Bowlero Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
September 11, 2023

There are 9 speakers on the call.

Operator

Greetings, and welcome to the Valero Corp. 4th Quarter and Full Year 2023 Conference Call. It is now my pleasure to hand the call over to Bobby Lavin of Valero. Please go ahead.

Speaker 1

Good morning to everyone on this call. This is Bobby Lavin, Valero's Chief Financial Officer. Welcome to our conference call to discuss our Q4 2023 earnings. This morning, we issued a press release announcing our financial results for the period ending July 2, 2023. A copy of the press release is available in the Investor Relations section of our website atir.bolerocorp.com.

Speaker 1

Joining me on the call today are Tom Shannon, our Founder, Chief Executive and President and Jeff Kleiner, Bolero's Chief Operating Officer. I would like to remind you that during today's conference call, we may make for 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.

Speaker 1

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. Valero 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 are the 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.

Speaker 2

Good morning, and thank you for joining us today. I'm Thomas Shannon, Founder, CEO and President of Bolero Corp. Bolero started with 1 bowling center in New York City in 1997. This past year, we crossed $1,000,000,000 of revenue for the first time, a milestone for the company. With the acquisition of Lucky Strike in September, we will have approximately 350 bowling centers and add an iconic brand to our portfolio.

Speaker 2

With the Lucky Strike acquisition, we will add a center in Hawaii to our portfolio, which which will be the 36th state in which we operate. Our path to growth has never been clearer. We continue to redefine family and location based entertainment across Bolero's combination of open bowling events and league play make us not only the premier global bowling company, but also a leader in the entertainment industry. We continue to identify attractive locations for new builds and we have 7 leases currently signed and 4 of those already under construction in marquee markets for new bolero locations. Our newest center in the Westfield Valley Fair Mall in San Jose, California opened this past weekend.

Speaker 2

And at the end of August, we acquired the co located Mavericks and Octane and retain properties in a premier location in Scottsdale, Arizona for $33,500,000 We have 3 more acquisitions expected to close in the next month, including Lucky Strike, totaling more than $130,000,000 of purchase price and adding approximately $100,000,000 of annualized revenues. 2 of the acquisitions come with real estate, augmenting our asset portfolio and potential sale leaseback funding sources. Our fiscal year same store sales comp was plus 12.7 percent year over year,

Speaker 3

plus 12.7%.

Speaker 2

As mentioned in the Q and A portion of the last earnings call, We saw a slowdown in the Q4 of fiscal year 2023 with same store sales for that quarter, negative 2.7%. Nevertheless, total revenue for the quarter increased 2.4% year over year. We view ourselves as perpetual optimizers of the business, and we reacted swiftly to early signs of a softening retail consumer to innovate on our offerings. The high incremental margins in our business make it a priority for us to encourage guests to bowl, for example, a third game or stay longer in our centers buying food or playing in our case. The past few years of high post COVID demand made most of our center associates order takers and service providers with no requirement to sell.

Speaker 2

To address this in June, we launched a bundled offering called The Special, which allows guests to prepay the 3rd game at a discounted price and receive a complimentary $5 arcade card to encourage ancillary spending. We are seeing a 60 plus percent take rate with this offering over 100 of 1000 of transactions and continue to AB test new combinations. Over the past 3 weeks, we rolled out a pizza and pitcher special that is nearing $1,000,000 in sales in a very short period of time. These programs are providing consumers extra value while improving ticket size. Early results show average number of games bold is up 5%.

Speaker 2

We added these specials and pulled back on deeply discounted promotional nights. However, over the past few months, we have realized we pull back too hard on midweek and late night promotions. The cult following on All You Can Bowl, Night Strike $2 Tuesdays was greater than expected. So we've seen results Monday, Tuesday and late Friday be off double digits in the slow days of summer and are reinstating those programs almost immediately. I am confident experimentation will result in happier customers who become more loyal customers and who will return more often.

Speaker 2

Consumer discretionary spend may be dropping, The consumers still want to go out and we provide better value to more expensive alternatives. The brightest star in our business the past few years has been events. Event sales were up 43% in fiscal year 2020 3 over fiscal year 2022, up 43% year over year and up 53% in fiscal year 2023 over fiscal year 2019. In fiscal year 2023, We booked $218,000,000 of bowling events and there is still room to go with a growing team of more than 200 sales associates. Right now, I'm in Las Vegas with our event sales team gearing up for a robust holiday season.

Speaker 2

We're having our national sales conference here. Last year, in the week prior to Christmas, we booked more than $10,000,000 of event sales in a single week. In a world where companies are cutting costs, we provide solutions for businesses to invest in bringing their people together in a very affordable way. Our event business was up 7% year over year in Q4 and has accelerated recently from that level. We believe there is significant upside in this category.

Speaker 2

Valero is getting more analytical and 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 investment. Our high free cash flow generation offers us a sustainable source of capital that we use to reinvest in our business at highly attractive return levels, and Company. With a focus on enhancing the customer experience, Our centers will continue to grow at the unit level, resulting in additional cash flow and ultimately more momentum in the flywheel. Given this dynamic, we have made the deliberate decision to double down on investment in our business in fiscal year 2024, positioning us for strong growth in fiscal year 2025 and beyond.

Speaker 2

I would now like to turn the call over to Bobby Lavin to review our financial results for the quarter year and offer financial guidance for the upcoming fiscal year. Bobby?

Speaker 1

Thank you, Tom. Happy to be here. In the Q4, we generated total revenue of $239,400,000 and adjusted EBITDA of $64,500,000 reflecting a 26.9 percent EBITDA margin. Last year, we reported $267,700,000 of revenue and adjusted EBITDA of $82,400,000 in the Q4 of fiscal 2022. Q4 last year out of period service Revenue in the 53rd week and related calendar shift totaled $29,700,000 Excluding these impacts, and Company.

Speaker 1

Total Bowling Center revenue was plus 2.4 percent year over year. Service revenue, a pass through to employees that we required to book as revenue, who was $21,000,000 in FY2023. You should expect that to be low few millions in FY2024. Additionally, in the quarter, we took $2,000,000 of revenue charges that flowed to the bottom line for out of period adjustment. On a fiscal year basis, revenue was $1,060,000,000 and adjusted EBITDA reached $354,000,000 at a for 33.5 percent margin.

Speaker 1

Same store revenue grew 12.8%, supported by record seasonally significant second and third quarters. Relative to the prior year, total revenue grew $147,000,000 or 16.1%. At the center level, In the most recent quarter, we saw growth in events and leagues and tournaments, offset by a decline in walk in retail. In the 4th quarter, We also raised center level wages to invest in our people to raise the bar of talent and retain our associates. It is proving effective and better talent means better consumer experiences in enhanced sales culture environment.

Speaker 1

This cost us $2,000,000 to $3,000,000 of incremental wages in the quarter and will be a $10,000,000 headwind at centers in FY 2024. Who will offset these with cost saves at corporate and removing some post COVID excesses at the centers. In general, we continue to generate industry leading margins and unmatched free cash flow conversion at 85%. For the fiscal year, we generated $196,000,000 of cash flow available for reinvestment in growth as maintenance CapEx is elevated from COVID deferrals. The company finished the quarter with robust liquidity underpinned by over $195,000,000 in cash on the balance sheet and roughly 225,000,000 of undrawn capacity on our revolver.

Speaker 1

We continue to evaluate lower cost funding sources, including looking at our unencumbered real estate. Our unique model of cash flow and a 7% to 8% cost of capital versus a long runway of 20% plus returns who underpins the quality of our story and long term trajectory of the business. Looking ahead, in terms of fiscal year 2024, We expect total revenue to be up 10% to 15%, excluding the $21,000,000 service fee, which equates to $1,140,000,000 to $1,190,000,000 of revenue. Same store revenue growth will be flattish as we comp through plus 32% comp from FY 2019 and plus 12.8% from FY 2022. We expect same store performance to improve over the course of the year with the 1Q 2024 comp tracking down 5% and And in the quarter, total reported revenue flat year over year as we reactivate the non peak time promotions that Tom mentioned.

Speaker 1

Note that promotions are very important to the summer months, but less material to our Q2, Q3, but it did impact late July, August more than we expected and we are addressing it. We expect adjusted EBITDA margin to be 32% to 34% in FY 2024. We have a multi pronged reinvestment strategy with a long runway of opportunity to deploy capital, all of which have strong track records of producing 20% plus unlevered returns. In the next year, we anticipate allocating at least $160,000,000 to M and A, in addition to $40,000,000 from newbuild for more than $75,000,000 for conversions. For those newer to the story, conversion is a multi phased project that transforms the center to an upscale experiential location.

Speaker 1

We are also evaluating leaning into the Lucky Strike brand, more to come. Since our Q3 'twenty three earnings call on May 16, we have repurchased $127,000,000 of shares, retiring approximately 11,000,000 shares. We reduced fully diluted share count by 9% over the past year. In continued support of this reinvestment strategy, on September 6, 2023, the company's Board of Directors authorized an increase in our share buyback to $200,000,000 We continue to evaluate driving shareholder returns through capital returns, particularly at these share price levels. In closing, we have several exciting initiatives underway and are continuing to evolve and innovate.

Speaker 1

Nevertheless, we continue to believe in our fundamental offering in ABC or acquisition, new build and conversion strategy as part of our operating ethos. As Tom highlighted, 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 coming months. We will now open it up to Q and A. Operator?

Operator

Thank you. We will now be conducting a question and answer session. We ask that all callers limit themselves to one question and one follow-up. If you have additional questions, you may re queue and those questions will be addressed time permitting. A confirmation tone will indicate your line is in the question Thank you.

Operator

Our first question comes from the line of Matthew Boss with JPMorgan. Please proceed with your question.

Speaker 4

Great. Thanks. So Tom, maybe could you speak to the progression of demand and traffic trends since April, maybe elaborate on what you've seen across Group Events segment relative to walk in retail? And then just as we think about for your FY 2020 4 comp outlook. What have you baked in for conversions relative to pricing, as well as traffic improvement as the year for Progressive.

Speaker 2

Hey, Matt. Thanks for the question. Let me turn this over to Bobby because he's able to give a more detailed answer.

Speaker 1

Hey, Matt. So from a in 4Q, April was weak, but traffic picked back up in June. July started strong and as we kind of got into the doldrums of summer, the pullback on promotional Activity actually hit our traffic sort of I would say low mid single digits. If you think about promotions, The heavy promotion stuff all you can see right that happens during the week is kind of 10% to 15% of our revenue, but it's higher in the summer months and we just turned those off. And so those businesses are down significantly.

Speaker 1

We've turned them back on this week. So we do expect sort of the comp in the Q1 to be about minus 5%, which is down retail up events. We expect that to flatten out in Q2, Q3 and then be up in the Q4. From a pricing perspective, I think the special is proving to take price. It's effectively a silent price increase.

Speaker 1

It's a bundle. It delivers the consumer value. So we are getting some price. But ultimately, the days of mid to high single digit price increases are behind us. So it's our focus right now is flattening out traffic And having a strong event quarter in the second and third quarter.

Speaker 4

Great. And then maybe just as a follow-up, Bobby. So You characterized in the release FY 2024 as an investment year. So is there a way to elaborate on investments that you think are needed across the P and L, There's anything in labor, staffing relative to food and beverage costs. And then maybe the other side of it is Obviously, the acquisition, so the $160,000,000 guidance for acquisition.

Speaker 4

If you could just parse out expectations for new

Speaker 1

Yes. So from an investment year, it's a capital investment year. We did put $10,000,000 into employees, but we'll offset that with cost saves. So this is really more on the balance sheet side. In FY 2023, we for $63,000,000 on conversions.

Speaker 1

We're going to spend $75,000,000 plus in FY 2024. From an M and A perspective, We have line of sight of at least $160,000,000 of M and A. We could do more. So that's sort of the focus for us From an investment perspective, we're really focused on driving profitability and the incremental margin. So it's not expense investment, it's capital investment.

Speaker 4

Great clarification. Best of luck.

Operator

Thanks. Our next Question comes from the line of Steve Wieczynski with Stifel. Please proceed with your question.

Speaker 5

Yes. Hey, guys. Good morning. So Tom, in the past, you guys have talked about kind of that low to mid single digit same store sales growth. Analog seems pretty fair in a normalized Operating environment and you look you kind of laid that out on Slide 5 in your deck this morning.

Speaker 5

But as you guys think about reinvesting so aggressively In the business this year and as we kind of move forward, how would you think about that same metric, that same store sales growth metric as we look more out into 2025 and beyond.

Speaker 2

Well, look, as we said, the reinvestment is really investment in growth, Right. So the centers are operating very well and we've taken incremental labor spend that was really pointed out was to get a better candidate to retain our best talent and it's worked tremendously. We've really seen a slowdown in turnover And so mission accomplished there. With regard to sort of the forward outlook, let me turn it over to Bobby to go into greater detail there.

Speaker 1

Yes. If you think about our comp, It's really two parts. It's price and then it's sort of a step up that happens from conversions. So if we spend $75,000,000 on conversions, we should get $25 plus 1,000,000 that goes to the top line and flows heavily to the bottom line and that drives the comp. The special, Which we've shown works is really focusing on ARPU, ARPC, whatever metric you want to use, because we just want to get more money from the consumer, right?

Speaker 1

And so The better selling we do, the better kitchen, the more attachment we're going to get to bowling. So ultimately, long term, we are at a mid single digit Right, but it's not necessarily based on volume. It's really price, attachment and increasing the consumer experience.

Speaker 5

Okay. Got you. Thanks for that. And then Tom or Bobby or both of you guys, both of you guys in your prepared remarks You know made some type of comment towards your excess land and how you potentially plan to use that excess land Moving forward to us that sounds like you're probably a good bit a long way down that road in terms of doing something a little bit more robust with your real estate holdings. So just wondering what you guys can say maybe a little bit more around those comments.

Speaker 1

Yes, we have 43 unencumbered properties and we're actually bringing 2 more in with recent announced Acquisitions. So we're always going to look at opportunities to look for lower cost funding sources. Like right now, We can hit sort of the debt markets for 8%, 8.5%, but if we can get something below that, we will.

Speaker 5

Okay, got you. Thanks guys. Appreciate it.

Operator

Our next question comes from the line of Derek Greenblatt with Jefferies. Please proceed with your question.

Speaker 2

Thanks for taking my questions today.

Speaker 3

I was wondering if you could just follow-up on the acquisition stuff. How are you do you think about the health of the acquisition pipeline

Speaker 2

in the current environment given interest rates and all that? Well, I'd say it's never been better. This month, we closed Mavericks and Octane, which is a marquee property, the best property in Phoenix by far. That co located business was doing almost $20,000,000 of revenue when we bought it. We're acquiring Lucky Strike.

Speaker 2

Plan closing date is 1 week from today, another $80,000,000 and then we've announced 2 in Michigan that should close over the next A month or 2, and then there's a dozen in the pipeline, well, let's say, 15 to 20 more in the Pipeline behind that, that could close this fiscal year. As I mentioned, 7 leases signed, 4 of those under construction now, probably another 6 to 7 in various stages of negotiation. So it's extremely Healthy and robust pipeline, one of the best we've ever seen.

Speaker 3

Great. And I wonder if you

Speaker 2

could just give me color on the Engagement you're seeing with Valero. Sorry, Money Bowl.

Speaker 1

Yes, I mean Money Bowl In 64 centers, we're pushing on it still in those centers. We are implementing a customer acquisition tool in Money Bowl. And so we want to see can we go effectively spend $15,000,000 $20 to bring people in the center. And so I think that's sort of the next evolution. At the same time, We are updating our website.

Speaker 1

So in early 2024, we'll have a new website that integrates in with Money Bowl and that's going to be very exciting to generate incremental demand from the consumer. Great. Thank you.

Operator

Our next question comes from the line of Ian Zaffino with Oppenheimer. Please proceed with your question.

Speaker 6

Hi, great. Thank you very much. Hey, Bobby, can you maybe give us a bridge on EBITDA, how you're getting from 'twenty three to 'twenty four guidance? I don't know if you could do the Best you can as far as bucketing it between what you think you might get from M and A or conversions or organic. And then I know there's some investment you want to make, so That being offset, but I don't mean to have exact numbers, but by just direction, you can help us out.

Speaker 6

Thanks.

Speaker 1

Yes. So I mean this year we did $355,000,000 of EBITDA, right? And next year we're 15% revenue growth and that flows through at 30%, 35% margin. I mean, It's a little bit more complicated than that like M and A, you've got Lucky Strike, you've got Mavericks, Octane, both of those are going to be big part of it. And ultimately, though it's the flow through game is pretty straightforward for us.

Speaker 1

From an organic basis, we are saying that we think our centers, the core centers will be flat, but then we'll have for significant growth from M and A and the acquired centers that we acquired throughout the year of FY 2023.

Speaker 6

Okay, perfect. Thank you very much. And then, if I could squeeze in maybe one more. On the M and A, How are we thinking about M and A going forward? Is it going to be pure bowling?

Speaker 6

Are you going to be looking for other opportunities? Maybe kind of give us a holistic sort of description of like what you guys are doing. And if I could sneak in just, Bobby, cash interest, what should we expect for next year. Thanks.

Speaker 2

I'll take the M and A part. I mean, there are probably 500 to 700 viable acquisition candidates in the U. S. And to build opportunities on the bowling front. So, we don't have any current plans to expand beyond bowling.

Speaker 2

People made a big deal out of the Octane acquisition in Scottsdale. Octane and Mavericks were co located. It was one business in 2 buildings with a shared courtyard. So It wasn't like we were moving whole hog into something new. Now it may be that we learned things in the Octane acquisition that make us bullish on some product line extensions.

Speaker 2

But Boeing is a great business. And The weakness that we've seen lately in our comp number came in the slowest part of the year and was largely driven by Experimentation. And frankly, I have no regrets that we did that because the things that we learned are going to to power the company for a very long time to come. Incremental spend from the special is very powerful. We now have food specials.

Speaker 2

We're actually selling our products for the first time in the company's history on a retail basis. As mentioned, the event business continues

Speaker 3

to be strong.

Speaker 2

That is that we think there might be as much as $100,000,000 of upside in that business over the next couple of years. And we're going to add on order of $100,000,000 to $110,000,000 of revenue just from the stuff that's announced and closing in very short order. So, the Boeing business is a very, very extremely profitable business that has proven to be much more resilient than our peers certainly over the last couple of months and we feel very bullish. So We looked at every other business in the entertainment space. We've never found one that we liked from a margin perspective, from a return perspective, from a stability perspective.

Speaker 2

And so that's a long way of saying we remain extremely bullish on Boeing With no plans to really move beyond it. And interest expense is 140.

Operator

Our next question comes from the line of Jason Pilchon with Canaccord Genuity. Please proceed with your question.

Speaker 7

Great. Good morning and thanks for taking the question. You talked

Speaker 2

a lot about a lot

Speaker 7

of the capital investments planned for fiscal 2024. I'm just curious as you contemplate stimulating demand and getting traffic back in, how you view the marketing budget this year and also how some of the recent digital Strategies have impacted either demand or uptake of some of the additional bundled offerings over the past few months. Thanks.

Speaker 1

Yes. We've always viewed our business as very captive walk in. We are investing in the website And we are evaluating a changing some centers' names to Lucky Strike. So we'll probably invest a little bit more in marketing. We budgeted that.

Speaker 1

But I don't think you're going to see us go outright Double, triple marketing, like we just we've never seen the return. The website change is probably the only place that we could Potentially ramp up dollars if customer acquisition is very profitable.

Speaker 7

Great. That's helpful. And just one follow-up. Is there any color you can share on how demand trends and traffic trends varied in different regions across the country, both during Q4 and also in the

Speaker 2

period since then. Thank you.

Speaker 1

Yes, I would say probably the weakest was in the Midwest, which was The Midwest, if you look at it, is probably our highest promotional requirement, region. The Northeast was pretty And so Northeast responds less to promotion, Central responds more to promotion. We did see a little bit of weakness from the heat in the past few months. So heat is okay for our business, too much heat means people don't go outside. Really, the weakness in our business who was mostly in Central where there is just a heavy promotional environment.

Speaker 7

Great. Thank you very much.

Operator

Our next question comes from the line of Daniel Moore with CJS Securities. Please proceed with your question.

Speaker 8

Thank you. Thanks for all the color. Most of mine have been answered, but maybe a little bit more detail on Cadence as we think about fiscal 2024 Q1 guide, very helpful. In terms of same store sales, would you expect them Remain down slightly through Q2 and then perhaps an improvement as we look at the back half of the year getting to kind of flattish and Similarly, EBITDA margins on a year over year basis, any color on cadence there would be helpful. Thanks.

Speaker 1

Yes. So it's minus 5 for the Q1, it should be flattish in the second and third quarter and then up in the 4th quarter. As it relates to EBITDA margin, like the cadence from last year is the one I would follow. So it's obviously we have high incrementals, So we'll have much higher EBITDA margins in the second and third quarter than we do in the 1st and the 4th quarter. And it's we've given a range 32 to 34 And that's we feel good about that for now and going forward.

Speaker 8

Very helpful. Thank you again.

Operator

Our next question comes from the line of Eric Wold with B. Riley. Please proceed with your question.

Speaker 3

Thanks. Good morning. So you mentioned a couple of times about your rebranding of some centers as Lucky Strike and leading into that brand. I guess, first off, remind us what the plans are for the existing Lucky Strike standards you acquired in terms of how much Needs to change, either structurally or operationally within those. And then what makes that determination on whether a new build or existing center would be Switched over to Lucky Strike and then what needs to happen if you do make that change in terms of within the center or is it merely more by name and branding around it?

Speaker 2

So the Lucky Char portfolio is kind of unique in that they have Most of their centers are in really marquee locations. So LA Live! Hollywood, they're in Bellevue, Washington, which Just important tech center right side of Seattle, Downtown Denver, Downtown Chicago, Downtown Boston, Downtown Philly. So it's really a irreplaceable set of assets. Now Lucky Strike has sort of been financially challenged for a long time.

Speaker 2

They haven't had the reinvestment capital. So a lot of the properties are very tired. So we've got a Significant capital budget that we've allocated to refreshing the properties, but they're in no way meaningfully impaired. They're just tired looking. So That's an easy fix.

Speaker 2

We've done we've hired Nielsen to do a brand study and they came back And said that the Lucky Strike brand was meaningfully more powerful than Bolero. And that was sort of our intuitive sense as well. And so We're going to open a couple of new centers under the Lucky Strike brand and sort of see how that goes. Now it's hard to tell, right, when you have a new center, Did it do better as a Lucky Strike than it would have as a Bolero, but I think we'll at least have a strong intuitive sense after that whether We got a lift and if so, then I wouldn't rule out eventually rebranding all the Valero's as Lucky Strikes, Certainly all the new builds would come online as Lucky Strikes. I'm not predicting it, but I'm saying we're certainly open to it.

Speaker 2

I think everyone we've Spoken to says things that the Lucky Strike brand is better. That's our sense as well. And so we're happy to roll that out.

Speaker 3

So on the Q3 call, you noted some of the in lane ordering kiosks maybe not going as well given the The need for kind of training and staffing or kind of training staff around them. Any updates on how that's progressing and if you've seen Any improvements in engagement or check size with the centers you have focused there?

Speaker 2

Well, I think that's part and parcel of what we've been talking about with creating the selling culture. So unrelated to kiosks specifically, but the fact that the people were not adequately using the kiosks because they weren't being Taught and Souled from the staff was basically was the problem that we're addressing. And so we started out with a special and it's important for, I think, listeners to understand just how successful the special has been. So we started out with A very simple proposition, which was, ball a third game because all of our data suggested that people balled 1.8, 1.9 games per visit. So prepay for a 3rd game and we'll sell it to you for $5 and we'll give you a $5 arcade card.

Speaker 2

And over time, we've raised that dollars 5 special in certain centers, dollars 6 and even $7 because demand was so hot. Over 100 and 100 of 1000 of transactions, The take rate on that has been north of 60%. On some days, it's even higher than 70%. So We've gone from a culture where there was no selling going on to a culture where there is selling and tremendously successful result. We broadened that to an arcade upsell, we call the Power Up and then 3 weeks ago, the Pizza and Pitcher special, which is actually 2 specials, A pizza with one topping and a pitcher of soda or a pizza with 1 topping and a pitcher of beer.

Speaker 2

And then in short order, there'll be an upsell on the beer from domestic to imported premium. In the first 3 weeks from a standing start, we did over $1,000,000 on Pizza and Pitcher in the slowest part of the year. So we've really gone from The employees would literally process the request when they came in order takers. So now we have A fairly strong cultural basis on which we're building with a selling culture. And I think that long term that could have a and will have a very meaningful impact on the business.

Speaker 2

Very helpful. Thank you.

Operator

Our next question comes from the line of Jeremy Hamblin with Craig Hallum. Please proceed with your

Speaker 3

Thanks and congrats on a strong year last year. I wanted to see if I could just By getting some clarification in what's included in the acquisition for your guidance for the year. So you noted that You're closing deals that would have annualized run rates, dollars 100,000,000 or a little bit higher than that, But you haven't closed the biggest acquisition thus far. You're nearly done with the Q1. My baseline assumption is even if you included that, you couldn't contribute more than $75,000,000 or 80,000,000 for the full year guidance.

Speaker 3

But Bobby, I wanted to see if you could clarify within that $1,400,000,000 to 1,190,000,000 How much of that is, kind of the legacy organic business versus the acquired business.

Speaker 1

Yes, our guidance is the organic business is flat. All of its M and A, plus some conversions kind of towards the end of the year. Lucky closes next week. Mavericks Octane closed at the end of August. Those are kind of the 2 biggest acquisitions.

Speaker 1

So that's really The fuel and the fire of the guidance.

Speaker 3

Okay. So not a specific range and what A portion of Lucky Strike's being included on that for the full year?

Speaker 1

Yes, I mean it's going to be 3 quarters of Lucky Strike. And you remember Lucky Strike, like our events business, is very heavy in the second and third quarter.

Speaker 3

Great. And then as a follow-up, in terms of how are the Lucky Strike Centers performing? So if you guys have kind of Fell into comps running in this down low single digit to down mid single digit range. How are the Lucky Strike Centers performing in this environment?

Speaker 1

Yes, I mean it's similar to us.

Speaker 3

Okay. And then the last thing is you've reflected, Tom, you've who talked about how if you have a softer consumer environment, I know you've had a lot of questions about what happens if we go into recession, how does the business And you've noted that you can take out maybe as much as 30% out of your SG and A. In the June quarter, you saw gross margins down pretty significantly. And my assumption is you're going You're going to see some of that same degradation here in the September quarter. But how are you thinking about Kind of the split of your performance in this 32% to 34% EBITDA margin guide.

Speaker 3

How much of that, Bobby, is kind of the gross margin degradation versus SG and A savings. And then included within that guidance, I just wanted to see if you could give us some color on what

Speaker 1

for the year. Yes. So from a cost perspective, We are implementing significant cost saves. So there are kind of 2 primary buckets, what I would call our Excesses at the centers. So the centers had post COVID excess security.

Speaker 1

That was a huge one. They have sort of we're overspending on sort of what I would call consultants. And so this is money we can Bring in at the centers. So these are the people who install AV. These are the people who do maintenance.

Speaker 1

Like costs have just been ramped up and so we're going to pull those back. At the same time, there's a lot of opportunities at corporate, whether it's insurance, whether it's IT, there's a lot of different opportunities to Of course, we are going to reinvest them. So, one we talked about on the call is we have raised wages at the centers about $10,000,000 on annualized basis. That will pay for itself in stage. It just takes a few quarters to flow through.

Speaker 1

So at the end of the day, I think sequentially, you're going to see SG and A Vlad, but you'll see gross margin go up with revenues.

Operator

Our next question comes from the line of Eric Handler with ROTH MKM. Please proceed with your question.

Speaker 3

Yes, good morning and thanks for the questions. I had a little technical glitch earlier, so hopefully I'm not asking something that was already asked. But What is the total CapEx outlook for this year? And then in terms of the amount of money you're spending on upgrades, how many centers does that Suggest and how many centers are actually left in your portfolio to upgrade?

Speaker 1

So there is about 100 to 150 centers to still upgrade. Like we make conscious decisions on whether or not to upgrade full lead houses. You won't see us put like pin strings into lead Sort of, but there's still a long runway about $300,000,000 today. And as we do M and A, that does replenish that pipeline. From a total CapEx perspective, maintenance CapEx, which is still elevated, should be about $40,000,000 Conversions for our $75,000,000 and those are kind of the 2 primary buckets of CapEx.

Speaker 1

There's a little bit of corporate CapEx, which is about $10,000,000 But that's how you should look at sort of our total investment in 24.

Speaker 2

Thank you.

Operator

Our next question comes from the line of Michael Kupinski with NOBLE Capital Markets. Please proceed with your question.

Speaker 2

Thank you for taking my questions. Just a quick one here. Obviously, there's been a little bit of resurgence in COVID across the country. And I was just wondering in terms of your Current traffic patterns, are they reflective of that increase or is it more just the macroeconomic trends that you're seeing that are affecting the traffic patterns?

Speaker 1

Yes, we haven't seen any COVID. I will say that the traffic when we look at it on a On a day to day basis, the traffic for full time retail is flat versus the traffic on promotional activity is down double So we actually think we're getting the beneficiary of people pulling back a little bit. Like obviously, everybody taking vacation in August has impacted everyone. But ultimately, we're feeling actually pretty good about the consumer, particularly with the green shoots we have and more leagues have come back,

Speaker 2

Yes. Let me add, who will be available to us. There was an interesting take on that we haven't mentioned, and that is that we effectively raised price with the bundle. We raised prices in events. We raised prices on leagues going into the fall and all of those businesses increased.

Speaker 2

Where we eliminated some of the promotions, very deeply discounted nights. We saw a big reduction. And so the takeaway from that is that we have a very wide range of customers in terms of price sensitivity. So tremendous insight, right, that some people are really interested in a very Sheap all you can bowl on a off night of the week, a Tuesday night, for example, but that the retail, the prime time Walk in customer is much less price sensitive than perhaps we realized. And so these insights are very, very powerful And we took them.

Speaker 2

We took the cost of learning them in our slowest part of the year. So If you strip out the impact of the elimination of all of the promotions, we're effectively flat through the summer, which again given the general weakness that people see in the consumer, certainly our peers and what we know anecdotally, It seems like everyone we know traveled, that the results were actually pretty respectable and we're a hell of a lot Smarter now than we were 3 months ago when we embarked on this process. So a really interesting insight, where we had The most, promotionally focused consumers in the Midwest, we were down by far the most. And where we have the least On the coast, we weren't really down at all. And so we have learned an awful lot about consumer behavior in the last couple of months, I'll say that.

Speaker 2

That's really interesting. Thanks for the color. That's all I have.

Operator

Thank you. We have no further questions at this time. I would now like to turn the floor back over to management for closing comments.

Speaker 1

Thanks, everyone. We look forward to talking to you soon.

Operator

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

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Earnings Conference Call
Bowlero Q4 2023
00:00 / 00:00