Dave & Buster's Entertainment, Inc.

flat comp store sales compared to 2019 despite COVID implications. We continue to see a benefit from a higher mix of amusements and a leaner operating model. Even with headwinds from wage and commodity inflation, we've continued to grow margins and have offset these impacts through a more efficient labor model enabled by technology, lean process improvements, proactive pricing adjustments, and more effective marketing investments. Looking forward, we are poised for our stores to return to new levels benefiting from the removal of COVID restrictions, the return of special events, and the efforts of recent initiatives. For fourth quarter sales, we experienced a comp store sales decrease of 2.6%, excluding the 14 stores that had vaccine mandates during the quarter. Including all stores, we experienced negative 6.8% comp and total revenue decline of 1.2% compared with 2019. reflecting softness due to the Omicron variant and associated vaccine mandates and the reduced special events business due to COVID. Our walk-in sales continued to post positive comps at 2.1%, although our special event business continued to lag at negative 58% compared to 2019. By month, our overall comps were positive 7.5% in November, negative 14.9% in December, and negative 8.4% in January, which highlights the timing of when the Omicron variant hit. Our walk-in comps, which excluded the impact of our lagging special events business during a seasonally strong holiday party season, were positive 13.9% in November, negative 4.1% in December, and negative 0.9% in January. Regarding sales mix, Amusements and Other had a positive 7% comp and with 65% of our overall mix compared with 56% of our mix in 2019. This is mainly due to minimal discounting and a continued shift to higher denomination power cards. SMB had a negative 24% comp compared with 2019, a substantial portion of which was due to the special events business. Adjusted EBITDA for the quarter was 87.7 million, or 12.7% higher than the same period in 2019. This reflects a 25.5% adjusted EBITDA margin, which was over 300 basis points higher compared to the same period in 2019. The improved performance was primarily driven by the higher amusement mix and leverage on our labor due to a more efficient model. Net income increased $700,000 to $25.7 million in the quarter compared with 2019, resulting in EPS of 52 cents per diluted share. These results generated positive operating cash flow in the quarter. We ended the quarter with $26 million in cash and approximately $492.5 million of liquidity under our $500 million revolving credit facility, net of the outstanding letters of credit, and our net leverage ratio was only 1.2 times. Total long-term debt was $440 million at the end of the quarter, consisting of our senior notes maturing in 2025. During the quarter, we redeemed $55 million of our senior secured notes, which resulted in a $1.7 million expense to redeem the notes, but we'll save $4.2 million in annualized interest. Turning to capital spending, we invested $26 million in capital additions, net of tenant allowances. We opened one new store during the quarter. In the first quarter, we plan to open two additional stores in April. In fiscal year 22, we plan to open a total of eight new stores. As you can tell, we're pleased with the fourth quarter results and the sound financial footing we've established going into fiscal year 22. Turning to our outlook, I'd like to offer some insights for the first quarter of fiscal year 22. Regarding sales trends, our comp sales for the first eight weeks have been positive 5.4% compared to 2019. Our walk-in business is up 9.1% on a quarter-to-date basis, and our special events business is down 42% on a quarter-to-date basis. Fiscal 22 projected capital additions, net of tenant allowances are expected to be approximately $200 million, with 70% dedicated to new stores and improvements to the existing stores. 10% for games, and 20% for infrastructure upgrades and replacements. In summary, our team continues to execute on our initiatives to drive organic growth, improve profitability, and produce significant cash flow for the business. We are pleased with our progress and are well positioned as we enter in fiscal 22. With that, I'll turn it over to Margo.

Thank you, Mike, and good morning, everyone. We continue our commitment to simplify store operations improving our guest experience, and enhancing our food, beverage, and entertainment offerings to drive sales and profitability. Our guest satisfaction food scores show the menu change made in May of 2021 is appealing to our guests. Additionally, we have established a new cadence of four food and beverage limited time offers per year aimed at driving checks and food attachments. Starting in Q1, we are rolling out reservation capabilities throughout the brand to make it even easier for our guests to dine with us. Guests will now be able to reserve a table in our dining rooms directly through the DMV website or via open table. Our new beverage menu was designed to expand both reach and appeal. In Q4, we launched a tightly curated beverage selection that elevates the experience, adds new flavor profiles, and improves relevancy. In Q1, we'll make a strong push to revitalize our late night segment through a combination of marketing and programming efforts. Our late night happy hour initiative consists of a series of D&B nights complete with custom content, AV takeovers featuring club mixes from nationally known and regional DJs taking over the airwaves of D&B Live. As discussed on prior calls, we have launched several tests to determine the entertainment appeal of programming. These tests indicate our guests have an appetite for new entertainment offerings, and we are continuing to refine these offerings with the goal of giving our guests more reasons to visit. As Kevin mentioned, early in Q1, we launched a nationwide partnership with both UFC and WWE to bring their pay-per-view events to the DMV locations across North America. This effort is to make Dave investors de-placed to see all fights in an exciting up-tempo environment. The partnership with WWE will launch with WrestleMania on April 2nd and 3rd and continues with the SummerSlam this July. In addition, we've brought more attention to March Madness showings with visible signage and more integration on our digital signage, including a digital bracket that was updated throughout the tournament. We have also been investing in enhanced technology to support our entertainment initiative with the phased rollout of live remote streaming capabilities into our stores that will allow us to broadcast real-time, high-definition video content such as DJ sets, concerts, and stand-up comedy. Next, let's move to event sales recovery, which was depressed in Q4 during Amazon. While lagging walk-in sales, event sales have accelerated in recent weeks. Specifically, we are seeing our corporate segments start to rebound. With the centralization of our sales team, we believe we are positioned to optimize outbound call activity to drive incremental sales. Our new centralized sales center, augmented by local store management, has already demonstrated an increased booking level per sales representative. The new DMV rewards program, which is linked to the DMV app, launched on November 8th and continues to exceed projections. In Q1, a localized marketing campaign, leveraging connected TV, will be used to support Spring Break week throughout our brand. In addition, we are bringing back one of our most successful promotions. Our Eat and Play combo will run as a limited-time offer for the length of April to capitalize on tenant demand from our more value-oriented guests. We believe as structured, this will drive incremental spending behavior and expose new guests to our brand. Lastly, I'm pleased to share that we've been able to improve our store's hourly staffing levels. We've seen an increase in our applicant flow, which is a positive and refreshing trend for our team. This trend has enabled us to shift our focus on entertaining these new hires through training, skill development, and providing a great employee experience. To the entire D&D family, thank you for all of your efforts this past year. You are the heart of this brand and the reason the fun comes to life in our stores. With that, I'll hand the call back over to you, Kevin.

Thanks, Margot. We are pleased with the results we delivered in the fourth quarter, despite numerous headwinds, including vaccine mandates, Omnicom, wage and labor pressures, supply chain challenges, and the lagging special events business. We are optimizing our return to a more normalized post-COVID environment, as the headwinds we have experienced become tailwinds, fueling our business as we move forward. We have an exceptional business model, strong assets, and a talented team. There is meaningful upside potential for this company and we are laser focused on driving that to reality. Our team is extremely excited about the prospects for 22 and 2023 and well beyond. Let me end with these thoughts. We came very close to reporting record fourth quarter revenue despite being significantly impacted by Omnicom. We're starting to see a recovery in our special events business. which was down by 72% on an annual basis in 2021 compared to 2019. We are shaping our strategic initiatives and also making great progress improving margins. Our international efforts will start to blend in, we believe beginning in the latter part of 2023, and then you can add in our heightened focus on sports viewing and sports betting. All of these actions will begin to write the script for the next couple of years. So tighten your seat belts as we are on the move. Now we'll take your questions. Thank you.