Business context and reporting period
The supplied filing is Bowlero Corp.’s unaudited Form 10-Q, not a filing under the name Lucky Strike Entertainment Corp. It covers the fiscal second quarter and six months ended December 26, 2021; amounts below are in U.S. dollars, converted from thousands to millions unless noted. Bowlero operated 317 bowling centers at quarter-end. The December 15, 2021 business combination with Isos was accounted for as a reverse recapitalization, with Old Bowlero treated as the accounting predecessor.
Financial performance and liquidity
| Metric | Three months ended Dec. 26, 2021 | Six months ended Dec. 26, 2021 |
|---|---|---|
| Revenue | $205.2 million; up 177% year over year | $386.2 million; up 212% |
| Gross profit (margin) | $63.8 million (31.1%); prior-year loss of $12.1 million | $117.9 million (30.5%); prior-year loss of $35.6 million |
| Operating loss (margin) | $32.7 million (15.9%) | $0.4 million (0.1%) |
| Net loss | $34.5 million; $0.25 per share | $18.9 million; $0.16 per share |
| Operating cash flow | Not separately presented in the supplied text | $59.3 million, versus cash used of $11.6 million |
| Adjusted EBITDA | $66.8 million, versus a $3.8 million loss | The filing gives trailing-52-week Adjusted EBITDA of $195.3 million, not a six-month figure |
Adjusted EBITDA is a company-defined non-GAAP measure. Results were affected by the COVID-impacted comparison period, acquisitions, and material business-combination-related costs; the measure should not be treated as a substitute for GAAP earnings or cash flow.
- Quarterly same-store revenue rose 172.8% year over year; management also reported it was 1.6% above the comparable fiscal 2020 quarter. Six-month same-store revenue rose 210.9% year over year and was 7.5% above the comparable fiscal 2020 period.
- Quarterly SG&A was $93.3 million, including approximately $68.4 million of business-combination-related transaction costs, of which about $42.2 million was share-based compensation. Excluding the cited transaction costs, management said quarterly SG&A was about 12% of revenue.
- Quarterly net loss included a favorable $22.5 million change in the fair value of earnout liabilities. The fair-value remeasurement is non-operating and can vary with the share price and valuation assumptions.
- Cash and cash equivalents were $115.7 million, down from $187.1 million at June 27, 2021. Six-month investing cash use was $160.8 million, including $111.5 million for property, equipment and software and $46.8 million for acquisitions, net of cash acquired. Financing provided $30.2 million.
- Gross debt principal was $882.9 million, including a $796.4 million term loan and $86.4 million drawn on the new revolver. The balance sheet reported $869.6 million of long-term debt, net, plus $5.0 million of current maturities. The term loan matures July 2024; the revolver’s stated maturity was April 2024. Long-term capital lease obligations were $387.0 million.
- The revolver commitment was increased to $165 million; $9.1 million of letters of credit also reduced availability. The filing reports covenant compliance at quarter-end and a 3.17x First Lien Leverage Ratio. The covenant waiver runs through March 27, 2022 subject to conditions, including maintaining at least $20 million of Core Liquidity.
Material changes and unusual items
- Revenue growth reflected reopened centers and fewer operating restrictions, as well as new centers and acquisitions. The company added 26 centers net in the first six months of fiscal 2022, including acquisitions and new builds; total centers increased from 291 at June 27 to 317 at December 26.
- Acquisitions included five bowling-center business combinations for approximately $47.0 million and two asset acquisitions for $54.2 million. Purchase-price allocations remained provisional for business combinations.
- The December business combination raised capital through the SPAC transaction, PIPE, preferred stock and forward purchase arrangements, while also funding shareholder and preferred-stockholder payments and transaction costs. The filing reports $29.1 million of transactional and advisory costs in its quarterly Adjusted EBITDA reconciliation.
- Management shortened the remaining useful life of the Bowlmor trade name to six months as it planned to rebrand those centers, increasing quarterly amortization expense by $1.7 million.
- The prior-year six-month comparison included $20.2 million of business-interruption insurance recoveries; none were recorded in the current six-month period.
Outlook, risks and contingencies
Management described improving demand, positive center-level cash flow and performance above pre-pandemic levels, while noting that the Omicron variant significantly affected results, especially corporate events in the New York City and Silicon Valley markets. It expected to continue investing in acquisitions, new centers, upgrades and conversions. No specific numerical revenue or earnings guidance is provided in the supplied filing text.
- COVID-19 restrictions, future public-health developments, customer behavior and supply-chain disruption remained uncertain; management noted possible hiring, retention, training and food-and-beverage cost pressures.
- Other stated risks include economic and competitive conditions, consumer preferences, labor and input-cost inflation, interest rates, leverage and access to capital. Approximately $650 million of variable-rate exposure was hedged with swaps and caps; unhedged borrowings remain exposed to rate increases.
- The company reported disclosure controls and procedures were not effective at December 26, 2021 because previously identified material weaknesses remained under remediation. Planned remediation included additional accounting personnel, technical consultants, formalized controls and systems; management expected full remediation by July 3, 2022.
- Approximately 73 EEOC age-discrimination claims were pending, two also alleging retaliation. Management, after consulting counsel, said it did not expect pending claims to materially affect financial condition, results or cash flows, and believed approximately 65 EEOC claims were time-barred.
- Management said it believed cash, cash generation, credit availability and potential financing sources would meet foreseeable requirements, but cautioned that COVID-19 impacts, leverage and lender restrictions could limit access to capital.
Important facts for investors to verify
- Confirm the issuer identity and the relationship, if any, between Bowlero Corp. in this filing and Lucky Strike Entertainment Corp. in the request metadata.
- Assess how much of reported growth reflects recovery from COVID-related closures versus same-store performance, acquisitions and new centers; compare results with fiscal 2020 as well as the pandemic-affected prior year.
- Review the reconciliation and assumptions behind Adjusted EBITDA and covenant-defined EBITDA, including transaction, stock-compensation, new-center and renovation adjustments.
- Monitor cash use, capital spending, acquisition returns, revolver availability, debt maturities, interest-rate exposure and compliance with the conditional covenant waiver.
- Track business-combination accounting and dilution, including preferred-stock terms, warrants, earnout liabilities and future share-based compensation.
- Verify progress in remediating internal-control material weaknesses and any updates to the EEOC claims or other contingencies.