Q2 2021 Dave & Buster's Entertainment Inc Earnings Call

Ladies and gentlemen, you currently standing by for the Dave <unk> Buster's Entertainment incorporated second quarter 2021 earnings results call. At this time, we are still admitting additional participants and plan to be underway. Shortly we do appreciate your patience and please remain online.

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Good afternoon.

Everyone welcome to the Dave and Busters Entertainment incorporated second quarter 2021 earnings results Conference call. Today's call is being hosted by Brian Jenkins Chief Executive Officer. He will be joined by the call by Scott Bowman, Chief Financial Officer, and Margo Manning Chief operating officer, I'd like to remind everyone that this call is being recorded.

Got it 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 Christie and thank you all for joining us today.

Addition to Brian and Mark and we also have Brandon Coleman, our chief marketing officer, joining us today.

After our prepared comments, we'll be happy to take your questions. This call is being recorded on behalf of Dave <unk> Buster's Entertainment incorporated and is copyrighted before we begin our discussion on the company's results I'd like to call your attention to the fact that in our remarks and our responses to questions certain items may be discussed which are not entirely based on historical facts.

Neither of these items should be considered forward looking statements relating to future events within the meaning of the private Securities Litigation Reform Act of 1095.

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

Information on the various risk factors and uncertainties have been published in our filings with the SEC, which are available on our website.

In addition, our remarks today will include references to financial measures that are not defined under generally accepted accounting principles invest.

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.

Thanks, Scott and thank you everyone for joining us this afternoon.

Over the past 18 months, our team has successfully navigated COVID-19 challenges.

At the same time accelerated our strategic initiatives.

We have had a single go to emerge as a stronger more competitive company.

I am pleased to report today that we have accomplished that goal our brand is back and we are stronger than ever.

Second quarter results, we announced earlier today, our compelling proof that this team's extraordinary efforts have succeeded.

Achieved record setting financial performance, reaching new high watermarks.

Truly all financial metrics.

Second quarter revenue of $378 million was an all time quarterly high for us surpassing 2019 by $33 million. Our success was fueled by the return to positive comp sales of three 6% over Q2 2019 levels.

Even more impressive was our strong EBITDA performance, we blew by the 100 million Mark for the first time in any quarter in our history, achieving $114 million and EBITDA of $36 million or 44% from Q2 of 2019.

Our operations team did an outstanding job, leveraging new order and pay technologies.

Wrapping our service model and optimizing costs to deliver our first ever EBITDA margin to crest, 30%.

Exceeding the 2019 Q2 compare flat over 700 basis points.

During the quarter, we were also able to bring our two stores in Canada back online marketing and the complete reopening of our store base and important milestone for our company.

Last year when liquidity was our imperative we successfully rebuilt our strong capital structure bolstered by equity infusion, a new bond offering.

The amended credit facility.

Now have a significant flexibility to run our business and invest in our future.

With the record setting operating cash flow generated in Q2, we reduced our net debt outstanding by nearly $90 million, providing us with over $440 million in available available liquidity at the end of the quarter as further evidence of our confidence in the business, We recently announced.

We intend to redeem 10% or $55 million of our outstanding bonds using available cash.

We have come a very long way in just over a year.

These strong results were made possible by our unwavering focus over the past year and a half to accelerate initiatives to make us a stronger company.

Our second quarter, we introduced an entirely new menu.

<unk>, our appeal and is easier for our stores to execute.

Over the summer, we made a meaningful investment in our entertainment offering with the introduction of seven New games. We also took steps to widen our entertainment plans by offering programmed events in select markets. While early on we are confident these efforts will broaden our reach and increased visit frequency.

We're accelerating our investment in our entertainment.

We leased from traditional order and pay platforms with the system wide rollout of our new mobile web enabled platform mobile web adoption has been extremely strong significantly exceeding our expectations the.

40 of our guests now use the technology and our success on this front has been crucial in facilitating a more efficient operation, while also allowing us to deliver a great D&B experience.

To solidify our team in a challenging labor environment, we provided temporary pay incentives to our team members this quarter.

Exceeded in attracting the talent necessary to deliver an outstanding quarter.

Under the leadership of CMO, Brandon Coleman, who you will hear from in a moment, we on boarded new creative and media buying agencies and revamped our brand message and media strategy.

These changes culminated with a concentrated media investment this summer to relaunch our brand with a new voice featuring our new menu and gains. This was part of our new marketing strategy shift spending from the shoulder periods to increase focus on windows that would have the most impact in those changes.

Meaningful comp sales were up 7% and the final eight weeks of Q2, a marked improvement from the first five weeks of the quarter that was down 4% and despite a few headwinds we are encouraged that our comp sales for the first five weeks of Q3, including Labor day are still up versus 2019 reflect.

The strength and the resiliency of our brands.

With dramatic improvement in our financial foundation in the first half of this year. We've also begun to rebuild our new store pipeline.

With the recent opening of our store in Bellevue, Washington, and one store in Brooklyn, New York plan for Q4.

To open four stores in 2021, we plan to open between six to eight stores next year, representing a meaningful acceleration compared to 2021.

As we have discussed in the past right sizing the store format for the market and sales potential is a priority for us.

We are extremely pleased with the performance of our most recent new 18, K small format stores that opened at the beginning of this year.

Gainesville, Florida stores, the first freestanding small format that we have built from the ground up generating nearly $6 million in revenue during the first half of 2020 alone.

Absolutely crushing our expectations for revenue EBITDA and return on investment we are encouraged about the efficiency throughput of this new format and the potential to leverage it in new markets.

This quarter's performance proves that our brand is resilient and resonate with guests of all ages, we are thrilled with our record setting performance and excited about continuing that momentum in the back half of the year.

At this time I'm going to ask Scott to cover our second quarter results in a little bit more detail I'll share some insights on our expectations for the remainder of the year after that our CFO, Margo Manning and CMO, Brandon Coleman will cover in more detail the operating and.

And marketing innovations.

We've implemented this summer as well as well we have planned for the second half Scott.

Thanks, Brian our second quarter results reflect a significant acceleration in sales and profitability for Dave and Busters, which generated impressive cash flow for the business. We ended the quarter with all 142 stores opened including one new store that opened during the quarter with all of our stores open and we are seeing strong demand for our brand, including rapid sales growth.

And our California stores as they ramped up during the quarter.

With record sales and strong execution of our margin enhancing initiatives, we were able to produce record profitability for the quarter.

Total revenues of $378 million, an all time record and included a three 6% increase in comparable store sales compared with the second quarter of 2019.

Average weekly sales were 208000 per week for the quarter versus 2006.

Versus 206000.

For the second quarter of 2019.

In terms of category sales amusements were up 17% comp while the F&B business was down 17% compared with 2019.

Amusement the increase was driven mostly by an increase in per cap spending for.

For F&B the decline was mainly due to a decline in units sold partially offset by a slight increase in per cap spending.

<unk> units versus 2019 improved significantly for both F&B and amusement as compared with the first quarter.

Comparable store sales showed acceleration during the quarter compared to 2019 with comps of negative 4% through the first five weeks of the quarter and plus 7% for the last eight weeks at a quarter.

<unk> improvement was driven by improved traffic trends, which was partially driven by more effective marketing and the ramping up of our California stores.

Regarding sales mix amusement and other were 67% of total sales for the quarter versus 60% in the second quarter of 2019, driven by fewer discounts and a shift to higher denomination power cards EBITDA.

EBITDA for the quarter was an all time record of $114 million or 32% of sales and represented a 729 basis point improvement compared with the same period in 2019.

The improved performance was driven by a higher amusement mixed leverage on labor costs due to lower staffing levels and our lean operating model at $3 million reduction in Preopening cost and operating expense leverage from higher sales.

Adjusted EBITDA for the quarter was $119 million or 31, 6% of sales representing a 660 basis point improvement compared with the same periods in 2019.

Net income increased 63% from 2019% to $53 million in the quarter, resulting in a 19% increase in EPS to $1 seven per diluted share.

These improved operating results produced a $121 million in.

And operating cash flow during the quarter and we ended the quarter with $108 million in cash and zero outstanding on our revolving credit facility.

Total long term debt stood at $550 million at the end of the quarter consisting of our senior secured notes maturing in 2025.

As part of our capital allocation strategy and to capitalize on our current cash position. We recently made the decision to redeem $55 million of our senior secured notes using a redemption option in our indenture agreement.

Background, we may redeem up at 10% of the notes at a redemption price of 103% of the principal amount during the first 12 months after issue.

We may redeem another 10% of the notes during the second 12 months after issuance, which begins at the end of October.

Executing the 10% redemption, we will pay a $8.0 million premium over the principal amount to redeem the notes, but we'll save $6.0 million in annualized interest.

Additionally, at the end of the quarter, we had approximately $41 million of negotiated rent deferrals on the balance sheet we.

We expect to payback of approximately $14 million of deferred rent throughout the remainder of fiscal 2021.

$22 million in fiscal 2022, and the remainder thereafter.

Regarding tax refunds due to current IRS backlogs, we now expect a delay in receiving approximately $60 million and refunds from cares Act legislation and the carry back of 2020 losses.

We now expect to receive these refunds in mid to late 2022.

Turning to capital spending we opened one new store in the second quarter and the desk. The total of $39 million in capital additions net of tenant allowances.

Subsequent to the end of the quarter, we opened one additional store at the end of August.

In the fourth quarter, we plan to open one additional new store and relocate an existing store to finish the year with four new openings and one relocation, which will bring us to 144 stores by the end of the fiscal year.

Overall, we are very pleased with our second quarter results and the sound financial footing and we have established going into the back half of the year.

Turning to our outlook I would like to offer some insights for the third quarter of fiscal 2021.

As a housekeeping note I would like to provide some details on reporting and guidance going forward.

Regarding our profitability metrics, we will place more emphasis on adjusted EBITDA versus EBITDA going forward.

This system will be responsive to investors, who prefer this metric is a better represents the true normalized earnings power of the business.

Regarding guidance.

As our business continues to normalize we will be reverting back to annual guidance starting in 2022 updates provided quarterly.

Regarding recent trends comp sales for the first five weeks, including Labor day had been over 1% compared to 2019.

The broad based strength despite negative impacts due to changes in school calendars unfavorable weather and COVID-19 resurgence in our southeast markets.

Just on these current trends, we expect total third quarter comparable store sales to be approximately in line with the quarter to date trends compared with the third quarter in 2019.

We expect third quarter EBITDA to be significantly higher than third quarter 2019, but with some slight moderation compared with a percentage increase in the second quarter.

This reflects margin improvement that exceed our 200 basis points target, which is driven by improvements in gross margin payroll and benefits and preopening expenses.

Keep in mind that the level of these benefits may change over time as we continue to work towards more normalized operations.

From a capex perspective, we are updating our guidance and plan to invest $95 million to $100 million in 2021, which compares to prior guidance of $65 million to $70 million.

Based on our current financial position, we are taking the opportunity to invest an additional $14 million in our stores.

Celebrate the rollout of new technology upgrade our Wi Fi capability and upgrade equipment in select stores.

These upgrades will improve the guest experience and will accelerate our technology deployment to further drive strong returns.

Additionally, we are taking the opportunity to accelerate development on several of our pipeline stores to help maximize their impact in 2022.

In summary, our team has done an.

Outstanding job during the first half slowly reopening all of our stores, while implementing a number of impactful initiatives that have enhanced profitability and cash flow.

We're well positioned for the second half and are positioning the company for further growth in 2022, while closely managing the ongoing effects of the pandemic.

That I will turn it over to Mark.

Thank you Scott.

The appreciation for our team's tremendous second quarter efforts, we believe the new menu.

And service model initiatives that we've been implementing over the past nine months and the concentrated focus that we have put against streamline in store execution is helping to drive our strong sales and enhanced profitability.

Let's start by talking about our menu initiatives.

<unk> simplifies operational execution and provides our guests with quality ingredients and enhance flavor profiles.

Deployment and now.

Half of our top 10 best.

Are either new or refreshed options.

Additionally, we conducted an extensive menu pricing test that gave us confidence to take a price increase effective late August to offset inflation pressure.

So on our guest visitation rate will continue to watch the menu performance to gain a full understanding of its impact on sales and the guest experience over a longer timeframe.

On the beverage front, we can.

Completed our beverage analysis and are now using the research to evolve our beverage offering the good news here is that the research data indicates our beverage menu is attractive to our GAAP and simply made some targeted refinance to expand its appeal and rates are.

Our goal is to launch a freshly curated beverage menu in Q4 to improve relevance and attachment in order to drive beverage sale.

Next I wanted to talk about our entertainment initiatives, which is a milestone of the most important work we are doing.

In Q2, we launched several tests to determine the entertainment appeal of programming.

We successfully hosted themed trivia night with big huge rank. These events are easy to execute and there are often easy to market to our guest.

And Ken to rapidly expand these cap to more markets. This fall based on its early success.

Additionally, we continue to refine our lights music test. These are highly engaging event held during the week and they bring guests into our stores to have signed during what is typically considered off peak times.

This fall, we will introduce additional entertainment format, incorporating music film content and live interaction and of course, it would not be fall without talking about half. The fall. This year will be amplifying with A&P stockpile experience from an entertainment standpoint will lean heavily into our customers.

Video content with new proprietary video element to help Rguest pregame before kickoff with an added integration to D&B live radio format.

Market will introduce lighthouse to amplify select softball guidance. These performers will engage guests before during and after the football game with activities and prized giveaways.

Intention is to use this program model throughout the year and expand it further in 2022 as we continue to look for ways to get the get more reasons to come visit D&B.

Now, let's turn to staffing the labor market continues to be challenging in Q2, we made a temporary investment in hiring programs and retention incentives and we gained significant staffing traction which has bolstered our staffing levels for what was a very busy summer.

Q3 will bring a seasonal drop that combined with our new technology tools will put.

Pressure on Cafe, this will give us time to lift our sights to the holiday season.

Our intention is to selectively extend asquith said the staffing fragrance.

Need to ensure that we have the team in place to bring in the critical Q4 holiday season.

Our brand wide rollout at the New service model has been completed and it provides a more integrated in store guest experience.

Food service model combines catalysts and our mobile web platform to enable a completely contactless order pay experience from full deployment to date over 50% of Rguest chat are utilizing this mobile channel. This.

This technology will help transform our business model and it allows us to operate more efficiently.

Can you give us a strong adoption by our guest we are continuing our test of a completely self serve mobile web enabled guest experience in our stores.

On our prior earnings call, Brian mentioned that we implemented a new guest feedback tool medallion.

Comprehensive tool that gathers in store and social feedback to identify trends should improve the offering and the execution.

Given the challenging environment, we're really pleased with the summer results and we will use these guest insights to continuously improve our in store experience.

I want to recognize and thank our entire team for the exceptional performance. This quarter. During my store visits I say team members are working hard to deliver a fun experience to the guests and here at our home office. This team has worked to provide the critical support needed to set our stores that for a great summer.

<unk> by our record setting results this quarter and we'd look to carry this momentum forward and with that I'll turn the call over to you Brandon. Thank you Margo today that has some exciting news to share as we have completed our first campaign under our new marketing strategy.

To begin today by reviewing the campaign performance and then look ahead to our future marketing plans and our new loyalty program.

The summer campaign, which ran from mid June to early July employ a new window based media approach the concentrate marketing dollars into periods, where Dave <unk> Buster's is most relevant.

This change in strategy and the right focus and depth in our marketing communications and prioritizes incremental vegetation over general brand awareness.

We also dramatically change our media mix during the summer campaign by shifting the majority of our spend to digital media.

It has enabled us to be more surgical with our audience targeting while maintaining high levels of video impressions as a percentage of total media.

For this campaign, we also leverage first party and third party data to improve the conversion rates across media channels.

This more intelligent approach to audience targeting with <unk>.

Onshore aided by fresh creative highlighting an intentional shift in our brand communications from discount driven value messages to our emotional brand connections that drive visitation.

The new creative captures the shared learning experience and a simple yet powerful visual and auditory brand expression, Jamie Jamie <unk>.

The strengthening and consumer demand combined with this strategic marketing pivot <unk>.

Delivering a substantial improvement in comp sales trend during the commercial window.

We were also able to quantify learnings for the back half of 2021 for Q3 and Q4. This year, we will focus on two media windows.

Our fall football Winter brand campaign.

For Bell media will support selected stores, which over index for sports watching audiences.

Reaching about half our system. This media spend will be lower than the summer campaign.

In addition to the media push we will also be bolstering the brand sports credibility and driving pause amongst sports fans through partnership with party mitek, whose audience and cyclical approach to sports style match, well with Dave and Buster's brand.

In November we will launch a new winter campaign that followed the framework of the summer campaign with a return to higher media spend and more diverse array of activations across channels.

Maybe you're targeting for this campaign will again leverage our consumer data to improve conversion.

This campaign after hedging data collection component to drive enrollment and our new loyalty program.

Right after several iterations and consumer testing, we have development engaging <unk> rewards program.

<unk> rewards program will elevate our loyal guests from transactional rebates to aspirational status achievement.

The program, which launches in early Q4 and certify these gas for games play similar to airline programs that incentivize from Oslo.

The new Dnb rewards will also introduce a functionality challenges where guests can complete unique combination of activities.

Digital and physical reward.

Finally, this program Lee inextricably linked to the Dnb app, adding incremental functionality.

They're improving the relevance for our growing user base.

From loyalty to media insights, our marketing team is always learning and optimizing to meet the changing consumer landscape.

We're focused on increasing our non-GAAP database to drive more profitable sales increased personalization.

Ultimately connect more deeply with our guests.

Constant informed evolution will enable greater foster Sal maneuver competitors and build brand relevance for years to come.

Now I'll hand, the call back to Brian for his closing remarks.

Thanks Brandon.

We are extremely gratified to see how enthusiastically guests around the country have returned to Dave and Busters, we feel more confident than ever about the unique position. We've built over the past 40 years and the innovations that we've implemented over the past 18 months to enhance the guest experience in every.

Facet of our business.

We're focused on fully implementing the remaining elements of our new beverage menu service model programming and marketing initiatives and to fully staff our stores.

Our record setting second quarter performance proves the resilience of our brand and the tenacity of our team I want to thank them again for their dedication and their passion and for everything they do every day to help our guests turn an ordinary day into an extraordinary entertainment experience.

Now, we'd like to open the call to your questions operator.

Thank you, ladies and gentlemen, if you'd like to ask a question. Please press star followed by the number one on your telephone keypad, if youre, calling from a speaker phone. Please make sure. Your mute function is off to ensure your signal can reach our equipment. We ask that you. Please limit yourself to one question and one follow up question again star one to ask a question.

We will go first to Andy Barish from Jefferies. Your line is open.

Hey, guys, it's amazing amazing results over the summer congrats.

Hi, Andy.

On.

I think you're expecting a starting to maybe hope for a little bit more ship to <unk>.

Food and beverage sales with the rollout of new menu.

That.

Really didn't noticeably happened during the quarter or is there anything.

You don't kind of to add on that node or is it just an effort that's going to take a little bit of time given the.

Given customer patterns.

Really great question, Andy will look we were extremely pleased with the.

Traffic moves that we had in both amusement and and food for the quarter.

By the end of the quarter when we hit the month of July our our amusement traffic was back in positive territory, we're up close to 2% as measured by power cards in our our food traffic as measured by obviously.

Food counts was down a little bit down about 3% by the end of the quarter, So sequential improvement of significance versus the first quarter. So.

Look we were extremely pleased with getting the business back into positive comp territory for the first time in quite some time.

And what both the traffic moves we've seen and as Scott mentioned in his prepared remarks, we continue to see significant per cap lift and the amusement piece of the business. So we're getting.

Very high buying as we're not discounting.

So I don't think its surprising that we're seeing amusements outperform here.

<unk>.

Got it understood and then a quick follow up as long as we have Brendan on the line on.

On rewards as you look out to 'twenty two.

This is rod.

Frequency more so of existing customers their spend and then.

Any any explicit costs to roll out the program or.

Or discounting commentary.

When customers are at points, where they can redeem rewards and things like that.

Absolutely Great question Ernie and thank you.

First I'll address the intention of the program is intended to drive both frequency and spend.

The points for games played incentivizing guests to do what a loss would you or David Busters, which is play games. So that can be achieved a fair more visitation or increased spend per visit.

There are three.

Rebels to this program.

Progressive is from player to icon legend, and there will be significant awards in each step of that progression. There also be micro rewards in between based on behaviors and activities. These rewards range from digital badges to free appetizers to furnace play chips.

But we're seeing about an 8% comp.

John on that as a percentage of total loyalty spend.

Got it thank you very much.

Thank you.

And next we'll go to Jake Bartlett from true Securities. Your line is open.

Great. Thanks for taking the question and also congrats on these amazing returned to above 2019 levels. So quickly.

No. My question was just on I was just trying to understand some of the drivers. It seems like there is volatility in the same store sales trends.

The deceleration over the last five weeks, it's great to see it's still positive, but could you point to the major factors there whether it's the <unk>.

They're focused on.

The peak periods for your advertising. So maybe you pulled back a lot obviously thats after the window, but anything there that's driving the deceleration or you know I think the big question on one question on investors' minds is the Delta impact and how you are kind of gauging, whether that's really the primary driver to the deceleration here and I have a follow up.

Yes.

Good question nice to hear from you Jake.

Well first of all as I said.

My remarks Super Super encouraged by.

The strong recovery, where we saw over the course of the second quarter again really nice to get back into.

Into positive comp territory, obviously, we discussed on some of the prior calls that we were looking towards this summer window.

Really the appropriate time to get back out with immediate voice with new games.

In combination with the new menu and go big and really concentrate some investments during that time and I think.

That was obviously very impactful and we saw a pretty nice trajectory change in the back part of Q2, So Super Super pleased with the results of a lot hard work on the part of our team and our operators did a just a phenomenal job.

No.

Entertaining our guests this summer so super happy about that as we as we hit this August.

Harvest period and enter into the into our.

Third quarter look.

I'm I'm Super pleased to be nose up as a brand being positive comps.

Right now as we as we enter the third quarter, we're encouraged by that as well, yes. It is a slight some decline from our Q2 results, but there have been a number of factors.

There are some pockets of some of the markets where school calendars have shifted.

There are some headwinds in some places around some of the hurricane activity that.

Popped up all the way through the country really with Ida and Henry.

And then look we do have some markets, where COVID-19 cases have research and we have seen some regional softening from that but this.

This is in my view is a bump in the road.

Last year was a crater I would call. It this year is a bump in <unk>.

We're going to we're going to get through this and we're fine with.

We're super encouraged with where this business sits right now.

Great. Thanks, and then the follow up is just really on on your entertainment.

Content and watch them for a while now we've been kind of waiting to see what youre going to do with with sports betting any sort of.

Arrangements, there and I noticed your press release.

Related to bar stools.

This morning, so our barstool sports.

Any update there maybe some of the puts and takes.

Maybe kind of why why we haven't seen the agreement yet or maybe even.

The agreement is all.

The table at this point and any update would be helpful.

Hello, Margaret I'll talk a little bit about the broader entertainment, we're actively or aggressively pursuing programming.

I'll get to the sports betting and recycled Super pleased with the lineup of new games, we launched this summer.

Okay.

I mean, a significant investment seven titles.

So we've had in two years, so it's nice to put some new content out for our guests.

We have.

Some exciting titles planned for the balance of the year or specifically.

We plan to launch.

Transformers VR title here.

We hit our fourth quarter window.

And you know that is one of the highest grossing film franchises all franchises of all time, so excited about that.

We mentioned last quarter, we delayed the top fund VR title that we have under development and that is going to get delayed again.

Because of the film getting pushed into next summer so.

But were ready with that title, but we will be pushing that.

Margo talk a little bit about programming, but as it relates to your question around sports betting we continue to explore.

We're expanding partnership.

We do believe that will represent a meaningful enhancement to our appeal as a sports watching destination. We're working on that we're in active discussions and when we finalize that agreement we will have more to share and I don't really have anything else to share on that right now yes.

Yeah, So I'll hit that a little bit more color about programming. We had mentioned that we hired a new programming later.

Really excited about the impact that he has been able to make in a short period of time, we have posted backhaul different.

Themed trade Eni and have gotten some great traction and actually are looking to not only expand the number of stores that we're doing but we're also going to be tough. Thank you aimed at training a replay the Henry you had such great demand for that so you'll hear us talk more about that as we refine that format and as we start taking attached to the broader.

Alright with that product.

Throughout the brand to just get a sense.

<unk>.

Is that right.

I'd now are frequently and content that we wanted to deploy that rely format of entertainment has also been something that we are refining and Brian correspond.

Actually when we talk about fall, so Paul and trying to incorporate some video elements on line.

It's important for us that really.

Identify the scale as a style that is right for us.

To take the desktop market in 'twenty, two and a lot of different ways really premier PV Premier.

If you take that into lots of different content. What is most exciting about us so you'll be hearing about our remaining from us. Please sir.

And we really get more in depth with not only hardware executing but what kind of content is the most appealing to our guest.

Thanks, a lot.

Okay.

Next we'll go to Jeff Farmer from Gordon Haskett. Your line is open.

Thank you.

As did touch on menu pricing, but can you quantify any pricing actions you've taken across.

Food and beverage segments or amusement segment side of the business.

Over the summer and again any insight into what you might be planning to do with the potential August price increases.

Yes, so we talked about the menu price increase mid single digits.

Haven't done anything proactively on the amusement side, but keep in mind that in fact, we do have an effective price increase on the amusement side similar to what we talked about last time.

And that's due to really very little discounting in the amusement area with the demand that we've seen lately.

<unk>, we haven't really been doing much of any discounting.

But we're still seeing the demand there and so when you think about the per cap increase that we're seeing and inducements business close to 30%.

Yes, we measure about 40% of that estimate about 40% is really due to that.

Not doing the discounting that we've done in the past so.

That has been the favorability for us without taking.

Specific pricing actions.

Pulling back on the discounting so that's that is helping us to food pricing, we thought you know.

It was was warranted its been about two years since we've done any kind of pricing activity.

On food and beverage.

So that will help offset some of the other inflationary pressures that we see in the business.

Okay, and then did you clarify the mid single digit food increase that we're talking about is really just a recent event here.

This is <unk>, yes, that's right yeah just to clarify.

That's helpful and then similar topic.

You had also mentioned or touched on at least wage rate inflation. So question is.

What are you currently seen in the wage rate inflation environment, and I'm, not referring to overtime and things like that but just pure wage rate inflation for hourly employees.

And in terms of what you saw I would say in the second quarter and then your expectation for the third quarter.

Our things and get much more challenging or are we seeing things get about as challenging as theyre going to get and then it sort of moderates as we get into 2022, any any sort of insight there would be helpful.

Sure as we look at wage inflation. So we've seen that pressure just like many many others in the industry and our.

Our estimation is that we're seeing.

Kind of a mid single digit increase annualized versus 2019.

And we do expect that to continue for the back half of the year.

Think that there'll be a continuing high demand for labor and the labor market will continue to be tight.

Yes, that's kind of our view.

Couple of things to think about in the back half.

That could change things, one way or the other with unemployment benefits going away here very soon.

And then potentially more people returning to work that could be a dynamic that alters that estimate, but we do feel like there'll be you know.

A similar level of inflation for the remainder of the year.

Thank you.

Yeah, Jeff.

The good thing here is that despite some of the wage pressure.

The efforts of our operators in terms of.

Implementing and rolling out some of the new technology around <unk>.

Mobile web and our POS handhelds has really helped us in a big way Marvel and her team has done a phenomenal job working through that that's helped mitigate some of that wage pressure that were seeing.

Just in terms of how efficient the teams have become.

With that with that tool and we're still.

Early days early days right Margo.

Sure.

Thank you again.

Yes.

And next we'll go to Brian <unk> from Deutsche Bank. Your line is open.

Hey, Thank you.

Look at your EBITDA margins for the first half of this year they appear to be up about 450 basis points versus the first half of 2019, which was obviously very strong Scott I'm wondering if there might be any updates to your prior EBITDA margin expansion framework.

Even if theres some moderation from here to the EBITDA margin expansion in a normalized year because it ultimately ultimately proves to be greater than 200 basis points on a sustainable basis.

Sure Doug.

That kind of.

You will go back to your original commitment was 200 basis points of improvement once we hit 2019.

And that was.

An analysis that was done on the 2019 cost structure.

And there's other things that can help or hurt that number going forward with inflationary pressures.

Benefits with improved gross margins and lower Preopening expenses and things like that but the 200 basis points is really meant to.

In comparison of the 2019 cost structure and the things that we were proactively doing that with reduced cost in that area. So.

As you know, we've done better than that and so as we.

Look forward and we see the improvement in our gross margin, mainly due to a higher amusement mix.

That alone, we think will be somewhat sustainable for the near term and so with that kind of in our forecast. We do feel confident that we can achieve at least that 200 basis points.

2019.

As we think about the <unk>.

Recent second quarter, we did overachieve, you know quite a bit and just to give you a little bit of color on that.

As you think about a positive comp.

By itself helped our margins with a strong flow through that we're seeing on those comp store sales.

Gross margin was well above last year as well most of that was due to the amusement mix.

Preopening expenses were down quite a bit.

That's just the nature of building fewer stores.

So those those things the gross margin in Preopening, especially are two examples that what really contemplated in the 200 basis points of improvement.

Because we were more focused on kind of the structural side of the business and so we excluded those two items.

Knowing that those could ebb and flow and so as it turns out they they've been favorable for us and so we've enjoyed that that favorability and then on the payroll and benefits side.

We've seen a little more favorability there as well.

Brian mentioned the rollout of technology.

That certainly has helped us, but we're still trying to staff up to so we're making progress there, but still trying to increase staffing and so as we do that and get closer to.

Kind of more normalized staffing than that but that benefit will come down a little bit, but all that being said I mean, we're really.

I'm excited about what we're seeing in the favorability that we're seeing and now more than ever focused on maintaining.

That commitment that we made and as we grow sales.

<unk> will surely benefit us on the bottom line.

Okay, great. Thank you for all that that's great color and then on the development pipeline.

<unk> to see Youre expecting six to eight new units in 2022.

My question is as you look out to 2023 and beyond.

What is the right pace of unit growth for this business is six to eight units is going to be the sweet spot for you or are there scenarios, where maybe you could open more than that just any color on your current thinking.

Well as I mentioned in my remarks.

The.

Financial Foundation really just in a really really strong place right. Now you know we're floating a lot of cash for.

No more profitable than we've ever been in our history. We're just we're just in a really good place right now.

So.

<unk> team, which as you know.

In my view the best in this business is very active right now.

Working our pipeline obviously in 2020, we.

Stood down a lot and protected.

The moat, if you will but right now we are aggressively pursuing.

Units and.

As I mentioned.

We have eight on a six to eight on target for next for next year feel very good about.

Our ability to hit those numbers, we actually had nine.

Properties under lease right now that are in our pipeline and then we've got nine additional locations.

And it's growing as we look towards our 2023 product line and beyond so we're actively working 4047 right now.

Don't really want to step out into a pick a number right. This moment.

We do still have work to do.

Two.

Build our leadership bench strength.

The Ah <unk>.

2020 was tough on our business tough on our fleet.

So we have some work to do to rebuild the bench strength.

To be able to accelerate.

Into 2023, but.

We're very optimistic about where we stand and we're active in that but I don't I don't want to pick an exact number today.

Thank you.

Thank you.

And next we'll go to Nicole Miller from Piper Sandler Your line is open.

Thank you for the update and congrats on the performance.

Two questions. The first is.

It's helpful to get the currently the land could you translate that KOB three Q to date and two VR share the 2021 versus 2020 comparison, so we get.

Really I'm thinking about the seasonality right.

Also the same for EBITDA can you revisit.

What you said about EBITDA could write that down quite quickly enough.

Ross will translate that to dollars as well thank you.

So, which part would you like to repeat on EBITDA.

Oh, I'm, sorry, I missed you said.

<unk> should be higher, but then you said something else I, just didnt catch that I'm sorry.

In relation to <unk>.

Oh, okay. So.

Yes, we think about.

Third quarter EBITDA, we think it will significantly.

The 2019 numbers.

From a dollar standpoint.

What I was trying to convey was if you look at.

B E.

<unk> B that we saw in Q2.

We don't think it will be.

As much as Q2 from a percentage standpoint versus 2019, but.

Based on current trends, we see Q3, EBITDA significantly beating Q.

Q3 of 2019.

Okay, and then the one 3% comp.

What is that on an <unk> basis or.

Just underline that I know.

Got you know crazy percentage number what does it translate to to 2021 versus 2020.

Either way well.

So the GAAP.

Yeah. So.

I mean, we've kind of been in the practice.

You mean, the comp versus 2019 and so.

Yeah, I think I think if you think about the comp.

Should should really kind of mirrored that that comp and our EV in 2019 was its about $25.0 billion or so per store.

So it must be.

Yeah, just slightly higher than that given the one 3% comp.

Okay.

Mark.

And then.

On the pipeline was helpful to hear about like going forward.

And maybe we could just talk about the reacceleration to get to the going forward. So for 2022 six.

Six to eight it sounds like those almost be otherwise or sign leases, but I just wanted to confirm and are these new stores to the pipeline or where they their prior and kind of where are they they opening and sorry last part.

I remember international back in the day and I thought maybe I should just pick your brain on that because youre in a really good position and maybe that's something that comes back as an opportunity. So thanks again for taking my questions.

You bet.

Nice to hear from you.

Look.

The eight six to eight that we are talking about for 'twenty.

2022 were all in our pre Covid pipeline. So this is a reactivation.

Of stores that we had on top.

Previously.

David.

They.

Lean.

Lean a little bit more towards existing markets for us.

A couple of your couple of California, and this mix so.

And then we've got a couple.

Of the small format stores as well in new markets. So there's a couple two or so of the sort of 20000 lower.

I mentioned, we're really excited about that format, what it could mean.

<unk> for us.

For our total addressable market, we're reevaluating that right now in terms of how how do we think we can go given the strength of that box.

So, but yes, all eight of those are at the top end or were in our pipeline before as are the curse.

Additional nine that we are working many of those were in our pre COVID-19 pipeline as well.

Paul has done and so a lot of those were in the mix prior.

And as I mentioned, we're continuing to look.

But not only new properties that werent in that mix, but some additional sites that we had on our radar pre COVID-19. So very active now it's a lot better position to be in when dealing with.

Negotiations that we were in for most of 2020.

Our development team is laser focused now on building the pipeline back so very encouraged as it relates to international that is something that.

Pre COVID-19 that we deemphasize.

We thought to really focus.

Our attention on the core domestic opportunity in business.

But that is something that we are revisiting.

Revisiting right now and I don't have anything really to report on that but that is something that.

We are.

As I said, we are revisiting right now.

Thanks again I appreciate it.

Thank you Nicole.

And next we'll go to Andrew <unk> from BMO. Your line is open.

Alright, great. Thanks for taking my questions. A couple quick ones for me I'd love to hear a little bit more about.

What's your learning and maybe any surprises or anything thats been different with the rollout of the web platform.

Tablet that you have going on there I don't know.

If there's check implications or consumer behavior applications or you've mentioned deficiencies a couple of times, if theres margin implications. There just anything on that would be great to hear.

Hi, Margo.

So obviously in a difficult staffing environment one of the most powerful things about this is just that the ability to help offset staffing challenges.

And also it has really enabled us to thank you for the guest experience on what are the touch points that we want our teams are currently focused on.

As to Europe to your point, we are seeing some impact. It is early days I don't want to go on here.

The other details that we have.

We've been able to expand Farber section and we have been able to run it for hours and again when I talk with you about it being early days one of the things that we believe over time is as we get our guests more comfortable with it as we get our team more comfortable with it and ethylene Lorne.

The best way to refine us that it won't become just more powerful over time.

So we're very encouraged with the short time horizon, it's really too early too early to comment on exactly where we think it will end up.

But we will definitely share that with you as we continue that journey and I guess when you guys. Just a question on your surprise I have to tell you.

I was definitely surprised about the gas level of adoption.

So you know as you have over 50% of our GAAP.

On using that has that.

That's been a really positive surprise for us.

Okay, that's great to hear.

I wanted to ask also on marketing I know theres been a lot of changes in terms of the channels and the levels et cetera, I guess I'm just trying to frame up as I think about the margin profile going forward.

No.

Is this kind of does it end up being a larger than normal marketing year of normal marketing or are you still trying to dial in kind of what that's going to look like based on the learnings from this year any help on how the trajectory of that looks over time would be helpful as well.

Yeah, absolutely, we're still gaining learnings as we come through each marketing promotion, but right now for the full year, we anticipate spending to be slightly over.

$30 million versus $21 million last year, and a $45 million in 2019.

Due to our window based approach approximately about two thirds of that will be spend will be concentrated into Q2 and Q4.

A lot of that concentration comes from consolidating the media spend within a quarter not necessarily pulling from other quarters, but that.

Does that answer your question Andrew.

Yes, yes, that's exactly what I was looking for thank you.

Just one last quick one for me.

Just in terms of the capital allocation philosophy.

Yes, Dave and Busters is not going to be and I know youre not guidance, but if it's not going to be a 10% plus unit grower kind of going forward. Obviously the performance is very strong the cash flow is very strong as well I'm just curious how youre thinking about allocating that.

You know, whether it's a dividend or going back in that direction or returning cash to shareholders. It seems like.

Theres a lot of opportunity there. So just curious for your perspective. Thanks.

Sure Andrew So from a big picture standpoint, we do want to maintain our flexibility here.

In the near term our intent is to Delever the business over time.

And we'll balance that against the broader capital allocation strategy.

The key priority Creek priorities for us will be no new store openings. So we are starting to ramp up some there.

We've seen great returns on our stores, we have some revised more efficient formats that could help us.

So even even bigger returns, especially on the small store format. So.

I want to make sure that that is kind of at the top of the list, but we also want to invest in our core business.

We've done some good investments in our core business with our technology, but more recently, we're spending more dollars to upgrade our equipment.

The equipment to make it kind of a best in class for that watch customer.

And we want to make sure that our stores are in good shape.

And after that you know.

Returning cash to shareholders through share buybacks and dividends.

They'll have a lower priority at least in the near term.

And that May change over time.

But for right now we're most interested in growing the business and Delevering the balance sheet.

Great. Thank you very much for the perspective.

Thank you Andrew.

And next we'll go to Chris <unk> from Stifel. Your line is open.

Hi, Thanks, guys for taking the question I had a follow up question regarding the development.

It sounds like Youre, hoping to get back to like a 2019 development pace maybe within the next couple of two to three years given the type of growth you are talking about is that a is that a reasonable.

Assumption or am I hearing you right.

I don't I don't I don't think I'd stick to 23 number look.

2022 is what we're targeting on right now, which is a meaningful acceleration I wonder.

For this year.

We're pleased with that kind of pacing I think its what we can digest.

It's really all we can get done for 2022 I do think over time, we will be able to see some acceleration, but again I'm going to I'm going to stop short of picking exact numbers for 'twenty three 'twenty four right now, but we have some lifting to do with the leadership team and the bench strength to be able to.

Sure.

Open our stores.

Well I think <unk>.

Covid, we did better than anybody in this business and we.

We had a really really strong track record, we've got to build that muscle back a little bit here.

Yeah, I think we can work our way towards some acceleration I don't want to pick a number.

And Brian Brian before the pandemic I know the company was investing in our brand study to identify opportunities to improve the brand's relevance and compete better and I'm. Just wondering do you still believe there's a need to complete.

I don't want to say, a major but our remodel program within the system.

Okay. I think it's really important that you really invest obviously back into the core core business and whether that.

Look and feel investment.

And or content, whether that'd be games, whether that'd be broadening our entertainment lens through programming, we do Phil.

Need to be an innovative company where.

We're the leader in this space for a reason.

And we have a lot of folks that are.

Entering this space.

Many of them chasing are these are returns.

And so we need to continue to.

So yeah, I think it's really important and that will involve some investment in the core business and involve touching our stores with some kind of cadence I think it's actually really important.

My last one is and should we expect the capex spending to continue to rise from this $95 million to $100 million and 22.

Or should it stay at this level.

Yes, I mean, we're not really giving guidance yet on that but you know what I can say is that in.

All likelihood that they will increase.

Just.

For the.

The simple reason that we want to build more stores.

That will cause an increase and then what.

What Brian is saying as well yeah. So we've been spending.

Les you know on on store maintenance and things like that because of the.

They need during the time, so we're slowly ramping that back up and we will continue to do that next year.

Looking at refreshes and Remodels that is in that consideration set as we look at capital plans for next year.

Great. Thanks, guys.

Thank you.

Okay.

And next we'll go to Brian Vaccaro from Raymond James Your line is open.

Hi, Thanks, and good evening, just following up on seasonality and just to make sure. We're all on the same page I believe August as an average months historically, so maybe around 200 Grand that we're thinking about it if we're thinking about August of 19, Scott can you confirm that's accurate and then just also remind us how that monthly sales seasonality sort of move.

Through the rest of <unk>.

Sure.

What I would say Brian is as you get into August. The first couple of weeks are fairly normal and then it starts to drop off in the back half of August.

And then so.

Through the kind of like the back half of August and September and October is when we see our seasonal dip which is on average about 85% of COVID-19.

The average.

For the for the whole chain for the year in terms of average weekly sales.

Okay, great. So that up one three that you did quarter to date that quarter to date average weekly sales is in that ballpark of around 200000 man.

The.

So for the first.

The first five weeks of the third quarter.

The average weekly sales was was 187.

For those first five weeks.

Okay, great great and on the small store format I'm glad to hear Gainesville is off to such a strong start can you remind us what the expected cash investment is on that smaller prototype.

Yeah, So look for that for that type of Proto type Brian I mean, the average is at 18000 square foot store. So it's between six and 656 and a half million dollars.

Okay, Great and then just last one back to capital allocation and thinking about the balance sheet, what's the right level of debt for the business in your view in a post COVID-19 world and are there any targets on on net debt to EBITDA or adjusted leverage that you have in mind. Thank you.

Yeah. Good question. So we don't we don't have a hard leverage target yet.

You know for us we're.

We will need a little bit more time to establish kind of a new normal for cash flow and you know understand your capex needs that we need to grow the business.

And so as that picture becomes a little bit more clear.

And as we're also able to continue to delever the business with that.

We'll take that all into account, but first and foremost we want to make sure that we have the dollars available to invest back into the business.

That would be existing stores, new stores or other things.

But also the leftover cash.

To the extent there is some we would like to continue to delever the business for the foreseeable future.

So as things start to normalize a little bit more you know, we'll probably be able to talk more about our leverage target, but that's our general thoughts.

We're right now.

Alright, I appreciate that context. Thank you.

Sure.

And next we'll go to Sharon Zackfia from William Blair. Your line is open.

It's Matt Curtis on for Sharon. Thanks for taking my question just had a question on per card spend levels.

I'll just if I missed this during your comments, but have you seen any moderation in per card spend so far in the third quarter.

Really yes for power sorry, no. It's it continues to be very strong. So we haven't seen any meaningful dropbox.

Okay. Thanks, and then just a quick question on labor.

I understand it or at least it sounds like you feel.

<unk> basically on your staffing levels, but I'm wondering if you could tell us anything.

Think about what your staffing levels are like now versus <unk>.

2019.

Yes, so I can start off so staffing levels still are less than 2019.

There's still a little ways to go to kind of get ultimately, where we want to be but we're making progress and I think the other thing to keep in mind is.

The technology that we put in the store with our mobile order and pay functionality.

Functionality as well as our tablets is really helping and keep in mind that we just finished the rollout of that technology.

Towards the end of July.

So in some cases stores are kind of still revenue.

And getting efficient with that technology, but.

But we think that will surely help us continue as we continue to move forward. So still make some progress, but still little ways to go and we will.

Yeah.

Keep the updates coming as we move forward.

Okay got it and then last one for me.

Could you talk a little bit about the private party business and how that's been trending.

And then how are you thinking about that business.

Heading into the holiday season, given that this one is going to be relatively normalized compared to last year obviously.

Yeah really good question.

I guess first and foremost for.

As we report the numbers for the second quarter Super pleased with the recovery in our in our walk in business I mean, we were.

Double digits.

Walk in sales for the second quarter, so really strong recovery.

Our special events business is currently lag walk in so far.

While we did see.

We are seeing sequential improvement in bookings relative to 2019.

As we head towards our fourth quarter.

It's not in the same place today as they were walking and so.

If we think about kind of heading towards the fourth quarter, which is obviously a big quarter for special events for us.

Typically see bookings start to pick up in late September.

Big time in October into November for the all important December month, and so it's really.

In my view pretty hard to predict how corporate FC demand is going to play out right now.

We do feel like.

The booking window, maybe a little bit more delayed and actually maybe a little more compressed.

Than a typical year in the face of some of the Covid resurgence we are seeing it. So the good news is look we've got a lot of runway left here in front of us as we head towards again, a big fourth quarter typically for us and our team is working really hard to maximize their fee potential as we head towards that.

Go out and get that business and not just wait for it to come to us.

Okay. I appreciate you squeezing me in thanks.

You bet.

And we'll take our last question from Jon Tower Wells Fargo. Your line is open.

Great Awesome. Thanks for squeezing me in I appreciate it.

I was curious is that.

Clearly high.

Clearly.

Customers are using your business a little bit differently than say the same period in 2019, given the higher mix of amusement versus.

The food and beverage, but I was wondering if you could talk a little bit about how the customers are using you outside of that maybe its weekday versus weekend.

And even within the day are you seeing perhaps.

Perhaps an earlier start to the day at least maybe during the second quarter with more kids around and out of school and.

Are you what are you seeing with respect to your larger family visits are those still depressed versus say the individuals' coming in.

Versus 2019 levels.

A lot of questions in there.

I wouldn't I wouldn't say are mixed by day of week is materially different we look we definitely are our late night business is not as strong.

We have our constraints, so our Friday and Saturday nights are not as strong as they were.

Pre COVID-19 right now so.

So it's quite a remarkable really that were.

Putting up the kind of numbers we are with this.

Some constraints around the late late night so.

We're super pleased with the mix.

A business right now as we think about moving forward a lot of the initiatives that we're working on they're trying to drive utilization and frequency, particularly in some of these off peak days of week days in some of the things Margaret was talking about that we're doing from a programming perspective are laser focused on those windows to try to.

Drive.

Tuesday, or Thursday to higher higher place than we have historically clearly.

Wednesday's as a kind of a hero day a week during the week day for us it's.

Its discount driven it's really our only discount right now that we have out there.

So we're looking to really try to drive compelling reasons to visit over a broader spectrum of days than we have historically and that's why you see us focused on that.

A lot of capacity that goes on your underutilized and that's a that's a focus for us.

Got it.

On Friday, and Saturday nights are you still.

Constrained on your hours meeting into this fiscal third quarter.

And expanded the hours and saw obviously to get that far off the ball.

We don't necessarily have all of our stores.

They open.

They did but we have expanded those hours, whereas the third quarter in order to accommodate.

The programming associated with multiple.

Got it and then last one for me I know this has mentioned a few calls ago, but I am curious if theres any updates to be had on the virtual brand testing that you had done a couple of markets.

Oh I'm sorry.

Alright.

So we continue to offer our customers American kitchen, as well as data investors virtually and actually continue to be.

Delivering the same amount of sales that I think that probably first awkwardly, we're really excited about our range out.

First of all a kitchen and to really just.

Supply chain issues walked away from that as that stabilizes. We have started a plan to talk to rolling that out, but we wanted to make sure that we can take care of the demand that we have in our stores because we tend to get at.

Heightened focus during the fall football. So we wanted to make sure that we're stabilized there, but then we have an interest in taking waste out throughout the brand because that was the most encouraging out of Hollywood that virtual kitchens.

Awesome, Thanks for taking the questions.

Have a good now.

Thanks, Joe.

And we have no further questions I'll turn it back to you for closing remarks.

Yeah.

Well thank you.

Well look thank you for joining our call today, we wish you and your families are safe and active fall season.

And look forward to seeing you all at our D&B locations very soon have a great night votes.

And that does conclude our call for today. Thank you for your participation you may now disconnect.

Okay.

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