Bowlero Corp. Form 10-Q Summary
Reporting period: Fiscal second quarter ended December 31, 2023, and six months ended December 31, 2023. The filing is by Bowlero Corp.; Lucky Strike Entertainment, LLC was acquired during the period.
Business context and key financials
Bowlero operates bowling entertainment centers under brands including Bowlero, AMF, Bowl America and Lucky Strike. Amounts below are in millions unless noted.
| Metric | Three months ended Dec. 31, 2023 | Six months ended Dec. 31, 2023 |
|---|---|---|
| Revenue | $305.7 | $533.1 |
| Gross profit / gross margin | $90.6 / 29.6% | $135.1 / 25.3% |
| Operating profit / margin | $49.5 / 16.2% | $54.8 / 10.3% |
| Net loss | $63.5 | $45.3 |
| Net loss attributable to common stockholders | $65.4; $0.44 per share | $49.2; $0.32 per share |
| Adjusted EBITDA (non-GAAP) | $103.1 | $155.3 |
| Cash provided by operating activities | Not presented quarterly | $71.2 |
For the six months, investing cash outflow was $246.7 million, including $113.6 million of property and equipment purchases and $132.9 million for acquisitions. Financing cash inflow was $169.7 million, including VICI transaction proceeds and share repurchases. Cash declined $5.7 million to $190.0 million. Operating cash flow less property and equipment purchases was negative $42.4 million, calculated from reported figures.
At December 31, 2023, gross debt was $1.158 billion, including a $1.144 billion variable-rate term loan bearing 8.85% and maturing in February 2028. The company reported $1.134 billion of long-term debt, net, plus $9.2 million of current maturities on the balance sheet. It also had $436.8 million of long-term financing obligations, largely associated with the VICI transaction, and substantial operating and finance lease liabilities. The $235 million revolver had no balance outstanding at period-end; $12.6 million of letters of credit reduced availability. The company stated it was compliant with debt covenants.
Changes versus comparable periods
- Quarterly revenue increased 11.8% year over year, but gross profit fell 3.3% and operating profit fell 18.1%. Quarterly net income of $1.4 million a year earlier became a $63.5 million net loss.
- Quarterly same-store center revenue was nearly flat, up 0.2%. Growth from acquired or leased centers and group events was partly offset by lower service-fee revenue and weaker walk-in/retail business.
- For the six months, revenue rose 5.8%, while same-store revenue declined 2.3%, gross profit fell 14.9%, and operating profit fell 40.2%. Net loss widened from $32.1 million to $45.3 million.
- Costs of revenue grew faster than sales: 19.7% for the quarter and 15.4% for the six months. Management cited center growth, labor and other inflation-related costs, rent, depreciation, repairs and utilities.
- Net interest expense rose 68.9% for the quarter and 64.3% for the six months, reflecting higher rates and increased debt, financing obligations and finance leases. A $64.1 million quarterly noncash increase in earnout liability fair value also materially affected results.
- Operating cash flow fell from $115.9 million to $71.2 million for the six months, primarily due to higher operating costs and interest expense. Investing outflow increased to $246.7 million, mainly reflecting acquisitions and capital spending.
Transactions, outlook, risks and unusual items
- Bowlero acquired 19 centers in five acquisitions during the six months, including 14 Lucky Strike centers for $90.5 million. Purchase-price allocations remained preliminary. Two new centers opened; seven build-out agreements were signed, 15 centers were under renovation, and about 30 additional renovations were planned to begin in the next six months.
- In October 2023, Bowlero transferred real estate assets of 38 centers to VICI for an aggregate value of $432.9 million, receiving $408.5 million in cash and a $24.4 million equity-method investment. It entered a 25-year triple-net master lease with $31.6 million initial annual rent and six five-year renewal options. The company accounted for the transaction as financing, not a sale, and recorded a financing obligation.
- Management said available cash, operating cash generation, the credit facility and potential additional financing were expected to fund operations, capital expenditures, acquisitions and other commitments for the foreseeable future. No specific earnings or revenue guidance was provided. Management expects continued investment in acquisitions, builds, upgrades and conversions. Results are seasonal, with sales typically highest in the fiscal third quarter.
- Interest-rate exposure remains material: management estimated a 1 percentage-point rate change would affect annual interest expense by about $11.4 million before hedging. Collars cover $800 million of term-loan notional through March 2026, with a 5.50% SOFR cap. Other cited exposures include labor, food and beverage, supplies, energy, inflation and consumer demand.
- The company disclosed approximately 73 pending EEOC age-discrimination claims; it contests the claims and cannot reasonably estimate a possible loss range. It reported no material changes to previously disclosed risk factors. The earnout liability was $135.5 million at quarter-end and is remeasured through earnings.
- The company repurchased $218.7 million of Class A shares during the six months. The board extended the repurchase program indefinitely in February 2024. A $0.055-per-share common dividend was declared for payment in March 2024. The CEO amended a Rule 10b5-1 plan providing for potential sales of up to 2.3 million shares.
Important facts for investors to verify
- Whether same-store demand, especially walk-in and retail activity, improves and whether revenue growth can outpace labor, rent and other operating-cost increases.
- Debt-service capacity and sensitivity to floating interest rates, together with the company’s ability to fund acquisitions, capital projects, repurchases and dividends without weakening liquidity.
- The final acquisition valuations and integration performance of Lucky Strike and other newly acquired centers.
- The long-term economics and accounting implications of the VICI transaction, including lease escalators and the substantial financing obligation.
- The potential financial impact of the EEOC proceedings and future changes in earnout fair value.