Yahoo Finance Bowlero Corp. (NYSE:BOWL) Q1 2024 Earnings Call Transcript
Bowlero Corp. (NYSE:BOWL) Q1 2024 Earnings Call Transcript November 13, 2023
Operator: Greetings. And welcome to Bowlero First Quarter Fiscal Year 2024 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your holds and turn the call over to Bobby Lavan of Bowlero. Please go ahead, sir.
Bobby Lavan: Thanks, operator. Good morning to everyone on the call. This is Bobby Lavan, Bowlero's Chief Financial Officer. Welcome to our conference call to discuss our first quarter fiscal year 2021 earnings. This morning, we issued a press release announcing our financial results for the period ended October 1, 2023. A copy of the press release is available in the Investor Relations section of our website. Joining me on the call today is Thomas Shannon, our Founder, Chief Executive and President. I'd 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 the inherent risks and uncertainties that could cause actual results to differ materially from those expressed. For additional information on certain factors that could cause actual results to differ from those discussed in our forward-looking statements, you should refer to the cautionary statements contained in our press release as well as the risk factors contained in the company's filings with the SEC. Bowlero 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 that are most directly comparable to each non-GAAP financial measure discussed and a reconciliation of those differences between each non-GAAP financial measure and its most directly comparable GAAP financial measure can be found on the company's website.
. I'll now turn the call over to Tom.
Thomas Shannon: Good morning. And thank you for joining us today. I am Thomas Shannon, Founder, CEO and President of Bowlero Corporation. First quarter fiscal 2024 met our expectations. We worked hard during the seasonally slow first quarter to optimize dynamic pricing, began the journey of proactively selling in-center by building a sales culture and cross 350 centers in our fleet. Before I jump into my prepared remarks, I want to thank the 10,000 associates in our centers. The first week of July, our same-store sales comp was positive. We then began to tinker with price and find upsell opportunities. To simplify building a sales culture, we started with a one-size-fits-all program, upselling the third game of bowing for $5 and providing a $5 gift card.
We removed Summer Games, a family program that was worth at least $6 million of revenue in the period. We also pulled midweek fixed-price All You Can Bowl specials that were traffic drivers. The changes drove wallet share pickup in our premium times of Friday and Saturday. However, the midweek customer did not like that offer. By Labor Day, our comp was down double digits with Monday through Thursday dramatically worse. We reversed course on pricing midweek. And in the second week of October, our same-store comp had returned to being positive. I love this dynamic as I built Bowlero to serve all customers. And we learned that when you have a business that runs 7 days a week, serving consumers nationally from all classes of life, everyone is looking for something different.
We are continuing this journey to fill our lanes and provide our customers what they want when they want. Some consumers want All You Can Bowl during the week where they have a fixed price to entertain their family. On the weekends, a different subset of consumers is willing to pay more, still at a better value than the night out at a restaurant and a movie. Customers want to be entertained on their schedule. And as we have done so for 27 years, we will continue to deliver. Our total business is up 61% over first quarter 2019, 61%, and our comp is up 29% over first quarter 2019. In the first quarter, we saw volatility with our tempering with pricing, but that will only help into the rest of the year and the years to come. We learned a lot and we will continue to optimize price and maximize revenue and earnings dollars with our efforts.
Our shining star is our events platform. This fiscal quarter, first fiscal quarter of 2024, events comped plus 9%. Leagues, which started in September, comped 12%. Events is up 77% and leagues is up 15% from 2019. The resiliency of our model is in those results. This quarter, we crossed 350 centers, and I am very happy with the integration of Lucky Strike. They are fully on our proprietary events CRM, and we are already seeing the benefits of our world-class events team on their higher-end customer profile. We also opened a new facility that we built in Valley Fair Mall in San Jose, California, and the early results underscore the 40-plus percent cash-on-cash returns we are getting from new builds. We currently have 10 new builds in the pipeline.
Bigger is better as we push higher average unit values into our business model. The long-term formula of double-digit revenue and earnings growth is proven and intact. Bowlero is evolving and getting more insightful every day. We have established a flywheel in our business that will enable us to compound top line growth over the long term, fueled by self-funded reinvestment. As recently announced, we entered a partnership with VICI that started with a sale-leaseback of 38 properties for $433 million. We paid approximately $150 million for those properties. The pipeline opportunity for more sale leasebacks is in the 100 to 200 US locations, which we believe will generate incremental returns and underscore the self-funding model we have for acquisitions.
Our scale and credit worthiness are unique in the out-of-home entertainment space. I will now turn it back over to Bowlero's CFO, Bobby Lavan, to provide more details on the quarter's results. Bobby?
Bobby Lavan: Thanks, Tom. In the first quarter of 2024, we generated total revenue ex service fee of $225.8 million. Last year, we reported $225.3 million of comparable revenue. As a reminder, service fee revenue is a mandatory tip passed through to the employee, a non-contributor to earnings and being phased out. Revenue excluding service fee revenue was up 0.3%. Total bowling center revenue was down 0.7% and our comp was down 5.5%. The comp down 5.5% is slightly below our previous guidance of down 5%, mostly due to a $1 million timing issue that we picked up in the second quarter. We hit our internal EBITDA budget. As Tom discussed and we previously disclosed, we used a seasonally low first quarter to test price changes in the centers.
We started the quarter off with positive comps, but by early August, we had hit almost minus 8% and the second week of September was minus 12%. We quickly reversed course and the trend line would have been greater other than flooding in New York that also comped Hurricane Ian in 2022, a negative perfect storm in the last week of the quarter. October has been very resilient with us getting positive in the second week of October. The traffic data that some of our more active investors look at will appear volatile on Halloween with the timing of Halloween being negative, but we will get a positive benefit this year with the earlier Thanksgiving extending the holiday season. Adjusted EBITDA was $52.1 million compared to $65.3 million year-over-year, a delta of approximately $13 million.
We did not pivot to center cost structures to savings mode in the quarter as we are forecasting a strong holiday season as seen returns on our people investment. As a reminder, second and the third quarter make up 70% of our annual EBITDA. Comp revenue was down $12 million and payroll in the comp centers was up $2 million. Utilities is seasonally high by the tune of $3 million in the quarter. Corporate expenses are down year-over-year, while we continue to invest in our event sales team. Non-comp centers contributed $4 million of EBITDA on approximately $10 million of revenue in the quarter. First quarter had $208 million of comp revenue, and the second quarter comp revenue should be up approximately $50 million in revenue sequentially. With the cost structure in place, that should almost entirely fall to the bottom line.
Additionally, we have $40 million of revenue from acquisitions that are starting to flow through in the quarter. The company expects second quarter fiscal year 2024 to have revenue ex service fee of $295 million to $310 million and adjusted EBITDA of $100 million to $110 million. We will continue to cut costs at corporate. In the quarter, events comped plus 9% and leagues comped plus 12%. Leagues floor mid-September and weekly revenues go from about $1 million in the summer to $2.5 million a week until the end of March. The timing of this and the results once we start gives us incremental confidence in the second and third quarter. The corporate events business is strong, with our top 50 bookings being up year-over-year for December. The smaller bookings start now and right up until the day of the event if we have space.
In the quarter, we spent $24 million on growth CapEx, $11 million on new builds and $10 million on maintenance. We spent $126 million on acquisitions, and we repurchased $130 million of shares in the quarter. We will continue to have a balanced capital program as we are confident in our combination of growth and shareholder return. As we announced on October 19, we entered into a partnership with VICI Properties to accelerate our self-funding sale leaseback strategy. We have put a slide together in our investor deck, but the story is straightforward, underpinned by Bowlero credit. We buy centers with land 4 to 7 times EBITDAR. We implement our proprietary tools to improve EBITDAR margins within 90 days, and then we look to sale leaseback half of the EBITDAR for multiples of 12 to 15 times.
Once completed, we have created on average $10 million of value per property net of purchase price, and we project we can do this more than 100 to 200 times. That is a lot of value creation only we can do. Post the VICI transaction, we have 8 unencumbered properties and will focus on acquisitions with SLB type characteristics. One topic that has gotten airtime is the capitalization of our leases and how that should be viewed by the Street. When we enter into leases, they are long-term leases. The VICI lease is 50 years. The capitalization of such leases is done at a significant multiple of current cash lease costs. This compares to a company that might have a month-to-month or shorter. Our method looking at leverage is net debt to EBITDA annualized for acquisitions less capitalized cash lease costs.
We gave a lot of disclosure on this in our 10-Q under cash paid for amounts included in the measurement of lease liabilities. Pro forma for the VICI acquisition, we have approximately $930 million of net debt. FY 2024 EBITDA midpoint is $385 million. There are about $50 million of acquisitions and new builds that you should annualize less $41 million of cash interest rent and $31.6 million of VICI rent. This gets you to 2.8 times net leverage versus our target of 3. We will continue to manage leverage conservatively, especially into the unknown macroenvironment. In closing, we have several exciting initiatives underway and are continuing to evolve and innovate. We are prepared for the oncoming seasonal high period and have the right team and structure to execute.
Now let's turn it over to the operator for questions.
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