Greetings, welcome to Bowlero earnings call for Q2 fiscal year 2022. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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 we 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 five new bowling centers, consisting of three acquisitions of existing centers in Spring Hill, Florida, Port St. Lucie, Florida, and Vacaville, California, along with the opening of two 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. On page 4 of the materials, you can see the recent trends in bowling center revenue. As we expect that one of the central questions around our performance will be how we have done through the Omicron wave, we have chosen to extend this chart through several weeks following the end of Q2. This is not something that we expect to do indefinitely. This extended release of data is purely related to the assessment of Omicron's impact on the business.
As Omicron's impact was most strongly felt in the event business, we have presented both total center revenue and total center revenue excluding events revenue. The key takeaway here is that the overall trend of generating bowling center revenues well in excess of pre-pandemic levels remains intact. There were three key headwinds that impacted revenue in the quarter. As you can see in the two red box weeks, having Halloween and Christmas fall on weekends had a meaningful negative impact on revenue. Looking at the gap between total revenue and revenue excluding events in December, which is the highest event revenue period of the year, you can see the clear impact of Omicron on the event business. Now, in recent weeks, we have returned to delivering total revenue growth well into the double digits, and most recently, nearly 25%.
On page five, we have laid out just how strong Q2 was. The revenue performance, coupled with disciplined cost management, led to an increase in adjusted EBITDA of over 26% versus the comparable pre-COVID quarter. Adjusted EBITDA in the quarter was nearly $14 million higher than the equivalent pre-pandemic quarter. Despite the broadly documented macro increases to input costs, we also expanded adjusted EBITDA margin by 393 basis points.
From 28.6% to 32.5% versus pre-pandemic levels. The chart on page five illustrates the sharp recovery of the business from the COVID impacted levels of last year. First, you can see the quarter-by-quarter expansion of trailing 52-week adjusted EBITDA from the end of Q2 of FY 2021 through the end of Q2 of FY 2022. For context, the purple line shows the pre-pandemic comparable level of $173.9 million. We now stand 12.3% higher than the pre-COVID level as we grew adjusted EBITDA by $70.5 million in Q2 of FY 2022 versus FY 2021 alone. Page seven illustrates how the bowling center level economics continue to improve. We have charted the total quarter versus the COVID impacted prior year and also versus the pre-pandemic comparable quarter.
As discussed, revenue grew significantly. This was led by increases in revenue derived from walk-in guests and partially offset by the Omicron impact on events and unfavorable changes in the calendar. Gross margin for bowling centers expanded from 66% to 68% versus the pre-pandemic quarter, largely as a result of the implementation of our redesigned and significantly more efficient business model. In total, the centers generated $98 million of EBITDAR in the quarter. Page eight lays out the cash flows for the quarter. As I noted previously, the company generated $27.7 million in cash, which provided support for our acquisition, building and conversion of centers. The company finished the quarter in a strong cash position with balances of over $115 million.
In summary, Bowlero's Q2 FY 2022 performance continued to outpace pre-pandemic levels, further demonstrating that the business continues to be very well-positioned to produce improved performance through a combination of organic growth and new center additions. Thank you for your time, and I look forward to presenting again next quarter. Operator, we can now take questions.
Thank you. At this time, we will be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we pull for questions. Our first question comes from the line of Stefanos Crist with CJS Securities. Please proceed with your question.
Hey, thanks for taking my questions and congrats on the quarter. First, you made five acquisitions during the quarter. Could you give us maybe a little more detail on what the pipeline for acquisitions looks like?
Yeah, sure. This is Tom Shannon. Hi, Stefanos. How are you?
Hey, Tom.
We have a really robust pipeline. If I had to ballpark at this point, I'd say 40-50 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. Earlier this week, you announced the share repurchase authorization. Could you maybe talk about how you think about that and also, you know, balancing that out, you know, with growth through acquisitions, you know, how you think about that?
Well, it is a balancing act. Fortunately, we're not capital constrained. As Brett mentioned in his comments, you know, we're sitting at over $100 million of cash. We've got a substantial undrawn revolver facility, but most importantly, the company's generating a lot of cash. You know, 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. Our net debt number keeps coming down every week. You know, these deals take a long time to play out, and of those 40-50, not all will get across the finish line, right? That's just what we have. Some of those are prospective. Some of those are, you know, actually signed leases or signed acquisition agreements.
Not all will get to the finish line. We allocate capital to all opportunities that exceed our hurdle rate, whether it's acquisitions, new builds or renovations of our existing centers. 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. 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, you know, meaningful shares in the market, without slowing down our development pipeline one bit.
No, that's great to hear. Thank you. Maybe I could just squeeze in one more. It looks like league and event activity has almost returned to normal. You know, could you talk about what's, you know, attributed to that, and if there's still room to grow, in those two segments?
Well, 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 were heading into December, looking like we would probably be up high single or low double digits, on an event comp basis versus December of 2020, pre-COVID. And that would have been, you know, 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. What happened is, the calls started to slow, and then they stopped for new event bookings, and then people started asking for refunds.
Rather than being up meaningfully, we were down meaningfully. I think the number was on the order of about 22%. 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-19 restrictions releasing those restrictions. It's happening literally every day. It seems like we're moving past Omicron. As that happens, I expect that the event business will come back and resume the trend that we had through November.
We've seen tremendous resilience on the league side. The brightest part of the story, of course, has been the walk-in retail business, which has just been extremely strong and really strong through most of Omicron or sorry, of COVID over the last 18 months. That's the nice thing about our business. We have a lot of different revenue sources, the walk-in business, you know, the recurring league business, the event business and et cetera. Fortunately, the strength in some of the businesses have offset some of the other weaknesses. Going into December, we were looking extremely strong on the event side. Had Omicron not hit, this quarter, as good as it was, would have been meaningfully better.
That's great to hear, and that's really good color, and I really appreciate your time. Thank you.
My pleasure.
Our next question comes from Eric Handler with MKM Partners. Please proceed with your question.
Good evening, and thanks for the questions. Got three questions for you. I'll just sort of go one by one. Wondering if you could talk about, you know, you've had very good same-store sales growth over the last several quarters. What confidence do you have that you can sustain, you know, positive momentum relative to pre-COVID levels?
Well, this is Tom Shannon. I'll take this one. I mean, you know, the quarter we just had was a really good quarter, but again, adversely impacted in December, which is by far our most important event month of the year. It cost us, you know, easily $10 million of high-margin revenue. That was anomalous, I think, given where we are coming out of Omicron. You know, we're seeing incredible strength in our business now. I think it's just a continuation of the momentum we were seeing pre-December. Like, 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 two months.
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. The other thing is, we've really taken the last 24 months to strengthen ourselves from a strategic position. We've reinvested in many of our centers, and we've bought or built a number of centers in key markets. We have excellent product in the most important markets. You know, the portfolio is in much better shape than it was pre-COVID as a result of all that investing activity. A combination of all the factors and really no dark spots on the horizon that I can see at this point.
Okay, great. Secondly, wondering if you could talk about, let's just go through the remainder of this fiscal 2022 year. Wondering if you could give us maybe a little bit visibility into how you're thinking about new center openings in each of the next two quarters and as well as, upgrades in the remaining two quarters of the year as well.
I mentioned we have about 25 centers currently in process of renovation, and 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 between now and the end of the fiscal year.
Yeah. Thanks, Tom. This is Brett Parker speaking. It's really difficult to handicap the exact timing of how these things shake out. 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. I don't wanna give any updated guidance versus what we've done before. 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, you know, in the hopper, and we're pushing those along.
Great. Okay. Last, I wonder if you could talk a little bit about the Bowl America acquisition, how that has performed since you completed that acquisition.
Well, we couldn't be more pleased with that acquisition. You know, Bowl America was a sort of non-typical 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 gonna 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 over $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 two other centers that were effectively profitless, that in aggregate are $4 million. Those three centers should close in the next, well, certainly in this fiscal year, much, you know, likely much sooner than that. If you just take those three, we're already at $10.5 million on three centers that weren't contributing and weren't expected to contribute any EBITDA. The net purchase price as a result goes from around $44 million now down to 33 and change.
Of the centers that we think have potential, we've 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, you know, haven't been seen yet, will be seen, you know, over the next couple of months. The trajectory in the business is really good. 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. We think ultimately, you know, the purchase price that we get in, we ultimately end up in that deal net of these divestitures is gonna be meaningfully lower.
I think the potential of the five or six centers that we plan on keeping and investing in long term will ultimately be higher than we expected. I think that, you know, the IRRs on this deal are gonna be very, very attractive, certainly meaningfully above our hurdle rate. We own them all, except for one. 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.
Great. Thank you very much.
Sure thing.
Thanks, Eric.
Our next question comes from Michael Kupinski with Noble Capital Markets. Please proceed with your question.
Thank you, and thanks for taking the questions. 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, you know, relative to the past few quarters or past few years? 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 eight quarters. And that's both on the new build and the acquisition side. It's two 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, you know, usually former retail boxes that have become empty. 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, grueling process and one with lots of frustrations and setbacks. We, as an organization of more than 9,000 associates, we have the resiliency and the wherewithal to deal with those challenges. Independents, not so much. 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? 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.
Thanks for the color, 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, you know, event revenue and so forth, but I'm just trying to understand if there were certain centers that due to restrictions were closed.
I can't give you the exact timing, but we were closed in our two centers in Canada. We were heavily restricted in Mexico. 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. 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.
Yeah, I would expect that. So a number of firms have also expressed difficulty in managing cost and particularly employee costs 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?
Yeah, Mike, this is Brett Parker speaking. I'll take that one. You know, with respect to labor costs in particular, we really are benefiting from a handful of factors. You know, 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 of cost, you know, marginal costs increasing. We're not seeing that. 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 scheduled folks, and that sort of thing. Number two that supports that is the implementation of technologies. We continue to invest in our kiosk ordering, our online booking platform, and then also in our friedcrgas software, which we use as the primary operating tool. What those have allowed us to do is to offset increases in unit costs for labor to average wage per hour sort of thing, by using substantially fewer hours to deliver the same guest experience.
You know, that's really been the core. Then you support that with the fundamental reality of bowling, which is that we have very high operating leverage. The incremental revenue that we've seen will always flow at high levels because two-thirds of your revenue effectively has no variable cost from a good job perspective, and you see this great flow. Then if you just layer on top of that some, you know, moderate price increases, which everyone is seeing everywhere, and you know, that's not causing any kind of an issue, you end up in a situation where our business, you know, we expanded our margin at the center level by 393 basis points in the quarter.
Great.
You know, there continues to be pressure, obviously. That's the macro reality. You know, we are very aggressive managers of 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, you know, margins in the business increase rather than shrink.
Yeah, it's definitely evident in this quarter as well. That's all I have. Thank you.
Great. Thank you.
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.