Dan Hanrahan - Chief Executive Officer Steve Spiegel - Executive Vice President and Chief Financial Officer Eric Bakken - Executive Vice President and Chief Administrative Officer Mark Fosland - Senior Vice President, Finance

Kushan Akhtil - Northcoast Research Stephanie Wissink - Piper Jaffray

Good morning. My name is Robert and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Regis Corporation Fiscal 2016 First Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. If anyone has not received a copy of today’s press release, please call Regis Corporation at 952-806-2154 and a copy will be sent to you immediately. If you wish to access the replay for this call, you may do so by dialing 1-888-203-1112, access code 262728. The replay will be available 60 minutes after the conclusion of today’s call. I would like to remind everyone that to the extent the company’s statements or comments this morning represent forward-looking statements, I refer you to the risk factors and other cautionary factors in today’s news release as well as the company’s SEC filings. Reconciliation to non-GAAP financial measures mentioned in the following presentation as well as others can be found on their website at www.regiscorp.com. Speaking today will be Dan Hanrahan, Chief Executive Officer and Steve Spiegel, Chief Financial Officer. After management has completed its review of the quarter, we will open the call for questions. [Operator Instructions] I would now like to turn the call over to Mr. Hanrahan for his comments. Dan, you may begin.

Thank you, Robert. Good morning, everyone and thank you for joining us today. With me are Steve Spiegel, our Executive Vice President and Chief Financial Officer; Eric Bakken, our Executive Vice President and Chief Administrative Officer; and Mark Fosland, our Senior Vice President of Finance. Today’s call will be brief as it has been fewer than 60 days since our last earnings call. As I review our first quarter, it will become evident we are making progress and my confidence in Regis future growth as we continue to improve our execution capabilities. In the first quarter, same-store sales increased 70 basis points comprised of increases in same-store service and retail sales of 30 and 240 basis points respectively. On the service side of our business, Supercuts and SmartStyle remain our best performers posting service comps of plus 3.1% in the quarter. Our retail business was driven in large part by combo sales, which are retail sales attached to a service ticket. During the first quarter, our combo sales percentage of 8.8% increased 140 basis points compared to the prior year quarter, which is an indication of better execution from our stylists. As you will see in a moment, we continue to make progress against our leadership development, asset protection and technical education initiatives. Our leaders are focused on staffing and retention, improving the guest experience and driving retail sales with combo sales improvements. Our strong leaders are executing our strategy and driving improved performance. They are driving sustainable improvement by using the tools, processes and metrics we provide to drive growth in the districts and salons quarter after quarter. These leaders are driving improved execution by developing their teams and hiring and retaining top stylists and salon leaders. That said our opportunity remains underperforming leaders who have yet to show consistent revenue progress. In these situations, we continue to provide additional training and development or upgrade talent if necessary. A look at our leadership trends demonstrates we are beginning to move the needle in developing and upgrading leadership talent. During the first quarter, a higher percentage of our regional vice presidents, regional directors and district leaders posted positive comps compared to all of fiscal year 2015. While these trends are encouraging, we need to turn the performance of our negative comping leaders and we need to build upon the momentum of leaders consistently achieving growth. I will now provide you with some updates on our progress. During the quarter, we continue to make progress with our digital integration initiatives focused on guest satisfaction, mobile and web check-in and guest data capture. Since the launch in the second quarter of last year, approximately 520,000 guests have downloaded our Supercuts mobile app. Visitation to our enhanced Supercuts website is up significantly and visitors are spending more time in our content rich site engaging with our brand, reading articles, discovering the latest styles, viewing products and learning how to use them. The convenience of online check-in is also resonating with our guests. Between our website mobile app, we are on pace to hit 1 million online check-ins by the end of this calendar year. Additionally, we are seeing digital check-in as it is driving improvement in repeat guest visits. My Salon Listens, our guest satisfaction measurement and feedback tool, launched to the entire Regis system last year continues to provide us with almost instant guest feedback from the 1.2 million guests who have rated our service today. My Salon Listens is creating excitement and measurements around guest satisfaction commensurate with the performance culture we are working to create in our salons. Not only will these measurements keep us focused on the overall guest experience, they will also help us evaluate the effectiveness of stylists recruiting and development and oversee decision-making capabilities on talent. On the franchising front, we added 20 new franchisees to the system and opened 61 new franchise salons during the first quarter. These new franchisees are helping to expand our Supercuts footprint and along with our strong existing franchise base are contributing to revenue, the Supercuts marketing front and cash flow improvement. Now, let’s cover progress against our initiatives focused around leadership development, asset protection and technical education. I will start with leadership development. Our formal leadership trainee programs are now a regular part of the calendar for our field operations team, something they look forward to for learning and inspirations they could bring back to their salons. We have extended our reach beyond our regional vice presidents and regional directors to our district leaders and now to our salon managers. Leveraging learnings from our salon manager training pilot last year, we successfully deployed our 12-week salon manager training program during the first quarter. We call this training program, DASL, which stands for Developing Amazing Salon Leaders. DASL focuses our salon managers on stylist retention and salon staffing. The curriculum helps them with the basics like stylish recruitment, on-boarding retention and revenue generation. The rollout of DASL occurred five weeks ago. Our goal is to have all 7,000 salon managers complete their coursework during the early part of our fiscal third quarter. Early participation has exceeded our expectations with very positive feedback. Over 95% of our leaders successfully completed their first three weeks of training on time. Moving on to asset protection, the work on asset protection team is doing to help code stylists to grow their businesses and earn higher commissions is also helping us retain stylists. Technical education has the most significant potential to impact our performance, because it touches each of our 45,000 stylists. While this initiative is in early stages, during the first quarter, we provided over 1,500 days of salon training touching over 7,000 stylists. And we have begun to receive favorable feedback from our field leaders and stylists about the positive impact our technical education team is having within their salons. We are also very appreciative of the support provided by our vendor partners as they help educate our stylists to sell retail items. As you see, we continue to make progress on leadership development, asset protection and technical education. These are and will remain key initiatives that will make Regis the place where stylists can have successful and satisfying careers, which will lead to improve stylists staffing and retention and in turn outstanding guest experiences. In past calls, I have spoken about the work we are doing to stabilize the business. When we put the right leaders in place, we see results and how our progress will not be linear. The stabilization results mainly from our effort to retain our stylists and reduced under staff salons. As we have said in the past, Regis vision is to be the place for stylists to have successful and satisfying careers. Our ability to create an environment where our current stylists want to stay and where we attract new stylists to grow the business will be crucial to achieving the vision. We have made progress in these areas and they have greatly contributed to stabilizing the business. I would like to peel the onion back on what this means to Regis. As we have been stabilizing the business, we have begun to invest in stylist hours. You have heard me say in previous calls that Regis historically cut hours to protect gross margin percentage. While this may positively impact the short-term, the business will suffer in the long-term. You can’t take gross margin percentage to the bank. You can’t however take gross margin dollars to the bank. The reduction of hours inherently leased to reduction in our revenue and profit generating capabilities. If we do not have enough stylists in our salons, we are not generating revenues to gross profit dollars to cover our fixed cost. Making this investment is not simply a plug to switch decision, it requires across the board execution. You have heard us talk consistently about the need for a cultural transformation to move Regis to a performance-based organization. To do this, we have focused on training, developing and in many instances upgrading our field leaders to ensure we execute well. Fortunately, we have made a good deal of progress laying a solid foundation for the future. As we put the right leaders in place, we develop the capability to execute our strategy. This is what I mean when I say we have stabilized the business. We are improving our execution capabilities quarter-by-quarter. For example, at the start of our fiscal year, we identified those salons with the greatest opportunity to improve staffings representing just over 10% of our entire salon portfolio. In the first quarter, we successfully staffed nearly half of those salons. In some cases, this meant better management of scheduling stylists who are currently part of the salon. In many other cases, this meant hiring additional stylists. We could not have acted with the same sense of urgency six months ago to achieve important execution goal. Our recruiting effort is working because the investment in training and leadership upgrades embody their values that will make Regis the employer of choice. As we continue to improve our execution capabilities, thoughtful investments in staffing is scheduling will undoubtedly be a major component to ensure all of our salons reach their full potential. We could not confidently make the investment in additional stylists and hours if we had not invested in training and upgrading the field leaders. We have a very large opportunity in many salons and in particular our SmartStyle salons. Today, we capture on average approximately 1.5% of Wal-Mart’s traffic. Our better SmartStyles capture two times to three times that number. When we have a good leader in place, she trains each stylist how to work the leased line to convert traffic into guests creating a win-win for the stylists and the company. We constantly assess our progress and learn from our mistakes. As we add hours to grow the business, we monitor all of our salons and field leaders to ensure the additional hours are productive versus non-productive. Our best leaders grow comps with the investment in stylist hours and our focus is on training our developing leaders to do the same. Our strategy is to staff the salon, quote stylists the commission, so they are earning well and then work diligently to retain our talent. This is an interim progress and why I say our progress will not be linear. To deliver more linear progress and consistent growth, we must learn to optimally balance the investment in stylist hours with driving guest traffic and growing comps. I am pleased we are at the point where we feel good about making this investment. I am proud of our field operations team and the work they do to make Regis a great place for our stylists to work. Their progress makes it easier to recruit, interested in working in Regis salons is increasing. And equally important outcome of all this work will be better experience for our guests. As we improve our staffing, we reduce wait times. As we train and develop our stylists to provide a better experience we have higher guests satisfaction and stylists who are earning well and staying with Regis. Before concluding, I want to spend a few moments covering two points on capital allocation. Same-store sales growth remains the single most important contributing factor that will lead to continued EBITDA and cash flow growth. Because we are a people organization, investments we make often flow through our income statements side of our balance sheet. Investments in stylist hours and training continue to build our foundation and are positioning Regis for long-term growth and profitability when successful. To that end, we remain focused on funding investments and managing inflation through disciplined cost management and rigorous review of all spending to ensure we continue to protect our strong balance sheet. Second, I would like to provide some color regarding our share repurchase activity during the first and second quarters. As I mentioned on our last call, after years of declining traffic and revenues, we have begun to stabilize our business. Our leadership team and Board of Directors are confident that our strategy is working and in the direction our business is heading. Despite this confidence, it will take time before we can consistently deploy capital to grow our business by reinvesting in salons where expected returns provide attractive rewards relative to risk taken. In accordance, with our capital allocation policy our default use of capital remains share repurchases at reasonable prices. To that end, during the first quarter our Board authorized an additional $50 million for share repurchase of our shares. During the first quarter, we repurchased 3.4 million shares for $44 million at an average price of $12.77 per share excluding transaction costs. Representing some of the lowest prices we have repurchased our shares over the past 3 years. Our confidence in the business and strong cash position coupled with the opportunity these prices presented caused us to continue repurchasing shares into the second quarter. To-date in the quarter we repurchased an additional 2.3 million shares for $30 million at an average price of $12.89 per share excluding transaction costs. As a result of this activity, our remaining share repurchase authorization approximates $37 million. While we don’t give any specific guidance, we will continue to file our capital allocation policy by ensuring our balance sheet remains strong and deploying excess capital in a manner that maximizes shareholder value. We are following the right strategy to make Regis a place where stylists can have successful and satisfying careers. Our field leadership talent and execution capabilities are improving. We are taking necessary and critical steps to transform our culture into one that is focused on realizing the potential of each of our salons. I appreciate the patience of our shareholders as we are hard at work and focused on driving daily executional improvements. As the team continues to execute our strategies, I am proud of their progress and confident in our ability to make Regis a place for stylists to have successful and satisfying careers, which will in turn deliver long-term growth and shareholder value. Steve?

Thank you, Dan and good morning. Before discussing our performance for the first quarter, I want to cover two housekeeping items. First, included in today’s press release as well as on our corporate website is a reconciliation bridging reported results to earnings as adjusted for the impact of discrete items for the first quarter of the current and prior years. Also on our website are revisions to our fiscal 2015 quarterly income statements. Second, the presence of evaluation allowance against most of our deferred tax assets affects comparability of reported and as adjusted results to prior periods. In the first quarter, we have recognized $2.8 million of income tax expense. This includes our non-cash charge relating to tax benefits we claim for goodwill amortization, but do not recognize for GAAP purposes. This non-cash tax amount will approach $8 million for the full year and will continually – and will continue annually in decreasing amounts as long as we have a deferred tax asset valuation in place. As we have discussed in the past, this non-cash charge should fluctuate significantly on a quarterly basis as a result of how the effective tax rate is determined in interim periods. Since our press release and 10-Q include detailed explanations for our major P&L line items, my comments will provide additional color on our as adjusted results for the first quarter. Adjusted EBITDA for the quarter came in at $22.9 million compared to $21.9 million in the prior year quarter. This improvement included $2.5 million of benefit from I think certain costs in the prior year and lower marketing expenditures due to timing, partly offset by unfavorable impacts associated with foreign exchange. There are two additional items I would like to highlight. As Dan mentioned earlier we make thoughtful investments in salon staffing and scheduling to drive future revenue growth. This reduced our first quarter service margins by approximately $1 million in stylists productivity. Second, after factoring out benefits from timing of certain costs and foreign exchange, our more normalized G&A run rate for the first quarter was within a range of $45 million to $46 million. Moving on to liquidity, our business generated approximately $12 million of operating cash flow during the quarter. We finished the quarter with $177 million of cash, $120 million of total debt and no outstanding borrowings under our $400 million revolving credit facility. As Dan mentioned earlier, since the beginning of the fiscal year, we have repurchased 5.8 million shares of our stock for $74 million at an average price approximating $12.82. This concludes the financial portion of the call. We would now like to answer any questions you may have. Robert, can you please provide the instructions for the Q&A portion of the call?

Thank you, Dan and Steve. The question-and-answer session will begin at this time. [Operator Instructions] We will take our first question from Jeff Stein with Northcoast Research.

Yes. It’s Kushan Akhtil on for Jeff. Good morning, guys. Thanks for taking our questions. Can you guys talk about any price increase that you have taken to offset the minimum wage hikes and if so how many salons and which divisions were impacted. Also can you talk about what initiatives are underway to improve performance of mall-based salons? And lastly, if you could can you talk about the lease maturity schedule at Regis and MasterCut divisions? Thank you.

Sure. Okay. So let me start with price increases. We have done a lot of work on price elasticity. So when we do take a price increase, the price increase is based on the price elasticity model, it’s not based on taking a price increase because there has been a change in minimum wage. We will – when we are going to be really successful is when we get all our stylists commissioning and that’s why you heard me talk so much today about our focus on stylists and stylists commissioning, because then the hourly rate doesn’t matter. So our attention to price increases is based strictly on price elasticity and where we think we can take extra price and we’re doing that where we think it’s appropriate. And regards to mall-based salons, one other things and I’ll interpret your question a little bit, we’ve been very successful in SmartStyle and we’ve been very successful in Supercuts and probably the strong part of the reason for our success in Supercuts is good training program that we have in place. And you heard me talk about investment and training across – across our business. The Supercuts training program has been in place for a long time, well before I got here and it’s always been an important part of Supercuts. So, we have taken a strong queue from that and we’re doing the same across all of our businesses and we put new leadership in place in our Regis business, Ken Warfield and he has built the very strong team. And he is learning from all the things that we did in our value business and I anticipate that that we’ll see good things coming on to him. And then your question on lease maturity, I think we’re probably better off taking that offline and why don’t you, why don’t just connect Mark Fosland and he can walk you through this maturity stuff.

Okay, sounds good. Thank you guys.

You’re welcome.

And we will take our next question from Stephanie Wissink with Piper Jaffray.

Thanks. Good morning everyone, I have a couple of questions with respect to some of your technology initiatives. The first I’m wondering guys if you can just talk a little bit about the mobile initiative that you have in your value salons and some of the uptake with respect to consumer feedback? And then also just with the planning modules are on your payroll hours and some of the labor cost increases. I’m wondering if you can just help us understand where there might be some opportunities to use some of your software to help mitigate some of the pressure points on those peal labor hour periods? Thank you.

Okay. So, let me start with the mobile app. The mobile app is live across our Supercuts system. It’s been out there for about a year now and it’s been growing nicely. We’ve been really pleased with the results that we’ve seen on that. It has a positive impact in a couple of ways; one, guest that are checked in that way and so it makes a little easier for stylist when somebody walks into a salon and rather than have to do so much work checking them in, because they are already checked in. And the other thing is that the consumer likes it, everything that we’re hearing from the guest are using it is favorable, and we’re seeing better repeat for it. So, we’re seeing our most loyal guests are using it and they continue to use it. So, it’s been a great tool. We are waiting to roll it out to the rest of our system, because we want to make sure that we’ve learned everything we can from the Supercuts, we execute very well in Supercuts. And as we get comfortable in that area then we’ll move it out to broader into our system. And then in regards to hours, we built a very good scheduling programming and, this is what we’re talking about today is a little different than just scheduling hours. We’re talking more about investing in our business and investing for the future. As we’ve grown more confident in our ability to execute, we’ve started to invest in hours, since I’ve been here we’ve tried to keep hours relative flat rather than a reduction in hours then we’ve succeeded fairly well in that area. But we’re now at a point where we think well we can start to invest hours. And what we’re seeing is our best leaders are investing those hours and they are getting comps immediately, they are getting comps right along with them. Because, they’ve all – they’ve done all of the things right to make the – make that salon an effective salon. Our developing leaders need a little more help and Mark Fosland and his team are there coaching them and helping them and our model is showing them how many hours to schedule. But that doesn’t mean that we don’t want to build that, and that scheduling model we’ll show them that we do want to build their hours and that what they need to do is then take all of the things they were giving them from leadership development to technical education and make that effective in the salons, so that we can grow revenues in the salons right along with the hours.

Thanks guys.

Thank you.

And this concludes the Q&A portion of the call. I will now turn the call back to Dan.

Thank you, Robert. Thank you everybody for joining us today. I appreciate your taking the time and look forward to talking to you on the next earnings call.

And ladies and gentlemen, this does conclude our conference 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 access code 262728. Thank you all for participating and have a nice day. All parties may now disconnect.