Bowlero (BOWL) - 2022 Q4 - Annual Report

Part I Business Bowlero Corp. is the world's largest operator of bowling entertainment centers, focusing on organic growth, strategic acquisitions, and leveraging its diverse brands and PBA ownership - Bowlero is the world's largest owner and operator of bowling centers, approximately six times larger than the next largest U.S. operator[13][22] - The company operates under distinct brands: Bowlero (upscale entertainment concept) and AMF (traditional bowling in an updated format)[17] - A key growth strategy involves center acquisitions, including Bowl America Incorporated in August 2021, which operated 17 centers[20] - The company owns and operates the Professional Bowlers Association (PBA), a strategic asset providing media content and a global fan base[18] Employee Count | Category | Count | | :--- | :--- | | Total Employees | ~9,390 | | Full-time | 2,965 | | Part-time | 6,422 | | Unionized Employees | 71 | - On December 15, 2021, the company completed a business combination with Isos Acquisition Corporation, leading to its public listing as "Bowlero Corp."[40] Risk Factors The company faces significant business, operational, IT, and ownership risks, including pandemic impacts, consumer spending volatility, competition, substantial debt, and concentrated voting power - The COVID-19 pandemic had a material adverse effect, causing government-mandated shutdowns and significant losses of $29.9 million in FY2022 and $126.5 million in FY2021, alongside increased debt[44][45][46] - The business is highly dependent on discretionary consumer spending, susceptible to economic slowdowns, recessions, and changing consumer preferences[51] - The company faces substantial competition from other out-of-home entertainment and sophisticated home-based entertainment options[56] - A significant portion of operating expenses stems from long-term, non-cancelable leases, creating financial obligations even for unprofitable or closed centers[63] - The company has substantial indebtedness, with forecasted debt service of $53.2 million in fiscal year 2023, potentially limiting liquidity and operational flexibility[68] - Material weaknesses were identified in internal controls over financial reporting, specifically concerning acquisition accounting, fixed assets, financial reporting disclosures, and IT system access controls[139][142] - The dual-class stock structure concentrates over 80% of voting power with the founder and CEO, Thomas F. Shannon, and major investor Atairos, limiting public stockholder influence[179][180][184] - The company is a "controlled company" under NYSE rules, qualifying for exemptions from certain corporate governance requirements, such as having a majority of independent directors[190][191] Unresolved Staff Comments The company reports no unresolved staff comments - None[193] Properties As of July 3, 2022, the company operates 317 bowling centers globally, primarily leased, with the majority located in the United States Bowling Center Portfolio by Location | Location | Leased | Owned | Total | | :--- | :--- | :--- | :--- | | United States | 278 | 32 | 310 | | Mexico | 2 | 3 | 5 | | Canada | 2 | 0 | 2 | | Total | 282 | 35 | 317 | - The company's U.S. operations are geographically diverse, with the largest presence in California (44 locations), Virginia (29 locations), and Florida (28 locations)[196] - As of July 3, 2022, the company has three centers in development and four closed centers in its real estate portfolio[196] Legal Proceedings The company is involved in various legal proceedings, notably facing approximately 76 pending EEOC claims primarily alleging age discrimination, which management believes will not materially affect its financial condition - Approximately 76 pending claims have been filed with the EEOC between 2016 and 2019, generally relating to age discrimination[199] - The EEOC determined probable cause for an alleged pattern or practice of age discrimination on March 7, 2022, proposing conciliation with monetary and non-monetary remedies on August 22, 2022[199] - Management, after consulting legal counsel, believes the EEOC claims do not pose a material business risk, noting many would be time-barred if brought by individuals directly[199] Mine Safety Disclosures This section is not applicable to the company - Not applicable[200] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Bowlero's Class A common stock is listed on the NYSE, with the company repurchasing over 3.3 million shares under a $200 million program while retaining earnings for growth and paying 5.5% dividends on preferred stock - On February 7, 2022, the Board authorized a share and warrant repurchase program of up to $200 million through February 3, 2024[205] Share Repurchase Program Activity | Fiscal Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | May 2, 2022 to May 29, 2022 | 503,720 | $9.31 | | May 30, 2022 to July 3, 2022 | 2,817,193 | $10.24 | | Total for Q4 FY22 | 3,320,913 | $10.10 | - The company has no current plans to pay cash dividends on its Class A common stock, intending to retain future earnings for business expansion[213] - Dividends on Series A Preferred Stock accumulate at a fixed rate of 5.5% per annum on a $1,000 per share liquidation preference, with unpaid amounts added to the liquidation preference as paid-in-kind dividends[214][217] Reserved This section is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's strong FY2022 rebound, with revenue increasing 131% to $911.7 million and Adjusted EBITDA reaching $316.4 million, despite a $29.9 million net loss, supported by $132.2 million in cash and a $165 million credit facility Results of Operations FY2022 revenue surged 131% to $911.7 million, with same-store revenue up 120%, leading to a net loss improvement to $29.9 million despite increased SG&A expenses including $68.4 million in one-time business combination costs Consolidated Statements of Operations Summary | Metric (in thousands) | FY 2022 | FY 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $911,705 | $395,234 | $516,471 | 131% | | Gross Profit | $301,734 | $20,979 | $280,755 | 1338% | | Operating Profit (Loss) | $116,625 | $(38,639) | $155,264 | (402)% | | Net Loss | $(29,934) | $(126,461) | $96,527 | (76)% | - Same-store revenue increased by 120% in FY2022 compared to FY2021, reflecting a significant recovery from COVID-19 related closures and restrictions[237][238] - SG&A expenses increased by 131% to $180.7 million, largely due to $68.4 million in transaction costs from the Business Combination; excluding these, SG&A was approximately 12% of revenue[240] - The fair value of earnout and warrant liabilities had an unfavorable $52.6 million impact on the statement of operations due to an increase in the company's stock price following the Business Combination[244] Non-GAAP Measure (Adjusted EBITDA) Adjusted EBITDA, a non-GAAP measure, significantly increased to $316.4 million in FY2022 from $73.1 million in FY2021, providing a supplemental view of operating performance by excluding non-recurring and non-core items Adjusted EBITDA Reconciliation | Reconciliation (in thousands) | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Net loss | $(29,934) | $(126,461) | | Interest expense | $94,460 | $88,857 | | Income tax benefit | $(690) | $(1,035) | | D&A and impairment | $108,505 | $91,851 | | Share-based compensation | $50,236 | $3,164 | | Transactional and other advisory costs | $38,140 | $10,737 | | Changes in value of earnouts and warrants | $52,789 | $— | | Other adjustments | $(2,131) | $5,906 | | Adjusted EBITDA | $316,375 | $73,119 | Liquidity and Capital Resources The company maintains strong liquidity with $132.2 million in cash and $177.7 million in operating cash flow for FY2022, supported by a $165 million revolving credit facility, despite $220.3 million used in investing activities Consolidated Cash Flow Summary | Cash Flow (in thousands) | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $177,670 | $58,232 | | Net cash used in investing activities | $(220,345) | $(46,676) | | Net cash (used in) provided by financing activities | $(12,136) | $34,805 | - As of July 3, 2022, the company had $132.2 million of available cash and cash equivalents[260] - The company refinanced its revolving credit facility, resulting in a new $165 million senior secured revolving credit facility maturing in 2026[259] Critical Accounting Estimates Critical accounting estimates involve significant judgment, including impairment assessments for long-lived assets, goodwill, and indefinite-lived intangibles, and the valuation of earnout and warrant liabilities using a Monte-Carlo simulation model - Long-lived assets are reviewed for impairment when events indicate the carrying value may not be recoverable, with $1.5 million in impairment charges recognized in fiscal 2022[270][271] - Goodwill and indefinite-lived intangible assets are tested for impairment annually, with a qualitative assessment in fiscal 2022 resulting in no goodwill impairment charge[273][274] - The fair value of earnout and warrant liabilities is estimated using a Monte-Carlo simulation model, a Level 3 fair value measurement sensitive to unobservable inputs like stock price and volatility[275] - The company, as an emerging growth company, has elected to use the extended transition period for complying with new or revised financial accounting standards[278][279] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate, credit, commodity price, and inflation risks, having previously used interest rate hedges that expired on June 30, 2022, and managing commodity volatility within competitive limits - The company is exposed to interest rate risk on its term and revolving credit facilities, with prior interest rate swaps and caps covering approximately $650 million of debt expiring on June 30, 2022[283] - The company faces commodity price risk from fluctuations in food, beverage, and supply costs, mitigated through purchasing commitments and price monitoring[285] - Inflation affects operating costs, and while the company may adjust prices to recover higher costs, this is limited by the competitive environment[286] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for FY2022 and FY2021, including the auditor's report, balance sheets, income statements, cash flow statements, and comprehensive notes Report of Independent Registered Public Accounting Firm KPMG LLP issued an unqualified opinion on the company's consolidated financial statements for FY2022 and FY2021, affirming fair presentation in conformity with U.S. GAAP - KPMG LLP expressed an unqualified opinion on the company's consolidated financial statements for the fiscal years ended July 3, 2022, and June 27, 2021[291] Consolidated Financial Statements The consolidated financial statements show total assets of $1.85 billion and total liabilities of $1.66 billion as of July 3, 2022, with a net loss of $29.9 million and strong operating cash flow of $177.7 million for FY2022 Consolidated Balance Sheets | Balance Sheet (in thousands) | July 3, 2022 | June 27, 2021 | | :--- | :--- | :--- | | Total Current Assets | $169,294 | $207,445 | | Total Assets | $1,854,425 | $1,782,238 | | Total Current Liabilities | $119,160 | $107,373 | | Total Liabilities | $1,662,105 | $1,452,115 | | Total Stockholders' Deficit | $(13,682) | $(275,866) | Consolidated Statements of Operations | Statement of Operations (in thousands) | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Revenues | $911,705 | $395,234 | | Gross Profit | $301,734 | $20,979 | | Operating Profit (Loss) | $116,625 | $(38,639) | | Net Loss | $(29,934) | $(126,461) | | Net Loss Per Share | $(0.26) | $(0.92) | Notes to Consolidated Financial Statements The notes detail accounting policies and financial figures, covering reverse recapitalization, business acquisitions, goodwill, debt, income taxes, warrants, earnouts, and stock-based compensation plans - The Business Combination with Isos was accounted for as a reverse recapitalization, with Old Bowlero as the accounting acquirer, and financial statements reflect Old Bowlero's historical operations[325][326][327] Revenue by Category (FY 2022) | Revenue by Category (FY 2022) | Amount (in thousands) | % of Total | | :--- | :--- | :--- | | Bowling | $452,349 | 51% | | Food and beverage | $321,441 | 35% | | Amusement | $118,940 | 13% | | Media | $18,975 | 2% | | Total | $911,705 | 100% | - In fiscal 2022, the company completed eight business combinations for total consideration of $72.7 million and two asset acquisitions (including Bowl America) for $54.2 million[414][417] - As of July 3, 2022, the company had total debt of $876.7 million, primarily consisting of a First Lien Credit Facility Term Loan[444] - The company has U.S. federal net operating loss (NOL) carryforwards of $460.6 million, with $276.1 million subject to limitation and a $138.6 million valuation allowance recorded against deferred tax assets[468][469][470] - All outstanding public and private warrants were redeemed as of May 16, 2022, and the company no longer has any warrants outstanding[397][481] - The company has three stock incentive plans: the 2017 Plan (no new grants), the 2021 Omnibus Incentive Plan, and an Employee Stock Purchase Plan (ESPP) effective July 1, 2022[514][528] Changes in and Disagreements with Accountants on Accounting and Financial Disclosures The company reports no changes in or disagreements with its accountants regarding accounting and financial disclosures - None[533] Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of July 3, 2022, due to material weaknesses in internal controls over financial reporting, for which a remediation plan is being implemented - Management concluded that disclosure controls and procedures were not effective as of July 3, 2022, due to identified material weaknesses[536] - Material weaknesses were identified in controls over acquisition accounting, fixed assets, certain financial reporting disclosures, and IT system access controls to establish segregation of duties[537] - A remediation plan is being implemented, including additional training, hiring staff with technical accounting skills, and engaging third-party experts[537] - As a newly public company, a management report on internal control over financial reporting is not yet required and will be included in the annual report for the fiscal year ending July 2, 2023[538][539] Other Information The company reports no other information - None[542] Disclosure Regarding Foreign Jurisdictions that Prevent Inspection This section is not applicable to the company - Not applicable[543] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance will be incorporated by reference from the definitive Proxy Statement, and the company has adopted a Code of Conduct and Ethics - Information required by this item is incorporated by reference from the definitive Proxy Statement, expected to be filed within 120 days of the fiscal year end[546] - The company has adopted a Code of Conduct and Business Ethics applicable to all directors, officers, and employees, posted on its investor relations website[547] Executive Compensation Information regarding executive compensation will be incorporated by reference from the definitive Proxy Statement - Information required by this item is incorporated by reference from the definitive Proxy Statement[548] Security Ownership of Certain Beneficial Owner and Management and Related Stockholder Matters Information regarding security ownership will be incorporated by reference from the definitive Proxy Statement - Information required by this item is incorporated by reference from the definitive Proxy Statement[549] Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence will be incorporated by reference from the definitive Proxy Statement - Information required by this item is incorporated by reference from the definitive Proxy Statement[550] Principal Accounting Fees and Services Information regarding principal accounting fees and services will be incorporated by reference from the definitive Proxy Statement - Information required by this item is incorporated by reference from the definitive Proxy Statement[551] Part IV Exhibits, Financial Statement Schedules This section provides an index to the consolidated financial statements and lists all exhibits filed with the Form 10-K, including key agreements and certifications, with financial statement schedules omitted - This section contains the index to the consolidated financial statements and a list of all exhibits filed with the report[554][555] Form 10-K Summary The company reports no Form 10-K summary - None[560]