Dave & Buster’s Entertainment, Inc. (NASDAQ:PLAY) 2022 Third Quarter Earnings Presentation December 6, 2022
operator: hello. Welcome to Dave and Buster’s Entertainment, Inc. Third Quarter 2022 Conference Call. All participants are in listen-only mode. After today’s presentation, you will have the opportunity to ask questions. Note that this event is logged. I’ll now turn the meeting over to Corey Hatton, Vice President of Investor Relations and Treasurer. Please, sir.
Corey Hutton: Thank you very much, operator. Welcome to all participants. Leading today’s conference call is our CEO, Chris Morris. Michael Quartieri, Chief Financial Officer. We’ll be happy to take your questions when you’re ready. This call was recorded on behalf of his Dave & Buster’s Entertainment, Inc. and is copyrighted. Before we begin any discussion of our performance, we would like to draw your attention to the fact that our statements and answers to questions may discuss certain items that are not based entirely on historical facts. We believe that any of these items should be considered forward-looking statements regarding 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 that could cause actual results to differ from those projected. Information regarding various risk factors and uncertainties is included in the Company’s SEC filings available on his website. In addition, today’s remarks include references to financial measures that are not defined under generally accepted accounting principles. Investors should consider reconciling these non-GAAP measures to the equivalent GAAP measures included in the earnings release released this afternoon. This is also available on our website. Pro forma financial information, including key events for his four subsequent quarters ending October 30, 2022, are also available at the bottom of the Events and Presentations section of the IR website.
I’ll forward the call to Chris.
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Chris Morris: all right. Hello Cory, Thank you everyone for joining us on the conference call today. We are pleased to report a strong third quarter performance. This clearly shows the progress of our growth strategy. Despite a challenging macro and inflationary environment, he achieved record earnings in the quarter, driven by his double-digit organic sales growth. As we continue our integration efforts to become a more efficient organization, we would like to recognize the outstanding efforts of our teams both in the field and in our support centers for producing these record results. Since our analyst call, our team has focused on three main workflows. One is to effectively manage the merger integration. 2. Long-term strategic planning. Third, manage near-term sales and profitability to offset ongoing inflationary pressures in our business.
We’re ahead of schedule in all three areas, and I’m happy to say we’ve beaten them. The excellent execution of our team in connection with the merger integration accelerated the pace of realizing the expected benefits. More than $17 million in annual synergies have been realized to date and we remain confident in our $25 million goal. The pace of delivering these synergies is accelerating, moving quickly to address all overstaffing, combining purchasing power to offset inflation, and combining best-in-class systems from both brands. We are moving – we are moving aggressively to fully capture synergy opportunities, implementing superior business initiatives and leveraging the scale of our combined operations.
Second, our team has a long-term strategic plan to further cement the Dave & Buster’s and Main Event brands as undisputed leaders in location-based entertainment and add meaningful long-term shareholder value. has been actively involved in the formulation of Based on an in-depth strategic review of the business, fixed and deep consumer research, and a significant amount of time spent learning directly from operators, the core brand position of Dave & Buster’s brands going forward will be from age 21 onwards. Greater focus on performing opportunities for adults up to age 39. who are visiting our location to have a good time with the team. These Crew Connectors, as we like to call them, are activated by the social context, the current culture and the social trends that are happening at the time.
This sophisticated brand positioning will guide our marketing strategy, entertainment innovation pipeline, food and beverage offerings, store design and layout, and technology-enabled hospitality model in the coming months and years. This long-term, holistic approach to managing the business based on strategic planning and operational execution has successfully revitalized the Main Event brand. We are excited to apply the same approach to the larger Dave & Buster company. We look forward to sharing more details at our Investor Day early next year. Finally, our team has focused on easing inflationary pressures through thoughtful pricing and improved operational efficiency. Despite continued cost pressures in our business, we have made significant progress and continue to find opportunities to control costs and increase profitability.
In addition to our cost management efforts, we are very pleased with the top-line momentum across the portfolio. As our third quarter results show, guests continue to visit and stay at healthy rates. On the marketing front, National Winners Watch Football kicked off his campaign in the third quarter featuring Kansas City Chiefs great Travis Kelce. The campaign was designed to build awareness of Dave & Buster’s as a great football destination and contributed to the strong performance in the third quarter. In November, we recently completed an Eat & Play Combo promotion at Dave & Buster’s. We have had great success with our local focus on activating the World Cup Watch. We’re excited to launch our Impossible Holiday Hangout Contest! Four of his friends from across the country gather to spend the holidays together at his Dave & Buster’s in Kansas City. .
Heading into the fourth quarter, our Special Events Sales and Operations teams are working hard to deliver a strong holiday bunker season. With special events business nearly back to pre-COVID levels, we are optimistic that the upcoming holiday season will bring even more momentum as we enter the new year. Dave & Buster’s and Main Event are two of his industry leading brands. These brands have excellent business models, strong assets and talented teams, and by bringing these brands together under his one umbrella, he has created an extraordinary company that benefits all stakeholders. We have growth opportunities. We have a clear vision of future strategic opportunities for the Dave & Buster brand and a world-class management team with a proven track record of execution.
We believe there is significant upside potential for this company and our stakeholders, and we are working diligently to realize that potential. We summarize some of the growth initiatives we have been excited about on the occasion. Continued development and deployment of an improved hospitality-based service model. Increased brand awareness to drive innovation in product offerings and how to approach store updates. The continued recovery of the special events business, the development pipeline of new stores for both brands, progress in developing the international franchise network, the tenacity of the team to identify and execute on synergy opportunities and, finally, However, the ability of the executive management team to give confidence in our ability to succeed has certainly been proven.
Simply put, there is tremendous growth opportunity everywhere you look, poised to unlock long-term shareholder value. So let me give Mike a call and check out the third quarter results.
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Michael Cartieri: Thank you Chris. We are pleased with our performance in the third quarter and encouraged by the trend continuing into the fourth quarter. Amid significant economic uncertainty, we delivered record Q3 revenue of $481 million and a record Adjusted EBITDA of $90 million for our newly consolidated We remain focused on successfully managing our business. fiscal year. Adjusted EBITDA margin for the third quarter was 18.7%, which is 320 basis points higher than his 15.5% margin for the third quarter of 2019. $25 million combined with the Main Event.
Regarding pro forma existing store sales, please refer to the pro forma financial results supplementary material for December 2022 posted in the event/presentation section of the IR website. I would like to highlight strong third quarter Comp sales up 13.3% versus 2021 and 17.5% versus 2019 on a consolidated basis. In particular, our SMB business continues to improve with a customized new menu offering, with SMB representing an increasing share of our total revenue compared to the same period last year. . Additionally, our special events business continues to normalize to pre-pandemic levels, down only 6.7% versus 2019 this quarter, compared to the previous quarter, which was down 13.4% versus 2019. have not yet continued to normalize to pre-pandemic levels. .
Generated operating cash flow of $68 million during the quarter, which, together with the unused revolving credit facility, contributed $108 million to a closing cash balance of approximately $600 million in total liquidity. It ended the quarter with a net total leverage ratio of 2.2x. Focus on capital investment. He invested a total of $64 million to open his three new Dave & Buster stores. One in Lynnwood, Washington, one in Long Beach, CA, and one in Bakersfield, CA. In the fourth quarter of fiscal 2022, we plan to open one new Dave & Buster’s branded store and two Main Event branded stores. Pro forma total comparable store sales increased 3.1% over the same period in 2021 and 9.2% over the same period in 2019.
The holiday season calendar shift, particularly relevant to special events business in 2022 compared to 2019 for this five-week period, represented a temporary negative 3% overall comp headwind, which remained unchanged for the remaining weeks of December. I’m assuming it will be reversed. In summary, we are excited about the strong execution of our business, progress to realize synergies, many growth opportunities to pursue, and the talent and experience of our team to drive growth despite the challenging macroeconomic environment. We will continue to focus on rigorously managing our costs and capital expenditures to strategically maximize the value of these two great brands and deliver the best possible returns to our shareholders. Operator, please open the question column.
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