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spk00: and welcome to the Bolero Carp Q3 2022 earnings conference call. All participants will be in a listen-only mode. During this call, the company may make certain statements that constitute forward-looking statements. Such statements reflect the company's views with respect to future events as of today and are based on our management's current expectations, estimates, forecasts, projections, assumptions, beliefs, and information. These statements are subject to a number of risks and uncertainties that can cause actual events and results to differ materially from those described in the forward-looking statements. For further details concerning these risks and uncertainties, please see our final prospectus file with the SEC on February 1, 2022. The company expressly disclaims any obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments, or otherwise except as required by applicable law. In addition, during today's call, the company will discuss non-GAAP financial measures which we believe could be useful in evaluating our performance. Reconciliations of adjusted EBITDA to net income calculated under CAP can be found in our earnings press release and will be included in our Form 10-Q for the third quarter of fiscal year 2022. As a reminder, this conference is being recorded. I would now like to turn the conference over to Brett Parker. Please go ahead.
spk08: Good evening and welcome to the Bolero Corp earnings discussion for Q3 of fiscal year 2022. I am Brett Parker, President and CFO of Bolero Corp. Before I begin, I direct you to the disclaimer on page two of the deck, as well as the reconciliation for non-GAAP measures in the appendix, both of which are an integral part of this presentation. In this presentation, you will find a discussion of, among other things, adjusted EBITDA, which is a non-GAAP financial measure that is not in accordance with or an alternative to measures prepared in accordance with GAAP. We are extremely pleased with our performance in the quarter and the first nine months of the year. Our performance in Q3 resulted in the highest level of revenue and adjusted EBITDA in the company's history. The business is now materially outperforming pre-pandemic performance, both in total and on a same store basis. We also continue to generate prodigious levels of cash from operations, which positions us favorably to continue to execute our growth strategy. Driving this performance, was a very strong growth in revenue, which increased by 129.8% year over year and surpassed pre-pandemic levels by 25.8%. Steam store sales also rose 12.2% relative to pre-pandemic levels. This increase was supported by continued strong performance of walk-in retail revenue and driven higher by growth in event revenue for the first quarter since the onset of the pandemic. This emerging source of increased revenue has the potential to support continued material growth and has resulted in an acceleration of our revenue expansion through the week ended April 24, 2022. Adjusted EBITDA was $108.4 million in the quarter, which represents an increase of $81 million or 295.7% year-over-year and an increase of $41 million or 60.9% relative to pre-pandemic performance. At the end of Q3, trailing 52-week adjusted EBITDA was $276.3 million and exceeded the pre-pandemic level by 58.9%. We generated $83.6 million in cash from operations in Q3. During Q3, we also repurchased 109,754 shares of Class A common stock, as well as nearly 2.7 million warrants. On April 14th, we announced the redemption of all remaining publicly traded and privately held warrants. This redemption is expected to be completed by May 16th. On page four of the materials, you can see the recent trends in Boeing Center revenue. This is an extension of the chart that we shared in our Q2 earnings release. As we mentioned during the Q2 earnings call, this is not something that we expect to do indefinitely. That said, This extended release of data is related to the assessment of the impact of Omicron waning and COVID restrictions being eased on the business. As Omicron's impact was most strongly felt in the event business, we have presented both total center revenue and total center revenue excluding events revenue. The key takeaway here is that the event business, which was a headwind in Q2 due to Omicron, has turned into a tailwind and is now comping up higher than revenue excluding events relative to pre-pandemic levels. As a result, there has been a step change in the overall growth trend relative to pre-pandemic performance. It is notable that this transition occurred during the quarter, so the initial part of the quarter was still heavily impacted, but the latter part of the quarter and the initial part of Q4 shown here are reflective of the recovery in the event businesses as well as the continued growth in total revenue. On page 5, we have laid out just how strong Q3 was. The revenue performance, coupled with disciplined cost management, led to an increase in adjusted EBITDA of over 60.9% versus the comparable pre-pandemic quarter. Adjusted EBITDA in the quarter was $41 million higher than the equivalent pre-pandemic quarter. Despite the broadly documented macro increases to input costs, we also expanded adjusted EBITDA margin by 918 basis points from 32.8% to 42% versus pre-pandemic levels. The chart on page six illustrates the steep and consistent recovery of the business from the COVID impacted levels of last year. First, you can see the quarter-by-quarter expansion of trailing 52-week adjusted EBITDA from the end of Q3 of fiscal year 21 through the end of Q3 of fiscal year 22. For context, the orange line shows the pre-pandemic comparable level of $173.9 million. We now stand at 102.4 million, or 58.9% higher than the pre-COVID adjusted EBITDA as we grew adjusted EBITDA by $81 million in Q3 of FY22 versus FY21 alone. Page seven illustrates how the bowling center level economics continue to improve. We have charted the total quarter versus the COVID impacted prior year and also versus the pre-pandemic comparable quarter. As discussed, revenue grew significantly. This was led by increases in revenue derived from walk-in guests and events. Gross margin for bowling centers expanded 96 basis points to 70% versus the pre-pandemic quarter, largely as a result of the implementation of our redesigned and significantly more efficient business model. In total, the centers generated $134 million of EBITDA in the quarter, another record for the company. H-8 lays out the cash flows for the quarter. As I noted previously, the company generated $83.6 million in cash during Q3 of FY22, which provides support for our acquisition, building, and conversion of centers. The company finished the quarter in a very strong cash position with balances of nearly $173 million. In summary, Bolero's Q3 FY22 performance accelerated and continued to outpace pre-pandemic levels, further demonstrating that the business continues to be very well positioned to produce improved performance through a combination of organic growth and center additions. Thank you for your time, and I look forward to presenting again next quarter.
spk04: Operator, we can now take questions.
spk00: Thank you. We will now begin the question and answer session, turning it over to Tom Shannon and Brett Parker. The first question comes from Eric Handler with MKM Partners. Please go ahead.
spk02: Good afternoon, and thank you for the question. A couple things. One, I wondered if you could talk about the impact on particularly your New York City centers when the mask mandate was lifted. How meaningful was that impact? Hey, Eric. It's Tom Shannon.
spk03: I would say it was moderately important. The thing that really killed us in New York was the vaccine mandate. When that happened, our business went down by about 50%. And then New York is driven largely by the corporate event market. And the corporate event market really was dormant until the last couple of months. really, I guess, after they stopped enforcing the vaccine mandate or it went away, we saw it come back in earnest. And now the New York Center properties are comping up on an event basis. So the mask mandate or mask enforcement specifically, not that material vaccine mandate coming and going. And then sort of just the general, I guess, determination by companies that they were ready to sort of go back to the way things used to be and having events again, that's been much more important.
spk02: Great. And then as a follow-up, wondered if you could give a little bit of an update in terms of how things are looking with numbers in terms of your backlog of remodels, new builds, and the acquisition pipeline.
spk03: Well, it's never been stronger. It continues to strengthen. I would say there are now about 30 locations in various stages working their way through the pipeline, a combination of new builds and acquisitions, and then we're probably working on about 25 remodels as well.
spk02: How long will it take for those remodels? Will they be complete by the end of 22? or just give us your perspective there.
spk03: Yeah, I'd say that's probably pretty accurate. Depends on the scope, but we have 25 of them currently underway, working their way through the system. So I would say, sure, that cohort should be finished or nearly finished by the end of the calendar year. We have two openings that will occur in, uh, 2023 that have already been signed and hopefully more. Uh, but the ones that were signed, um, had long lead times related to landlord issues. Um, so those are 23 openings in terms of acquisitions. Um, you know, it's, it's extremely robust and, uh, We're signing LOIs seemingly every week, and we're seeing increased deal flow and high-quality deal flow. So you'll see, I think, a decent number of centers that we'll acquire this year, and I think next year is just going to be gangbusters.
spk04: Excellent. Thank you.
spk00: The next question comes from Stephanos Christ with CJS Securities. Please go ahead.
spk05: Hey, thanks for taking my questions, and congratulations on the quarter. You talked about the return of league and events. Can you maybe just quantify where that is in the stage of recovery? Is there room for more expansion? Maybe how much more?
spk03: Sure. Well, thanks for the congratulations. You know, we're back to about even on leagues. I think there is good upside remaining in leagues because there hasn't been any meaningful price increase or, in many cases, any price increase for a number of years. So league pricing, I think, is far below where it can and should be. On the event business, you know, events are a combination of everything from high-end corporate down to children's birthday parties. The event business was trending, actually comped positive in November of last year, and I think would have been highly positive in December, except for Omicron. We are positive on a same-store basis versus 2019 at this point, and I think there's room to run there because we've seen some of the corporate come back, but certainly not all of it. I think What's driving the event business at this point largely is retail-based, which is kids' birthday parties, non-birthday parties, social gatherings. We've seen a fair amount of the corporate activity come back, but certainly not all.
spk04: I think there's continued room to run in corporate events.
spk05: Perfect. Sounds great. And then just to follow up, can you talk about the impact of the business and what you're seeing with rising inflation and how you've been managing through that?
spk03: Sure. Well, the good news is that about two-thirds of our business, which is bowling, shoes, and arcade, has little or no... Bowling and shoes are not impacted by inflation.
spk04: Arcades...
spk03: we can continue to raise price without having any input costs on the majority of our business. On food and beverage, we're seeing it, and we've taken a number of price increases, and we'll continue to do that. But, again, that's only about a third of our business. You know, labor is another issue, and we've seen over the last four or five years a quite significant increase in average labor costs. A lot of that was mandated by cities and states, but that seems to have flattened out a little bit, at least for the time being. So we're not immune from inflation, but sort of on balance, we're in a pretty good position because we're able to raise prices across the board, and yet we don't have input costs on the majority of our revenue.
spk08: Thanks so much, Travis. Sorry, Steph. I was just going to add. You see that quantifiably driving its way through in terms of margins, both on a gross basis and in terms of EBITDA. It's happening in real time that they're expanding.
spk04: Perfect. Great. Congrats again, and thanks for taking my questions. Thank you. Thank you, Steph.
spk00: The next question comes from Michael Kapinski with Noble Capital Markets. Please go ahead.
spk01: Thank you. A couple of questions. You talked about your thoughts on the revenue prospects for league play, and it sounded like maybe you can raise prices there. But I was really looking at it from a different perspective in terms of the revenue trajectory and how it might improve. Do you think that as people get back to work and, I mean, what are the components of league play that – is it the social aspect that you need people going back to work and in the offices to kind of develop league play? Or are there other components at work here that might be holding back that revenue development and maybe even see it accelerate even further?
spk03: Well, hey, Michael. No, league play is really divorced from work activity. Leagues aren't set up by companies anymore. They used to be, but not anymore. So, the two are unrelated. Gotcha.
spk01: And then in terms of the market, obviously, you know, everybody's on their minds about inflation, but I'm more looking at it for more of an economic downturn prospect. And that seems like maybe that's what the market might be a little bit even more concerned about right now, because obviously you're not really impacted by inflation, as you mentioned. But COVID was an unusual period. And I was just – and so a recession probably won't react like you did in COVID. But I was wondering if you can kind of give us your thoughts on how the business performed maybe in a past recession, excluding COVID, and going back and talk about how your business was managed through an economic downturn and how you might be better prepared for the prospect of a downturn in you know, certainly your balance sheet's extremely strong and so forth, what your just general thoughts are on how you can manage through if there is an economic downturn.
spk03: Well, I'll give you some general thoughts on that, and then I'll turn it over to Brett because he's got some real data about how we've done in past recessions. But if you think about it, if You have inflation, high gas prices, people pull back the reins in terms of spending. Where is it easiest for them to spend? It's easiest for them to spend close to home. Get on an airplane. They're not paying exorbitant hotel prices. They're not getting in the car and distances. Right. And so we are that close to home, low cost, high value activity. And so. We may see an impact on our revenue and we may benefit from it. It's really hard to predict. My guess is if we have a meaningful recession, it will have some impact on us, but probably minor. And it could be in either direction. So it would be inconceivable to me that we would lose money in that environment. If anything, you know, we might see a a slight reduction in profitability, but even in the worst of the 2008 recession, which for us was profound because we were heavily, heavily weighted to the corporate event market. We only had six locations at that point. The company was still very solidly profitable. So yes, our balance sheet is robust, but even in a recession, we make very, very healthy profits. So let me turn it over to Brett for more detail on that.
spk07: Sure. Thanks, Tom.
spk08: Yeah, so to take a step back, you know, being the close-to-home, high-value, low-cost alternative makes the largely distributed, high-unit count bowling business a great place to be in times of economic dislocation. So the best exemplar of that really is looking back at the financial crisis, which was obviously extremely deep and broad in its impacts. And I think worse than what people are considering might be on the horizon now. And even in the worst of that, AMF's bowling center business only saw revenue declines in the low single digits, sub 5% peak to trough in terms of revenue declines. So the revenue resilience of the Boeing business is extremely high. And then from a management perspective, at the risk of sounding immodest, I would say that Tom and I are pretty well positioned, for better or worse, for dealing with that sort of thing, having been managing Boeing Center businesses together since before 9-11. And, you know, we've been through several cycles and we know what to do. The best manifestation of that is, again, looking back at 08, 09, as Tom said, you know, the business we were running at the time, lower unit count, more urban, highly exposed to events, saw steeper declines in revenue than the AMF centers business did. But we actually expanded EBITDA from 08 to 09 because We saw the problems coming. We got ahead of it from a cost management perspective and we stayed ahead of it. And we very aggressively managed the business to maximize profitability and grew it through that time. And that left us very well trained in terms of how to deal with that sort of situation. And Following the acquisition of AMS and then of Brunswick, we developed a plan that we kept on the shelf and have kept on the shelf called the RCP or Recession Contingency Plan, which is not some theoretical cut 5% off of marking sort of a plan. It's a down-to-the-belly-button analysis that's tested off multiple times a year that's always ready whether you think something bad is coming or not. And that served us extremely well heading into COVID because as soon as there was any softness at all, we were able to react and, again, get and stay ahead of it. We were very clear-eyed about what our mission was, which was the preservation of the enterprise. And, you know, we were able to come through that, frankly, in a position of extreme strength. And, you know, now looking ahead at what might ever be on the horizon, you're not going to – Tom and I are not in a situation where this is at risk of being caught flat footed. You know, we know where the levers are and we know what needs to be done. So to the extent that there was, you know, any interruption in demand, you know, we know how to deal with that. At the same time, you know, I would say echo what Tom said earlier, which is, you know, the business is extremely resilient. The trends, um and how we're performing top line on an absolute basis on a comparative basis versus expectations ours or analyst expectations is extremely strong um so we're starting from a from a very high bar um but you know at the same time clear-eyed about whatever may come gotcha and uh just final question can you give us an update on the partnership with skills and how that's going um
spk04: Yeah, I mean, it progresses.
spk08: It's out there. People play the game. I mean, it's not a dramatic driver of economic performance for us. It's more of a, you know, sort of self-fulfilling marketing effort. So I don't have particular stats to share at this time, but it's out there and, you know, people continue to engage with it.
spk01: Gotcha. Well, congratulations on a fantastic quarter.
spk04: Thanks. Thank you, Mike.
spk00: Our last question comes from Brian Vaccaro with Raymond James. Please go ahead.
spk06: Thanks, and good evening. My question was just on the strengthening sales that you've seen in recent months. And Appreciate the monthly details and the appendix. I was wondering if you could help convert what the more recent revenue increases you're seeing, these 45 and 55% plus increases in March and April. What does that reflect in terms of comps versus 19?
spk04: Those are comps versus 19.
spk06: Oh, I thought that was total revenue. and not comps. That's comps versus 19.
spk08: I'm sorry. No, you're saying you mean same-store comps? Correct. Yeah, we'll break that out once we get through the quarter, but this is really meant to be just more high-level informative on a total company basis rather than on a comp store basis.
spk06: Okay, okay. Yep, go ahead. Sorry.
spk08: No, I was just going to say, if you reach back, if you look back, right, you can compare what the actual quarter was on a total basis in the March quarter, right? And you can see what the comps were on that. Look at the differential. 12% on the same store basis. Yeah.
spk06: Yeah.
spk08: Okay. Okay.
spk06: Thank you. And you touched on New York City earlier, but could you provide some color, just what you're seeing more broadly from a regional perspective across the country? Maybe some perspective on where some previously lagging regions have recovered to more recently and maybe ballpark the range that you're seeing in your comps between the best and worst performing regions.
spk03: Well, hey, this is Tom Shannon.
spk04: California continues to outperform for us. So, you know,
spk03: ballpark there that part of the world is the best and we're up Brett correct me if I'm wrong you know in the neighborhood of 35% on a same store basis out there and then the east coast probably more like 15 to 20% so that would be the range okay great great that's very helpful
spk06: And then I wanted to ask about the profitability. You're obviously seeing some very strong flow through as sales recover. And I wanted to ask about labor specifically, just where are your staffing levels currently versus whatever your reset par levels, sort of understanding that you made some significant changes to the model during the pandemic. And then do you view these recent margin levels as sustainable, or perhaps there are certain costs that need to be brought back, so to speak, as traffic continues to recover? Thank you.
spk03: Sure. Well, we're probably at about 90% of where we'd like to be. And we haven't had much success at closing that gap. That's been about the number for the last year or so. So, you know, it's not the worst problem in the world, frankly, because it enforces an efficiency and guest satisfaction seems to be high and and revenue continues to grow. So we have our theoretical PARs. We think they're optimal, but the fact that we're about 10% below in a staffing level just means that we're more profitable. There is nothing else we would add back. The company is fully staffed, certainly at the overhead level. The only bodies that we tend to add at the corporate level or when we add a number of new centers and you might have to add, for example, a payroll clerk or an IT person or someone in that support capacity. But it's not meaningful at all. And the growth of the company, both from an organic standpoint and from a new unit basis, is driving down our overhead costs percentage of revenue consistently.
spk04: All right, that's very helpful. Thank you. I'll pass it along. Okay, thank you.
spk00: This concludes the question and answer session. I'd like to thank everyone for attending today's conference and turn it over to Brett and Tom for final remarks.
spk08: Thank you very much, operator. This is Brett Parker. One last time, thank everybody for joining. Thanks for the participation in the call and the support of the company. And we look forward to continuing to do this and be in a position to interact with folks and distribute the information as we have it.
spk04: So thank you and have a terrific evening. The conference has now concluded. Thank you for attending today's presentation.
spk00: You may now disconnect.
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