LUCK

Business Context and Reporting Period

Lucky Strike Entertainment Corporation (LUCK) is a premier operator of location-based entertainment, including bowling centers, water parks, and family entertainment centers. This Form 10-Q covers the quarterly period ended December 28, 2025 (Q2 Fiscal 2026) and the six months ended on that date. The Company operates as a single segment and is classified as an emerging growth company and an accelerated filer.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 2% ($6.8 million) for the quarter and 7% ($38.9 million) for the six months compared to the prior year periods. Growth was driven by newly acquired and opened locations, while same-store revenue remained relatively flat.
• Profitability Decline: Operating income decreased 29% for the quarter due to a 21% increase in location operating costs and a 10% increase in payroll costs, partially offset by a 22% decrease in depreciation and amortization. Net income swung from a profit of $28.3 million in the prior year quarter to a loss of $12.7 million.
• Depreciation Adjustment: Management revised the estimated useful lives of fixed assets, resulting in a $8.3 million decrease in depreciation expense for the quarter and $15.8 million for the six months.
• Debt Restructuring: The Company refinanced its term loan to $1.2 billion, issued $500 million in 7.25% Senior Secured Notes, and increased its Revolver commitment to $425 million. Total debt increased significantly from $1.32 billion to $1.80 billion.
• Acquisitions: The Company acquired 58 properties previously under a master lease with Carlyle for $306 million and completed smaller acquisitions of water parks and FECs.

Guidance, Outlook, and Risks

• Strategic Initiatives: The Company continues its rebranding initiative, reaching 93 Lucky Strike locations. It signed a definitive agreement to acquire Raging Waters Los Angeles, completed in January 2026.
• Cost Pressures: Management notes ongoing inflationary pressures on labor, inventory, and utilities. Marketing spend increased to align with industry benchmarks, contributing to higher operating costs.
• Seasonality: Bowling locations typically see peak sales in Q3, while water parks and FECs peak in Q4 and Q1. Current results reflect the off-peak season for water parks.
• Risks: Key risks include high leverage levels, interest rate exposure (partially hedged via collars), and the ability to pass cost increases to customers. The Company utilized the discrete method for income tax calculations due to the inability to reliably estimate the annual effective tax rate.
• Capital Allocation: The Company continues its share repurchase program, with $67.6 million remaining available as of December 28, 2025. A quarterly dividend of $0.06 per share was declared for payment in March 2026.

Investor Verification Checklist

• Debt Covenants: Verify compliance with the First Lien Leverage Ratio covenant (max 6.00:1.00) given the recent increase in debt load.
• Acquisition Integration: Monitor the financial impact and integration of the 58 properties acquired from Carlyle and the Raging Waters Los Angeles acquisition.
• Depreciation Reversal: Assess the sustainability of the reduced depreciation expense following the change in estimated useful lives of fixed assets.
• Same-Store Trends: Track same-store revenue trends closely, as organic growth was flat while total growth was driven by acquisitions.
• Interest Expense: Monitor the impact of the new 7.25% Senior Secured Notes and variable rate debt on future interest expenses.