Paul Dunn - VP, Finance and IR Hugh Sawyer - President and CEO Andrew Lacko - EVP, CFO

Jason Gere - KeyBanc Elizabeth Lilly - Crocus Hill Partners

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 substantially concluded in the second quarter, although as you might imagine the work has been underway for several months. As you will recall the restructuring events were as follows. The sale and subsequent franchising of substantially all of our mall and UK salon operations which close in October and of course the closing of 597 non-performing SmartStyle salon locations during the month of January. Back in report that our SmartStyle restructuring was accomplished in an exceptional way by our cross functional field in corporate team and in a manner that has preserved our excellent relationship with Wal-Mart. Weeding the garden has been an intentional turn of phrase I’ve used to depict our non-performing cash flow negative salons were absorbing valuable resources and asking the true health of our company-owned operating platform. We expect by removing these salons from our portfolio it will not only improve our financial performance, it will also enable management to focus time and intention on the growth of our performing company-owned salons and the continued growth of our franchise business. It is certainly possible that we may close non-performing or underperforming salons in the future as any prudent retailer would, however we do believe the actions taken during the second quarter substantially complete the restructuring of our company-owned salon portfolio. And we accomplished these two major transactions during the first nine months of our transformation essentially clearing the way for the garden to grow. And we are in fact highly focused on growing our business. A number of marketing and advertising initiatives were either announced or substantially developed during the second quarter. We introduced the new everyday simple pricing strategy in our SmartStyle salons. This pricing strategy includes a greatly simplified service menu and a new service offering, the $12.97 express haircut that is intended to attract the typical Wal-Mart shopper who is pressed for time including male shoppers who visit a Wal-Mart. We signed an industry exclusive agreement with Buxton Company to provide sophisticated customer analytics which we believe will improve the precision and effectiveness of our advertising dollars. We signed an industry exclusive multiyear sponsorship with Major League Baseball to support the growth of both company-owned and franchised Supercuts salons. Beginning with the 2018 baseball season, Supercuts will become the official hair salon the official hair stylist and a proud partner of Major League Baseball. I really too believe this will be a homerun for Supercuts. We also believe that highly trained stylists are better equipped to deliver a superb guest experience. And to improve our guest experience we are accelerating our commitment to stylist training through a new and interactive digital formats scheduled to be rolled out through our SmartStyle salons later this month. We are also launching our new social media programming in February. And we believe our stylists will embrace this new ecosystem. I've been consistent in saying that we would fund prudent investments designed to drive the growth of our business in these marketing and advertising initiatives are an example of investments in growth. I also remain optimistic about the growth of our franchise business. We are committed to growing the franchise platform and events occurred during the quarter that illustrate the progress we are making in this strategic transformation. The decision to sale and then refranchise substantially all of our mall-based and salons and UK business certainly illustrate our commitment. Separately our franchise portfolio grew an additional 108 salons during the quarter as franchisees opened new salons or converted company-owned salons to franchise-owned. The announcement of Amanda Rusin as our new General Counsel means that our Franchise President Eric Bakken will now be able to focus his full time and considerable talents on growing the franchise segment. We are also working very hard to improve the core capabilities we will require to be a best-in-class franchise operator. Eric and I anticipate that we will have multiple options to grow our franchise business, focusing on organic growth within the franchise platform as clearly one option, offering new value added services to our franchise owners is another, and in some cases we may continue to convert company-owned salons to franchise where the math makes sense to do so. I have said before that I can see a time and the not too distant future when our franchise salon portfolio will be nearly equal in number to our company-owned salon portfolio. In fact after closing 597 non-performing SmartStyle salons in January, our portfolio today is approximately 52% company-owned and 48% franchised including the salons operated by The Beautiful Group. Now to put this in proper context, when I joined the company in early April of 2017 the company had a portfolio of approximately 72% company-owned salons and 28% franchise salons. So as you can see our business is clearly evolving. Having shared this data I want to reiterate my support for high performing company-owned salons, coupled with the vision of the growth platform of well-run franchise salons. I believe a properly balanced portfolio of high performing owned and franchise salons will enable Regis to generate a sustainable positive trajectory. Andrew and I have also committed to eliminating non-essential G&A costs. Every Regis department program and policy is judged based on the economic value that is generated for our shareholders. If that department, program or policy has value, we will certainly support; if not, we will adjust accordingly and disinvest. During the quarter we made the decision to eliminate approximately 65 positions within our corporate salon support team. This review of course was enabled by the elimination of four franchising of 1,450 underperforming, nonperforming, noncore or nonstrategic company-owned salons. We've also executed a meaningful number of field G&A reductions associated with closing of 597 nonperforming SmartStyle salons. Although it's never easy to make changes which impact our associates, these G&A reductions were clearly the right thing to do for our business. And our teams executed these G&A reductions in a thoughtful and caring manner. When combined with the initiatives we announced at the end of the first quarter you can see that your Management Team has been very busy delivering the transformation we committed to make and we are moving forward to build the company that we can all be proud of. As to the results for the second quarter this morning we reported the year-over-year in adjusted EBITDA. This marks the third consecutive quarter of year-over-year EBITDA growth. And these results were achieved despite the extensive changes and extraordinary complexity associated with the exit and subsequent franchising of our mall and international salons and the exit of those 597 nonperforming SmartStyle locations and the proactive steps we have taken to eliminate nonessential G&A cost. While I'm encouraged with the results of the quarter and our year-to-date results, especially in light of the pace and the complexity of the activity since last April, all of us here at Regis recognize that we have much more work to do before we can report to you. Then an operational turnaround on our company-owned salons has been fully realized and that we have optimized our growth opportunities in franchise. In closing, the full transformation of Regis will take some time, delivered investments and an increased velocity of effective execution that supports both the turnaround and our strategic transformation. Winning is a learned behavior and during the second quarter I was encouraged to see the initial sings of a new winning attitude at Regis. My partner Andrew will now provide details on the financial results of the quarter. Andrew?

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 and starting with our company-owned salons. Second quarter revenue totaled $280 million, a $16.3 million or 5.5% decline versus the prior year, driven primarily by the closure or refranchising of 448 salons and 70 basis points decrease in same-store sales. However, this decrease was partly offset by favorable foreign currency impacts and the opening of eight new locations over past 12 months. Second quarter company-owned salon adjusted EBITDA of $26.5 million, a $300,000 decline versus same period last year. This decline was driven primarily by the gross profit impact with same-store sales decline and the purposeful investments made during the quarter related to the SmartStyle digital advertising campaign in support of the roll-out of the everyday simple price and express haircut offerings Hugh mentioned. These were partially offset by Management initiatives I discussed earlier, along with a onetime benefit related to the discontinuings of our limited royalty program test and the closure or refranchising of 448 salons. In the franchise segment, revenue of $28.6 million, increased $9.5 million or 50.2% compared to the prior year quarter. Royalties and fees of $13.5 million, increased $2.1 million or 18.2%, versus the same period last year. Royalties increased 9.9% driven primarily by positive same-store sale revenue in the quarter and increased franchise salon counts. Initial franchise fees, increased $1.2 million or 198%, as the company opened or converted a net 108 franchise locations in the quarter as compared to 41 in the prior year quarter. Remaining balance of the year-over-year revenue growth came from increases in product sales to franchises. Second quarter franchise adjusted EBITDA of $9.8 million, improved $1.6 million or 19.5% year-over-year, driven primarily by the revenue increase, partly offset by cost of goods sold on product sales to franchisees, higher warehouse expenses related to increased product sales volumes and higher incentive cost paid as part of opening the 108 new franchise salons in the quarter. Turning now to corporate G&A. In response to several questions I have received today, let me provide you with some additional color on the primary components of the company’s corporate unallocated expenses. This item is largely shared services related expense that supports both the company-owned and franchise salons. The easiest way to think of these expenses is in three broad buckets. The largest of the buckets, which comprises roughly 50% of the corporate G&A relates to payroll benefits and other costs for our shared services and other non-filled personnel, who provide support and assistance to both our company-owned salons and franchise segments. This includes everything from the Senior Management Team, to the company’s numerous shared services functions including finance and accounting, tax, marketing and advertising, field support, human resources, revenue management, facilities and real-estate to name just a few. This cost not only include payroll benefits, but also the short and long term incentive compensation accruals, travel and all other costs associated with these functions. The second bucket, which comprises roughly 30% of the total unallocated G&A, relates to IT and Technology related costs. Outside of a small amount of communications related expense, the majority of the company’s IT expenditures, flow through the corporate G&A and are not allocated to the segments. These items includes spends such as PoS maintenance and support, hardware and software maintenance, both corporate and franchise helpline services, corporate telecom and networking, the expense component of IT projects and all other technology costs to support the IT functions of the company. Remaining 20% of unallocated G&A, relates to all other corporate expenses including things such as insurance premiums, professional fees, and facility cost, to name just a few. It is important to note that the as reported or GAAP corporate G&A, found in our SEC filings, can also include one-time items such as severance and restructuring related expenses, that can make our reported corporate G&A cost, larger than our normal run rate or as adjusted corporate G&A. As I’ve discussed before, with the restructuring of the portfolio largely behind us, including the consolidation of our reportable segments from 4 to 2, we will continue to do the analysis to determine, if it make sense to allocate a portion of the corporate G&A to the reportable segments. Additionally, while there’ve been a number of headwinds this year, including a handful of one-time discreet items, we’re making good progress in rationalizing or reducing a run rate corporate G&A and will continue to focus our efforts in removing stranded cost and non-value adding expenses out of our cost structure. As Hugh reported, we’ve eliminated a number of roles in our corporate salon support, which have contributed to a reduction of annual run rate adjusted G&A cost. With that context, second quarter, corporate adjusted EBITDA loss of $18.1 million, was essentially flat year-over-year, driven primarily by an increase in the company’s short-term incentive compensation expense, due impart to the fact that last year’s results included an accrual reversal due to lack of fiscal 2017 performance, as compared to favorable results in the first half of fiscal 2018. This increase was essentially offset by the company’s traction around initiatives to reduce non-core, non-essential G&A cost. Excluding the impact of short term incentive compensation adjustments adjusted corporate G&A would have improved approximately $2 million or 8% year-over-year. Before looking at the balance sheet, let me highlight a few items that impact year-over-year comparability of the results I just provided. The first involves our strategic restructuring activity. Due to the previously announced sale in subsequent franchising of substantially all of our mall based salons in UK business these units are now shown as discontinued operations in the P&L. The financial statements provided in our press release and 10-Q for both current and prior periods have been recast to reflect the impact of this transaction. However previous releases of the financial results of prior years would not reflect this change and are not comparable to our current operations. The second item involves the field reorganization change we announced in August which align a field leadership team by brand. Although this was a first quarter event it’s important to remember that an outcome of this reorganization is that certain field leaders have been moved out of cost of goods sold and inside operating expense where they have historically been recorded into G&A. This change does not impact the overall consolidated results but does create an $8.9 million decrease in cost of goods sold and inside expense with a corresponding $8.9 million increase in G&A when compared to the second quarter of last year. I point this out because the prior year’s results provided in today’s press release and 10-Q do not reflect this reclassification. However to assist you with your financial modeling we have provided a pro forma P&L on our website with recast financial statements to better assist you with your comparisons. Third given the impact to the quarter of the recent tax reform act along with the existing valuation allowance in place against our deferred tax assets it is very difficult to compare after tax results to prior periods. Specifically during the quarter the company recorded a non-cash discrete tax and benefit of $68.9 million related to the tax format driven primarily by the impact of the corporate federal rate reductions on our deferred tax assets and liabilities and changes in net operating loss rules. These legislative changes now allow for the indefinite carry-forward of NOLs arising in tax years and in after December 31, 2017. Prior law limited the carry-forward period to 20 years. As a result of this change the company is able to reclass a portion of its valuation allowance and deferred tax assets that is expected to reverse in future periods. I want to stress though that the adjustment to our valuation allowance is solely attributable to the recently enacted tax reform act and does not include a qualitative adjustment. As such the company continues to maintain a valuation allowance on the historical balance of our federal NOLs, tax credits and various state tax attributes. Turning now to the balance sheet. On the liquidity front the company ended the quarter with a cash balance of $163 million. We are pleased with this outcome given the one-time $27 million lease termination and termination related payment made in early December in support of the closing of 597 non-performing SmartStyle salons. This use of cash was partially offset by $18 million settlement of a life insurance policy in connection with the passing of a former executive. Excluding these one-time items the company’s year-to-date cash position was largely unchanged. Quarter end balance sheet debt totaled $123 million and there were no outstanding borrowings under our $200 million revolving credit facility. Finally several weeks ago we announced the successful restructuring of our company-owned non-performing SmartStyle portfolio. As a reminder these salons are losing an estimated $15 million on annual adjusted EBITDA and went dark yesterday. With that I’d like to thank you for your support as we continue to make progress in our strategic transformation and I’d like to now turn the call over to Laurie for questions. Go ahead Laurie.

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 channels. And on our lesser-known brand on SmartStyle we are raising awareness with digital advertising and with social media. We are also investing in customer facing technology to change the guests and stylists experience. We have a number of pilots underway in our salons that will change the face of the guest experience and the stylist experience. Andrew has made great progress improving the sophistication of revenue management and our pricing programs which I think overtime will help growth. And then finally, we're taking steps to upgrade our merchandizing, while leveraging the core competencies we already have in supply chain management. So as you think about the five pillars of growth for Regis now that the restructuring phase is behind us. It's essentially improving the customer insights through better database and analytics, accelerating the investment in digital and social media while leveraging channels of distribution for the content for Supercuts through MLB, investing in customer facing technology to upgrade the guest and stylist experience, improving the sophistication of our revenue management and pricing programs and upgrading our merchandising while levering the great supply chain management capabilities we already have. Those are essentially the five foundational pillars of growth going forward now that restructuring is behind us.

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.