Greetings, and welcome to Bowlero Earnings Call for Q2 Fiscal Year 2022. [Operator Instructions] 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 final prospectus filed with the SEC on February 1, 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 our performance. Reconciliations of adjusted EBITDA to net income calculated under GAAP can be found in our earnings press release and will be included in our Form 10-Q for the second quarter of fiscal year 2022. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Brett Parker, President and CFO of Bowlero Corp. Thank you. Mr. Parker, you may begin.

Good evening, and welcome to the Bowlero Corp. Earnings Discussion for Q2 of Fiscal Year 2022. I am Brett Parker, President and CFO of Bowlero Corp. Before I begin, I direct you to the disclaimer on Page 2 of the deck as well as the reconciliations for non-GAAP measures in the appendix, both of which are integral parts of this presentation. In this presentation, you will find a discussion of, among other things, adjusted EBITDA, which is a non-GAAP financial measure that is not in accordance with or an alternative to measures prepared in accordance with GAAP. We are extremely pleased with the performance of the business as we continue to recover from the interruptions related to COVID-19. The business continues to perform far better than it was pre-pandemic, and our unit growth profile has also continued to advance. Year-over-year revenue increased by 177.3% and surpassed pre-COVID levels by 11%. This excellent performance came despite the emergence of the Omicron variant of COVID-19 as well as Halloween and Christmas falling on weekends. This increase is supported by our multi-vector growth, which combines strong organic performance and unit growth. During the quarter, Bowlero Corp. grew its bowling center portfolio by adding 5 new bowling centers consisting of 3 acquisitions of existing centers in Spring Hill, Florida, Port St. Lucie, Florida and Vacaville, California, along with the opening of 2 newly constructed centers in Oxnard, California and Tysons Corner, Virginia. Adjusted EBITDA was $66.8 million in the quarter. This figure is 26.2% higher than the pre-pandemic level and $70.5 million higher than prior fiscal year. At the end of Q2, trailing 52-week adjusted EBITDA was $195.3 million and exceeded the pre-COVID level by 12.3%. We generated $27.7 million in cash from operations in Q2, which helped fund our investments in the business.…

[Operator Instructions] Our first question comes from the line of Stefanos Crist with CJS Securities.

Congrats on the quarter. First, you made 5 acquisitions during the quarter. Could you give us maybe a little more detail on what the pipeline for acquisitions looks like?

Yes, sure. This is Tom Shannon. We have a really robust pipeline. If I had to ballpark at this point, I'd say 40 to 50 units, which is a combination of new build locations and existing bowling centers as acquisitions. It's easily the most robust pipeline we've ever had in the history of the company.

That's great to hear. And so earlier this week, you announced the share repurchase authorization. Can you maybe talk about how you think about that and also balancing that out with growth through acquisitions and how you think about that?

Well, it is a balancing act. Fortunately, we're not capital constrained. As Brett mentioned in his comments, we're sitting at over $100 million of cash. We've got a substantially -- a substantial undrawn revolver facility. But most importantly, the company is generating a lot of cash. We're in the best part of the year. We're generating prodigious amounts of cash and, frankly, at a faster level than we're spending it. So our net debt number keeps coming down every week. These deals take a long time to play out. And of those 40 to 50, not all will get across the finish line, right? That's just what we have. Some of those are prospective. Some of those are actually signed leases or signed acquisition agreements. But not all will get to the finish line. But we allocate capital to all opportunities that exceed our hurdle rate, whether it's acquisitions, new builds or renovations of our existing centers, and we're in the process now of about 25 meaningful scale existing center renovations in addition to the new build and acquisition pipeline. The share repurchase will not come at the expense of any of those deals. So between sources of cash, continued cash generation and sort of the timing of the way these deals play out, we'll be able to repurchase meaningful shares in the market without slowing down our development pipeline one bit.

That's great to hear. And maybe I could just squeeze in one more. It looks like league and event activity has almost returned to normal. So what's attributed to that, and if there's still room to grow in those 2 segments?

I'm glad you asked the question. The league business has held up pretty well. The event business actually comped up in November for the first time since COVID, and that was an extremely bullish sign. We're heading into December looking like we would probably be up high single or low double digits on an event comp basis versus December of '20 pre-COVID. And that would have been up $10 million or so, I think. We ended up being down $6 million because unfortunately, Omicron sort of hit and was announced on Black Friday, which was really right in the teeth of the event booking season. So what happened is the call started to slow and then they stopped for new event bookings and then people started asking for refunds. And so rather than being up meaningfully, we were down meaningfully. I think the number was on order of about 22%. And so what you see in the quarter number is a strong October, a very strong, and as I mentioned, positive comp November and then, unfortunately, running right into the hurricane of Omicron. Now fortunately, as you know, or as you may know, Omicron seems to be receding pretty rapidly. My data point on that is that we have a lot of municipalities that had some version of COVID restrictions releasing those restrictions. It's happening literally every day. And so it seems like we're moving past Omicron. And as that happens, I expect that the event business will come back and resume the trend that we had through November. But we've seen tremendous resilience on the league side and then the brightest part of the story, of course, has been the walk-in retail business, which has just been extremely strong and really strong to most of Omicron -- or sorry, of COVID over the last 18 months. So that's a nice thing about our business. We have a lot of different revenue sources. The walk-in business, the recurring league business, the event business and et cetera. And fortunately, the strength in some of the businesses have offset some of the other weaknesses. But going into December, we were looking extremely strong on the events side and had Omicron not hit this quarter, as good as it was, would have been meaningfully better.

Our next question comes from Eric Handler with MKM Partners.

I got 3 questions for you. I'll just sort of go one by one. Wonder if you could talk about -- you've had very good same-store sales growth over the last several quarters. What confidence do you have that you can sustain positive momentum relative to pre-COVID levels?

Well, this is Tom Shannon. I'll take this one. I mean, the quarter we just had was a really good quarter, but again, adversely impacted in December, which is, by far, most important event month of the year, and it cost us easily $10 million of high-margin revenue. And so that was anomalous, I think, given where we are coming out of Omicron. We're seeing incredible strength in our business now. And I think it's just a continuation of the momentum we were seeing pre-December. I think things are reverting quickly to normal. I'm seeing it in the event business. The event business is coming back now stronger than it has been over the last 2 months. And so I think we have a lot of tailwind for a lot of reasons. One is there's a lot of pent-up demand. There's a tremendous amount of savings in the economy. But the other thing is we've really taken the last 24 months to strengthen ourselves from a strategic position. We've reinvested in many, many of our centers, and we've bought or built a number of centers in key markets. And so we have excellent product in the most important markets. And so the portfolio is in much better shape than it was pre-COVID as a result of all that investing activity. So a combination of all the factors and really no dark spots on the horizon that I can see at this point.

Okay, great. And then secondly, I wondered if you could talk about let's just go through the remainder of this fiscal '22 year. Wonder if you could give us maybe a little bit of visibility into how you're thinking about new center openings in each of the next 2 quarters and as well as upgrades in the remaining course of the year as well.

Well, I mentioned we have about 25 centers currently in process of renovation. And so those will likely all be done by the end of the fiscal year, and we'll start to see some positive lift from those centers in fiscal 2023. We have a handful of centers that we're looking to acquire and close prior to the end of the fiscal year. Brett, you may know what you think that number is better than I do in terms of acquisitions. In terms of new builds, we aren't opening any new centers to be to now at the end of the fiscal year.

Yes. Thanks, Tom. This is Brett Parker speaking. It's really difficult to handicap the exact timing of how these things shake out. And while the balance of the year sounds like a long time when you're dealing with a large number of pretty significantly unsophisticated sellers, it's tough to handicap. So I don't want to give any updated guidance versus what we've done before. And I think the color from Tom is really the overarching point that matters, which is that the pipeline remains robust. We've got a lot of deals in the hopper, and we're pushing those along.

Great. Okay. And then last, I wonder if you could talk a little bit about the Ball America acquisition, how that has performed since you completed that acquisition.

Well, we couldn't be more pleased with that acquisition. Ball America was a sort of nontypical acquisition. You had a lot of centers that were either EBITDA sort of neutral or losing money. The business has really been harvested into oblivion. There were a handful of centers that we thought had some meaningful potential. And so part of the strategy was we were going to divest ourselves of some of the centers that we didn't think had any potential, but one of which was a center in Glen Burnie, Maryland that was doing about $1 million in revenue. It wasn't making any money prior to the deal. We had a broker's opinion of value of $4.5 million to sell that. We ended up selling it. The deal closed, I believe, last month at $6.5 million. We also have 2 other centers that were effectively profitless that, in aggregate, are $4 million or more. And so those 3 centers -- and those should close in the next -- well, certainly in this fiscal year, much -- likely much sooner than that. But -- so if you just take those 3, we're already at $10.5 million on 3 centers that weren't contributing and weren't expected to contribute any EBITDA. And so the net purchase price, as a result, goes from around $44 million now down $33 million and change. Of the centers that we think have potentially seen a meaningful increase in their revenue growth over the last couple of months, and that's without having spent any real capital in them, we're just now starting to deploy capital. But those results -- the results of those investments haven't been seen yet, will be seen over the next couple of months. But the trajectory in the business is really good, and we have a number of other centers that we view as having little or no profit potential, where we've received indications of interest that are quite attractive already. And so we think ultimately, the purchase price that we get in that we ultimately end up in that deal net of these divestitures is going to be meaningfully lower. And I think the potential of the 5 or 6 centers that we plan on keeping and investing in long term will ultimately be higher than we expected. And so I think that the IRRs on this deal are going to be very, very attractive, certainly meaningfully above our hurdle rate, and we own them all except for one. And so there's the ability to put some cheap mortgage financing on them should we so choose. We don't need the capital now, but we certainly have the opportunity to do that, which would just further enhance the returns.

Our next question comes from Michael Kupinski with NOBLE Capital Markets.

I'm curious, how does the pipeline that you were talking about potential acquisitions, how does that compare to the past? I was just wondering, can you frame that relative to the past few quarters or past few years. And I'm just wondering if you're seeing that pipeline accelerate possibly because of COVID and COVID restrictions and so forth.

Well, it's orders of magnitude higher than it was pre-COVID, and we've seen the pipeline grow really every quarter over the last 8 quarters, and that's both on the new build and the acquisition side. And so it's 2 completely different set of parties. On the new build side, we're dealing with mostly large mall owners or some independent landlords who've got usually former retail boxes that have become empty. So the trend there is that more real estate, more quality real estate has come on the market as the number of retail outlets has shrunk. That's part of it. I think there's also a strong desire among the larger landlords, certainly the mall landlords to add more entertainment as a draw to their locations and so that we're benefiting from those. On the acquisition side, undoubtedly, there are some COVID fatigue. I mean, I can tell you, from an operator's perspective, it's been a long growing process and one with lots of frustrations and setbacks. And we, as an organization of more than 9,000 associates, we have the resiliency and the wherewithal to deal with those challenges. But independents, not so much. And you have a lot of elderly proprietors who have owned their centers through decades of good times. And now they're faced with well, COVID fatigue, right, but also challenges on labor availability and other things that I think have just caused people to say, "hey, you know what, I'd rather take a check now and enjoy my retirement rather than have to worry about operating this bowling center."

Tom, I was just wondering, in the last quarter, were there any centers that were not fully operational because of COVID restrictions. I'm just trying to understand. I understand that the event revenue and so forth, but I'm just trying to understand if there were certain centers that due to restrictions were closed.

Yes. And I can't give you the exact timing, but we were closed in our 2 centers in Canada. We were heavily restricted in Mexico. And then there are other mandates, whether it's mask mandates or other things that impact the business. The biggest impact that we've seen from governmental regulation in the United States has been the vaccine mandates. And where you have the vaccine mandate like in New York City, for example, that has really severely impacted the business. Mask mandates, not so much, but the vaccine mandate has really been a significant headwind for the business in New York City.

Yes, I would expect that. So a number of firms have also expressed a difficulty in managing cost and particularly employee cost in light of inflationary pressures and, of course, difficulty in hiring and retaining employees. Can you discuss your cost management how you mitigate some of the cost pressures like wage costs, for instance? And give us an outlook for expenses for maybe the balance of the fiscal year?

Yes, Mike, this is Brett Parker speaking. I'll take that one. With respect to labor costs, in particular, we really are benefiting from a handful of factors, and that's why we've had this differentiated outcome where you have sort of various players in employee-exposed industries that are seeing margin compression as a result or cost marginal cost increasing. We're not seeing that. And it comes down to really a handful of things. Number one, during COVID, when we had the, I guess, I'll call it an opportunity to take a fresh sheet of paper to the business, we were able to redesign really every process from the ground up and we did so in a substantially more efficient manner just in terms of in times and out times and how we schedule folks and that sort of thing. Then number two that supports that is the implementation of technologies. So we continued to invest in our kiosk ordering, our online booking platform and then also in our billing software, which we use as the primary operating tool. So what those have allowed us to do is to offset increases in unit costs for labor, average wage per hour sort of thing by using substantially fewer hours to deliver the same guest experience, and that's really been the core. And then we support that with the fundamental reality of bowling, which is that we have very, very high operating leverage. So the incremental revenue that we've seen will always flow at high levels because 2/3 of your revenue effectively has no variable costs from an EBITDA perspective, and you see this great flow. And then if you just layer on top of that some moderate price increases, which everyone is seeing everywhere, and that's not causing any kind of an issue, you end up in a situation where our business, we expanded our margin at the center level by 393 basis points in the quarter. So there continues to be pressure, obviously. That's the macro reality, but we are very aggressive managers in the cost side of the business and always have been. And I think it shows in the results, and that's why you're seeing margins in the business increase rather than shrink.

Ladies and gentlemen, we have reached the end of the question-and-answer session, and I'd like to turn the call back to management for closing remarks.

Great. Thank you. Nothing really in closing other than to thank everyone for joining and for their support, and we look forward to speaking with everyone again next quarter.

This concludes today's conference. You may disconnect your lines at this time. Thank you all for your participation.