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Table of Contents
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
|
|
|
(State of Incorporation)
|
(I.R.S. Employer ID)
|
|
|
|
(
|
|
|
(Address of principal executive offices) (Zip Code)
|
(Registrant’s telephone number)
|
|
|
Title of each class
|
Trading Symbol(s)
|
Name of each exchange on which registered
|
||
|
|
|
|
|
|
☒ | Accelerated filer | ☐ | |||
|
Non-accelerated
filer
|
☐ | Smaller reporting company |
|
|||
| Emerging Growth Company |
|
|||||
Table of Contents
DAVE & BUSTER’S ENTERTAINMENT, INC.
FORM 10-Q FOR QUARTERLY PERIOD ENDED OCTOBER 30, 2022
TABLE OF CONTENTS
| Page | ||||||
|
PART I |
FINANCIAL INFORMATION | |||||
|
Item 1. |
3 | |||||
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
19 | ||||
|
Item 3. |
32 | |||||
|
Item 4. |
32 | |||||
|
PART II |
OTHER INFORMATION | |||||
|
Item 1. |
33 | |||||
|
Item 1A. |
33 | |||||
|
Item 2. |
34 | |||||
|
Item 6. |
35 | |||||
| 36 | ||||||
2
Table of Contents
|
Item 1.
|
Financial Statements
|
|
October 30,
|
January 30,
|
|||||||
|
2022
|
2022
|
|||||||
|
(Unaudited)
|
(Audited)
|
|||||||
|
ASSETS
|
||||||||
|
Current Assets:
|
||||||||
|
Cash and cash equivalents
|
$ |
|
$ |
|
||||
|
Inventories
|
|
|
||||||
|
Prepaid expenses
|
|
|
||||||
|
Income taxes receivable
|
|
|
||||||
|
Other current assets
|
|
|
||||||
|
|
|
|
|
|||||
|
Total current assets
|
|
|
||||||
|
Property and equipment, net
|
|
|
||||||
|
Operating lease right of use assets, net
|
|
|
||||||
|
Deferred tax assets
|
|
|
||||||
|
Tradenames
|
|
|
||||||
|
Goodwill
|
|
|
||||||
|
Other assets and deferred charges
|
|
|
||||||
|
|
|
|
|
|||||
|
Total assets
|
$ |
|
$ |
|
||||
|
|
|
|
|
|||||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
|
Current Liabilities
|
||||||||
|
Current installments of long-term debt
|
$ |
|
$ |
|
||||
|
Accounts payable
|
|
|
||||||
|
Accrued liabilities
|
|
|
||||||
|
Income taxes payable
|
|
|
||||||
|
|
|
|
|
|||||
|
Total current liabilities
|
|
|
||||||
|
Deferred income taxes
|
|
|
||||||
|
Operating lease liabilities
|
|
|
||||||
|
Other liabilities
|
|
|
||||||
|
Long-term debt, net
|
|
|
||||||
|
Commitments and contingencies
|
|
|
||||||
|
Stockholders’ equity:
|
||||||||
|
Common stock, par value $
t
standing:
|
|
|
||||||
|
Preferred stock,
|
|
|
||||||
|
Paid-in
capital
|
|
|
||||||
|
Treasury stock,
|
(
|
) |
(
|
) | ||||
|
Accumulated other comprehensive loss
|
(
|
) |
(
|
) | ||||
|
Retained earnings
|
|
|
||||||
|
|
|
|
|
|||||
|
Total stockholders’ equity
|
|
|
||||||
|
|
|
|
|
|||||
|
Total liabilities and stockholders’ equity
|
$ |
|
$ |
|
||||
|
|
|
|
|
|||||
|
Thirteen Weeks
|
Thirteen Weeks
|
|||||||
|
Ended
|
Ended
|
|||||||
|
October 30, 2022
|
October 31, 2021
|
|||||||
|
Food and beverage revenues
|
$ |
|
$ |
|
||||
|
Amusement and other revenues
|
|
|
||||||
|
|
|
|
|
|||||
|
Total revenues
|
|
|
||||||
|
Cost of food and beverage
|
|
|
||||||
|
Cost of amusement and other
|
|
|
||||||
|
|
|
|
|
|||||
|
Total cost of products
|
|
|
||||||
|
Operating payroll and benefits
|
|
|
||||||
|
Other store operating expenses
|
|
|
||||||
|
General and administrative expenses
|
|
|
||||||
|
Depreciation and amortization expenses
|
|
|
||||||
|
Pre-opening
costs
|
|
|
||||||
|
|
|
|
|
|||||
|
Total operating costs
|
|
|
||||||
|
|
|
|
|
|||||
|
Operating income
|
|
|
||||||
|
Interest expense, net
|
|
|
||||||
|
Loss on debt extinguishment
|
— |
|
||||||
|
|
|
|
|
|||||
|
Income before provision for (benefit from) income taxes
|
|
|
||||||
|
Provision for (benefit from) income taxes
|
(
|
) |
(
|
) | ||||
|
|
|
|
|
|||||
|
Net income
|
|
|
||||||
|
Unrealized foreign currency translation gain (loss)
|
(
|
) |
(
|
) | ||||
|
Unrealized gain on derivatives, net of tax
|
|
|
||||||
|
|
|
|
|
|||||
|
Total other comprehensive gain (loss)
|
(
|
) |
|
|||||
|
|
|
|
|
|||||
|
Total comprehensive income
|
$ |
|
$ |
|
||||
|
|
|
|
|
|||||
|
Net income per share:
|
||||||||
|
Basic
|
$ |
|
$ |
|
||||
|
Diluted
|
$ |
|
$ |
|
||||
|
Weighted average shares used in per share calculations:
|
||||||||
|
Basic
|
|
|
||||||
|
Diluted
|
|
|
||||||
|
Thirty-Nine Weeks
|
Thirty-Nine Weeks
|
|||||||
|
Ended
|
Ended
|
|||||||
|
October 30, 2022
|
October 31, 2021
|
|||||||
|
Food and beverage revenues
|
$ |
|
$ |
|
||||
|
Amusement and other revenues
|
|
|
||||||
|
|
|
|
|
|||||
|
Total revenues
|
|
|
||||||
|
Cost of food and beverage
|
|
|
||||||
|
Cost of amusement and other
|
|
|
||||||
|
|
|
|
|
|||||
|
Total cost of products
|
|
|
||||||
|
Operating payroll and benefits
|
|
|
||||||
|
Other store operating expenses
|
|
|
||||||
|
General and administrative expenses
|
|
|
||||||
|
Depreciation and amortization expenses
|
|
|
||||||
|
Pre-opening
costs
|
|
|
||||||
|
|
|
|
|
|||||
|
Total operating costs
|
|
|
||||||
|
|
|
|
|
|||||
|
Operating income
|
|
|
||||||
|
Interest expense, net
|
|
|
||||||
|
Loss on debt extinguishment/ refinance
|
|
|
||||||
|
|
|
|
|
|||||
|
Income before provision for income taxes
|
|
|
||||||
|
Provision for income taxes
|
|
|
||||||
|
|
|
|
|
|||||
|
Net income
|
|
|
||||||
|
Unrealized foreign currency translation gain (loss)
|
(
|
) |
|
|||||
|
Unrealized gain on derivatives, net of tax
|
|
|
||||||
|
|
|
|
|
|||||
|
Total other comprehensive gain
|
|
|
||||||
|
|
|
|
|
|||||
|
Total comprehensive income
|
$ |
|
$ |
|
||||
|
|
|
|
|
|||||
|
Net income per share:
|
||||||||
|
Basic
|
$ |
|
$ |
|
||||
|
Diluted
|
$ |
|
$ |
|
||||
|
Weighted average shares used in per share calculations:
|
||||||||
|
Basic
|
|
|
||||||
|
Diluted
|
|
|
||||||
|
Thirteen Weeks Ended October 30, 2022
|
||||||||||||||||||||||||||||||||
|
Common Stock
|
Paid-In
|
Treasury Stock At Cost
|
Accumulated
Other Comprehensive
Loss
|
Retained
Earnings
|
Total
|
|||||||||||||||||||||||||||
|
Shares
|
Amt.
|
Capital
|
Shares
|
Amt.
|
||||||||||||||||||||||||||||
|
Balance July 31, 2022
|
|
$ |
|
$ |
|
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
|
||||||||||||||||
|
Net income
|
— | — | — | — | — | — |
|
|
||||||||||||||||||||||||
|
Unrealized foreign currency translation loss
|
— | — | — | — | — |
(
|
) | — |
(
|
) | ||||||||||||||||||||||
|
Derivatives, net of tax
|
— | — | — | — | — |
|
— |
|
||||||||||||||||||||||||
|
Share-based compensation
|
— | — |
|
— | — | — | — |
|
||||||||||||||||||||||||
|
Issuance of common stock
|
|
|
|
— | — | — | — |
|
||||||||||||||||||||||||
|
Repurchase of common stock
|
— | — | — |
|
(
|
) | — | — |
(
|
) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Balance October 30, 2022
|
|
$ |
|
$ |
|
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Thirteen Weeks Ended October 31, 2021
|
||||||||||||||||||||||||||||||||
|
Common Stock
|
Paid-In
Capital
|
Treasury Stock At Cost
|
Accumulated
Other Comprehensive
Loss
|
Retained
Earnings
|
Total
|
|||||||||||||||||||||||||||
|
Shares
|
Amt.
|
Shares
|
Amt.
|
|||||||||||||||||||||||||||||
|
Balance August 1, 2021
|
|
$ |
|
$ |
|
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
|
||||||||||||||||
|
Net income
|
— | — | — | — | — | — |
|
|
||||||||||||||||||||||||
|
Unrealized foreign currency translation loss
|
— | — | — | — | — |
(
|
) | — |
(
|
) | ||||||||||||||||||||||
|
Derivatives, net of tax
|
— | — | — | — | — |
|
— |
|
||||||||||||||||||||||||
|
Share-based compensation
|
— | — |
|
— | — | — | — |
|
||||||||||||||||||||||||
|
Issuance of common stock
|
|
|
|
— | — | — | — |
|
||||||||||||||||||||||||
|
Repurchase of common stock
|
— | — | — |
|
(
|
) | — | — |
(
|
) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Balance October 31, 2021
|
|
$ |
|
$ |
|
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Thirty-Nine Weeks Ended October 30, 2022
|
||||||||||||||||||||||||||||||||
|
Common Stock
|
Paid-In
Capital
|
Treasury Stock At Cost
|
Accumulated
Other Comprehensive
Loss
|
Retained
Earnings
|
Total
|
|||||||||||||||||||||||||||
|
Shares
|
Amt.
|
Shares
|
Amt.
|
|||||||||||||||||||||||||||||
|
Balance January 30, 2022
|
|
$ |
|
$ |
|
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
|
||||||||||||||||
|
Net income
|
— | — | — | — | — | — |
|
|
||||||||||||||||||||||||
|
Unrealized foreign currency translation loss
|
— | — | — | — | — |
(
|
) | — |
(
|
) | ||||||||||||||||||||||
|
Derivatives, net of tax
|
— | — | — | — | — |
|
— |
|
||||||||||||||||||||||||
|
Share-based compensation
|
— | — |
|
— | — | — | — |
|
||||||||||||||||||||||||
|
Issuance of common stock
|
|
|
|
— | — | — | — |
|
||||||||||||||||||||||||
|
Repurchase of common stock
|
— | — | — |
|
(
|
) | — | — |
(
|
) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Balance October 30, 2022
|
|
$ |
|
$ |
|
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Thirty-Nine Weeks Ended October 31, 2021
|
||||||||||||||||||||||||||||||||
|
Common Stock
|
Paid-In
Capital
|
Treasury Stock At Cost
|
Accumulated
Other Comprehensive
Loss
|
Retained
Earnings
|
Total
|
|||||||||||||||||||||||||||
|
Shares
|
Amt.
|
Shares
|
Amt.
|
|||||||||||||||||||||||||||||
|
Balance January 31, 2021
|
|
$ |
|
$ |
|
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
|
||||||||||||||||
|
Net income
|
— | — | — | — | — | — |
|
|
||||||||||||||||||||||||
|
Unrealized foreign currency translation gain
|
— | — | — | — | — |
|
— |
|
||||||||||||||||||||||||
|
Derivatives, net of tax
|
— | — | — | — | — |
|
— |
|
||||||||||||||||||||||||
|
Share-based compensation
|
— | — |
|
— | — | — | — |
|
||||||||||||||||||||||||
|
Issuance of common stock
|
|
|
|
— | — | — | — |
|
||||||||||||||||||||||||
|
Repurchase of common stock
|
— | — | — |
|
(
|
) | — | — |
(
|
) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Balance October 31, 2021
|
|
$ |
|
$ |
|
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Thirty-Nine
Weeks Ended October 30, 2022 |
Thirty-Nine
Weeks Ended October 31, 2021 |
|||||||
|
Cash flows from operating activities:
|
||||||||
|
Net income
|
$ |
|
$ |
|
||||
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
|
Depreciation and amortization expense
|
|
|
||||||
|
Non-cash
interest expense
|
|
|
||||||
|
Impairment of long-lived assets
|
|
|
||||||
|
Deferred taxes
|
|
(
|
) | |||||
|
Loss on disposal of fixed assets
|
|
|
||||||
|
Loss on debt refinancing
|
|
|
||||||
|
Share-based compensation
|
|
|
||||||
|
Other, net
|
|
|
||||||
|
Changes in assets and liabilities, net of assets and liabilities acquired:
|
||||||||
|
Inventories
|
(
|
) |
(
|
) | ||||
|
Prepaid expenses
|
(
|
) |
(
|
) | ||||
|
Income tax receivable
|
|
|
||||||
|
Other current assets
|
(
|
) |
(
|
) | ||||
|
Other assets and deferred charges
|
|
(
|
) | |||||
|
Accounts payable
|
(
|
) |
(
|
) | ||||
|
Accrued liabilities
|
|
|
||||||
|
Income taxes payable
|
|
(
|
) | |||||
|
Other liabilities
|
|
(
|
) | |||||
|
|
|
|
|
|||||
|
Net cash provided by operating activities:
|
|
|
||||||
|
|
|
|
|
|||||
|
Cash flows from investing activities:
|
||||||||
|
Capital expenditures
|
(
|
) |
(
|
) | ||||
|
Acquisition of a business, net of cash acquired
|
(
|
) |
|
|||||
|
Proceeds from sales of property and equipment
|
|
|
||||||
|
|
|
|
|
|||||
|
Net cash used in investing activities:
|
(
|
) |
(
|
) | ||||
|
|
|
|
|
|||||
|
Cash flows from financing activities:
|
||||||||
|
Proceeds from debt
|
|
|
||||||
|
Payments of debt
|
(
|
) |
(
|
) | ||||
|
Debt issuance costs and prepayment premiums
|
(
|
) |
(
|
) | ||||
|
Proceeds from the exercise of stock options
|
|
|
||||||
|
Repurchases of common stock under share repurchase program
|
(
|
) |
|
|||||
|
Repurchases of common stock to satisfy employee withholding tax obligations
|
(
|
) |
(
|
) | ||||
|
|
|
|
|
|||||
|
Net cash provided by (used in) financing activities:
|
|
(
|
) | |||||
|
|
|
|
|
|||||
|
Increase in cash and cash equivalents
|
|
|
||||||
|
Beginning cash and cash equivalents
|
|
|
||||||
|
|
|
|
|
|||||
|
Ending cash and cash equivalents
|
$ |
|
$ |
|
||||
|
|
|
|
|
|||||
|
Supplemental disclosures of cash flow information:
|
||||||||
|
Change in fixed asset accounts payable
|
$ |
(
|
) | $ |
|
|||
|
Cash paid (refund received) for income taxes, net
|
$ |
(
|
) | $ |
|
|||
|
Cash paid for interest, net
|
$ |
|
$ |
|
||||
|
Thirteen weeks ended
|
Thirty-nine weeks ended
|
|||||||||||||||
|
October 30, 2022
|
October 31, 2021
|
October 3
0
, 2022
|
October 31, 2021
|
|||||||||||||
|
Loss reclassified or amortized into interest expense
|
$ |
|
$ |
|
$ |
|
$ |
(
|
) | |||||||
|
Income tax effect
|
$ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
|
|||||
|
Thirteen weeks ended
|
Thirty-nine weeks ended
|
|||||||||||||||
|
October 30, 2022
|
October 31, 2021
|
October 30, 2022
|
October 31, 2021
|
|||||||||||||
|
Basic weighted average shares outstanding
|
|
|
|
|
||||||||||||
|
Weighted average dilutive impact of awards
|
|
|
|
|
||||||||||||
|
Diluted weighted average shares outstanding
|
|
|
|
|
||||||||||||
|
Amount
|
||||
|
Gross cash consideration
|
$ |
|
||
|
Contingent consideration (1)
|
|
|||
|
Less: cash acquired
|
(
|
) | ||
|
|
|
|||
|
Total consideration paid
|
$ |
|
||
|
|
|
|||
|
Assets:
|
||||
|
Current assets
|
|
|||
|
Property and equipment
|
|
|||
|
Operating lease right of use assets
|
|
|||
|
Tradenames
|
|
|||
|
Other assets and deferred charges
|
|
|||
|
Liabilities:
|
||||
|
Accounts payable
|
|
|||
|
Current portion of operating lease liabilities
|
|
|||
|
Accrued liabilities
|
|
|||
|
Operating lease liabilities
|
|
|||
|
Deferred tax liabilities
|
|
|||
|
Other liabilities
|
|
|||
|
|
|
|||
|
Net assets acquired, excluding goodwill
|
$ |
|
||
|
|
|
|||
|
Goodwill
|
$ |
|
||
|
|
|
|||
| (1) |
The Company has an obligation to pay, in cash, an aggregate amount equal to any “Transaction Tax Benefits,” with respect to any taxable year of the Company after the Closing Date ending on or before December 31, 2028, including the current taxable year. Transaction Tax Benefits is generally defined as any reduction in the Company’s liabilities for U.S. federal and state income taxes due to the use of net operating losses generated prior to the Closing Date. The contingent consideration could range from $
|
|
Amount
|
Useful Life(Yrs)
|
|||||||
|
Favorable/(unfavorable) lease contracts, net
|
$ |
(
|
) |
|
||||
|
Tradenames
|
|
Indefinite | ||||||
|
|
|
|||||||
|
Total acquisition-related intangible assets
|
$ |
|
||||||
|
|
|
|||||||
|
Thirteen Weeks Ended
|
Thirty-Nine Weeks Ended
|
|||||||||||
|
October 31, 2021
|
10/30/2022
|
10/31/2021
|
||||||||||
|
Revenues
|
$ |
|
$ |
|
$ |
|
||||||
|
Net income
|
$ |
(
|
) | $ |
|
$ |
|
|||||
|
Balance at January 31, 2021
|
$ |
|
||
|
Currency adjustment
|
|
|||
|
Balance at January 30, 2022
|
|
|||
|
Currency adjustment
|
|
|||
|
Acquisition of Main Event
|
|
|||
|
|
|
|||
|
Balance at October 30, 2022
|
$ |
|
||
|
|
|
|
October 30, 2022
|
January 30, 2022
|
|||||||||||||||||||||||
|
Gross
Amount |
Accumulated
Amortization |
Net Amount
|
Gross
Amount |
Accumulated
Amortization |
Net Amount
|
|||||||||||||||||||
|
Favorable/unfavorable lease contracts, net
|
$ |
(
|
) | $ |
|
$ |
(
|
) | $ | — | $ | — | $ | — | ||||||||||
|
Tradenames (indefinite lived)
|
$ |
|
N/A | N/A | $ |
|
N/A | N/A | ||||||||||||||||
|
Remainder of 2022
|
$ |
|
||
|
2023
|
$ |
|
||
|
2024
|
$ |
|
||
|
2025
|
$ |
|
||
|
2026
|
$ |
|
||
|
Thereafter
|
$ |
|
|
October 30, 2022
|
January 30, 2022
|
|||||||
|
Deferred amusement revenue
|
$ |
|
$ |
|
||||
|
Current portion of operating lease liabilities, net (1)
|
|
|
||||||
|
Compensation and benefits
|
|
|
||||||
|
Deferred gift card revenue
|
|
|
||||||
|
Property taxes
|
|
|
||||||
|
Occupancy costs
|
|
|
||||||
|
Accrued interest
|
|
|
||||||
|
Sales and use taxes
|
|
|
||||||
|
Customer deposits
|
|
|
||||||
|
Utilities
|
|
|
||||||
|
Current portion of long-term insurance
|
|
|
||||||
|
Other
|
|
|
||||||
|
|
|
|
|
|||||
|
|
$ |
|
$ |
|
||||
|
|
|
|
|
|||||
| (1) |
The balance of leasehold incentive receivables of $
|
|
Thirteen Weeks Ended
|
Thirty-Nine Weeks Ended
|
|||||||||||||||
|
10/30/2022
|
10/31/2021
|
10/30/2022
|
10/31/2021
|
|||||||||||||
|
Operating lease cost
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Variable lease cost
|
|
|
|
|
||||||||||||
|
Short-term lease cost
|
|
|
|
|
||||||||||||
|
Remainder of 2022
|
$ |
|
||
|
2023
|
|
|||
|
2024
|
|
|||
|
2025
|
|
|||
|
2026
|
|
|||
|
Thereafter
|
|
|||
|
|
|
|||
|
Total future operating lease liability
|
$ |
|
||
|
Less: interest
|
(
|
) | ||
|
|
|
|||
|
Present value of operating lease liabilities
|
$ |
|
||
|
|
|
|
October 30, 2022
|
January 30, 2022
|
|||||||
|
Senior secured notes
|
$ |
|
$ |
|
||||
|
Term loan
|
|
— | ||||||
|
|
|
|
|
|||||
|
Total debt outstanding
|
|
|
||||||
|
Current portion
|
(
|
) | — | |||||
|
Original issue discount on term loan
|
(
|
) | — | |||||
|
Debt issuance costs
|
(
|
) |
(
|
) | ||||
|
|
|
|
|
|||||
|
Long-term debt
|
$ |
|
$ |
|
||||
|
|
|
|
|
|||||
|
Thirteen Weeks Ended
|
Thirty-nine Weeks Ended
|
|||||||||||||||
|
October 30, 2022
|
October 31, 2021
|
October 30, 2022
|
October 31, 2021
|
|||||||||||||
|
General and administrative expenses
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
($ in 000s)
|
|
Options
|
|
|
Restricted
Stock Units |
|
|
Total
|
|
|||
|
Outstanding at January 30, 2022
|
|
|
|
|||||||||
|
Granted
|
|
|
|
|||||||||
|
Exercised
|
(
|
) |
|
(
|
) | |||||||
|
Performance adjusted units
|
n/a |
|
|
|||||||||
|
RSU vestings
|
n/a |
(
|
) |
(
|
) | |||||||
|
Forfeited
|
(
|
) |
(
|
) |
(
|
) | ||||||
|
|
|
|
|
|
|
|||||||
|
Outstanding at October 30, 2022
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|||||||
|
Remaining unrecognized compensation expense
|
$ |
|
$ |
|
$ |
|
||||||
Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read together with the accompanying unaudited consolidated financial statements and the related notes in Item 1 and with the audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“SEC”) on March 29, 2022. Unless otherwise specified, the meanings of all defined terms in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are consistent with the meanings of such terms as defined in the Notes to Unaudited Consolidated Financial Statements. This discussion contains statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements can be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “intends,” “may,” “will” or “should” or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not a guarantee of future performance and our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this quarterly report as a result of various factors, including those set forth in the section entitled “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on March 29, 2022. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Form 10-Q, such results or developments may not be indicative of results or developments in subsequent periods.
Recent Events
On June 29, 2022, the Company completed its previously announced Main Event Acquisition. As of October 30, 2022, there were 49 family entertainment centers under the name Main Event and 3 family entertainment centers under the name The Summit (collectively referred to as “Main Event”), operating in 17 states. Refer to Note 2, Business Combinations , to the Unaudited Consolidated Financial Statements for further details.
Quarterly Financial Highlights
| • |
Third quarter revenue of $481,206 increased 51.3% from the third quarter of 2021 and increased 60.7% from the third quarter of 2019. Main Event branded stores contributed $106,803 of revenue during the quarter. |
| • |
Comparable sales at Dave & Buster’s branded stores increased 13.8% compared with the same period in 2021 and 13.6% compared with the same period in 2019. |
| • |
Net income totaled $1,918, or 4 cents per diluted share, compared with net income of $10,585, or 21 cents per diluted share in the third quarter of 2021 and net income of $482, or 2 cents per diluted share in the third quarter of 2019. Net income in the third quarter of fiscal 2022 was impacted by $4,029 of incremental acquisition and integration costs related to the Main Event Acquisition. |
| • |
Adjusted EBITDA of $89,973 increased 31.9% from the third quarter of 2021 and increased 94.4% from the third quarter of 2019. |
| • |
Ended the quarter with $108,211 in cash and $491,095 of liquidity available under the Company’s revolving credit facility. |
General
We are a leading owner and operator of high-volume venues in North America that combine dining and entertainment for both adults and families under the names “Dave & Buster’s” and “Main Event”. The core of our concept is to offer our customers the opportunity to “Eat Drink Play and Watch” all in one location. Eat and Drink are offered through a full menu of entrées and appetizers and a full selection of non-alcoholic and alcoholic beverages. Our Play and Watch offerings provide an extensive assortment of entertainment attractions centered around playing games, bowling, and watching live sports and other televised events. Our brands appeal to a relatively balanced mix of male and female adults, as well as families and teenagers. We believe we appeal to a diverse customer base by providing a highly customizable experience in a dynamic and fun setting.
19
Table of Contents
Our Dave & Buster’s stores, which average 40,000 square feet, range in size between 16,000 and 70,000 square feet. Our Main Event stores, which average 54,000 square feet, range in size between 46,000 and 74,000 square feet. Generally, our stores are open seven days a week, with normal hours of operation generally from between 10:00 to 11:30 a.m. until midnight, with stores typically open for extended hours on weekends.
Key Measures of Our Performance
We monitor and analyze several key performance measures to manage our business and evaluate financial and operating performance. These measures include:
Comparable store sales. Comparable store sales are a comparison of sales to the same period of prior years for the comparable store base. We historically define the comparable store base to include those stores open for a full 18 months before the beginning of the fiscal year and excluding stores permanently closed during the period. Due to the limitations of store operations during the COVID-19 pandemic, the comparable store base for fiscal 2022 is defined as stores open for a full 18 months before the beginning of fiscal 2020 and excludes two stores that the Company elected not to reopen after they were closed in March 2020 due to local operating limitations and one store in Cary, North Carolina that was closed and relocated during the fourth quarter of fiscal 2021. For the first through third quarter of fiscal 2022, our comparable store base consisted of 113 stores. Our Main Event stores were not included in comparable store sales for the thirteen and thirty-nine weeks ended October 30, 2022.
New store openings. Our ability to expand our business and reach new customers is influenced by the opening of additional stores in both new and existing markets. The success of our new stores is indicative of our brand appeal and the efficacy of our site selection and operating models. For the thirty-nine weeks ended October 30, 2022, we opened seven new Dave & Buster’s stores.
Non-GAAP Financial Measures
In addition to the results provided in accordance with generally accepted accounting principles (“GAAP”), we provide non-GAAP measures which present operating results on an adjusted basis. These are supplemental measures of performance that are not required by or presented in accordance with GAAP and include Adjusted EBITDA, Adjusted EBITDA Margin, Store Operating Income Before Depreciation and Amortization and Store Operating Income Before Depreciation and Amortization Margin (defined below). These non-GAAP measures do not represent and should not be considered as an alternative to net income or cash flows from operations, as determined in accordance with GAAP, and our calculations thereof may not be comparable to similarly entitled measures reported by other companies and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. Although we use these non-GAAP measures to assess the operating performance of our business, they have significant limitations as an analytical tool because they exclude certain material costs. For example, Adjusted EBITDA does not take into account a number of significant items, including our interest expense and depreciation and amortization expense. In addition, Adjusted EBITDA excludes pre-opening and other costs which may be important in analyzing our GAAP results. Because Adjusted EBITDA does not account for these expenses, its utility as a measure of our operating performance has material limitations. Our calculations of Adjusted EBITDA adjust for these amounts because they vary from period to period and do not directly relate to the ongoing operations of the currently underlying business of our stores and therefore complicate comparison of underlying business between periods. Nevertheless, because of the limitations described above, management does not view Adjusted EBITDA or Store Operating Income Before Depreciation and Amortization in isolation and also uses other measures, such as revenues, gross margin, operating income and net income, to measure operating performance.
Adjusted EBITDA and Adjusted EBITDA Margin . We define “Adjusted EBITDA” as net income (loss) plus interest expense, net, loss on debt extinguishment or refinancing, provision (benefit) for income taxes, depreciation and amortization expense, loss on asset disposal, impairment of long-lived assets, share-based compensation, pre-opening costs, currency transaction (gains) losses and other costs. “Adjusted EBITDA Margin” is defined as Adjusted EBITDA divided by total revenues.
Adjusted EBITDA is presented because we believe that it provides useful information to investors and analysts regarding our operating performance. By reporting 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.
Store Operating Income Before Depreciation and Amortization and Store Operating Income Before Depreciation and Amortization Margin. We define “Store Operating Income Before Depreciation and Amortization” as operating income (loss) plus depreciation and amortization expense, general and administrative expenses and pre-opening costs. “Store Operating Income Before Depreciation and Amortization Margin” is defined as Store Operating Income Before Depreciation and Amortization divided by total revenues. Store Operating Income Before Depreciation and Amortization Margin allows us to evaluate operating performance of each store across stores of varying size and volume.
20
Table of Contents
We believe that Store Operating Income Before Depreciation and Amortization is another useful measure in evaluating our operating performance because it removes the impact of general and administrative expenses, which are not incurred at the store-level, and the costs of opening new stores, which are non-recurring at the store-level, and thereby enables the comparability of the operating performance of our stores for the periods presented. We also believe that Store Operating Income Before Depreciation and Amortization is a useful measure in evaluating our operating performance within the entertainment and dining industry because it permits the evaluation of store-level productivity, efficiency, and performance, and we use Store Operating Income Before Depreciation and Amortization as a means of evaluating store financial performance compared with our competitors. However, because this measure excludes significant items such as general and administrative expenses and pre-opening costs, as well as our interest expense, net and depreciation and amortization expense, which are important in evaluating our consolidated financial performance from period to period, the value of this measure is limited as a measure of our consolidated financial performance.
Presentation of Operating Results
We operate on a 52 or 53-week fiscal year that ends on the Sunday after the Saturday closest to January 31. Each quarterly period has 13 weeks, except in a 53-week year when the fourth quarter has 14 weeks. All references to the third quarter of 2022 relate to the 13-week period ended October 30, 2022. All references to the third quarter of 2021 relate to the 13-week period ended October 31, 2021. All references to the third quarter of 2019 relate to the 13-week period ended November 3, 2019. Fiscal 2022, fiscal 2021 and fiscal 2019 consist of 52 weeks. All dollar amounts are presented in thousands, unless otherwise noted, except share and per share amounts.
Store-Level Variability, Quarterly Fluctuations, Seasonality and Inflation
We have historically operated stores varying in size and have experienced significant variability among stores in volumes, operating results and net investment costs.
Our new stores historically open with sales volumes in excess of their expected long-term run-rate levels, which we refer to as a “honeymoon” effect. We traditionally expect our new store sales volumes in year two to be approximately 10% to 20% lower than our year one targets, and to grow in line with the rest of our comparable store base thereafter. As a result of the substantial revenues associated with each new store, the number and timing of new store openings may result in significant fluctuations in quarterly results.
In the first year of operation new store operating margins (excluding pre-opening expenses) typically benefit from honeymoon sales leverage on occupancy, management labor, and other fixed costs. This benefit is partially offset by normal inefficiencies in hourly labor and other costs associated with establishing a new store. In year two, operating margins may decline due to the loss of honeymoon sales leverage on fixed costs which is partially offset by improvements in store operating efficiency. Furthermore, rents in our new stores are typically higher than our comparable store base.
Our operating results fluctuate significantly due to seasonal factors. Typically, we have higher revenues associated with spring and year-end holidays which will continue to be susceptible to the impact of severe or unseasonably mild weather on customer traffic and sales during that period. Our third quarter, which encompasses the back-to-school fall season, has historically had lower revenues as compared to the other quarters.
We expect that economic and environmental conditions and changes in regulatory legislation will continue to exert pressure on both supplier pricing and consumer spending related to entertainment and dining alternatives. Although there is no assurance that our cost of products will remain stable or that federal, state, or local minimum wage rates will not increase beyond amounts currently legislated, the effects of any supplier price increase or wage rate increases might be partially offset by selected menu price increases if competitively appropriate. In addition, how quickly, and to what extent, normal economic and operating conditions can resume cannot be predicted, and the resumption of normal business operations may be delayed or constrained by lingering effects of the COVID-19 pandemic on us or our suppliers, third-party service providers, and/or customers.
21
Table of Contents
Thirteen Weeks Ended October 30, 2022 Compared to Thirteen Weeks Ended October 31, 2021
Results of operations. The following table sets forth selected data, in thousands of dollars and as a percentage of total revenues (unless otherwise noted) for the periods indicated. All information is derived from the accompanying unaudited consolidated statements of comprehensive income.
| Thirteen Weeks | Thirteen Weeks | |||||||||||||||
| Ended | Ended | |||||||||||||||
| October 30, 2022 | October 31, 2021 | |||||||||||||||
|
Food and beverage revenues |
$ | 165,855 | 34.5 | % | $ | 107,747 | 33.9 | % | ||||||||
|
Amusement and other revenues |
315,351 | 65.5 | 210,229 | 66.1 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total revenues |
481,206 | 100.0 | 317,976 | 100.0 | ||||||||||||
|
Cost of food and beverage (as a percentage of food and beverage revenues) |
48,939 | 29.5 | 30,082 | 27.9 | ||||||||||||
|
Cost of amusement and other (as a percentage of amusement and other revenues) |
27,316 | 8.7 | 22,531 | 10.7 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total cost of products |
76,255 | 15.8 | 52,613 | 16.5 | ||||||||||||
|
Operating payroll and benefits |
125,919 | 26.2 | 78,995 | 24.8 | ||||||||||||
|
Other store operating expenses |
163,846 | 34.0 | 103,322 | 32.5 | ||||||||||||
|
General and administrative expenses |
32,777 | 6.8 | 22,104 | 7.0 | ||||||||||||
|
Depreciation and amortization expense |
48,427 | 10.1 | 34,381 | 10.8 | ||||||||||||
|
Pre-opening costs |
3,874 | 0.8 | 2,092 | 0.7 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total operating costs |
451,098 | 93.7 | 293,507 | 92.3 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Operating income |
30,108 | 6.3 | 24,469 | 7.7 | ||||||||||||
|
Interest expense, net |
28,374 | 5.9 | 13,423 | 4.2 | ||||||||||||
|
Loss on debt extinguishment / refinancing |
— | — | 2,829 | 0.9 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Income before provision for income taxes |
1,734 | 0.4 | 8,217 | 2.6 | ||||||||||||
|
Benefit for income taxes |
(184 | ) | — | (2,368 | ) | (0.7 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Net income |
$ | 1,918 | 0.4 | % | $ | 10,585 | 3.3 | % | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Change in comparable store sales (1) |
13.8 | % | 189.3 | % | ||||||||||||
|
Comparable stores at end of period (1) |
113 | 114 | ||||||||||||||
|
Company-owned stores at end of period (1) |
203 | 143 | ||||||||||||||
| (1) |
Our comparable store count as of the end of the third quarter of fiscal 2022 excludes a store in Cary, North Carolina, which was closed and relocated during the fourth quarter of fiscal 2021. Company-owned stores as of October 30, 2022, include 52 Main Event stores, which were acquired on June 29, 2022. These stores are not considered comparable stores. |
22
Table of Contents
Reconciliations of Non-GAAP Financial Measures
Adjusted EBITDA
The following table reconciles (in dollars and as a percent of total revenues) Net income to Adjusted EBITDA for the periods indicated:
| Thirteen Weeks | Thirteen Weeks | |||||||||||||||
| Ended | Ended | |||||||||||||||
| October 30, 2022 | October 31, 2021 | |||||||||||||||
|
Net income |
$ | 1,918 | 0.4 | % | $ | 10,585 | 3.3 | % | ||||||||
|
Interest expense, net |
28,374 | 13,423 | ||||||||||||||
|
Loss on debt extinguishment / refinancing |
— | 2,829 | ||||||||||||||
|
Benefit for income taxes |
(184 | ) | (2,368 | ) | ||||||||||||
|
Depreciation and amortization expense |
48,427 | 34,381 | ||||||||||||||
|
|
|
|
|
|||||||||||||
|
EBITDA |
78,535 | 16.3 | % | 58,850 | 18.5 | % | ||||||||||
|
Loss on asset disposal |
242 | 377 | ||||||||||||||
|
Impairment of long-lived assets |
— | — | ||||||||||||||
|
Share-based compensation |
3,228 | 3,778 | ||||||||||||||
|
Pre-opening costs |
3,874 | 2,092 | ||||||||||||||
|
Other costs (1) |
4,094 | 3,112 | ||||||||||||||
|
|
|
|
|
|||||||||||||
|
Adjusted EBITDA |
$ | 89,973 | 18.7 | % | $ | 68,209 | 21.5 | % | ||||||||
|
|
|
|
|
|||||||||||||
| (1) |
Includes $4,029 in costs related to the acquisition and integration of Main Event for the thirteen weeks ended October 30, 2022 and approximately $3,100 of severance costs for the thirteen weeks ended October 31, 2021. Refer to Note 2 of the Unaudited Consolidated Financial Statements for more information. |
Store Operating Income Before Depreciation and Amortization
The following table reconciles (in dollars and as a percent of total revenues) Operating income to Store Operating Income Before Depreciation and Amortization for the periods indicated:
| Thirteen Weeks | Thirteen Weeks | |||||||||||||||
| Ended | Ended | |||||||||||||||
| October 30, 2022 | October 31, 2021 | |||||||||||||||
|
Operating income |
$ | 30,108 | 6.3 | % | $ | 24,469 | 7.7 | % | ||||||||
|
General and administrative expenses |
32,777 | 22,104 | ||||||||||||||
|
Depreciation and amortization expense |
48,427 | 34,381 | ||||||||||||||
|
Pre-opening costs |
3,874 | 2,092 | ||||||||||||||
|
|
|
|
|
|||||||||||||
|
Store Operating Income Before Depreciation and Amortization |
$ | 115,186 | 23.9 | % | $ | 83,046 | 26.1 | % | ||||||||
|
|
|
|
|
|||||||||||||
Capital Additions
The table below reflects accrual-based capital additions. Capital additions do not include any reductions for accrual-based leasehold improvement incentives or proceeds from sale-leaseback transactions (collectively, “Payments from landlords”).
| Thirteen Weeks | Thirteen Weeks | |||||||
| Ended | Ended | |||||||
| October 30, 2022 | October 31, 2021 | |||||||
|
New store and operating initiatives |
$ | 44,524 | $ | 20,616 | ||||
|
Games |
2,893 | 195 | ||||||
|
Maintenance capital |
9,455 | 8,402 | ||||||
|
|
|
|
|
|||||
|
Total capital additions |
$ | 56,872 | $ | 29,213 | ||||
|
|
|
|
|
|||||
|
Payments from landlords |
$ | 20,625 | $ | 5,717 | ||||
23
Table of Contents
Results of Operations
Revenues
In March 2020, a novel strain of coronavirus (“COVID-19”) outbreak was declared a global pandemic and a National Public Health Emergency. Shortly after the national emergency declaration, state and local officials began placing restrictions on businesses, some of which allowed To-Go or curbside service only while others limited capacity in the dining room or arcade “(Midway”). By March 20, 2020, all our 137 operating stores were temporarily closed. On April 30, 2020, our first store re-opened to the public, and by the end of fiscal 2020, 107 of our 140 stores were open and operating. These stores were operating with a combination of limited menus, reduced dining room seating, reduced game availability in the Midway, reduced operating hours and other restrictions referred to as “limited operations” or “operating in limited capacity.” As of the end of the first quarter of fiscal 2021, 138 of our 141 stores were operating in some limited capacity. The Company re-opened the remaining stores that had been temporarily closed by the end of the second quarter of fiscal 2021. During the first quarter of fiscal 2022 any remaining local COVID-19 related operating restrictions on re-opened stores were removed.
On June 29, 2022, the Company completed the Main Event Acquisition, acquiring 49 Main Event and 3 The Summit stores.
Selected revenue and store data for the periods indicated are as follows:
| Thirteen Weeks Ended | ||||||||||||
| October 30, 2022 | October 31, 2021 | Change | ||||||||||
|
Total revenues |
$ | 481,206 | $ | 317,976 | $ | 163,230 | ||||||
|
Total store operating weeks |
2,616 | 1,854 | 762 | |||||||||
|
Comparable store revenues |
$ | 293,416 | $ | 257,732 | $ | 35,684 | ||||||
|
Comparable store operating weeks |
1,469 | 1,469 | — | |||||||||
|
Noncomparable store revenues—Dave & Buster’s |
$ | 81,386 | 56,830 | $ | 24,556 | |||||||
|
Noncomparable store operating weeks—Dave & Buster’s |
471 | 385 | 86 | |||||||||
|
Noncomparable store revenues—Main Event |
106,803 | — | 106,803 | |||||||||
|
Noncomparable store operating weeks—Main Event |
676 | — | 676 | |||||||||
|
Other revenues and deferrals—Dave & Buster’s |
$ | (399 | ) | $ | 3,414 | $ | (3,813 | ) | ||||
Total revenues increased $163,230, or 51.3%, to $481,206 in the third quarter of fiscal 2022 compared to total revenues of $317,976 in the third quarter of fiscal 2021. The increase in revenue is primarily attributable to $106,803 in revenue from our Main Event stores, and a 13.8% increase in comparable store sales. The table below represents our revenue mix for the fiscal periods indicated. The shift in mix from amusement sales to food and beverage sales is due, in part, to increased special events, and food price increases effective midway through the third quarter of fiscal 2021.
| Thirteen Weeks Ended | ||||||||
| October 30, 2022 | October 31, 2021 | |||||||
|
Food sales |
23.5 | % | 22.7 | % | ||||
|
Beverage sales |
11.0 | % | 11.2 | % | ||||
|
Amusement sales |
64.3 | % | 65.5 | % | ||||
|
Other |
1.2 | % | 0.6 | % | ||||
Comparable store revenue increased $35,686 or 13.8%, in the third quarter of fiscal 2022 compared to the third quarter of fiscal 2021, due to the reasons noted above, including a 0.2% increase in comparable store operating weeks. Comparable store sales in the third quarter of fiscal 2022 increased 13.6% compared to the third quarter of fiscal 2019.
Food sales at comparable stores increased by $11,998, or 20.2%, to $71,518 in the third quarter of fiscal 2022 from $59,520 in the third quarter of fiscal 2021. Beverage sales at comparable stores increased by $4,093, or 13.7%, to $33,930 in the third quarter of fiscal 2022 from $29,837 in the 2021 comparison period. Comparable store amusement and other revenues in the third quarter of fiscal 2022 increased by $19,595, or 11.6%, to $187,968 from $168,373 in the comparable period of fiscal 2021.
Dave & Buster’s non-comparable store revenue increased $24,556 in the third quarter of fiscal 2022 compared to the third quarter of fiscal 2021, for the same reasons noted above, including 86 more store operating weeks.
24
Table of Contents
Cost of products
The total cost of products was $76,255 for the third quarter of fiscal 2022 and $52,613 for the third quarter of fiscal 2021. The total cost of products as a percentage of total revenues decreased to 15.8% for the third quarter of fiscal 2022 compared to 16.5% for the third quarter of fiscal 2021.
Cost of food and beverage products increased to $48,939 compared to $30,082 for the third quarter of fiscal 2021. Cost of food and beverage products, as a percentage of food and beverage revenues, increased to 29.5% for the third quarter of fiscal 2022 from 27.9% for the third quarter of fiscal 2021. The unfavorable impacts of commodity cost increases primarily in grocery products during the third quarter of fiscal 2022 were partially offset by poultry cost decreases and food price increases.
Cost of amusement and other increased to $27,316 in the third quarter of fiscal 2022 compared to $22,531 in the third quarter of fiscal 2021. The costs of amusement and other, as a percentage of amusement and other revenues, decreased to 8.7% for the third quarter of fiscal 2022 from 10.7% in the third quarter of fiscal 2021. This decrease was driven primarily by a change in prices at the game level implemented late in fiscal 2021 and lower amusement product costs.
Operating payroll and benefits
Total operating payroll and benefits increased by $46,924 to $125,919 in the third quarter of fiscal 2022 compared to $78,995 in the third quarter of fiscal 2021. Total operating payroll and benefits for the third quarter of fiscal 2022 included approximately $34,529 of payroll and benefits from our Main Event stores. The total cost of operating payroll and benefits as a percentage of total revenues was 26.2% in the third quarter of fiscal 2022 compared to 24.8% in the third quarter of fiscal 2021. This increase is primarily due to an hourly wage rate increase, partially offset by lower incentive compensation as the third quarter of fiscal 2021 included referral and retention incentives.
Other store operating expenses
Other store operating expenses increased by $60,524, or 58.6%, to $163,846 in the third quarter of fiscal 2022 compared to $103,322 in the third quarter of fiscal 2021. The increase is primarily due to the addition of $35,149 of operating costs related to our Main Event stores, the impact of new Dave & Buster’s store openings, utilities, maintenance, higher security cost, cleaning services and higher marketing spend. Other store operating expense as a percentage of total revenues increased to 34.0% in the third quarter of fiscal 2022 compared to 32.5% in the third quarter of fiscal 2021. This increase in basis points was due primarily to increased security costs, cleaning services, and higher marketing spend.
General and administrative expenses
General and administrative expenses increased by $10,673 to $32,777 in the third quarter of fiscal 2022 compared to $22,104 in the third quarter of fiscal 2021. The increase in general and administrative expenses was driven primarily by $4,029 of transaction and integration costs related to the Main Event Acquisition, and higher payroll and incentive compensation, including the addition of Main Event store support center personnel. General and administrative expenses as a percentage of total revenues decreased to 6.8% in the third quarter of fiscal 2022 compared to 7.0% in the third quarter of fiscal 2021 due primarily to sales leverage.
Depreciation and amortization expense
Depreciation and amortization expense increased to $48,427 in the third quarter of fiscal 2022 compared to $34,381 in the third quarter of fiscal 2021, primarily due to the addition of Main Event.
Pre-opening costs
Pre-opening costs increased by $1,782 to $3,874 in the third quarter of fiscal 2022 compared to $2,092 in the third quarter of fiscal 2021 due largely to an increase in the number of new Dave & Buster’s store openings compared to the same time period of the previous year and due to $772 of pre-opening costs related to Main Event stores.
Interest expense, net
Interest expense, net increased by $14,951 to $28,374 in the third quarter of fiscal 2022 compared to $13,423 in the third quarter of fiscal 2021 due primarily to an increase in average outstanding debt.
25
Table of Contents
Provision for income taxes
The effective tax rate for the third quarter of fiscal 2022 was a benefit of 10.6%, compared to a benefit of 28.8% for the third quarter of fiscal 2021. The previous quarter tax provision includes higher excess tax benefits associated with share-based compensation and credits associated with the reversal of certain tax valuation allowances.
Thirty-nine Weeks Ended October 30, 2022 Compared to Thirty-nine Weeks Ended October 31, 2021
Results of operations. The following table sets forth selected data, in thousands of dollars and as a percentage of total revenues (unless otherwise noted) for the periods indicated. All information is derived from the accompanying unaudited consolidated statements of comprehensive income.
| Thirty-Nine Weeks | Thirty-Nine Weeks | |||||||||||||||
| Ended | Ended | |||||||||||||||
| October 30, 2022 | October 31, 2021 | |||||||||||||||
|
Food and beverage revenues |
$ | 474,762 | 33.9 | % | $ | 316,511 | 32.9 | % | ||||||||
|
Amusement and other revenues |
925,904 | 66.1 | 644,443 | 67.1 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total revenues |
1,400,666 | 100.0 | 960,954 | 100.0 | ||||||||||||
|
Cost of food and beverage (as a percentage of food and beverage revenues) |
138,655 | 29.2 | 86,366 | 27.3 | ||||||||||||
|
Cost of amusement and other (as a percentage of amusement and other revenues) |
83,157 | 9.0 | 63,729 | 9.9 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total cost of products |
221,812 | 15.8 | 150,095 | 15.6 | ||||||||||||
|
Operating payroll and benefits |
332,954 | 23.8 | 209,897 | 21.8 | ||||||||||||
|
Other store operating expenses |
430,711 | 30.7 | 292,883 | 30.5 | ||||||||||||
|
General and administrative expenses |
98,784 | 7.1 | 57,665 | 6.0 | ||||||||||||
|
Depreciation and amortization expense |
120,329 | 8.6 | 104,355 | 10.9 | ||||||||||||
|
Pre-opening costs |
10,784 | 0.8 | 5,427 | 0.6 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total operating costs |
1,215,374 | 86.8 | 820,322 | 85.4 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Operating income |
185,292 | 13.2 | 140,632 | 14.6 | ||||||||||||
|
Interest expense, net |
56,883 | 4.0 | 41,971 | 4.3 | ||||||||||||
|
Loss on debt extinguishment / refinancing |
1,479 | 0.1 | 2,829 | 0.3 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Income before provision for income taxes |
126,930 | 9.1 | 95,832 | 10.0 | ||||||||||||
|
Provision for income taxes |
28,940 | 2.1 | 12,842 | 1.4 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Net income |
$ | 97,990 | 7.0 | % | $ | 82,990 | 8.6 | % | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Change in comparable store sales (1) |
26.2 | % | 195.8 | % | ||||||||||||
|
Comparable stores at end of period (1) |
113 | 114 | ||||||||||||||
|
Company-owned stores at end of period (1) |
203 | 143 | ||||||||||||||
| (1) |
Our comparable store count as of the end of the third quarter of fiscal 2022 excludes a store in Cary, North Carolina, which was closed and relocated during the fourth quarter of fiscal 2021. Company-owned stores as of October 30, 2022, includes 52 Main Event stores, which were acquired on June 29, 2022. These stores are not considered comparable stores. |
26
Table of Contents
Reconciliations of Non-GAAP Financial Measures
Adjusted EBITDA
The following table reconciles (in dollars and as a percent of total revenues) Net income to Adjusted EBITDA for the periods indicated:
| Thirty-Nine Weeks | Thirty-Nine Weeks | |||||||||||||||
| Ended | Ended | |||||||||||||||
| October 30, 2022 | October 31, 2021 | |||||||||||||||
|
Net income |
$ | 97,990 | 7.0 | % | $ | 82,990 | 8.6 | % | ||||||||
|
Interest expense, net |
56,883 | 41,971 | ||||||||||||||
|
Loss on debt extinguishment / refinancing |
1,479 | 2,829 | ||||||||||||||
|
Provision for income taxes |
28,940 | 12,842 | ||||||||||||||
|
Depreciation and amortization expense |
120,329 | 104,355 | ||||||||||||||
|
|
|
|
|
|||||||||||||
|
EBITDA |
305,621 | 21.8 | % | 244,987 | 25.5 | % | ||||||||||
|
Loss on asset disposal |
612 | 634 | ||||||||||||||
|
Impairment of long-lived assets |
1,841 | — | ||||||||||||||
|
Share-based compensation |
11,481 | 9,936 | ||||||||||||||
|
Pre-opening costs |
10,784 | 5,427 | ||||||||||||||
|
Other costs (1) |
22,431 | 3,082 | ||||||||||||||
|
|
|
|
|
|||||||||||||
|
Adjusted EBITDA |
$ | 352,770 | 25.2 | % | $ | 264,066 | 27.5 | % | ||||||||
|
|
|
|
|
|||||||||||||
| (1) |
Includes $22,299 in costs related to the acquisition and integration of Main Event. Refer to Note 2 of the Unaudited Consolidated Financial Statements for more information. |
Store Operating Income Before Depreciation and Amortization
The following table reconciles (in dollars and as a percent of total revenues) Operating income to Store Operating Income Before Depreciation and Amortization for the periods indicated:
| Thirty-Nine Weeks | Thirty-Nine Weeks | |||||||||||||||
| Ended | Ended | |||||||||||||||
| October 30, 2022 | October 31, 2021 | |||||||||||||||
|
Operating income |
$ | 185,292 | 13.2 | % | $ | 140,632 | 14.6 | % | ||||||||
|
General and administrative expenses |
98,784 | 57,665 | ||||||||||||||
|
Depreciation and amortization expense |
120,329 | 104,355 | ||||||||||||||
|
Pre-opening costs |
10,784 | 5,427 | ||||||||||||||
|
|
|
|
|
|||||||||||||
|
Store Operating Income Before Depreciation and Amortization |
$ | 415,189 | 29.6 | % | $ | 308,079 | 32.1 | % | ||||||||
|
|
|
|
|
|||||||||||||
Capital Additions
The table below reflects accrual-based capital additions. Capital additions do not include any reductions for Payments from landlords.
| Thirty-Nine Weeks | Thirty-Nine Weeks | |||||||
| Ended | Ended | |||||||
| October 30, 2022 | October 31, 2021 | |||||||
|
New store and operating initiatives |
$ | 116,671 | $ | 40,372 | ||||
|
Games |
22,231 | 12,809 | ||||||
|
Maintenance capital |
23,028 | 16,692 | ||||||
|
|
|
|
|
|||||
|
Total capital additions |
$ | 161,930 | $ | 69,873 | ||||
|
|
|
|
|
|||||
|
Payments from landlords |
$ | 28,553 | $ | 7,802 | ||||
27
Table of Contents
Results of Operations
Revenues
On June 29, 2022, the Company completed the Main Event Acquisition, acquiring 49 Main Event and 3 The Summit stores.
Selected revenue and store data for the periods indicated are as follows:
| Thirty-Nine Weeks Ended | ||||||||||||
| October 30, 2022 | October 31, 2021 | Change | ||||||||||
|
Total revenues |
$ | 1,400,666 | $ | 960,954 | $ | 439,712 | ||||||
|
Total store operating weeks |
6,663 | 5,304 | 1,359 | |||||||||
|
Comparable store revenues |
$ | 995,860 | $ | 789,143 | $ | 206,717 | ||||||
|
Comparable store operating weeks |
4,407 | 4,204 | 203 | |||||||||
|
Noncomparable store revenues—Dave & Buster’s |
$ | 255,259 | 184,492 | $ | 70,767 | |||||||
|
Noncomparable store operating weeks—Dave & Buster’s |
1,320 | 1,100 | 220 | |||||||||
|
Noncomparable store revenues—Main Event |
$ | 158,208 | — | $ | 158,208 | |||||||
|
Noncomparable store operating weeks—Main Event |
936 | — | 936 | |||||||||
|
Other revenues and deferrals—Dave & Buster’s |
$ | (8,661 | ) | $ | (12,682 | ) | $ | 4,021 | ||||
Total revenues increased $439,712 to $1,400,666 in the thirty-nine weeks ended October 30, 2022, compared to total revenues of $960,954 in the thirty-nine weeks ended October 31, 2021. The increase in revenue is attributable to an additional 423 new Dave & Buster’s store operating weeks, and a 26.2% increase in comparable store sales compared to the same period of the previous year, when some of our stores remained temporarily closed as a result of the COVID-19 pandemic, and the removal of local COVID-19 related operating restrictions on re-opened stores. The increase was also driven by $158,208 in revenue from our Main Event stores. The table below represents our revenue mix for the fiscal periods indicated. The shift in mix from amusement sales to food and beverage sales is due, in part, to increased special events, and food price increases effective midway through the third quarter of fiscal 2021.
| Thirty-Nine Weeks Ended | ||||||||
| October 30, 2022 | October 31, 2021 | |||||||
|
Food sales |
23.1 | % | 22.4 | % | ||||
|
Beverage sales |
10.8 | % | 10.5 | % | ||||
|
Amusement sales |
65.3 | % | 66.7 | % | ||||
|
Other |
8.0 | % | 0.3 | % | ||||
Comparable store revenue increased $206,717 or 26.2%, in the thirty-nine weeks ended October 30, 2022, compared to the comparable period of fiscal 2021, due to the reasons noted above, including a 4.8% increase in comparable store operating weeks. Comparable store sales in the thirty-nine weeks ended October 30, 2022, increased 11.2% compared to the comparable period of fiscal 2019.
Food sales at comparable stores increased by $57,676 to $233,378 in the thirty-nine weeks ended October 30, 2022, from $175,702 in the comparable period of fiscal 2021. Beverage sales at comparable stores increased by $27,038 to $110,983 in the thirty-nine weeks ended October 30, 2022, from $83,945 in the comparable period of 2021. Comparable store amusement and other revenues in the thirty-nine weeks ended October 30, 2022, increased by $122,000 to $651,498 from $529,496 in the comparable period of fiscal 2021.
Non-comparable Dave & Buster’s store revenue increased $70,767 in the thirty-nine weeks ended October 30, 2022, compared to the comparable period of fiscal 2021, for the same reasons noted above, including 220 more store operating weeks.
28
Table of Contents
Cost of products
The total cost of products was $221,812 for the thirty-nine weeks ended October 30, 2022, and $150,095 for the comparable period of fiscal 2021. The total cost of products as a percentage of total revenues increased to 15.8% for the thirty-nine weeks ended October 30, 2022, compared to 15.6% for the comparable period of fiscal 2021.
Cost of food and beverage products increased to $138,655 compared to $86,366 for the comparable period of fiscal 2021. Cost of food and beverage products, as a percentage of food and beverage revenues, increased to 29.2% for the thirty-nine weeks ended October 30, 2022, from 27.3% for the comparable period of fiscal 2021. The increase was due to unfavorable impacts of commodity cost increases, primarily in meat and dairy products, during the first thirty-nine weeks of fiscal 2022, and were partially offset by food price increases.
Cost of amusement and other increased to $83,157 in the thirty-nine weeks ended October 30, 2022, compared to $63,729 in the comparable period of fiscal 2021. The costs of amusement and other, as a percentage of amusement and other revenues, decreased to 9.0% for the thirty-nine weeks ended October 30, 2022, from 9.9% in the comparable period of fiscal 2021. This decrease was driven primarily by a change in prices at the game level implemented late in fiscal 2021.
Operating payroll and benefits
Total operating payroll and benefits increased by $123,057 to $332,954 in the thirty-nine weeks ended October 30, 2022, compared to $209,897 in the comparable period of fiscal 2021. The total cost of operating payroll and benefits as a percentage of total revenues was 23.8% in the thirty-nine weeks ended October 30, 2022, compared to 21.8% in the comparable period of fiscal 2021. This increase is primarily due to an hourly wage rate increase and an increase in labor hours worked as open positions were filled, partially offset by lower incentive compensation costs as fiscal 2021 included referral and retention incentives.
Other store operating expenses
Other store operating expenses increased by $137,828 to $430,711 in the thirty-nine weeks ended October 30, 2022, compared to $292,883 in the comparable period of fiscal 2021. The increase is primarily due to higher utilities, supplies, maintenance, marketing, and other services as well as $47,920 of costs related to Main Event. Other store operating expense as a percentage of total revenues increased to 30.7% in the thirty-nine weeks ended October 30, 2022, compared to 30.5% in the comparable period of fiscal 2021. This increase was due primarily to the reasons noted above.
General and administrative expenses
General and administrative expenses increased by $41,119 to $98,784 in the thirty-nine weeks ended October 30, 2022, compared to $57,665 in the comparable period of fiscal 2021. The increase in general and administrative expenses was driven primarily by $22,299 of transaction and integration costs related to the Main Event Acquisition, $1,841 impairment of the existing Main Event corporate office right-of-use operating lease asset, and higher payroll and incentive compensation expense. General and administrative expenses, as a percentage of total revenues increased to 7.1% in the thirty-nine weeks ended October 30, 2022 compared to 6.0% in the comparable period of fiscal 2021 due to the reasons noted above.
Depreciation and amortization expense
Depreciation and amortization expense increased to $120,329 in the thirty-nine weeks ended October 30, 2022, compared to $104,355 in the comparable period of fiscal 2021, primarily due to the addition of the Main Event. Incremental depreciation for Main Event was partially offset by a net decrease in depreciation expense at Dave & Buster’s stores as the impact of assets reaching the end of their depreciable lives exceeded expense increases due to recent capital expenditures for new stores, operating initiatives, games, and maintenance capital.
Pre-opening costs
Pre-opening costs increased by $5,357 to $10,784 in the thirty-nine weeks ended October 30, 2022, compared to $5,427 in the comparable period of fiscal 2021 due primarily to an increase in the number of new Dave & Buster’s store openings compared to the same time period of the previous year.
29
Table of Contents
Interest expense, net and loss on debt refinancing
Interest expense, net increased by $14,912 to $56,883 in the thirty-nine weeks ended October 30, 2022 compared to $41,971 in the comparable period of fiscal 2021 as a result of the acquisition-related debt incurrence of $850,000. In connection with the June 29, 2022 debt refinancing, the Company recorded a loss of $1,479, which is explained in Note 6 to the Consolidated Financial Statements.
Provision for income taxes
The effective tax rate for the thirty-nine weeks ended October 30, 2022 was 22.8%, compared to 13.4% for the comparable period of fiscal 2021. The previous year tax provision includes higher excess tax benefits associated with share-based compensation and credits associated with the reversal of certain tax valuation allowances.
Liquidity and Capital Resources
Debt
In connection with the closing of the Main Event Acquisition on June 29, 2022, D&B Inc entered into a senior secured credit agreement, which refinanced the $500,000 existing revolving facility, extended the maturity date to June 29, 2027, and added a new term loan facility in the aggregate principal amount of $850,000, with a maturity date of June 29, 2029 (“Credit Facility”). The proceeds of the term loan, net of an original issue discount of $42,500, were used to pay the consideration for the Acquisition. The revolving credit facility can expire before the stated maturity date if the aggregate outstanding principal amount of the Notes exceeds $100,000 ninety-one days prior to November 1, 2025. A portion of the revolving facility not to exceed $35,000 is available for the issuance of letters of credit. At the end of the third quarter of fiscal 2022, we had letters of credit outstanding of $8,905 and an unused commitment balance of $491,095 under the revolving facility. The Credit Facility may be increased through incremental facilities, by an amount equal to the greater of (i) $400,000 and (ii) 0.75 times trailing twelve-month Adjusted EBITDA, as defined, plus additional amounts subject to compliance with applicable leverage ratio and/or interest coverage ratio requirements. The Credit Facility is unconditionally guaranteed by D&B Holdings and certain of D&B Inc’s existing and future wholly owned material domestic subsidiaries.
The interest rates per annum applicable to SOFR term loans are based on a defined SOFR rate (with a floor of 0.50%) plus an additional credit spread adjustment of 0.10%, plus a margin of 5.00%. The interest rates per annum applicable to SOFR revolving loans are based on the term loan SOFR rate, plus an additional credit spread adjustment of 0.10%, plus an initial margin of 4.75%. Unused commitments under the revolving facility incur initial commitment fees of 0.50%. After the Company’s third quarter of fiscal 2022, the margin for SOFR revolving loans are subject to a pricing grid based on net total leverage, ranging from 4.25% to 4.75%, and commitment fees are subject to a pricing grid based on net total leverage, ranging from 0.30% to 0.50%.
During fiscal 2020, the Company issued $550,000 aggregate principal amount of 7.625% senior secured notes (the “Notes”). Interest on the Notes is payable in arrears on November 1 and May 1 of each year. The Notes mature on November 1, 2025, unless earlier redeemed, and are subject to the terms and conditions set forth in the related indenture. The Notes were issued by D&B Inc and are unconditionally guaranteed by D&B Holdings and certain of D&B Inc’s existing and future wholly owned material domestic subsidiaries. During fiscal 2021, the Company redeemed a total of $110,000 outstanding principal amount of the Notes, and paid prepayment premiums of $3,300, plus accrued and unpaid interest to the date of redemptions. The early redemptions of the Notes resulted in a loss on extinguishment of approximately $2,300 related to a proportional amount of unamortized issuance costs. Beginning October 27, 2022, the Company may elect to further redeem the Notes, in whole or in part, at certain specified redemption prices, plus accrued and unpaid interest, at the redemption date.
Amortization of debt issuance costs and original issue discount was $2,882 and $5,477 for the thirteen and thirty-nine weeks ended October 30, 2022, and $1,070 and $3,275 for the thirteen and thirty-nine weeks ended October 31, 2021, respectively, and is included in “Interest expense, net” in the Consolidated Statements of Comprehensive Income. For the thirty-nine weeks ended October 30, 2022, and October 31, 2021, respectively, the Company’s weighted average effective interest rate on our total debt facilities (before capitalized interest amounts) was 9.5% and 10.3%, respectively. During the second quarter of fiscal 2022, the Company recognized a loss of $1,479, related to the write off of unamortized debt issuance costs associated with exiting creditors of the refinanced revolving facility.
Our debt agreements contain restrictive covenants that, among other things, place certain limitations on our ability to incur additional indebtedness, make loans or advances to subsidiaries and other entities, pay dividends, acquire other businesses or sell assets. The Credit Facility also requires the Company to maintain a maximum net total leverage ratio, as defined, as of the end of each fiscal quarter, beginning with the first full fiscal quarter after the Closing Date. We were in compliance with the covenants and terms of our debt agreements as of October 30, 2022 and expect to remain in compliance through the end of fiscal 2022.
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Dividends and Share Repurchases
On December 6, 2021, our Board of Directors approved a share repurchase program with an authorization limit of $100,000, expiring at the end of fiscal 2022. During the third quarter of fiscal 2022, the Company did not make any share repurchases under this program. The approximate dollar value of shares that may be repurchased under the plan as of October 30, 2022, is $74,985. There were no dividends declared during the thirty-nine weeks ended October 30, 2022. Future decisions to pay cash dividends or repurchase shares continue to be at the discretion of the Board of Directors and will be dependent on our operating performance, financial condition, capital expenditure requirements and other factors that the Board of Directors considers relevant.
Cash and Cash Equivalents
As of October 30, 2022, the Company had cash and cash equivalents of $108,211. The Company can operate with a working capital deficit because cash from sales is usually received before related liabilities for product supplies, labor and services become due. Our operations do not require significant inventory or receivables and we continually invest in our business through the growth of stores and operating improvement additions, which are reflected as noncurrent assets and not a part of working capital. Based on our current business plan, we believe our cash and cash equivalents combined with expected cash flows from operations, available borrowings under our revolving credit facility and expected payments from landlords should be sufficient not only for our operating requirements but also to enable us, in the aggregate, to finance our capital allocation strategy, including capital expenditures, through at least the next twelve months.
A comparison of our cash flow activity for the first three quarters of fiscal 2022 to the same period of fiscal 2021 follows.
Operating Activities — Cash flow from operations typically provides us with a significant source of liquidity. Our operating cash flows result primarily from cash received from our customers, offset by cash payments we make for products and services, employee compensation, operations, and occupancy costs. Cash from operating activities is also subject to changes in working capital. Working capital at any specific point in time is subject to many variables, including seasonality, the timing of cash receipts and payments, and vendor payment terms. Cash flow from operating activities increased approximately $97,000 in the thirty-nine weeks ended October 30, 2022 compared to the thirty-nine weeks ended October 31, 2021 driven primarily by 423 more store weeks for Dave & Busters, 936 store weeks for Main Event, and the receipt of a federal tax refund in the amount of approximately $33,200. These increases in cash flow from operating activities were offset by the payment of acquisition and integration costs of approximately $22,300.
Investing Activities — Cash flow from investing activities primarily reflects the Main Event Acquisition for cash consideration of approximately $819,000, which is net of cash acquired of approximately $34,000. During the thirty-nine weeks ended October 30, 2022, the Company spent approximately $114,600 for new store construction and operating improvement initiatives ($86,000 net of payments from landlords), $22,200 for game refreshment and $27,200 for maintenance capital.
During the thirty-nine weeks ended October 31, 2021, the Company spent approximately $35,700 for new store construction and operating improvement initiatives ($27,900 net of payments from landlords), $12,800 for game refreshment and $15,000 for maintenance capital.
Financing Activities — During the second quarter of fiscal 2022, the Company entered into a new credit facility agreement, with term loan net proceeds of $807,500. The proceeds were used to pay for the Acquisition, including $17,748 of debt issuance costs associated with the refinancing. The Company also repurchased shares at a cost of $25,015 during the second quarter.
Contractual Obligations and Commitments
There have been no material changes outside the ordinary course of business to our contractual obligations since January 30, 2022, as reported on Form 10-K filed with the SEC on March 29, 2022 other than as related to the acquisition of Main Event.
Accounting policies and estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosures of contingent assets and liabilities. These estimates and assumptions affect amounts of assets, liabilities, revenues and expenses and the disclosure of gain and loss contingencies at the date of the consolidated financial statements. Our current estimates are subject to change if different assumptions as to the outcome of future events were made. We evaluate our estimates and judgments on an ongoing basis, and we adjust our assumptions and judgments when facts and circumstances dictate. Since future events and their effects cannot be determined with absolute certainty, actual results may differ from the estimates we used in preparing the accompanying consolidated financial statements. In addition to the critical accounting policies and estimates previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended January 30, 2022, due to recent transactions and events, we also consider the following to be part of our critical accounting policies and estimates due to the high degree of judgment and complexity in its application.
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Business combinations — The Main Event Acquisition was accounted for using the acquisition method of accounting, or acquisition accounting, in accordance with ASC Topic 805, Business Combinations. The acquisition method of accounting involved the allocation of the purchase price to the assets acquired and liabilities assumed based on preliminary estimated fair values as of the date of the acquisition. The determination of the fair value of tangible and intangible assets, which represent a significant portion of the purchase price, requires the use of significant judgment with regard to (i) the fair value and (ii) whether such acquired intangibles are amortizable or non-amortizable and, if the former, the period and the method by which the intangible asset will be amortized. The Company estimates the fair value of acquisition-related tangible and intangible assets principally based on Replacement Cost New and the Relief from Royalty methods, which include estimates of projected future EBITDA, long-term growth rate, discount rate and royalty rate. The projected cash flows are discounted to determine the present value of the assets at the dates of acquisition. Refer to Note 2 to the Unaudited Consolidated Financial Statements for additional information about our recent business combination.
Recent accounting pronouncements
Refer to Note 1 to the Unaudited Consolidated Financial Statements for information regarding new accounting pronouncements.
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
Commodity Price Risk
We are exposed to market price fluctuation in food, beverage, supplies and other costs such as energy. Given the historical volatility of certain of our food product prices, including proteins, seafood, produce, dairy products, and cooking oil, these fluctuations can materially impact our food costs. While our purchasing commitments partially mitigate the risk of such fluctuations, there is no assurance that supply and demand factors such as disease or inclement weather will not cause the prices of the commodities used in our restaurant operations to fluctuate. Additionally, the cost of purchased materials may be influenced by tariffs and other trade regulations which are outside of our control. To the extent that we do not pass along cost increases to our customers, our results of operations may be adversely affected.
Interest Rate Risk
In the second quarter of fiscal 2022, the Company elected SOFR as the alternative base rate for outstanding borrowings on the Credit Facility, which is based on variable rates. As of October 30, 2022, there was no balance outstanding on our revolving facility, and an outstanding balance of $850,000 on the term loan facility.
Inflation
Severe increases in inflation could affect the United States or global economies and have an adverse impact on our business, financial condition and results of operation. If several of the various costs in our business experience inflation at the same time, such as commodity price increases beyond our ability to control and increased labor costs, we may not be able to adjust prices to sufficiently offset the effect of the various cost increases without negatively impacting consumer demand.
| Item 4. |
Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective. As discussed in Note 2 to our Unaudited Consolidated Financial Statements set forth in Part 1 of this report, we acquired Main Event on June 29, 2022. Main Event constitutes approximately 35% of total assets and approximately 11.3% of total revenues of the consolidated financial statement amounts as of and for the thirty-nine weeks ended October 30, 2022. As the Main Event Acquisition occurred in the second quarter of 2022 and they were not previously governed by the Exchange Act Rules 13a-15(f) and 15d-15(f)), we excluded Main Event’s internal control over financial reporting from our assessment of the effectiveness of disclosure controls and procedures. This exclusion is in accordance with the general guidance issued by the Staff of the SEC that an assessment of a recently acquired business may be omitted from our scope in the year of acquisition.
Changes in Internal Control Over Financial Reporting
Except as described above, there were no changes to our internal control over financial reporting practices or processes that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during our third quarter ended October 30, 2022. The Main Event Acquisition had a material impact on internal control over financial reporting. The Company intends to take a period of time to incorporate the impact of the transaction into its evaluation of internal control over financial reporting. As such, we will exclude the internal control over financial reporting of Main Event from our evaluation of internal control over financial reporting for the year ending January 29, 2023.
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PART II – OTHER INFORMATION
| Item 1. |
Legal Proceedings |
Information regarding legal proceedings is incorporated by reference from Note 7 to our Unaudited Consolidated Financial Statements set forth in Part I of this report.
| Item 1A. |
Risk Factors |
The Company is supplementing the Risk Factors previously disclosed in Item 1A of the Annual Report on Form 10-K for the fiscal year ended January 30, 2022, (the “Annual Report”). The following Risk Factor should be read in conjunction with the Risk Factors disclosed in the Annual Report.
We may acquire a business in the future that we fail to effectively integrate or operate.
We recently acquired a business as part of our expansion effort and may acquire more businesses in the future. Once an acquisition is finalized, we may not be successful in integrating the business into our existing operations, which may result in unforeseen operational difficulties, diminished financial performance or our inability to report financial results and may require a disproportionate amount of our management’s attention. If we fail to manage our recent or future acquisitions effectively, our results of operations could be adversely affected.
Our recent acquisition and any future acquisitions will be accompanied by the risks commonly encountered in acquisitions, including:
| • |
incorrect assumptions regarding the future results of acquired operations or assets or expected cost reductions or other synergies expected to be realized from acquiring operations or assets; |
| • |
failure to integrate the operations or management of any acquired operations or assets successfully and timely; |
| • |
potential loss of key employees and customers of the acquired companies; |
| • |
potential lack of experience operating in a geographic market or product line of the acquired business; |
| • |
an increase in our expenses, particularly overhead expenses, and working capital requirements; |
| • |
the possible inability to achieve the intended objectives of the business combination; and |
| • |
the diversion of management’s attention from existing operations or other priorities. |
Covenants in our debt agreements restrict our business and could limit our ability to implement our business plan.
The credit facility and the indenture governing the senior secured notes contain covenants that may restrict our ability to implement our business plan, finance future operations, respond to changing business and economic conditions, secure additional financing, and engage in opportunistic transactions, such as strategic acquisitions. In addition, if we fail to satisfy the covenants contained in the credit facility, our ability to borrow under the revolving credit loans portion of the credit facility may be restricted. The credit facility and the indenture governing the senior secured notes include covenants restricting, among other things, our ability to do the following under certain circumstances:
| • |
incur or guarantee additional indebtedness or issue certain disqualified or preferred stock; |
| • |
pay dividends or make other distributions on, or redeem or purchase any equity interests or make other restricted payments; |
| • |
make certain acquisitions or investments; |
| • |
create or incur liens; |
| • |
transfer or sell assets; |
| • |
incur restrictions on the payment of dividends or other distributions from our restricted subsidiaries; |
| • |
alter the business that we conduct; |
| • |
enter into transactions with affiliates; and |
| • |
consummate a merger or consolidation or sell, assign, transfer, lease or otherwise dispose of all or substantially all our assets. |
The credit facility also requires us and our restricted subsidiaries to maintain a maximum net total leverage ratio of 3.50:1.00 as of the end of each fiscal quarter, solely to the extent 35% of the credit facility (other than $30 million of undrawn letters of credit and any letters of credit that have been cash collateralized) is drawn on such date.
Events beyond our control, including the impact of COVID-19, may affect our ability to comply with our covenants. If we default under the credit facility or the indenture governing the senior secured notes, because of a covenant breach or otherwise, all outstanding amounts thereunder could become immediately due and payable. We cannot assure that we will be able to comply with our covenants under the credit facility, or the indenture governing the senior secured notes or that any covenant violations will be waived in the future. Any violation that is not waived could result in an event of default, permitting our lenders to declare outstanding indebtedness and interest thereon due and payable, and permitting the lenders under the revolving credit loans provided under the credit facility to suspend commitments to make any advance, or require any outstanding letters of credit to be collateralized by an interest bearing cash account, any or all of which could have a material adverse effect on our business, financial condition and results of operations. In addition, if we fail to comply with our financial or other covenants under the credit facility or the indenture governing the senior secured notes, we may need additional financing to service or extinguish our indebtedness. We may not be able to obtain financing or refinancing on commercially reasonable terms, or at all. We cannot assure that we would have sufficient funds to repay outstanding amounts under the credit facility or the indenture governing the senior secured notes and any acceleration of amounts due would have a material adverse effect on our liquidity and financial condition.
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| Item 2. |
Unregistered Sales of Equity Securities |
Information regarding repurchase of our common stock, in thousands, except share amounts, during the thirteen weeks ended October 30, 2022:
|
Period (1) |
Total Number
of Shares Repurchased |
Average Price
Paid per Share |
Total Number of Shares
Repurchased as Part of Publicly Announced Plan (2) |
Approximate Dollar Value of
Shares That May Yet Be Repurchased Under the Plan (3) |
||||||||||||
|
August 1 – August 28, 2022 |
— | $ | — | — | $ | 74,985 | ||||||||||
|
August 29 – October 2, 2022 |
— | $ | — | — | $ | 74,985 | ||||||||||
|
October 3 – October 30, 2022 |
— | $ | — | — | $ | 74,985 | ||||||||||
| (1) |
Monthly information is presented by reference to our fiscal periods during the thirteen weeks ended October 30, 2022. |
| (2) |
Our Board of Directors approved a share repurchase program, under which the Company may repurchase shares on the open market, through privately negotiated transactions, and through trading plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The share repurchase program may be modified, suspended or discontinued at any time. |
| (3) |
Based on total share repurchase authorization in effect on October 30, 2022. |
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| Item 6. |
Exhibits |
|
Exhibit Number |
Description |
|
| 31.1* | Certification of Christopher Morris, Chief Executive Officer of the Registrant, pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a). | |
| 31.2* | Certification of Michael A. Quartieri, Chief Financial Officer of the Registrant, pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a). | |
| 32.1* | Certification of Christopher Morris, Chief Executive Officer of the Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 32.2* | Certification of Michael A. Quartieri, Chief Financial Officer of the Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS | Inline XBRL Inline Instance Document—the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
| 101.SCH | Inline XBRL Inline Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Inline Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Inline Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Inline Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Inline Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). | |
| * |
Filed herein |
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Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
DAVE & BUSTER’S ENTERTAINMENT, INC., a Delaware corporation |
||||||
| Date: December 6, 2022 | By: |
/s/ Christopher Morris |
||||
| Christopher Morris | ||||||
| Chief Executive Officer | ||||||
| Date: December 6, 2022 | By: |
/s/ Michael A. Quartieri |
||||
| Michael A. Quartieri | ||||||
| Chief Financial Officer | ||||||
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