Regis Corporation (NYSE:RGS) Q1 2024 Earnings Call Transcript

Regis Corporation (NYSE:RGS) Q1 2024 Earnings Call Transcript November 1, 2023

Regis Corporation beats earnings expectations. Reported EPS is $0.03, expectations were $-0.08.

Biz McShane: Good morning, and thank you for joining the Regis First Quarter Fiscal 2024 Earnings Conference Call. I’m your host Biz McShane, Vice President Corporate Controller. All participants are in listen-only mode. The prepared remarks by our President and Chief Executive Officer, Matthew Doctor and Executive Vice President and Chief Financial Officer, Kersten Zupfer are accompanied by slides to help participants follow along. After their prepared remarks, we will have time for questions. [Operator Instructions] As a reminder, this conference is being recorded. 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.

These documents along with our presentation today, can be found on our website, www.regiscorp.com/investorrelations, along with reconciliation of any non-GAAP financial measures mentioned on today’s call, with their corresponding GAAP measures. Today’s slides are located in the investor presentations and supplemental financial statements section of the investor site. With that, I will now turn the call over to Matt.

Matthew Doctor: Thank you, Biz, and good morning everyone. On today’s call, we will go through our Q1 fiscal 2024 results, a quarter in which we continue to make financial progress. In addition to our Q1 results, we announced the process, to evaluate strategic alternatives with the intent of strengthening our balance sheet and position Regis for future growth. We determined now is the proper time to launch this process. As we’re doing so proactively, during a time in which we are not in default. Nor projecting to be in default of any of our debt covenants. We have ample liquidity and we can take control of the process. We wanted to take advantage of this window of time, we have to go broad and maximize our optionality. As opposed to waiting until closer to maturity, or a regular way refinancing may prove more challenging.

DC Studio/Shutterstock.com

We believe this process is a solid way, to evaluate several potential structures and complement our current work streams, in order to best set Regis up for the future and maximize value. With this announcement, I also feel that it’s appropriate to provide some more context as to how we got here, and why now. Whether you’ve been following Regis for a while, or you’re a new follower or investor in the company, I believe it would be beneficial to recap the sequence of events leading up to the current state. Now Regis was in the middle of two major business model shifts when the COVID-19 pandemic disrupted the business. Those business model shifts being one, the transition from a company owned salon business to one that is fully franchised. And two, the in-house development and rollout of a proprietary point-of-sale technology product called OpenSalon Pro.

The pandemic was highly disruptive to Regis’ business as over 1,800 company-owned salons remained as of March 31, 2020. During a time of government mandated salon shutdowns and restrictions, customer traffic was highly impaired and slow to recover, and the industry began experiencing significant labor issues. Due to our size, we were unable to qualify for government funding. And we had to draw on our revolver to fund the operational cash burn and manage through the uncertainty of the business. As of December 31, 2019. Regis had $32 million of debt including letters of credit, net of cash, due to adjusted EBITDA losses that reached $79 million in fiscal year 2021. In a cumulative cash use of $190 million in fiscal 2020 and fiscal 2021. Our debt including letters of credit, net of cash ended up around the $190 million dollar level that it is today, as a result of navigating through those times.

See also 10 Best Canadian ETFs and Wall Street Analysts Just Trimmed Price Targets for These 10 Stocks.

Q&A Session

Now, I had mentioned on previous calls, that when I stepped in as CEO in December of 2021, we were nearing the completion of our transition to that fully franchise model. We were still in the midst of rolling out OpenSalon Pro, and we had a revolver maturity of March 2023, that was approaching. At that time, we had $174.5 million of debt including letters of credit net of cash, and last 12 months adjusted EBITDA losses of close to $50 million. Now, as I mentioned during our fiscal 2023, recap call in August, we have made a lot of progress building the business back, in the last few years in the midst of what was and remains a challenging operating environment. During that time, we completed the business transition to a fully franchise model.

We sold the OpenSalon Pro product to ensure we have proper focus on our core business, which is haircare and not technology, while simultaneously eliminating the cash burden associated, with the development and support of the product. We use the upfront proceeds from the sale to deliver and help our case for a refinancing with our lenders, all culminating in an amending, extending our credit agreement in August of 2022. While the business was continuing to turn around, and right before what became a challenging credit environment. And while we acknowledge the amend and extend wasn’t the complete solution to our capital structure, it did offer us time to continue to execute on our plans, and put Regis in a better position financially from a P&L perspective.

Since then, we’ve grown same-store sales, albeit mainly through pricing. We further wound down our loss making company-owned salons, we manage our G&A and CapEx closely and ultimately grew our profitability. We achieved a number of key milestones along the way, such as positive adjusted EBITDA, positive operating income for the first time since fiscal year 2017. And positive GAAP earnings per share during this quarter, the first time since fiscal year 2018. We’ve put plans in place, to address our core business and have been implementing our strategies and even announced an agreement to enter a new market in India. At this point in time, we can say that our business is largely stable. With last 12 months adjusted EBITDA of $25 million versus the adjusted EBITDA loss of $79 million that I mentioned to earlier in fiscal 2021.

All of that being said, while the business has stabilized, the level of stabilization in comparison to our debt level of close to $190 million, and amount that as I mentioned is due to navigating the effects of the pandemic, still leaves a highly levered company. The challenges we’ve alluded to regarding labor, customer behavior and the resulting salon closures, still remain business headwinds that we are constantly looking at new ways, to solve for in this reset operating environment. Combined those challenges with the rising rate environment, driving higher cash interest expense. In addition to the cash outflows, related to the tail of our legacy business, there is still work to be done in order, to overcome those challenges. And that is work that we are doing every day.

I’ve mentioned on every call that, while we continue to see progress, there is still much to do. And this process is now one of the key work-streams in addition to the plans that we already have in place. As we look out to the foreseeable future, we continue to be focused on increasing our profitability that, will not change. We believe there’s progress to be made and we have solid plans in place that, we developed in conjunction with our franchise partners, to advance our brands, and seek to address the challenges related to the shift, and style of some customer behavior. And I’ve been clear that these take time. All this work will continue to be done as planned in conjunction with this process that, is designed to proactively address the balancing side of the equation for the long-term.