Good afternoon everyone and welcome to the Dave & Buster's Entertainment Incorporated's Fourth Quarter and Full Year 2014 Earnings Results Conference Call. Today's call is being hosted by Steve King, Chief Executive Officer. I'd like to remind everyone that this call is being recorded and will be available for replay beginning later today. Now I would like to turn the conference over to Jay Tobin, Senior Vice President and General Counsel, for opening remarks. Sir, please go ahead.

Thank you, Cassandra [ph], and thank you all for joining us to the Dave & Buster's Entertainment Incorporated quarterly conference call. On the call today are Steve King, Chief Executive Officer, and Brian Jenkins, Chief Financial Officer. After comments from both Mr. King and Mr. Jenkins, we'll open the call for your questions. This call is being recorded on behalf of the Company and is copyrighted. Before we begin our discussion of the Company's results, I'd like to call your attention to the fact that in our remarks and in our responses to your questions, certain items may be discussed which are not based entirely on historical facts. Such items should be considered forward-looking statements and relating to future events within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ from those anticipated. Information on the various risk factors and uncertainties have been published in our filings with the SEC which are available on our website at daveandbusters.com, under the Investor Relations section. In addition, our remarks today will include references to adjusted EBITDA, store-level EBITDA and pro forma net income, which are financial measures that are not defined under Generally-Accepted Accounting Principles. Investors should review the reconciliation of these non-GAAP measures to the comparable -- move closer -- GAAP results containing our earnings announcement released this afternoon which is also available on our website. Now I'll turn the call over to Steve.

Thank you, Jay, and good afternoon everyone. We appreciate your participation in today's call and your continued interest in Dave & Buster's. We wrapped up a record-setting and milestone year following our successful IPO with a truly outstanding fourth quarter that included revenues, adjusted EBITDA and adjusted EBITDA margins that were all well ahead of the expectations we provided in early February. On the heels of our strong 2014 results, which we believe demonstrates both the uniqueness of our business model and the value proposition we provide to our guests, we have great momentum heading into the new year. During the fourth quarter, our exceptionally strong 10.5% increase in comparable store sales materially outpaced Knapp-Track by approximately 740 basis points over the same period. We've now outperformed this industry benchmark for 11 consecutive quarters. In addition to our robust top-line performance which consisted of a 20.8% increase in total revenues, we generated an even more impressive 28.1% increase in adjusted EBITDA and 140-basis-point increase in adjusted EBITDA margins, while our full-year 22.1% adjusted EBITDA margin also set a new standard of excellence at Dave & Buster's. Equally notable for the full year, over 98% of our comparable store sales generated higher sales volume than in 2013, demonstrating the benefits of our initiatives surrounding our eat, drink, play and watch positioning, as well as our ability to effectively market and promote Dave & Buster's. Our robust comparable store sales growth, together with the strong results we continue to see from our newest stores are indicative of the underlying consumer demand for our differentiated guest experience than conventional casual dining and other entertainment options simply cannot provide. Within our 10.5% comparable store sales gain for the quarter, walk-in sales again generated outsized growth of 12.1%, which speaks to our brand strength and…

Thank you, Steve, and good morning -- good afternoon, sorry, everyone. Let me begin by just thanking our team for delivering a phenomenal fourth quarter and full year here at Dave & Buster's. Today we are also very pleased to be reporting Q4 performance that exceeded the preliminary estimates we provided in early February, as we do [ph] our sales, comp sales, adjusted EBITDA guidance in a meaningful way. For the quarter, total revenues increased 20.8% to $207.1 million, up from $171.4 million in the prior year and ahead of our expectations. Revenues from our 57 comparable stores increased an exceptional 10.5% to $163.6 million, up from $148.9 million, while revenues on our non-comparable stores increased 85% to $44.4 million, up from $24 million in the prior year. Now recall that a store does not enter the comparable space until it's opened at least 18 months as of the beginning of each fiscal year. For the full year, total revenues were $746.8 million, an increase of 17.5% from the prior year, driven by a 7.3% increase in comparable sales and strong combined performance from the 13 stores opened during 2013 and 2014. With respect to category sales, total amusement and other sales grew 24.2% during the fourth quarter, while the combination of food and beverage increased 17.6% as our total sales continue to shift to the more profitable side of our business, that's mainly gaming and beverages. Within our 10.5% comparable store sales increase for the quarter, amusement and other comps led the way, up a robust 13.8%. Food comps sales increased 5.7%, while our bar business grew 10.6%, for a combined food and beverage increase of 7.3%. Total cost of sales was $41.2 million in the fourth quarter, and as a percent of sales increased 20 basis points to…

Thank you, Brian. We completed 2014 with a total of eight new store openings. This included three stores opened during the fourth quarter in Albuquerque, New Mexico, Clackamas which is a suburb of Portland, Oregon, and Greenville, South Carolina. All three are new markets and new states for Dave & Buster's. Collectively, our entire 2014 class is performing extremely well and ahead of our expectations. In addition, we'd also like to recognize the robust performance of the 16 non-comp store sales which includes [ph] these recently opened stores I just referred to. In aggregate, this group of 16 generated approximately $128 million in revenue for the full year and made substantial contributions to adjusted EBITDA as well. We continue to target per share [ph] returns averaging 35% for each class and our newly-opened non-comp stores are collectively performing above that range. For 2015 we're committed to opening seven to eight new stores, with five of those stores already under construction. We estimate that we'll open two stores in each of the first and second quarters, with the balance spread across the third and fourth quarter. Within the seven to eight stores that we plan to open, will be skewed towards, as Brian mentioned, our large-store format in 2015. We're under construction in Pelham which is a Greater New York City area, Yulis [ph] which is outside of Dallas, Grand Rapids, Michigan, Woburn outside of Boston, and Dino which is outside of Minneapolis, Minnesota. All of these stores, with the exception of Grand Rapids, meet our large-store criteria of being over 30,000 square feet. We're also planning, as Brian mentioned, a relocation of our store in Buffalo, New York at the end of the year. That's not part of that seven to eight new stores that we're guiding. In addition to the five stores under construction, we have a well-developed real estate pipeline as an additional 16 signed leases that continues to build and provides us with great visibility over the next several years. And as we've done in our prior process, we will tailor our store size to the surrounding population size and other criteria, including daytime traffic, number of businesses, proximity to nationally recognized anchored tenants that have a regional draw. However, over the next couple of years, we anticipate being more heavily weighted towards those larger stores. In conclusion, following another record-setting year at Dave & Buster's, we feel great about what we've achieved so far, are confident about where we're headed. And we're now ready to take your questions. So, operator, please open the lines.

[Operator Instructions] And we'll go first to Nicole Miller of Piper Jaffray.

Thanks. Good evening. A couple of -- just two questions. First, on the special events, given that is really important to the fourth quarter period, could you talk about how that came out in terms of total sales? And then did you see -- what did you see in corporate versus social for special events?

Yes, I'll take the first one. I think in Steve's remarks, he mentioned that our comps performance was up about 3.1% on special events. So that then clearly fueled a very strong comp growth for the quarter at over 12. But we were very pleased with 3% growth -- over 3% growth in special events in what is our biggest special events quarter by far. The special events, party mix in the quarter is about just shy of 16% of overall revenues in the fourth quarter. So it's the most significant mix of special events for the entire year, so. You have the second?

I don't have the second piece in terms of the corporate versus the social piece of that, Nicole. I will also add that we were rolling over a stronger comp in special events in the fourth quarter of last year than what we were in the walk-in part of the business. So I think that had some effects as well.

I can see that in [ph] my notes now, actually, that's very helpful. Thank you. And then just last question, can you talk a little bit about the flow-through? So this big box in utilization or capacity that you create from these comp piece and that comp momentum, how does that flow through to the bottom line?

So if you look at the margins for the quarter for us from an adjusted EBITDA standpoint, we were about 140 basis points better than the prior year. And that was comprised mainly of leveraging what I'll call our facility related cost, rent and R&M and utilities, that sort of thing, as well as marketing. So we did a nice job leveraging at store level obviously on those comps, that -- and labor as well. So -- and that was offset if you look at our numbers by an increase in G&A. And that's again primarily due to higher incentive comp for the quarter. But we planned [ph] for about 50% flow-through on a 1% comp increase. So we -- that's really what we're shooting for. And we typically achieve that.

Thanks. Great job.

Thank you, Nicole.

And we'll go next to Andy Barish of Jefferies.

Hey guys. Just wondering on the pipeline, first of all, is the 16 in addition to the five stores that you have under construction currently?

Yes, it is. Sixteen in addition to the five, so, 21 unopened that are under construct in some form.

Okay. And then on the, you know, not that food commodity moved the needle all that much, but what's driving higher rates of inflation this year versus 2014? I would have thought you would have seen some breaks on things like seafood and dairy and other items like that.

So we are seeing some benefit in those areas that you just mentioned, but the big culprit for us right now is beef, followed by chicken. So we're not seeing moderation in the price of that. And I think a little bit of chicken is just because beef gives them some cover to keep prices higher than you would think they might be given the input costs, which in some measure are driven by fuel prices and some of that, should be dropping. So, but we're just not seeing it yet in the pricing. And I think there's been a lot of volatility in that, in some of those prices over the last couple of weeks even.

And is the menu innovation work around the food side kind of take that into account or is it really, hey, we've got to give the customer what they want and they happen to like beef and chicken items and we'll just kind of manage around that?

Yeah, I mean we do have some ability to manage that, Andy. I mean in the past when we -- when, like for example, last year, shrimp really spiked high, we did some things to try to moderate our usage on shrimp. But in terms of that, we are subject to that, what the guest is buying, we have a very broad menu, beef and chicken are popular, it's not like we're going to be able to take those off. I think Brian referenced this, but we do manage that gross margin holistically. We are looking at the, you know, that low 80s number and trying to manage that as a totality as opposed to getting too focused on one of the components. And we do have some levers that others don't have if we need to in order to keep that in the right range. And specifically, as I think we've talked about in the past, we can take some price in the Winners' Circle that would give us better margins on the amusement side, which then would take off some of the pressure that we might have that's taking us on the food cost side. And so we continue to monitor that. And, you know, if need be, we're willing to exercise and draw that lever.

And I would just add, Andy, if you kind of look at our full year numbers this year, despite the cost pressure we've had on the commodity side, our overall gross margins are essentially flat year over year, and again not to repeat what Steve said, but we have been I think very successful in managing the variability to 20 basis points year over year number of variability on that over the long haul, it's been very flat and stable for a number of years. So while we see some pressures, we're going to continue to try to manage it that way. And I think we have some leverage to do so.

Thank you guys.

Okay. Thanks, Andy.

[Operator Instructions] And we'll go next to Sharon Zackfia of William Blair.

Hi. This is actually Matt Curtis on for Sharon. I just have a follow-up on the commodity question. Do you guys have anything contracted right now?

We have about half of the -- a little over half of the basket contracted as we look at that on a weighted [ph] basis for the year.

Okay. And then on price, you guys took price this quarter and I think you took price last quarter, if memory serves. So what's the cumulative price benefit that you're carrying right now?

Yeah, just to be clear, the numbers I'm quoting are essentially cumulative price, when I quote 1.6 on the quarter, that is the cumulative price impact that we have this year versus last year same quarter.

Okay --

And, you know, we will probably -- we're looking to take a little more price in 2015 to counteract some of the things we've seen on the commodity side.

Okay. And then just to make sure I'm understanding the adjusted EBITDA guidance, maybe you can tell us what you're anticipating in terms of preopening expenses and stock-based compensation for 2015.

Yeah, let me start with the latter, stock-based comp. If you look at our press release, you're going to see us pro forma our stock-based comp number of about $3.6 million. And that really is trying to give effect for the stock-based comp that we would expect in 2015 as a public company with a long-term incentive plan in price. So I think I would look towards that number that we've already guided to actually in the pro forma there. The preopening, I think we've talked a little bit about that in the past. I mean we're targeting seven to eight stores, skewed more towards large. We'll typically spend about $1.4 million on large and roughly around $1 million on a small. Again, so if you kind of do the math on that, you're going to get upward over I think $10 million if we're skewing towards large. And I'd say keep in mind the -- Steve mentioned, we plan to relocate a store in Buffalo, and while it won't have preopening costs that -- as high as a normal new store, it will have some preopening costs associated with it. So we're not really guiding specifically, so you could I think do the math on that. But you're up over $10 million.

Okay. Yeah, that's helpful. And then finally, on your e-ticket initiative, I think you guys said last time you're starting to accelerate the rollout materially starting in February. So maybe you can just give us an update on how that's been progressing and maybe some early takeaways.

Well, it's progressing well. We are doing a couple of stores each week. We, you know, it is an investment the Company is making in the neighborhood of $10 million in terms of capital investment to put in a piece of equipment that allows our guests to opt in to take their winnings, not, you know, electronically to put those tickets directly on a power card [ph] as opposed to taking away a paper ticket. So we think it's a win across the board and that it is a go-green initiative, it eliminates for us in excess of $3 million in ticket costs annually if everybody opts in. And what we're finding is we're getting high, high opt-in rates, in the 80% range. So we're excited about the rollout and we're well into it. We anticipate we will be complete by the end of the second quarter, is what we're planning on right now. Also just as another sidebar, today one of the last experiences someone has at a Dave & Buster's is, if they've been playing games, is to redeem their tickets in our Winners' Circle for their prize. And so what we are finding is obviously less lines for people waiting to get their tickets weighed. We think that's a plus from a guest experience and a throughput capability for us. So it's kind of a win-win from a guest standpoint, they can opt in, it's a win for us for cost, win for the environment. So we're excited about that initiative right now.

And we [inaudible] in the second quarter, right?

-- in the second quarter.

Okay. Sounds good guys. Thank you.

All right. Thanks, Matt.

And we'll go next to Brian Vaccaro of Raymond James.

Yeah, good afternoon guys. Just a couple of quick ones for me. On the unit count, just wanted to confirm that the Farmingdale location did close early fiscal first quarter?

Yes, it did.

Okay, thank you. And then, Brian, as we think about G&A, somebody asked about stock-based comp, but how should we think about G&A? I mean obviously you mentioned, instead of comp being up, but how should we think about G&A for the year in aggregate in 2015?

So we haven't guided specifically on that. We actually expanded our guidance here today above what we have initially planned. But I would say this, we're going to -- you're going to see some increase obviously year over year in stock-based comp kind of using the $3.6 million as a target. And this year it was about $2.2 million. So you're going to see upward pressure in G&A from that. There will be some incremental public company costs going into next year. And then you're going to have some reduction due to bonus declines because we had such an incredible this year, bonuses were -- incentive comps were ahead of par level, so that will cause G&A to go back down. But I think you guys have the models out there in the 44, 45 range, if I remember right, and you're probably not too far off.

Okay. And that 44 to 45, you're saying that's kind of before stock-based comp, I'm assuming?

No. No. Inclusive.

Inclusive of stock-based comp. Okay.

Yes.

Okay. And then just one more quick one if I could. Wanted to ask about, so obviously D&B Sports has been very successful in attracting new and existing guests. But I was wondering if -- what your internal data would suggest, you're seeing in terms of converting maybe that new guest that's coming for D&B Sports occasion and is coming back during other occasions maybe with this family on the weekends or during the week, et cetera? Do you have a sense of the conversion rate yet?

I would say no. We don't really have a very strong sense of that conversion rate. We do have a rewards database that we can track some of that sort of stuff in. But it's just not a large enough proportion of everybody coming through the doors every week in order to make it statistically value our projectable into the overall. So I would say that, intuitively, I believe that they are doing more than just watching games because if you look at what the strongest category in the fourth quarter was, it was actually amusement. So to me that says we're attracting them in and we're actually crossing them over, and we do some very specific things to try to drive them over and participate in the midway. So I think we're being successful at that and that was part of the success in the fourth quarter. But in terms of that person then coming back later during the week or on the weekend or whatever with their family in addition to that, it's pretty tough for us to get at that data.

Okay. Thank you.

And we'll go next to Paul Westra of Stifel.

Hi guys. Thanks for taking my call. This is Michael filling in for Paul. Just wanted to start with a clarification on the guidance. I just wanted to confirm net income was in -- is that GAAP or is that pro forma basis?

That's a reported basis guidance, pro forma.

Okay, thank you. And then just wanted to ask if there were any known medical claim headwinds or any other labor headwinds that we might be aware of thus far into the 2015?

No. You know, we make modifications to our benefit offerings in 2014 and basically some migration in the plans and actually had some escalation in medical benefit costs in 2014. So we think we have absorbed some of the healthcare cost increase. We expect a little bit of an increase year over year this year. Obviously new stores are going to cause the number to move up some, but we're not overly concerned about the healthcare benefit increase for next year, for 2015.

It's in the guidance. What we see is in the guidance that we're giving.

Okay. That's helpful. And then I guess I just wanted to ask, it seems like the call was more or less focusing on the larger format stores going into the future. It seems to me like maybe a reversal of kind of the prior course where it seemed like we were looking more for smaller formats in the future. Is that -- is there a change in thinking there or is this -- any learning that we could take away from that?

I think there's good results from both large and small stores. There continue to be good results from both large and small stores. It's a bit of the way the real estate has come our way in terms of our targeted opportunity, but I would also say that if there is a store that's on the cusp, we are erring on the side of building a larger store as opposed to a smaller store. And I think that that's not necessarily inconsistent with what we've done or said in the past, but I think the combination of the way the size had been coming to us has been a little bit more focused on large market, large opportunities. We still feel good about the small store, it's not a reflection of some sort of performance that's under expectation on the small stores because they continue to perform quite well.

Yes. As I said, I think we have stated that our preference is to obviously go in a new market, large DNA, and that's going to be a large store at the top of the food chain, and that would be followed probably by a large DNA where we're under-penetrated like we have a bunch of those markets, Boston, San Francisco Bay Area, a number of markets where we're under-penetrated, those are going to be large stores, also in terms of format size. And then you're going to be looking at Greenfield, smaller DNAs where we're going to be putting smaller. So it's going to be [probably] lean a little more towards large [inaudible] I think.

Great comment guys. Thank you, and congrats on the quarter.

Thank you. Appreciate it, Brian.

And we'll go next to Matthew DiFrisco of Guggenheim Partners.

Thank you. My question is more on the new stores and sort of what you're seeing out there in the marketplace as far as the investment cost, and also what you have sorted within your guidance on those expectations for the 2015 openings as a class of stores the size, those volumes would be coming in at relative to prior years, and if there's any factor or anything to consider as far as levels of cannibalization. In particular looking at the one closest to us, in New York, I think it's coming in in Pelham, and it's not too far away from a Co-op City location in the Bronx. Just curious if you factor in in those situations a level of cannibalization.

Okay. Just to be clear, we don't have a store in Co-op City, but we are going to Pelham. Is that what you're saying? You're --

Yes, but then there's another store in another section of the Bronx not too far off from that.

We don't have any stores in the Bronx at this point. So, anyway, but just to clarify, the closest stores that we have to this store are Westbury on Long Island, in the Palisades mall which is West Nyack, and then literally in Times Square. So those are the three closest stores. We've done quite a bit of cannibalization studies on those three and see that, given the density there, we're expecting very minimal cannibalization if any to those other locations. We do take that into account as we're looking at new stores. To answer your question more broadly, what we've guided to is sort of a stabilized run rate for new large store of $10 million, first year [ph], about $11.5 million. I don't see anything in this class that would be inconsistent with that part of the guidance. And as we said, we're probably going to be a little more skewed towards the large and we are going to be skewed also towards existing markets compared to what we were in, for example, the last year. So I don't know if that gets at all your questions, but I hope that gives you some color.

No, it does give me some good color. I apologize, I was meaning the West Nyack store, sorry, I apologize for that. But in respect to sort of the investment cost, given that they're in some existing markets, does that, aside from the obvious preopening probably being a little less weighty, is there any advantage that you have as well on the build-out on the cost structure of that, maintaining them, versus what might be beginning to be an inflationary environment on cost for other brands?

Yes. So far we're holding our own on the cost side and doing very well compared to what we've been forecasting in terms of our net development costs, which again for a large store on average, we've been saying that's going to be about 8-1/2 or $8.25 million, $8.3 million. And I think we're going to be able to come in within that range. We're also not seeing significant inflation on the rent side yet. Again it may be the size that we're after relative to some other spaces, because I've heard the same thing about some of the quick casual folks having much more trouble finding the right size spots at the right prices of what they were anticipating, and seeing some escalation or maybe some reduction of TI and some of that. But so far so good for us. All the stores that we underwritten in this group of 21 that we are referencing, we think we're going to be able to bring in the range of cost that we had guided to previously.

Excellent. And then just lastly, did anything -- I mean I know you have now an emerging sports theme. Was there anything that you could say on a year-over-year basis to start off the quarter that might have impaired given the timing of spring break during the March madness and the finals week or is that not as relevant for your brand?

Let me base it in the first quarter because I kind of knew this question would come off. For us, it isn't about the sort of singular event of March madness or anything like that. We still have a couple of weeks to go in the quarter, and some of those weeks really have very significant spring break seasonality because of the Easter holiday falling earlier in 2015 by two weeks than it did. So we're still two weeks out from Easter last year. That being said, we're not seeing any signs through the first nine weeks of any deceleration in our two-year comp store sales momentum, which is approximately 11% in both Q3 and Q4. So as you may recall, we're going to roll over almost a 5% in this -- from last year's 2014's first quarter, it was actually 4.7%, which sort of implies that 6% or better comp store sales growth during this year's fourth quarter based on what we see so far for this quarter, excuse me, not fourth. We were talking about the fourth before; this is the first quarter.

That's great, that's very helpful. Thank you.

Okay.

And this concludes our question-and-answer session. At this time I'd like to turn the call back over to Steve King, Chief Executive Officer, for any additional or closing remarks.

I do see one other person in the queue from the question [inaudible].

And we'll go next to Sam Teeger of Commonwealth Bank.

Hi guys. Congratulations on a fantastic result. I was just wondering if you're able to provide any comments as to the performance of your stores in the state of Texas, how they've been performing, particularly Houston where there has been a couple of layoffs in the oil space.

So, Sam, so far so good. We're seeing very low impact. And again we're in, primarily in Texas, in the bigger markets, so we're in more towards in Dallas, we're in also Austin, San Antonio, two stores in Houston, but we're just really not seeing very much impact at all to anything going up from an oil patch standpoint, despite some of the layoffs and whatnot in Houston. So, so far so good is our outlook.

Great. Thanks very much. And just one more question, just wondering how the bowling has been performing in eight of your stores.

I'm sorry, I didn't understand that. What, I'm sorry?

Yes. So you've got bowling in eight of your stores. Just wondering if you could provide any commentary as to how this has been performing. And if it hasn't been performing too well, would you look to reallocate this space to some of your better-performing areas?

We're not building any more of that, that's all I'll say.

It's a low revenue per square foot, just like billiards when we started repurposing that. So we're not -- it's not our focus for the Company. And while we have a few of them, but it predated this management team, it's not something we're looking to continue and -- but to repurpose them would be quite expensive. So that's also right now not on our radar.

Sure. Okay. Thank you very much.

Okay, Sam.

And there are no further questions.

Okay. So once again we appreciate your continued interest in Dave & Buster's. Look forward to speaking to you again when we release the results from our first quarter which we would anticipate being in early to mid-June. Thank you.