Filing identity and reporting period
The supplied filing is Bowlero Corp.’s Form 10-K, not a filing by Lucky Strike Entertainment Corp. It covers the fiscal year ended July 2, 2023; fiscal 2022 ended July 3, 2022. Fiscal 2023 had 52 weeks versus 53 weeks in fiscal 2022, so the periods are not fully comparable. Bowlero operates bowling and entertainment centers and reports one operating segment.
Financial performance
| Metric | Fiscal 2023 | Fiscal 2022 |
|---|---|---|
| Revenue | $1,058.8 million | $911.7 million |
| Gross profit / margin | $342.4 million / 32.3% | $301.7 million / 33.1% |
| Operating profit / margin | $200.8 million / 19.0% | $116.6 million / 12.8% |
| Net income (loss) | $82.0 million | $(29.9) million |
| Adjusted EBITDA | $354.3 million | $316.4 million |
| Net cash from operating activities | $217.8 million | $177.7 million |
| Net cash used in investing activities | $(253.2) million | $(220.3) million |
Revenue increased 16% year over year, or 18% excluding the prior-year extra week; same-store revenue increased 12%. Bowling contributed 49% of fiscal 2023 revenue, food and beverage 35%, amusement and other 14%, and media 2%. Gross margin declined 80 basis points, with management citing inflation and higher labor, utilities, food and beverage, insurance, depreciation and other operating costs.
Net income included a substantial noncash income tax benefit: $135.1 million from releasing deferred-tax valuation allowances, partly offset by write-offs and other tax items. Interest expense rose 17% to $110.9 million. A $85.4 million noncash earnout fair-value expense also weighed on pretax results. Adjusted EBITDA is a company-defined non-GAAP measure and excludes, among other items, interest, taxes, depreciation, share-based compensation and earnout remeasurement.
Liquidity, debt and capital allocation
Cash and cash equivalents were $195.6 million at July 2, 2023, versus $132.2 million a year earlier. Current assets were $230.7 million and current liabilities $168.7 million. Long-term debt, net, was $1,138.7 million; gross debt was $1,164.7 million. The company had no revolver borrowings and a $235 million revolving commitment, reduced by $10.4 million of letters of credit. Its term debt carried an 8.65% variable rate at fiscal year-end; $800 million of term debt was covered by SOFR interest-rate collars through March 2026. The company reported compliance with debt covenants.
Operating cash flow increased 23%. Investing outflows included $111.7 million for acquisitions and $149.3 million for property and equipment purchases. Financing cash flow benefited from debt refinancing proceeds and included $96.0 million of treasury-stock repurchases, $80.8 million to settle preferred stock, and debt payments. Bowlero repurchased 7.9 million Class A shares during the year. It has not paid cash dividends on common stock; preferred stock dividends are cumulative at 5.5%.
Material changes and business developments
- Fiscal 2023 total revenue rose 16%; same-store revenue rose 12%. The prior year included one additional week, estimated by the company to account for approximately $14.9 million of revenue.
- Operating profit rose 72%, partly reflecting $68.4 million of prior-year business-combination transaction costs within SG&A. Excluding those costs, SG&A as a percentage of revenue rose from approximately 12% to 13%.
- Bowlero acquired 16 centers in fiscal 2023 and reported 328 centers at year-end. It renovated or remodeled 38 centers and refurbished or expanded arcades in 26.
- In May 2023, Bowlero agreed to acquire substantially all assets of Lucky Strike Entertainment, LLC, comprising 14 locations across nine states, for approximately $90 million in cash. Closing was expected in fiscal 2024. The company also reported agreements to acquire five businesses comprising 19 centers, including Lucky Strike.
- Adoption of ASC 842 lease accounting increased reported assets and liabilities by $450.0 million and $438.9 million, respectively, and increased beginning retained earnings by $11.1 million; prior-year balance-sheet figures were not restated.
Outlook, commentary and principal risks
Management described demand as positive and said performance had recovered to well above pre-pandemic levels. Its strategy emphasizes same-center growth, center upgrades and conversions, new locations, acquisitions and operating efficiencies. It stated that cash, operating cash flow, the credit facility and potential financing sources should fund foreseeable operating needs, capital spending and commitments. The filing provides no specific revenue or earnings guidance.
Principal risks include discretionary consumer spending and competition; inflation, wages, labor availability and commodity costs; substantial variable-rate debt and refinancing or covenant constraints; long-term, largely non-cancellable leases; execution and integration of acquisitions; seasonality and weather; cybersecurity and technology interruptions; and litigation. Bowlero disclosed approximately 73 pending EEOC age-discrimination claims, including a pattern-or-practice allegation; the company contests the claims and said it could not reasonably estimate a possible loss. Previously reported material weaknesses in financial-reporting controls were reported as remediated, and management concluded controls were effective as of July 2, 2023; the auditor did not attest to internal control effectiveness because Bowlero was an emerging growth company.
Governance and ownership warrant attention: the company has dual-class shares, with Class B shares carrying ten votes each; the founder held over 80% of voting power according to the filing. Atairos and Cobalt together beneficially owned approximately 92% of common shares as of August 30, 2023, and substantial holders were not subject to lockups. The CEO and an executive vice chairman disclosed Rule 10b5-1 plans permitting potential share sales.
Key facts for investors to verify
- Confirm the intended issuer and period: this is Bowlero’s FY2023 10-K, not a Lucky Strike filing or a 2022 Q4 report.
- Check the subsequent outcome and final purchase accounting for the proposed Lucky Strike acquisition, including actual closing terms and integration costs.
- Assess cash generation against debt service, variable-rate exposure, lease commitments and planned acquisitions or repurchases.
- Separate recurring operating performance from the large noncash tax benefit, earnout remeasurement, prior-year transaction costs and the non-GAAP EBITDA adjustments.
- Review developments in the EEOC litigation, tax audits and other contingencies, and monitor whether remediated internal controls remain effective.
- Consider voting control, potential insider or major-holder share sales, preferred-stock obligations and the absence of common dividends.