Ladies and gentlemen, thank you for standing by. Welcome to the Regis Corporation Fiscal 2019 Third Quarter Earnings Call. My name is Olivia, and I'll be your conference facilitator today. At this time, all participants are in a listen-only mode. Following managements 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 12:00 PM Eastern Time today. I'll now turn the conference over to Kersten Zupfer, Senior Vice President of Finance. Please go ahead.

Thank you, Olivia. Good morning, everyone and thank you all for joining us. On the call with me today we have; Hugh Sawyer, our Chief Executive Officer; Andrew Lacko, our Executive Vice President and 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 the company's current earnings release and recent SEC filings, including our most recent 10-Q and June 30, 2018 10-K, for more information on these risks and uncertainties. The company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call. Second, this morning's conference call must be considered in conjunction with the earnings release we issued this morning and our previous SEC filings, including our most recent 10-K. On today's call, we will be discussing non-GAAP as adjusted financial results that exclude the impact of certain business events and other discrete items. 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 read 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 release, which is available on our website at www.regiscorp.com/investor-relations. And lastly, I would like to remind everyone of the accounting changes related to revenue recognition that we adopted in the first quarter of this year. All of the periods presented this morning have been adjusted for the change and we have provided revised historical financial statements on our website for your reference. With that, I will now turn the call over to Hugh.

Thanks, Kersten and good morning, everyone. Thank you for joining us and of course, thanks as well for your interest in our company. I'll touch briefly on the status of our ongoing strategic transformation, and then Andrew will provide a recap of our financial results for the quarter. Consistent with our prior commitment to you, we remain intensely focused on the ongoing transformation of our business and maximizing shareholder value. And I can report today that we continue to make progress. At this stage of the transformation, our key areas of focus include; self-funding our strategic investments in strategically important areas like technology, marketing and advertising; the acquisition of new real estate sites and to support organic growth. We have a focus that continues to evolve and is related to the evolution of our merchandising capabilities by adding fashion-forward products for a new generation of consumer. We have efforts underway to improve critical analytical capabilities that enable the use of data science to improve our interaction with customers and recruitment of stylists in both our franchise and company-owned salons. We are making further investments, substantially self-funded to drive process improvements to establish frictionless relationships and support we provide our franchisees. And we are intensely focused on addressing the historical traffic declines that have occurred at Regis by aggressively reengineering our competitive capabilities. Our initiatives related to traffic include, but are not limited to engaging Bain Consulting to perform a diagnostic review of our three major brands: Supercuts, SmartStyle and Cost Cutters. This diagnostic process is now complete and we believe will help inform our approach to the marketplace and the differentiation of our brands and services. The retention of two new advertising agencies Chiat\Day at Supercuts and Barkley at SmartStyle and Cost Cutters. Both are disruptive firms who we believe…

Thanks, Hugh and good morning. Before turning to third quarter results, I thought it might be helpful to give you additional color around the restructuring charge you likely saw in this morning's press release and 10-Q related to The Beautiful Group, an affiliate of Regis. As we have previously discussed over the past 18 months, we have worked closely with The Beautiful Group to help them navigate a number of headwinds faced by retailers and mall based businesses. This assistance has included several initiatives to help improve their operating cash flow, including financing of approximately $11.7 million in working capital receivables in the form of a two-year note which we fully reserved against last year. The financing of approximately $8 million in outstanding accounts receivables in the form of a two-year note and the extension of payment terms for certain inventory shipments. Despite these best efforts and in light of The Beautiful Group's inability to remain current on amounts due to us, we have made the determination to record a $20.7 million non-cash charge to fully reserve against all outstanding invoices due from The Beautiful Group to us as of the end of the third fiscal quarter. It's important to remember that the value created in the transaction with The Beautiful Group has always been through the risk transferred of our mall based lease exposure. And since the execution of this transaction in October 2017, the company's mall based lease exposure has been materially reduced. Additionally, in order to provide additional transparency and insight into the performance of the franchise business beginning with this morning's disclosures and going forward, we will break out and present separately all costs associated with The Beautiful Group on its own line on our income statement. Turning now to the results. On a consolidated basis,…

Thank you, Hugh and Andrew. [Operator Instructions] And our first question is coming from Steph Wissink with Jefferies. Please go ahead.

Good morning everyone. Thank you. Hi, again. Good morning everyone.

Hi Steph.

Hi.

Good morning.

I have a few questions. I mean, Andrew, I think maybe these first two are for you just points of clarification. I want to make sure we heard you correctly. So the EBITDA change reported year-over-year you said a couple of times it was entirely driven by the venditioning process. I wanted to just make sure that, as we kind of cycle through EBITDA over the next few quarters is that a framework we should continue to expect? Is that you will cost cut at the corporate level to offset investment and we really should model just the EBITDA change from the conversions? A – Andrew Lacko: Yes. Steph thanks. That's entirely consistent. And I hope that -- I think I stated that maybe five or six times in my prepared remarks. That's exactly what we would anticipate, that as we continue to vendition our self the company-owned salons, into the franchise portfolio, when you execute that transaction. As I mentioned, there's the history or the EBITDA in the prior year that makes comparisons difficult. So, when doing a true apples-to-apples year-over-year comparison you have to eliminate that EBITDA that has been sold. And for this quarter, substantially all of the unfavorable variance that when you take the reported EBITDA less the gains in the transaction, that remaining unfavorable variance is almost entirely related to that sold EBITDA in the prior year. You're correct. All the investments that we're making, in marketing digital marketing or technology transformation are being funded by the continued management initiatives, that we're flowing through the portfolio. A – Hugh Sawyer: And Steph, you know that -- it's Hugh, good morning. Sometimes in these circumstances companies will touch their balance sheet take on debt to drive these kind of conversions, so far, we've been very fortunate…

And Eric, I guess it's true to say that the primary focus this year has been on Supercuts. And we're very fortunate, because we have some highly capable franchisees that have been a historical part of our business. And isn't it accurate to say that a lot of the growth is coming from our existing franchisees?

That is accurate. We're receiving about a 50-50 split between existing experienced franchisees and new owners that are coming in, so that continues. And we started out that way and that continues to move that way as well. And the majority of the salons that we've transferred, so far this fiscal year happened in Supercuts and we're starting to see that shift a little bit as we move through the quarters.

And we're just now dipping our toes and considering opportunities and some of the other brands in the fleet including SmartStyle.

That's correct. SmartStyle and our portfolio in Signature as well.

Okay. That's great you guys. My last one and Hugh this is really just a – to compliment you on kind of directly addressing this idea of traffic because I think it's something you inherited and something we've been monitoring but can you give us any sense of new CMO onboard third-party with Bain coming in and doing some diagnostics two new ad agencies? What are you holding yourself accountable to in terms of seeing that traffic rate improve? What are you incentivizing and motivating the team to do? And what should we be watching for in terms of the progress around that marketing investment and the effectiveness of it?

Perfect. Thank you, Steph. And if you think about the hypothetical future state of the business, if Regis were to continue to franchise its portfolio eventually, the company will indeed run out of envisions. And so then we'll be judged like any other publicly traded company. Can you grow you revenues and grow your salon count and add to your franchisee base? And in order to do that you have to demonstrate core competencies or establish core competencies in data science and marketing and advertising and how you go about differentiating your brand. It's the fundamental blocking and tackling of how you compete with national brands in a local market business. Having said that, the data says that Regis has struggled in that area for 10 years and not surprising given that the company grew through roll-up strategy very successfully implemented a roll-up strategy over many years and the company really didn't focus intently on the muscle strength it needed to grow organically. And so as in all things in a transformational process, you sequence your initiatives and we are sequencing in now developing the core competencies to grow our business organically, defined as increasing traffic in our existing portfolio salons. And furthermore, adding new site locations and new franchisees to support organic growth. And in order to do that there are foundational things that must be in place including how do you differentiate your core brands in a particular Supercuts SmartStyle and Cost Cutters? How can we differentiate our advertising content and blowing out the prior agencies and bringing in two leading – worldwide-leading advertising agencies like Chiat\Day for Supercuts, which we did in collaboration with a franchise counsel and Barkley over at SmartStyle and Cost Cutters. We are very confident Steph that those agencies are going to bring…

All right. Thanks guys. Very helpful.

Thank you. We will now go to our final question from Laura Champine with Loop Capital. Please go ahead.

Thanks for taking my question. Obviously pleased to see the shift towards franchises continuing at pace, but less excited about the traffic down 6%. I know some of that was attributable to calendar shift, but how would you frame up your ability to turn that number positive? And how long do you think that it takes? And what were other drivers for that negative traffic comp in company-owned salons in the March quarter?

I'll let Andrew start by just pointing out -- it's Hugh by the way, good morning, pointing out some of the -- we'll break out some of the elements of how we see the traffic declines in the year-over-year quarters and then I'll address some of the broader questions.

Yes absolutely. Good morning Laura. So, in addition to some of the tactics that Hugh just talked about of we're addressing the long-term traffic composition of the business. Technically, this quarter, we saw, like I mentioned, roughly a 90 basis point impact due to the shift of the lead-up of Easter traffic last year. Easter actually I believe fell on the 1st of April, so the lead up was all on the third quarter this year. Easter was later in April, so the high volume lead-up days were into the fourth quarter. We also believe that over the recent past, the impact of competitor new store openings has negatively impacted our store traffic or transactions. As a result, as Hugh mentioned, we're investing in being more proactive in new store and real estate acquisition strategy. I also think it's important to point out that the investments that we're making in stylist retention, education, productivity, and recruitment; we believe that's going to help offset some of the drivers of recent traffic declines. Because if you think about it if we're unable to staff a salon that's capacity that can't cut peer, and can't produce revenue. And we think that that's had a meaningful impact to our traffic declines over the past several quarters as we've continued to try to be proactive and address that stylist recruitment efforts. And then, we don't like to point to weather, but I think as you look across the industry, both similar industries and across general macro-economic -- first calendar quarter, our third -- fiscal quarter, this past quarter, weather played a role. It was an unusually heavy snowstorms across the Midwest. The South and the East torrential, nearly 100-year flood-type rain activity on the West Coast at various points in the quarter end. While we don't want to point to a number, I'll let you and the rest of the investment community draw your own conclusions as to what kind of impact that might have had on traffic in the quarter.

Laura, it's Hugh. I wouldn't -- as to the overall traffic question, I would say that I'm concerned about it, but I don't have anything other than a healthy concern, right? We -- I am certain that we are doing the right things to address the company's historical declines in traffic. We're also in the midst of what I would define as a disruptive transformation. You can't do the kinds of things we're doing in shifting major parts of the portfolio from an operating stance to a franchise stance. At the same time, we're reengineering merchandise and technology, and many other areas of the company without having some disruption. But I think we're not the first company to go down this path. And I'd point you to McDonald's earnings this morning that it takes a little time for these things to wash through, and for new initiatives to stabilize and take hold. And as to quarterly performance year-over-year, I look at the details and I recognize them. I acknowledge them, but as I said earlier, this is about the next five or 10 years not about the next five months. So, it will be what it will be and if we make the right choices and put the right capabilities in place, it will be a platform for long-term shareholder value accretion. And that is what we are playing for, not next quarter. And we can make the company look enormously better by not making these investments, but the CEO has committed to the marketplace and to his board and to his employees and to his franchisees that we're in the long game and we're making well considered investments in core initiatives to create a great platform for future growth. And I feel confident that these things are going to work over time. As to when it will work? As I've always defined, this as a multi-year transformational process and we just clipping two years, and it's going to take time for it to play out.

Understood. Thank you.

You’re welcome. End of Q&A

Thank you. This concludes the Q&A portion of the call. I would now turn the conference back to Hugh.

Well, on behalf of all of us here at Regis, thank you so much for your time this morning. And we look forward to talking to you again very soon. Thank you everyone.

Ladies and gentlemen, this concludes our conference call for today. If you wish to access the replay for this presentation, you may do so by visiting regiscorp.com in the Investor Relations section of the website or by dialing 1-888-203-1112 with access code 686-7095. Thank you all for your participation, and have a nice day. All parties may now disconnect.