Bowlero (BOWL) - 2024 Q2 - Quarterly Report

Part I - Financial Information This section provides a comprehensive overview of the company's financial performance, condition, and related disclosures Financial Statements This section presents Bowlero Corp.'s unaudited condensed consolidated financial statements and accompanying notes Condensed Consolidated Balance Sheets The balance sheet reflects increased assets and liabilities, primarily due to acquisitions and financing, resulting in an equity deficit Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2023 | Jul 2, 2023 | | :--- | :--- | :--- | | Total Assets | $3,192,162 | $2,841,274 | | Cash and cash equivalents | $189,955 | $195,633 | | Property and equipment, net | $806,096 | $697,850 | | Goodwill | $826,619 | $753,538 | | Total Liabilities | $3,152,806 | $2,541,724 | | Long-term debt, net | $1,134,076 | $1,138,687 | | Long-term financing obligations | $436,790 | $9,005 | | Earnout liability | $135,479 | $112,041 | | Total stockholders' (deficit) equity | ($104,973) | $155,221 | Condensed Consolidated Statements of Operations Revenues increased for both periods, but the company reported net losses due to higher costs, increased expenses, and non-cash charges Three Months Ended Financial Performance (in thousands) | Metric | Dec 31, 2023 | Jan 1, 2023 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $305,671 | $273,385 | 11.8% | | Gross Profit | $90,581 | $93,679 | (3.3)% | | Operating Profit | $49,477 | $60,436 | (18.1)% | | Net (Loss) Income | ($63,469) | $1,435 | N/A | Six Months Ended Financial Performance (in thousands) | Metric | Dec 31, 2023 | Jan 1, 2023 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $533,076 | $503,645 | 5.8% | | Gross Profit | $135,065 | $158,737 | (14.9)% | | Operating Profit | $54,833 | $91,709 | (40.2)% | | Net Loss | ($45,250) | ($32,099) | (41.0)% | Condensed Consolidated Statements of Cash Flows Cash flows show decreased operating cash, increased investing for acquisitions, and financing from a sale-leaseback and share repurchases Six Months Ended Cash Flow Summary (in thousands) | Cash Flow Category | Dec 31, 2023 | Jan 1, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $71,199 | $115,879 | | Net cash used in investing activities | ($246,666) | ($163,005) | | Net cash provided by financing activities | $169,738 | $5,126 | | Net decrease in cash | ($5,678) | ($42,427) | - Financing activities were primarily driven by $408.5 million in proceeds from a sale-leaseback financing transaction, offset by $218.7 million in share repurchases[91] - Investing activities included $132.9 million for acquisitions (net of cash acquired) and $113.6 million for purchases of property and equipment[89] Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, acquisitions, a major sale-leaseback, ongoing litigation, share repurchases, and debt structure with risk management - During the six months ended December 31, 2023, the Company acquired Lucky Strike Entertainment, LLC, which includes 14 bowling centers, for a total consideration of $90.475 million[134] - On October 19, 2023, the Company completed a sale-leaseback transaction with VICI Properties Inc. for 38 bowling centers, valued at $432.9 million, receiving cash proceeds of $408.5 million[5] - The Company is defending against approximately 73 pending age discrimination claims filed with the EEOC between 2016 and 2019. The company cannot estimate a reasonably possible range of loss[15] - The Board of Directors declared a regular quarterly cash dividend of $0.055 per share of common stock, payable on March 8, 2024[59] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses financial performance, revenue growth from acquisitions, increased costs leading to net loss, and strategic growth initiatives supported by strong liquidity Overview and Recent Developments Bowlero focuses on long-term value through organic growth, acquisitions, and new center openings, including a major sale-leaseback and multiple center additions - The company's strategy focuses on organic growth, converting/upgrading centers, opening new centers, and acquisitions[33] - Completed a sale-leaseback transaction with VICI for 38 centers, valued at $432.9 million[62] - Acquired 19 bowling centers in five separate transactions[239] - Completed and opened two new build-outs, with seven more signed[34] - Renovations are underway at 15 centers, with about 30 more planned[211] Results of Operations Q2 revenues increased due to acquisitions, but profitability declined due to rising costs, interest expenses, and non-cash charges, leading to a net loss Q2 Revenue Breakdown (in thousands) | Revenue Source | Q2 FY2024 | Q2 FY2023 | % Change | | :--- | :--- | :--- | :--- | | Same-store center revenues | $260,178 | $259,582 | 0.2% | | Media, new & closed centers | $43,860 | $8,454 | 418.8% | | Service fee revenue | $1,633 | $5,349 | (69.5)% | | Total Revenues | $305,671 | $273,385 | 11.8% | Six-Month Revenue Breakdown (in thousands) | Revenue Source | H1 FY2024 | H1 FY2023 | % Change | | :--- | :--- | :--- | :--- | | Same-store center revenues | $465,763 | $476,945 | (2.3)% | | Media, new & closed centers | $64,059 | $16,376 | 291.2% | | Service fee revenue | $3,254 | $10,324 | (68.5)% | | Total Revenues | $533,076 | $503,645 | 5.8% | - For the six months ended Dec 31, 2023, interest expense increased by 64% to $83.7 million, primarily due to higher interest rates and increased debt levels compared to the prior year[43] Liquidity and Capital Resources The company maintains sufficient liquidity from cash, operating cash flows, and capital markets to meet obligations and fund growth initiatives including acquisitions and share repurchases - The company had approximately $189.955 million of available cash and cash equivalents at December 31, 2023[74] - Management believes current liquidity sources are adequate to meet contractual obligations, fund working capital, planned capital expenditures, center acquisitions, and execute the share repurchase program[47] Non-GAAP Financial Measures Adjusted EBITDA, a non-GAAP measure, provides supplemental operating performance insights, showing an increase for Q2 but a decrease for the six-month period Adjusted EBITDA Reconciliation (in thousands) | Period | Net (Loss) Income | Adjusted EBITDA | | :--- | :--- | :--- | | Three Months Ended | | | | Dec 31, 2023 | ($63,469) | $103,126 | | Jan 1, 2023 | $1,435 | $96,955 | | Six Months Ended | | | | Dec 31, 2023 | ($45,250) | $155,260 | | Jan 1, 2023 | ($32,099) | $162,264 | - Management considers Adjusted EBITDA an important measure of the quality of the company's earnings, as it excludes items not believed to be indicative of core operating performance[44] Quantitative and Qualitative Disclosures about Market Risk The company faces market risks from interest rates, credit, and commodity prices, with interest rate risk partially mitigated by collar agreements - The company is exposed to interest rate risk on its term and revolving credit facilities. A 1.0% change in the effective interest rate would impact annual interest expense by approximately $11.4 million[227] - To mitigate interest rate risk, the company entered into two interest rate collars on an aggregate notional amount of $800 million of its Term Loan. The collars establish a floor on SOFR between 0.9355% and 0.9429% and a cap of 5.50%, maturing on March 31, 2026[12][227] - The company faces commodity price risk from fluctuations in food, beverage, and energy costs, which can materially impact operating results if cost increases are not passed on to customers[94][229] Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures are effective, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2023[109] - No material changes were identified in the company's internal control over financial reporting during the quarter ended December 31, 2023[97] Part II - Other Information This section provides additional information including legal proceedings, risk factors, equity sales, and required exhibits Legal Proceedings This section refers to Note 10 for details on material pending legal proceedings, including ongoing age discrimination claims with the EEOC - For a description of material pending legal proceedings, the report refers to Note 10 - Commitments and Contingencies[119] Risk Factors There have been no material changes to the company's risk factors as previously disclosed in its Annual Report on Form 10-K - There have been no material changes to the company's risk factors as disclosed in the Annual Report on Form 10-K for the year ended July 2, 2023[99] Unregistered Sales of Equity Securities and Use of Proceeds During the quarter, the company repurchased 7.5 million shares of Class A common stock, with $54.2 million remaining for future purchases Issuer Purchases of Equity Securities (Q2 FY2024) | Period | Total Shares Purchased | Avg. Price Paid per Share | | :--- | :--- | :--- | | Oct 2 - Nov 5, 2023 | 5,082,260 | $10.55 | | Nov 6 - Dec 3, 2023 | 989,181 | $10.46 | | Dec 4 - Dec 31, 2023 | 1,445,414 | $11.23 | | Total | 7,516,855 | $10.67 | - As of December 31, 2023, the remaining value of shares that may be purchased under the repurchase program was $54.168 million[99] Exhibits This section lists the exhibits filed with the Form 10-Q, including officer certifications and XBRL data files - The report includes standard exhibits such as CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and XBRL interactive data files[123]