Bowlero Corp.

Greetings and welcome to the Bolero fourth quarter and full year 2023 conference call. It is now my pleasure to hand the call over to Bobby Lavin of Bolero. Please go ahead.

Good morning to everyone on this call. This is Bobby Lavin, Bolero's Chief Financial Officer. Welcome to our conference call to discuss our fourth quarter 2023 earnings. This morning, we issued a press release announcing our financial results for the period ending July 2nd, The copy of the press release is available in the investor relations section of our website at ir.bolero.com. 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 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 can 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, you should refer to the cautionary statements contained in our press release, as well as the risk factors contained in the company's filing with the SEC. Bolero 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'll now turn the call over to Tom.

Good morning, and thank you for joining us today. I'm Thomas Shannon, founder, CEO, and president of Bolero Corp. Bolero started with one bowling center in New York City in 1997. This past year, we crossed $1 billion 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. With the Lucky Strike acquisition, we will add a center in Hawaii to our portfolio, 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 the country. 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 seven leases currently signed and four 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. And at the end of August, we acquired the co-located Mavericks and Octane properties in a premier location in Scottsdale, Arizona. for $33.5 million. We have three more acquisitions expected to close in the next month, including Lucky Strike, totaling more than $130 million of purchase price and adding approximately $100 million of annualized revenues. Two 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% year over year, plus 12.7%. As mentioned in the Q&A portion of the last earnings call, we saw a slowdown in the fourth quarter of fiscal year 23 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 arcades. 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. To address this, in June, we launched a bundled offering called The Special, which allows guests to prepay the third 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 hundreds of thousands of transactions and continue to A-B test new combinations. Over the past three weeks, we rolled out a pizza and pitcher special that is nearing a million dollars 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 bowled is up 5%. We added these specials and pulled back on deeply discounted promotional nights. However, over the past few months, we have realized we pulled 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. Consumer discretionary spend may be dropping. but 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 23 over fiscal year 22. Up 43% year over year and up 53% in fiscal year 23 over fiscal year 19. In fiscal year 23, we booked $218 million 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. We're having our national sales conference here. Last year, in the week prior to Christmas, we booked more than $10 million 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 the fourth quarter and has accelerated recently from that level. We believe there is significant upside in this category. Bolero 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 investments. 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, including acquisitions, existing center conversions, and building new centers. 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. I would now like to turn the call over to Bobby Lavin to review our financial results for the quarter and year and offer financial guidance for the upcoming fiscal year. Bobby?

Thank you, Tom. Happy to be here. In the fourth quarter, we generated total revenue of $239.4 million and adjusted EBITDA of $64.5 million. reflecting a 26.9% EBITDA margin. Last year, we reported $267.7 million of revenue and adjusted EBITDA of $82.4 million in the fourth quarter of fiscal 2022. Fourth quarter last year, out-of-period service revenue in the 53rd week and related calendar shifts totaled $29.7 million. Excluding these impacts, total bowling center revenue was plus 2.4% year-over-year. Service revenue, a pass-through to employees that we required to book as revenue, was $21.0 million in FY23. You should expect that to be low few millions in FY24. Additionally, in the quarter, we took $2 million of revenue charges that flowed to the bottom line for out-of-period adjustment. On a fiscal year basis, revenue was $1.06 billion, and adjusted EBITDA reached $354 million at a 33.5% margin. Same-store revenue grew 12.8%, supported by record seasonally significant second and third quarters. Relative to the prior year, total revenue grew $147 million, 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 fourth 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 Better talent means better consumer experiences and enhanced sales culture environment. This cost us $2 to $3 million of incremental wages in the quarter. It will be a $10 million headwind at centers in FY24. We 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 million of cash flow available for reinvestment and growth as maintenance capex is elevated from COVID deferrals. The company finished the quarter with robust liquidity underpinned by over $195 million in cash on the balance sheet and roughly $225 million of undrawn capacity on a revolver. We continue to evaluate lower-cost funding sources, including looking at our unencumbered real estate. Our unique model of cash flow is and a 7% to 8% cost of capital versus a long runway of 20% plus returns 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 million service fee, which equates to $1.14 to $1.19 billion of revenue. Same-store revenue growth will be flattish as we come through plus 32% comp from FY19 and FY20. plus 12.8% from FY22. We expect same-store performance to improve over the course of the year, with a 1Q24 comp tracking downside percent, and in the quarter, total reported revenue flat year-over-year, as we reactivate the non-peak-time promotions that Tom mentioned. Note that promotions are very important to the summer months, but less material to our second quarter, third quarter, 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 FY24. We have a multi-pronged reinvestment strategy with a long runway of opportunities 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 million to M&A in addition to $40 million for new builds and more than $75 million for conversions. For those newer to the story, Conversion is a multi-phase project that transforms a center to an upscale experiential location. We are also evaluating leaning into the Lucky Strike brand. More to come. Since our third quarter 23 earnings call on May 16th, we have repurchased $127 million of shares, retiring approximately 11 million shares. We reduced fully diluted share count by 9% over the past year. In continued support of this reinvestment strategy, on September 6th, 2023, the company's board of directors authorized an increase in our share buyback to 200 million. We continue to evaluate driving shareholder returns through capital returns, particularly at the share price levels. In closing, we have several exciting initiatives underway and are continuing to evolve and innovate. 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&A. 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. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Matthew Boss with J.P. Morgan. Please proceed with your question.

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 event segment relative to walk-in retail. And then just as we think about your FY24 comp outlook, what have you baked in for conversions relative to pricing as well as traffic improvement as the year progresses?

Hey, Matt, thanks for the question.

Let me turn this over to Bobby because he's able to give a more detailed answer. Hey, Matt. So in 4Q, April was weak, but traffic picked back up in June. July started wrong, 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 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 turn those off. And so those businesses are down significantly. We've turned them back on this week. So, you know, we do expect sort of the comp in the first quarter to be about minus 5%, which is down retail, up events. But we expect that to flatten out in second quarter, third quarter, and then be up in the fourth quarter. From a pricing perspective, you know, I think the special is proving to take price. It's effectively a silent price increase. It's a bundle. It delivers the consumer value. We are getting some price. But ultimately, you know, the days of mid to high single digit price increases are behind us. So it's, you know, our focus right now is flattening out traffic and having a strong event. in the second and third quarter.

Great. And then maybe just as a follow-up, Bobby, so you characterized in the release FY24 as an investment year. So is there a way to elaborate on investments that you think are needed across the P&L, if there's anything in labor, staffing, relative to food and beverage costs? And then maybe the other side of it is obviously the acquisitions, so the $160 million guidance for acquisitions. If you could just parse out expectations for new center growth and your visibility to the unit pipeline over the next 12 months.

Yeah, so from an investment year, it's a capital investment year. We did put $10 million into employees, but we'll offset that with cost savings. So this is really more on the balance sheet side. In FY23, we see $53 million on conversions. We're going to spend $75 plus in FY24. From an M&A perspective... You know, we have line of sight of at least 160 million of M&A. We could do more. So that's sort of the focus for us from an investment perspective. You know, we're really focused on driving profitability and incremental margins. So it's not expense investment. It's capital investment.

Great clarification. Best of luck. Thanks.

Our next question comes from the line of Steve Wyszynski with Stifel. Please proceed with your question.

Yeah. Hey, guys. Good morning. So, Tom, in the past, you know, you guys have talked about kind of that low to mid single-digit same-store sales growth. You know, analog seems pretty fair in a normalized, you know, operating environment. And, you know, you kind of laid that out on slide five in your deck this morning. But, you know, as you guys think about reinvesting so aggressively, you know, in the business this year and as we kind of move forward, you know, how would you think about that same metric, that same-store sales growth metric, as we look more out into 25 and beyond?

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 – the point of that was to get a better candidate – work and 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.

Yeah, 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 million on conversions, we should get $25-plus million that goes to the top line and flows heavily to the bottom line, you know, and that drives the comp. The special, which we've shown works, is really focusing on ARPU, RPIC, you know, whatever metric you want to use, which is we just want to get more money from the consumer, right? 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 comp, right? But it's not necessarily based on volume. It's really... price, attachment, and increasing the consumer experience.

Okay, gotcha. Thanks for that. And then Tom or Bobby or both of you guys, both of you guys in your prepared remarks 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 you know, doing something a little bit more robust with your real estate holding. So just, you know, just wondering, you know, what you guys can say, you know, maybe a little bit more around, you know, around those comments.

Yeah, we have 43 unencumbered properties and we're actually bringing two more in with recent announced acquisitions. So we're always going to look at opportunities to, you know, look for lower cost funding sources. Like right now, you know, we can hit sort of the debt market for eight, eight and a half percent.

But if we can get something below that, we will. Okay, gotcha. Thanks, guys. Appreciate it.

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

Hi. Thanks for taking my question today. I was wondering if you could just follow up on the acquisition stuff. How are you thinking about the health of the acquisition pipeline in the current environment, given interest rates and all that?

Well, I'd say it's never been better.

You know, this month we closed Mavericks Noctane, which is a marquee property, the best property in Phoenix by far. That co-located business was doing almost $20 million of revenue when we bought it. We're acquiring Lucky Strike. Planned closing date is one week from today, another $80 million. And then we've announced two in Michigan that should close over the next month or two. 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, seven leases signed, four of those under construction now, probably another six to seven in various stages of negotiation. So it's extremely healthy and robust pipeline, one of the best we've ever seen.

Great. And I wonder if you could just give us a call around the engagement you're seeing with Money Bowl.

Yeah, I mean, Money Bowl is 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, $20 to bring people into the center? And so I think that's sort of the next evolution. At the same time, we are – We are updating our website. So in early 24, 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.

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

Hi, Chris. Thank you very much. Hey, Bobby, can you maybe give us a bridge on EBITDA, how you're getting from 23 to 24 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&A or conversions or organic. And then I know there's some investment you want to make. So that'd be an offset. But I don't need to have exact numbers, but by just direction, can you help us out? Thanks.

Yeah. So, I mean, this year we did $355 million of EBITDA, right? And next year we're 16% revenue growth, and that flows through at, you know, a 30%, 35% margin. I mean, it's a little bit more complicated than that. Like M&A, you've got Lucky Strike, you've got Maverick, Octane, both of those are going to be a big part of it. You've And ultimately, though, it's, you know, the flow through game is pretty straightforward for us. You know, from an organic basis, we are saying that we think our centers, the core centers will be flat. But then we'll have, you know, significant growth from M&A and the acquired centers that we acquired throughout the year of FY23. Okay.

Okay, perfect. Thank you very much. And then if I could squeeze in maybe one more. On the M&A, how are we thinking about M&A going forward? You know, is it going to be pure bowling? Are you going to be looking for other opportunities? Maybe kind of give us a holistic sort of description of what you guys are doing. And if I could sneak in just Bobby Cash interests, what should we expect for next year? Thanks.

I'll take the M&A part. I mean,

There are probably 500 to 700 viable acquisition candidates in the U.S. and build opportunities on the bowling front. So we don't have any current plans to expand beyond bowling. People made a big deal out of the Octane acquisition in Scottsdale. Octane and Mavericks were co-located. It was one business in two buildings with a shared courtyard. So It wasn't like we were moving whole hog into something new. Now, it may be that we learn things in the octane acquisition that make us bullish on some product line extensions, but bowling is a great business. And, you know, the weakness that we've seen lately in our comp number came in the slowest part of the year and was largely driven by experimentations. And frankly, I have no regrets that we did that because the things that we learned are going to power the company for a very long time to come. Incremental spend from the special is very powerful. We now have food specials. 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 to be strong. That is that, you know, we think there might be as much as $100 million of upside in that business over the next couple of years, and we're going to add on order of $100 to $110 million of revenue just from the stuff that's announced and closing in very short order. The bowling business is a 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. We've 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. 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.

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

Great morning, and thanks for taking the question. You talked a lot about a lot of the capital investments planned for fiscal 24. 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.

Yeah, we've always viewed our business as very captive, walk-in, We are investing in the website, and we are evaluating changing some centers' names to Lucky Stripe. So we'll probably invest a little bit more in marketing. We budgeted that. But I don't think you're going to see us go outright double, triple marketing. 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.

Great, that's helpful.

I just wanted to 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 period since then? Thank you.

Yeah, 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 strong. And so Northeast responds less to promotions Central responds more to promotions. You know, we did see a little bit of weakness from the heat in the past few months. So heat is, you know, heat is okay for our business. Too much heat means people don't go outside. But really, the weakness in our business was mostly in Central, where it's just a heavy promotional environment.

Great. Thank you very much.

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

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 24 Q1 guide, very helpful. In terms of same-store sales, would you expect them to 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 the cadence there would be helpful. Thanks.

Yeah, so minus five for the first quarter should be flattish in the second and third quarter and then up in the fourth quarter. As it relates to EBITDA margins, 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 first and fourth quarter. You know, and it's, you know, we've given a range 32 to 34, and that's, you know, we feel good about that, you know, for now and going forward.

Very helpful. Thank you again.

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

Thanks. Good morning. So you mentioned a couple times about 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 centers 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, you know, within the center, or is it really more by name and branding around it?

So the Lucky Trade 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 is an important, you know, tech center right side of Seattle, downtown Denver, downtown Chicago, downtown Boston, you know, downtown Philly, so it's really an irreplaceable set of assets. Now, Lucky Strike has sort of been financially challenged for a long time. 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. 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 open. 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 or not we got a lift. And if so, then I wouldn't rule out eventually rebranding all the Boleros 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. I think everyone we've spoken to thinks that the Lucky Strike brand is better

That's our sense as well, and so we're happy to roll that out. Guys, I have a follow-up question. Yeah.

So on a Q3 call, you noted some of the in-lane ordering kiosks maybe not going as well given 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?

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 sold from the staff 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 bowl a third game because all of our data suggested that people bowled 1.8, 1.9 games per visit. So prepay for a third game, and we'll sell it to you for $5, and we'll give you a $5 arcade card. And Over time, we've raised that $5 special in certain centers to $6 and even $7 because demand was so hot. Over hundreds and hundreds of thousands 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 results. We broadened that to an arcade upsell called a power-up, and then three weeks ago, the pizza and pitcher special, which is actually two specials, a pizza with one topping and a pitcher of soda, or a pizza with one topping and a pitcher of beer. And then, in short order, there will be an upsell on the beer from domestic to imported premium. The first three weeks from a standing start, we did over a million dollars 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, to 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.

Very helpful. Thank you.

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

Thanks, and congrats on a strong year last year. I'm wondering if I could just start by getting some clarification in what's included in the acquisitions for your guidance for the year. So you noted that you're closing deals that would have annualized run rates, $100 million or a little bit higher than that. But you haven't closed the biggest acquisition thus far. You're nearly done with the first quarter. So my baseline assumption is even if you included that, you couldn't contribute more than $75 million. million or 80 million to the full year guidance. But Bobby, I wanted to see if you could clarify within that 1.14 to 1.19 billion, you know, how much of that is kind of the legacy organic business versus the acquired business?

Yeah, our guidance is the organic business is flat, you know, all of its M&A. plus some conversions kind of toward the end of the year. You know, Lucky closes next week. You know, Maverick Doctane closed at the end of August. You know, those are kind of the two biggest acquisitions. So that's really the fuel and the fire of the guidance.

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

Yeah, I mean, it's going to be, you know, three-quarters of Lucky Strike.

And you remember, Lucky Strike, like our events business, is very heavy in the second and third quarter.

Great. And as a follow-up, you know, in terms of how are the Lucky Strike centers performing, you know, so if you guys have kind of fallen into comps running in this down low single-digit to, you know, down mid-single-digit range, you know, how are the lucky strike centers performing in this environment?

Yeah, I mean, it's similar to us.

Okay. And then, you know, the last thing is you've reflected, you know, Tom, you've talked about how, you know, if you have a softer consumer environment, you know, I know you've had a lot of questions about what happens if we go into recession, how does the business perform? And you've noted that you can take out maybe as much as 30% out of your SG&A. In the June quarter, you saw gross margins down pretty significantly. And my assumption is 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% you know, EBITDA margin guide, you know, how much of that, Bobby, is, you know, the gross margin, you know, degradation versus, you know, SG&A savings, and then included within that guidance. I just wanted to see if you could give us some color on what your transactional advisory costs are expected for the year. Thank you.

Yeah, so from a cost perspective, we are implementing significant cost saves. So there are kind of two primary buckets, what I would call our excesses at the centers. So the centers had post-COVID excess security. That was a huge one. They have, you know, sort of were overspending on sort of what I would call consultants And so this is money we can kind of bring in at the center. So these are the people who install AV. These are the people who do maintenance. Like we, you know, 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 cut costs, but we are going to reinvest them. So, you know, when we talked about on the call, is we have raised wages at the centers about $10 million on an annualized basis. That will pay for itself in stage. It just takes a few quarters to flow through. So at the end of the day, I think sequentially you're going to see SG&A flat, but you'll see gross margin go up with revenues.

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

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?

So there is

about 100 to 150 centers to still upgrade. Like, we make conscious decisions on whether or not to upgrade full league houses. You won't see us put, like, pin strings into league houses, sort of, but there's still a long runway, about 300 million today. You know, and as we do M&A, that does replenish that pipeline. From a total CapEx perspective, maintenance CapEx, which is still elevated, should be about 40 million. Conversions are 75 million. And those are kind of the two primary buckets of CapEx. There's a little bit of corporate CapEx. There's about 10 million.

But that's how you should look at sort of our total investment in 24. Thank you.

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

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?

Yeah, we haven't seen any COVID.

I will say that the traffic, when we look at it on a day-to-day basis, the traffic for full-time retail is flat versus the traffic on promotional activities down to television. So we actually think we're getting the beneficiary of people pulling back a little bit. Like, obviously, everybody taking vacation in August has, you know, impacted everyone. But ultimately, you know, we're feeling actually pretty good about the consumer, particularly with the green shoots we have and more leagues have come back, more events are happening. It really is we pulled back on promotions too hard.

Yeah, let me add, there's an interesting take on what 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. Where we eliminated some of the promotions, the 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, you know, a very cheap all-you-can-bowl on an off night of the week, a Tuesday night, for example, but that the retail, the primetime walk-in customer is much less price sensitive than perhaps we realized. And so these insights are very, very powerful. And we took them, you know, 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, you know, 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 three months ago when we embarked on this process. So a really interesting insight, you know, 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.

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

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.

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

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.