Q1 2021 Dave & Buster's Entertainment Inc Earnings Call

[music].

Good afternoon, everyone welcome to the Dave <unk> Buster's Entertainment incorporated first quarter 'twenty 'twenty, 1 earnings results conference call.

Today's call is being hosted by Brian Jenkins, Chief Executive Officer, He will be joined on the call by the Scott Bowman, Chief Financial Officer, and Margo Manning.

Operating officer.

I'd like to remind everyone that this call is being recorded and will be available for replay. Beginning later today now I would like to turn the conference over to Scott Bowman for opening remarks.

Thank you operator, and thank you for joining us today.

The prepared comments, we'll be happy to take the questions.

To remind you that at this call is being reported on behalf.

Investors Entertainment incorporated and is copyrighted.

Before we begin the discussion on the company's results I'd like to call your attention to the fact that at our remarks and responses to questions certain items may be discussed which are not entirely based on historical fact any of it.

These items should be considered forward looking statements relating to future events within the meaning.

Half of the private Securities Litigation Reform Act of 1995 at all.

Such forward looking statements are subject to risks and uncertainties, which could cause actual results differ from those anticipated.

Information on the various risk factors and uncertainties have been couple of sooner filings with the SEC I'm trying to think of them.

On our website at Www Dot, Dave industrial Dot com.

Com under the Investor Relations section. In addition, our remarks today will include references to the 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 results contained in our earnings announcement released this afternoon, which is also available on our website.

Now I will turn the call over to Brian.

Well. Thank you Scott good afternoon, everyone and thank you for joining our call today.

The strong first quarter results, we announced earlier today provides solid evidence of the strength of the Dnb brand.

On another Great example of the outstanding commitment of the entire.

D&B team.

I continue to be inspired by what we've accomplished together over the past year to strengthen the company on many fronts.

We will provide a review of our first quarter financial performance in a few minutes, but I want to call out a few of the highlights.

After the closing out fiscal 2020 with.

The accelerating momentum our sales trends strengthened further during the first quarter despite.

Despite the continuing to operate with capacity and other operating restrictions we saw a significant improvement in demand across our store base, including at our recently, we opened New York and California stores.

The reopening of our store base, coupled with the stimulus payments expanding vaccinations and the excellent operational execution drove significant revenue recovery.

We generated 265 million of total sales, surpassing the top end of our expected range for the quarter and established a new high watermark.

And our post Covid sales recovery.

Encouragingly, we exited the quarter with total comp sales down only 12% in April compared to 2019 with close to half of our comp stores exceeding their respective 2019 performance levels.

This strong sales rebound.

The market combined with our lean operating model produced outstanding flow through during the quarter driving $72 million in EBITDA only 19% below the first quarter of 2019, and reflecting 280 basis points of the EBITDA margin improvement.

Through the first 5 weeks of the second quarter comps.

<unk> sales continue to accelerate down just 4% and total sales are running slightly ahead of 2019 levels.

This trend coupled with our summer of initiatives points to a promising second quarter.

As of today, we have all stores back online except for our 2 Canadian stores.

Comps, we anticipate will opened late in the second quarter.

Clearly we've come a long way over the past here and we are optimistic about our future as we implement strategic initiatives initiatives to modernize and enhance our food and beverage menu service model entertainment offerings and guest engagement.

With these initiatives and the steps we took during 2020 to bolster our financial Foundation. We are now a more competitive more guest centric company and positioned to be a more profitable business as our sales fully recover.

At this time I'll ask Scott to cover the results of our first.

Quarter end to share some insights on our expectations for the second quarter. After that Margo will join me to provide an update on our 2021 strategic plan at Scott. Thanks, Brian The results of the first quarter Mark on major inflection point for Dave <unk> Buster's.

It began to move beyond the significant impact of the pandemic.

We ended the quarter with 138 opened stores, including 1 new store that opened during the quarter.

But the most of our stores opened since mid April our business of showing strong momentum generating revenue as well above expectations for the quarter and extending into the first 5 weeks of the second quarter. We've also achieved the dramatic turnaround in profitability.

Driven by our lean operating model and the extraordinary efforts by the entire operations and support teams for the.

First quarter total revenues of $265 million reflects the at 35% decline in comparable store sales compared with the first quarter of 2019.

In terms of category sales of the F&B business was down 40.

9% comp, while amusements were down 25 per cent of me.

Using the outperformed mainly due to a higher average spend per power card purchases.

Throughout the quarter comparable store sales showed steady improvement compared to 2019 and were negative 59% in February of negative 31 per cent in March and negative 12% in Asia.

Ability of the sequential improvement was driven by the reopening of our stores and improving comp trends in our previously we opened stores. As a reminder, we will continue to report comparable store sales against 2019 as we believe this is a more meaningful comparison.

Regarding the sales mix amusements were 65.67 5.

The total sales for the quarter versus 58, 5% in the first quarter of 2019, driven primarily by a purposeful reduction in discounting and the shift of hundreds of nomination power costs.

EBITDA for the quarter was $72.1 million or 27.2.

The 2% of sales and represented the 280 basis.

5% proved net compared with the same period in 2019.

The improved performance on driven by a higher amusements mix strong sales leverage on labor costs due to lower staffing levels and reduced marketing and pre opening costs.

From the store perspective, 84% of of our stores posted positive EBITDA for the quarter at.

90% of the stores that sell on April.

The company also returned to profitability from the first time since the onset of the pandemic posting net income of $19.6 million from <unk> 40 per diluted share.

These improved operating results also produced $77 million of operating cash flow during the quarter of which 6.

$60 million was used to completely pay down on our revolving credit facility we.

We ended the quarter with $20 million in cash and $340 million of availability under our revolving credit facility.

Net of $150 million minimum liquidity covenant and 10 million in letters of credit.

Total long term debt stood at 5.

At $50 million at the end of the quarter, consisting of our senior secured notes maturing in 2025.

Additionally, at the end of the quarter, we had paid down all of the $3 million of of deferred the vendor payables balance and had approximately $45 million of negotiated rent deferrals on the balance sheet.

We expect the payback of approximately 17 million of deferred.

500.

The remainder of fiscal $2021.25 million in fiscal 2022, and the remainder of thereafter.

In addition, we received the tax refund of approximately $8 million in the first quarter, resulting from current act legislation and paid $22 million of semiannual interest on our senior secured notes.

We.

Grant to receive an additional tax refund of $3 million in fiscal 2021, resulting from cares Act legislation and expect to receive the refund of over 50 million late in the fourth quarter or early in the first quarter of 2022 related to the carry back at fiscal 2020 of Austin.

Turning to capital.

We expect Inc. We opened 1 new store in the first quarter and invested the total of $12 million and capital additions net of tenant allowances.

We expect the opened 1 additional new store in each of the remaining 3 quarters of the fiscal year.

As we look forward to the remainder of the year. We are very encouraged with the progress and I'm very grateful for our.

The outstanding operations team and supporting functions at our driven our success.

Turning to our outlook I'd like to offer some insights for the second quarter of fiscal 2021.

For the first 5 weeks of the second quarter, we continued to see strong demand store brand with comp sales down 4% compared to 2019.

2 of our Canadian stores have yet to reopen.

Based on current trends and barring any significant setbacks, we expect total second quarter revenues to be in the range of 335 million to $350 million, which is comparable to 2019 we.

We expect the EBITDA margin to decline compared to the first quarter due to higher commodity.

The cost of higher labor and the seasonal marketing costs and the monarch. The moderation of our net sales mix importantly, we expect EBITDA dollars to be in line with 2019 levels of major milestones for our brand.

From a capex perspective, we are reiterating on a plan to invest $65 million to $70 million of Capex.

Opex for fiscal 2021.

Approximately 49% dedicated of new stores and other operating initiatives, 19% for games and 32% from maintenance needs.

Finally, I'd like to reiterate our commitment to achieve 200 basis points of EBIT margin improvement as we reached 2019 <unk> levels.

It will be largely driven by structural changes in our hourly labor model management labor and G&A spending.

With that I'll turn it back over to Brian the Margo to discuss our strategic initiatives.

Well. Thanks, Scott, we're very encouraged by the first reported results from the continuing early second quarter of momentum.

<unk> got to cover over the over the past several quarters.

Outlined our strategic initiatives to enhance the guest experience and we've made great progress implementing them, which has set us up for what we think is going to be of really strong season for our brand.

I'm going to turn the call over to market of bring you up to date on the on the progress on several.

On them, that's the initiatives and then I'll follow up with some additional commentary here as Margaret Thank.

Thank you, Brian and thanks to everyone for joining us. This afternoon. When we talk at the end of March we were already making progress on our key initiatives I'm excited about the positive momentum and appreciate the opportunity to give you an update today.

All of those the.

Overarching objective at our speed and service model initiatives is the efficiently drive increased sales in 3 of the guest experience and enhance our long term profitability.

On the Swiss franc.

We have completed the transition to our new menu with the state of identity inspired.

A day between kitchen, the new menu offers 28 items, representing 33% fewer items the more on our menu prior to Covid.

While it is still early dishes like the I T a fish and chips Hawaiian chicken sandwich, and mesh and stout Burger are big sellers on the menu and clearly.

And there is resonating with our guest.

As we move into the summer, we will be evaluating the performance at the fully deployed many to better understand its longer term impact on sales and on the guest experience.

This summer our guests will be tempted with seasonal drinks in the form of LTE as limited time offers.

Clearly more of LCL lineup includes Elderflower tonics and bomb pop margaritas.

Starting in September we will be offering our guests a hearty of selection of food and beverage L. T OS that per well for both the fall football and October 1st we plan to use our L. T O strategy to take.

Our such as debt.

Smith of seasonal product to give our guests a constant stream of amazing new culinary options to drive speed attachment and sales.

Additionally, we have completed the brand wide rollout of our high speed ovens and kitchen management system upgrade both aimed.

At simplifying our operation the.

Back of the house initiatives makes it easier for our teams to execute at a high level by reducing Cook times by 40% on a third of the menu and also by facilitating a more seamless flow of trade in the kitchen.

Our research shows that the D&B guess at this.

The fine state quality by food that is served hot and fast the.

The combination of our new menu high speed ovens, and new kitchen management systems that are teams that can deliver a great dining experience to our guest.

We expect our new menu to drive an improved guest experience.

And increase the attachment rate all aimed towards increasing food and beverage sales.

We will move our attention to the beverage needs.

Same disciplined on price in excess.

Hence the guest research will be used to evolve our beverage offerings with the goal of launching a specially curated beverage menu early.

In Q4 to improve relevance and attachment to drive beverage sales.

We need great people in order to fully bring to signs of life at D&B and the labor market that we are facing today is the most challenging 1 but I have seen in my career.

The increase of our staffing levels for the demand that we expect this summer.

We have earmarked an estimated $5 million.

Largely in Q2 for hiring programs and retention incentives.

It is of significant investment that's been thoughtfully placed to help us attract the talent that we need to capitalize on the upcoming summer season.

Another key initiative.

To deliver a more integrated experience by evolving our service model to get the cash more control over their in store experience.

This involves deploying a combination of the new service model tablets and of mobile web platform to enable a completely contactless order pay.

His experience.

The stores operating on this platform have been able to expand the size of the server sections and reduced staffing levels to be more efficient we have over half of our stores on this new model and we will have Brian wide deployment next month.

Our rolling 4 week average.

From mobile ordering adoption is over 40% due to the strong adoption by our guest we are also testing at completely self serve mobile web enabled guest experience in Q stores.

We believe this technology will help us transform our business model allow us to operate.

I expect efficiently and grow our culture of social fun by freeing up our team members to focus on the guest touch points that matter most at all.

To wrap up I want to thank our team the very heart of the N V. Our strong first quarter performance is the result of every team member embracing change and looking.

Great way of how they can bring the sand back to our guests.

The Dnb has an exceptionally talented operating team and I'm very grateful for the resilience and passion for our brand with that I'm going to turn the call back over to you Brian.

Thanks Margo.

I will take the next few minutes to update you on our.

In the entertainment and guest engagement initiatives designed to fuel a strong summer season and balance of year. We continue to work diligently to ensure the Dave and Buster's remains the per.

Premier destination, where guests can discover the latest entertainment to enjoy together. This summer will feature set of new games.

New cross our entire system, all of which launched exclusively at Dave <unk> Buster's.

James like of Lifesize version of the Classic Board game of Hungry hungry Hippos in the arcade version of Minecraft, the enzymes, which is already established themselves as 2 of our best performing titles.

Games of categories.

With the postponement of the new topped on moving to November we made the decision to push back the release of this proprietary VR game to capitalize on the brand awareness that will accompany the films launch later this year.

However, at this has given us.

That's an opportunity to draw more awareness to our enhanced version of the Terminator Guardian of Faith Special edition, which we released earlier this year and that has already become 1 of our most popular VR titles.

Finally, we are broadening our entertainment offering through the production of high energy High energy.

Interactive events, we recently brought on a new leader for our dedicated and Italian entertainment programming function and began executing our plan starting with a very successful live music tests and our Tampa store produced in partnership with the well known dueling piano brand how at the Moon.

In the coming weeks, we will begin testing national thing trivia nights in conjunction with market leaders geeks, who drink and we'll continue developing a wide range of recurrent events.

By expanding our entertainment lands, we look to broaden our appeal and increased visit frequency.

For the upcoming football season, we have a number of initiatives planned to establish Dave and Buster's as the ultimate tailgate destination.

These include proprietary video content live entertainment and select markets.

Contests designed to draw of guests into the game.

And of course.

Compelling food and beverage promotions.

We also continue to make progress on our discussions with potential sports betting partners and look forward to concluding negotiations later this year.

Now Q2 is an important quarter as we look to drive deeper guest engagement and.

And we see 3.

Forces converging this quarter to accelerate our sales recovery first we're seeing pent up demand in the market place from people seeking social entertainment. After the Lockdowns of the past 14 months, coupled with higher levels of household savings and punctuated by the reopening of our stores.

The second force is our new brand positioning, which highlights how Dave and Buster's turns on ordinary situations and 2 extraordinary social moments.

Of this transformation the signal by the iconic arcade town being Ding Ding and as prominently feature of this summer and.

In the first campaign of our new seasonal window strategy.

This will be followed by a holiday campaign that we will begin the will mark the next significant investment in marketing to reach guests and drive conversion during our fourth quarter.

The summer campaign Leverages.

As a new media mix, which shifts the brand to a significantly higher digital social mix, while increasing our video reach.

<unk> through connected TV within our key trade zones.

The new modern approach the media will be accompanied by unique activations ranging from bank card partnerships.

To tick Tock Influencers.

The third and final force behind our accelerated recovery.

Introduction of exciting new product, we know that new product news as a powerful motivator for visitation and at what will be an important message to drive conversion. This summer.

Communications.

The key message both outside and inside of our stores will highlight new games, new food and new beverages.

As we look to drive deeper guest engagement. We're also developing the new loyalty program to encourage guests at the level up by eating drinking and playing games.

Launching.

<unk> late Q3, the program will have a robust targeting and personalization capabilities, but will also bring additional relevance to our mobile app has guests must use the app to complete challenges and earn rewards.

Our research suggests that this program is significantly more attractive to guests that are.

And the offering and will drive higher engagement.

It is truly an exciting time of day, Dave <unk> Buster's as the strategy of the planning and the preparation that occurred during the pandemic are now coming together to accelerate our recovery.

I'll close today by emphasizing how much I appreciate.

Our current at the team's commitment how encouraged I am by the proven resilience of our brand and how confident I am in our plan to drive Dave <unk> Buster's to new Heights.

Our brand is back we have a solid financial foundation and we are ready to move full speed ahead into the summer.

Now we'd like to.

<unk> from the call to your.

Questions operator.

Thank you.

If you would like to ask the question from the by pressing star 1 on on the telephone keypad.

And if you're on speaker from make sure of that your mute function is turned off.

Not to reach of our equipment I can press the star wanted to ask the question.

I will toss the moment to allow everyone.

Maybe just a couple of questions.

And we will go to on first question from Chris O'connell of Stifel.

Hey, good afternoon, guys. Thanks for taking the call of <unk> question.

Sure Hey, Chris.

At the season.

Doing well.

Got the the company's second quarter total revenue guidance is similar to 2019 actuals and based on our math the implied <unk> for the second quarter is about 10% lower than the second quarter of 2019 first is that correct at the and then I had a follow up.

You bet.

Hum.

Yeah that sounds about right.

All right.

Okay, I don't have to I don't know.

But.

That sounds pretty close.

Okay and then the company has stayed at the EBITDA margin would be 200 basis points higher than.

In 2019 at similar <unk>.

<unk> 2019, but if you exclude the $5 million of labor investment that you guys are making in the second quarter. It would seem the company is able to achieve the 2019 EBITDA margin at at much lower level.

Am I thinking about that correctly.

Yes.

Let me give you a couple of things to think about because you know as we think about the 200 basis points and saving.

The first off you are correct as we approach the 2019 of disease. That's the point, where we thought we could achieve that level of savings.

With kind of how dynamic things on right now at this.

Kind of give you a couple of items to think about is as we get into the second quarter. So from.

First off on food costs on a little bit higher you know on the commodity front, which is I think Tom on very common out there.

So I expect we'll see a little bit more and higher commodity costs in the second quarter end kind of.

Yeah, that's half the year as well.

And you mentioned that sort of on the labor cost front, you know we are having some incentives out there to kind of bolster our staffing position and so.

You know he will spend some money there of about $5 million, you know to try to attract more talent.

For a per staffing them from a marketing standpoint, we're kind of taking a little bit on the different position and you know we kind of touched on on a little bit where you know the second quarter and the fourth quarter of gonna be heavier right and so we're taking those windows based approach where especially on the in the second quarter you know we're gonna really.

Heavy media during the summer timeframe kind of coinciding with on the menu and you know new games.

We wanted to have a pretty strong push you know with marketing and really get the the reach that we need to make an impact and so that's a little bit of of ship from how we've done it.

In the past.

With more of them at little bit more of an even spread so that'll be that'll give us a little bit of a headwind in Q2 and then in Q4, you'll see the same thing you know will lighten up a little bit in Q3, and then will be heavier in Q4 from the marketing standpoint.

And then from a sales mix standpoint.

And you can kind of see the numbers that we were.

8 points higher than mix in amusements now than we were in the prior year end and so obviously that that carries with it at a nice.

Upside you know in our overall margin.

We expect that that will moderate somewhat you know time will tell exactly how much you know kind of what that new.

Yeah. It is but you know we saw some at some pretty heavy increases in per cap.

Just people buying higher value of power carts that really contributed to the sales and the mix shift there and amusement. So we did you know it seems some moderation in amusements and the second quarter them at.

As well so those are some nuggets there.

Normal kind of helped you at.

I can look at the modeling for for EBITDA.

But I think the important takeaway here is that number 1 we feel very comfortable with the assay.

Savings areas that we have lined out.

As a reminder, about 3 quarters of that is out of the labor.

The labor and G&A costs and.

So it's 1 of the structural standpoint, we still feel comfortable with that but you know at the only caveat as you may see some.

Fluctuate from quarter to quarter until we get there.

Just to wrap a bow on this you've you talked about roughly 150 basis points or more of incremental costs in.

In the quarter with margin flat relative to 2019 in volume, 10% lower than 2019.

Am I thinking about that right.

Yeah, that's correct okay.

Great I think another.

Yeah, 1 of the out of things to think about as well as.

And the second just from an occupancy expense standpoint, you know that's gonna be a big drag for us because that is now more fixed in nature.

And so really throughout this year with the lower volume. So we still see a pretty hefty no drag from occupancy.

Great I'll pass it on thank you guys.

Thank you.

And we'll go next to take part of my of Trust Securities.

Great. Thanks for taking the question My first 1 was on the the quarter to date sales I think you mentioned that you were running roughly in line with with the the second quarter of 19, but the guy or actually the above.

The second quarter guidance was more in line. So I'm just wondering what the drivers to that may be more modest.

The increases for the rest of the quarter are.

Well Jay I appreciate the question.

Our guy.

Sure.

For for.

And border is actually at the top end of the above our 20.

Our 2019 level by a bit. So we are currently at 5 weeks end.

Yeah, just surpassing 2019 at the top end of our guide basically spent the saying the same thing here. So.

I don't know that at any materially different than what.

The king so far in this quarter.

The top end of the guide here and I think I've said.

We definitely have.

The first of all we're extremely optimistic about where the businesses right now we're seeing a lot of.

The strength really broadly across our store base here and so we're extremely optimistic.

Pick about the quarter there.

Are some elements and drivers here of the.

You know, we're you know we're watching around some of the per cap lifted that Scott mentioned on our amusement business that we've not seen in our history before here up in her 14 years the.

Buying ads on the car parts are really high on elevated.

A lot of that is driven by things that we've done purposeful things around.

Pulling discounting where virtually not discounting at no discounting right now so the effective price increase if you will.

That is helping the per cap quite a bit on amusements.

There is the elevated demand here right now and a.

A lot of folks were talking about pent up demand and.

The COVID-19 restrictions come off people getting out of being locked up there's a lot of stimulus funding.

I think we're a.

A benefactor of that a bit and so we'll see how that all settles out, but we're super excited about kind of the recovery of the pattern.

Turns were seeing end and the.

Recovery of California, certainly in New York.

So I think we're at position to have a really good summer.

Gotta get back out with the voice for in some ways. The first time since Covid you know we have a little bit of media back end I think at was the third quarter of last year that we couldn't cancel but.

At <unk>.

You know relatively quiet and we were saving our powder. If you will to get out of a big and strong the summer and I think of the timing is perfect.

Yeah.

It is fears of waning a bit obviously, but the vaccines, we got some great.

Product that we're going to be able to put in front of our guests and the team is really energized. So we're really excited about what some of it is going to bring.

It feels a lot different this year than a year ago, let's put that way so.

No I appreciate it doesn't at that sounds great. The other question I had was on last quarter you provided.

Cortez.

You know of.

Performance I'm, just wondering how much that of tightening if you could maybe provide that again in terms of you know it sounds like I would imagine that debt a good portion of your stores are doing better than 19, maybe if you do you have any of that data that you can share just in terms of the range of of how stores are doing right now.

Sure.

Sure.

Jay we're seeing broad recovery.

The broad recovery right now so we're really encouraged by that.

That said as you.

I would expect we have certainly some regional their ability of the company and there's a couple I think key factors in our minds that are driving that.

I think you've seen some of the sort of at what we called at the maturity curve graphs that we put out early on in Covid are stores that are in markets that have been opened longer and really further along on that maturity curve I'm. The only talk about some of the southern markets.

Are performing better.

We've got I would.

Let's say at the other factor here is there are certain markets, where COVID-19 fears in the.

Discomfort is different.

And.

We think that's impacting some of the regions and then clearly we have.

A number of locations is still subject to some form of operating restrictions.

At about.

Some of our store base, where we still operate with.

Either of capacity restriction or something else. So those are kind of the 3 big things that sort of separate the the courthouse on the regions for us.

Now the good news.

And our view is that we think all of these factors are going to.

<unk> 40 per self correct over time.

Stores are ramping up here I'm going to speak specifically about California, they've got it out of the gate at very strong much stronger than other stores on regions, but they're still pretty green in the maturity curve.

I think COVID-19 fears are declining with the expanding vaccination.

And we expect to see.

Operating restrictions get lifted at so we're pretty optimistic here, but there are separations being created.

Specifically on your quartile question here.

That separation has created differences are top quartile in the last 5 weeks.

Just shy of 1.

120% so.

They are.

Above 2019 by about 20% the.

Lowest quartile, we have as you know about 75 per cent. So we definitely have separation.

We view that as an opportunity to get the.

Bottom quartile moving in the you know moving higher over time and.

I'd point to California, as being sort of the.

A big part of that because of as I said earlier in the maturity and there's still a quite of bit of restrictions on that and the market.

So in our second and third quartile.

Our I'm going to say just right at 19 levels yeah.

The average between the 2 of them so.

You know, we feel really good about the store base, we see.

The boats are rising and you know as I said, we're really optimistic as we head into summer.

Great great.

That's helpful. And then my last question is just on the staffing challenges.

The challenges and I know I believe youre, giving.

Giving bonuses for summer of hires and things like that but if you can and you guys are.

Does your of having to ramp up so quickly I think you have a great insight as to how difficult. It is so so can you provide any insight as to whether there's been any change in the last weeks or months in terms of that getting getting better and then how do you.

So your second quarter is going to be in terms of staff and do you think youre going to be.

I know, there's some extra costs in some of the bonuses and other efforts but.

And maybe stripping that out do you think there's going to be running fairly lean because of the staffing.

Issues.

Well go ahead, Phil I'll jump in and then Brian.

Still the fact enjoying on just at the first part of the classroom, which is the getting it the getting better at you know we are seeing end markets, where they are pulling back on some of the stimulus, we're saying the applicant flow increase and in some markets actually pretty significantly so in terms of its staffing getting a little bit easier.

Iron ore and we are seeing that at that market and not only at the applicant flow of increasing but youre actually having people at the offer is going to show up at work, sometimes they are having applicant flow and then at wouldn't translate into an interview where it would end at the analyst.

At almost with like the activity, but that didn't result in a high.

Higher end that we're seeing change so we're encouraged by that as we go into Q2. We're also seeing some of the recruiting and retention programs that we had mentioned start to take hold specifically in our referral programs and so we're encouraged by that as it relates to staffing in Q2.

So I don't think that you're going to see Q2 be as difficult from the staffing standpoint, as what we the operated in the past quarter. Additionally, the new technology that we're rolling out and the New service model has been really powerful for us, it's allowing us to operate more efficiently. We're.

Able to have servers cover off on a on a on a big of a station the team the like at the technology is is pretty easy for the GAAP debt to acclimate to so we're really encouraged about the combination of all of those things coming together to help make just the staffing situation better.

In the upcoming months end.

Do you want at Okay, that's great yeah.

Great I appreciate it thank you very much.

Sure.

And we'll go to our next question from Jeff Farmer of Gordon Haskett.

Thank you I actually just wanted to follow up on some of those.

Lean staffing comments that you guys just made so at.

In terms of thinking about the big picture of of the initiatives you initiatives you guys have put in place over the last several months, where do you stand at the first quarter sort of see the full benefit of those initiatives.

Theoretically or are there more to come on in terms of cost controls.

Trolls is you're getting deeper into the second quarter.

Well I mean the.

The.

The sort of efficiency initiatives.

The we've put in place really rolling out over the course of the first quarter were not as Martin said in her prepared remarks were.

On a little over.

We're halfway through the system in terms of rolling out our mobile web M. P. O S. The handhelds that really helped facilitate the new server and service model. So on.

And we'll be done.

Tail end of July so we still have room to go.

On that.

So the.

We will see some dividends over that as we get through the rest of the store base over the course of this summer.

Okay and then separate question Hugh you mentioned in an answer to an earlier question, but with all of the 2 of the stores opened.

Today, I just wanted to better understand what.

Our effective capacity of whatever term you want to use is what that effect of capacity number looks like currently meaning in terms of your ability to use all of the bar areas of the amusement floor on whatever it might be.

Where that stands today versus where you're.

You think it might be moving deeper into the summer.

And that's a little bit of of hard call. As I said, you know, we've got roughly 40% of our stores that have some form of still have a form of past the capacity limitation could be.

Particularly California, you know not being able to use the bar or type of limitation.

On the patients on games, which I think is less of an impact for us but.

I think we feel like the over the course of the coming months, we're going to stay at these things get lifted.

And.

And I know, we read a lot of stuff in terms of casual dining and pointing to this as the primary.

Factor of <unk>.

Kind of limiting business as I said before this is not as.

The big of an issue for us just because of our sheer size and scale the number of square feet rehab certainly at the stores recover at get to bigger numbers that can put pressure at the peak hours and stuff but.

When you when you look at our top quartile of producing 120%.

We've had stores that have been well over 100 with <unk>.

The restrictions capacity of restriction so at.

It's an index.

The impactful, but it's not it's not the same kind of magnitude that you.

You would see in cash flow done.

And I apologize just 1 more quick 1 so a lot of the conversation about staffing levels and where you guys are in on what the labor market looks like but any early thoughts on potential wage rate inflation not only for your business, but just sort of looking more broadly at across.

The sector and your.

Thoughts on wage rate inflation as we get into the back half of 'twenty, 1 moving into 2022.

Sure I can I can start on that 1 so yeah, so far with the kind of the incremental wage inflation that we've seen most of that is actually due to additional overtime.

On the slowest.

Staffing levels, we are augmenting more you know with with overtime.

Overtime than we had.

On the path and just from.

You know of store openings standpoint of course do you know when you're at the California to the mix that's going on you know kind of raised our average.

The itself.

Just to the <unk>.

Most of them, but you know and as we kind of get into the second half I mean, we expect the the wage pressure to moderate somewhat.

As you know some of these labor shortages on East, which you know we think we will see that at.

And you know I would tell you that just you know for a couple of reasons really you know as unemployment benefits.

The only if I could go away.

In early September end, you know even earlier in some states that have already pulled back.

You know, we think that you know COVID-19 fear should start to subside you know with more folks you know I'm willing to return to work and then you know.

At schools reopen as well, we think there's a few factors out.

The stat you know over the course of the next few months you know should help the the labor shortage situation.

In the meantime, we will continue to augment with some overtime.

But also you know what.

At the technology that we've kind of talked about with the tablets in.

Service model, that's definitely helping.

As well as fewer operating hours for the time being.

I appreciate it thank you.

Thanks, Jeff.

And we'll go next to Andrew All day with BMO capital markets.

Hey, good afternoon. Thanks for taking my question My first 1 I think over the.

The last couple of quarters, you've talked about the demographics of.

Driving the sales recovery of really being more.

Millennial heavy and I'm curious if you're seeing that starts of broadened out to include more families or is the sales recovery still really be driven by 1 of those 2 buckets of the customer base.

Hi, Andrea Margo and the idle.

And then Scott and Brian can join in so we're seeing both families and adults returned a Dave and Busters and while it's been great. So welcome our guests back to the fun. We are also looking to learn more about the gas through at 2 new tool that we've launched in may of medallions and it's basically a at.

The comprehensive guest experience platform.

And it's gonna offered deeper insight at the kind of captures everything for you in 1 spot at the in store experience at the guest relations feedback at the all mobile and all of social So think about all of the review sites. You know your yelps per trip advisors, all of that and it's going to help us better.

Total kind of guess what kind of.

Put us at a position from the operation standpoint have actionable feedback about improving the execution on.

We're excited to not only work on the gas the back but at this allowed down and the but yeah, we're seeing more of the pre COVID-19.

The reflection in the guest base we're careful.

Understand what on earlier it was planted more adult it's a little bit more balance now.

No I can't.

I just had 1 thing so you know all of them.

Regardless of this on more of the protocols.

We we really just launched the program here in my Hum the during the course of proven.

We pulled back on a lot of.

Our appointments, we have made and kind of.

Our guest.

Yes satisfaction those tools.

Just to do the cost management. So we ended up kind of reengineering of the whole platform here that we feel a lot better about its kind of smarter says it's comprehensive.

The dashboard.

But we get today compared to before is significantly different so.

A lot of what we are talking about in terms of returning cash there's a little more anecdotal per day than it was when we had a system. The platform that was in place and it was the place for a long time, so no not to be evasive on the specifics, but that's the reality.

Forward there.

It's kind of coming in and taking it up.

Hey, Shannon.

It sounds it sounds like an exciting opportunity and my.

Second question is just you know you were talking about how you pull back on the promotions and I'm just curious how you're thinking about kind of more broadly promotional levels levels on layering in the back end over time, but how much do you think of this as sticky.

How are you thinking of bad.

Larry.

Okay.

It's a really great question and we're talking about it.

Frequently now I mean, we.

Right now I don't feel the.

The strong need to go back into the.

We're sitting here, where we're you know we're seeing strong demand.

Without it and it's having a significant impact.

On sort of our per cap of as Scott mentioned in his prepared remarks. So you know it's.

It's not something going back to an always on discounting strategy.

Terry it's not something that where we plan to do the near term because.

We're gonna off much more towards you know.

Pulsing things versus just the constant the discount trends.

Yep.

Okay, if I could just squeeze 1 more quick 1 in.

It sounds like the above and beyond kind of the service model changes that you're implementing you mentioned testing in 2 stores and is fully automated kind of F N b.

Can you just give a little more detail about what that looks like.

Yeah. So we have a taste the word.

Yes, Sir we have basically.

Offer to the gas the ability for them to order the or their phone food and beverage. So that they can turn control of the complete experience themselves.

Being said you know if the if the gas is uncomfortable end end.

We're looking for the server experience, we can adapt but what's been interesting is that at both of these situations. We've had high guest adoption and and it's been really pretty well received at.

So we're encouraged by that additionally.

<unk> is on as we're rolling out the mobile web platform and the different reason the other thing that we've seen is that we've gotten better at the rollout and better at best practices. So every week when we're bringing on in the region. They come on with stronger guest adoption and.

And so it's been it's been an encouraging situation in our overall brand rollout. Additionally in the K stores that are you know basically of contactless mobile enabled experience for at the gas throughout the building.

I mean this is just at something here.

Again as you know.

The transformative change the in terms of how we're thinking about using technology to.

Really transformed the service model so here the.

And then Eric we're just at the 2 stores with 1 of the in Dallas and 1 is actually in times square, where we're talking about.

At this time re.

Really moving the transaction piece of the experience over to the technology.

On the roles per being rewritten so and in this environment is technically not really of server role. So we've defined roles scripted roles to drive engagement and you know.

The answer the guest experience of move transactions over.

Re imagine the roles of our team members. So it's been you know.

There's a lot of work and it's evolving.

Our technology team along with all of our operations team of it really done some great work here and we'll see where it goes I'm excited about like.

And it could be very transformative for our brand.

But the really appreciate the color thanks a lot.

Sure.

Okay.

The next from Nicole Miller of Piper Sandler.

Thank you good afternoon, just 2 questions the first.

Around I think you said half of the Capex would be for new store development.

I wanted to understand how the bench strength is.

How do you kind of get the pipeline restarted and just making sure that that's sitting on G&A as we pencil out on both the topline and EBITDA here.

Thanks.

Well I guess.

There's no dialysis with the.

With the advent of Covid we.

Put herself.

At a notch or 2 in terms of.

Our ability to build out stores and that's.

At this point.

Here about capital because of in our cash flow is now returning.

We're seeing a lot of strength on the business and our financial Foundation is getting stronger by the day. So I think we have flexibility to.

Begin to Reaccelerate development.

Our development.

Last name.

Really as you know in place you.

You know they were.

Heavily focused on you know at least negotiation with the complete pivot during COVID-19 in terms of what the role of.

But you know we have on an incredible development team.

And they still are in place.

We are pivoting the focus obviously now.

Where we have you know the pain points and more difficulty is the best strength in the field just because we are operating at lower power levels.

Post COVID-19.

We've had some people move on to other.

<unk> industries and move on to other companies. So that that's something that's kind of take some time to rebuild.

And that's the work that we have now is to think about the rebuilding of the leadership team that's really going on fuel.

The stores every day that goes fine.

Other recovery.

Gets better on numbers get better we're adding back more parts, but you know that's kind of that.

A little time, so I don't I don't foresee.

We're not kind of it would be in a position, where we're going to move back the 15 stores and kind of the numbers that we were running at pre COVID-19.

In the near term.

That all makes sense makes end theres nothing that would.

<unk> dramatically I mean, the team was basically in place I think the pivot point comment the super important they're just gonna against shift direction. So.

Thank you for that the the second question I know, it's a little bit more difficult because you.

But he is coming back in real time, and Youre doing some research around the gas, but you know how are they spending their time at you know, we we understand like the percentage mix as you've reported but are you kind of able to track the behavior, meaning how long are the sitting to eat in and how long are they playing or are watching.

You know everybody is you know what days of the week or they coming what times of the day kind of just on an absolute basis, but also very curious to how to understand how that on average might compare to the store is running above right of I think you said 125 was the top 120% was the top quartile.

Quartile, how does the <unk>.

For look the same or different in those stores. Thank you.

Most of a lot of there's a lot of questions in there.

You know, obviously, we have a pretty big separation and kind of amusement performance relative to the F&B.

And the second in the first quarter at you know we're still seeing.

Behavior, though here early into the second quarter.

If you just kind of drill into sort of traffic.

It's sort of an indicative of how people are spending their time on the traffic mess metrics for us right now.

Food and beverage business versus amusements or pretty similar they're down.

On that about the same number and at.

As Scott mentioned, we've seen pretty massive increase in per capita spend on the amusement side of entertainment side.

So in terms of how they're spending their time, they're they're consuming and attaching to our offering in similar.

Nowadays.

The higher per cap spend and amusement would indicate they are spending more time because of more chips on there on the power price, but we don't I don't know I can't give you of their saying go on from an hour and a half of 2 we don't really have that stop at that.

The point to that a bit.

That said the you know.

The way in our release you may notice that we had a pretty large differed revenue.

Adjustment in the quarter and I think some of that as you know we've got some of these guests at or buying the card from their deferring some of those chips, because we've got a debt pretty.

The pressure on them on that metric the biggest number since I've been here in terms of a reduction of sales and sort of a direct hit to 2 of our quarterly performance. So.

But in terms of you know assuming food consumed beverage at sort of that mix is about the same I think the spending probably a little more time in New York State.

Pretty good and just to confirm on at a lower.

The or lets say sales in somewhat of 100 of above 100 per cent in 2019 at.

It sounds like the behavior of the consumer isn't shifting at all.

Just whether you know how they can use the store in their geography in terms of mobilization, but at 1.

Wanted to make sure I don't Miss.

The final point of any consumer behavior shifts that you see.

The separation of when you look at the top quartile of the.

Courthouse stores is much more driven about traffic no return of people.

In the box less about.

Certain geographies or.

It's consuming a lot more food.

Just to or less or more food relative to amusements is less about that it's more about people.

People coming back into our box.

And that's where the opportunity as you know, California is on the train got the stores opened but they still trail.

You know the the rest of the system.

Relative right now I think that's going to change the California likes our brand there'll be back.

Thank you very much I appreciate it.

Thank you Nicole.

And what goes on to our next question from Andrew.

System of Jefferies.

Hey, guys.

A lot of the stuffs already been asked 1 wondering if you.

You've done any recent work or even anecdotally can sort of comment on the competitive set out there and closures.

You know that Youre seeing.

And and some of the folks that you track.

Yeah, you know that.

You know that.

The evolving good question Andy.

Clearly we're at.

When Covid hit we saw at temporary closures in virtually every competitor.

As we sit here a day I would say.

King in Chile every competitor is.

Largely reopened at this point and that's kind of where it sits right now there's a few that have some units at a per closed permanently but the the competitive set is largely opened at this point.

You know I think during the Covid, we all wrestle.

You know the challenges of that we saw a pronounced deceleration in openings honestly at 2020 relative to what was a pretty strong growth in 2019 in those earlier years.

And just as we look at at and kind of look at the competitive set.

We do expect.

With the you.

You know competitors to accelerate into 2021 versus 2020, which is probably obvious right. It's kind of the 20th somewhat shut down and it appears to US is that the collective set is going to grow faster than 20, but not collectively as high as what they were doing.

Expect 19, there all of it so that's kind of a temporary lull that we talked about you know did happen is still probably there in 'twenty, 1, but I think you know we're not the.

As said before we're going to we're an attractive space we understand that.

No there will be of competitive investment and it's likely the rates pretty accelerate I think we're gonna.

Back at the competitors begin to gear back up.

In 2022 and beyond.

The weak.

I've said before I think for us.

I would say my view, we have the best team, we have a very strong business model, we have of balance sheet that as much.

We have flexibility to invest in you know we have a great plan. So I am confident that we're going to.

The emerge as the even stronger competitor as we all hear back from.

Yeah.

Thanks very much helpful.

The strong will go to our next question from Sharon Zackfia with William Blair.

Hi, Good afternoon, I guess I just wanted to clarify something Brian I think you talked about pent up demand are you seeing any kind of.

<unk> of sales of volumes for the stores are at the locations that have been.

The areas that have had less restrictions now for quite a while.

We're seeing stronger performance, where people have less as true restrictions for a while some of them.

So.

At the hypothesis on pent up demand.

Many of that with you first we opened the doors all of these folks come in and then.

And the thing honeymoon and of tapers off so I was just wondering obviously you of stores all over the country. Some of those areas have been opened quite a bit longer are you seeing any kind of slowdown in sales trends as the market's been opened longer or is at maintaining.

Looking at you know what we haven't published.

Then shippers at.

Yeah, we had some of the fishing stops and starts with Covid. You know we had a pretty good chart out there on our maturity curve you know kind of how stores you know had gradual continued improvement over time.

You know I think you know our most recent.

Based on New York, and California, they're doing better today.

Just to go on in the first week of reopening so I think we're seeing sort of at the same.

The maturity curve kind of.

Reality on our and our performance on a gradual recovery.

It said you know the.

These the stores have we we have stores in states that have been opened a long time that are over indexing.

And they were kind of at Florida in particular so.

I wouldn't say that they have.

Dial back there we spent a lot of strength in.

On that top quartile on particular and as I said before you know the second quartile of the surpassing 2019 and the third quartile of just shy of 100% so.

<unk>.

So we feel really good about it.

End of where we sit.

Okay, and then on the revenue guidance for the second quarter.

And I'm, sorry, if I missed this but I know you talked about normal seasonality. It was kind of the the thought process as you look to give me in the second quarter guidance.

As you all mentioned.

<unk> been really quiet on the marketing front end, that's changing so I'm. Just wondering did you include in any kind of sales lift from the marketing that's starting now.

Yeah, we definitely did kind of out of service.

Many inputs and that was 1 of them that we did assume.

Lift from.

Okay, great. Thank you.

Thank you Sharon.

And we will go next to Brian Vaccaro Raymond James.

Hey, Thanks, and good evening I, just wanted to quickly circle back on the quarter.

To date sales, you mentioned and Scott I think the down 4% puts you somewhere in the low to mid $1.90 range on average weekly sales across the system I just wanted to hopefully level set that make sure. That's right and then any additional quantification on the pace of recovery you could provide on California or in New York since both of.

In recent months.

I'll take the first yeah sure Yeah, you're correct on on the first 1 and then.

Brian King.

To give you some color on New York, and California, Yeah.

Brian.

You know, we talked a little bit about the.

New York last time around.

The real direct we've just dumping the if I remember right but.

Both of those markets got out of the gate stronger than really any stake in terms of kind of the initial weeks in at.

And the argue that actually makes a lot of sense right they've been closed for so long and a lot of the.

I think I've got the earlier states still of lot of Covid fear so they got out of the gate stronger.

Terms of that index that we've been quoting.

The New York, a bit better than California at this point I think we had at in or are we I think we've said this but our art in New York stores of essentially back to.

I'm kind of of our overall system average at this point. So that's good news right. There that's the sort of if you look at our -4 they're kind of right at the hunt.

California is trailing that's lagging.

That's been it started off out of the gate of little slower and it's recovering.

It's better than the first weeks of reopening that is a state that's still subject to restrictions on New York, It's opened up.

On restricted there, California still has a lot of attrition and I would argue on the next you know what I'm talking about the what are the factors.

The Covid fear I think there's a fair amount of that would be 1 of the states that I would.

Probably point to the I think there's still some consumer and the fear.

Here in California around Covid, that's been locked down a long time, they've been pretty aggressive.

As the states. So you know, but look I think that's the opportunity I think were going on.

Like people are people they want to get back the.

Their life and social of socializing, I think California will be back at it.

The recovered of at the slower.

But we're going to get there.

It makes sense and I guess thinking about on historical seasonality during the summer how important is the end of the school season on.

The difference.

On the country, but how important of the drivers that for your business moving into July and August the relative to the month of May and I suppose June as well, though it's a little bit more mixed on that front would you expect that to be an incremental driver of sales I guess moving from here is at the school year ends around the country.

For us around the world.

Yes, sure. So somebody you were talking about so in may of.

Yeah, we do yeah.

Typically you know under index. The average you know at about 89% of our average weekly sales.

And then you know as as we get into.

You know the August time frame.

The Whereabout EBIT you know we're about you know at our our overall average weekly sales so.

You know in July as the June and July are happier for as you know June at we see the ramp up in July.

It's 1 of our highest months you know it's in the kind of the.

The top 3.

As a as we look at interest normal cadence at least Oh, the average weekly sales and seasonality.

Alright, that's very helpful on on the Labor front, if I can just squeeze 1 more in on the labor front can you help us level set where current staffing levels are compared to pre.

COVID-19 levels or maybe how many employees do you see yourself as needing to hire to be able to catch up to the stronger demand you've seen.

Yeah.

That's kind of at really will vary pretty dramatically by mark at.

Yeah, I don't know if all of the stat here, Brian right now I.

Pre COVID-19, we had a team.

From wrong here was around 14000 hourly if and I want to say were in the 10000 something range right now yeah. We yeah, we've actually done a little better over the last couple of weeks were just short of of 12000.

Yes, he just short of 12000 people.

I think we are catching up.

I'll have a little bit more more to go.

We're not operating at full volume yet and so we're.

We're getting there, but there's still some of ways to go there.

Okay, that's great and commodity inflation net of topics on everybody's radar as it seems these days.

So I know, it's not a big driver of your cost structure.

Normally any and obviously today as well, but what level of inflation do you expect the moving through the rest of the 'twenty, 1 and I'll leave at there. Thank you.

Yeah, Yeah, Yeah first off here you are correct beside of as big of an issue for US you know thankfully.

But you know as we kind of look at.

You know some to keep proteins on down the list you know of chicken beef and dairy.

<unk> probably seen the the biggest you know inflation.

Chicken at the top not so it's not a surprise.

Yes, we feel like as we get towards the end of the year end from the balance of the irrationally.

Our estimate at about a 6% to 8% you know.

Increase in due course.

What we're seeing right now at least.

And we do have any follow up question from Brian I'll come on at Stifel.

Hi.

Hey, guys.

I just wanted to make sure.

To clarify a question or a response to a question earlier Scott did you say that the advertising. That's planned is the list of the potential sales lift from that is reflected in the guidance.

It is yes.

So I'm curious with the quarter to.

<unk> got the quarter to date comp down roughly 4% in the midpoint of the guidance below that quarter to date trend what what am I missing why why are you expecting some sort of underlying softening.

No. That's a good question and you know as we kind of look where we are you know we've talked about you know the.

The really.

The big increase that we're seeing in per cap, especially on the amusement side.

I mean, we see that moderating.

And maybe a question of when that moderates, but you know we we have built some of that in there and you know with also the.

The pent up demand that we're seeing you know we're assuming that the.

It would be some moderation of that as well.

Hum.

But you know there's no perfect science to understand when exactly that will happen, but that's our that is built into our assumptions as we look at the second quarter.

Very helpful. Thank you.

Okay.

Okay.

And do we have time to take the additional question.

No I think we're at I think we've overshot the spiral that I appreciate everybody's the attach.

Attention on I'm, sorry of her running over here of about 10 minutes, but I think we're probably at.

Call it.

I'll turn the call back of the presenters.

For any final comments.

Okay.

Well look the folks that we really appreciate you guys see on joining the call today.

You and your families.

Great and active summer get out there just to 1 of our stores.

Very soon because we're often virtually every area of the candidate to come out and see us and have a great night.

Thank you very much.

And so this concludes today's call. Thank you for your participation you may now disconnect.

Okay.

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Yes.

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