Business context and reporting period
This is Bowlero Corp.’s unaudited Form 10-Q for the quarter ended October 2, 2022, the first quarter of fiscal 2023. The filing describes Bowlero as a bowling-entertainment-center operator. The supplied company metadata says Lucky Strike Entertainment Corp.; the filing itself identifies the registrant as Bowlero Corp.
Financial performance and liquidity
| Metric | Quarter ended October 2, 2022 | Prior-year quarter |
|---|---|---|
| Revenue | $230.3 million | $181.0 million |
| Gross profit / margin | $65.1 million / 28.3% | $54.1 million / 29.9% |
| Operating profit / margin | $31.3 million / 13.6% | $32.2 million / 17.8% |
| Net income (loss) | $(33.5) million | $15.6 million |
| Net income (loss) attributable to common stockholders | $(36.3) million; $(0.22) per share | $13.3 million; $0.09 per share |
| Adjusted EBITDA, non-GAAP | $65.3 million | $58.8 million |
| Cash from operating activities | $35.6 million | $31.5 million |
- Revenue rose 27.2%; same-store center revenue increased 19.9%. Revenue growth reflected same-store demand, acquisitions and new centers, and media revenue.
- Costs of revenue grew 30.2%, faster than revenue, reducing gross margin by 1.6 percentage points. SG&A rose 51.7% to $32.5 million, or 14.1% of revenue versus 11.8%.
- Operating profit declined 3.0%. Net loss included a $40.8 million non-cash unfavorable fair-value change in earnout liabilities; interest expense was $23.6 million.
- Investing cash outflow was $62.5 million, including $44.7 million of property and equipment purchases and $15.9 million for acquisitions. Financing cash inflow was $5.2 million; cash decreased $21.9 million to $110.4 million. Marketable securities were $2.9 million.
- Debt carrying value was $889.9 million, including a $788.2 million variable-rate term loan and $86.4 million drawn on the revolver. The term-loan rate was 6.62%; debt maturities include the term loan in July 2024 and revolver in April 2024. Long-term capital-lease obligations were $398.2 million. The company reported compliance with debt covenants.
- Current assets were $153.1 million and current liabilities $121.7 million. The company repurchased 468,103 shares for $5.5 million during the quarter.
Changes, outlook, and notable matters
- Management cited inflation and higher labor, utility, food and beverage, insurance, security and supply costs; it had recently raised prices to help offset costs. Interest expense also rose with higher rates and debt obligations.
- The company acquired three centers in two transactions and reported 30 net new centers since the start of fiscal 2022. It had signed agreements to acquire six additional centers and five build-out agreements. No quantitative earnings or revenue guidance was provided.
- Management said demand remained strong and performance had recovered to better than pre-pandemic levels, while noting uncertainty from COVID-19 developments and possible hiring, training and supply-chain costs. It expects continued capital investment in center upgrades, conversions, new centers and acquisitions, and said available cash, operating cash flow and financing access should fund expected needs.
- Variable-rate exposure is material: management estimated a 1-percentage-point rate change would alter annual interest expense by approximately $8.8 million. Inflation, commodity prices and the ability to pass cost increases to customers remain risks.
- The filing reports approximately 76 pending EEOC claims generally involving age discrimination, as well as a pattern-or-practice allegation. The company disputes the claims; the filing says the possible loss range cannot be estimated, while management separately stated it did not expect pending claims to materially affect the company.
- Disclosure controls were deemed ineffective due to material weaknesses involving acquisition accounting, fixed assets, certain disclosures and system-access segregation of duties. Management said it was pursuing remediation. The company also estimated adoption of lease-accounting Topic 842 would increase assets and liabilities by approximately $500 million to $600 million, with no material effect expected on operations or cash flows.
Important facts for investors to verify
- Whether revenue growth and pricing actions can offset cost inflation and restore gross and operating margins.
- The drivers and sensitivity of the $251.8 million earnout liability and potential future income-statement volatility.
- Debt refinancing, variable-rate exposure, revolver availability and covenant headroom; the filing states covenant compliance but does not provide a leverage ratio here.
- Progress remediating control weaknesses, and the eventual balance-sheet effect of lease-standard adoption.
- Developments in the EEOC matters and any change in the company’s assessment of potential exposure.