Dave & Buster’s Entertainment, Inc. — Form 10-Q Summary
Reporting period: Thirteen weeks ended May 1, 2022. The filing metadata references “2021 Q1,” but the Form 10-Q reports fiscal first quarter 2022 results, compared with the thirteen weeks ended May 2, 2021. Dollar amounts are in thousands, except per-share data.
Business context and reporting period
Dave & Buster’s operates entertainment and dining venues in North America as one reportable segment. It opened one store during the quarter and had 145 stores operating without COVID-19-related restrictions at quarter-end. Comparable-store sales increased 10.9% versus the same period in 2019 and 71.1% versus the restricted-operating comparison period in 2021.
Financial performance and liquidity
| Metric | Q1 FY2022 | Q1 FY2021 | Change |
|---|---|---|---|
| Total revenue | $451,101 | $265,340 | Up 70.0% |
| Food and beverage revenue | $151,912 | $85,758 | Up 77.2% |
| Amusement and other revenue | $299,189 | $179,582 | Up 66.6% |
| Operating income | $98,712 | $36,996 | Up 166.8% |
| Operating margin | 21.9% | 14.0% | Up 7.9 points |
| Net income | $66,984 | $19,635 | Up 241.1% |
| Diluted EPS | $1.35 | $0.40 | Up $0.95 |
| Adjusted EBITDA | $143,247 | $76,705 | Up 86.7% |
| Adjusted EBITDA margin | 31.8% | 28.9% | Up 2.9 points |
| Net cash from operating activities | $148,594 | $77,196 | Up 92.5% |
| Capital expenditures | $40,037 | $10,359 | Up $29,678 |
Cash and cash equivalents were $139,081 at May 1, 2022, compared with $25,910 at January 30, 2022. Operating cash flow benefited from improved operating margins, additional store operating weeks and approximately $33,200 of federal tax refunds. The company reported approximately $492,495 of unused revolving-credit capacity, net of $7,505 of letters of credit.
Total debt outstanding was $440,000, consisting of 7.625% senior secured notes, with net debt of $431,966 after issuance costs. The notes mature November 1, 2025. The $500,000 revolving facility matures August 17, 2024, and had no balance outstanding at quarter-end. The company was in compliance with its debt covenants, and its reported total leverage ratio was approximately 0.7x.
Material changes versus the prior comparable period
- Revenue growth reflected 243 additional store operating weeks, the removal of remaining local COVID-19 restrictions, higher revenue per item and stronger special-events activity.
- Comparable-store sales increased 71.1% year over year and 10.9% versus Q1 2019.
- Operating margin improved as occupancy and utility costs leveraged against higher sales, while amusement pricing and lower discounting supported profitability.
- Food and beverage product costs rose to 28.5% of related revenue from 27.0%, primarily because of commodity inflation in meat and dairy products.
- Operating payroll increased to 20.7% of revenue from 18.9%, reflecting higher hourly labor costs and additional labor hours as positions were filled.
- Net interest expense declined by $3,429, primarily because the company redeemed $110,000 of senior notes during fiscal 2021.
- Capital additions increased to $42,954 on an accrual basis, primarily for new-store construction and operating initiatives.
Guidance, outlook, risks and unusual items
No formal full-year revenue or earnings guidance is provided in the filing. Management stated that cash, expected operating cash flow, revolver availability and expected landlord payments should fund operating needs and non-acquisition capital expenditures for at least the next twelve months under its current business plan.
On April 6, 2022, the company agreed to acquire Main Event operator Ardent Leisure Holding US, Inc. for cash consideration of $835 million, subject to customary adjustments and closing conditions. The transaction was expected to close in the second quarter and was expected to be funded in full with a new term loan. Main Event owned and operated 48 family entertainment centers, and The Summit operated three additional centers, as of May 1, 2022.
- Management identified acquisition execution and integration risks, including inaccurate synergy assumptions, loss of key employees or customers, higher overhead and working-capital needs, and diversion of management attention.
- Commodity, labor and occupancy inflation could pressure margins if price increases cannot fully offset cost increases.
- The company remains exposed to variable-rate borrowing and the eventual replacement of LIBOR, although no revolver balance was outstanding at quarter-end.
- Several California employment-related lawsuits remain pending, including matters that may become class or representative actions. Management believes the ultimate liability will not materially affect financial condition or results, but disclosed that actual costs could differ materially from current estimates.
- Adjusted EBITDA included $4,479 of other costs, primarily related to the pending Main Event acquisition.
- The first-quarter effective tax rate increased to 23.3% from 11.5%, partly because the prior-year period benefited from higher share-based compensation tax benefits and valuation-allowance reversals.
Most important facts for investors to verify
- Whether the Main Event acquisition closed on the expected timetable, its final purchase price and the terms and leverage impact of the new term loan.
- Whether post-pandemic comparable-store sales remain above 2019 levels after normalization of customer traffic and operating conditions.
- The sustainability of the 31.8% Adjusted EBITDA margin amid food, labor, energy and occupancy inflation.
- Future interest expense, covenant compliance and refinancing or redemption requirements for the 2025 senior notes and the acquisition-related debt.
- The amount and timing of remaining legal settlements or contingencies, particularly the California employment cases.
- The company’s reconciliation of non-GAAP Adjusted EBITDA to GAAP results and the extent to which acquisition costs or other adjustments recur.