Business context and reporting period
The supplied filing is Bowlero Corp.’s Form 10-Q, not a filing under the name Lucky Strike Entertainment Corp. It covers the fiscal third quarter ended March 27, 2022, and the nine months then ended; comparisons are to the periods ended March 28, 2021. Bowlero operated 317 bowling centers at quarter-end and reported one operating segment. Its December 15, 2021 business combination with Isos was accounted for as a reverse recapitalization.
Financial performance and position
| Metric | Three months ended March 27, 2022 | Nine months ended March 27, 2022 |
|---|---|---|
| Revenue | $257.8 million, up 130% | $644.0 million, up 173% |
| Gross profit (margin) | $101.3 million (39%) | $219.2 million (34%) |
| Operating profit (margin) | $70.7 million (27%) | $70.3 million (11%) |
| Net loss | $18.0 million | $36.9 million |
| Net loss attributable to common stockholders; loss per share | $20.8 million; $0.13 | $44.2 million; $0.29 |
| Operating cash flow | Not provided separately for the quarter | $142.9 million |
| Capital expenditure and acquisition cash outflows | Not provided separately for the quarter | $135.5 million for property, equipment and software; $46.8 million for acquisitions |
At March 27, cash was $173.0 million and current assets were $213.6 million versus current liabilities of $121.2 million. Debt was $880.8 million gross, including $86.4 million drawn on the new revolving facility; net long-term debt was $868.4 million. Capital lease obligations were $394.7 million. The company reported $165 million of revolving commitments and covenant compliance at quarter-end, with a first-lien leverage ratio of 2.36x.
Material changes versus the prior comparable periods
- Quarterly revenue rose 130% year over year; same-store center revenue rose 115%. Management also reported total revenue 26% above the comparable fiscal 2019 quarter and same-store revenue 12% higher.
- Nine-month same-store center revenue increased 163% year over year. Management compared total revenue with a defined pre-pandemic period and reported growth of 20%.
- Quarterly gross margin improved to 39% from 16%, reflecting stronger sales and operating leverage. Nine-month gross margin was 34%, compared with a gross loss in the pandemic-affected prior period.
- The company remained loss-making despite higher operating profit. Quarterly results included $45.8 million of unfavorable earnout revaluation and $20.7 million of unfavorable warrant revaluation. Nine-month SG&A included $68.4 million of business-combination-related transaction expenses, including share-based compensation.
- Operating cash flow increased to $142.9 million from $17.1 million for the nine-month comparison. Investing outflows increased to $178.7 million, driven by acquisitions and capital investment.
Outlook, commentary, risks and unusual items
Management gave no specific quantified revenue or earnings guidance. It said revenue and Adjusted EBITDA on a trailing-12-month basis had increased consecutively over the prior five quarters and exceeded pre-COVID levels, and described demand and same-store sales trends as favorable. Its strategy emphasizes organic growth, center upgrades and conversions, new builds, and acquisitions.
Management cited continuing uncertainty from COVID-19 and related restrictions, consumer behavior, staffing and food-and-beverage supply chains, inflation and labor costs, interest rates, competition, and the ability to fund growth and comply with debt restrictions. It stated that available cash, cash generation, credit facilities and potential financing sources were expected to fund requirements for the foreseeable future, while noting factors could limit access to capital.
Other notable items: the company recognized a $7.5 million rent abatement in the quarter; completed seven acquisitions, adding 24 centers, and opened two new centers during the nine months; and had $204.4 million of earnout liabilities and $38.0 million of warrant liabilities, subject to fair-value changes. Subsequent to quarter-end, Bowlero announced redemption of outstanding warrants, with a May 16, 2022 redemption date. The company also disclosed approximately 76 pending EEOC discrimination charges and an agency pattern-or-practice determination; management contested the allegations and did not expect a material financial effect. Disclosure controls were deemed ineffective because previously identified material weaknesses remained under remediation; management expected remediation during fiscal 2023.
Important facts for investors to verify
- Confirm issuer and period: the filing is Bowlero Corp.’s quarter ended March 27, 2022, not a Lucky Strike Entertainment Corp. 10-Q for calendar 2021 Q3.
- Assess the quality and sustainability of the sharp revenue rebound, including pandemic comparisons, acquisitions, new centers, and operating leverage.
- Separate recurring operating performance from noncash earnout and warrant revaluations, transaction-related costs, and share-based compensation.
- Review debt maturities, floating-rate exposure, lease commitments, revolving-facility terms, and covenant headroom.
- Track remediation of material weaknesses and developments in the EEOC proceedings and warrant redemption.