Ladies and gentlemen, thank you for standing by. Welcome to the Regis Corporation Fiscal 2018 Second Quarter Earnings Call. My name is Laurie, and I will be your conference facilitator today. At this time, all participants are in a listen-only mode. Following the management's presentation, we will conduct a question-and-answer session. [Operator Instructions]. As a reminder, this call is being recorded for playback and will be available by approximately 12 pm Eastern Time today. I'll now turn the conference call over to Paul Dunn, Vice President of Finance and Investor Relations. Please go ahead.

Good morning and thank you all for joining us. On the call with me today are Hugh Sawyer, our Chief Executive Officer; Andrew Lacko, our new Chief Financial Officer; Eric Bakken, President of our Franchise Segment and Amanda Rusin our General Counsel. Before turning the call over to Hugh, there are few housekeeping items to address. First, today's earnings release and conference call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of performance, and by their nature, are subject to inherent risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Please refer to today's release and our SEC filings for more information on these risks and uncertainties. The Company undertakes no obligation to update or revise any And uncertainties. The Company takes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the day of the call. Second, this morning's call must be considered in conjunction with both the 10-Q filing and earnings release we issued this morning. In today's call, we will be discussing non-GAAP financial results that exclude the impact of certain business events. These non-GAAP financial measures are provided to facilitate meaningful year-over-year comparisons but should not be considered superior to, as a substitute for, and should be ready in conjunction with GAAP financial measures for the period. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in this morning's earnings release, which is available on our website at www.regiscorp.com/investor. With that, I will now turn the call over to Hugh.

Thank you, Paul, and good morning. Thank you for joining us and thanks as well for your interest in Regis. My brief comments today will focus on the strategic transformation underway and the results of certain operational initiatives executed during the second quarter and since our turnaround began last April. Andrew, will then provide a recap of our financial results for the quarter. So let's begin with a high-level overview of our progress thus far. Nine months ago I shared an ambitious vision for Regis that included the following key elements. A strategic transformation of the business with an emphasis on the growth of our franchise platform; the operational turnaround of our underperforming and non-performing company-owned salon portfolio, the utilization of technology to transform the business; thoughtful investments to support growth through better advertising content and leveraging broader channels of distribution for that improved content through new relationships, digital advertising and social media; efforts to upgrade stylist recruitment, training and retention; the vigorous elimination of non-essential, non-customer facing cost; and the revitalization of our guest experience. Since last April we have been focused intently on meeting the expectations of our key stakeholders, our guests, our franchisees, our associates and of course our shareholders. We are accomplishing more by improving the speed and effectiveness of execution throughout the company. In other words we are getting things done, things that support the overall strategic transformation and operational turnaround. I believe the initiatives we executed during the second quarter demonstrate that a high performing culture is beginning to emerge at Regis. During the second quarter we substantially completed the operational restructuring of our company-owned salon portfolio. We have now removed our franchise to approximately 1,450 non-performing, underperforming and/or non-strategic non-core salons since April of 2017; and essentially two major transactions both of which…

Thanks Hugh and good morning everyone. This morning I would like to provide an overview of our results for the second quarter as well as updates on a few items to take into consideration when you look at our year-over-year comparisons. On a consolidated basis second quarter revenue totaled $309 million a $7 million or 2.1% year-over-year decline driven primarily by the closure or refranchising of 448 salons and a 70 basis points decline in same-store sales partially offset by favorable revenue growth in our franchise segment and favorable currency effects. The reduction in same-store sales was driven primarily by a 3.2% decline in traffic, partially offset by a 2.5% increase in ticket. Second quarter consolidated adjusted EBITDA of $18.2 million was $1 million or 6% favorable to the same period last year. The year-over-year growth was driven primarily by the benefits from our operational initiatives or what we have been calling the 120-day plan, which we estimate delivered about $7 million to $9 million during the quarter. Profitable growth in our franchise segments and onetime benefit related to the discontinuings of our limited loyalty program test and the closure or refranchising of 448 salons. These benefits were partly offset by gross profit declines driven by same-store sales, minimum wage in healthcare cost increases, a year-over-year increase in the company's short-term incentive compensation accruals and strategic investments made in digital advertising during the quarter in support our SmartStyle brand. On a year-to-date basis consolidated adjusted EBITDA of $42.1 million was $2.2 million or 5.5% favorable for the same period last year. We are encouraged by our year-to-date results given the challenges and complexity of our two major restricting events which were substantially concluded in the quarter but have been underway for several months. Turning now to the segment specific performance…

Thank you. [Operator Instructions] And we’ll go to Jason Gere, KeyBanc Capital Markets.

Good morning. Hey guys. Just a couple of questions I guess the first thing I just want to understand that the tax reform act a little bit as you kind of walked through that with these NOLs like how we should be thinking about going forward. It sounds like it’s kind of a mix bag but I was just wondering if you can maybe kind of simplify it a little bit more just so we can understand from modeling purposes?

Sure this is Andrew. So the impact of the tax reform is basically that in definite live NOLs going forward are able to -- the NOLs have been changed in definite live such that we can net that against some of our tax assets and liabilities. The net impact is just doing the math we made the $70 million adjustment to our valuation allowance. We still have a portion of the valuation allowance intact. And I don't expect that we will be making adjustment until a future period at which point we would release the valuation allowance that would help you with your modeling or income tax expense line.

Okay. That makes sense. And then Hugh, bigger question, when you look at the comp performance of the corporate-owned stores in the quarter, can you maybe parcel out some of the weaker traffic? And just how much is weather related? How much is that some of the initiatives that you’re doing or just still in the instant day that you're not going to see the churn yet? So just wondering maybe if you could parcel out maybe some of the -- or bridge the gap like some of the factors with overall comps where you actually will really please, where you -- and then you have pointed out some areas have more work to be done. But just like maybe your assessment over the last couple of months?

Sure Jason. I'll let Andrew take the portion of your question related to weather. Andrew and I have made a social commitment to each other that we try not to point at weather as it relates to the impact of our operations but it's interesting Jason. I've been in other industries where weather has an impact but it's striking how dramatic it can be in this industry where people just simply can't get out and cannot get into a salon to get their haircut. So we are aware that in and around particularly the holiday periods we were impacted. And Andrew is probably going to give you some more data, then I’ll address the rest of your question.

Yeah. We are not in a position to give specific numbers, but as I'm sure other retailers have seen, cherry between Christmas and New Year is particularly difficult given the cultural and the weather that came through the Midwest in the south and the Eastern seaboard. So it certainly had an impact on that 70 basis points. We’re not on liberty and we just don't want to pin anything to the weather because weather in unpredictable and just part of our business. But it did certainly have a drag on that 70 basis point performance.

As to the rest of your question Jason, it is Hugh, overall I am feeling good about Supercuts, particularly with new MLB partnership. The MLB relationship is just going to open up so many different channels for content that I just -- I am very certain that it's going to be a homerun for the company as I have said publicly. As to SmartStyle now that we've got the restructuring out of the way, we remain hopeful and believe that the changes we have made in simplifying our pricing boards and introducing new services are going to help us inside those Wal-Mart locations. The early data is encouraging, particularly as it relates to capturing some of those male customers that are inside the Wal-Mart that historically may not have always harvested. And as to the rest of the portfolio inside a signature style it's a mixed bag. But we’re working through that process as well. Based on essentially five core initiatives around growth which you may have heard me talk about before but it begins with improving the customer database and the insights and analytics we have related to our customers. We think we're going to get a lot better at that with the Buxton relationship which is industry exclusive. We have accelerated our investment in digital advertising which provides a bigger bang for our investment dollars than TV advertising. And we’ve really leveraged digital advertising with SmartStyle. And I also think Jason the rollout of social media that we’re going to make in February which was initially targeted towards social media, excuse me, towards SmartStyle, will be helpful to us. So as you think about these two large brands Supercuts is our best-known brand. And we’re going to be riding the MLB train to move content in the multiple…

Okay. Terrific. Thank you. And a lot of color in there. And thanks for the plan work homerun. I will see you later guys.

Thanks Jason.

We'll go next to Stephanie Wissink, Jefferies.

Hi. This is actually Helga [ph] on for Steph. Thanks for taking our question. We just have one. Would you mind to give us some clarity around same-store sales excluding the stores that are slated for closure?

Sure. Going forward, the 597 obviously was a drag on the portfolio a revenue performance. They have shown some health in the recent past as a result of the new service offerings that we've launched in the SmartStyle portfolio, specifically the $12.97 express haircut and the everyday simple pricing, the simplification of the price menu. But that's a symptom of they were underperforming and had lower than system average guest traffic and ticket. And as a result, that lifted up the performance of that subset of salons off of a smaller base. But overall, we anticipate that by the elimination of these underperforming, not underperforming, non-performing salons they certainly have been a drag on our overall performance. And we anticipate that we will see a lift by weeding the garden of these salons of the portfolio in both the sales performance and in adjusted EBITDA.

And I think Andrew you would agree with this by as we have moved out of the mall locations, and moved out of international and also eliminated these 597 the underlying performance of the company owned salons we will become much clear. You'll have much greater visibility in the days and weeks ahead now that those 1,450 salons have been removed from the portfolio.

Thanks for taking our question. Have a good day.

You bet.

Thanks.

We'll go next to Beth Lilly, Crocus Hill Partners.

Good morning.

Hey, Beth.

Hi, Beth.

So it's interesting, you've made some fascinating comments in terms of there is -- the restructuring is basically complete but yet there is much more work to do. So Hugh was that in relationship to the top-line in terms of growing the same-store sales or do you think that there is still some more weeding of the garden that can incur in terms of the operational and the G&A line?

Beth, I think that the categories of opportunity going forward I think are substantially in three areas and Andrew can add on to this. I think there -- we will run across opportunities related to closing non-performing or underperforming. But the major components of closing non-performing or underperforming salons I think is now in fact complete. And at this point we are satisfied with our portfolio of company-owned salons. Now having said that, it is imperative that we continue to accelerate the growth of our franchise platform, which Eric and I fully intend to do. It is imperative that we continue to pull down G&A costs, particularly non-essential or non-performing G&A costs, which we intend to do. It is imperative that we invest in the growth of our business around those five key pillars that I identified a moment ago. And it is imperative that we upgrade the technology platform at Regis and that review is underway as well. So as to the much more work to do comment, I think you're right Beth, it relates to continuing to address G&A where there opportunity to do so; it's growth and acceleration of franchise; its investments around same store sales and traffic; and its investment in the technology platform as we continue to transform the company in the years ahead. And when I -- when you hear me articulate that we have much more work to do, it's around those core areas of the business.

So in terms of, and we have spent some time talking about this, and I really appreciate the color in terms of the G&A number in the bucket. So when you talk about kind of non-essential G&A, is that in that 20% bucket of all other or do you think that there's opportunities in terms of payroll benefits, things like that as well as the IT infrastructure.

We think heart of the G&A load resides in the procurement area of the business. And we believe the company has opportunities to take a more aggressive stands in our approach to procurement. Beth the cause Regis was essentially a rollup that occurred over 20 or 30 years, it doesn’t act like a large $1.5 billion company behaves as if it’s a small regional or local business and so the leverage we have through scale has not always been fully utilized at Regis. And we are fortunate that we were able to attract Amanda, you will really enjoy meeting her Beth when we have a chance to get together again. She's both the JD and BA and is a very competent executive. So we have moved procurement. We have actually invested in a procurement officer which we've not done historically at Regis. I know that's hard to believe but the procurement area was dispersed throughout the functional lines of the company rather than being consolidated under one expert. So we now have that one expert in place and he reports to Amanda as the General Counsel. So we think one of the G&A opportunities we have going forward relates to a more sophisticated, fact-based and aggressive approach to our procurement activities here at Regis. And I think there will also be opportunities for efficiencies inside the company as we invest in a better and upgraded IT platform in the months and years ahead. Those opportunities are clearly there at Regis. And we have a number of initiatives underway that should enable more efficient approach the way we run the back office of the business. So when I think about G&A we've already done a lot in that area. Some of it is masked by some of the things Andrew talked about earlier, but visibility on the G&A downturn or take outs will improve in the months ahead. And then going forward I'm still pretty optimistic that we’re going to be able to do a lot more in the G&A area, particularly through procurement and smart investments in IT which will just improve the overall efficiency of the company. And then you know Andrew and I, our HR team and Eric were very disciplined about our approach to measuring the economic return of every program and frankly every human asset in the company. Setting aside regulatory compliance issues, if the employ generates income in excess of the investment we make, it's a great opportunity for Regis. If the program or employ doesn't then we need to disinvest and that’s the right way to think about it in any business. And we’re doing those things as well. So, I think, we’re optimistic that we continue to have opportunities in the G&A area.

Great. Then I have one other question, if you don’t mind.

Sure.

In terms of the company-owned salons, your EBITDA margins on an adjusted basis were up, quarter-over-quarter, however, you’ve eliminated a lot in non-core salons, so are underperforming. So should we start to see the EBITDA margin then from the company-owned salons expands further?

I’ll take the first part of that and I’ll let Andrew take the hard part of that question. Just simply remove, if you can imagine, Beth, when you take out those terrible 597 cash negative salons, we’re going to get some expansion in margins, simply by doing that, by removing the bully that was occurring in those salons. Now, having said that, Beth, I still do not know yet how high up is, in OpCo [ph] I’m going to find out. But I don’t know how far we can push those margins and growth acceleration in the operating side of the business. I’ve got a pretty good idea, I think Eric and I’ve got a pretty good idea on franchise. We have got that pulled through and downed-in. And I don’t see anything that stands in the way of the continued growth of franchise. On OpCo we’ll be very disciplined in terms of what works and what doesn’t work. And we’re going to push that envelope to see how high up is. And particularly now, that we’ve shed those non-performing salons, I guess we have said to the shareholders that we give the shareholders, rate of visibility, but, Beth, as you know we get the upgraded visibility too. So we don’t have to waste any time screwing around what the bunch of salons are not adding to earnings.

Alright. So just logically thinking, as currently we will eliminate those non-performing salons than your margins should, we should see the company-owned store salon margins to expand. Is that correct?

Yes, this is Andrew. Absolutely the math will work out that way. But also I’ll like to just point you back to your prior question, that as we become more efficient with our G&A load, our cost structure should become much, not much, but potentially lower. And as such, you’d expect to see, margin expansion as well as part of becoming more efficient with some of the investments that we’re making in improving technology and then the corresponding flow-through too, in more efficient in the backup.

That’s a really good point that Andrew is making, Beth, because there were two ends of the book shell on those non-performing salons. It was both the inherent poor performance of the local salon, but it was also the G&A load associated with those non-performing salons. And that G&A load has been removed as part of the 597. It’s not in the numbers yet, but it’s gone.

Okay, great. Alright, those are all my questions. Thank you very much.

Terrific.

Thanks.

Look forward to seeing you soon. I want you to have chance to meet, some of our new folks, particularly Amanda.

Sounds great. Thank you.

That will conclude the question and answer session. At this time, I’d like to turn the call over to Hugh Sawyer for any additional or closing remarks.

Thank you operator. And thanks to all for your continued support. And we look forward to speaking with you again next quarter. Thanks everyone.

That will conclude today’s call. Thank you for your participation.