Lucky Strike Entertainment Q1 2027 Earnings Conference Call - LUCKY STRIKE ENTERTAINMENT CORP

Financial Performance:

• Q1 2027 revenue increased 3.5% year-over-year to $302.6 million.
• Adjusted EBITDA was $72.1 million, remaining essentially flat compared to the prior year.
• Same-store revenue declined 2.6% cumulatively for the quarter, though sequential improvement occurred (July -4%, August -3%, September +2%).
• Same-store EBITDA growth was achieved despite lower revenue through strict cost controls.
• Payroll hours at comparable centers decreased 5%, and total labor costs fell by $1 million despite a $1.2 million increase in healthcare costs.
• Operating expenses declined by $3 million overall.
• Water parks generated $25 million in EBITDA, a $9 million increase year-over-year, marking the first full summer under current ownership for Raging Waters (CA) and Emerald Point (NC).
• Capital expenditure was $21.5 million (down 17% YoY), the lowest quarterly spend in five years; annual capex guidance is revised to ~$90 million from $114 million last year.
• Cash position stands at $38 million; total debt is $1.817 billion.

Guidance and Future Outlook:

• Reaffirmed fiscal 2027 adjusted EBITDA guidance of $340 million to $360 million.
• Management views long-term earnings power as unchanged; Q1 results do not alter the full-year outlook.
• Future leverage target is ~5.0x adjusted EBITDA; current leverage is 5.5x.
• Goal to deploy ~$100 million toward debt reduction over the next fiscal year via free cash flow, reduced capex, lower litigation spend, and non-core asset sales.
• Dividend suspended to preserve approximately $35 million in annual cash for deleveraging; dividend status will be revisited once leverage declines.
• Q4 preliminary tracking was positive until October, which turned slightly negative due to Halloween falling on a Saturday (vs. Friday in prior year) resulting in significant revenue loss.
• Fall leagues revenue expected to grow 3-4% for the recurring business.
• Event bookings for October through December are tracking up on a comparative basis, driven by corporate events.

Business Segments and Product Lines:

• Bowling: Same-store comps improved sequentially throughout the quarter; October comps were mixed due to calendar shifts.
• Events: Total event sales grew 3% in Q1; corporate events are up double digits, while consumer events (kids/adult parties) remained flat or faced slight pressure.
• Water Parks: Strong performance in the first full summer of ownership; management plans ambitious sales increases and pricing strategies for the next season.
• Food & Beverage: Food and non-alcoholic beverages grew (non-alcoholic up double digits); alcohol sales declined (low-to-mid single digits) due to shifting consumer habits and GLP-1 adoption.
• California Market: Revenue down mid-single digits for the quarter but narrowed gap with national average from 6 points in July to <2 points in September following leadership changes.
• Product Adjustments: Rolling out new menus featuring simpler, hands-free food items and zero-proof drinks to align with changing consumer preferences.

Market and Competitive Landscape:

• Alcohol Trends: Industry-wide decline in alcohol consumption driven by cultural shifts, youth health perceptions, and cannabis substitution; declines expected to eventually flatten.
• Marketing Efficiency: Paid media returns improved to 3.2x from 2.7x YoY; web sessions increased 22%.
• Consumer Behavior: Retail walk-in traffic impacted by gas prices and economic transition, while the "leads" and corporate events businesses remain resilient.
• Competitive Positioning: Management confident in the ability to mitigate alcohol declines through menu innovation and pricing tests, similar to successful food initiatives.

Risks and Challenges:

• Leverage: High debt levels (5.5x EBITDA) necessitate the dividend suspension and aggressive deleveraging plan.
• Macro Factors: Economic uncertainty affecting retail walk-in traffic and price-sensitive consumer segments (e.g., birthday parties).
• Calendar Risks: Variations in holiday timing (e.g., Halloween weekend) can significantly impact monthly revenue comparisons.
• Consumer Trends: Structural decline in alcohol consumption and adoption of GLP-1 medications impacting beverage revenue.
• Operational Constraints: Summer months historically generate lowest EBITDA; past decisions on summer pass pricing volume have impacted performance.

Management Commentary and Tone:

• Tone: Confident and disciplined; management emphasized cost control, operational efficiency, and strategic portfolio management.
• Strategic Focus: Prioritized deleveraging over growth investments; emphasized that every marketing dollar must earn a return.
• Optimism: Expressed confidence in the rebound of September comps and the strength of the corporate events backlog despite summer headwinds.
• Transparency: Openly acknowledged self-inflicted challenges (summer pass strategy, water park opening timing) and corrective actions taken.

Analyst Questions and Answers:

• Same-Store Sales Drivers: Management clarified July/August declines were due to the World Cup and a strategic reduction in summer pass sales; September (+2%) represents a "clean" month reflecting underlying resilience.
• Event Mix: Confirmed corporate events are up double digits, pulling back the overall decline in the smaller consumer event sector; Q4 backlog remains positive.
• Alcohol Strategy: Addressed that alcohol decline is largely societal but can be mitigated via menu restructuring (shifting from juice to zero-proof alcohol) and potential price adjustments.
• Deleveraging Plan: Confirmed active search for non-core asset sales (e.g., extra land, trapped investments) to generate capital for debt paydown.
• Marketing ROI: Explained that despite flat same-store revenue in summer, marketing ROI improved, with confidence that seasonal headwinds are one-time events not repeating next year.

Other Key Points:

• Dividend Suspension: A permanent shift for now to support debt reduction; the board will reassess once leverage drops to ~5.0x.
• Asset Sales: The company is actively marketing non-core assets to free up trapped capital.
• Cost Discipline: Successful reduction in operating expenses ($3M) and labor costs allowed for EBITDA growth on slightly lower revenue.
• Water Park Strategy: Moving to earlier season pass sales cycles (starting August instead of February) and refining the balance between price and volume.
• Safety & Compliance: Standard reminder regarding forward-looking statements and non-GAAP financial measure reconciliations available on the IR website.