Q4 2023 Bowlero Corp Earnings Call

Participants

Robert Lavan; CFO; Bowlero Corp.

Thomas F. Shannon; Chairman & CEO; Bowlero Corp.

Daniel Joseph Moore; MD of Research; CJS Securities, Inc.

Eric Christian Wold; Senior Equity Analyst; B. Riley Securities, Inc., Research Division

Eric Owen Handler; MD; ROTH MKM Partners, LLC, Research Division

Garrett Greenblatt

Ian Alton Zaffino; MD & Senior Analyst; Oppenheimer & Co. Inc., Research Division

Jason Ross Tilchen; Analyst; Canaccord Genuity Corp., Research Division

Jeremy Scott Hamblin; Senior Research Analyst; Craig-Hallum Capital Group LLC, Research Division

Matthew Robert Boss; MD & Senior Analyst; JPMorgan Chase & Co, Research Division

Michael A. Kupinski; Director of Research and Senior Media & Entertainment Analyst; NOBLE Capital Markets, Inc., Research Division

Steven Moyer Wieczynski; MD of Equity Research and Gaming & Leisure Research Analyst; Stifel, Nicolaus & Company, Incorporated, Research Division

Presentation

Operator

Greetings, and welcome to the Bowlero Corp’s Fourth Quarter and Full Year 2023 Conference Call. It is now my pleasure to hand the call over to Bobby Lavan of Bowlero. Please go ahead.

Robert Lavan

Good morning to everyone on this call. It’s Bobby Lavan, Bowlero Chief Financial Officer. Welcome to our conference call to discuss our fourth quarter 2023 earnings. This morning, we issued a press release announcing our financial results for the period ending July 2, 2023. A copy of the press release is available in the Investor Relations section of our website at ir.bowlerocorp.com. Joining me on the call today are Tom Shannon, our Founder, Chief Executive and President, and Jeff Gliner, Bowlero’s Chief Operating Officer.
I would like to remind you that during today's conference call, we may make certain forward-looking statements about the company's performance. Such forward-looking statements are not guarantees of future performance, and therefore, one should not place undue reliance on them. Forward-looking statements are also subject to inherent risks and uncertainties that could cause actual results to differ materially from those expressed. For additional information concerning factors that could cause actual results to differ from those discussed in our forward-looking statements, you should refer to the cautionary statements contained in our press release as well as the risk factors contained in the company's filings with the SEC.
Bowlero Corporation undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances that occur after today's call. Also during today's call, the company may discuss certain non-GAAP financial measures as defined by SEC Regulation G. The GAAP financial measures are the most directly comparable to each non-GAAP financial measure discussed and the reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found on the company's website.
I will now turn the call over to Tom.

Thomas F. Shannon

Good morning and thank you for joining us today. I'm Thomas Shannon, Founder, CEO and president of Bowlero Corp. Bowlero started with one bowling center in New York City in 1997. This past year we crossed $1 billion of revenue for the first time, a milestone for the company.
With the acquisition of Lucky Strike in September, we will have approximately 350 bowling centers and add an iconic brand to our portfolio. With the Lucky Strike acquisition, we will add a center in Hawaii to our portfolio, which will be the 36 states in which we operate. Our path to growth has never been clearer. We continue to redefine family and location-based entertainment across the country. Bowlero's combination of open bowling events and league play make us not only the premier global bowling company, but also a leader in the entertainment industry.
We continue to identify attractive locations for new builds and we have seven leases currently signed, and four of those already under construction in Marquee Markets for new Bowlero locations. Our newest center in the Westfield Valley Fair Mall in San Jose, California open this past weekend. And at the end of August, we acquired the co-located Mavrix and Octane Properties in the -- in a premier location in Scottsdale, Arizona for $33.5 million. We have three more acquisitions expected to close in the next month, including Lucky's Strike, totaling more than $130 million of purchase price and adding approximately $100 million of annualized revenues.
Two of the acquisitions come with real estate augmenting our asset portfolio and potential sale leaseback funding sources. Our fiscal year same-store sales comp was plus 12.7% year-over-year, plus 12.7%. As mentioned in the Q&A portion of the last earnings call, we saw a slowdown in the fourth quarter of fiscal year ‘23 with same-store sales for that quarter negative 2.7%. Nevertheless, total revenue for the quarter increased 2.4% year-over-year. We view ourselves as perpetual optimizers of the business and we reacted swiftly to early signs of a softening retail consumer to innovate on our offerings.
The high incremental margins in our business make it a priority for us to encourage guests to bowl, for example, a third game or stay longer in our centers buying food or playing in our arcade. The past few years of high post-COVID demand made most of our center associates order takers and service providers with no requirement to sell. To address this, in June, we launched a bundled offering called the Special, which allows guests to prepay the third game at a discounted price and receive a complimentary $5 arcade card to encourage ancillary spending. We are seeing a 60% plus take rate with this offering over hundreds of thousands of transactions and continue to AB test new combinations.
Over the past three weeks, we rolled out a pizza and pitcher special that is nearing a million dollars in sales in a very short period of time. These programs are providing consumers extra value while improving ticket size. Early results show average number of games bold is up 5%. We added these specials and pulled back on deeply discounted promotional nights. However, over the past few months, we have realized we pulled back too hard on midweek and late-night promotions. The cult following on all you can bowl night strike $2 Tuesdays was greater than expected. So, we've seen results Monday, Tuesday, and late Friday be off double digits in the slow days of summer and are reinstating those programs almost immediately.
I'm confident experimentation will result in happier customers who become more loyal customers and who will return more often. Consumer discretionary spend may be dropping, but consumers still want to go out and we provide better value to more expensive alternatives. The brightest star in our business over the past few years has been events. Event sales were up 43% in fiscal year ‘23 over fiscal year ‘22, up 43% year over year, and up 53% in fiscal year ‘23 over fiscal year ‘19.
In fiscal year ‘23, we booked $218 million of bowling events, and there is still room to go with a growing team of more than 200 sales associates. Right now, I'm in Las Vegas with our event sales team gearing up for a robust holiday season. We're having our national sales conference here. Last year, in the week prior to Christmas, we booked more than $10 million of event sales in a single week. In a world where companies are cutting costs, we provide solutions for businesses to invest in bringing their people together in a very affordable way. Our event business was up 7% year over year in the fourth quarter and has accelerated recently from that level. We believe there are significant upside in this category.
Bowlero is getting more analytical and insightful every day. We have established a flywheel in our business that will enable us to compound top-line growth over the long term fueled by self-funded investment. Our high free cash flow generation offers us a sustainable source of capital that we use to reinvest in our business at highly attractive return levels, including acquisitions, existing center conversions, and building new centers. With a focus on enhancing the customer experience, our centers will continue to grow at the unit level, resulting in additional cash flow and ultimately more momentum in the flywheel. Given this dynamic, we have made the deliberate decision to double down on investment in our business in fiscal year 2024, positioning us for strong growth in fiscal year 2025 and beyond.
I would now like to turn the call over to Bobby Lavan to review our financial results for the quarter and year and offer financial guidance for the upcoming fiscal year. Bobby?

Robert Lavan

Thank you, Tom. Happy to be here. In the fourth quarter, we generated total revenue of $239.4 million and adjusted EBITDA of $64.5 million, reflecting a 26.9% EBITDA margin. Last year, we reported $267.7 million of revenue and adjusted EBITDA of $82.4 million in the fourth quarter of fiscal 2022. Fourth quarter last year, out of period service revenue in the 53rd week in related calendar shifts totaled 29.7 million.
Excluding these impacts, total bowling center revenue was plus 2.4% year over year. Service revenue, a pass-through to employees that we were required to book as revenue was $21.0 million in FY ’23. You should expect that to be low few millions in FY ‘24. Additionally, in the quarter we took $2 million of revenue charges that flowed to the bottom line for out of period adjustment.
On a fiscal year basis, revenue was $1.06 billion, and adjusted EBITDA reached $354 million at a 33.5% margin. Same-store revenue grew 12.8% reported by record seasonally significant second and third quarters, relative to the prior year total revenue grew $147 million or 16.1%. At the center level, in the most recent quarter, we saw growth in events, and leagues and tournaments offset by a decline in walk-in retail.
In the fourth quarter, we also raised center-level wages to invest in our people to raise the bar of talent and retain our associates is proving effective, and better talent means better consumer experiences and enhanced sales culture environment. This cost us $2 million to $3 million of incremental wages in the quarter will be a $10 million headwind at centers and FY ‘24.
We'll offset these with cost saves at corporate and removing some post-COVID excesses at the centers. In general, we continue to generate industry-leading margins and unmatched free cash flow conversion at 85%. For the fiscal year we generated $196 million of cash flow available for reinvestment and growth as maintenance CapEx is elevated from COVID deferrals. The company finished the quarter with robust liquidity underpinned by over $195 million in cash on the balance sheet and roughly $225 million of undrawn capacity on our revolver.
We continued to evaluate lower-cost funding sources, including looking at our unencumbered real estate, our unique model of cash flow, and a 7% to 8% cost of capital versus a long runway of 20% plus returns underpins the quality of our story and long-term trajectory of the business. Looking ahead in terms of fiscal year 2024, we expect total revenue to be up 10% to 15%, excluding the $21 million service fee, which equates to $1.14 billion to $1.19 billion of revenue.
Same-store revenue growth will be flattish as we come through, plus 32% comp from FY ‘19 and plus 12.8% from FY ‘22.
We expect same-store performance to improve over the course of the year with the 1Q, ‘24 comp tracking down 5% and in the quarter total rev -- reported revenue flat year over year as we reactivate the non-peak time promotions that Tom mentioned. Note debt promotions are very important to the summer month, so less material to our second quarter, third quarter, but it did impact late July and August more than we expected, and we are addressing it. We expect adjusted EBITDA margin to be 32% to 34% in FY ‘24.
We have a Multi-Pronged reinvestment strategy with a long runway of opportunities to deploy capital, all of which have strong track records of producing 20% plus unlevered returns. In the next year, we anticipate allocating at least $160 million to M&A in addition to $40 million for new builds and more than $75 million for conversions. For those newer to the story conversion is a multi-phase project that transforms a center to an upscale experiential location.
We are also evaluating leaning into the Lucky Strike brand more to come. Since our third quarter ‘23 earnings call on May 16th, we have repurchased $127 million of shares retiring approximately 11 million shares. We reduced fully diluted share count by 9% over the past year. In continued support of this reinvestment strategy on September 6th, 2023, the company's Board of Directors authorized an increase in our share buyback $200 million.
We continue to evaluate driving shareholder returns through capital returns, particularly at these share price levels. In closing, we have several exciting initiatives underway and are continuing to evolve and innovate. Nevertheless, we continue to believe in our fundamental offering and A, B, C, or acquisition, new build, and conversion strategy as part of our operating ethos. As Tom highlighted, we remain enthusiastic about our long-term growth trajectory.
Thank you for your time and we look forward to seeing you on the road in coming months. We'll now open it up to Q&A. Operator.

Question and Answer Session

Operator

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions).
Our first question comes from the line of Matthew Boss with JPMorgan.

Matthew Robert Boss

So Tom, maybe could you speak to the progression of demand and traffic trends since April? Maybe elaborate on what you've seen across group events segment relative to walk in retail. And then just as we think about your FY '24 comp outlook, what have you baked in for conversions relative to pricing as well as traffic improvement as the year progresses?

Thomas F. Shannon

Matt, thanks for the question. Let me turn this over to Bobby because he's able to give a more detailed answer.

Robert Lavan

Hey, Matt. So, from in the one -- in 4Q April was weak, but traffic picked back up in June, July started strong and as we kind of got into the doldrums of summer, the pullback on promotional activity actually hit our traffic. Sort of -- I would say low mid-single digits. If you think about promotions, the heavy promotion stuff, all you can like that happens during the week is kind of 10% to 15% of our revenue, but it's higher in the summer month, and we just turn those off. And so those businesses are down significantly.
We've turned them back on this week. So, we do expect sort of the comp in the first quarter to be about minus 5%, which is down retail up events. But we expect that to flatten out in the second quarter, third quarter, and then be up in the fourth quarter. From a pricing perspective, I think the special is proving to take price. It's effectively a silent price increase. It's a bundle, it delivers the consumer value. So, we are getting some price, but ultimately, the days of mid to high single digit price increases are behind us. So, it's our focus right now is flattening out traffic and having a strong event quarter in the second and third quarter.

Matthew Robert Boss

And then maybe just as a follow-up, Bobby. So you characterized in the release, FY '24 as an investment year. So is there a way to elaborate on investments that you think are needed across the P&L, if there's anything in labor staffing relative to food and beverage costs. And then maybe the other side of it is obviously the acquisitions. So the $160 million guidance for acquisition, if you could just parse out expectations for new center growth and your visibility to the unit pipeline over the next 12 months?

Robert Lavan

Yes, so from an investment year, it's a capital investment year. We did put $10 million into employees, but we'll offset that with cost save. So, this is really more on the balance sheet side. In FY ‘23, we $53 million on conversions, we're going to spend 75 plus in FY ‘24. From an M&A perspective, we have a line of sight of at least $160 million of M&A, we could do more. So that's sort of the focus for us from an investment perspective. We're really focused on driving profitability in the incremental margin. So, it's not expense investment, it's capital investments.

Operator

Our next question comes from the line of Steven Wieczynski with Stifel.

Steven Moyer Wieczynski

So Tom, in the past, you guys have talked about that low to mid-single-digit same-store sales growth. Analog seems pretty fair in a normalized operating environment. And look, you kind of laid that out on Slide 5 in your deck this morning. But as you guys think about reinvesting so aggressively in the business this year and as we kind of move forward, how would you think about that same metric, that same-store sales growth metric as we look more out into '25 and beyond?

Thomas F. Shannon

Well look, as we said, the reinvestment is really investment in growth, right? So, the centers are operating very well and we've taken incremental labor spend. That was really the point of that was to get a better candidate work and to retain our best talent. And it's worked tremendously. We've really seen a slow-down in turnover and so mission accomplished there with regard to sort of the forward outlook. Let me turn it over to Bobby to go into greater detail there.

Thomas F. Shannon

Look, as we said, the reinvestment is really investment in growth, right? So the centers are operating very well. And we've taken incremental labor spend that was really pointed out was to get a better candidate for and to retain our best talent, and it's worked tremendously, we've really seen a slowdown in turnover and so mission accomplished there. With regard to the forward outlook, let me turn it over to Bobby to go into greater detail there.

Robert Lavan

Yes. If you think about our comps, it's really 2 parts. It's price, and then it's a step-up that happens from conversions. So if we spend $75 million on conversions, we should get $25-plus million that goes to top line and close heavily to the bottom line, and that drives the comp. The special, which we've shown works is really focusing on ARPU or picture whatever metric you want to use, which is we just want to get more money from the consumer, right? And so the better selling we do the better kitchens, the more attachment we're going to get to bowling. So ultimately, long term, we are at a mid-single-digit comp, right? But it's not necessarily based on volume. It's really price attachment and increasing the consumer experience.

Steven Moyer Wieczynski

And then Tom or Bobby or both of you guys. Both of you guys in your prepared remarks made some type of comment towards your excess land and how you potentially plan to use that excess land moving forward. So to us, that sounds like you're probably a good bit, a long way down that road in terms of doing something a little bit more robust with your real estate holdings. So just wondering what you guys can say, maybe a little bit more around those comments.

Robert Lavan

Yes, we have 43 unencumbered properties, and we're actually bringing 2 more in with recent announced acquisitions. So we're always going to look at opportunities to look for lower cost funding sources. Like right now, we can hit the debt market for 8.5%. But if we can get something below that, we will.

Operator

Our next question comes from the line of Garrett Greenblatt with Jefferies.

Garrett Greenblatt

I was wondering if you could just follow up on the acquisition stuff. How are you thinking about the health of the acquisition pipeline in the current environment given interest rates and all that?

Thomas F. Shannon

Well, I'd say it's never been better. This month, we closed Mavrix and Octane, which is a marquee property, the best property in Phoenix by far. That co-located business was doing over $20 million of revenue when we bought it. We're acquiring Lucky Strike, playing closing date is 1 week from today, another $80 million. And then we've announced 2 in Michigan that should close over the next month or 2. And then there's a dozen in the pipeline, well, let's say, 15 to 20 more in the pipeline behind that, that could close this fiscal year. As I mentioned, 7 leases signed 4 of those under construction now, probably another 6 to 7 in various stages of negotiations. So it's extremely healthy and robust pipeline, one of the best we've ever seen.

Garrett Greenblatt

And I wonder if you could just give me a color on the engagement you're seeing with Bowlero --Sorry, MoneyBowl.

Thomas F. Shannon

I mean MoneyBowl is in 64 centers. We're pushing on it still in those centers. We are implementing a customer acquisition tool in MoneyBowl. And so we want to see, can we go effectively send $15, $20 to bring people into the center. And so I think that's sort of the next evolution. At the same time, we are updating our website. So in early '24, we'll have a new website that integrates them with MoneyBowl, and that's going to be very exciting to generate incremental demand from the consumer.

Operator

Our next question comes from the line of Ian Zaffino with Oppenheimer.

Ian Alton Zaffino

Bobby, can you maybe give us a bridge on EBITDA, how you're getting from ‘23 to ‘24 guidance. I don't know if you could do the best you can as far as bucketing it between what you think you might get from M&A or conversions or organic? And then I know there's some investments you want to make. So that'd be an offset. But I don't need to have exact numbers, but by just directionally can help us out.

Robert Lavan

So I mean, this year, we did $355 million of EBITDA, right? And next year, we're (inaudible) revenue growth and that flows through at a 30%, 35% margin. I mean it's a little bit more complicated than that, like M&A, you've got Lucky Strike, you've got Mavrix, Octane. Both of those are going to be a big part of it. And ultimately, the flow-through game is pretty straightforward for us. From an organic basis, we are all saying that we think our centers, the core centers will be flat, but then we'll have significant growth from M&A and the acquired centers that we acquired throughout the year of FY '23.

Ian Alton Zaffino

And then if I could squeeze in maybe one more. On the M&A, how are we thinking about M&A going forward? Is it going to be pure Bowling? Or are you going to be looking for other opportunities? Maybe give us a holistic description of like what you guys are doing. And if I could sneak in just Bobby cash interest, what should we expect for next year?

Thomas F. Shannon

I'll take the M&A part. I mean, there are probably 500 to 700 viable acquisition candidates in the U.S. that build opportunities on the Bowling front. So we don't have any current plans to expand beyond Bowling. People made a big deal out of the Octane acquisition in Scottsdale. Octane and Mavrix were co-located. It was one business in 2 buildings with a shared courtyard. So it wasn't like we were moving (inaudible) something new. Now it may be that we learn things in the Octane acquisition that make us bullish on some product line extensions, but Bowling is a great business. And the weakness that we've seen lately in our comp number came in the slowest part of the year and was largely driven by experimentation.

And frankly, I have no regrets that we did that because the things that we learned are going to power the company for a very long time to come. The incremental spend from the special is very powerful. We now have food specials. We're actually selling our products for the first time in the company sister on a retail basis. As mentioned, the event business continues to be strong. That is we think there might be as much as $100 million of upside in that business over the next couple of years, and we're going to add on order of $100 million to $110 million of revenue just from the stuff that's announced and closing in very short order. So the Bowling business is a very extremely profitable business that has proven to be much more resilient than our peers, certainly over the last couple of months, and we feel very bullish. So we looked at every other business in the entertainment space. We've never found one that we like from a margin perspective, from a return perspective, from a stability perspective. And so that's a long way of saying we remain extremely bullish on Bowling with no plans to really move beyond it.

Robert Lavan

And interest expense is $140 million.

Operator

Our next question comes from line of Jason Tilchan with Canaccord Genuity. Please proceed with your question.

Jason Ross Tilchen

You talked a lot about a lot of the capital investments planned for fiscal '24. I'm just curious as you contemplate stimulating demand and getting traffic back in, how you view the marketing budget this year and also how some of the recent digital strategies have impacted either demand or uptake of some of the additional bundled offerings over the past few months?

Robert Lavan

Yes. We've always viewed our business as very captive walk in. We are investing in the website, and we are evaluating changing some centers names to Lucky Strike. So, we'll probably invest a little bit more in marketing. We've budgeted that. But I don't think you're going to see us go outright, double triple marketing, like we've never seen the return. The website change is probably the only place that we could potentially ramp up dollars if customer acquisition is very profitable.

Jason Ross Tilchen

Is there any color you can share on how demand trends and traffic trends varied in different regions across the country, both during Q4 and also in the period since then?

Robert Lavan

Yes. I would say probably the weakest was in the Midwest, the Midwest, if you look at it is probably our highest promotional requirement region. The Northeast was pretty strong. And so Northeast responds less to promotions, central responds more to promotions. We did see a little bit of weakness from the heat in the past few months. So heat is okay for a business, too much heat means people don't go outside. But really, the weakness in our business was mostly in central where there is just a heavy promotional environment.

Operator

Our next question comes from the line of Daniel Moore with CJS Securities.

Daniel Joseph Moore

Most might have been answered, but maybe a little bit more detail on cadence as we think about fiscal '24 Q1 guide, very helpful. In terms of same-store sales, would you expect them to remain down slightly through Q2 and then perhaps an improvement as we look at the back half of the year, getting to kind of flattish? And similarly, EBITDA margins on a year-over-year basis. Any color on cadence there would be helpful.

Robert Lavan

So it's minus 5 for the first quarter should be flattish in the second and third quarter and then up in the fourth quarter. As it relates to EBITDA margins, like the cadence from last year is the one I would follow. So it's obviously, we have high incrementals. And so we'll have a much higher EBITDA margins in the second and third quarter than we do in the first and the fourth quarter. And we've given a range of 32% to 34%, and we feel good about that for now and going forward.

Operator

Our next question comes from the line of Eric Wold with B. Riley.

Eric Christian Wold

So you mentioned a couple of times about your rebranding of some centers as Lucky Strike and leading into that brand. I guess, first off, remind us what the plans are for the existing, what you start to see and you acquired in terms of how much needs to change either structurally operationally within those. And then what makes that determination on whether a new build or existing center would be switched over to Lucky Strike and then what needs to happen if you do make that change in terms of within the center? Or is it really more of a name and branding around it.

Robert Lavan

The Lucky Strike portfolio is kind of unique in that they have, most of their centers are in really marquee locations. So L.A. Live, Hollywood, there in Bellevue, Washington, which is important tech center right side of Seattle, Downtown Denver, Downtown Chicago, Downtown Boston, Downtown Philly. So it's really irreplaceable set of assets. Now Lucky Strike has sort of been financially challenged for a long time and they haven't had the reinvesting capital. So a lot of the properties are very tired. So we've got a significant capital budget that we've allocated to refreshing the properties, but they're in no way meaningfully impaired. They're just tired looking. So that's an easy fix. We've hired Nielsen to do a brand study and they came back and said that the Lucky Strike brand was meaningfully more powerful than Bowlero? And that was sort of our intuitive sense as well.
And so we're going to open a couple of new centers under the Lucky Strike brand and see how that goes. It's hard to tell, right? When you have a new center, did it do better as a Lucky Strike than it would have as a Bowlero. But I think no, we'll at least have a strong intuitive sense after that, whether or not we got a lift. And if so, then I wouldn't rule out eventually rebranding all of the Bowlero’s Lucky Strike, certainly all the new builds would come online in those Lucky Strikes. I'm not predicting it, but I'm saying we're certainly open to it. I think everyone we've spoken to says things that the Lucky Strike brand is better, that's our sense as well. And so we're happy to roll that out.

Eric Christian Wold

So on the Q3 call, you noted some of the (inaudible) ordering kiosks, and maybe it's not going as well, given the need for kind of training and staffing or kind of training staff around them. Any updates on how that's progressing and if you've seen any improvements in engagement or check size with the centers you have focused there?

Robert Lavan

Well, I think that's part and parcel of what we've been talking about with creating the selling culture. So unrelated to kiosks specifically, but the fact that the people were not adequately using the kiosks because they weren't being taught and sold from the staff basically was the problem that we're addressing. And so we started out with the special, and it's important for listeners to understand just how successful special has been. So, we started out with a very simple proposition, which was Bowl a third game because all of our data suggested that people Bowled 1.8, 1.9 games per visit. So prepay for a third game, and we'll sell you for $5 and we'll give you a $5 arcade code.
And over time, we've raised that $5 special in certain centers and even $7 because demand was so hot. Over hundreds and hundreds of thousands of transactions that take rate on that has been north of 60%. On some days, it's even higher than 70%. So we've gone from a culture where there was no selling going on to a culture where there is selling and tremendously successful result. We broadened that to an arcade upsell called the Power Up and then 3 weeks ago, the pizza and picture special, which is actually 2 specials, a pizza with one topping and a picture of soda or a pizza with one topping in a picture of beer. And then in short order, there will be an upsell on the beer from domestic to imported premium. In the first 3 weeks from a standing start, we did over $1 million on pizza and picture in the slowest part of the year. So we've really gone from the employees would literally process the request and they came in order takers. So now we have a fairly strong cultural basis on which we're building with a selling culture. And I think that long term, and will have a very meaningful impact on the business.

Operator

Our next question comes from the line of Jeremy Hamblin with Craig-Hallum.

Jeremy Scott Hamblin

Congrats on a strong year last year. I wanted to see if I could just start by getting some clarification in what's included in the acquisition for your guidance for the year. So you noted that you're closing deals that would have annualized run rate, $100 million or a little bit higher than that. But you haven't closed the biggest acquisition thus far. You're nearly done with the first quarter. So my baseline assumption is, even if you included that, you couldn't contribute more than $75 million or $80 million to the full year guidance. But Bobby, I wanted to just see if you could clarify within that $1.4 billion to $1.19 billion. How much of that is the legacy organic business versus the acquired business?

Robert Lavan

Yes. Our guidance is the organic business is flat, all of its M&A plus some conversions kind of towards the end of the year. Lucky closes next week. Mavrix closed at the end of August, those are kind of the 2 biggest acquisitions. So that's really the fuel and the fire of the guidance.

Jeremy Scott Hamblin

So not a specific range and what portion of Lucky Strike being included on that for the full year?

Robert Lavan

Yes. I mean it's going to be 3 quarters of Lucky Strike. And remember, Lucky Strike like our events business is very heavy in the second and third quarter.

Jeremy Scott Hamblin

In terms of how well are Lucky Strike centers performing? So if you guys have kind of fallen into comps running in this down low-single digit to down mid-single-digit range. How are the Lucky Strike centers performing in this environment?

Robert Lavan

Yeah, I mean it’s the most (inaudible).

Jeremy Scott Hamblin

And then the last thing is, you've reflected, Tom, you've talked about how, if you have a softer consumer environment, I know you've had a lot of questions about what happens if we go on to recess and how does the business perform? And you've noted that you can take out maybe as much as 30% out of your SG&A. In the June quarter, you saw gross margins down pretty significantly. And my assumption is you're going to see some of that same degradation here in the September quarter. But how are you thinking about kind of the split of your performance in this 32% to 34% EBITDA margin guide, how much of that, Bobby, is the gross margin degradation versus SG&A savings and then included within that guidance. I just wanted to see if you could give us some color on what your transactional advisory costs are expected for the year.

Robert Lavan

Yes. So from a cost perspective, we are implementing significant cost saves. So there are kind of 2 primary buckets, what I would call our excesses at the centers. So the centers had post-COVID excess security. That was a huge one. They have sort of we're overspending on what I would call consultants. And so this is money we can bring in at the centers. So these are the people who install AV, these are the people who do maintenance, like costs have just been ramped up, and so we're going to pull those back. At the same time, there's a lot of opportunities at corporate, whether it's insurance, whether it's IT, there's a lot of different opportunities to support, but we are going to reinvest on that. So when we talked that on the call, is we have raised wages at the centers, about $10 million on an annualized basis. That will pay for itself in spades. It just takes a few quarters to flow through. So at the end of the day, I think sequentially, you're going to see SG&A flat, but you'll see gross margin go up with revenues.

Operator

Our next question comes from the line of Eric Handler with ROTH MKM.

Eric Owen Handler

I had a little technical hitch earlier. So hopefully, I'm not asking something that was already asked. But what is the total CapEx outlook for this year? And then in terms of the amount of money you're spending on upgrades, how many centers does that suggest? And how many centers are actually left in your portfolio to upgrade?

Robert Lavan

So there is about 100 to 150 centers to still upgrade. Like we make conscious decisions on whether or not to upgrade (inaudible) houses. You won't see it put like pin strains into recap sort of, but there's still a long runway, about $300 million today. As we do M&A, that does replenish that pipeline. From a total CapEx perspective, maintenance CapEx, which is still elevated to be about $40 million, conversions are $75 million. And those are kind of the 2 primary buckets of CapEx or a little bit of corporate CapEx, it's about $10 million. But that's how you should look at sort of our total investment in '24.

Operator

Our next question comes from the line of Michael Kupinski with Noble Capital Markets.

Michael A. Kupinski

Just a quick one here. Obviously, there's been a little bit of resurgence in COVID across the country. And I was just wondering in terms of your current traffic patterns, are they reflective of that increase? Or is it more just the macroeconomic trends that you're seeing that are affecting the traffic patterns?

Robert Lavan

Yes. We haven't seen any COVID, I will say that the traffic, when we look at it on a day-to-day basis, the traffic for full-time retail is flat versus the traffic on promotional activity is down double digits. So we actually think we're getting the beneficiary of people pulling back a little bit. Like obviously, everybody taking vacation in August has impacted everyone. But ultimately, we're feeling actually pretty good about the consumer, particularly with the green shoots we have and more leads have come back, more events are happening. It really is we pulled back on promotions too hard.

Thomas F. Shannon

Let me add, there was an interesting takeover we haven't mentioned, and that is that we effectively raised price with the bundle. We raised prices in events. We raised prices on leagues going into the fall. And all of those businesses increased where we eliminated some of the promotions, the very deeply discounted nights, we saw a big reduction. And so the takeaway from that is that we have a very wide range of customers in terms of price sensitivity. So tremendous insight that some people are really interested in a very cheap all-you-can Bowl on an off night of the week, a Tuesday night, for example, but that the retail, the prime time walk-in customer is much less price sensitive than perhaps we realized. And so these insights are very, very powerful, and we took them. We took the cost of learning them in our slowest part of the year. So if you strip out the impact of the elimination of all of the promotions, we're effectively flat through the summer, which, again, given the general weakness that people see in the consumer, certainly our peers and, it seems like everyone we know traveled that the results were actually pretty respectable. And we're a hell a lot smarter now than we were 3 months ago when we embarked on this process. So a really interesting insight, where we had the most promotionally focused consumers in the Midwest, we were down by far the most. And where we have the least on the coast, we weren't really down at all. And so we have learned an awful lot about consumer behavior in the last couple of months. I'll say that.

Operator

Thank you. We have no further questions at this time. I would now like to turn the floor back over to management for closing comments.

Robert Lavan

Thanks, everyone. We look forward to talking to you soon.

Operator

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.