Greetings, and welcome to Bowlero Corp. Second Quarter Fiscal 2023 Conference Call. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] It is now my pleasure to hand the call over to Ashley DeSimone of ICR.

Good afternoon, and welcome to the Bowlero Corp. second quarter fiscal 2023 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 annual report on Form 10-K filed with the SEC on September 15, 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 performance. Definitions and reconciliations for non-GAAP measures can be found in the earnings press release. As a reminder, this conference is being recorded. I would now like to turn the call over to Brett Parker at Bowlero Corp. Brett, please go ahead.

Good evening, and welcome to the Bowlero Corp. earnings discussion for Q2 of fiscal year 2023. I am Brett Parker, Vice Chairman, President and CFO of Bowlero Corp. Thank you for joining us today. Simply stated, we had a terrific quarter. We are pleased to report that we have continued the positive momentum from the first quarter of our fiscal year 2023 into the second quarter, one of our most seasonally significant periods. Notably, our growth was strong across various business lines, walk-in retail, leagues and events, the last of which grew far beyond the estimated $10 million headwind that we faced in the prior year resulting from the Omicron response. During today's call, in addition to discussing our financial results, we will walk through our proprietary algorithmically powered Quantitative Management Solutions, or QMS system, our MoneyBowl gamification app and why we remain extremely optimistic about the business' growth trajectory. Starting with the financial highlights. In the second quarter of fiscal year 2023, Bowlero generated record Q2 revenues of $273 million and record Q2 adjusted EBITDA of $97 million. Compared with the prior year's Q2, revenue grew by $68 million or 33% and adjusted EBITDA expanded by $30 million or 45%. Compared to pre-pandemic performance, revenue was higher by $89 million or 48% and adjusted EBITDA increased by $44 million or 83%. Net income for the quarter was $1.4 million, and adjusted for a non-cash expense related to the valuation of the earn-out shares, normalized net income was $32.2 million. As we previously announced, revenues surpassed $1 billion on a TTM basis, reaching $1.03 billion, and adjusted EBITDA reached a record TTM level of $353 million, reflecting a 34.3% margin. As we highlighted in the first fiscal quarter, this incredible performance serves as a testament to three key differentiators: the…

Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Matthew Boss with JPMorgan. Please go ahead.

Great. Thanks, and congrats on another nice quarter.

Well, thank you so much.

So maybe, Tom, just to start off, if we take a step back on the topline, I mean, triple-digit revenue growth over the past year, 30% plus here in the second quarter. I mean maybe could you just help walk through the key drivers of the inflection that you're seeing relative to that pre-pandemic, high single-digit growth? Maybe as we think about the total addressable market, competitor consolidation, new customer acquisition, just really what's driving the material inflection that you've seen and just the sustainability of it going forward?

Well, we're seeing broad demand across all of our customer segments, the walk-in retail, guest, the league business, and most recently, a complete resurgence in the event business. You combine increased guest count with pricing that we've taken over the last couple of years in this inflationary environment, it combines to a really powerful driver of revenue. Now we're coming off a lot of choppiness in terms of prior year based on various lockdowns and other exogenous factors. So going forward, you're not going to see comps of this level. For example, in the second quarter of last year, the event business in December was adversely affected by the Omicron reaction. Nevertheless, the business is very strong. We see it across the board. We are, as you know, very geographically diversified. We're seeing strength in every market. We're seeing strength in every customer segment. I think, as Brett mentioned, QMS, we continually scientifically attack all of the revenue and cost opportunities. You're going to continue to see that play out over time. That's a permanent part of our operating methodology. We have a digital backbone to the company, if you will. We're also seeing the benefits of consolidation, where we're getting stronger, and in many cases, competitors are getting weaker because they're not investing in their centers in the same way that we are. And so there is a widening gap between the quality of our product and the quality of the competitor's product. You put all that together, our continued organic growth using QMS and continued newbuild and center acquisitions, and we'll continue to be growing for a long time to come, just not at these dramatic levels coming out of Omicron and things like that.

Great. And then maybe just a follow-up, more near-term and kind of playing off your point about the near-term, some of the year-over-year noise. Have you seen any moderation in the underlying business momentum so far in the third quarter? And maybe if there's any way, could you just walk through any of the puts and takes that we should consider on the topline as we think about the third quarter versus the fourth just as we model the back half of the year?

Well, we haven't seen any material change in customer behavior thus far. So the customer remains strong. Demand remains strong. I can't predict what will happen over the near-term or the remainder of the fiscal year, but we've seen nothing thus far that shows any weakening of consumer demand.

That's great. Best of luck.

Thank you.

Next question comes from Ian Zaffino with Oppenheimer. Please go ahead.

Hi. Thank you very much. Great quarter, guys. Congratulations.

Thanks, Ian.

Thank you, Ian.

Yes. So when we look at the event business, and I don't know if you have this information, but is the number of events up versus pre-COVID? I'm just trying to kind of parse out how much is price volume or maybe just the number of events and just trying to figure out how much of that event level has actually recovered not from a revenue perspective, but maybe more from like actual number of events. Thanks.

I don't have the exact answer, but I would say that anecdotally based on what I've seen, I would say that you're seeing social events like walk-in or not walk-in, but short-cycle adult parties being booked for a weekend, those are up dramatically, children's birthday parties. The number of events are up significantly. I would say corporate events are probably about the same on a basis – on a number of event basis versus pre-pandemic, maybe even a little bit less. We're pretty much flat in corporate, I would say, year-to-date, and that's because of price. So I think the good news here is that you're seeing at least on a quasi-retail basis, that being the more social events, huge demand. And what you're seeing is the event business from a corporate perspective is coming back, but it's not fully back. And so there's a good runway left to go, and those numbers will continue to climb.

Okay. Thank you. And then just as far as the cash flow generation, can you remind us what the uses of cash flow are? I know you've been buying back stock, but give us a sense of like what you're doing as far as the balance sheet buybacks? And then also maybe touch upon M&A. What are you seeing as far as multiples? Are they pretty consistent, up, down, et cetera? Any color there you could give would be helpful. Thanks.

So I'll take the M&A part, and then I'll turn over the balance sheet part to Brett. The multiples have not changed. I would say multiples are sort of consistent. We're buying in the five to 10 trailing, 12 EBITDAR multiple basis. And on a forward basis, those multiples are cut in half because our margin is double the industry average, mainly because of QMS. And so if we're paying, call it, six on a trailing basis on a forward basis, it's sub-three. That's remained pretty consistent. What we're seeing is probably an increase in the volume of deals. There are a lot of sellers as the proprietor base ages out, looks to retire. And so there are 3,500, give or take, independent bowling centers in this country. And so it's just a tremendous long-term opportunity for us to continue to consolidate. Brett, let me turn over the rest of the question to you.

Sure. Thanks, Tom. As far as the balance sheet goes in terms of uses of cash Ian, I mean the most significant ones by far are the center additions, the reinvestment in existing centers with respect to conversions and then the buyback is kind of the tail as far as that goes. But the other thing that I think is important and I did note this earlier, but just to reiterate that where we are today position wise having closed the refinancing last week, we paid off all the existing revolver draws and upsized the revolver simultaneously. So it was a significant add to liquidity, and we have $200 million of revolver capacity. So the goal with respect to cash generation is to reinvest as much of it as we possibly can in the business because our returns across all those strategies have been really strong. That being said, it's good to just continue to rebuild our coffers whenever we can so that we know that capital isn't going to be a constraint going forward, particularly on deal-making activity.

All right. Great. Thank you very much guys. Good quarter, again. Thank you.

Thank you.

Next question comes from Eric Handler with ROTH MKM. Please go ahead.

Can we start a little bit talk about MoneyBowl? And you said you're around 10%, 11%, I think, penetration of your centers at the moment. I'm curious what's the goal by the end of fiscal 2023 or maybe the end of calendar 2023? As you think about the business, can you get the 50% penetration, 75% penetration? And I'm curious too, if there's – I know it's still very early, but any learnings from the app?

Well, Eric, this is Tom. I think we could get to 100% penetration by the end of the year if we get the free-play version up and running, which I expect we will. So there are a number of states where we roll out to have the – put capital at risk model and there are other states where we can't. And in those other states or maybe in all of the states will have a free-to-play version where you can win stuff without putting capital at risk just not necessarily money. So I don't see why we couldn't have the entire portfolio on one or both of those by the end of the calendar year. Any learnings to-date? Yes, unscientific and we don't have a lot of data thus far. We have more than 10,000 sign-ups by the way. But we find that people are bowling more games, and that was the goal of this. So unscientifically, we're seeing the average bowler who's using this bowling more than the 2.2 games. I can't give you an exact number, but we're seeing positive early trends.

Great. And then as you think about ways to get people to download, obviously, are you putting up a lot of posters or within the facilities, I imagine that's the easiest way to get people to remind people that there's this app. Maybe can you talk about some of the marketing initiatives behind MoneyBowl?

Sure. Well, we are doing the in-center collateral stuff. But this is really a boots on the ground, asking people to sign up, telling them about it, educating them and then having them do it. So what we've done is we've put probably our best sort of culture carrier in the company, a regional vice president we have who is very good at getting people to get excited behind the initiative and sell. And that's how we're treating this. So we have it really is the highest operational priority in terms of what we're asking guests to do in the center, and we're putting a lot of resources behind it both people and collateral, et cetera. And since we put him in charge, we've seen an acceleration in the daily sign-ups. We track it daily. We have incentives for centers to sign people up. And so we have a pretty ambitious goal for this calendar year. I won't give you the number, but it's a big number, and everyone is very focused on achieving that number.

Okay. And then just one final item on MoneyBowl. I'm curious, I've seen some of the reviews online. And the worst things being said is people are upset that it's not in their bowling center at this point. So I'm curious, are you having – is there a way for people to sign up so that they can get notifications that this is coming to their bowling center soon?

I don't know the answer. Perhaps Brett does. Brett, do you have any insight into that?

Yes. We don't have it built in today, but we do have our – we have our existing customer database parsed by location where the people signed up so that we can push to them all messages that we want to relate to the centers, and this would certainly meet that hurdle in terms of being on the list of things that we would push out to let people know.

Great. Thank you very much.

You're welcome. And then just while we're on it, I would just comment on two things. One, in terms of the penetration, the first half of the centers, and we talked about this on a prior call. But the first half of the centers were so about 60% are easier than the others because there's a lighter technological lift. So that's where we're kind of pacing through that first group first where the tie-ins are a bit simpler. And then potentially roll it more broadly as we get more data and get the free-to-play version worked out as well as Tom said. And then secondly, on learning, there's a lot to be learned about the customer, but really what's going on now, I mean, the system is still very fresh. I mean the initial pilot was only two locations in October. So where we're learning every day and learning significant amounts of information is within the app itself and the app getting smarter. The app is continuously learning based on every ball that gets thrown and it's becoming a better and better predictor of the outcomes of people's efforts. So there's quite a bit of knowledge that's being built up pretty rapidly on that front.

Very helpful. Thank you very much guys. Appreciate it.

Thanks, Eric.

Next question comes from Stefanos Crist with CJS Securities. Please go ahead.

Hey, guys. Thanks for taking my questions.

It's our pleasure.

Can you give us an update on the number of conversions? Maybe how many centers are left and what timeline to get through those?

Well, I'd say the numbers ballpark 100. And the number of centers that we're currently investing in either full-blown conversions or significant upgrades is astonishing. It's probably 40-plus. And as we keep acquiring centers, those centers all go on to the conversion or upgrade list. And so we continue to bring the fleet more upscale, but as we continue to buy centers, that list doesn't shrink. So I would say, ballpark, there's 100 left, and we're in the process of upgrading about 40 currently.

Great. Thank you. And then I just wanted to follow-up on a previous question on the events business. Are price increases in line with retail? Or is that a different structure? And are you seeing a difference in the size of events, maybe the amount of people? I imagine it's a per person charge or more people in events. Are you seeing any changes there? Thanks.

Well, the pricing is roughly in line with the price increases we've taken on retail. We try and have a correlation between the two, so that one isn't materially more or less than the other. I can't give you the specific data on the guest counts. Brett, do you have that information? Or is that something we'll have to circle back on?

We'll have to circle back on the specifics, but I do know that the count is higher.

Got it. Thank you.

You're welcome.

Next question comes from Michael Kupinski with NOBLE Capital. Please go ahead.

Thanks for taking the questions. Appreciate that. And I want to offer my congratulations on the quarter as well. I mean given the triple-digit growth that you had last year and on the backs of that showing this type of growth, it's really incredible, and congratulations. A couple of things. Can you just kind of give us a little idea about the retail price increases? I know if you could just kind of give us a sense of when did you start implementing those price increases? And if you have a sense of what those price increases did in terms of the revenue growth in this quarter, if there was a percent that might attribute it to the price increases or just trying to get a sense of how significant those were in the quarter.

Well, there were two price increases. There was one price increase earlier in the year that would be fully reflected in the quarter that was ballpark high-single digits. And then there was another price increase that took effect late in December, call it, the second or third week, which was really oriented towards peak pricing. So what you're paying on a Friday or Saturday night, it wasn't across the board. It was really a realization that we had outsized demand at peak times. And so we took probably on order of about 10%. It varies depending on the volume of the center from, I think, a low of 6% to a high of 20%. So for example, in a high-volume center, if the game price was $10, we looked at it and we said, given the demand, we can probably get 12. In other centers where the volume was lower, it was more akin to, call it, a $0.30 price increase or thereabout. So it was scaled really based on demand. That took place, like I said, about the mid-point of December, so you don't see a tremendous impact of that in the quarter itself.

Got it. And was that on food and beverage as well? Or is that just on the bowling and bowling shoes and things like that?

So it was just on bowling, not even on bowling shoes, just on the game price.

Got it. And then can you give us a sense of food and beverage and what – because kind of like what that has done because I would assume, obviously, that was – that contributes to your event revenue as well. So can you give us a sense of how you anticipate that segment line item to perform as we kind of go into the second half of the year?

Well, I think it's in line.

In line? Okay.

I mean the percentages of F&B don't really move around very much. They're pretty consistent. And so it's really the walk-in retail demand that drives the food and beverage or it's part of an event package. But it's remained pretty consistently in the, call it, the mid-30s percent of revenue for a long period of time. We take price on F&B, just like we take price on bowling in normal course price increases. So I don't think you're going to see a meaningful shift one way or the other in terms of food and beverage as a contributor to the business.

Got it. And most of your acquisitions have been more mom-and-pop bowling centers and things like that. I was just wondering, it seems like some of your competitors are struggling in certain markets. Are you starting to see some of the competitors I guess, given the fact that you're performing so well. Are those becoming acquisition targets for you as well?

Yes. I mean we look at everyone, right. We look at the good performers and the bad performers. They all fall into our opportunity set. So yes, we cast a very wide net. We have a robust deal pipeline right now, both in terms of acquisitions and also newbuilds. I think you're going to see over the next 18 months, an increase in newbuilds, certainly over where we've been in the last year. There was some lumpiness in terms of those deals were signed a long time ago when it took landlords an extended period of time to deliver the spaces for a variety of reasons. You're going to start to see in the second half of this calendar year, more newbuilds coming online, and I think that will accelerate into calendar 2024. So newbuilds are very exciting because the average unit volume is more than twice the average unit volume of the rest of the fleet. And these are $7-plus million contributors. In the case of Tysons Corner, which was a center we opened in November of 2021 in its first full-year, it did more than $10 million. So newbuilds are very exciting. We have a number of a market – best market you can possibly imagine locations coming online over the next 18 months. That's going to be a very exciting part of the business.

Thanks for the color. And just one last question. I know on the bowling centers, obviously, you get the biggest return out of that. But you did mention a while back about the prospect of the Professional Bowlers Association being a platform for growth. I was just wondering, is that – at this point, are you still concentrating on the bowling centers? Or is that a prospect that we can start seeing opportunities for you to use that major league kind of as a platform for further growth?

Brett, would you like to take that?

Sure. I mean, look, the whole point of the PBA is to be a platform for growth. But it was never – the concept was never that we would do massive numbers in the PBA as a standalone venture. The value add of the PBA and the growth attributable to the PBA is a little bit harder to define because what it really is, is that engagement flywheel, and it's driving viewership on TV in order to get more people into the bowling centers more often to drive the aggregate profitability of the business higher. So it is a mechanism for growth, but it's really about using the PBA to attract eyeballs and then also using it as a competitive differentiator on things like leagues where our leagues are certified by the PBA and there's an attachment to the aspirational aspects of the PBA and that I think has been helpful. But we're not focused on the PBA as a vector for standalone growth.

Got it. Okay. Thanks for the color. Appreciate that. That's all I have. Thank you.

Thank you.

There are no further questions at this time. I would like to turn the floor back over to Bowlero for closing comments.

Well, thank you – sorry, go ahead, Tom.

Okay. Brett, go ahead and take it. Sorry, if I stood on you.

No worries. Yes. Thanks again to everybody for joining today's call. And just to recap, we had an incredibly strong quarter and achieved new milestones, including surpassing $1 billion in TTM revenue and exceeding $350 million of TTM adjusted EBITDA for the first time in our history. And then subsequent to the quarter, we had this refinancing transaction that was very positive. And we're encouraged by the sustained levels of demand that we saw through the end of the quarter, but also into early Q3 as we reported in the slides. And we look forward to discussing our fiscal third quarter financial results with the group in a few months. And thanks again for your time and interest in our journey.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.