Earnings Call Transcript - LUCK Q3 2024

Operator, Operator

Good morning, and welcome to Bowlero's Third Quarter 2024 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. I would now like to turn the call over to Bobby Lavan, Bowlero's Chief Financial Officer. Please go ahead.

Bobby Lavan, Chief Financial Officer

Good morning to everyone on the call. This is Bobby Lavan, Bowlero's Chief Financial Officer. Welcome to our conference call to discuss Bowlero's third quarter 2024 earnings. This morning we issued a press release announcing our financial results for the period ended March 31, 2024. A copy of the press release is available in the Investor Relations section of our website. Joining me on the call today are Thomas Shannon, our Founder, Chairman, and Chief Executive; and Lev Ekster, our President. I'd like to remind you that during today's conference call we may make certain forward-looking statements about the company's performance. Such forward-looking statements are not guarantees of future performance, and therefore, one should not place undue reliance on them. Forward-looking statements are also subject to inherent risks and uncertainties that could cause actual results to differ materially from those expressed. For additional information concerning factors that could cause actual results to differ from those discussed in our forward-looking statements, you should refer to the cautionary statements contained in our press release as well as the risk factors contained in the company's filings with the Securities and Exchange Commission. Bowlero Corporation undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances that occur after today's call. Also during today's call, the company may discuss certain non-GAAP financial measures as defined by SEC Regulation G. The GAAP financial measures most directly comparable to each non-GAAP financial measure discussed in the reconciliation of the differences between each non-GAAP financial measure and a comparable GAAP financial measure can be found on the company's website. I'll now turn the call over to Tom.

Thomas Shannon, Founder, Chairman and CEO

Good morning. Thank you for joining us today. I am Thomas Shannon, Founder, Chairman, and CEO of Bowlero Corporation. Bowlero had a solid third quarter with total revenue growth of 8.8%. January was a challenging month because of blizzards and flooding across the country. Following this weather-impacted result, our same-store comp was positive in both February and March, and our total growth was double digits. This follows the company's second quarter in which we produced same-store sales growth of 0.2% and total company growth of 13.4%. Our results in the second and third quarters are better than most or all of our competitors in the location-based entertainment space. When we acquired Lucky Strike, we were impressed by how much food and beverage they sold to each customer. We have taken some of the learnings from Lucky Strike and begun to implement that into our F&B business. We are revamping our menus, increasing food and beverage training, and improving our hiring processes to create a strong organic impact on our business. Our new premium menu, which launched in the recently opened Lucky Strike Miami, includes salads, gluten-free options, bao buns, honey chicken sandwiches, and more variations of our excellent pizza. Additionally, we continue to instil a selling culture that began last summer with the implementation of the bowling special. I'm excited about the opportunities in front of us as we train and incentivize our employees to sell more. The quarter was marked by substantial investments in traffic-driving initiatives. These initiatives, though with some added cost, have proven their worth as evidenced by our industry-leading same-store comp growth. Lev Ekster will discuss these initiatives in a few minutes. Our best-in-class events platform continues to outperform. Event revenue increased 27% year-over-year in the third quarter and leagues were up 9% year-over-year as we expanded social league opportunities combined with growing brand recognition from our PBA ownership. We continue to deploy capital in acquisitions and new builds. We opened Lucky Strike Miami in the third quarter, with results moving higher weekly and above our expectations. We have four new builds coming online in the next nine months with two openings in Denver this summer, one opening in Beverly Hills in early fall, and another opening in Orange County, California in the late fall, and we are actively engaged on a pipeline of approximately a dozen more new build locations following these. Last week, we acquired Raging Waves, the largest water park in Illinois, a transaction that came with approximately 53.5 acres of land. With this acquisition, we acquired a superb, very profitable property and partnered with a strong operator in the regional waterpark space at an attractive valuation. We believe there is significant upside in this property. I'm also happy to provide a positive update on the status of the EEOC matter. On April 12 of this year, the EEOC issued closure notices for the approximately 73 individual age discrimination charges that have been filed, in most cases, many years ago. The notices communicate that the EEOC has dismissed the charges and will not bring suit against the company in the individual cases. Additionally, on this most recent Friday, May 3, the EEOC issued an additional closure notice for the pattern and practice directed investigation. In that notice, the EEOC wrote, 'The commission has determined that it will not bring a civil action against Bowlero under the Age Discrimination Employment Act.' and also on Friday, we received a positive court ruling in Richmond, Virginia that the case CNBC had breathlessly reported related to a former employee's attempt to countersue Bowlero had been denied. Over 8.5 years, the company has vigorously denied and contested the false allegations made against it and is pleased to see that the EEOC has closed its files. We are disappointed that media outlets, mainly CNBC, have told only one side of the story, no matter how preposterous, acting as a shill for attempts to damage our reputation and leverage an unwarranted settlement. We are pleased to report these very positive developments on behalf of our shareholders. Let me hand it over to Lev Ekster to talk about our internal initiatives and then Bobby will review the financial details.

Lev Ekster, President

Thanks, Tom. As I discussed last quarter, there is material white space to provide the consumer a better experience and increase wallet share in our locations. This quarter, we saw the benefit in traffic coming from two internal initiatives. First, with amusements, we have improved guest satisfaction through increased gameplay. We have seen benefits to traffic as exhibited in our February, March, and April comparatives. This should help continue to drive traffic in the slower months. Second, we have invested materially in our PBA programming. Since the start of the year, 18.5 million viewers have watched the PBA on Fox, FS1, or FS2, which is 16% more than at the same point last year. The increase is even higher among younger viewers with the male 18 to 34 demo reach up 22% year-over-year. Viewers are watching more PBA than ever before as average minutes viewed per viewer have steadily increased each year, and so far in 2024, that is already 15% higher than it was in 2019, the first year the PBA aired on Fox Sports. We have more stops than televised shows, which means more awareness and ultimately supports the value proposition of the PBA to Bowlero and the industry overall. Lastly, as Tom mentioned, we are leaning heavily into increasing food and beverage sales. This has become my primary focus. New menus and updated pricing roll out over the next few months. Additionally, in-kitchen training and the continued development of the sales culture will lead to improved F&B uptake, benefiting from the foot traffic generated by initiatives like our new Summer Season Pass. And then, leading into the critical holiday period, we will continue to optimize our offerings to improve customer satisfaction, traffic, and increase spend as we look to be the out-of-home entertainment destination of choice. That is how we will continue to outperform our peers. Now, let me turn it over to Bobby.

Bobby Lavan, Chief Financial Officer

Thanks, Lev. In the third quarter of 2024, we generated total revenue ex-service fee of $336.4 million and adjusted EBITDA of $122.8 million compared to the last year of $309.1 million and adjusted EBITDA of $127.6 million. As a reminder, service fee revenue is a pass-through, a non-contributor to earnings, and is being phased out. Our total growth was positive 8.8% and same-store comp was negative 2.1%. January was the full contributor to the negative comp for the quarter. Adjusted EBITDA was $122.8 million compared to $127.6 million in the prior year. While worse than we expected, we're excited about the top-line contribution and customer satisfaction from two meaningful traffic-driving initiatives. Amusement's comp gross profit year-over-year in the quarter was minus $5 million as we invested in better experiences for the consumer. As Lev discussed, the PBA has seen significant growth this year as we increased stocks and TV coverage throughout the quarter. This swung PBA to a $2 million loss in the quarter. This will continue into 4Q '24 as we ramp up incremental sponsorship based on the better results. We continue to invest in our people, with our same-store comp payroll up $4 million year-over-year, which is better than last quarter at $6 million. Our cost structure, primarily employee payroll, normalizes after a double-digit bump to payroll in March 2023. Corporate expenses are down while we continue to invest in our event sales team. Non-comp centers contribute $11 million of EBITDA on approximately $35 million of revenue. Lucky Strikes outperformed our expectations with the $6 million contribution to EBITDA in the quarter compared to $5 million in the previous year. The first four weeks of April 2024 have been strong, but due to the investments we made in the third quarter, we're taking our full-year guidance to the low end of the range previously disclosed. This still implies double-digit revenue growth for the year and significant revenue and EBITDA growth in the fourth quarter. Please note that in the quarter, we closed one center, which was reflected in the end center count of 352. In the quarter, we spent $13 million on growth CapEx, $9 million on new builds, and $7 million on maintenance. We spent $12 million on acquisitions. We also updated our capital guidance for the year. We are increasing our M&A spend to $220 million from $190 million. We are lowering conversions from $80 million to $70 million as we focus on internal organic opportunities to drive returns. New builds will be higher as we continue to ramp up well, adjusting new builds CapEx this year to $45 million from $40 million. We plan to continue to balance investing in our growth and rewarding our shareholders. Our liquidity at the end of the quarter was $437 million, with nothing drawn on a revolver, and $212 million of cash. Net debt was $943 million and the bank credit facility net leverage ratio was 2.4 times. Thank you for your time, and we look forward to taking your questions.

Operator, Operator

Thank you. We will now begin our question-and-answer session. Your first question comes from the line of Steven Wieczynski from Stifel. Please go ahead.

Steven Wieczynski, Analyst

Yeah. Hey, guys. Good morning. So, I want to start with going back to the third quarter, and I guess if we go back and think about when you guided, I think it was early February, you pretty much had an idea what the weather headwinds were going to be. So, I guess, what we're trying to figure out is what kind of then drove the underperformance relative to the third quarter guidance. Was it really just driven by some of the investments that you guys talked about in your prepared remarks in terms of trying to drive more foot traffic? I'm just trying to tie the guidance to versus where the quarter came in. Thanks.

Bobby Lavan, Chief Financial Officer

Yeah, it was entirely cost, Steve. So, we're pretty aware of where our revenue is kind of going, but at the time of the February report, we weren't completely clear of both payroll costs and sort of the cost from investing in amusements and PBA. If you go back to January, it is our highest profit month. And so, when that month just had a massive drawdown, it creates a little bit of uncertainty on the cost. We've gotten a handle of that in February, March, and if it were just for February and March, we would have handily beaten our numbers. But it's a myth and we're moving forward.

Steven Wieczynski, Analyst

Sure. Okay. And then second question is, we've gotten a lot of questions this morning about the acquisition outside of the bowling space. And I guess, first, can you help us think about what you paid for that acquisition and then maybe what that waterpark is doing in EBITDA? And then kind of the second part of that question is, one of the questions we've gotten is why go outside the bowling, let's call it, arena, and look at other entertainment options, given in your presentation, you guys still believe there's a huge opportunity in terms of driving your bowling store count?

Thomas Shannon, Founder, Chairman and CEO

Hey, this is Tom Shannon. Good morning. Yeah, there's still a remaining market for bowling, that's quite large, but bowling in the U.S. is only a $4 billion total addressable market (TAM). And when you look at location-based entertainment, it's more like a $100 billion TAM. So, we were presented an opportunity to buy a really beautiful asset, very well maintained, well located 53 acres, right, sort of on the edge of the western suburbs of Chicago, and to partner with a really good operator with decades of experience running these at an attractive valuation, and we thought it was a great foray into looking at this sort of asset that goes beyond bowling but shares many of the fundamental similarities with bowling. Very low variable cost. We understand, I think, the consumer in this segment very well. And I'll say this, about a year ago, or maybe nine months ago, we purchased an asset called Mavrix and Octane in Scottsdale, Arizona, and half of that business was an indoor go-kart track. There was a lot of negative sentiment about buying the go-kart track, and had we sort of lost faith in the bowling business. And we're about seven months into that acquisition; on the run rate it's on, it's going to do $8 million of EBITDA against a purchase price of $33.5 million, and really no subsequent investment after that. So, there are a lot of really, really good businesses in location-based entertainment that share fundamental similarities with bowling, but aren't bowling. And we're availing ourselves of that, rather not get into what we paid for it, but on a multiple basis, commensurate with what we paid for the majority of our bowling acquisitions over the last couple of years.

Steven Wieczynski, Analyst

Okay. Great. Thanks for the color, Tom. Appreciate it.

Thomas Shannon, Founder, Chairman and CEO

Sure thing.

Operator, Operator

The next question comes from the line of Matthew Boss from JPMorgan. Please go ahead.

Matthew Boss, Analyst

Great. Thanks. So, Tom, could you elaborate on trends that you've seen with walk-in retail traffic as the third quarter progressed? Maybe what exactly have you seen from same-center comps in April? And how best to think about expectations for comps in the fourth quarter?

Thomas Shannon, Founder, Chairman and CEO

So, Matt, the problem with our business in terms of making predictions is it's a very short cycle, right? So, we were positive in December, fully anticipated a positive January. We were surprised by the weather, unfortunately, but we had a positive comp in February, and we had a positive comp in March. And in the period that just ended yesterday, in fact, our preliminary numbers are that on a same-store basis, we're up over 6%. And on a total company basis, revenue is up 20%. So, on a same-store basis, we're up in four out of the last five periods. I think we would have been up in January except for the weather. But regardless, the trend is very positive. It's a tough environment. We see that the consumer is spending, but the consumer is being more discerning. The good news is that I think we're winning the market share battle. You can't be up 6% when everyone else is down, in some cases, meaningfully down, and not be picking up market share. So, I think the company is executing extremely well. We were cycling a lot of legacy costs. As you recall, around March of last year, we gave sizable increases in compensation to all of our managers in the field, between 12% and 17.5% increases, and we're just cycling that now. So you had the combination of two factors over the last year. We were comping against very, very, very high post-COVID same-store comps year-over-year, up double digits, up wildly. So we're comping against that. And at the same time, we instituted a massive wage increase to create more stability and tenure among our managers, which has been successful in achieving its goal. So you had the combination a year ago of a very tough comp on the revenue side, and we created a very tough comp on the cost side. Those trends have now reversed themselves. We now have relatively easier same-store sales comps, and we've cycled that enormous wage increase that we put through. And that's why, partially, on a comp basis, in February, we're up 6%, which is, I mean, it's orders of magnitude versus what everyone else is doing. I take no joy in saying that, other than to illustrate the point that it's a very tough environment for everyone in this space. And 6% is a massive outperform. It didn't happen by accident, though. It has happened by a very, very focused effort by Bobby and Lev to drive traffic in a variety of ways; optimizing our online booking process, streamlining that, driving more traffic to the website economically, we've driven down our customer acquisition cost by half on a year-over-year basis. And now we have the summer pass, which is our season pass for the summer, where you can come in and bowl. There are various packages, but the standard package allows you to get two games every day for one low cost upfront, akin to what the ski areas do for their winter season passes. And the pass doesn't become eligible for use until around Memorial Day. Through yesterday, we'd already sold $1.5 million against our goal in the $10 million to $15 million range. You may recall that last year we eliminated that. So again, this summer, we have a lot of tailwinds. We're doing all the right things. We are driving traffic, and we're coming up against relatively easy comp. Four out of five of the last periods of positive same-store sales on a consolidated basis, we're seeing the impact of the Lucky Strike acquisition, a handful of other individual center acquisitions, and also, year-to-date, we've opened three new builds in San Jose, Moorpark, California, and Miami. And they're all outperforming. So, from where I sit, the news is very, very good.

Matthew Boss, Analyst

Yeah, Tom, that's encouraging, particularly the 6% comp in April. I guess, what's your confidence in sustaining positive low- to mid-singles from here? And historically, how has bowling held up in more recessionary backdrops? And then, Bobby, I just had one for you. If you could just help walk through the drivers in the fourth quarter of the EBITDA margin expansion, just relative to the third quarter contraction, I think that would be really helpful.

Thomas Shannon, Founder, Chairman and CEO

Like I said, Matt, it's really hard for us to make predictions because it's such a short cycle business. From where we are now, I would expect that the trend that we have of low to middle single-digit same-store sales comps will sustain itself through the rest of the year. I mean, we're seeing strength really in all parts of the business. For example, in the April period that just ended yesterday, the same-store event comp was up over 15%. I expect when all those numbers are fully baked, it will end up being up more like 16% or 17%. The league business is performing extremely well. We're doing well in the retail walk-in business. We have a lot of initiatives to drive organic food and beverage sales in center, which is something we've always underperformed on, but we're no longer going to accept that as the status quo. And that's a comprehensive redo from training to menus to presentation in center and all that. So, all the things that we can control, I think are driving this result. Now, if you have some exogenous shock to the economy or other things that we can't predict, again, all of this goes out the window. But based on where we are now and based on the trend, I feel very confident that low- to mid-single-digit same-store sales comp is readily achievable through the end of the calendar year.

Bobby Lavan, Chief Financial Officer

Matt, to just the EBITDA expansion you would expect, or EBITDA margin and EBITDA dollars expansion we expect in the fourth quarter, it really comes down to, we need to have a few points of positive comp, yet EBITDA up. But the second that you're above a 2% comp, the dollars flow through at anywhere between 75% and 90%. In this circumstance, we've taken costs out over the past year. There are some legacy costs. We've been very clear about this litigation we've had going on for the past year, and all those are going away. So, we feel very strong going into the fourth quarter. We sort of have lapped a year of frothiness plus wage increases. We can see those real-time and those are flat now, but at the end of the day, we are taking costs out of our centers as well as you've seen the cost coming out of corporate.

Matthew Boss, Analyst

It's great color. Best of luck.

Operator, Operator

The next question comes from the line of Jason Tilchen from Canaccord Genuity. Please go ahead.

Jason Tilchen, Analyst

Yeah. Thanks for taking the question. Good morning. I'm just curious on the events business, revenue remained really strong, up about 30% year-over-year for the second consecutive quarter. I was wondering if you could call out anything in terms of the mix between corporate, non-corporate, anything to comment on there would be really helpful.

Thomas Shannon, Founder, Chairman and CEO

Yeah. We've seen a pickup in corporates, birthday parties and online. So, really, the mix has been strong across the board as we continue to upgrade systems, processes, and we've simplified pricing on our events platform. So, we've talked about pretty openly about having a pricing consultant in here. We used to have sort of 12,000 different SKUs and 100 different open bar packages. We simplified that significantly. And the team also continues to just punch above its weight.

Jason Tilchen, Analyst

Great. That's helpful. And just to follow-up, you mentioned the pricing consultant. I think you talked about that sort of contract running up soon, and you just recently instituted some other price changes sort of across the board. I was curious what the customer response was to those over the past few months, and sort of any update on where any remaining pricing changes you would expect throughout the balance of this year?

Thomas Shannon, Founder, Chairman and CEO

Yeah. We took shoe pricing down at the beginning of April, which we feel like shoe is one of these things that the customer feels is overpriced. We've seen only positive reaction to it based on our traffic data. I mean, I just look at some of the centers where we took shoes down the most; they were up the most last week. We will take pricing up on food in the coming months as we roll out the new menu, and we're excited about both the pricing and the uptake there.

Operator, Operator

The next question comes from the line of Jeremy Hamblin from Craig-Hallum Capital Group. Please go ahead.

Jeremy Hamblin, Analyst

Thanks. I wanted to just come back to cost for a second here and just understand a little bit about the seasonality that we should expect here in the fourth quarter. So, as you noted, Q3, typically your strongest quarter in terms of revenue, also your highest in terms of embedded cost to operate. I imagine you get a downtick in terms of that cost to operate in Q4, but also wanted to understand in terms of some of the investments that you noted in PBA. How should we be thinking about that here as we look forward to Q4? Presumably, maybe some sequential declines in SG&A spend, and then also in terms of the cost to operate in Q4?

Bobby Lavan, Chief Financial Officer

You will see a decrease in SG&A expenses. This has been our primary strategy for managing inflationary pressures. In the third quarter of 2024, payroll expenses in the comp centers were $68 million, and we expect this to decrease by approximately 15% sequentially in the fourth quarter due to seasonal factors. We are also exploring additional opportunities. Regarding fixed costs at the centers, those will remain stable as we experience a reduction in winter seasonal costs but an increase in summer utilities. Therefore, the flexibility in costs will primarily come from center payroll and any cost reductions we implement. You should consider that SG&A will decrease sequentially, corporate costs will drop sequentially, and payroll will see a significant reduction. In a situation where we achieve a strong mid-single digit comp, we will experience considerable operating leverage going into the fourth quarter.

Jeremy Hamblin, Analyst

Great. That's helpful information. As a follow-up regarding the update on EEOC, can you specify if there have been any additional costs from litigation or legal issues? With that behind us on an annualized basis, what benefits do you anticipate for the company?

Bobby Lavan, Chief Financial Officer

Yeah. I would say there's been a few million dollars that flows through the income statement, but more importantly, it's been a distraction. And so, we're happy to focus 100% now on our business and get this behind us.

Jeremy Hamblin, Analyst

Great. Last one for me. Regarding your repurchase plan, I believe you still have over $180 million left. You've removed the expiration date. In previous quarters, when the stock was below $11, you were quite active in buying back shares. The stock has generally been above that level in recent months. I'm curious if that's still a range where you see significant value and when you plan to open the window for potentially making purchases.

Bobby Lavan, Chief Financial Officer

Yeah. We look at our performance and we evaluate where we want to buy a stock, we would aggressively buy our stock here.

Jeremy Hamblin, Analyst

And in terms of the window of when it reopens?

Bobby Lavan, Chief Financial Officer

We don't comment on those kinds of mechanics.

Jeremy Hamblin, Analyst

Got it. Thanks for the updates. Best wishes.

Operator, Operator

The next question comes from the line of Ian Zaffino from Oppenheimer. Please go ahead.

Ian Zaffino, Analyst

Hi. Great. Thank you very much. Wanted to ask you a couple of questions here. First one would be, Bobby, I think you mentioned that Internet, which I guess is pre-bookings I believe, were very strong. So, how does that kind of foot with how walk-in retail moves? Why would one be strong and then the other one kind of lagging somewhat? And then also, I know you restored a lot of these mid-week promotions. Have you seen the benefit of those? Are they kind of baked in, or have the consumer been responding the way you expected? Thanks.

Bobby Lavan, Chief Financial Officer

Mid-week promotions returning is beneficial as we have an easy comparison from June to October. Additionally, we expect the Summer Season Pass to perform better than last year, potentially doubling our numbers from two years ago. We're concentrating on traffic, which isn't limited to walk-in retail. Events are increasing, and online engagement has risen significantly. This growth in events and online bookings may reduce walk-in traffic since some customers prefer to book in advance, which enhances their experience and allows for upselling opportunities. As a result, we see better transactions and higher average revenue per user, enabling improved planning and staffing. We're excited about this dynamic; if one center is busy, for instance, in Times Square, we won’t need to spend on online marketing to attract more traffic there. However, for centers with lower expected utilization during summer, we can reallocate marketing resources from expensive locations like New York to more cost-effective areas to increase traffic. Overall, the focus of our business has shifted from pricing strategies to driving traffic, and the potential benefits from increased traffic are substantial.

Ian Zaffino, Analyst

Okay. And then, can you just maybe help us understand how the comps progressed throughout the quarter? I know you had a tough January, but when you say tough, was that sort of down mid-teens? Because if you kind of do the math or make some assumptions, that's what it seems like. And then, you kind of were doing low singles in February and March. Is that kind of directionally right? And if that's the case, I guess, you saw an acceleration of just 6% in April? I'm just trying to get a sense of the cadence of the business by month. Thanks.

Bobby Lavan, Chief Financial Officer

Yeah. The first three weeks of January were worse than minus 10%. We ended January minus 7%. February was plus 1%, and March was plus 3%, and April, as Tom said, was plus 6%.

Operator, Operator

The next question comes from the line of Eric Handler from Roth MKM. Please go ahead.

Eric Handler, Analyst

Yes. Good morning. Thank you very much. Wondered if you could talk a little bit about all the various initiatives that are working in amusements to drive that business?

Lev Ekster, President

Good morning. Lev Ekster here. When I joined the amusements department, we had very few company-owned arcades. Now, we have over 330 centers with company-owned arcades, positioning ourselves as a significant player in the amusement space. However, I believe consumers haven't fully recognized us in that arena yet. All of our initiatives aim to raise awareness of our amusements business to more consumers and encourage repeat visits. We're providing more gameplay for a similar cost, better prizes and redemption opportunities, and an overall enhanced guest experience. As mentioned earlier, our goal is to deliver the best experience possible to foster those repeat visits while also focusing on increasing our food and beverage sales when guests return. Amusements have become a key driver of traffic for us, and we aim to improve the overall experience and shine a spotlight on our amusements business. Recently, we've collaborated with arcade influencers who have been visiting our centers and sharing content, which reflects our increased marketing focus on this aspect of our business. Regarding our redemption prizes, we want our guests to feel as though they received great value for what they spent. We're introducing products that cater to specific markets with fanatics to enhance the experience. Overall, this approach includes more gameplay, better game selection, improved prizes, and greater value, which will lead to repeat visits and a positive sentiment towards our amusements business and locations overall.

Eric Handler, Analyst

As a follow-up, I'm assuming that the more time people spend on amusements, the more time they're spending in your centers, which likely has a positive impact on food and beverage sales. Can you discuss what happens if a person spends an additional hour in your center, and how that might translate into increased spending or profit margins?

Lev Ekster, President

It's a good question. I would say the average dwell time in our centers right now is about 105, 110 minutes. We have seen that creeping up. It's still early days. But really, if somebody were to order another cocktail, I mean, that's a $10, $12 increase with very little cost. And you multiply that by 40 million people, I mean, the numbers get meaningful very quick. And so, we are just very focused on traffic into the summer. Because from our perspective, we crush it in December. January, we got whipped around on the weather. We did fairly well in February and March. But we have this fixed cost structure, we have this payroll structure. And so ultimately, if we can add 50 million or 100 million of revenue in the summer, that's a meaningful change to our business. And if we give people a better experience, particularly with the season pass, then they're going to come back in November and December. So, the flywheel of getting people into the centers, giving them a premium experience, letting them engage with the new menu, the new arcade dynamic really improves customer satisfaction. And we've seen our NPS go up. Our NPS is up. It has gone from 62 to 65 in the past six months, which is meaningful for us. And ultimately, we think customers are choosing us, and that's really exhibiting the fact that our comp in April is strong and that's where we want to be.

Eric Handler, Analyst

Great. I have a quick follow-up. Regarding the new menu, how many centers have it? How long until it is available everywhere?

Lev Ekster, President

We are placing a strong emphasis on enhancing our food and beverage offerings, as past performance has not met our expectations. Currently, our centers average $0.65 in food and beverage spending for every dollar in retail bowling. However, at our new location in Miami, Lucky Strike Miami, this figure reaches approximately $2.25. This highlights the potential for improvement with a strong focus on food and beverage sales. Our strategy includes introducing new menus, items, and pricing, as well as changing the menu presentation from multiple sheets to a trifold or a book for luxury options. We're also implementing new hiring standards for chefs and kitchen managers, moving to a skills-based assessment approach, rather than just Zoom interviews. Additionally, we are enhancing training for our staff on selling techniques and reevaluating our food sales windows and bar displays to create a more impactful customer experience. Our goal is to increase the average spend from $0.65 to $1, which would be significant. We plan to launch our premium menus between late May and June, followed by our luxury menu across our higher-end locations from June into July. By the end of July, all centers will feature a new menu and pricing. We are also exploring the expansion of our Cheeky Monkey concept, which originated from our acquisition of Lucky Strike Fenway. We are currently revamping the brand and have identified ten existing locations with suitable restaurant spaces ready for this concept.

Eric Handler, Analyst

Thanks.

Lev Ekster, President

You're welcome.

Operator, Operator

The next question comes from the line of Eric Wold from B. Riley Securities. Please go ahead.

Eric Wold, Analyst

Thank you. Good morning. I have two questions. First, I would like to follow up on your earlier comments about the Summer Season Pass. You noted that you've achieved $1.5 million against your goal of $10 million to $15 million. How does that $1.5 million from the start of sales to date compare to the previous year when you offered a similar product? Is it performing better or about the same?

Lev Ekster, President

That's an interesting question because it really isn't a straightforward comparison. At its peak, the Season Pass generated a little over $6 million. This year, with the launch of the Summer Season Pass, we rebranded it from Summer Games and significantly enhanced the value proposition and pricing model for consumers. Previously, we offered separate Kid Pass and Adult Pass options, but now there is just one pass, similar to our bowling pricing model, where there is no distinction between kids' and adults' bowling prices. We now offer a Basic Pass and a Premium Pass. The Premium Pass includes a small discount on food and beverage purchases and some arcade credits, providing a better experience. In the first three weeks of selling this pass, we reached $1.5 million in sales, which is before redemption. Traditionally, those first three weeks allowed customers to buy the pass and redeem it immediately. Currently, it's a pre-sale, and redemption does not begin until May 24. This makes it more challenging to sell right now because customers do not get that immediate gratification at the time of purchase. Therefore, the $1.5 million in sales during this timeframe is quite encouraging. I believe that when redemption starts on May 24 and customers can buy and use the pass in the same visit, we will see a significant spike in sales.

Eric Wold, Analyst

Got it. It's helpful. And then last question, kind of a higher-level question. I guess there's been a lot of focus on investments over the past year plus to drive traffic, including the current quarter or the last quarter, you talked about the investment in the PBA, amusements; obviously, you continue to focus on payroll. Did we get to a point where you feel you can take the foot off the gas of these investments and still be able to sustain any traffic gains? Or should we now think about maybe a longer-term need to spend at higher levels just to kind of get to that normal traffic and kind of expect maybe a longer-term lower margin as a result?

Bobby Lavan, Chief Financial Officer

Yeah. You're going to see the investments come down. I think we probably overshot a little bit this quarter. The new website turns on June 2, the PBA renewal resets next year, and amusements, we continue to tinker, but we're finding the right answer. But what I think you're going to see is a meaningful step-up over the next 12 to 18 months of revenue from these other ancillary lines, whether it's F&B, whether it's PBA, whether it's amusements. And so, you'll see a very strong comp in the near-term and then we'll get back to sort of a run rate mid-single digit comp. And those investments that are driving that big step up will normalize and come down, particularly website. I mean, websites, we were spending $200 per acquisition six, nine months ago. Now we're spending significantly less than that. So, you're just seeing things coming down. And really, I would call 3Q '24 as kind of the nadir of all that.

Eric Wold, Analyst

That's very helpful. Thanks, Bobby.

Operator, Operator

The next question comes from the line of Daniel Moore from CJS Securities. Please go ahead.

Daniel Moore, Analyst

Thank you. Appreciate it. A lot of the stuff, a lot of the questions have been covered, but just clarifying guidance. Near the low end of the range, I assume that means likely to come in a little above or a little below. Should we think of that as the new midpoint? I know it's semantics, but just trying to clarify.

Bobby Lavan, Chief Financial Officer

Yeah. It should come in at the low end of the range.

Daniel Moore, Analyst

Okay.

Bobby Lavan, Chief Financial Officer

We're always going to have a little bit of a range, right, but we feel comfortable with where we're at.

Daniel Moore, Analyst

Could you explain how the Raging Waves acquisition happened? Since this presents a new opportunity in a larger market, do you plan to operate it for a season or two before potentially expanding into that new area and assessing how it performs? I'm curious about your thoughts on the timing for this. Thank you.

Thomas Shannon, Founder, Chairman and CEO

We have a partner who has a number of these assets and manages them, some of them for the owners, some of whom are very prominent, well-known businessmen. These guys are the best in the waterpark business, certainly on the regional level. So, if you think about the market, right, it's everything below Six Flags, Cedar Fair, and SeaWorld, and there are a lot of them out there. And some of them are quite large and have a very wide moat because, as you can imagine, it's very hard to build these assets now, costs are very high, zoning prohibitive, et cetera. So, these businesses we view as being very, very attractive businesses. This particular deal was brought to us by this company that would have financed it themselves and bought it themselves, but they found that the cap rates they were being offered in the sale leaseback market were higher than they wanted to pay. And so, we made a great deal for both sides where they run it with an incentive structure and we own it. I think that the EBITDA can double from where we purchased it in the next couple of years. The park is beautiful. The infrastructure is first-class. It's well located. But there were a lot of things they weren't doing that are sort of fundamental basics in the waterpark and amusement park business. I'll give you one example. They didn't sell alcohol. So, it can be a 95-degree day, and the park is packed with 8,000 people, which is about its capacity, and you can't get a beer. So, simply adding that not only enhances the experience for the adults but gives you meaningful revenue and EBITDA upside. One of many examples. So, like the bowling business, largely mom-and-pop operated, older proprietors who are natural sellers at this point. And so, the deal was brought to us. We jumped on it. We've already effectuated a lot of changes. For example, applying for a liquor license months in advance of closing the transaction, which occurred one week ago today. That location will open around Memorial Day, and we'll have basically the entire season to evaluate how we like that business before any other potential transactions would come down the pike. So, that's a very long-winded way of saying, yes, we're going to know exactly how this thing is performing and really know how well we like this business in very short order.

Daniel Moore, Analyst

That is helpful. Thanks again.

Operator, Operator

The next question comes from the line of Randy Konik from Jefferies. Please go ahead.

Randy Konik, Analyst

Thank you. My first question is for Bobby and Tom. How should we approach the balance between acquiring versus building bowling centers over the next few years? We're interested in your updated perspective on that aspect.

Thomas Shannon, Founder, Chairman and CEO

The decision is largely influenced by the market. As we identify more appealing opportunities for acquisitions or new constructions, we tend to direct our capital accordingly. There was a lengthy period when attractive new build opportunities were scarce, often due to less favorable locations or economics. Recently, that landscape has changed, leading us to open three new locations this fiscal year. We currently have four under construction in Beverly Hills, two in Denver, and one in Orange County, California, along with about a dozen more in the pipeline. Presently, we are witnessing significantly more new construction activity compared to acquisitions. That said, we plan to acquire 21 or 22 existing bowling centers this fiscal year, so it's not that there is a lack of acquisition activity. However, we are indeed seeing higher quality and more attractive new build opportunities than in the past. The positive aspect is that the average unit volume of these new builds is considerably higher than that of typical acquisitions. This year, we also acquired the Lucky Strike chain, which has a significantly higher average unit volume than the usual centers we've dealt with. It is performing exceptionally well, potentially exceeding both our and the market's expectations. In approximately six months of ownership, these assets are projected to generate around $12 million in EBITDA, which could annualize to over $20 million in the first year against a $90 million purchase price. It's reasonable to anticipate that this could eventually reach between $25 million and $30 million in EBITDA. This has been a very successful acquisition year largely because of the Lucky Strike assets, which are ideally located in major markets. Additionally, we acquired the brand without any extra cost. We have tested brand awareness and found it to be 50% higher than Bowlero's. That’s why all new centers are being developed under the Lucky Strike brand. The overall acquisition number in the low 20s is quite strong historically for us. In the near term, a lot of our new developments will focus on new builds, but a year from now, we might uncover an entirely new group of existing centers for acquisition. We are flexible and target capital towards the highest IRR opportunities, without restricting ourselves solely to bowling. This adaptability allowed us to purchase Mavrix and Octane in Scottsdale, expecting them to generate about $8 million in EBITDA in their first year against a $33.5 million purchase price. There are numerous promising opportunities that align well with our business model and operational strategies, all within our favorable areas of development.

Randy Konik, Analyst

It's super helpful. And shows you obviously know how to buy and build. So, I guess my last question would be more for Bobby. Look, we had the quarter. It's printed. It's now behind us. I think it'll be very helpful to people listening to the call and trying to frame out more of a long-term focus here is, how do you think about kind of long-term EBITDA margins and where they should sit over the medium to long-term, and why they should be at those types of levels? That would be super helpful.

Bobby Lavan, Chief Financial Officer

Yeah. I think that based on what we've seen, particularly what we've engaged on over the past six months, we have a long runway of acquiring traffic very accretively. Ultimately, I think that we'll start shifting into the higher end of the 32% to 34% range on an EBITDA margin going into 2025. But over the long-term, we should hold those levels as we find the optimal sort of CAC to LTV transaction, or what really gets customers to keep coming and coming more. Ultimately, we will continue to invest. I expect a material step-up in EBITDA over the next sort of 12 to 18 months, and then we'll grow from there as we continue to sort of invest, but invest where the EBITDA number is higher and the investments are lower as a percentage of EBITDA. This is a very transitory time in that we had a bad quarter, but we had a bad quarter from an investment perspective. We had a bad quarter, and that January was just a massive, massive drawdown. If it wasn't for weather the first three weeks, this would be a very different conversation where we would have hit our numbers and continue to invest in the business. Now, we missed our numbers, but invested in the business. We're not going to stop investing in the business just because of some weather impact. But ultimately, I think that the next few quarters, you're going to see significant operating leverage because we've invested in that traffic, and that traffic is coming in accretively.

Randy Konik, Analyst

Super helpful. Thanks, guys.

Operator, Operator

The last question comes from the line of Michael Kupinski from Noble Capital Markets. Please go ahead.

Michael Kupinski, Analyst

Thank you for taking my questions. Just a couple of follow-up. One, you make comments about the Lucky Strike brand. Is there a prospect for converting Bowlero locations into Lucky Strike?

Thomas Shannon, Founder, Chairman and CEO

Oh, yeah. The plan is to convert nearly all or all of the Bowleros to Lucky Strike. We'll eventually consolidate down to two bowling brands; Lucky Strike, which will be the experiential, and AMF, which will be the traditional.

Michael Kupinski, Analyst

Got you. Thank you.

Bobby Lavan, Chief Financial Officer

We're building an infrastructure for it. Right now, you'll start seeing sort of the more prominent Bowleros converting that sits in cities that have a lot of investment community, but we're starting slow, but we are rolling it out.

Michael Kupinski, Analyst

Perfect. And just one additional question. If you can add a little bit of more color on Raging Waves? I know there's a lot for you to learn about waterparks, but do you think that there's a better return on waterparks than possibly opening new bowling centers? And then, can you add more color on the possible rollup opportunity in waterparks in general?

Thomas Shannon, Founder, Chairman and CEO

I have experience in the waterpark industry as an owner and attempted to acquire a location in Florida that resembled one we previously acquired. The seller was elderly and had been in the business for a long time. Unfortunately, I couldn't complete the purchase because I didn't grasp the sale leaseback concept and couldn't meet the seller's price. Our management partner for the asset we acquired, Raging Waves, was the one who ultimately bought that location. He had been the CEO of Six Flags before transitioning to purchasing regional assets, and he increased that site’s revenue from $11 million to $25 million, causing a significant rise in EBITDA. I tried to acquire that asset for 11 years without success and was at a disadvantage because he understood the sale leaseback market better than I did. Now, I have a clearer understanding of it. When considering the potential of this asset, optimizing EBITDA makes it an ideal candidate for the sale leaseback market. Even with current cap rates, which aren’t attractive, we would likely receive proceeds above the purchase price while still retaining around 50% of the cash flow, resulting in an infinite return. The return profile of an acquisition like this is much better than that of a new bowling alley build. Additionally, we can invest larger amounts of money with the same effort, which is important for our scaling goals. Acquiring individual bowling alleys at this stage doesn't significantly impact our growth; we need to acquire more of them to achieve the same percentage increase as our asset base expands. By optimizing these larger assets, we can achieve EBITDA figures of $12 million to $15 million, as opposed to the $2 million to $4 million typically found in bowling. It's crucial to note that we are not abandoning the bowling business; rather, we are equipped to pursue more than just bowling at this time. There are opportunities with a similar business structure that we can explore opportunistically. This investment in waterparks has the potential to yield returns of 20% or more without leverage, and with leverage or a sale leaseback, the returns could be infinite. We selectively choose the best opportunities while ensuring that this waterpark investment is not a downgrade in return compared to bowling alleys.

Michael Kupinski, Analyst

Perfect. Thank you for that color. That's all I have.

Thomas Shannon, Founder, Chairman and CEO

Thank you. And by the way, I would encourage all of you to look online, look at Google, look at what this waterpark looks like, where it's located, et cetera. It's a first-class, incredibly well-maintained, and beautiful asset. This isn't just some regional collection of slides. This is themed at a very high level, and I think we were very, very fortunate to be able to get this asset. I'd encourage you to diligence it yourselves and see just what we bought here.

Operator, Operator

Ladies and gentlemen, as there are no further questions at this time, this concludes today's conference call. Thank you for your participation. You may now disconnect.