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Leo Holdings Corp. (NYSE:LHC)
Q3 2019 Earnings Call
Nov 7, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen. And welcome to the CEC Entertainment Inc Third Quarter 2019 Earnings Call. On the call today are Tom Leverton, Chief Executive Officer, and Jim Howell, Chief Financial Officer. After comments from both Mr. Leverton and Mr. Howell, we will open the call for your questions. [Operator Instructions]

Now I would like to turn the call over to Jim for opening remarks.

Jim Howell -- Chief Financial Officer

Thank you, Christina. And thank you all for joining us for CEC Entertainment Inc.'s third Quarter 2019 conference call. Before we begin our discussion this morning, I would like to call your attention to the fact that certain statements made during this call may constitute forward-looking statements within the meaning of federal securities laws. Forward-looking statements are based on management's expectations, beliefs, estimates and projections. These statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict.

Therefore, actual results may differ materially from what is implied in forward-looking statements due to a variety of factors. Additional information regarding these factors is contained in the company's annual report on Form 10-K for the year ended December 30, 2018 filed with the SEC in March. The company disclaims and does not undertake any obligation to update or revise any forward-looking statements.

In addition, our remarks will include references to certain non-GAAP financial measures such as adjusted EBITDA. The company believes adjusted EBITDA is a measure that provides useful information to investors relating to its operating performance and its capacity to incur and service debt and fund capital expenditures. Further, we believe that adjusted EBITDA is used by many investors, analysts, and rating agencies as a measure performance. By referencing adjusted EBITDA, we provide a basis for comparison of our business operations between current, past and future periods by excluding items that we do not believe are indicative of our core operating performance.

The non-GAAP financial measures discussed during this call should not be viewed as alternatives or substitutes for the company's reported GAAP results. A reconciliation of net income to adjusted EBITDA is found in our earnings release and Form 8-K filed with the SEC.

Now, I'd like to turn the call over to Paul.

Thomas Leverton -- Chief Executive Officer

Thanks, Jim. And thanks, everyone, for joining us this morning. With remodels, new limited time offers and our new entertainment products, 2019 continues to be an exciting year for CEC Entertainment. As of Q3 CEC Entertainment is showing 2.7% positive same-store sales year-to-date, with Q3 registering a negative 0.9% same-store sales, which is 1.3% positive on a two-year stack basis.

While we're disappointed to break the streak of five consecutive quarters of growth, we believe there is a fundamental strength in the business due to these initiatives. As you are aware, we do not give guidance, but we will share that P10, which is in Q4, has shown some solid strength to start off the quarter, posting a 2.5% positive same-store sales which is 4.2% positive on a two-year basis. Some of the strength in P10 was from Yom Kippur shifting from Q3 into P10, which brings some school holidays with it.

Driving those numbers, I'm pleased to share that our company hit another all-time high with our net promoter measurements at 92%. This is a result of heavy work in operations across our entertainment and food services, plus ongoing great reception of our All You Can Play product. We're currently at 65% of entertainment revenue, tied to All You Can Play.

During Q3, we tested another product extension with All Day All You Can Play, which gave guests unlimited play all day from open to close for one low price on select days. During this offer, the average guest showed three hours of activity, which is a tremendous value.

Our remodeled stores continue to show solid strength as well. We currently have 61 of our stores remodeled. Our newest class of stores, those remodeled in 2019, continue to perform in line with the previous classes of remodeled locations. For the eight stores open at least four weeks, they're performing at 15.7% better than our core benchmark on same-store sales.

Lastly, I'd share the latest from our international team's efforts. During Q3, we opened four international locations and saw development agreements in Peru, Morocco and Malaysia, which would cover an additional seven locations in the future.

I'll now hand it back to Jim to walk through our financials.

Jim Howell -- Chief Financial Officer

Thank you, Tom. For the nine-month period ended September 29th, 2019, comparable venue sales increased 2.7% over the prior-year period. Total revenues for the nine-month period ended September 29 2019 increased from $693.2 million to $706.1 million.

For the third quarter of 2019, comparable venue sales decreased 0.9% from the 2018 third quarter. Total revenues were $217.6 million in the third quarter of 2019 compared to $220.9 million for the third quarter of 2018.

Food and beverage costs for the third quarter of 2019 decreased approximately 100 basis points from the 2018 quarter, reflecting favorability in commodity volume and higher average selling prices.

Entertainment and merchandise costs increased roughly 30 basis points, driven by the third quarter 2018 national launch of time-based play and more tickets in all of our Chuck E. Cheese's company-operated venues.

Our overall venue labor cost as a percent of sales decreased approximately 40 basis points, with a decrease in labor hours helping to offset a 4.8% increase in average wage rate. Our sales per labor hour improved approximately 4% from the third quarter of 2018 with hours decreasing approximately 5%.

Turning to profitability, adjusted EBITDA for the nine-month period ended September 29, 2019 increased $9.1 million or 6.3% to $153.4 million from $144.3 million for the nine-month period ended September 30, 2018.

Third quarter adjusted EBITDA was $38.9 million compared to $38.5 million in the third quarter of 2018. I would note that our third quarter adjusted EBITDA was negatively impacted by a decrease in the year-over-year shift in Play Pass related breakage revenue in the third quarter.

For the third quarter of 2019, we had a net deferral related to Play Pass of $0.7 million compared to $1.7 million in breakage for the third quarter of 2018. As you may recall, when guests buy points, a portion of their purchase is deferred for future periods. This is an estimated liability for the points and tickets that leave the building that aren't played or deemed on the initial time of visit. With All You Can Play, guests use their entire card in one visit, thus there is no deferred revenue.

I specifically highlight this for year-over-year comparability purposes of our revenue and adjusted EBITDA. These shifts are just accounting issues and don't impact our operating cash flows, nor our reported same-store sales figures. Adjusting for this non-cash impact, adjusted EBITDA for the third quarter increased year-over-year by $2.8 million or 7.3%.

We ended the quarter with 738 venues worldwide, of which 610 were Chuck E Cheeses and 128 were Peter Piper Pizzas.

Cash at the end of the quarter was approximately $105 million. The principal outstanding on our debt at the end of the quarter was roughly $1 billion, consisting of $760 million on our refinanced term loan facility and $255 million in senior notes. We had net availability of $105.5 million on our undrawn revolving credit facility.

On August 30, 2019, we entered into a new credit agreement, refinancing in full our secured credit facilities. Our new credit agreement provides senior secured financing, consisting of a $114 million revolving credit facility with a maturity date of August 30, 2024 and a $760 million term loan facility with a maturity date of August 30, 2026.

Broadly speaking, the structure of the agreement is similar, but the new credit agreement also includes a springing maturity clause whereby, in the event that more than $50 million of the Companys bonds due February 5, 2022, remain outstanding on the date that is 91 days prior to the stated February 2022 maturity date of the bonds, the maturity dates of the secured credit facilities will spring to such earlier date.

We communicated to you during our last call that we were going to address the term loan as it has a more immediate maturity. We have now done that and we'll turn our focus to the bonds. We shall have some time and are actively engaged with our Board to address the outstanding bonds in an efficient and timely manner.

Third quarter capital expenditures were $26.2 million, of which $12 million related to growth initiatives, $1.7 million related to various IT initiatives, and $12.5 million related to maintenance capital.

To conclude, I share Tom's sentiment on our third quarter results. Our year-to-date performance is solid. And while we fell short of our third-quarter goals, we are encouraged with our positive same-store sales performance in the first month of the fourth quarter.

I'll now turn the call back over to Tom.

Thomas Leverton -- Chief Executive Officer

We have some exciting efforts under way as we look forward to the rest of Q4 as well as Q1 of 2020. First, this week marked the beginning of Every Kid's a Winner campaign. This campaign, which will run through December, gives every kid a winning ticket on on entry to Chuck E. Cheese. They can win prizes ranging from cotton candy to a play band with a year's worth of All You Can Play. And we're supporting this effort with TV advertising and a digital campaign.

Second, we have some exciting food offerings coming into our stores. Our current LTO, which is bacon stuffed crust, has shown some real strength, taking our percent of stuff crust pizzas from 15% to 20% over the past few weeks. This offer will continue through February. As we look to late Q1, we'll be launching a new dessert, our OREO brownie, which is great tasting, fun and importantly attachment revenue to a guest's basic ticket.

Third, I'll highlight that we're really leaning into holiday sales this year after a very strong 2018 season. Last year, our gift card sales totaled $4.1 million, which is a 45% increase from 2017. This year, we hope to build on our strong gift card program, but are also offering two additional products intended as stocking stuffers.

One of the new products is a pre-prepackaged brick of tickets. We know the excitement that Chuck E. tickets create. And with this being put into a retail product, we think that mom and dad can create this excitement at home, and that this will also turn into a future visit.

Last, we'll be testing another product extension of All You Can Play over the holidays. Starting November 25, guests can buy a holiday pass at Chuck E. Cheese. For one set price, they can get unlimited play from Thanksgiving through New Year's. While this is just a test, we see it as a step toward building out a subscription model and are very excited by the prospect.

That concludes our prepared remarks. We'll now open it up for questions.

Questions and Answers:

Operator

Thank you.

[Operator Instructions]

We'll take our first question from Bryan Hunt with Wells Fargo Securities. And, Brian, your line is open. Please check your mute button.

Bryan Hunt -- Wells Fargo Securities -- Analyst

Sorry about that. Thanks for your time. I was wondering if you could touch on the tempo of same-store sales throughout the quarter and whether you saw any regional weakness relative to weather.

Thomas Leverton -- Chief Executive Officer

There is always weather fluctuations in our business. And again, we have over 500 stores nationally, and so we do see some regions from time to time over a period as long as a whole quarter. They tend to equal out. So, I wouldn't necessarily highlight it.

Bryan Hunt -- Wells Fargo Securities -- Analyst

OK. And then, what would you attribute the October reacceleration to? Did you all do anything different. Or what would you attribute it to?

Thomas Leverton -- Chief Executive Officer

Well, one of the reasons that I highlighted the two-year stack nature is that when you do look at the business over a longer time frame, you can see some of the same strengths in Q3 overall. So, I don't really look at it as -- you do have ups and downs in the business. But the reason that we took the unusual step of sharing P10 is to just show that nature. Now, again, Yom Kippur did shift from Q3, which was a hit to Q3, into Q4. And especially in the Northeast, you do see some schools getting out around our Yom Kippur even for the whole week.

Bryan Hunt -- Wells Fargo Securities -- Analyst

Very good. When I look at the entertainment cost, it's the highest it's been in quite a long time, at roughly 8.5% of sales. Given that you've shifted to All You Can Play across the whole store network, is this a reasonable cost expectation going forward or is there some other anomaly in the period?

Thomas Leverton -- Chief Executive Officer

So, I do think that it's within the range of what we will have going forward. There's two things going on on the merchandise line. One is All You Can Play, which does drive higher COGS percent, but it's certainly dollar profit positive. And what we see is guests can shift the amount of games. I mentioned on the previous call. Average kid, when they have points, play 60 games an hour. When they have time, they play an average of 92 games an hour. So, that does increase your merch COGS percent. But again it does increase sales as well. So, it's dollar profit positive. So, All You Can Play does have that effect.

But, secondly, we continue to look at our More Tickets initiatives. You'll remember that in August of last year, we shifted our average ticket payout in our games from three tickets per game to five tickets per game. And we also have been public in saying that we have been testing additional changes to that mix, including a very substantial portion of the chain right now that is yielding eight tickets per game. So, again, we still have that in test. We would only roll that out if we can really confirm that like the others, even if it is COGS percent negative, that it would be dollar profit positive.

Bryan Hunt -- Wells Fargo Securities -- Analyst

Okay. And then, lastly, and I'll hand it off to somebody else, your improvement in labor costs per dollar sales, I believe you said, was down about 5%. Is there any more headroom in that? And how does that track kind of sequentially from Q1 to Q2 to Q3?

Thomas Leverton -- Chief Executive Officer

So, our operators continue to do a great job in optimizing labor in this challenging environment. As you know, we, again, are national. We have a substantial presence in some of the states that are driving higher and higher minimum wages and our operators and the team here in Dallas are doing a great job finding new opportunities to save labor hours. A good example is Kid Check where we have a dedicated person at the front of the store that stamps the kid, making sure that every family that comes together leaves together. During school days, we have actually taken an investment and stretched Kid Check to the front counter, so we can use the same labor that is doing Kid Check to actually man the front counter and be able to process the transaction. Things like that change the equation at Chuck E. and we're continuing to work on the innovation side.

There is still some headwind there, but it does get harder and harder each year. And again, I would thank the team. They have very a long streak of improvement in sales per man hour going through hard work and creativity.

Bryan Hunt -- Wells Fargo Securities -- Analyst

And when I look at the improvement that you're seeing sequentially, is this like a new -- is this a new level of productivity? And in terms of -- since all the changes you've made?

Jim Howell -- Chief Financial Officer

Well, if you look at it sequentially, I think, in Q1, which is our biggest quarter, we actually saw labor expenses roughly flat as a percent of sales. Took a little dip in Q2 relative to the percent there -- Q2 is a smaller quarter. Q3 is sort of in between the two. Maybe closer to Q2. It's just -- I think the team has really again done a nice job of focusing on hours, focusing the teams on productivity. And so, we did see a good result in Q3.

Bryan Hunt -- Wells Fargo Securities -- Analyst

Very good. I'll hand it off. Thanks for your time.

Thomas Leverton -- Chief Executive Officer

Thanks, Brian.

Operator

And we'll go to our next question from Pat Coleman with Octagon.

Patrick Coleman -- Octagon Credit Investors -- Analyst

Thanks very much. I was hoping you could just dive into the third quarter same-store sales number. It just seems to -- and obviously sticks out [Indecipherable] comps. I know you talk about the larger picture. But we're just -- I think a lot of people on the call are probably hoping just to get some clarity. Internally, what are you guys discussing as to what you could be doing better as it relates to the third quarter performance?

Thomas Leverton -- Chief Executive Officer

So, in Q3, we did lap the implementation of More Tickets and All You Can Play. And we had, at the time, just tests in place for the next generation. We have maintained that All You Can Play as it is implemented today is only version 1. And More Tickets, like I said before, is only version 1 of More Tickets. When we went through Q3, we were lapping last year's July launch of All You Can Play and the August launch of More Tickets, still with version 1 out there.

As we look toward late Q3 and Q4, that's when we're starting to see, as I mentioned, the next version of these products. All You Can Play, we have now several weeks of tests for All Day All You Can Play, which is enhancement. We have our next version again north of 100 stores on 8.0 tickets per game play. And I think that those are contributing to Q4, but it's really the next evolution in our product lines as we go forward.

Patrick Coleman -- Octagon Credit Investors -- Analyst

Okay. That's definitely helpful. And then, as you've done in the past, is there any way to quantify what you guys pointed to as the Yom Kippur impact just to give us some -- prior quarters, you've kind of given us the -- either the year-to-date trend or something like that. So, can you help us quantify that?

Thomas Leverton -- Chief Executive Officer

We don't have that broken out in front [Speech Overlap]

Patrick Coleman -- Octagon Credit Investors -- Analyst

What if you were to give us P9 and P10 year-over-year?

Jim Howell -- Chief Financial Officer

We don't typically give out the monthly comps.

Patrick Coleman -- Octagon Credit Investors -- Analyst

Okay. I guess, in prior calls, you've done it -- you've done it in quarters past to help us normalize for some of these outsized impacts. But, I guess, what you're saying is it's not material. But it is a bit of a headwind to P10 and...?

Thomas Leverton -- Chief Executive Officer

It's much smaller than when we did it for spring break. So, spring break is a massive change across the country. And so, yes, spring break, if you remember, we said was a 1.5% hit to Q1 when spring breaks move from Q -- from Q2 into Q1. It was a benefit. That one was large enough for an entire quarter. This one would be smaller.

Patrick Coleman -- Octagon Credit Investors -- Analyst

Okay, that's helpful. And then, kind of walking down the income statement, can you talk about what's going on in the other store expenses lines? Just anything to call out. It's obviously fairly favorable. So, I'm wondering if that's timing or just continued improvements in cost structure?

Jim Howell -- Chief Financial Officer

Yeah. It's nothing that's simple. What it really is, there's two lines on our income statement that are not comparable because we adopted the new lease accounting standard. And it's part of adopting that lease accounting standard, we had to make an election on where to put CAM. So, CAM, which was in other venue operating expenses and now in lease costs.

Patrick Coleman -- Octagon Credit Investors -- Analyst

Got it. So, that's why lease is up and this is down.

Jim Howell -- Chief Financial Officer

Exactly. Yeah. But let me give you the comparable numbers. So, if you look at for the quarter, we're showing $16.3 million. If you normalize that, it's $17.9 million or $3.4 million for the quarter. If you look at it on a year-to-date basis, if you look at the lease costs on a year-to-date basis, it's $10.7 million in 2018 year-to-date. The comparable number for that is $10.4 million in the 2019 year-to-date number. So, it's roughly about $3.4 million for the quarter. Swings between those two lines. And for the year-to-date period, it's about $10.4 million.

Patrick Coleman -- Octagon Credit Investors -- Analyst

[Speech Overlap] on the math. But on an aggregate, is there -- should we just start lumping these together? Is that the way to think about it?

Jim Howell -- Chief Financial Officer

Well, they'll be comparable next year once we lap the implementation. So, the implementation was done prospective. So, '18 doesn't include it. But when you get to next year, '19 and '20 will be apples to apples.

Patrick Coleman -- Octagon Credit Investors -- Analyst

Okay. So, is there a way for you to help us understand Q3 on an apples to apples?

Jim Howell -- Chief Financial Officer

Yeah, you could lump them together. But , again...

Patrick Coleman -- Octagon Credit Investors -- Analyst

Okay, OK. Fair enough.

Jim Howell -- Chief Financial Officer

Yeah. And we have disclosure in the -- when you get the 10-Q, you will have disclosure in there as well for both periods.

Patrick Coleman -- Octagon Credit Investors -- Analyst

Yeah. Thank you. And then, as we just look out into Q4, Q1, can you help us figure out if there is any timing issues that we should factor into the models as it relates to...

Jim Howell -- Chief Financial Officer

In terms of expenses or lease costs...?

Patrick Coleman -- Octagon Credit Investors -- Analyst

No. Where the holidays are falling and fiscal year-end?

Thomas Leverton -- Chief Executive Officer

So, all in all, the holidays are somewhat similar to last year. We continue -- if you look at the calendar, Christmas and New Year's continue to shift out. Next year will be a year of the 53rd week, which shifts them back deeper into Q4. But now, we will have Christmas really butting up into that next week almost, which will shift the school calendars a bit out from Q4 into Q1. But not a very large change from last year. Last year, Christmas, I believe, was on a Wednesday. This year, it's on a Thursday. And so, they will shift out a little bit more.

Patrick Coleman -- Octagon Credit Investors -- Analyst

Great, thanks very much.

Thomas Leverton -- Chief Executive Officer

Thank you.

Operator

And we'll take our next question from David Hargreaves with Stifel Financial.

David Hargreaves -- Stifel Financial -- Analyst

Hi, good morning. So, this deferred revenue impact that you helped us adjust EBITDA for, I wanted to see what that would mean for attendance. I'm just trying to get a sense for -- would same-store sales have been positive adjusted for that factor and what happened with traffic?

Jim Howell -- Chief Financial Officer

Yeah. We don't impact same-store sales. Any of the calculations and accounting around deferred revenue does not impact same-store sales. So, what you see from a same-store sales perspective is almost cash basis. Then, at a topside level, we actually layer on the deferred revenue accounting rules. So, by stripping that out, you sort of do get a feel for what the performance could have been.

David Hargreaves -- Stifel Financial -- Analyst

Would it be accurate then to say that the traffic has been subsiding sequentially throughout the year or is that the right way to think about things?

Jim Howell -- Chief Financial Officer

I don't know if I'd say traffic has been subsiding sequentially. I think, in general, like most other folks in our world, we are seeing traffic declines in the stores and we certainly see that now. But it's been sort of ups and downs throughout the year. Think about the strong first quarter and then, more recently, the strong month. So, it just kind of ebbs and flows a little bit.

David Hargreaves -- Stifel Financial -- Analyst

I see. So, should we be thinking about -- is it more competition? Or is it a change in consumer demand? I'm just wondering how you do things.

Thomas Leverton -- Chief Executive Officer

So, the restaurant industry is talking about changes in consumer demand as people do go into grocery stores and all that more given prices and given delivery. And we do think about that and talk about that, but our business is quite different than a stand-alone restaurant concept where it's much more difficult to Uber the overall Chuck E. Cheese experience. You do have pop-ups in local competitors, which we've talked about before. You do have alternatives pop up during a quarter like Q3 with something like a Lion King release that does attract our age demographic. And so, those things can be temporary and impactful and you overcome them.

But, no, nothing substantial or nothing systemic.

David Hargreaves -- Stifel Financial -- Analyst

I see. And when we think about the period 10 comps that you gave us, last year, I think the fourth quarter was up 3.3%. I'm just wondering if that was -- 3.3% was consistent throughout the quarter. Or if that October comp is going up against an easier or tougher part of the quarter? Just if there's any way you could just let us know how meaningful that is.

Thomas Leverton -- Chief Executive Officer

So what I can share is that P10, we did post, again, like I said, a positive 2.5%, and that's 4.2% on a two-year basis. So, last year was around the 2% positive just in P10.

David Hargreaves -- Stifel Financial -- Analyst

Okay, great. And with the new renovations, I'm curious if there's anything you could call out as to what's worked better or less than expected and what kind of tweaks you're making? And do you think the 15.7% is the most you can do out of those lists? And what are you seeing in terms of sustainability?

Thomas Leverton -- Chief Executive Officer

That's going to be my favorite question. Thank you for asking that one. Our remodels have a lot of components that are driving a lot of benefit. So, first of all, we have experimented with different versions of the facade and what we have certainly learned is you need a dramatic change upfront. We do have some stores from a couple of years ago when we were first learning where they were improvements to our facade, but they weren't dramatic. We have now leaned into this version where it is -- we use greens to have a freshness cue for our food. We have the new Chuck E. out there. It looks like a very different environment because it is. So, the facade is absolutely critical.

Inside, it has many more cues for a pizza restaurant to make mom and dad comfortable while they're waiting for the child to play because, again, our dwell time can be well north of an hour. And so, the seats are more comfortable. The lighting is better. The removal of the animatronics, our robots, and replacing it with a dance floor, which has a better live Chuck E. experience, all of these different components, which we have refined over the past two-and-a-half years, have really come together to create a fabulous experience.

So, to your question about, can we do better than the 15.7%, 15.7% is pretty good and it generates a great cash-on-cash return. But as we go forward, we are really leaning into the stores that have the greatest need. And within the 15.7%, I will share with you, there are some stores that are absolutely blowing it out. There's a pretty tight distribution. We have those onesie, twosies that will stay well north of 20%. And we're really looking at those locations to see if there are any additional earnings that we can roll out to the rest of the chain.

David Hargreaves -- Stifel Financial -- Analyst

That's exactly what I was looking for. And, lastly, I don't think you guys gave us the pace of expected remodels balance of the year, next year.

Thomas Leverton -- Chief Executive Officer

So, we're putting together our budgets and plans for next year right now and we are going to be reviewing with the board shortly.

David Hargreaves -- Stifel Financial -- Analyst

All right. Keep me in suspense. Thank you very much, gentlemen.

Jim Howell -- Chief Financial Officer

Thanks, David.

Operator

[Operator Instructions] And we'll take our next question from Ricardo Chinchilla with Deutsche Bank.

Luis Ricardo Chinchilla -- Deutsche Bank -- Analyst

Hey, guys. Thanks for taking the question. The first one was related to what David was just inquiring. How do we think about capex for next year? I know that your budget is not ready, but at least from comparable to what you guys did this year to what you guys intend to do next year.

Jim Howell -- Chief Financial Officer

Yeah. I think the answer there is similar to what Tom gave as well. I think we gave a range for capex this year and will probably land within that range. Nothing is really too exciting there, but we're going through our plans right now and working through capital allocation with management and the Board. And so, we don't really have anything to share right now.

Luis Ricardo Chinchilla -- Deutsche Bank -- Analyst

Fair enough. In terms of what you guys have seen with your same-store sales, I think that we are now lapping the great innovations that you guys introduced, your change in play. Do you guys expect, like, with this new test that you're doing, all day pass, to have like a similar impact and to keep accelerating after a year time, so to introduce a new innovation a year from now and keep it that way? Or how do we think about what you guys could do to bring in a lot of of positive comps into the business?

Thomas Leverton -- Chief Executive Officer

So, we have a test and learn approach. We have things constantly in test and we implement the ones that drive the biggest benefit. I mentioned several of the key tests that we do have. The All Day All You Can Play is intriguing because that is a different product and we've done it on a big school holiday. We've done it over the course of a whole week. We've done it during some weekdays now to see what kind of benefit that that can bring.

Again, it is interesting to us that the average guest showed activity for three hours when we launched All Day All You Can Play. Now, in our business, you get one hit of revenue when the guest first checks in. But over the course of three hours, you also do see a high likelihood of secondary orders on food or drink or other add-ons. So, it is an intriguing product. Again, still in test. We're looking at it for Q4 and for next year.

And then, the subscription opportunities are also intriguing. Some other players in the family entertainment center business, not necessarily on our side of it with food and fun, but they are leaning in toward these subscription models where you could have recurring billing on the credit card and you get basically a pass. So, in concept, you can come to Chuck E. Cheese every day in a month -- again, we're still working on it -- for one set price. Probably, it gets you video games. And then, you would end up paying for food a la carte. And if we can get incremental visits from that, that would be very intriguing. Again, those are two examples of things that are in test, but by no means are we done with All You Can Play or More Tickets.

Luis Ricardo Chinchilla -- Deutsche Bank -- Analyst

Perfect, thank you. One last one for me. In terms of your inflation, I know that food doesn't represent that big of your cost base. But what's your expectation for next year, given that we have some pressure in dairy products? And if you could comment, like, what's your expectation with regards to the impact that increasing the number of price per tickets that kids will get will have on your overall costs looking into 2020?

Thomas Leverton -- Chief Executive Officer

So, right now, we are seeing, like you mentioned, some pressure on cheese. For a dedicated pizza restaurant, that would have been our headline. But for us, given that food is only half of the business and pizza is a portion of that, we've actually been able to overcome that with our other food ingredients and not see significant pressure. And our team is doing a great job continuing to drive improvement on waste management. So, there is still some opportunity there. So, again, we are seeing it, we're watching it. But our team is able to overcome it just because it is a smaller portion of the business.

On the merchandise side, the key issue would be, if we do roll out our second generation of More Tickets -- and again, this is where we are currently evaluating five tickets per game play, going up to eight tickets per game play. If we did that, we would see a merchandise COGS change on a percent basis, but the reason we are not doing it unilaterally is because we want to make sure that we are going to get enough dollar profit to be able to make up for that.

So that could be a change for next year, but it would only be implemented if it does pass a pretty rigorous test regimen.

Luis Ricardo Chinchilla -- Deutsche Bank -- Analyst

Thanks so much for your time.

Jim Howell -- Chief Financial Officer

Thank you.

Operator

And it appears there are no further questions at this time. I'd like to turn the conference back to the speakers. I apologize, we do have a follow-up question from Bryan Hunt.

Bryan Hunt -- Wells Fargo Securities -- Analyst

Yes, thank you for the follow-up. I was just wondering if you could address -- I don't know if you skipped over it or if I didn't hear it -- what the stickiness is of the kind of the original remodels that you've done so far? Are they maintaining this kind of 15% same-store sales growth?

Thomas Leverton -- Chief Executive Officer

Short answer, yes. The way that it works is that we are getting, in our last two classes, 15% to 16% growth. The original class was about 12% growth. And then, once they lap that, they are maintaining roughly flat in sales dollars. So, said a different way, they get the 12%, 15% or 16% growth and then they roughly maintain that level. We have seen, in some of the locations, around a 2% give-back. So, maybe a small halo. But that was one of the key factors we were examining for probably the exact reason you asked it.

Would there just be a one-time benefit, a halo and then you give it back and go back to old sales levels? We now have north of 20 stores, I think, that are in their second year and those are maintaining their dollar sales with great, great strength. We're very pleased with that.

Bryan Hunt -- Wells Fargo Securities -- Analyst

That's fantastic.

Thomas Leverton -- Chief Executive Officer

I agree. Second,

Bryan Hunt -- Wells Fargo Securities -- Analyst

when you -- there's a lot of news about tariffs this morning. I was wondering, did you -- and all your merchandise, and I remember my kids getting that with Chuck E. ages[Phonetics]. Behind the counter, lots of stuffed animals and plastics and candy and stuff, along those lines. Were you hit by tariffs when they were implemented? And therefore, can we think of the reversion of tariffs to be a positive? How do we think about any potential tariff impact?

Jim Howell -- Chief Financial Officer

Yeah. For us, the tariff impact hasn't been large. A lot of our "toys" haven't been classified that way for some of the tariffs. So, we've seen a very small impact on the toys. We've seen an impact on some of our tickets. But we were able to source the tickets outside of China. So, again, we were able to minimize that. So, the reversal of the tariff isn't going to be -- it hasn't been a huge hit for us. It's not going to be a huge win for us on the other side.

Bryan Hunt -- Wells Fargo Securities -- Analyst

And two final questions. One, off-premise, can you talk about how that effort is progressing and what kind of sales growth you may have seen in the quarter?

Thomas Leverton -- Chief Executive Officer

Are you talking about delivery?

Bryan Hunt -- Wells Fargo Securities -- Analyst

Yeah, delivery or order to go?

Thomas Leverton -- Chief Executive Officer

So, again, that is a tiny, tiny part of our business. We've been hovering right around -- last time I looked -- 0.38% of sales through the third-party delivery companies. We do look at it really as a marketing channel. You cannot again deliver the fun of Chuck E. Cheese, but we have listed ourselves on GrubHub, Uber Eats and DoorDash. So, as people are searching for pizza, they are going to bump into our name and maybe that will spawn a future visit. We remain thrilled with 0.38% of sales just because it exceeds our expectations because, again, you can't deliver the fun that is Chuck E. Cheese.

Bryan Hunt -- Wells Fargo Securities -- Analyst

When you figure that out, I want to hear about it. And then, lastly, you talked about addressing the Board about refi-ing the bonds. You've got this springing clause. Is this an event that we should anticipate sooner rather than later? Or could you talk about what you're thinking about in terms of new capital structure as well as timing?

Jim Howell -- Chief Financial Officer

Yeah. Look, we just got done with the term loan. We still have about two years to deal with the bonds. We certainly want to do it. We want to get to the end of that. But we're in discussions with the Board right now and advisors as to what's the best time and manner to address the bonds. But it is on top of our agenda.

Bryan Hunt -- Wells Fargo Securities -- Analyst

Very good. That's it for me, and best of luck.

Jim Howell -- Chief Financial Officer

Thanks, Bryan.

Operator

There are no further questions at this time. I'll turn the call back to the speakers for any or closing remarks

Thomas Leverton -- Chief Executive Officer

All right. Thank you all so much for the time and we look forward to getting together to review Q4 results in the start of the New Year. Thank you so much.

Operator

[Operator Closing Remarks]

Duration: 41 minutes

Call participants:

Jim Howell -- Chief Financial Officer

Thomas Leverton -- Chief Executive Officer

Bryan Hunt -- Wells Fargo Securities -- Analyst

Patrick Coleman -- Octagon Credit Investors -- Analyst

David Hargreaves -- Stifel Financial -- Analyst

Luis Ricardo Chinchilla -- Deutsche Bank -- Analyst

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