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

Hello, everyone. Thank you for joining and welcome to Lucky Strike Entertainment First Quarter 2027 Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star and then 1 to raise your hand. To withdraw your question, press star, and then one again. I will now hand the conference over to Bobby LaVon, Chief Financial Officer. Bobby, you may now go ahead, please. Good morning to everyone on the call. This is Bobby Lavin, LuckyStrikes President and Chief Financial Officer. Welcome to our conference call to discuss LuckyStrike's first quarter 2027 earnings. Today, we issued a press release announcing our financial results for the period ended September 27, 2026. A copy of the press release is available in the Investor Relations section of our website. Joining me on the called today is Thomas Shannon, our Founder and Chief Executive Officer. 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-thinking statements are not guarantees of future performance, and therefore one should not place undue reliance on them. Forward-looking statement 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 actually cause actual result to differ from those discussed in our forward- looking statements, you 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. Lucky Strike Entertainment undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances that occur after today's call. Additionally, during today's calls, 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. Thank you, everyone, for joining today's call. Lucky Strike's fiscal first quarter revenue grew 3.5% to $302.6 million dollars and adjusted EBITDA was 72.1 million dollars essentially flat with last year. The water parks performed well. The same store bowling comp improved each month and we kept costs under control which helped protect earnings. July comps were down four percent meaningfully impacted by the World Cup. August was down three percent and September was up two percent so we saw sequential improvement throughout the quarter. Cumulatively, same-store revenue was down 2.6%. October is still preliminary, but we were tracking positive until the last weekend when Halloween fell on a Saturday instead of a Friday last year, and losing millions of dollars on that Saturday was enough to push the month slightly negative. Event sales have been encouraging, with revenue at or above prior year for six consecutive months through October, after several years of declines. First quarter event sales growth was 3%, and bookings for October through December are tracking up on a comparative basis, led by corporate events. League revenue grew for the quarter, even with September down because Labor Day fell a week later and pushed back the start of the fall leagues back by a week. For the fall, a recurring revenue league business looks to be up three to four percent. Food and non-alcoholic beverages grew while alcohol was down, consistent with what the restaurant industry is seeing. California, which has been our weakest market for quite some time, was down mid-single digits for the quarter, but the gap with the rest of the company narrowed from six points in July to five in August and less than two in September when California turned positive, and the leadership changes we made over the summer gaining traction there. On the cost side, we did what we said we would do. Payroll hours at comparable centers were down 5%. Total labor costs decreased by $1 million, even with a $1.2 million increase in healthcare costs, and operating expenses fell $3 million, which is how we were able to grow same-store EBITDA on a slightly lower revenue. Our water parks generated $25 million in EBITDA, up $9 million from last year. It was the first full summer under our ownership of our two largest water parks, Raging Waters in California and Emerald Point in North Carolina. With the parks now closed, we're working on next season's past sales and pricing with ambitious sales increases targeted. On marketing, every dollar has to earn a return. We held working media spending flat, cut awareness advertising to a small share of spending, and moved dollars towards channels that convert. Platform-reported paid media returns improved 3.2 times from 2.7 times last year, and web sessions were up 22%, which is encouraging. Food and beverage sales represent about a third of our revenue, and we have to keep up with how people's habits are changing. Fewer adults are drinking alcohol, and there's a significant adoption of GLP-1s. We're seeing food sales increase while alcohol sales decline, and we're adjusting our menus with simpler, hands-free food, zero-proof drinks, and attractive limited-time value offers. Capital spending in the quarter was $21.5 million, down 17% from the same quarter a year ago, and the lowest quarterly spend we've had in five years. we expect to spend roughly 90 million dollars of capex this year compared with 114 million dollars last year and 194 million dollars at the peak we ended the quarter with 1.817 billion dollars of debt and 38 million dollars in cash essentially unchanged from june our priority for fiscal 2027 is deleveraging leverage is 5.5 times last year's adjusted ebitda and with capex at roughly half its peak, lower litigation spending, the sale of a small number of non-core assets, and free cash flow, we endeavor to put roughly $100 million towards debt reduction over the next year. At the midpoint of our EBITDA guidance, that would bring leverage down to about five times. As part of our deleveraging efforts, the Board has decided to suspend our quarterly dividend, bring up about $35 million of cash a year, and we'll revisit the dividend as leverage comes down. Our view of the long-term earnings power of this business has not changed. We're reaffirming fiscal 2027 adjusted EBITDA guidance of $340 million to $360 million. Nothing we saw in the first quarter changes that outlook. With that, let's open it up for questions. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star and then one to raise your hand. To withdraw your question, please press start and then 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Stephen Wyszynski of Stifel. Your line is now open. Hi there. This is Jackson Gibbon for Steve Wyssynski. Just wanted to get a little more color, if possible, on the same-source sales comp and some of the moving pieces underlying that metric. I think on the last call, you mentioned July was down low single digits. August could have gone either way. And then the release, you know, September was positive. Sounds like August ended up similar to July. And if so, what drove that? And then any more detail around the retail walk-in softness you're seeing? And is that more tied to the low end? And have you seen that recover at all in October? Yeah, we talked about on the last call. So July was World Cup, right? And August was we actively sold less summer passes this year, which is something that we're evaluating for next year. So August is going to be our slowest month of the year. September is when you don't have World Cup. You don't have water parks. You Don't have summer passes. It's the cleanest month you have. And in that month, we were up to on as it relates to retail, you know, gas prices are going to spook people. So that is something we're focused on. But we're not seeing that on our leads business. We're not saying in our events business, you You know, so ultimately, you know, there's a little bit of transition going on in the economy. And as the comps, you Know, frankly, get easier throughout the year, that should balance out. Okay, gotcha. That's helpful. And then for my follow up, I just wanted to dig in a little bit on the events business and see if you can give any more color on how that's been trending. On last quarter's call, you mentioned the December backlog was tracking up around 10% on a comp of down 30% the year before. Could you just give us an update on how that's trended over the past three months or so, factoring this incremental softness you're seeing on the smaller, more price-conscious event side, which I would assume is more tied to birthday parties and the like? Yeah, so if you think about our mix of our events business, it's really two-thirds corporate, a third kids and adult parties. The corporate parties are gonna be the ones that book early. Corporate is up double digits for us, While, as Tom said in his comments, adult and kids parties are a little bit under pressure. So that 10% has come down, but it's still positive going into the holidays. Your next question comes from the line of Ian Zafino of Oppenheimer. Your line is now open. Great. Thank you very much. As far as the kind of key into the alcohol comments, do you think it's a pricing thing where it might be you're able to fix it with promotions or is it just cultural and there's not a whole lot you could do as it relates to that? I mean, it's also maybe like GLP-1 related, and if so, it doesn't seem like food is tracking with alcohol, but maybe any of your thoughts there, maybe how you address it, or if there's anything in your power to kind of do anything. Thanks. Well, I think we could address it with price. And we've been very thoughtful about price recently, adjusting price across our entire product line. The one place we haven't addressed price yet is alcohol. So we'll certainly test that. But there are societal trends where people are drinking less. Young people view alcohol consumption as a health risk. A lot of alcohol consumption has been replaced with cannabis use, etc. At a certain point, I suspect those declines will flatten out, but everyone has seen meaningful decrease in alcohol consumption, except probably at the very high end where you're dealing with an older consumer. So it is it is largely a societal trend, but there are things that we can do to mitigate it that we haven't done yet. And we're launching a new menu in the coming weeks where we're changing around sort of our alcohol mix. You know, historically, our non-alcoholic drinks have been more juices versus now we're going to lean into zero proof alcohols. So there's a lot of opportunity. I mean, our non-alcohol is up double digits. Our food is up, you know, single to double digits, you know, alcohol being down low to mid single digits, I think we can attack. So we're not seeing down double digits like some bars and things are, but ultimately the focus is going to be doing what we did on food the past few years and that sort of proof positive of that when we put an initiative in place, we can grow the numbers. We're going to do the same on alcohol. Okay, thanks. And then maybe on the leverage side, any thoughts on, you know, additional asset sales or portfolio pruning as a way to kind of get you to the leverage you want to be at? Or are you kind of happy with where you are? Thanks. Yeah, I mean, we're in market with a handful of asset sales, they're non-core, they're extra pieces of land that we have in places. We have some trapped investments on our balance sheet. There's a lot of opportunities to kind of generate capital that isn't earning a return that ultimately the goal is to pay down a few hundred million in debt. Okay, thank you very much. Again, if you'd like to ask a question, please press star followed by one on your telephone keypad. That's star followed one on the telephone keypad We will pause for a brief moment to wait for the questions to come in. Your next question comes from the line of George Proust of Noble Capital Markets. Your line is now open. Hi, this is George Prost filling in for Mike Kupinski. I was wondering if you could provide some color on your event sales. So it grew 3% in Q1. But could you split that out versus corporate versus consumer events? Yeah, corporate's up and consumer events is flat. Then your paid media ROI improved to 3.2 from 2.7x, but the same store revenue is down. So where's the disconnect in that? Is it conversion, average ticket, or returning customers? Yeah, I mean, it's just that in July and August, there were two discrete dynamics that we did not see in September or October. So ultimately, the marketing is working. You know, this summer is our lowest time of year, right? If you think about just sort of our EBITDA progression throughout the year, our summer is going to be our lowest. So we're going to be overly impacted by discrete events, the World Cup, pulling back on summer pass. And these are things that gives us confidence in our guidance for this year, in that when we look to September, we were up 2%. When we look at our backlog for events, we're tracking well, right? But we also get into the summer, where last year, we were less active on summer pass, we didn't open our water parks in the panhandle during the week in April and May, which cost you a few million dollars, you know, and ultimately, the consumer dynamic, the water parks, we think we now understand, which is really have to find a balance between price, volume, and how early in this year you sell season passes. So, water parks last year, we didn't start really selling season passes until February. This year, we started in August, and that is trending well. So, ultimately, this summer was one discrete event that isn't going to happen again. One issue that was sort of self-inflicted was summer pass. When we cleared that, September was fun. All right. Thank you. Thank you There are no further questions at this time and we have reached the end of the Q&A session. This concludes today's call Thank you for attending. You may now disconnect. Goodbye