Business context and reporting period
This filing is Bowlero Corp.’s unaudited Form 10-Q for the quarter ended March 31, 2024, its fiscal third quarter of 2024—not 2023 Q3. Bowlero operates bowling and location-based entertainment venues, including Bowlero, AMF, Bowl America, and Lucky Strike locations. The filing reports in thousands of dollars unless otherwise stated.
Financial performance and position
| Metric | Three months ended March 31, 2024 | Comparable period | Nine months ended March 31, 2024 | Comparable period |
|---|---|---|---|---|
| Revenue | $337.7 million | $315.7 million | $870.7 million | $819.4 million |
| Gross profit / margin | $111.8 million / 33% | $126.4 million / 40% | $246.8 million / 28% | $285.2 million / 35% |
| Operating profit / margin | $71.0 million / 21% | $89.6 million / 28% | $125.8 million / 14% | $181.3 million / 22% |
| Net income (loss) | $23.8 million | $(32.1) million | $(21.4) million | $(64.2) million |
| Net income (loss) attributable to common stockholders | $20.1 million; diluted EPS $0.13 | $(36.5) million; diluted EPS $(0.22) | $(27.7) million; diluted EPS $(0.18) | $(74.2) million; diluted EPS $(0.45) |
| Adjusted EBITDA (non-GAAP) | $122.8 million | $127.6 million | $278.1 million | $289.9 million |
For the quarter, revenue rose 7%, while same-store revenue fell 2% to $296.1 million. Nine-month revenue increased 6%, while same-store revenue declined 2% to $751.0 million. Growth reflected acquired and leased locations and group events; service-fee revenue, which is passed through to employees and does not contribute to earnings, was being phased out.
For the nine months, operating cash flow was $148.1 million, down from $208.8 million. Investing used $286.0 million, including acquisitions and capital expenditures; financing provided $154.3 million. Cash and cash equivalents were $212.4 million at March 31, 2024.
At March 31, 2024, debt carrying value was $1.155 billion, including $1.141 billion of term loans; the term loan’s stated variable rate was 8.83% and maturity is February 2028. The company also reported $438.8 million of long-term financing obligations, $682.2 million of long-term finance lease liabilities, and $559.2 million of long-term operating lease liabilities. The $235 million revolving facility had no reported ending borrowings; $15.8 million of letters of credit reduced availability. Bowlero said it complied with debt covenants. Current assets were $261.8 million and current liabilities $203.7 million.
Material changes, outlook, and risks
- Costs and margins: Quarterly cost of revenues rose 19%, faster than revenue growth, and increased to 67% of revenue from 60%. Management attributed the increase to business growth, labor and other inflation, rent, depreciation, and higher amusement redemption costs. Nine-month cost of revenues increased 17% and represented 72% of revenue, versus 65%.
- Interest and earnings: Quarterly net interest expense increased 61% to $46.9 million; nine-month expense increased 63% to $130.6 million, reflecting higher rates and increased debt, financing obligations, and finance leases. Quarterly earnings also benefited from an $8.9 million reduction in the earnout liability’s fair value; the nine-month period recorded a $14.5 million expense from its increase.
- Growth and funding: The company completed six acquisitions involving 20 locations, including 14 Lucky Strike locations, opened three new build-outs, and reported six signed build-out agreements. In October 2023, it transferred real estate assets of 38 locations to VICI for stated value of $432.9 million, including $408.5 million cash and a $24.4 million equity-method interest. The transaction was accounted for as a financing obligation, not a sale; the related master lease has initial annual rent of $31.6 million and a 25-year initial term.
- Capital returns: Bowlero repurchased 19.7 million Class A shares for $212.3 million during the nine months, and paid $12.7 million in cash dividends. The repurchase authorization was extended indefinitely; $199.3 million remained available at quarter-end. The board declared a subsequent $0.055-per-share quarterly dividend for payment in June 2024.
- Management outlook: Management expects cash on hand, operating cash generation, credit availability, and potential sale-leaseback or other financing to support operations, capital spending, acquisitions, and repurchases for the foreseeable future. It intends to continue acquisitions, upgrades, conversions, and new builds. No specific revenue or earnings guidance was provided in the supplied filing text.
- Operating and financial risks: Management cited economic conditions, interest rates, labor and food costs, and seasonality; the third fiscal quarter is typically the strongest. January weather, lower amusement revenue, and weaker walk-in business pressured comparable sales, partly offset by leagues and group events. A 1 percentage-point rate move was estimated to change 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.
- Contingency: The EEOC issued closure notices in April and May 2024 for age-discrimination charges and a related pattern-and-practice investigation. Bowlero stated that most individual claims were time-barred and that the EEOC decided not to litigate the pattern-and-practice matter; claimants received individual rights-to-sue notices. The filing also describes ordinary-course litigation and insurance claims.
- Unusual items and reporting: The $126.7 million earnout liability is measured using Level 3 valuation inputs, making reported earnings sensitive to stock-price and model assumptions. The company is an emerging growth company using the extended transition period for new accounting standards. Management reported disclosure controls were effective and no material change in internal control during the quarter.
Important facts for investors to verify
- Confirm the reporting identity and period: this is Bowlero Corp.’s quarter ended March 31, 2024, despite the request metadata naming Lucky Strike Entertainment Corp. and 2023 Q3.
- Assess whether acquired-location growth can offset declining same-store revenue and rising operating costs, and whether reported margin pressure persists.
- Review cash generation against acquisition and capital expenditure requirements, share repurchases, dividends, and the company’s substantial debt and lease-related obligations.
- Evaluate variable-rate exposure, debt covenant headroom, revolving-facility availability, and the accounting and payment obligations tied to the VICI transaction.
- Check the finalized purchase-price allocations for Lucky Strike and other acquisitions, the earnout valuation assumptions, and developments in the EEOC and other legal matters.