Yahoo Finance Bowlero Corp. (NYSE:BOWL) Q3 2024 Earnings Call Transcript
Bowlero Corp. (NYSE:BOWL) Q3 2024 Earnings Call Transcript May 6, 2024
Bowlero Corp. misses on earnings expectations. Reported EPS is $0.1271 EPS, expectations were $0.24. 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 Bowlero's Third Quarter 2024 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer-session. [Operator Instructions] Thank you. I would now like to turn the call over to Bobby Lavan, Bowlero's Chief Financial Officer. Please go ahead.
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 third quarter 2024 earnings. This morning we issued a press release announcing our financial results for the period ended March 31, 2024. 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, Chairman and Chief Executive; and Lev Ekster, our 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 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 the cautionary statements contained in our press release as well as the risk factors contained in the company's filings with the Securities and Exchange Commission. 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 in the reconciliation of the differences between each non-GAAP financial measure and a 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. Thank you for joining us today. I am Thomas Shannon, Founder, Chairman and CEO of Bowlero Corporation. Bowlero had a solid third quarter with total revenue growth of 8.8%. January was a challenging month because of blizzards and flooding across the country. Following this weather-impacted result, our same-store comp was positive in both February and March, and our total growth was double digits. This follows the company's second quarter in which we produced same-store sales growth of 0.2% and total company growth of 13.4%. Our results in the second and third quarters are better than most or all of our competitors in the location-based entertainment space. When we acquired Lucky Strike, we were impressed by how much food and beverage they sold to each customer.
We have taken some of the learnings from Lucky Strike and begun to implement that into our F&B business. We are revamping our menus, increasing food and beverage training, and improving our hiring processes to make a strong organic impact on our business. Our new premium menu, which launched in recently opened Lucky Strike Miami, includes salads, gluten-free options, bao buns, honey chicken sandwiches, and more variations of our excellent pizza. Additionally, we continue to instil a selling culture that began last summer with the implementation of the bowling special. I'm excited about the opportunities in front of us as we train and incentivize our employees to sell more. The quarter was marked by substantial investments in traffic-driving initiatives.
These initiatives, though with some added cost, have proven their worth as evidenced by our industry-leading same-store comp growth. Lev Ekster will discuss these initiatives in a few minutes. Our best-in-class events platform continues to outperform. Event revenue increased 27% year-over-year in the third quarter and leagues were up 9% year-over-year as we expanded social league opportunities combined with growing brand recognition from our PBA ownership. We continue to deploy capital in acquisitions and new builds. We opened Lucky Strike Miami in the third quarter with results moving higher weekly and above our expectations. We have four new builds coming online in the next nine months with two openings in Denver this summer, one opening in Beverly Hills in early fall, and another opening in Orange County, California in the late fall, and we are actively engaged on a pipeline of approximately a dozen more new build locations following these.
Last week, we acquired Raging Waves, the largest water park in Illinois, and a transaction that came with approximately 53.5 acres of land. With this acquisition, we acquired a superb, very profitable property and partnered with a strong operator in the regional waterpark space at an attractive valuation. We think there is a significant upside in this property. I'm also happy to provide a positive update on the status of the EEOC matter. On April 12 of this year, the EEOC issued closure notices for the approximately 73 individual age discrimination charges that have been filed, in most cases, many years ago. The notices communicate that the EEOC has dismissed the charges and will not bring suit against the company in the individual cases. Additionally, on this most recent Friday, May 3, the EEOC issued an additional closure notice for the pattern and practice directed investigation.
In that notice, the EEOC wrote, "The commission has determined that it will not bring a civil action against Bowlero under the Age Discrimination Employment Act." And also on Friday, we received a positive court ruling in Richmond, Virginia that the case CNBC had breathlessly reported related to a former employee's attempt to countersue Bowlero had been denied. Over 8.5 years, the company has vigorously denied and contested the false allegations made against it and is pleased to see that the EEOC has closed its files. We are disappointed that media outlets, mainly CNBC, have told only one side of the story, no matter how preposterous, acting as a shill for attempts to damage our reputation and leverage an unwarranted settlement. We are pleased to report these very positive developments on behalf of our shareholders.
Let me hand it over to Lev Ekster to talk about our internal initiatives and then Bobby will review the financial details.
Lev Ekster: Thanks, Tom. As I discussed last quarter, there is material white space to provide the consumer a better experience and increase wallet share in our locations. This quarter, we saw the benefit in traffic coming from two internal initiatives. First, with amusements, we have improved guest satisfaction through increased gameplay. We have seen benefits to traffic as exhibited in our February, March, and April comparatives. This should help continue to drive traffic in the slower months. Second, we have invested materially in our PBA programming. Since the start of the year, 18.5 million viewers have watched the PBA on Fox, FS1 or FS2, which is 16% more than at the same point last year. The increase is even higher among younger viewers with the male 18 to 34 demo reach up 22% year-over-year.
Viewers are watching more PBA than ever before as average minutes viewed per viewer have steadily increased each year, and so far in 2024, that is already 15% higher than it was in 2019, the first year the PBA aired on Fox Sports. We have more stops than televised shows, which means more awareness and ultimately supports the value proposition of the PBA to Bowlero and the industry overall. Lastly, as Tom mentioned, we are leaning heavily into increasing food and beverage sales. This has become my primary focus. New menus and updated pricing roll out over the next few months. Additionally, in-kitchen training and the continued development of the sales culture will lead to improved F&B uptake, benefiting from the foot traffic generated by initiatives like our new Summer Season Pass.
And then, leading into the critical holiday period, we will continue to optimize our offerings to improve customer satisfaction, traffic and increase spend as we look to be the out-of-home entertainment destination of choice. That is how we will continue to outperform our peers. Now, let me turn it over to Bobby.
Bobby Lavan: Thanks, Lev. In the third quarter of 2024, we generated total revenue ex-service fee of $336.4 million and adjusted EBITDA of $122.8 million compared to the last year of $309.1 million and adjusted EBITDA of $127.6 million. As a reminder, service fee revenue is a pass through, a non-contributor earnings, and is being phased out. Our total growth was positive 8.8% and same-store comp was negative 2.1%. January was the full contributor to the negative comp for the quarter. Adjusted EBITDA was $122.8 million compared to $127.6 million in the prior year. While worse than we expected, we're excited about the top-line contribution and customer satisfaction from two meaningful traffic driving initiatives. Amusement's comp gross profit year-over-year in the quarter was minus $5 million as we invested in better experiences for the consumer.
As Lev discussed, the PBA has seen significant growth this year as we increased stocks and TV coverage throughout the quarter. This swung PBA to a $2 million loss in the quarter. This will continue into 4Q '24 as we ramp up incremental sponsorship on the better results. We continue to invest in our people, with our same-store comp payroll up $4 million year-over-year, which is better than last quarter at $6 million. Our cost structure, primarily employee payroll, normalizes after double-digit bump to payroll in March 2023. Corporate expenses are down while we continue to invest in our event sales team. Non-comp centers contribute $11 million of EBITDA on approximately $35 million of revenue. Lucky Strikes outperformed our expectations with the $6 million contribution to EBITDA in the quarter compared to $5 million in the previous year.
The first four weeks of April 2024 have been strong, but due to the investments we made in the third quarter, we're taking our full year guidance to the low end of the range previously disclosed. This still implies double-digit revenue growth for the year and significant revenue and EBITDA growth in the fourth quarter. Please note that in the quarter, we closed one center, which was reflected in the end center count of 352. In the quarter, we spent $13 million on growth CapEx, $9 million on new builds, and $7 million on maintenance. We spent $12 million on acquisitions. We also updated our capital guidance for the year. We are increasing our M&A spend to $220 million from $190 million. We are lowering conversions from $80 million to $70 million as we focus on internal organic opportunity to drive returns.
New builds will be higher as we continue to ramp up well, adjusting new builds CapEx this year to $45 million from $40 million. We plan to continue to balance investing in our growth and rewarding our shareholders. Our liquidity at the end of the quarter was $437 million, with nothing drawn on a revolver, and $212 million of cash. Net debt was $943 million and the bank credit facility net leverage ratio was 2.4 times. Thank you for your time, and we look forward to taking your questions. Operator?
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