Bowlero Corp. (NYSE:BOWL) Q2 2024 Earnings Call Transcript

Bowlero Corp. (NYSE:BOWL) Q2 2024 Earnings Call Transcript February 5, 2024

Bowlero Corp. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, and welcome to the Bowlero Second Quarter 2024 Earnings Conference Call. [Operator Instructions] After the speakers’ remarks, there will be a question-and-answer-session. [Operator Instructions] Thank you. Bobby Lavan, Bowlero’s Chief Financial Officer, you may begin your conference.

Bobby Lavan: Good morning to everyone on the call. This is Bobby Lavan, Bowlero’s Chief Financial Officer. Welcome to our conference call to discuss Bowlero’s second quarter 2024 earnings. This morning, we issued a press release announcing our financial results for the period ended December 31, 2023. A copy of the press release is available in the Investor Relations section of our website. Joining me on the call today are Thomas Shannon, our Founder and Chief Executive; and Lev Ekster, our President. I would like to remind you that during today’s conference call, we may make certain forward-looking statements about the company’s performance. Such forward-looking statements are not guarantees of future performance, and therefore, one should not place undue reliance on them.

Forward-looking statements are also subject to inherent risks and uncertainties that could cause actual results to differ materially from those expressed. For additional information concerning factors that could cause actual results to differ from those discussed in our forward-looking statements, you should refer to cautionary statements in our press release as well as the risk factors contained in the company’s filings with the SEC. Bowlero Corporation undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances that occur after today’s call. Also, during today’s call, the company may discuss certain non-GAAP financial measures as defined by SEC Regulation G. The GAAP financial measures most directly comparable to each non-GAAP financial measure discussed and the reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found on the company’s website.

I will now turn the call over to Tom.

Thomas Shannon: Good morning, and thank you for joining us today. I am Thomas Shannon, Founder and CEO of Bowlero Corporation. Bowlero had a strong second quarter with total revenue growth of 13.4%. We continue to invest in our centers, our people and our goal to become the premier experiential recreation company. Our same-store sales comp turned positive as consumers picked Bowlero for celebrations in the December holiday period. Our revenues are up 65% from pre-pandemic levels as we grow market share through acquisitions and investing in our premium product. Calendar year 2023 was a transformative year. We started the year with 327 centers and ended with 350. We accelerated growth through acquisitions, bringing in the Lucky Strike Premier centers into the portfolio, and we built two new builds that are outperforming the expectations and have more than a dozen in the pipeline.

We put $350 million of capital to work that will generate industry-leading 25%-plus returns on capital. The new builds and Lucky Strike combined is pushing our average revenue per unit revenue up. In second quarter 2024, our average revenue per unit was up 6% year-over-year combined with unit count increasing by 8%. We will continue to focus on this formula to drive double-digit revenue growth over the long term. Our best-in-class events platform continues to outperform. Event revenue increased by 30% year-over-year. Strong corporate demand for employees to come together in a work-from-home environment, combined with companies seeking premium offerings at a reasonable price during a blockbuster December. Leagues was up 14% year-over-year as we expand social league opportunities combined with brand recognition from our PBA ownership.

These are offsetting slower retail business traffic as subprime customer spend slows and we lapped record-breaking prior year comps. Last summer, we spent considerable effort tinkering with our business model. We found good footing with a balance between promotional activity during the midweek and enhanced pricing and offerings on the full-priced weekends. Our model was fully reset in mid-October, and that allowed us to identify pricing opportunities across certain centers. In December, we took an average price increase of 2% across retail in the centers, which we applied to events in January. We continue to see pricing opportunities enhancements across our product line. This year, we also invested in our C-suite. Last month, we announced the promotion of Lev Ekster to President.

Lev brings 10-plus years of experience at Bowlero, leading dramatic expansion of leagues and amusements. We are investing in our people by adding to the C-suite that will complement our 12,000-plus workforce in providing premium experiences to the customer, which drive revisits and long-term growth. With that, let me hand it over to Lev for a business review. Lev?

Lev Ekster: Thank you, Tom. I’m thrilled to be here today. The white space to grow revenue about more than 12 million square feet of entertainment space is tremendously exciting. When I joined Bowlero, our amusements business was an afterthought. Today, it accounts for $100 million of revenue and growing. We’re able to maximize amusement revenue by optimizing our pricing, game selection and floor plans. Opportunities to drive the customer into the arcade while they’re on a wait for a lane or get them to extend their visit after bowling by playing a few games is why we performed so well with amusements. We plan to implement the same successful processes to our bowling and food and beverage revenue. Selling extra game of bowling has 100% incremental profits to us.

Driving traffic in the slower summer months through promotion or all you can bowl passes, help amusements and food and beverage attachment. Our database and loyalty program has millions of customers. Pushing content on the Professional Bowlers Association telecast with the 2024 season featuring the most broadcast hours ever in a single season on Big Fox increases the awareness of our centers. Lucky Strike is a well-recognized iconic brand. We’re really leaning into the brand with the opening of Lucky Strike Moorpark in California and the upcoming opening of Lucky Strike Miami. The demand from customers for these properties as well as the inbound interest for job opportunities underscores the promise of the brand as an important part of the entertainment culture we are building.

I look forward to meeting you in the coming months and showing the results. And now Bobby Lavan.

Bobby Lavan: Thanks, Lev. In the second quarter of 2024, we generated total revenue ex service fee of $304 million and adjusted EBITDA of $103.1 million compared to the last year of $268.1 million and an adjusted EBITDA of $97.0 million. As a reminder, service fee revenue is a pass-through, a noncontributor earnings and is being phased out. Our total growth was plus 13.4% year-over-year, and same-store comp was positive 0.2%. Positive 0.2% same-store comp is in line with our expectations. Our communications with investors we down the middle as we continue to execute on difficult comparatives and outperform our peer set. Adjusted EBITDA was $103.1 million compared to $97 million in the prior year. We continue to invest in our people with our same-store comp payroll up $6.3 million year-over-year.

Lucky Strike outperformed our expectations for the $6 million-plus contribution to EBITDA in the quarter compared to $4 million in the previous year. Our cost structure, primarily employee payroll, normalizes after a double-digit bump in payroll in March 2023. Corporate expenses are down while we continue to invest in our event sales team. Non-comp centers contributed $14 million of EBITDA on approximately $41 million of revenue. The first 3 weeks of January 2024 were difficult, primarily due to significant ice across the country. Same-store comps over the past two weeks have rebounded. Due to the slow start, we are slightly revising our expectations for the third quarter to high single to teens growth and a flat to down low single-digit same-store comp for the third quarter.

We expect fourth quarter total revenue to be up around 20%. In the quarter, we spent $26 million on growth CapEx, $13 million on new builds and $10 million on maintenance. We spent $24 million on net acquisitions, and we repurchased $80 million of shares in the quarter. This morning, we announced a $0.055 quarterly dividend for an expected annual rate of $0.22. Our Board of Directors additionally increased our share repurchase authorization to $200 million. We have ample liquidity to continue to investing in our growth and rewarding our shareholders. We also updated our capital guidance for the year. We are increasing our M&A spend from $160 million to $190 million. Conversions are up to $80 million from $75 million, and we continue to ramp up new builds holding our previous guidance at $40 million.

Our liquidity at the end of the quarter was $412 million with nothing drawn on our revolver and $190 million of cash. Net debt was $960 million and bank credit facility net leverage ratio was 2.5 times. We have several exciting initiatives underway and are continuing to evolve and innovate. We believe in our fundamental offering in ABC or acquisition, new build and conversion strategy as part of our operating ethos and we remain enthusiastic about our long-term growth trajectory. Thank you for your time, and we look forward to seeing you on the road in the coming months.

See also 15 Best States for First-Time Homebuyers and 10 Best Australian Stocks To Buy.

Q&A Session

Operator: We will now begin our question-and-answer session. [Operator Instructions] Your first question comes from the line of Steven Wieczynski from Stifel. Your line is open.

Steven Wieczynski: Hey, guys. Good morning. So I want to ask about the ability to hold guidance. With the headwinds you’ve already faced, obviously, with weather so far here in the third quarter. And Bobby, you called out the impact of weather so far. But if we look at your guidance for the third quarter and the fact January is behind us, obviously, it seems like you guys might need to see a significant upswing in trends in February and March. So am I missing something there? Or are there other levers that you guys can use or are willing to pull to get that third quarter more in line with your guidance?

Bobby Lavan: Yes. I mean the first three weeks of January hit us for kind of about $7 million to $8 million. And we’ve seen a rebound in the past few weeks. So we’re pretty comfortable with our guidance at this point.

Steven Wieczynski: Okay. So based on what you’re seeing today, you just think kind of February and March can kind of carry you into that guidance range. Fair?

Bobby Lavan: Correct.

Steven Wieczynski: Okay. Got it. And then second question is for Lev since he’s on one of these calls for the first time. But Lev, you’ve obviously been at the company for a long time. Obviously, you’ve got a nice promotion here. Is there anything you really want to kind of go after or change or any major initiatives that you think is really going to benefit the Bowlero story over time?

Lev Ekster: Yes. So I’ve been here long enough to see that we have probably the best mousetrap, the strongest business model out there. It really comes down to me focusing on the execution of that to maximize that food and beverage and amusement attachment to help continue to improve our people, our processes across the company just to execute at a higher level. The business that is core is phenomenal, but I want to get us to good to great, from good to great with these processes.

Steven Wieczynski: Okay, got you guys. Appreciate it. Thank you very much.

Bobby Lavan: Thanks, Steve.

Operator: Your next question comes from the line of Randy Konik from Jefferies. Your line is open.

Randy Konik: Yes, maybe to follow up on that a little bit on the processes. Can you kind of give us some perspective on some of the things you’re working on. I think, Bobby, we had spoken at our Winter Summit, I think a food and beverage system that’s being implemented or looked into. Just can you give us some perspective on some of the things you’re working on and areas of focus that we can see to help these already very high margins potentially go even higher. Just curious. Thanks guys.

Lev Ekster: Yes, this is Lev. I’m happy to take that. So Bobby has been with us not that long, but the level of data that he brings to the table is something that we haven’t had at our fingertips historically. So our decision-making is way more data-driven these days, but also something we’re focused on is really reducing the variance across all of our centers, 350 centers. We want to tighten up the processes. So can we apply standards for repair and maintenance budgets? Can we give guidance on what optimal staffing parts should be to really maximize the foot traffic in our centers and have that convert to revenue? So we’re going to foster this culture of collaboration across our company and use what works best across a given number of centers and expand that knowledge and that process to the rest of the centers.

Randal Konik: Got you. And then just any areas in particular you’re mostly focused on in addition to the ones you just talked about, anything around food and beverage, anything else?

Bobby Lavan: Yes. I mean, F&B, we’re installing a very robust inventory management system that ultimately can add a significant amount of dollars to the bottom line. We’ve always had a perpetual inventory system, so that opportunity is rolling out this summer. We talked about the website. The website will roll out in the next few months. And the reason that the website is so important is it allows for dynamic pricing. Ultimately, our goal is to fill the centers on the weekends at the highest price we can and fill the centers at the most reasonable price we can during the week. And ultimately, dynamic pricing allows you to do that. and the website system will allow that. And then when we get to the summer, the summer, we’re going to re-implement summer games, which is something we talked about that we did not have last year that cost us $10 million of revenue, but it also is going to be, the website will allow us to effectively drive traffic in the slower times in the summer, which is sort of a key dynamic for really getting leverage out of our model.

Randal Konik: And just last question on the capital plan, the $190 million versus $160 million. Is that a function of just more assets you think coming to market, the bid-ask spread narrowing? Like just give us perspective on why the $190 million versus $160 million, just the rationale behind that? Thanks guys.

Bobby Lavan: Yes. So we bought Lucky Strike. We closed September 15. We got in there, and we’re accelerating our capital plan there just because of the opportunity set in Lucky is significant. So really is a focus of that. We’ve got a few more deals in the pipeline. But really at the end of the day, we’re pulling Lucky Strike in where we felt we’d spend the capital over a few years. It’s definitely going to be sooner.

Randal Konik: Got it thanks guys.

Bobby Lavan: Thank you.

Operator: Your next question comes from the line of Jason Tilchen from Canaccord Genuity. Your line is open.