Pinstripes Holdings Inc

At this time, all participants have been placed in a listen-only mode, and the lines will be open for your questions following the presentation. Please note that this conference is being recorded today, February 19, 2025. During management's presentation and in response to your questions, they will be making forward-looking statements about the company's business outlook and expectations, including in respect of guidance for fiscal 2025. These forward-looking statements and all other statements that are not historical facts and reflect management's beliefs and predictions as of today, and therefore are subject to risk and uncertainties as described in the company's quarterly report on Form 10-K for fiscal 2024 and subsequent SEC filings. Management will also discuss non-GAAP financial measures as part of today's conference call. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles, but are intended to illustrate alternative measures of the company's operating performance that may be useful. Reconciliation of the non-GAAP financial measures to most of the directly comparable GAAP measures can be found in the earnings release. The company has posted its third quarter fiscal 2025 earnings release and earnings presentation on its website at .pinstripes.com under the Investor Relations section. And now I would like to turn the conference over to Pinstripes founder and CEO, Dale Schwartz.

Good afternoon, everyone, and thank you for joining our call today. The profitability improvements that our team has been driving over the last several quarters began to shine through during the fiscal third quarter. Some of the highlights include strong venue-level EBITDA margins of over 19 percent and our corporate profitability quarter in two years with adjusted EBITDA of 2.7 million. Moreover, our new stores are continuing to mature, delivering a $1.3 million improvement in venue-level EBITDA versus last quarter and a venue-level EBITDA margin of over 10 percent, excluding extraordinary expenses. While our top-line results are not where we want them to be, I want to thank our more than 1,900 team members for their passion and dedication every day as they continue to provide our guests with those magical moments they've come to expect from Pinstripes. Over the last few quarters, our strategic focus has been on three main initiatives. One, improving our top-line comp growth trajectory. Two, driving improved profitability at both the venue-level and corporate level. And three, opening high-quality locations within our current funding capacity. Let me speak to each of these areas, starting with improving our top-line comp growth. As we spoke to previously, during the first four weeks of the third quarter, we saw comp trends in the negative mid to high teens as we made some adjustments to our marketing that had unintended impacts to our business. As we corrected those changes along with adjustments on our promotional strategy, we saw comps improve 10 percentage points to the down 7 percent range. The improvement was primarily driven by a meaningful improvement in our events business in the final month of the quarter as both corporate and social event leads increased and our teams drove positive bookings. For our open play business, we are focused on ensuring we have the right level of value for our guests through programs such as Happy Hour Gaming Promotion, where you can enjoy a lane and bowl for 50 percent off during certain hours, as well as our daily specials. Additionally, we have made exciting changes in addition to our legendary weekend brunch buffet offering and we're seeing positive trends as a result. In addition, our local store marketing campaigns continue to see exciting success as we've introduced activities such as kids clubs, comedy nights, line dancing, yoga classes, trivia nights, and many other community activities that complement our F&B and gaming offerings. As we enter the fiscal third quarter, we continue to test programs that we believe are right for our brand and our guests while being quick to discontinue those that did not perform to expectations. We believe we found the right balance as demonstrated by the substantial improvement in our comp performance in recent weeks compared to the second quarter. On the event side of the business, our third quarter is our seasonally strongest and our teams worked hard to drive as many events as possible for Pinstripes through the holiday season and beyond. We are encouraged by the fact that we are seeing strong lead generation and booking performance on the event side of the business in recent weeks and our continued investment in the tourism convention segment of our event business is showing very promising bookings and sales results. We believe that targeting these adjacent opportunities will allow us to grow our event business beyond the third quarter and create additional momentum through the rest of calendar 2025. With respect to profitability, the third quarter represented our best quarter for corporate profitability in two years. The substantial work that our teams have done since the start of the fiscal year to remove $10 million in annualized cost savings at the store level helps to protect our overall profitability and mostly offset our near-term comp growth headwinds resulting in a venue-level EBITDA margin of .2% for the third quarter, a reduction of only 20 basis points. As a reminder, these savings range from strategic hourly and salaried labor savings, a more favorable credit card processing agreement to more intense negotiations with our various vendor partners, leveraging our growing scale and brand. Our cost saving initiative extended to the corporate level with the targeted removal of approximately 4 million of annualized cost savings in our SG&A. The fiscal third quarter year over year SG&A decline of almost $500,000 represented the beginning of those savings starting to flow through our P&L with the remainder expected to flow through in future quarters. As a reminder, these cost savings range from negotiations with agency partners to strategic corporate headcount reductions and a renewed focus on marketing efficiency. Overall, our profitability improvements were one of the major bright spots in our third quarter results. And following the completion of our cost reduction efforts at the venue level and corporate level, we believe we have the appropriate cost structure for our business and are focused on driving top line improvements to be able to drive further corporate profitability upside. Turning to unit development, during the third quarter on November 15th, we opened our 18th location of Walnut Creek, California at Broadway Plaza, marking our second location in the San Francisco area in close proximity to our location in San Mateo. This new two-story Walnut Creek venue features 25,000 square feet across two levels with eight bowling lanes, two indoor bocce courts, and private event space for groups of up to 1,500. Overall, we remain very pleased with the new opening. Next, I want to touch on liquidity. As of January 5th, we had 2.4 million in cash and cash equivalents. While our third quarter represented a substantial improvement in our trajectory with positive corporate level EBITDA and only modestly negative free cash flow, the company is exploring several strategic alternatives in order to improve our overall liquidity position. As part of this, on January 21st, Oak Tree funded an additional 6 million under the Oak Tree Tronch II loan. Otherwise, until we conclude the strategic and financing alternative process, we do not intend to make any further public comment unless as deemed appropriate or necessary. In summary, while we are pleased with what we've accomplished in writing our cost structure, both venue level and corporate, we remain acutely aware of our needs to improve our top line growth trajectory to further realize improved profitability. Before I turn the call over, as we noted in our earnings release this afternoon, Tony Kuchegrosa, our CFO, will be stepping down effective February 28th to pursue other opportunities outside of the restaurant and entertainment industry. I want to personally thank Tony for the work he's done over the past 18 months, including contributing to our transition to a public company. It's been a privilege to work with you, and I wish you well in your future endeavors. With that, let me now turn the call over to Tony to discuss our fiscal third quarter results in greater detail.

Thank you, Dale. It's been an honor to be part of the Pinstripe story, including, as you noted, the transition to becoming a public company. I look forward to working with you and the rest of the management team to ensure a smooth transition. Turning to results, for fiscal third quarter, total revenue increased .4% for 35.5 million compared to 32.2 million in the same quarter last year, including a .5% increase in food and beverage revenues and .3% increase in recreation revenues. The increase in total revenue is primarily due to having one new store open for a portion of the third quarter of fiscal 2025 and three new stores open in the third quarter of fiscal 2025 for the full period compared to the third quarter of fiscal 2024. Turning to expenses, cost of food and beverage as a percentage of total revenue decreased 10 basis points to 15.5%, primarily due to cost efficiencies offsetting negative sales leverage in mature venues. Labor and benefits as a percentage of total revenue decreased 60 basis points, 33.1%, primarily due to reduced headcount in the third quarter of 2025 as compared to the third quarter of fiscal 2024 and increased labor efficiency at locations open less than 24 months. Excluding the addition of four new stores, store labor and benefits costs were down approximately 20 basis points. Occupancy costs as a percentage of total revenue increased 140 basis points to 16.8%. Other operating expenses as a percentage of total revenue increased 60 basis points to 16.6%, primarily due to increases in janitorial and software as a service costs in the third quarter of fiscal 2025 compared to the third quarter of fiscal 2024. Venue level EBITDA as a percentage of total revenue decreased 20 basis points to 19.2%, driven by sales deleverage on negative comps, partially offset by modest positive store contribution from the new locations that opened in fiscal 2024 and fiscal 2025 as these stores have continued to see improvements in profitability. Please refer to our earnings release for reconciliation of non-GAAP measures. Our mature stores, those open more than 24 months, generated average contribution margins of 21.6%, representing a 30 basis point decrease year over year, driven primarily by cost efficiency improvements offset by sales deleverage that we've previously discussed. General and administrative expenses decreased to 4.8 million compared to 5.3 million in the same period last year. Turning to liquidity, as of January 5th, 2025, we had 2.4 million in cash and cash equivalents and 114 million of debt outstanding. This concludes our prepared remarks. We'd like to thank you again for your interest in Pinstripes. Dale and I are now happy to answer any questions that you may have. Operator, please open the line for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment while we poll for questions. Okay, and our first question comes from Peter Sal with BTIG. Please proceed with your question.

Great. Thanks for taking the question. Tony, it was a pleasure working with you and best of luck in the future. I didn't want to ask about same store sales. Maybe you can walk us through the trajectory throughout the quarter. It seemed like it improved. Any thoughts you can provide on where we're headed here in the fiscal fourth quarter? Just trying to understand what's worked. Seems like you guys made some changes on the marketing schedule and did see an improvement. Just trying to understand if there's more tweaks that you guys can make on the marketing advertising side to maybe just to console a little bit more.

Hey, Peter, it's Tony. In terms of the trajectory on comps as we went through Q3, yeah, it was double digits down the first couple months. And then in the final month, we had a nice snap back, particularly in the events business that got us to the negative 7.7%. Also in that 7.7%, only about 4% was traffic. Some of that promotion and marketing activity did give us about a 300 basis point headwind. And so we've made some adjustments to that. As we look at Q4, not to sound like a broken record across the industry, but weather was a factor, particularly in January and then even a little bit here in February. But we are seeing things rebound and we're also lapping an easier comp in Q4 than we were in Q3.

Got it. Okay. And then just on some of the cost reductions, Dale, I think you said you removed 4 million from the GNA line. I think 500,000 was reflected, if I have that number right, in 3Q. I'm assuming the rest will start to see the full maybe million reflected in 4Q. And then in terms of the 10 million annualized cost savings that you guys have been talking about, are those now fully implemented and are those flowing through the P&L?

Yes, Dale. The 10 million, correct. Those are fully implemented and absolutely flowing through in Q3 and certainly will continue in Q4. And much the same on the 4 or 5 million on the SG&A front. All that's been completed. So there was some partial timing that accounts for a portion of it in Q3, but all of those annualized savings will be seeing in Q4 and thereafter.

Understood. And then just lastly on my end, what are your thoughts on P&L? Pricing as we head into the fourth quarter here, you guys planning on taking any incremental pricing? How are you thinking about that for the next six months or so?

Sure. On the private events side of our business, we are not planning on increasing price. We've kept prices in large measure the same for the last number of months and we won't be materially changing prices on the private events side of our business, which as you know is about half our sales. On the open play side, we're always looking at dynamic pricing, certainly for gaming, depending on certain day parts, weekend, etc. But generally speaking, much the same lunch, dinner, etc. We're not taking any material price increases and we are, where appropriate, doing smart, creative price promotions, whether it's two for Tuesdays and certain marketing initiatives to garner more business.

Understood. Great. Thank you very much. I'll pass it along.

Thank you. Our next question comes from Brian Bittner with Oppenheimer & Company. Please receive your question.

Hey guys, it's Mike. I'm from Brian. Hope you're well. Can you just talk about maybe unit growth maybe in the fourth quarter? I think you were still expecting up in one unit this year and how many you plan to open in 26?

Thanks. Sure. So we still plan to open Coral Gables and call it our Q4. And locations thereafter were being certainly proven -a-vis some of the capital requirements until we raised additional financing. We still plan on opening Jacksonville later this calendar year as a project with Simon and St. John Center. And locations beyond that, we'll provide a further update soon after we complete some financing and other efforts.

Okay, thanks. And then how are you thinking about venue level margins for the fourth quarter of this year? You know, Don only just bases points, I think, three cubers last year. And do you think that you have an opportunity to expand margins here in the fourth quarter?

Yeah, hey Mike, it's Tony. Yeah, I think we'll continue to see trajectory certainly on our mature venues as we see us kind of snap back, hopefully, the next couple months here as we close out the quarter, which should allow us to expand margins potentially above Q3. And then, yeah, our new locations, you know, it's important to note, we saw all of them profitable in Q3. And we're aiming to be in the same sort of zip code from a profitability perspective in Q4. All right, thank you.

Thank you. And we have reached the end of today's question and answer session. I would like to turn the call back to Dale Schwartz for any closing remarks.

I want to thank everyone again for joining us this afternoon and your interest in Prince of Pitchfriess. We're certainly looking forward to seeing you in any of our 18 locations across the country to enjoy the magic that we're always delivering. Thanks again. Appreciate it.

Thank you. And this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.