Good morning and thank you for joining the Regis Fourth Quarter 2023 Earnings Release Conference Call. All participants are in a 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 the prepared remarks, we will have time for questions. [Operator Instructions] I'm your host, Biz McShane, Vice President and Corporate Controller, and I would like to remind everyone that this conference is being recorded. Please be aware 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 at www.regiscorp.com/investorrelations, along with a reconciliation of any non-GAAP financial measures mentioned on today's call, with our corresponding GAAP measures. With that, I will now turn the call over to Matt.

Thank you, Biz, and good morning, everyone. Today's call marks the end of our fiscal year 2023. And with that I feel it's appropriate time to not only go through our Q4 and full year results, but also recap the key milestones we've achieved during the year. In addition to laying out the initiatives we are focused on as we move into fiscal 2024. During our Q4 call last year, I mentioned four themes that came to mind. One, the right team; two, business transformation; three, progress; and four, the creation and implementation of a path forward. As I reflect on our fiscal 2023, all of these came together and have led to the positive trends we are seeing in our business and the results we have delivered for the year. I mentioned this every call, and I'll mention it again. I continue to be very proud of what this team and our franchisees have achieved in what still is a relatively short period of time and in what remains a challenging time for our industry. Sitting here today, I believe those themes are still appropriate and remain in place as we continue to stabilize and grow the business. Now jumping right into our results for the quarter and full year. In Q4, same-store sales rose 2.5% versus the prior year's fourth quarter. For the full year, same-store sales were up 4.4% versus fiscal 2022. Adjusted Q4 EBITDA on a consolidated basis was $5.2 million compared to $1 million in the prior year's quarter, a $4.2 million improvement. For the fiscal year, adjusted EBITDA was $21 million. And spending a moment on our adjusted EBITDA, I want to emphasize the progress we have been making here. Our $21 million of adjusted EBITDA compares to $1.8 million loss in fiscal 2022…

Thanks, Matt, and good morning. I echo Matt's comments, and I'm very pleased with our progress this year. We delivered operating profit of $8.8 million for the year. This is the first time since 2017, we've had a full year of profit from operations. Additionally, we used far less cash in operations than prior years and generated cash from operations in the fourth quarter. As Matt mentioned, we made a lot of progress in the year, and we expect to continue to progress in fiscal year 2024. Now I'll take you through the financial details, starting with revenue. Total revenue of $55.7 million in the quarter and $233.3 million for the year declined $10.4 million and $42.6 million year-over-year, respectively. This decline in revenue was expected into a decrease in our non-margin franchise rental income due to the closure of underperforming salons, exiting our product sales business, which we transitioned to BSG and the closure of underperforming company-owned salons. As a reminder, into the revenue streams that are declining due to the discontinuation of non-franchise businesses, included in our reported revenue is revenue associated with ad fund collections and franchise rental income for lease liabilities associated with leases where Regis is on the master lease. These revenue streams are offset by expenses and do not contribute to margin. Royalties, which is the main margin generating revenue stream associated with our franchise business declined approximately $0.5 million in Q4 when compared to the fourth quarter of the prior year due to the closure of underproven salons. For the fiscal year, royalty revenue was flat year-over-year. Turning to system-wide same-store sales comp and system-wide revenues, which we believe are better indicators of our sales performance and therefore, how we evaluate our progress for the year. System-wide same-store sales comps were positive 2.5%…

Thank you, Kersten. Our first question comes from Eric Beder of Small Cap Consumer Research. Go ahead, Eric. Eric, you might be muted. Please try again.

Hello?

Yeah, there you go.

We got you.

All right. We're good. Thank you. Congratulations on a year of significant progress.

Thank you.

Talk a little bit about the store closures for the franchisees. What do you foresee coming forward now that you've closed a lot of the very low productivity stores? And in the past, you've talked about the ability to help the franchisees kind of leverage those closures and shift stylists into other more productive stores? Is that continuing?

Yes. So that's definitely a practice that we're continuing to kind of mention as each of these close. So we'll see what the impact of stylists and other locations in surrounding areas will be as time moves on. So do I think closures in '24 will be less than '23? Yes, I do. We had a large amount of SmartStyle lease end dates coming in '23 that we don't have in '24. So there was a number of things this year that led to that high closure amount. Do I think this is the end of kind of net salon closures, I don't think so. But I do not think it will be nearly as large as we've seen in this year. So the focus will continue to be, yes. Let's optimize that and see how that plays out and continue the best practices of shifting stylist to other salons where appropriate. And as I mentioned on the call in the remarks, we just have to continue to work to overcome this -- that's kind of been going around in the background and haven't stated it so on the knows, but that's what's going on. We've been aware of the headwinds. We're pulling some of the other levers so that while it is having an impact on royalties. We're still seeing our royalties and our sales kind of overcome a little bit sort of comp growth. We're overcoming that with profitability through the G&A and corporate location side. We're going to continue to have to do that and explore our ways to ensure that we're overcoming the headwind. But at the same time, I've kind of been hesitant in the past to say, all right, let's start focusing on aggressively growing store count. We need to stabilize the business, which we still need to do. We do have a lean team, and I've always been preaching focused. But do I think there is an appropriate time this year in '24 to start exploring a little bit more some of those ways that we can grow salon count in a meaningful and impactful manner, whether that be certain brands that have potential or certain geographies, whether domestically or international, I do. So I think whereas there hasn't been as much of an effort on salon count as it was before as we work to stabilize the business. This is something that's going to come a little more into view as we go forward.

Excellent. Zenoti, you've obviously seen a nice ramp in Zenoti. Could you remind us once again what that enables you to do and what it will enable the franchisees to do when they integrate Zenoti in terms of their operations and linking it to your marketing and CRM efforts.

Yes. Again, that's a good question. And there's make these broad statements in that we're seeing benefits of being on versus other point-of-sale systems. So I appreciate the question and I think it's time to go into a little bit more of not even what the future but what the realities are right now, and I'll kind of bucket it into buckets between marketing and a guest experience and even our franchisee experience. From a marketing perspective, we can really improve and we have highly customizable discrete dynamic guest targeting for our brands and owners to help bring back guests. We have multichannel communications within the system between e-mail, text messages, in addition, our apps, push notifications, integrated loyalty programs, as I mentioned, super-custom awards and other initiatives for our brands are enabled to the platform. Those are big things from a marketing perspective, a guest experience, there's better online queue support, you have self-check-in capabilities. We now have the ability to send reminders of like, hey, the queue is ready for new notifications, things that we haven't had in the past, even with the post visit feedback problems, I haven't had that in the past. Paying by the chair or by text, enabling further technology to permeate through salons, which could be differentiated and you're not seeing elsewhere. That's the benefit that can happen today. Owner experience, access any of your salons queues or operation remotely, really robust customizable reporting, guest tracking, employee management. I mentioned that feedback piece in guess feedback and start really utilizing that and operationalizing it within salons. So those are some things that are available right now, let alone what we can allot going forward and just a little bit of a -- so I'll stop there as I think that was a pretty decent amount. But yes, I mean, as I said, there's a path forward here. We've had to do a lot of work to ensure that we're getting to a point where I could have listed off everything I just listed. But now that, that's there, it's time to start really kind of pushing the migration a little harder. I think it's fair to say the product is in a really good place at this point in time. So looking forward to getting through that this year.

Great. And it seems like the inflation has helped drive the business and it seems like that's slowing down a little bit. What is the opportunity when you look at it to -- I mean, I guess, is there the opportunity to increase the amount of visits to drive the traffic? And how do you look upon that? How big an opportunity is that? And how should we be thinking about that?

Yes. That's another good question. That's right. As I mentioned, that has been what's been holding sales up in a declining traffic environment. And if I were to think about even I put out kind of four areas of focus, but there's really two for the year that we're really focused on. It's traffic driving and Zenoti. And I think there is a real ability to drive traffic into our salons. We have to figure out what we're going to be doing over the course in short order is figuring out what works, as I mentioned. So there's going to be a bunch of testing, learning, deploying on the fly here in order to kind of center on what those -- what works the best, testing various offers, various bounce backs, various messaging, various creative in various markets with various franchisees, but optimizing the salon staff that we have now that I think is pretty stable and has capacity is key. And I think that alone driving traffic into our salons optimizing our base has the greatest impact on sales, probably more than anything else at this point. So traffic driving is a huge initiative right now. To your point, I think the ability to continue to raise price, it's probably slowing down a little bit. And as I mentioned, everything having to come together, there is that fine line walking the quality and value equation here if we start pushing price up too much without the requisite experience and quality that's going to erode our value. So I think we're kind of hitting that line a little bit. Maybe there's some areas to go elsewhere, but to continue to ensure that we're driving traffic. But also at the same time, ensuring our salons are able to provide the proper experience is important as well. So I said it's not one thing, making sure they all come together. So people who we drive in are going to come back. But that being said, I do see a shift into increasing our customer accounts and a focus on finding out how to do that in an extremely impactful way in short order is really the focus from a marketing perspective this year.

Great. And one last question. I remember the Zenoti payments are used to pay down debt. Or do you believe there will be any incremental free cash flow potentially in FY'24 to also pay down any of the debt? How should we be thinking about that?

I think it will probably be minimal because, as I mentioned, we did have a little bit this year. It's going to depend on a number of factors. Profitability, interest rate environment kind of that legacy wind out, everything we spoke about. I don't want to get too aggressive on expectations here. So we'll set it as Zenoti, probably being the major component of that. And to the extent we can continue to grow the profitability will be a bigger piece, but I don't want to set the expectation that that's going to kind of overtake what the Zenoti payments will be at this point in time.

Great. Good luck for the fiscal year.

Thanks, Eric.

Thank you, Eric. Those are all our questions for today. We thank you for joining our conference call and your interest in Regis. Have a great day.