiative of defining monitoring and enforcing the components that we believe make for the proper and and the customer experience that we call excellent standards.
Speaker Change: Many years have gone by without our finger on the pulse and eyes on salons, leading to the breeding of independent behaviors and an inability for us to take advantage of our size and our scale.
Matthew Doctor: These are the realities facing our business, which we must continue to work tirelessly to address. Now, with that said, I am encouraged by the many bright spots in our business. And as for the first time since I've been CEO, we are able to go on the offensive and focus on growing the business with our full undivided focus. Speaking candidly, the last three years required a ton of blocking and tackling the fixed issues in order to navigate the short term.
Speaker Change: And while excellent standards cover the end to end operations everything from Salon preparation to service excellence to how guests interact with us digitally before and after they enter our doors.
Speaker Change: We will likely see the most immediate tangible benefits are in the facilities themselves as the initial excellent site visits will largely be aimed at taking stock of how our fleet is showing up.
Matthew Doctor: And we're excited to be able to take this opportunity to reset and taking a longer term view and form a vision that is necessary to drive business transformation. And as opposed to imparting my views for the sake of this call, I want to be very respectful of this process and ensure that that vision is not only comprised of my thoughts, but utilizes the new data we now have access to. The recent surveys that reflect the voice of the customer and most importantly is in collaboration with our franchisees who are long-standing passionate partners to ensure buy-in.
Speaker Change: In addition to ensuring a consistent service menu offering.
Speaker Change: We know how important it is to have clean great looking salons for our customers and our stylists.
Speaker Change: Especially in this highly personalized services business.
Our salon image and service offering form a key element to perceive value and has the tone setter of the experience. So we will aim to make them. Most inroads here to start and over time, we will shift our efforts more towards further influencing the behaviors at the salon level.
Speaker Change: As I've mentioned before we will be starting the excellence visits in supercuts. This fall and will ultimately be rolling this out to other brands as we move into calendar 2025.
Matthew Doctor: Dean. While we continue to drive towards that bigger vision of what this all ladders up to, we are confident that our focus lists the priorities comprise of the right ingredients in addressing the challenges facing us in the current environment and forms an important foundational layer as we move towards the future. And for the remainder of the call, I'd like to update you on the progress related to the Zanote migration, the further work we've done on G&A management and our organization, as well as what those priorities are for the year.
Speaker Change: The other main areas of focus for the year relates to our digital marketing efforts to drive increased customer retention and frequency, which are complementary to our operational efforts we.
Speaker Change: We will start with tackling better retention of our existing guests. While also taking an initial step forward towards filling the funnel efforts by showing up better for potential new guests through search engine optimization.
Matthew Doctor: I am proud to announce that as of the beginning of August, the Zanote migration is complete. And for the first time in years, Regis has now consolidated onto a single point of cell system and can finally utilize all of the scale benefits to come with this platform. This milestone solidifies Regis' execution readiness. As I have spoken about our CRM efforts for years, however, the lack of a centralized system has been a major constraint to truly managing personalized marketing in the past.
Speaker Change: To address the frequency we will leverage the fact that we are finally consolidated on a singular point of sale platform and utilize the personalized marketing functionality within zanotti.
Speaker Change: Other major frequency effort is the launch of our supercuts rewards loyalty program that will be going live across the entire brand. This fall.
Speaker Change: We are excited to take supercuts rewards from the initial pilot salons, demonstrating three 4% incremental traffic growth net of control to the whole system and consolidate on a singular national program for the first time versus the 400 plus independent programs that existed previously.
Matthew Doctor: And while this marks the end of the migration journey, now is where the real work begins to utilize the data and functionality to drive sales growth. Kerson will provide an update on what proceeds we are expecting from these migration efforts and is important to note that as opposed to under our previous credit agreement, where all proceeds were required to pay down our debt, we are no longer required to do so and are able to utilize these funds to invest in our business.
Ensuring that supercuts rewards is operationalized in our salons and driving adoption to our goal of 50% of sales through rewards members by the first half of calendar 2025 is what we are rallying our efforts around and based on the impact of this launch we will explore rolling out loyalty programs through our other brands as well.
Speaker Change: Well.
Matthew Doctor: Regarding our organization in G&A, we took this new chapter as an opportunity to look hard at our organization over the last several months through the lens of what processes do we need to continue? What do we need to change? What do we need to stop? And who is best suited to execute?
Speaker Change: While we have strong belief in the merits of these programs you can't emphasize enough that the key to retaining and driving new guest starts first and foremost with the operational and service excellence I mentioned above.
Speaker Change: We will continue to report on our progress here and on subsequent calls.
Matthew Doctor: Earlier in this month of August, we culminated those efforts by one, further right-sizing our organization to match our functions as franchise or N2, ensuring we have the right people and the right roles. As a result of those moves, we have now gone back to a more brand-centric approach with a multiple executive vice presence now overseeing our core brands. We created new heads of brand roles under them, as well as newly created operational excellence roles to monitor and drive accountability and compliance.
Speaker Change: For those who have listened to our calls in the past I also wanted to be clear that our efforts around stylus training recruitment retention.
Speaker Change: The notion of online booking and the merits of that in the broader marketing initiatives are not lost on us at all these.
Speaker Change: These are of course ongoing efforts, but we wanted to be very intentional what we're highlighting here the current focus areas and acknowledge the real work required to move the needle on those items.
Speaker Change: We will revisit how these fit into the broader long term vision overtime.
Matthew Doctor: We will be investing further in systems and partners to aid in these efforts. As a result, we do have a net benefit to our G&A that Kristen will go into. However, that in and of itself was not the goal.
Speaker Change: I'm, putting this all together in a bit of an outlook for the year, while we've not provided any specific guidance historically.
Speaker Change: <unk> will be providing a bit more color on the elements of the key drivers of our business for the upcoming year.
Matthew Doctor: And I do want to take another opportunity in this forum to publicly recognize the difficulty of this decision as these reforms are never easy, and I want to thank those long-term dedicated employees, colleagues, and friends for all of their contributions to the reaches over the years. We would not have gotten to this point without them.
Speaker Change: From a high level perspective, even with continued net closures.
And the softer sales due to a combination of macro environment and the work that is required to be done in the business.
Speaker Change: We still believe that we are set up to continue to drive adjusted EBITDA growth in fiscal 2025, as well as increase our earnings per share and cash flow due to the refinancing.
Matthew Doctor: Turning to the focus areas for the future, we have significant opportunity to drive traffic back into our salons. We will look to do this by building loyalty to increase repeat visitation from existing guests and fill the funnel with new and last guests at the primary drivers of sales and profitability growth for our franchisee. Our priorities to address these goals fall into two main complementary buckets. Increased operational rigor and a focus set of digital marketing initiatives.
Speaker Change: Now before turning it over to Kirsten, Let me conclude by reiterating that this is an important moment of achievement for the company.
But much work remains.
Speaker Change: Our efforts over the past three years have stabilized our finances and built a strong foundation.
Speaker Change: I am confident that we have the right team and the right franchise partners for the next stage and I look forward to keeping you apprised of our continued progress.
Matthew Doctor: Regarding operational rigor, we must go back to basics and focus relentlessly on operational execution and foster a culture of excellence and accountability in our salons. We must do this in a targeted manner as there is a lot that we can be doing and quite frankly we fall into that trap of trying to do too much to the past. And I'm trying to be extra cognizant of the changes that are being asked of our franchises, especially just coming off the recent point of sale conversion and the need to implement changes in a sustainable manner.
Speaker Change: Now I will turn the call over to Christian for a detailed review of our Q4 and full year financials person.
Matt Doctor: Matt for.
Christian: For this mornings call I will review, our fourth quarter and full year results in the fourth quarter and full year. We reported improved operating income net income and earnings per share as well as improved adjusted EBITDA and cash from operations.
Reviewing the fourth quarter in more detail total fourth quarter revenues were $49 $4 million and declined $6 $3 million from the prior year.
Matthew Doctor: As we enter this new chapter as franchise or with singular focus, I've mentioned on prior calls that we are starting with our first major initiative of defining, monitoring and enforcing the components that we believe make for the proper end to end customer experience that we call excellent standards. Too many years have gone by without our finger on the pulse and eyes on salons, leading to the breeding of independent behaviors and an inability for us to take advantage of our size and our scale.
Christian: This revenue decline was expected and relates primarily to a reduction in franchise rental income and advertising fund revenue, which arent gross up of revenue and expense and have no impact on profitability.
Our LTM fee revenue of $18 5 million, which represents our core business revenue was down $1 1 million versus the prior year fourth quarter due to the number of Salon closures over the course of the last 12 months and a decrease in revenue related to terminated development agreements.
Matthew Doctor: And while excellent standards cover the end to end operations, everything from salon preparation to service excellence, to how guests interact with us digitally before and after they enter our doors, we will likely see the most immediate tangible benefits are in the facilities themselves. As the initial excellent site visits will largely be aimed at taking stock of how our fleet is showing up, in addition to ensuring a consistent service menu offering. We know how important it is to have clean, great looking salons for our customers and our stylists, especially in this highly personalized services business.
Christian: Another reflection of our revenue performance is system wide same store sales, which declined one 3% in the quarter.
Christian: We closed in that 149 locations, including three company owned locations in the fourth quarter of fiscal year 2024.
Christian: We posted GAAP operating income of $4 $6 million in the fourth quarter compared to $3 $6 million in the prior year quarter.
Christian: The year over year increase in GAAP operating income of $1 million was driven by a lower rent expense in the fourth quarter of fiscal year 2024, primarily related to franchise rent accruals in the fourth quarter of fiscal year 2023 that did not reoccur, partially offset by lower core business revenue we can.
Matthew Doctor: Our salon image and service offering form a key element to perceive value and is the tone setter of the experience. So we will aim to make the most inroads here to start. And over time, we will shift our efforts more towards further influencing the behaviors at the salon level.
Christian: To produce operating profit each quarter, and we expect that trend to continue.
Matthew Doctor: As I mentioned before, we will be starting the excellence visits in supercuts this fall and will ultimately be rolling this out to other brands as we move into calendar 2025.
Christian: We reported GAAP net income of $91 2 million and diluted earnings per share of $38.10 in the fourth quarter compared to a loss of $4 $8 million and diluted loss per share of $2.07 a year ago.
Matthew Doctor: The other main areas of focus for the year relates to our digital marketing efforts to drive increased customer retention and frequency, which are complimentary to our operational efforts. We will start with tackling better retention of our existing guests, while also taking an initial step forward towards filling the funnel efforts by showing up better for potential new guests through search engine optimization. To address frequency, we will leverage the fact that we are finally consolidated on a singular point of sale platform and utilize the personalized marketing functionality within Zenote.
Christian: The majority of the improvement in the quarter was the result of the $94 $6 million net gain on the extinguishment of debt related to the debt refinancing we executed in June.
Christian: As it relates to the significant gain the company utilized its U S federal and state Nols to offset the entire tax liability related to the extinguishment of debt.
Christian: Now, let's turn to our adjusted results, which we believe is a more representative view of the business.
Matthew Doctor: The other major frequency effort is a launch of our supercuts rewards loyalty program that will be going live across the entire brand this fall. We are excited to take supercuts rewards from the initial pilots along demonstrating 3.4 percent incremental traffic growth, net of control, to the whole system and consolidate on a singular national program for the first time, versus the 400-plus independent programs that existed previous, and Ensuring that Supercuts Rewards is operationalized in our salons and driving adoption to a goal of 50% of sales through awards members by the first half of calendar 2025 is what we are rallying our efforts around and based on the impact of this launch, we will explore rolling out loyalty programs to our other brands as well.
Christian: On an adjusted basis fourth quarter consolidated EBITDA was $7 $4 million compared to $5 $2 million in the prior year quarter.
Christian: The $2 $2 million improvement was due primarily to lower rent expense of $2 million as previously discussed.
The recognition of $1 3 million of noncash revenue related to a change in estimate for gift card breakage, partially offset by lower core franchise revenue.
Christian: Our core franchise business achieved adjusted EBITDA of $6 $1 million in the quarter, a $600000 increased compared to $5 $5 million in the prior year quarter.
Christian: This improvement is primarily due to lower rent expense, partially offset by a lower core franchise revenue.
Christian: On an adjusted EBITDA basis, our company owned segment reported $1 3 million for the quarter, an improvement of $1 $6 million from the same quarter last year, primarily related to the recognition of noncash revenue, resulting from a change in estimate for gift card breakage.
Matthew Doctor: While we have strong belief in the merits of these programs, we can't emphasize enough that the key to retaining and driving new guests starts first and foremost with the operational and service excellence I mentioned above. We will continue to report on our progress here and on our subsequent calls. For those who have listened to our calls in the past, I also want to be clear that our efforts around stylist training recruitment retention, the notion of online booking and the merits of that and the broader marketing initiatives are not lost on us at all.
Christian: As of June 32024, we had 17 company owned location and as of today, we have nine locations.
Christian: During the three months ended June 30, we generated $5 million of cash from operations, which is a $4 5 million improvement from the prior three month period, primarily due to improved operating income and less cash used for working capital.
Matthew Doctor: These are of course ongoing efforts, but we want to be very intentional that we're highlighting here the current focus areas and acknowledge the real work required to move the needle on those items. We will revisit how these fit into the broader long term vision over time.
Christian: With incentive compensation and other scheduled payments like insurance that get paid in the first quarter of our fiscal year 2025 cash generation may be challenged in Q1, but we do believe that we will generate cash in the second quarter and for the remainder of fiscal year 2025.
Matthew Doctor: I'm putting this all together in a bit of an outlook for the year while we've not provided any specific guidance historically person will be providing a bit more color on the elements of the key drivers of our business for the upcoming year. From a high level perspective, even with continued net closures and the softer sales due to a combination of macro environment and the work that is required to be done in the business. We still believe that we are set up to continue to drive adjusted EBITDA growth in fiscal 2025, as well as increase our earnings per share and cash flow due to the refinancing.
Christian: Moving to full year results.
Christian: Revenues for fiscal year, 2024 were $203 million compared to $233 million for the full year fiscal 2023.
Christian: Similar to the fourth quarter revenue decline. This decline was expected and relates primarily to a reduction in franchise rental income advertising revenue and the wind down of our company owned salon as well as lower product sales to franchisees.
Christian: <unk> were also down due to fewer franchise locations, partially offset by system wide same store sales for our franchise locations of 60 basis points for the full year.
Matthew Doctor: Now before turning it over to Kirsten, let me conclude by reiterating that this is an important moment of achievement for the company, but much work remains. Our efforts over the past three years have stabilized our finances and built a strong foundation.
Christian: Full year system wide sales.
Christian: Same store sales improved 70 basis points in the year.
Christian: We closed a net 455 locations, including 51 company owned locations during fiscal year 2024.
Matthew Doctor: I am confident that we have the right team and the right franchise partners for the next stage, and I look forward to keeping you apprised of our continued progress.
Christian: Yeah.
Christian: We posted GAAP operating income of $29 million in fiscal year, 2024, compared to $8 $8 million in the prior year the year.
Kersten Zupfer: And now I will turn the call over to Kirsten for a detailed review of the Q4 and full year financials. Kirsten. Thanks, Matt.
Christian: Year over year increase in GAAP operating income of $12 $1 million was driven by lower <unk> expense the recognition of $1 $3 million of noncash revenue related to a change in estimate for the gift card breakage and lower G&A, partially offset by lower core franchise revenue.
Kersten Zupfer: For this morning's call, I will review our fourth quarter and full year results. In the fourth quarter and full year, we reported improved operating income, net income and earnings per share, as well as improved adjusted EBITDA and cash from operations. Reviewing the fourth quarter in more detail, total fourth quarter revenues were $49.4 million, and declined $6.3 million from the prior year. This revenue decline was expected and relates primarily to a reduction in franchise rental income and advertising fund revenue, which are a growth of revenue and expense and have no impact on profitability.
Christian: We reported GAAP net income of $91 1 million and diluted earnings per share of $38 34.
In fiscal year 2024, compared to a loss of $7 4 million and diluted loss per share of $3.18 a year ago.
Christian: The majority of the improvement was the result of a $94 $6 million net gain on the extinguishment of debt related to the refinance executed in June.
Kersten Zupfer: Royalty and fee revenue of $18.5 million, which represents our core business revenue, was down 1.1 million versus the prior year fourth quarter, due to the number of salon closures over the course of the last 12 months and a decrease in revenue related to terminated development agreements, and I. Another reflection of our revenue performance is system-wide, same-store sales, which declined 1.3% in the quarter. We closed a net 149 locations, including three company-owned locations in the fourth quarter of fiscal year 2024.
Christian: Adjusted EBITDA for the full year was $25 $9 million or $4 $9 million improvement compared to $21 million in fiscal year 2023.
Adjusted EBITDA improved primarily due to a lower G&A expense lower rent and recognition of the noncash revenue related to the estimate for gift cards gift card breakage, partially offset by the $1 $1 million grant for.
Christian: North Carolina received last year.
Christian: Adjusted G&A expense of $45 million is down $3 $7 million due to lower compensation legal and insurance expense and technical education spend efficiencies.
Kersten Zupfer: We posted gap operating income of $4.6 million in the fourth quarter, compared to $3.6 million in the prior year quarter. The year-over-year increase in gap operating income of $1 million was driven by a lower rent expense in the fourth quarter of fiscal year 2024, primarily related to franchise rent accruals in the fourth quarter of fiscal year 2023 that did not re-occur, partially offset by a lower core business revenue. We continue to produce operating profit each quarter and we expect that trend to continue.
Christian: In fiscal year 2024, we used $2 million of cash from operations, which is a $5 $9 million improvement from prior year.
Christian: <unk> the $1 $1 million grant received from the state of North Carolina in fiscal year 2023 cash used in operation improved $7 million due primarily to improved operating income and less cash used for working capital.
Christian: Turning to liquidity, our new credit facility with TCW and mid cap financial consists of $105 million term loan and a $25 million revolver.
Kersten Zupfer: We reported gap net income of $91.2 million and diluted earnings per share of $38.10 in the fourth quarter, compared to a loss of $4.8 million and diluted loss per share of $2.7 a year ago. The majority of the improvement in the quarter was the result of the $94.6 million net gain on the extinguishment of debt related to the debt refinancing we executed in June. As it relates to the significant gain, the company utilized its U.S, federal and state NOLs to offset the entire tax liability related to the extinguishment of debt.
Due to the transition of our letters of credit to our new lenders, we were required to temporarily drop $10 $2 million on our line of credit to cash collateralize, our letters of credit with our former lenders.
Christian: As of today of the amount drawn on our revolver is $4 $4 million and our availability under the revolver is $15 $6 million the draw and the reduction in availability relates to the Companys letters of credit issued by our new lenders.
Christian: As a reminder, due to accounting standards, our balance sheet shows approximately $300 million of operating lease liabilities related to liabilities associated with sub leasing salons to our franchisees over the entire life of their respective leases. These liabilities are serviced by our franchisees and should not be factored in redresses.
Kersten Zupfer: Now let's turn to our adjusted results, which we believe is a more representative view of the business. On an adjusted basis, fourth quarter consolidated EBITDA with $7.4 million, compared to $5.2 million in the prior year quarter. The $2.2 million improvement was due primarily to lower rent expense of $2 million as previously discussed. The recognition of $1.3 million of non-cash revenue related to a change in estimate for gift car breakage, partially offset by lower core franchise revenue.
Christian: Debt position. These liabilities have decreased approximately $289 million over the last three years due to the reduction in <unk> and also due to re just moving off our franchise leases.
Christian: Regis is solely responsible for at least liability for our corporate office space and the remaining company owned salons, which amounts to $9 million over the life of the leases.
Kersten Zupfer: Our core franchise business achieved a adjusted EBITDA of $6.1 million in the quarter, a $600,000 increase compared to $5.5 million in the prior year quarter. This improvement is primarily due to lower rent expense partially offset by a lower core franchise revenue. On an adjusted EBITDA basis, our company own segment reported $1.3 million for the quarter, an improvement of $1.6 million from the same quarter last year, primarily related to the recognition of non-cash revenue resulting from a change in estimate for gift car breakage.
As Matt mentioned, we wanted to give you some insight on key drivers of the business as we enter fiscal 2025.
Matt Doctor: With a continued focus on our corporate G&A and the recent right sizing of the organization, we expect our fiscal year 2025, G&A to be in the range of $40 million to $42 million and our run rate G&A to be closer to $38 million to $40 million.
Matt Doctor: The middle of the run rate range represents close to $6 million of savings versus fiscal year 2024.
Matt Doctor: The $38 million to $40 million range represents additional investments in our business that offset savings to the extent, we see opportunity to further invest in our initiatives. This range may change.
Kersten Zupfer: As of June 30th, 2024, we had 17 company owned locations, and as of today, we have nine locations. During the three months ended June 30, we generated $5 million of cash from operations, which is a $4.5 million improvement from the prior three month period, primarily due to improved operating incomes and less cash used for working capital. Within son of compensation and other scheduled payments like insurance, like it paid in the first quarter of our fiscal year 2025, cash generation may be challenged in Q1, but we do believe that we will generate cash in the second quarter and for the remainder of fiscal year 2025. 5.
Matt Doctor: In addition to the G&A savings we have now successfully if I believe three of the four floors of our corporate office space.
Matt Doctor: Sub lease income of approximately $1 $2 million in fiscal year 2025 associated with the three sub leases will be recorded in the other income line of our income statement.
Matt Doctor: As we've discussed on previous calls we do expect further closure of unprofitable franchise locations.
Matt Doctor: We believe that the number of salon closures will be able to be in the same order of magnitude as fiscal year 2024, with the majority of the closures occurring in the third quarter of fiscal year 2025.
Kersten Zupfer: Moving to full-year results, revenues for fiscal year 2024 were $203 million, compared to $233 million for the full-year fiscal 2023. Similar to the fourth quarter revenue decline, this decline was expected and relates primarily to a reduction in franchise rental income, advertising revenue, and the wind down of our company on Solan, as well as lower product sales to franchisees. Royalties were also down due to fewer franchise locations, partially offset by system-wide same-store sales for our franchise locations of 60 basis points for the fiscal full-year.
That is when many of the smart style leases end.
Matt Doctor: From a cash perspective, we expect to receive additional annuity proceeds related to the completion of the migration and the range of $7 million to $9 million.
Speaker Change: The largest driver and disparity between the originally contemplated earn out and the realized proceeds is the fact that our franchise saw on Collyn is approximately 900.
Speaker Change: Salons lower than two years ago.
Speaker Change: Proceeds will be received over the first three quarters of fiscal year 2025.
Kersten Zupfer: Full-year system-wide sales, same-store sales improved 70 basis points in the year. We closed the net 450-bible locations, including 51 company-owned locations during fiscal year 2024. We posted gap operating income of $20.9 million in fiscal year 2024, compared to $8.8 million in the prior year. The year-over-year increase in gap operating income of $12.1 million was driven by lower rent expense, the recognition of $1.3 million of non-cash revenue related to a change in estimate for the gift card breakage and lower GNA, partially offset by lower core franchise revenue.
Speaker Change: Under our new financing arrangement of Matt mentioned these proceeds will stay in the business and are not required to pay down debt as they were under our previous financing arrangement.
Matt Doctor: To wrap up we expect fiscal year 2025, adjusted EBITDA to increase and with our lower go forward interest expense net income and cash generation will also improve.
Speaker Change: This concludes my prepared remarks, please feel free to reach out to Investor Relations at Regis Corp, Dot com to discuss any questions related to the business our quarterly results.
Speaker Change: I'd like to thank you for your continued support and interest in Regis.
Speaker Change: Goodbye.
Kersten Zupfer: We reported gap net income of $91.1 million in diluted earnings per share of $38.34 in fiscal year 2024, compared to a loss of $7.4 million in diluted loss per share of $3.18 a year ago. The majority of the improvement was the result of a $94.6 million net gain on the extinguishment of debt related to the debt refinance executed in June. Adjusted EBITDA for the full year was $25.9 million. A $4.9 million improvement compared to $21 million in fiscal year 2023.
Kersten Zupfer: Adjusted EBITDA improved primarily due to our lower GNA expense, lower rent and recognition of the non-cash revenue related to the estimate for gift card breakage, partially offset by the $1.1 million grant from North Carolina receipt last year. Adjusted GNA expense of $45 million is down $3.7 million due to lower compensation, legal and insurance expense and technical education spend efficiencies. In fiscal year 2024, we use $2 million of cash from operations, which is a $5.9 million improvement from prior year, excluding the $1.1 million grant received from the state of North Carolina in fiscal year 2023. Cash use and operation improved $7 million due primarily due improved operating income and less cash used for working capital.
Kersten Zupfer: Turning to liquidity, our new credit facility with TCW and mid-cap financial consists of $105 million term loan and a $25 million revolver. Due to the transition of our letters of credit to our new lenders, we were required to temporarily draw $10.2 million on our line of credit to cash collateralize our letters of credit with our former lenders. As of today, the amount drawn on our revolver is $4.4 million and our availability under the revolver is $15.6 million. The draw and the reduction in availability relates to the company's letters of credit issued by our new lenders.
Kersten Zupfer: As a reminder, due to accounting standards, our balance sheet shows approximately $300 million of operating lease liabilities related to liabilities associated with sub-leasing salons to our franchisees over the entire life of their respective leases. These liabilities are serviced by our franchisees and should not be factored in Regis's debt position. These liabilities have decreased approximately $289 million over the last three years, due to the reduction in salon count and also due to Regis moving off of franchise leases. Regis is solely responsible for release liabilities for our corporate office space and the remaining company owns salons, which amounts to $9 million over the life of the leases.
Kersten Zupfer: As Matt mentioned, we wanted to give you some insight on key drivers of the business as we enter fiscal 2025. With the continued focus on our corporate GNA and the recent right sizing of the organization, we expect our fiscal year 2025 GNA to be in the range of $40 to $42 million. And our run rate GNA to be closer to $38 to $40 million. The middle of the run rate range represents close to $6 million of savings versus fiscal year 2024.
Kersten Zupfer: While the $38 to $40 million range represents additional investments in our business that offset savings, to the extent we see opportunity to further invest in our initiatives, this range may change. In addition to the GNA savings, we have now successfully sub leased three of the four floors of our corporate office space. The sub leased income of approximately $1.2 million in fiscal year 2025 associated with the three sub leases will be recorded in the other income line of our income statement.
Kersten Zupfer: As we've discussed on previous calls, we do expect further closure of unprofitable franchise locations. We believe that the number of salon closures will be in the same order of magnitude as fiscal year 2024. With the majority of the closures occurring in the third quarter of fiscal year 2025, is that is when many of the smart style leases end. From a cash perspective, we expect to receive additional zoonote proceeds related to the completion of the migrations in the range of $7 to $9 million.
Kersten Zupfer: The largest driver in disparity between the originally contemplated urnote and the realized proceeds is the fact our franchise salon count is approximately 900 salons lower than two years ago. These proceeds will be received over the first three quarters of fiscal year 2025. Under our new financing arrangement, as Matt mentioned, these proceeds will stay in the business and are not required to pay down debt as they were under our previous financing arrangement.
Kersten Zupfer: To wrap up, we expect fiscal year 2025 adjusted EBITDA to increase in with our lower goal forward interest expense net income and cash generation will also improve. This concludes my prepared remarks.
Kersten Zupfer: Please feel free to reach out to investor relations at rediscorp.com to discuss any questions related to the business or quarterly results. I would like to thank you for your continued support and interest in Regis. Goodbye.