Lucky Strike Entertainment Corporation Class A

Ladies and gentlemen, thank you for standing by. My name is Desiree and I will be your conference operator today. At this time, I would like to welcome everyone to the Lucky Strike Entertainment 3rd Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question again, press the star one. I would now like to turn the conference over to Bobby Levin, Chief Financial Officer.

Good morning to everyone on the call. This is Bobby Levin, Lucky Strike's Chief Financial Officer. Welcome to our conference call to discuss Lucky Strike's third quarter 2026 earnings. Joining me on the call today is Thomas Shannon, our founder, chief executive officer, and president. I would like to remind you that during today's conference call, who 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 could 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 filings with the SEC. 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. Also, during today's call, 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'll now turn the call over to Tom.

Thanks, everyone, for joining today's call. In the March quarter, we delivered our second consecutive quarter of positive same-store sales comp at plus 0.2% and our first back-to-back positive comp performance since 2024. Total revenue grew to $342.2 million, up from $339.9 million in the prior year period. The quarter started powerfully, with January same-store sales up plus 5.5%, and we entered February with strong momentum. That momentum was disrupted by an extraordinary stretch of weather and macro events. Winter Storm Fern in late January and Winter Storm Hernando in late February each brought widespread closures, travel bans, and power outages across markets that account for a meaningful share of our footprint. Together, the two storms cost us approximately 250 basis points of comp in the quarter. Then, on February 28, large-scale military action in the Middle East drove a sharp spike in gasoline prices and consumer confidence fell to its lowest level in 70 years. In this environment, a positive comp is, in our view, a credible outcome. Excluding our West Coast markets, which faced a sharper consumer drawdown in the quarter, the rest of the company actually comped plus 1.9%. As I outlined after our last call, we are committed to taking substantial and immediate action on costs and free cash flows. And that is exactly what we have done. Beginning in mid-January and accelerating through the quarter with the help of AI, we have driven a sustained reduction in in-center labor hours, approximately 97,000 hours saved over the last 12 weeks versus the prior year, a more than 16% reduction from where we were peaking in early January. In three months, we have also reduced corporate field and sales head count, generating more than $6 million of annualized savings. The full earnings benefit of these actions will land in our fiscal fourth quarter. ORCA is one of the most important developments in our business. ORCA is our internal AI system, which aggregates approximately 750 million rows of operational data into a real-time decision-making layer for our managers. ORCA is already managing clock-ins, clock-outs, and aggregated guest reviews across our 360-plus locations. The early results are tangible. On closeout times alone, we have reduced excess post-close hours from approximately 2,000 per week to roughly 300, generating more than $2 million of annualized savings from a single workflow. We see a similar opportunity in the high teens to mid 20 millions of dollars of annual savings from optimizing clocking in time. We're extending ORCA into pricing, marketing creative, purchasing, arcade optimization, and capex rationalization. While AI-related layoffs are creating some softness in corporate event demand, the longer-term effects of AI for Lucky Strike will be favorable. There is a developing thesis on Wall Street called HALO, high asset, low obsolescence, that captures it well. Our analog bricks and mortar offering is one of the categories most insulated from AI disruption. Our brand consolidation continues to run ahead of schedule. We are now at approximately 115 Lucky Strike conversions out of an ultimate target of 225, with the remainder receiving an upgraded AMF presentation. We expect to be substantially complete with the rebranding work by this time next year. Each conversion runs about $150,000, so on completion, we expect a meaningful step down in capital expenditures. Our key operating metric continues to be free cash flow per share, which we measure as a trailing 12-month EBITDA less CapEx divided by shares outstanding. That figure currently stands at $1.53. Our goal is to reach at least $2 over the next 12 months, a 33% increase through a combination of EBITDA growth, continued CapEx discipline, and opportunistic share repurchases, all while keeping net debt flat. Capital expenditures year-to-date are down 20% versus the prior year, $91 million compared with $114 million. The summer also looks materially better year-over-year. Our water park portfolio is set to add approximately $18 million of incremental EBITDA this summer, with a vast majority in our September quarter, thus in fiscal 2027. And our family entertainment centers continue to perform ahead of plan. Turning to guidance. Reflecting the macro reset in the back half of the March quarter, we are updating our fiscal 2026 outlook. We now expect total revenue growth of plus 4% to 5%, adjusted EBITDA of approximately $345 to $350 million, and capital expenditures of approximately $120 million. Gross capital expenditures are down roughly $30 million year over year as we focus on cash flow generation. Importantly, this revision reflects the consumer environment, not our plan. The cost actions are landing on schedule, operating leverage builds as comp recovers, and the water parks come online. And we expect to exit the year with materially better cash conversion than when we entered it. With that, let's turn it over to Q&A.