Good afternoon, and welcome to the Dave & Buster's Third Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Cory Hatton, Vice President of Investor Relations and Treasurer. Please go ahead.

Thank you, operator, and welcome to everyone on the line. Joining me on today's call are Kevin Sheehan; our Chair of the Board and Interim Chief Executive Officer; and Darin Harper, our Chief Financial Officer. After our prepared remarks, we will be happy to take your questions. This call is being recorded on behalf of Dave & Buster's Entertainment, Inc. and is copyrighted. Before we begin the discussion on our company's third quarter 2024 results, I'd like to call your attention to the fact that in our prepared remarks and responses to questions, certain items may be discussed, which are not entirely based on historical fact. Any of these items should be considered forward-looking statements 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 these risk factors and uncertainties have been published in our filings with the SEC, which are available on our website. In addition, our remarks today will include references to financial measures that are not defined under Generally Accepted Accounting Principles. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP measure contained in our earnings release this afternoon. And with that, I would like to turn the call over to Kevin.

Thanks, Cory. Good afternoon, everyone, and thank you for joining our call today. As communicated in our press release, Chris Morris, our CEO, has resigned to pursue other interests, and I'm assuming the role as Chairman of the Board and Interim CEO. I want to assure you that despite Chris' departure, there will be a strong and seamless continuation under my interim executive leadership. I've done this before for Dave & Buster's from the fall of 2021 until Chris started in the middle of 2022, and I am excited to work with this management team. The same plan, which we initially unveiled to you at our Investor Day in June of 2023 and have been hard at work as a team to execute on ever since will remain our focus. We are working with Heidrick & Struggles, a global executive search firm to identify the future permanent CEO of this great company. On behalf of the whole entire Board, I would like to extend the thank you to Chris for the significant amount of energy he dedicated to leading this company over the past 2.5 years, and we wish him all the very best in his future endeavors. Now I'll turn the call over to Darin to walk you through the results for the third quarter. Darin?

Thank you, Kevin, and good afternoon, everyone. During the quarter, we continued to make progress towards our long-term strategic goals. We opened three new stores which are on track to generate strong cash-on-cash returns, as we have demonstrated throughout our history. We completed 11 new fully programmed remodels and are on track to have 44 completed by the end of fiscal 2024. Our fully programmed remodels continue to outperform the rest of the store base, and we are excited for the opportunity these remodels give us to drive traffic sales and EBITDA. Additionally, we saw a strong year-over-year growth in our special events business and remain optimistic about the prospects for our event business and the upcoming peak holiday event season following the rollout of our new banquet menu and the investments we've made in our in-store sales managers. Despite this progress, our financial results for the third quarter, which is our historically lowest seasonal volume quarter of the year were negatively impacted as compared to the prior year by a material fiscal calendar mismatch, adverse weather across many important regions and disruption to certain stores in our comp set as they underwent remodel construction. Our new domestic store openings have consistently performed in line with or above expectations and historically high ROIs. In the third quarter, we opened two new Dave & Buster's stores in Barboursville, West Virginia and Lombard, Illinois and one new Main Event in Grand Rapids, Michigan. Quarter-to-date for Q4, we opened one new Dave & Buster's store in Clarksville, Tennessee, bringing us to a grand total of 10 new stores opened year-to-date. With one new store in our pipeline slipping into 2025, we expect to open four additional stores, three Dave & Buster's and one Main Event and the balance of this fiscal year. On…

[Operator Instructions] The first question is from Jake Bartlett with Truist Securities. Please go ahead.

Great. Thank you for taking the question. Kevin, I wanted to start with Chris's departure and really, how we should think about the plan that Chris was so critical in putting together. He's left but the plan remains. How confident should we be that the plan stays as is? Or as you look for a new - a replacement new CEO. What do you look for in terms of attributes that might change the plan going forward? Second part of that question is, what has not gone wrong - not gone right in your mind. So what needs to be course corrected in terms of kind of what's been executed so far? And then I have a couple of follow-ups?

Sure. Hi, when you listen to Darin's commentary on each of those initiatives, you can't help, but get excited because there's a lot of progress going on here behind the scenes, and I'm excited about that. So the Board and the whole management team, just as a way of background, work very closely with Chris in devising the original plan. And the plan was clearly defined all the underlying initiatives that we have a tremendous amount of confidence, and we'll continue to execute against. And I would just say in this intervening period, a lot of my time will be focused square on that. And making sure we show tangible progress on each of these initiatives, and drive things to move forward. So that we can show you some success in each of these. There's a lot of value in these, and we want to make sure we communicate that to you guys along the way. Now the only wildcard is the consumer environment has been somewhat conflicting this year. And we have - but we have a significant amount of optimism that things are progressing forward in a very encouraging way. And from here, our search to identify a very capable permanent CEO that shares this vision is critical, and it will be obvious to the right candidate that these are the things that will move the meter forward. And as far as the successor CEO, we're looking for - you can take the textbook, but it's really important. We're looking for someone with a clear lead in strategic vision, operational execution, getting things accomplished and financial performance of the company. We have to watch everything as we go through the balance sheet, the income statement, the cash flow and make sure the capital allocation is right. This role demands a forward-thinking leader, who can integrate the dining and the entertainment experiences into a cohesive, scalable and profitable business model, while fostering the innovation that Darin was talking to you about, with so many of the things that we're working on, which should translate into strong guest satisfaction and brand loyalty. They will need to be an individual who can drive these critical initiatives forward. As I said, we need to show you guys the progress that we're making day-by-day, or quarter-by-quarter as the case may be. But there's a lot of, a lot of - I just went through a series of meetings. There's a lot of very excited team members here. And I think it's going to be a very encouraging fourth quarter and 2025. Thank you.

Great. Thank you. And a follow-up, it was very helpful to get that guidance for the year on EBITDA I think it's important for us to understand how sales is driving that. So I'm hoping you can give us a little more detail. I know it's not typical. But on the quarter-to-date November, how it's trended, I'm trying to understand, you gave us a range for EBITDA. How does that correspond in terms of sales? And how confident are you in an acceleration in the same-store sales in the fourth quarter or perhaps not?

Yes hi, Jake. It's Darin. Yes, we felt like given the, you're correct. We typically don't give guidance. But given the 53 weeks in the prior year, calendar shifts and some other factors, we just thought it would be helpful to provide what we believe is a conservative level setting. And so regarding sales assumptions, I think the best way to think about it is if we assume that Q4 performed similarly to Q3. Maybe with some modest improvements. And this is based on what we're seeing in walk-in trends and forward bookings that, kind of gives you some directions for how we thought about that EBITDA guide. As we've articulated, we're working on a number of things, hard at work at a number of initiatives. And we are optimistic in the near and medium-term contribution that, those are going to have. But we wanted to present what we thought was a fairly conservative guide, and just help investors cut through some of the noise and some of the comparability challenges.

Okay. And then just last question just on that point. It sounds like you've talked about higher bookings, you have considerably higher or leased deposits. I believe your deferred revenue is down year-over-year. Maybe just kind of help us understand what we should -- how we should read in terms of deferred revenue. But in the context of that, you mentioned - I think you're talking about kind of same-store sales roughly being the same as they were in the fourth quarter as in the third? But if you have those special events, a big part of the business, you're seeing some good movement there. Why would we expect? And is there something that maybe has walk-ins decelerated or something? Is there an offset that you're seeing that would make us feel like the special events was not going to be driving an improvement?

Yes. No, I would not look at it that way at all. What I'd say right now is where we are quarter-to-date. It's - the preponderance of the quarter is yet ahead of us. We still have 75% of our quarter between now and the end of Q4. And so with holiday shifts, from where we are quarter-to-date. And with all of our special events predominantly happening over the next two to three weeks. We feel very confident about where these are going. But we didn't want to overextend and demonstrate any additional sort of walk in guidance. Look, we feel very good about what we have to offer going into Q4. And again, I'd say I would look at this guidance as a very conservative view just to help really level set, and make sure people know at least generally how to approach Q4. Just given Q4 and the prior year had a 53rd week, and just some other year-over-year noise. So I'd say we're looking at this very conservatively, and are optimistic that we're going to have a strong Q4.

Thank you very much. I really appreciate it.

The next question is from Andy Barish with Jefferies. Please go ahead.

Hi guys, and yes, welcome back. Kevin, at least on the call for a while. Hi Darin, just on the calendar shift benefit within that guidance, again, without having to parse it too much. I'm assuming the negative impact of the third quarter flips around in the fourth quarter, and I know it doesn't fully offset an extra week, but can you give us some sense of sort of, or at least what's going on with that shift in the 4Q?

Yes. Yes. I think when you look at the impact in Q3, and there's a table in the earnings release that provides some color there, if you haven't had a chance to digest that. The benefit in Q4 is going to be half of that or less. So certainly, we would not look at that as it is hardly going to offset the 53rd week. The 53rd week had a $39 million impact in the prior year in this fiscal week shift, maybe circa $5 million favorable impact in Q4. So I hope that provides some context.

Yes. Very helpful. And then just maybe nitpicking here, but obviously important as you move into '25. You didn't kind of give a sales increase in the fully program remodels? And prior to now, I think you guys have kind of said, hi, we need and are seeing a double-digit increase to justify the returns on a, let's say, a $3.5 million investment. So is there anything that you're seeing that's not generating similar types of returns? Or are you just kind of being a little bit more conservative right now? I think that's an important area just to kind of help parse out here?

Yes. Yes. No, great question. What I'd say is our fully programmed remodels, our Phase 1 of remodels, which were the initial, call it, proof-of-concept remodels. We are still seeing double-digit growth in those locations. So we remain very pleased with how they're performing. The balance of the fully programmed remodels are seen mid to high single-digit growth. What I'd say that we've learned is when we saw the success of the first remodels, we went into, hi, let's aggressively push these out. And as we've done that, going through any of these programs, as you're probably aware, is you pick up a lot of learnings along the way, where you need to tweak things or you need to modify. And so, what we've learned is that there's opportunity for us to learn, from how we roll out those initials for. There's a lot of dedicated effort, there is plussed up marketing, there is additional training, that when we started getting more aggressive at the rollout. We realized that those are really critical elements to really giving the best returns out of these. So with that being said, it's - we've had a lot of learnings, and we are now making some changes to how we're messaging these brands. The awareness of the remodel is very critical. And so as we look at our Phase 3 fully program remodels, we are going back and plusing up our marketing and messaging, to more reflect what those first four were like, and focusing on some of those areas that we really excel at on those first four. And we think that's really important as we move forward with this remodel program. So I think that's how you, still like our returns. We think we can optimize those returns even more, and we have a pathway to that, that we think is the correct one to do that.

Okay. Helpful. And then just finally, I know things are in flux and the annual budget is probably being worked on, but there's some discussion of 60 fully programmed remodels for fiscal '25 coming up. Can you comment on that at this point? Or would you rather hold off?

Yes. I'd say we're still very committed to obviously getting to 44 done this year. And we're continuing to work with our Board on what that cadence looks like for FY '25. If we chose to, we could do 60 next year. I think we might take a little bit more judicious of approach, just to make sure that we can focus on delivering the right marketing, the right ops execution with it. But we're still very excited about this program. And I think next time we get together, we'll provide some more color on the quantum of remodels. But needless to say, it's still a very key initiative, and we're just working through what that right cadence looks like for '25.

Okay. Thank you very much.

The next question is from Sharon Zackfia with William Blair. Please go ahead.

Hi. Thanks for taking the question. I guess I wanted to ask about the brands and kind of your research with your core customers on where the relevancy is, of the brand at this point? Where you think that can improve? And then on the remodels, I would be interested in hearing about the utilization of the social base?

Yes, sure. So the first question, we - for both the brands in terms of relevancy, we've done a lot of extensive consumer research over the last couple of years or so. The - our consumers love our brands and the - some of the most compelling feedback that we've gotten, which has influenced this remodel program, and some of our other initiatives is relevancy in terms of that entertainment innovation. The entertainment side, is the key driver for the occasion for our guests, which is why it's important for us to deliver on that. In the midway through incremental innovation from an entertainment side. So it's remarkably consistent over the years that our product offering has high appeal. And so, we're very much - aligning our strategy with that. In terms of your second question, in terms of the utilization of the social base and the arenas. I think it's a - we see some differences on with - on a store-by-store basis with our remodels. Our locations are not prototypical. They're all - it's a snowflake, they're all different. And so the placement of the social base and the arenas in each one, is a little bit different. But the number of social base and arenas as well can differ. And that leads to different usage. And so, we're continuing to learn how to further engage our guests with this new platform, because it's a new form of entertainment for us. But we think we're just scratching the surface quite frankly, even in our fully programmed locations that are performing incredibly well. We just think we're scratching the surface, on the guest usage and awareness and traffic driving ability of these new forms of entertainment that we've put in place. So we think we can drive more, and we've got the teams focused on that a lot from a training, from a staffing, from a pricing, from a length of gameplay to drive even more utilization.

The next question is from Andrew Strelzik with BMO. Please go ahead.

Hi, good afternoon. Thanks for taking the questions. My first one, I know that you continue to talk about the strong returns you get on the new stores. But I guess just as kind of they're implementing all these things, and doing the remodels and going down the path of repositioning the business. Is there any thought to pulling back on the store opening pace temporarily to focus on the core for a period of time, and kind of get the comps in the right place, improve the cash flow profile. I know you talked about kind of getting with the Board, to talk about capital allocation priorities. So I'm just wondering if there's any consideration to that?

Yes, it's a great question. At this moment, we would say no for a couple of reasons. Number one, we hit phenomenal returns on our new store openings. And this is our standard size of the store are smaller locations as we go into smaller markets in existing or new markets, continuing just to get really, really great returns. Secondly, all the things that we're focused on right now. All the initiatives that we just walked through, while it's frustrating in this - in this environment to not see the impact of all these green shoots poke through the macro environment, we are highly committed, highly confident that we're focused on all the right initiatives. And when that works in conjunction with our remodel program, with the right marketing messaging, the right innovation, the right ops execution. We believe we're going to start seeing the results of that. So I think if you start having questions on that core strategy that, could lead you to allocate capital away from new stores, but we're not close to that right now and remain very confident in that.

Okay. And then my other question is about the marketing optimization, which I think if I go back to the original Investor Day deck, was identified as the biggest revenue and EBITDA opportunity, amongst all the things that you guys have identified. And it sounds like we're kind of still a work in progress towards that. So from here, I guess, what's the pathway? When do we start to see that full expression of the marketing optimization really flow through, and start to realize the benefits of that? How far away are we from that driver really playing out?

Yes, it's a great question. And I think we would say admittedly, that has been one of the more challenging areas to address, I think, for a number of reasons. But we remain very optimistic that there is a lot to untapped there. So what I'd say is that there has been a lot of learnings, particularly when we look at the condition of the just the underlying infrastructure, the availability of actionable data. Our analytics capability that takes a while to build. And I think we probably underestimated the amount of work that went into doing that. And then once you get that foundation laid, and then you partner and we brought in a new agency, there was a number of things, a number of things that we have learned and identified that we are now really starting to focus on. A few examples of that is media mix. We shifted from a media mix that had a good blend of linear off-line and online, we really shifted to a 90% digital, 10% off-line. And while that shift to digital is the right move, we likely overcorrected by completely eliminated TV entirety from our mix. So we've been doing some tests in terms of linear. We've recently added some back to really drive top-of-the-funnel awareness. Which we believe is showing some really positive signs. We - how we allocated some of our, spend across locations. We've learned that we weren't allocating that as smartly as we could. Kind of going back to my comment on remodels. It's - we don't - we were appropriately messaging all the great things that we had. And so we are looking at that at that balance shift, between awareness and relevance. We're taking our latest round of fully programmed remodels and heavying up on our, spend there and starting to get some good returns. How we're sitting in the stage in terms of, how we know if our digital spend is appropriately driving? Are we targeting that guest properly? And are they coming into our center after being delivered an impression? How we have looked at our loyalty program and how we're shifting that. So that being said, we still - there's a lot here. There's a lot to unlock for us. And I think we made a little overcorrected in some areas, setting that foundation took a little bit longer than we thought. But our confidence and optimism about what that strategy can unlock. We continue to be very passionate about. So I know I said a lot, but hopefully, that provides some color, that's helpful for you.

The next question is from Dennis Geiger with UBS. Please go ahead.

Great, thank you. I'm curious if you guys could talk at all about the Friendswood location, sort of just the latest update there as it relates to year two? And then if anything else to share on those remodels, I'm sort of - I know it's early days for many of them. But just on the trajectory of the performance following the initial open as it - are they generally especially Phase 1? Are they generally tracking in line or either perhaps better than your expectations? Just how that's generally looked if there's anything notable to call out there?

Yes. Yes. So Friendswood, and we, I think, mentioned on the last call that began lapping its remodel from the prior year. And we continue to be pleased with its performance. Obviously, on a year-over-year basis, that has moderated and not that it's lapping out green-over-green, but we continue to be pleased with where that's settled in. Look, I think with any of these remodel programs, it's not it's not a linear view of the world where some. There's some variance to how these things perform. And - but overall, we're continuing to see that strong growth and aren't seeing anything there that has led us to believe that it's just a short-term burst that the guests are uninterested in. That's not what we're seeing at all. So, we feel really good about that. Do you have another part to your question that I didn't address?

No, that's great. I appreciate that. Just the second unrelated question, if I could. Just looking back at 3Q. Thank you and looking back at 3Q, and you guys called out some of the pressures, some weather and different things and clearly the macro, just curious if any other notable observations? Are the macro pressures still generally impacting visit patterns, spending patterns in a generally similar way, again, if you kind of cut through some of the noise maybe on some of the call-outs that you mentioned. Any kind of notable changes in those behaviors, visits, spending, et cetera, better or worse, generally similar? Thank you.

Yes. Look, I'd say the macro environment at best just continues to be that headwind. As mentioned previously, particularly that low-end consumer is really where we're feeling that decline to the extent that their, spend is down twice as much as the other income quintiles. So we're continuing to see that pressure on the consumer. So yes, so overall, from a trend perspective, now look, I wouldn't say there's anything terribly meaningful from a trend change from a regional performance perspective, we're seeing similar trend performance there. So I think it's is just a little bit more of the same from a macro perspective from Q2 heading into Q3.

The next question is from Todd Brooks with The Benchmark Company. Please go ahead.

Hi, thanks for taking my questions. First question, just following up on Dennis' question, Darin, if you look at kind of some of the pressures that you called out in the third quarter between the calendar whether the remodels. Can you size maybe what the bucket of that pressure meant from a same-store sales drag? And then on the remodel portion of that drag, are the remodels taking longer than expected, or where it was a bigger than expected drag versus what you thought going into the quarter?

Yes. So from a weather and remodel construction impact, we estimate about 50 to 100 basis points of pressure on our comps of down 7.7. The - and that comp of down 7.7 is on a like-for-like basis. So that ignores the noise from the calendar shift. So that's the biggest callout in terms of the same-store sales performance. And again then you've got the macro impact. And then again, a lot of what I kind of walked through, particularly from a marketing perspective in terms of the opportunities that we've identified after bringing in a new agency partner, those changes and improvements and enhancements that we're making are going to be into Q4, heading into Q1. So it's difficult to know what kind of impacts that sort of unoptimized, sort of marketing had. But I'd say heading into these ensuing periods, we feel good about what we're able to do to help sort of fight some of these macro headwinds.

The next question is from Brian Vaccaro with Raymond James. Please go ahead.

Thanks. Darin, you touched on it a little bit earlier, but your review of the advertising and the shift away from linear TV in recent years. I'm curious just how much of a role you think that's played in the company's negative comp performance, if there's a way to kind of frame that high level?

Yes. I can't speculate on what that impact might be. You just don't know a lot of times when you've had a plan that was very heavy, linear to now are to guardrail, the guardrail goes very heavy digital, which, again, I think that shift was generally the right. But I think we're now trying to say, look, do we need to balance this better, and some of our testing is telling us, yes, we need to balance that better. Because we might be - we might be missing a lot of that top of the funnel, which the brand is focused on, notwithstanding having very high brand awareness. So I can't speculate on what that impact will be. I think the biggest test will be as we rebalance it, we'll see what our performance looks like moving forward. And we feel like there's a lot of opportunity there.

This concludes our question-and-answer session. I would like to turn the conference back over to Kevin Sheehan for any closing remarks.

Hi, thank you, operator, and thank all of you for joining. We look forward to speaking with you again soon. And in the meantime, happy holidays from our families to yours. Thank you very much.

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