Dave & Buster's Entertainment, Inc. annual report, FY2021

Business Context and Reporting Period

Dave & Buster’s Entertainment, Inc. operates high-volume dining and entertainment venues under the Dave & Buster’s brand. The filing is a Form 10-K for the 52-week fiscal year ended January 30, 2022 (fiscal 2021), not a 2020 fourth-quarter filing. The Company operated 144 stores in 40 states, Puerto Rico and Ontario, Canada, and reported one operating and reportable segment.

Fiscal 2021 remained materially affected by COVID-19, although all U.S. stores had reopened by the end of the second quarter. The two Canadian stores temporarily closed during the fourth quarter and subsequently reopened with limited operations.

Key Financial Metrics

Metric	Fiscal 2021	Fiscal 2020	Comment
Revenue	$1,304.1 million	$436.5 million	Fiscal 2021 revenue was 3.7% below fiscal 2019 revenue of $1,354.7 million.
Food and beverage revenue	$436.6 million	$159.5 million	33.5% of fiscal 2021 revenue.
Amusement and other revenue	$867.4 million	$277.0 million	66.5% of fiscal 2021 revenue.
Operating income	$187.2 million	$(252.6) million	Operating margin was 14.4% versus negative 57.9%.
Net income	$108.6 million	$(207.0) million	Diluted earnings per share were $2.21 versus a diluted loss per share of $4.75.
Adjusted EBITDA	$351.7 million	$(81.3) million	Adjusted EBITDA margin was 27.0% versus negative 18.6%; this is a non-GAAP measure.
Net cash from operating activities	$283.1 million	$(49.2) million	Improved primarily because of approximately 3,200 additional store operating weeks.
Capital expenditures	$92.2 million	$83.0 million	Accrual-based capital additions were $104.0 million.
Cash and cash equivalents	$25.9 million	$11.9 million	At January 30, 2022.
Available revolver liquidity	$492.5 million	Not clearly stated in the filing text for comparison	Letters of credit outstanding were $7.5 million.

Comparable-store sales increased 199.1% from fiscal 2020’s severely disrupted base but were approximately 88.8% of fiscal 2019 levels, representing a 10.6% decline versus fiscal 2019. The fiscal 2021 revenue mix shifted toward amusement sales, partly because of reduced special events and less amusement discounting.

Debt, Liquidity and Balance Sheet

Debt outstanding was $440.0 million at January 30, 2022, consisting of 7.625% senior secured notes due November 1, 2025; the revolving credit facility had no balance outstanding.
Net long-term debt was $431.4 million after $8.6 million of debt issuance costs, compared with $596.4 million at January 31, 2021.
The Company redeemed $110.0 million of senior notes during fiscal 2021 and recorded a $5.6 million loss on debt extinguishment or refinancing, including approximately $2.3 million related to unamortized issuance costs and $3.3 million of prepayment premiums.
Weighted-average interest rate on borrowings increased to 10.34% from 5.40%, primarily because of the senior notes and amended credit facility terms.
The Company ended the fiscal covenant suspension period during the fourth quarter and stated that it was in compliance with applicable debt covenants at year-end.
Operating lease liabilities totaled $1.28 billion on the balance sheet. Minimum future operating lease payments totaled $2.04 billion, with a present value of $1.33 billion.
Management stated that available liquidity was sufficient to meet estimated cash needs and covenant requirements for at least the next twelve months, subject to continued uncertainty related to COVID-19 and operating recovery.

Material Changes Versus Prior Comparable Periods

Compared with fiscal 2020, revenue increased 198.7%, operating income improved by $439.8 million, and net income improved by $315.6 million as store operating weeks increased and restrictions eased.
Compared with fiscal 2019, revenue remained 3.7% lower and comparable-store sales were 10.6% lower, reflecting incomplete recovery from the pandemic.
Adjusted EBITDA exceeded fiscal 2019 by $43.5 million, driven by a higher amusement mix, lower hourly labor costs and reduced discretionary marketing spending.
Operating payroll and benefits declined to 22.0% of revenue from 26.9% in fiscal 2020, while other store operating expenses declined to 30.9% from 68.6%, benefiting from revenue leverage and the absence of the prior-year impairment charge.
Interest expense increased to $53.9 million from $36.9 million despite lower average debt, reflecting higher borrowing costs and swap-related expense.
Shares outstanding increased substantially versus fiscal 2019 following the fiscal 2020 issuance of approximately 16.7 million shares that generated $182.2 million of net proceeds. This diluted per-share comparability.

Outlook, Commentary, Risks and Unusual Items

Management expected to open eight stores in fiscal 2022 and to begin a more robust investment program targeting existing-store remodels and improvements, while maintaining a moderate pace of new openings during the recovery.
The Company identified potential long-term store capacity of more than 230 locations in the United States and Canada, compared with 144 stores at fiscal year-end.
COVID-19 risks include future variants, renewed closures or capacity restrictions, vaccination and masking requirements, changes in consumer behavior, staffing shortages, wage inflation and supply-chain disruptions.
Labor availability and wage increases may pressure margins. Food, beverage, energy, freight and merchandise costs may also increase, and the Company may not be able to fully offset such increases through pricing or productivity.
Long-term, largely non-cancelable leases create fixed obligations even when individual stores underperform. Lease relief agreements were negotiated during the pandemic, but deferred occupancy payments remain a liquidity consideration.
Deferred amusement revenue was $93.0 million at year-end. Recognition depends on estimates of future use of game credits and redemption of tickets; these estimates were identified as critical audit matters because customer behavior changed during the pandemic.
The Company recorded a $912,000 impairment charge related to its former corporate office and warehouse lease in fiscal 2021. Fiscal 2020 included $13.7 million of long-lived-asset impairment and lease termination costs.
The former CEO’s departure resulted in a $3.2 million severance obligation included in fiscal 2021 results. The filing was signed by an interim CEO.
California wage-and-hour, employment and Private Attorneys General Act litigation remains pending. Management believes the ultimate liability will not materially affect the Company, but disclosed that outcomes could differ materially from current estimates.
The Company faces continuing cybersecurity, data privacy, food safety, licensing, regulatory, competition, interest-rate and LIBOR-transition risks.

Important Facts for Investors to Verify

Confirm the reporting-period mismatch: the supplied filing is the fiscal 2021 Form 10-K for the year ended January 30, 2022, rather than a 2020 Q4 filing.
Verify the pace and profitability of the fiscal 2022 store-opening and remodel program, including capital spending and expected returns.
Monitor comparable-store sales against fiscal 2019 levels and whether Canadian and other previously restricted stores return to normalized operations.
Review the $440.0 million senior secured notes due in 2025, interest expense, covenant compliance and the availability of the revolving facility.
Assess whether operating cash flow and $492.5 million of revolver availability are adequate after lease payments, capital expenditures, taxes and debt service.
Evaluate the sustainability of the 27.0% Adjusted EBITDA margin, including the effect of labor shortages, wage inflation, commodity costs and marketing normalization.
Review assumptions supporting the $93.0 million deferred amusement revenue liability and potential changes in customer game-credit usage and ticket redemption.
Track outstanding employment litigation, cybersecurity matters, gift-card and Power Card unclaimed-property exposure, and other contingencies disclosed in the notes.