SECURITIES AND EXCHANGE COMMISSION
☒ | | | | | |
x | QUARTERLY REPORT UNDERPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED October 29, 2017July 30, 2023 ☐ | | | | | |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROMTO
Commission File
No. 001-35664Dave & Buster’s Entertainment, Inc.
(Exact name of registrant as specified in its charter)
| | | | | |
Delaware | | 35-2382255 |
(State or Other Jurisdiction of Incorporation or Organization) Incorporation) | | (I.R.S. Employer Identification No.) ID) |
| |
1221 S. Beltline Rd., Suite 500, Coppell, Texas, 75019 | (214)357-9588 |
(Address of principal executive offices) (Zip Code) | (Registrant’s telephone number) |
2481 Mañana Drive
Dallas, Texas 75220
(Address
Securities registered pursuant to Section 12(b) of
principal executive offices)(Zip Code)
(214)357-9588
(Registrant’s telephone number, including area code)
the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock $0.01 par value | | PLAY | | NASDAQ Global Select Market |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒x No ☐¨ Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒x No ☐¨ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
Large accelerated filer | x | ☒ | | Accelerated filer | | ☐¨ |
| | | | |
Non-accelerated filer | ¨ | ☐ (Do not check if a smaller reporting company) | | Smaller reporting company | | ☐¨ |
| | | | |
Emerging growth companyGrowth Company | | ☐ | ¨ | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐¨ Indicate by checkmark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act). Yes ☐¨ No ☒x As of
November 30, 2017, there were 40,694,355August 31, 2023, the registrant had 42,945,327 shares of
the Issuer’s common stock,
$0.01 par value per share, outstanding.
DAVE & BUSTER’S ENTERTAINMENT, INC.
FORM
10-Q FOR QUARTERLY PERIOD ENDED
OCTOBER 29, 2017JULY 30, 2023
PART I – FINANCIAL INFORMATION
ITEM 1. | FINANCIAL STATEMENTS |
Item 1. Financial Statements
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(in
thousands,millions, except
share and per share amounts)
| | | | | | | | |
| | October 29, | | | January 29, | |
| 2017 | | | 2017 | |
| | (unaudited) | | | (audited) | |
ASSETS | | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 15,258 | | | $ | 20,083 | |
Inventories | | | 26,107 | | | | 21,860 | |
Prepaid expenses | | | 18,221 | | | | 15,828 | |
Income taxes receivable | | | 1,611 | | | | 5,901 | |
Other current assets | | | 17,916 | | | | 11,932 | |
| | | | | | | | |
Total current assets | | | 79,113 | | | | 75,604 | |
Property and equipment (net of $449,572 and $387,505 accumulated depreciation as of October 29, 2017 and January 29, 2017, respectively) | | | 686,858 | | | | 606,865 | |
Deferred tax assets | | | 3,926 | | | | 2,446 | |
Tradenames | | | 79,000 | | | | 79,000 | |
Goodwill | | | 272,600 | | | | 272,629 | |
Other assets and deferred charges | | | 15,700 | | | | 16,189 | |
| | | | | | | | |
Total assets | | $ | 1,137,197 | | | $ | 1,052,733 | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
Current liabilities: | | | | | | | | |
Current installments of long-term debt | | $ | 15,000 | | | $ | 7,500 | |
Accounts payable | | | 62,444 | | | | 55,278 | |
Accrued liabilities | | | 129,287 | | | | 112,327 | |
Income taxes payable | | | 396 | | | | 2,692 | |
| | | | | | | | |
Total current liabilities | | | 207,127 | | | | 177,797 | |
Deferred income taxes | | | 12,978 | | | | 14,497 | |
Deferred occupancy costs | | | 170,579 | | | | 147,592 | |
Other liabilities | | | 21,023 | | | | 16,767 | |
Long-term debt, net | | | 299,940 | | | | 256,628 | |
Commitments and contingencies | | | | | | | | |
Stockholders’ equity: | | | | | | | | |
Common stock, par value $0.01; authorized: 400,000,000 shares; issued: 42,627,975 shares at October 29, 2017 and 42,469,570 shares at January 29, 2017; outstanding: 40,927,386 shares at October 29, 2017 and 42,204,587 shares at January 29, 2017 | | | 426 | | | | 425 | |
Preferred stock, 50,000,000 authorized; none issued | | | — | | | | — | |
Paid-in capital | | | 318,379 | | | | 310,230 | |
Treasury stock, 1,700,589 and 264,983 shares as of October 29, 2017 and January 29, 2017, respectively | | | (105,406 | ) | | | (14,817 | ) |
Accumulated other comprehensive loss | | | (520 | ) | | | (723 | ) |
Retained earnings | | | 212,671 | | | | 144,337 | |
| | | | | | | | |
Total stockholders’ equity | | | 425,550 | | | | 439,452 | |
| | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 1,137,197 | | | $ | 1,052,733 | |
| | | | | | | | |
| | | | | | | | | | | |
| July 30, 2023 | | January 29, 2023 |
| (Unaudited) | | (Audited) |
ASSETS | | | |
Current Assets: | | | |
Cash and cash equivalents | $ | 82.6 | | | $ | 181.6 | |
Inventories | 43.7 | | | 45.4 | |
Prepaid expenses | 25.1 | | | 19.5 | |
Income taxes receivable | 33.2 | | | 25.5 | |
Accounts receivable | 23.4 | | | 21.7 | |
Total current assets | 208.0 | | | 293.7 | |
Property and equipment (net of $1,130.2 and $1,043.7 of accumulated depreciation as of July 30, 2023 and January 29, 2023, respectively) | 1,221.7 | | | 1,180.2 | |
Operating lease right of use assets, net | 1,352.7 | | | 1,333.6 | |
| | | |
Tradenames | 178.2 | | | 178.2 | |
Goodwill | 742.5 | | | 744.5 | |
Other assets and deferred charges | 26.3 | | | 30.8 | |
Total assets | $ | 3,729.4 | | | $ | 3,761.0 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current Liabilities | | | |
Current installments of long-term debt | $ | 9.0 | | | $ | 8.5 | |
Accounts payable | 69.6 | | | 84.7 | |
Accrued liabilities | 340.8 | | | 342.9 | |
Income taxes payable | 3.1 | | | 1.9 | |
Total current liabilities | 422.5 | | | 438.0 | |
Deferred income taxes | 83.5 | | | 66.3 | |
Operating lease liabilities | 1,586.8 | | | 1,567.8 | |
Other liabilities | 43.5 | | | 55.7 | |
Long-term debt, net | 1,278.7 | | | 1,222.7 | |
Commitments and contingencies | | | |
Stockholders’ equity: | | | |
Common stock, par value $0.01; authorized: 400.00 shares; issued: 62.69 shares at July 30, 2023 and 62.42 at January 29, 2023; outstanding: 42.97 shares at July 30, 2023 and 48.41 at January 29, 2023 | 0.6 | | | 0.6 | |
Preferred stock, 50.00 authorized; none issued | — | | | — | |
Paid-in capital | 590.1 | | | 577.5 | |
Treasury stock, 19.72 and 14.01 shares as of July 30, 2023 and January 29, 2023, respectively | (843.8) | | | (639.0) | |
Accumulated other comprehensive loss | (0.8) | | | (0.9) | |
Retained earnings | 568.3 | | | 472.3 | |
Total stockholders’ equity | 314.4 | | | 410.5 | |
Total liabilities and stockholders’ equity | $ | 3,729.4 | | | $ | 3,761.0 | |
See accompanying notes to consolidated financial statements.
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in
thousands,millions, except
share and per share amounts)
| | | | | | | | |
| | Thirteen Weeks | | | Thirteen Weeks | |
| | Ended | | | Ended | |
| | October 29, 2017 | | | October 30, 2016 | |
Food and beverage revenues | | $ | 107,690 | | | $ | 101,343 | |
Amusement and other revenues | | | 142,289 | | | | 127,316 | |
| | | | | | | | |
Total revenues | | | 249,979 | | | | 228,659 | |
Cost of food and beverage | | | 28,387 | | | | 26,560 | |
Cost of amusement and other | | | 16,220 | | | | 15,581 | |
| | | | | | | | |
Total cost of products | | | 44,607 | | | | 42,141 | |
Operating payroll and benefits | | | 57,967 | | | | 55,034 | |
Other store operating expenses | | | 82,766 | | | | 71,888 | |
General and administrative expenses | | | 13,432 | | | | 13,506 | |
Depreciation and amortization expense | | | 25,672 | | | | 22,864 | |
Pre-opening costs | | | 5,609 | | | | 4,553 | |
| | | | | | | | |
Total operating costs | | | 230,053 | | | | 209,986 | |
| | | | | | | | |
Operating income | | | 19,926 | | | | 18,673 | |
Interest expense, net | | | 2,156 | | | | 1,578 | |
Loss on debt refinancing | | | 718 | | | | — | |
| | | | | | | | |
Income before provision for income taxes | | | 17,052 | | | | 17,095 | |
Provision for income taxes | | | 4,895 | | | | 6,340 | |
| | | | | | | | |
Net income | | | 12,157 | | | | 10,755 | |
| | | | | | | | |
Unrealized foreign currency translation loss | | | (225 | ) | | | (106 | ) |
| | | | | | | | |
Total comprehensive income | | $ | 11,932 | | | $ | 10,649 | |
| | | | | | | | |
Net income per share: | | | | | | | | |
Basic | | $ | 0.30 | | | $ | 0.26 | |
Diluted | | $ | 0.29 | | | $ | 0.25 | |
Weighted average shares used in per share calculations: | | | | | | | | |
Basic | | | 41,077,206 | | | | 42,061,235 | |
Diluted | | | 42,250,611 | | | | 43,327,812 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | Twenty-Six Weeks Ended |
| July 30, 2023 | | July 31, 2022 | | July 30, 2023 | | July 31, 2022 |
Entertainment revenues | $ | 360.8 | | | $ | 311.4 | | | $ | 753.9 | | | $ | 610.6 | |
Food and beverage revenues | 181.3 | | | 157.0 | | | 385.5 | | | 308.9 | |
Total revenues | 542.1 | | | 468.4 | | | 1,139.4 | | | 919.5 | |
Cost of entertainment | 34.4 | | | 29.1 | | | 68.7 | | | 55.9 | |
Cost of food and beverage | 49.2 | | | 46.5 | | | 105.2 | | | 89.7 | |
Total cost of products | 83.6 | | | 75.6 | | | 173.9 | | | 145.6 | |
Operating payroll and benefits | 127.0 | | | 113.6 | | | 257.6 | | | 207.0 | |
Other store operating expenses | 169.1 | | | 142.5 | | | 339.1 | | | 266.9 | |
General and administrative expenses | 32.2 | | | 37.7 | | | 63.6 | | | 66.0 | |
Depreciation and amortization expenses | 49.1 | | | 38.6 | | | 98.0 | | | 71.9 | |
Pre-opening costs | 4.0 | | | 3.9 | | | 8.7 | | | 6.9 | |
Total operating costs | 465.0 | | | 411.9 | | | 940.9 | | | 764.3 | |
Operating income | 77.1 | | | 56.5 | | | 198.5 | | | 155.2 | |
Interest expense, net | 32.9 | | | 17.1 | | | 63.6 | | | 28.5 | |
Loss on debt refinancing | 11.2 | | | 1.5 | | | 11.2 | | | 1.5 | |
Income before provision for income taxes | 33.0 | | | 37.9 | | | 123.7 | | | 125.2 | |
Provision for income taxes | 7.1 | | | 8.8 | | | 27.7 | | | 29.1 | |
Net income | 25.9 | | | 29.1 | | | 96.0 | | | 96.1 | |
Unrealized foreign currency translation gain | 0.1 | | | — | | | 0.1 | | | — | |
Unrealized gain on derivatives, net of tax | — | | | 1.4 | | | — | | | 2.7 | |
Total other comprehensive gain | 0.1 | | | 1.4 | | | 0.1 | | | 2.7 | |
Total comprehensive income | $ | 26.0 | | | $ | 30.5 | | | $ | 96.1 | | | $ | 98.8 | |
Net income per share: | | | | | | | |
Basic | $ | 0.60 | | | $ | 0.60 | | | $ | 2.11 | | | $ | 1.97 | |
Diluted | $ | 0.60 | | | $ | 0.59 | | | $ | 2.09 | | | $ | 1.95 | |
Weighted average shares used in per share calculations: | | | | | | | |
Basic | 43.01 | | 48.83 | | 45.47 | | 48.71 |
Diluted | 43.38 | | 49.27 | | 45.83 | | 49.36 |
See accompanying notes to consolidated financial statements.
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOMESTOCKHOLDERS’ EQUITY (UNAUDITED)
(in
thousands, except share and per share amounts) | | | | | | | | |
| | Thirty-Nine Weeks | | | Thirty-Nine Weeks | |
| | Ended | | | Ended | |
| | October 29, 2017 | | | October 30, 2016 | |
Food and beverage revenues | | $ | 356,190 | | | $ | 326,139 | |
Amusement and other revenues | | | 478,688 | | | | 408,837 | |
| | | | | | | | |
Total revenues | | | 834,878 | | | | 734,976 | |
Cost of food and beverage | | | 91,562 | | | | 83,772 | |
Cost of amusement and other | | | 50,481 | | | | 48,628 | |
| | | | | | | | |
Total cost of products | | | 142,043 | | | | 132,400 | |
Operating payroll and benefits | | | 187,610 | | | | 166,614 | |
Other store operating expenses | | | 247,663 | | | | 214,487 | |
General and administrative expenses | | | 45,172 | | | | 40,131 | |
Depreciation and amortization expense | | | 74,447 | | | | 65,108 | |
Pre-opening costs | | | 14,626 | | | | 10,390 | |
| | | | | | | | |
Total operating costs | | | 711,561 | | | | 629,130 | |
| | | | | | | | |
Operating income | | | 123,317 | | | | 105,846 | |
Interest expense, net | | | 6,073 | | | | 5,573 | |
Loss on debt refinancing | | | 718 | | | | — | |
| | | | | | | | |
Income before provision for income taxes | | | 116,526 | | | | 100,273 | |
Provision for income taxes | | | 31,217 | | | | 36,845 | |
| | | | | | | | |
Net income | | | 85,309 | | | | 63,428 | |
| | | | | | | | |
Unrealized foreign currency translation gain | | | 203 | | | | 180 | |
| | | | | | | | |
Total comprehensive income | | $ | 85,512 | | | $ | 63,608 | |
| | | | | | | | |
Net income per share: | | | | | | | | |
Basic | | $ | 2.05 | | | $ | 1.52 | |
Diluted | | $ | 1.99 | | | $ | 1.47 | |
Weighted average shares used in per share calculations: | | | | | | | | |
Basic | | | 41,521,802 | | | | 41,863,932 | |
Diluted | | | 42,888,659 | | | | 43,234,767 | |
millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Twenty-Six Weeks Ended July 30, 2023 |
| Common Stock | | Paid-In Capital | | Treasury Stock At Cost | | Accumulated Other Comprehensive Loss | | Retained Earnings | | Total |
| Shares | | Amt. | | | Shares | | Amt. | | | |
Balance January 29, 2023 | 62.42 | | $ | 0.6 | | | $ | 577.5 | | | 14.01 | | $ | (639.0) | | | $ | (0.9) | | | $ | 472.3 | | | $ | 410.5 | |
Net income | — | | — | | | — | | | — | | — | | | — | | | 70.1 | | | 70.1 | |
| | | | | | | | | | | | | | | |
Share-based compensation | — | | — | | | 6.7 | | | — | | — | | | — | | | — | | | 6.7 | |
Issuance of common stock | 0.09 | | — | | | 0.1 | | | — | | — | | | — | | | — | | | 0.1 | |
Repurchase of common stock | — | | — | | | — | | | 3.62 | | (127.5) | | | — | | | — | | | (127.5) | |
Balance April 30, 2023 | 62.51 | | $ | 0.6 | | | $ | 584.3 | | | 17.63 | | $ | (766.5) | | | $ | (0.9) | | | $ | 542.4 | | | $ | 359.9 | |
Net income | — | | — | | | — | | | — | | — | | | — | | | 25.9 | | | 25.9 | |
Unrealized foreign currency translation gain | — | | — | | | — | | | — | | — | | | 0.1 | | | — | | | 0.1 | |
Share-based compensation | — | | — | | | 5.2 | | | — | | — | | | — | | | — | | | 5.2 | |
Issuance of common stock | 0.18 | | — | | | 0.6 | | | — | | — | | | — | | | — | | | 0.6 | |
Repurchase of common stock | — | | — | | | — | | | 2.09 | | (77.3) | | | — | | | — | | | (77.3) | |
Balance July 30, 2023 | 62.69 | | $ | 0.6 | | | $ | 590.1 | | | 19.72 | | $ | (843.8) | | | $ | (0.8) | | | $ | 568.3 | | | $ | 314.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Twenty-Six Weeks Ended July 31, 2022 |
| Common Stock | | Paid-In Capital | | Treasury Stock At Cost | | Accumulated Other Comprehensive Loss | | Retained Earnings | | Total |
| Shares | | Amt. | | | Shares | | Amt. | | | |
Balance January 30, 2022 | 61.56 | | $ | 0.6 | | | $ | 548.8 | | | 13.07 | | $ | (605.4) | | | $ | (3.6) | | | $ | 335.1 | | | $ | 275.5 | |
Net income | — | | — | | | — | | | — | | — | | | — | | | 67.0 | | | 67.0 | |
| | | | | | | | | | | | | | | |
Derivatives, net of tax | — | | — | | | — | | | — | | — | | | 1.3 | | | — | | | 1.3 | |
Share-based compensation | — | | — | | | 3.6 | | | — | | — | | | — | | | — | | | 3.6 | |
Issuance of common stock | 0.25 | | — | | | 5.6 | | | — | | — | | | — | | | — | | | 5.6 | |
Repurchase of common stock | — | | — | | | — | | | 0.03 | | (1.2) | | | — | | | — | | | (1.2) | |
Balance May 1, 2022 | 61.81 | | $ | 0.6 | | | $ | 558.0 | | | 13.10 | | $ | (606.6) | | | $ | (2.3) | | | $ | 402.1 | | | $ | 351.8 | |
Net income | — | | — | | | — | | | — | | — | | | — | | | 29.1 | | | 29.1 | |
| | | | | | | | | | | | | | | |
Derivatives, net of tax | — | | — | | | — | | | — | | — | | | 1.4 | | | — | | | 1.4 | |
Share-based compensation | — | | — | | | 4.7 | | | — | | — | | | — | | | — | | | 4.7 | |
Issuance of common stock | 0.40 | | — | | | — | | | — | | — | | | — | | | — | | | — | |
Repurchase of common stock | — | | — | | | — | | | 0.89 | | (30.6) | | | — | | | — | | | (30.6) | |
Balance July 31, 2022 | 62.21 | | $ | 0.6 | | | $ | 562.7 | | | 13.99 | | $ | (637.2) | | | $ | (0.9) | | | $ | 431.2 | | | $ | 356.4 | |
| | | | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED
STATEMENTSTATEMENTS OF
STOCKHOLDERS’ EQUITYCASH FLOWS (UNAUDITED)
(in
thousands, except share amounts) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Paid-In Capital | | | | | | | | | Accumulated Other Comprehensive Gain (Loss) | | | Retained Earnings | | | Total | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | Treasury Stock | | | | |
| | Common Stock | | | | At Cost | | | | |
| | Shares | | | Amt. | | | | Shares | | | Amt. | | | | |
Balance January 29, 2017 (audited) | | | 42,469,570 | | | $ | 425 | | | $ | 310,230 | | | | 264,983 | | | $ | (14,817 | ) | | $ | (723 | ) | | $ | 144,337 | | | $ | 439,452 | |
Net income | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 85,309 | | | | 85,309 | |
Unrealized foreign currency translation gain | | | — | | | | — | | | | — | | | | — | | | | — | | | | 203 | | | | — | | | | 203 | |
Share-based compensation | | | — | | | | — | | | | 7,006 | | | | — | | | | — | | | | — | | | | — | | | | 7,006 | |
Cumulative effect of a change in accounting principle | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 782 | | | | 782 | |
Issuance of common stock | | | 158,405 | | | | 1 | | | | 1,143 | | | | — | | | | — | | | | — | | | | — | | | | 1,144 | |
Repurchase of common stock | | | — | | | | — | | | | — | | | | 1,778,484 | | | | (109,988 | ) | | | — | | | | — | | | | (109,988 | ) |
Issuance of treasury stock | | | — | | | | — | | | | — | | | | (342,878 | ) | | | 19,399 | | | | — | | | | (17,757 | ) | | | 1,642 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance October 29, 2017 (unaudited) | | | 42,627,975 | | | $ | 426 | | | $ | 318,379 | | | | 1,700,589 | | | $ | (105,406 | ) | | $ | (520 | ) | | $ | 212,671 | | | $ | 425,550 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
millions)
| | | | | | | | | | | | |
| Twenty-Six Weeks Ended July 30, 2023 | | Twenty-Six Weeks Ended July 31, 2022 | |
Cash flows from operating activities: | | | | |
Net income | $ | 96.0 | | | $ | 96.1 | | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
Depreciation and amortization expense | 98.0 | | | 71.9 | | |
Non-cash interest expense | 6.0 | | | 3.8 | | |
Deferred taxes | 16.3 | | | 18.9 | | |
Loss on debt refinancing | 11.2 | | | 1.5 | | |
Share-based compensation | 11.9 | | | 8.3 | | |
Other, net | 5.9 | | | 5.1 | | |
Changes in assets and liabilities, net of assets and liabilities acquired: | | | | |
Inventories | 1.7 | | | (1.7) | | |
Prepaid expenses | (5.6) | | | (3.9) | | |
Income tax receivable | (7.7) | | | 30.2 | | |
Accounts receivable | (1.6) | | | (2.3) | | |
Other assets and deferred charges | 3.5 | | | 0.9 | | |
Accounts payable | (23.5) | | | (20.3) | | |
Accrued liabilities | (18.5) | | | 26.9 | | |
Income taxes payable | 1.2 | | | 0.2 | | |
Other liabilities | 1.4 | | | (2.5) | | |
Net cash provided by operating activities: | 196.2 | | | 233.1 | | |
Cash flows from investing activities: | | | | |
Capital expenditures | (133.8) | | | (99.9) | | |
Acquisition of a business, net of cash acquired | — | | | (822.7) | | |
Proceeds from sales of property and equipment | 0.4 | | | 0.4 | | |
Net cash used in investing activities: | (133.4) | | | (922.2) | | |
Cash flows from financing activities: | | | | |
Proceeds from term loan and revolver | 87.4 | | | 821.5 | | |
Term loan and revolver payments | (44.3) | | | (14.0) | | |
Debt issuance costs | (3.1) | | | (17.7) | | |
Proceeds from the exercise of stock options | 0.7 | | | 5.6 | | |
Repurchases of common stock under share repurchase program | (200.0) | | | (25.0) | | |
Repurchases of common stock to satisfy employee withholding tax obligations | (2.5) | | | (6.8) | | |
Net cash provided by (used in) financing activities: | (161.8) | | | 763.6 | | |
Increase (decrease) in cash and cash equivalents | (99.0) | | | 74.5 | | |
Beginning cash and cash equivalents | 181.6 | | | 25.9 | | |
Ending cash and cash equivalents | $ | 82.6 | | | $ | 100.4 | | |
Supplemental disclosures of cash flow information: | | | | |
Change in fixed asset accounts payable | $ | 8.4 | | | $ | 5.2 | | |
Cash paid (refund received) for income taxes, net | $ | 17.8 | | | $ | (20.6) | | |
Cash paid for interest, net | $ | 57.9 | | | $ | 22.0 | | |
See accompanying notes to consolidated financial statements.
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
| | | | | | | | |
| | Thirty-Nine Weeks | | | Thirty-Nine Weeks | |
| | Ended | | | Ended | |
| | October 29,2017 | | | October 30, 2016 | |
Cash flows from operating activities: | | | | | | | | |
Net income | | $ | 85,309 | | | $ | 63,428 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
Depreciation and amortization expense | | | 74,447 | | | | 65,108 | |
Deferred taxes | | | (2,217 | ) | | | 4,445 | |
Excess income tax benefit related to share-based compensation plans | | | — | | | | (9,124 | ) |
Loss on debt refinancing | | | 718 | | | | — | |
Loss on disposal of fixed assets | | | 1,205 | | | | 987 | |
Share-based compensation | | | 7,006 | | | | 4,665 | |
Other, net | | | 1,034 | | | | 1,261 | |
Changes in assets and liabilities: | | | | | | | | |
Inventories | | | (4,247 | ) | | | (1,028 | ) |
Prepaid expenses | | | (2,393 | ) | | | (2,284 | ) |
Income tax receivable | | | 4,290 | | | | (3,284 | ) |
Other current assets | | | (6,647 | ) | | | 10,056 | |
Other assets and deferred charges | | | (119 | ) | | | 1,194 | |
Accounts payable | | | 2,007 | | | | 2,972 | |
Accrued liabilities | | | 17,088 | | | | 10,855 | |
Income taxes payable | | | (2,296 | ) | | | 9,059 | |
Deferred occupancy costs | | | 23,249 | | | | 14,071 | |
Other liabilities | | | 2,629 | | | | 2,169 | |
| | | | | | | | |
Net cash provided by operating activities | | | 201,063 | | | | 174,550 | |
| | | | | | | | |
Cash flows from investing activities: | | | | | | | | |
Capital expenditures | | | (150,278 | ) | | | (131,284 | ) |
Proceeds from sales of property and equipment | | | 52 | | | | 31 | |
Collections of notes receivable | | | 3,200 | | | | 800 | |
| | | | | | | | |
Net cash used in investing activities | | | (147,026 | ) | | | (130,453 | ) |
| | | | | | | | |
Cash flows from financing activities: | | | | | | | | |
Proceeds from debt | | | 431,000 | | | | 68,000 | |
Payments of debt | | | (379,750 | ) | | | (127,625 | ) |
Payment of debt issuance costs | | | (2,910 | ) | | | — | |
Proceeds from the exercise of stock options | | | 1,144 | | | | 2,920 | |
Proceeds from issuance of treasury stock | | | 1,642 | | | | 77 | |
Repurchase of common stock | | | (109,988 | ) | | | (7,364 | ) |
Excess income tax benefit related to share-based compensation plans | | | — | | | | 9,124 | |
| | | | | | | | |
Net cash used in financing activities | | | (58,862 | ) | | | (54,868 | ) |
| | | | | | | | |
Decrease in cash and cash equivalents | | | (4,825 | ) | | | (10,771 | ) |
Beginning cash and cash equivalents | | | 20,083 | | | | 25,495 | |
| | | | | | | | |
Ending cash and cash equivalents | | $ | 15,258 | | | $ | 14,724 | |
| | | | | | | | |
Supplemental disclosures of cash flow information: | | | | | | | | |
Increase in fixed asset accounts payable | | $ | 5,159 | | | $ | 18,978 | |
Cash paid for income taxes, net | | $ | 31,439 | | | $ | 26,606 | |
Cash paid for interest, net | | $ | 5,319 | | | $ | 5,083 | |
See accompanying notes to consolidated financial statements.
DAVE & BUSTER’S ENTERTAINMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,millions, except share and per share amounts)
Note 1: Summary of Significant Accounting Policies
Basis
The accompanying consolidated financial statements include the accounts of presentation— Dave & Buster’s Entertainment, Inc. (“D&B Entertainment”) is a Delaware corporation formed in June 2010. References(referred to herein as the “Company”, “we”,“we,” “us”, and “our” refer to D&B Entertainment,), any predecessor companies and its wholly-owned subsidiaries, Dave & Buster’s Holdings, Inc. (“D&B Holdings”), a holding company which owns 100% of the outstanding common stock of Dave & Buster’s, Inc. (“D&B Inc”), the operating company. The Company, headquartered in Dallas,Coppell, Texas, is a leading operator of high-volume entertainment and dining venues (“stores”) in North America for adults and families underfamilies.
On June 29, 2022 (the “Closing Date”), the name “Dave & Buster’s”. Company completed its acquisition (the “Main Event Acquisition” or “the Acquisition”) of 100% of the equity interests of Ardent Leisure US Holding Inc. (“Ardent US”), pursuant to that certain Agreement and Plan of Merger (the “Merger Agreement”), dated April 6, 2022, by and among the Company, Ardent US, Delta Bravo Merger Sub, Inc, the Company’s wholly-owned subsidiary formed for the purpose of completing the transactions set forth in the Merger Agreement, for the limited purposes set forth therein, Ardent Leisure Group Limited (“Ardent”), and, for the limited purposes set forth therein, RB ME LP (“RedBird”) and RB ME Blocker, LLC, RB ME Series 2019 Investor Aggregator LP and RedBird Series 2019 GP Co-Invest, LP. Refer to Note 2, Business Combinations, for further discussion of the Main Event Acquisition.
During the twenty-six weeks ended July 30, 2023, the Company opened seven stores, and as of July 30, 2023, the Company owned and operated 211 stores in 42 states, Puerto Rico and one Canadian province.
The Company operates its business as onetwo operating segments based on its major brands, Dave & Buster's and Main Event. The Company has one reportable segment. As of Octobersegment as both brands provide similar products and services to a similar customer base, are managed together by a single management team and share similar economic characteristics.
The Company operates on a 52 or 53-week fiscal year that ends on the Sunday after the Saturday closest to January 31. Each quarterly period reported has 13 weeks. Fiscal 2023, which ends on February 4, 2024, has 53 weeks. Fiscal 2022, which ended on January 29,
2017, we owned and operated 101 stores located in 34 states and one Canadian province.The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. 2023, had 52 weeks.
The Company’s financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States for interim financial information as prescribed by the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotesnotes required by GAAP for complete financial statements. In the opinion of management, these financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position, results of operations and cash flows for the periods indicated. The preparation of consolidated financial statements in conformity with GAAP requires us to make certain estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the thirteen and thirty-nine weeks ended October 29, 2017 are not necessarily indicative of results that may be expected for any other interim period or for the year ending February 4, 2018. Our quarterly financial data should be read in conjunction with the audited financial statements and notes thereto for the year ended January 29, 2017,2023, included in our Annual Report on Form 10-K. Amounts in the consolidated financial statements of this Quarterly Report on Form 10-Q are presented in millions. The amounts in the consolidated financial statements, and the notes thereto, of our Annual Report on Form 10-K as filed were presented in thousands.
The preparation of consolidated financial statements in conformity with
GAAP requires us to make estimates and assumptions that affect the
SEC.We operate on a 52reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities at the date of the consolidated financial statements and for the period then ended. Actual results could differ from those estimates. Operating results for the thirteen and twenty-six weeks ended July 30, 2023 are not necessarily indicative of results that may be expected for any other interim period or 53 weekfor the full fiscal year that ends on the Sunday after the Saturday closest to January 31. Each quarterly period has 13 weeks, except in a 53 week year when the fourth quarter has 14 weeks. Fiscal 2017 and 2016, which end onending February 4, 2018 and January 29, 2017, contain 53 and 52 weeks, respectively.
2024.
Cash and cash equivalents— We consider transaction settlements in process from credit card companies and all highly liquid temporaryhighly-liquid investments with original maturities of three months or less to be cash equivalents. Our cash management system provides for the daily funding of all major bank disbursement accounts on a daily basis as checks are presented for payment. Under this system, outstanding checks are in excess of the cash balances at certain banks which createscreate book overdrafts. BookThere were no book overdrafts of $9,761 and $10,065 are presented in “Accounts payable” in the Consolidated Balance Sheets as of October 29, 2017 andJuly 30, 2023 or as of January 29, 2017, respectively. Changes in the book overdraft position are presented within “Net cash provided by operating activities” within the Consolidated Statements of Cash Flows.Other current assets— The balance includes construction allowance receivables of $8,685 and $7,021 as of October 29, 2017 and January 29, 2017, respectively, related to our new store openings.
Provision for income taxes— The provision for income taxes includes a credit for the tax effect of recognizing excess tax benefits on share-based payments of $11,419 and $0 for the thirty-nine weeks ended October 29, 2017 and October 30, 2016, respectively.
2023.
Fair value of financial instruments — Fair value is defined as the price wethat would receivebe received to sell an asset or paypaid to transfer a liability (exit price) in an orderly transaction between market participants at the measurement date.date under current market conditions. In determining fair value, the accounting standards establish a three-level hierarchy for inputs used in measuring fair value as follows: Level One inputs are quoted prices available for identical assets and liabilities value.
DAVE & BUSTER’S ENTERTAINMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in
active markets at the measurement date; Level Two inputs are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets and liabilities in active markets or other inputs that are observable or can be corroborated by observable market data; and Level Three inputs are less observable and reflect our own assumptions.Our financial instruments consistmillions, except per share amounts)
The carrying amounts of cash and cash equivalents, accounts and notes receivable, accounts payable, and
our credit facility. The carrying amount of cash and cash equivalents, accounts and notes receivable and accounts payable approximatesother current liabilities approximate fair value because of their
short maturities. We believe that the carrying amount of our credit facility approximates its fair value because the interest rates are adjusted regularly based on current market conditions.short-term nature. The fair value of the Company’s
credit facility wasdebt is determined
to bebased on traded price data as of the measurement date, which we classify as a
Level Two instrumentlevel two input within the fair value hierarchy as defined
byunder GAAP.
Non-financial assets and liabilities recognized or disclosed at The fair value inof the consolidated financial statements on a nonrecurring basis include such itemsCompany's debt was as follows as of the periods indicated:
| | | | | | | | | | | |
| July 30, 2023 | | January 29, 2023 |
Revolving credit facility | $ | — | | | — | |
Term loan | 900.6 | | | 864.5 | |
Senior secured notes | 446.0 | | | 441.8 | |
| $ | 1,346.6 | | | $ | 1,306.3 | |
The Company also measures certain non-financial assets (primarily property and equipment, right-of-use assets, goodwill, tradenames, and other assets. These assets are measuredassets) at fair value if determinedon a non-recurring basis in connection with its periodic evaluations of such assets for potential impairment. The Company recorded $1.7 of property and equipment impairment that was removed from service during the thirteen and twenty-six weeks ended July 30, 2023.
Revenues — Our entertainment revenues primarily consist of attractions including redemption and simulation games, bowling, laser tag, billiards and gravity ropes. Our food and beverage revenues consist of full meals, appetizers and both alcoholic and non-alcoholic beverages. The Company's revenue for these categories was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | Twenty-Six Weeks Ended |
| July 30, 2023 | | July 31, 2022 | | July 30, 2023 | | July 31, 2022 |
Entertainment | $ | 353.1 | | | $ | 308.1 | | | $ | 739.2 | | | $ | 605.2 | |
Other (1) | 7.7 | | | 3.3 | | | 14.7 | | | 5.4 | |
Entertainment revenues | $ | 360.8 | | | $ | 311.4 | | | $ | 753.9 | | | $ | 610.6 | |
| | | | | | | |
Food and non-alcoholic beverages | $ | 125.1 | | | $ | 109.4 | | | $ | 261.2 | | | $ | 210.8 | |
Alcoholic beverages | 56.2 | | | 47.6 | | | 124.3 | | | 98.1 | |
Food and beverage revenues | $ | 181.3 | | | $ | 157.0 | | | $ | 385.5 | | | $ | 308.9 | |
(1) Primarily consists of revenue earned from party rentals and gift card redemptions and breakage (see Revenue recognition below).
Revenue recognition — Customers purchase cards with game play credits or “chips” to be impaired.used on a variety of redemption and simulation games. Entertainment revenues related to game play are primarily recognized as game play credits are used by customers to activate video and redemption games. Redemption games allow customers to earn tickets, which may be redeemed for prizes. We have deferred a portion of entertainment revenues for the estimated unfulfilled performance obligations related to unredeemed tickets. The deferral is based on an estimated rate of future use by customers of unused game play credits and the material right provided to customers to redeem tickets in the future for prizes. During the thirty-ninetwenty-six weeks ended October 29, 2017, there were no impairments recognized.Share repurchase program— Our BoardJuly 30, 2023, we recognized revenue of Directors approved a share repurchase program, under whichapproximately $43.7 related to the Company may repurchase shares on the open market, through privately negotiated transactions, and through trading plans designed to comply with Rule10b5-1amount in deferred entertainment revenues as of the Securities Exchange Act of 1934, as amended. The share repurchase program may be modified, suspended or discontinued at any time. Effective September 7, 2017, an additional $100,000 in common shares authorization was approved by our Board of Directors. As of October 29, 2017, the Company has a total share repurchase authorization of $300,000 which expires at the end of fiscal 2018.2022. These revenues are included in Entertainment revenues on the consolidated comprehensive income statement.
We recognize revenue on unredeemed gift cards in proportion to the pattern of redemption by the customers. During the thirteen and thirty-ninetwenty-six weeks ended October 29, 2017,July 30, 2023, we recognized revenue of approximately $6.2 related to the amount in deferred gift card revenue as of the end of fiscal 2022. These revenues are included in Entertainment revenues on the consolidated comprehensive income statements.
Earnings per share — Basic net income per share is computed by dividing net income available to common shareholders by the basic weighted average number of common shares outstanding for the reporting period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For the calculation of diluted net income per share, the basic weighted average shares outstanding is increased by the dilutive effect of stock options and restricted share awards. Stock options and
DAVE & BUSTER’S ENTERTAINMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share amounts)
restricted share awards with an anti-dilutive effect are not included in the diluted net income per share calculation. Basic weighted average shares outstanding are reconciled to diluted weighted average shares outstanding as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | Twenty-Six Weeks Ended | | |
| July 30, 2023 | | July 31, 2022 | | July 30, 2023 | | July 31, 2022 | | | | |
Basic weighted average shares outstanding | 43.01 | | 48.83 | | 45.47 | | 48.71 | | | | |
Weighted average dilutive impact of awards | 0.37 | | 0.44 | | 0.36 | | 0.65 | | | | |
Diluted weighted average shares outstanding | 43.38 | | 49.27 | | 45.83 | | 49.36 | | | | |
Weighted average awards excluded as anti-dilutive | 0.51 | | 0.29 | | 0.51 | | 0.18 | | | | |
Acquisitions — The Company accounts for acquisitions under the acquisition method of accounting, which requires the acquired assets and liabilities, including contingencies, be recorded at fair value determined on the acquisition date and changes thereafter reflected in income. For significant acquisitions, the Company purchased 240,342obtains independent third-party valuation studies for certain of the assets acquired and 1,778,484 sharesliabilities assumed to assist the Company in determining fair value. The estimation of common stock at an average costthe fair values of $48.69the assets acquired and $61.84 per share, respectively. Asliabilities assumed involves a number of October 29, 2017, we have approximately $161,188 of share repurchase authorization remaining under the current plan.Recent accounting pronouncements—In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)2017-04, Intangibles – Goodwillestimates and Other (Topic 350), which eliminates Step 2assumptions that could differ materially from the goodwill impairment test. Underactual amounts realized. The Company provides assumptions, including both quantitative and qualitative information, about the new standard, annual and interim goodwill impairment tests will comparespecified asset or liability to the third-party valuation firms so they can assist in determining the fair value of a reporting unit with its carrying amount. An impairment charge will be recognized for the amount by which the carrying amount exceeds the reporting unit’sassets and liabilities acquired. The Company then records acquired assets and liabilities at their estimated fair value not to exceedbased on the total amountinformation provided. The third-party valuation firms are supervised by Company personnel who are knowledgeable about valuations and fair value. The Company evaluates the appropriateness of goodwill. The pronouncement isthe assumptions and valuation methodologies utilized by the third-party valuation firms.
Recent accounting pronouncements — We reviewed the accounting pronouncements that became effective for goodwill impairment tests in fiscal years beginning after December 15, 2019year 2023 and should be applied on a prospective basis. The Company doesdetermined that either they were not expect the adoption willapplicable, or they did not have a material impact on ourthe consolidated financial statements when we performstatements. We also reviewed the recently issued accounting pronouncements to be adopted in future annual impairment tests.In August 2016, the FASB issued ASU2016-15, Statement of Cash Flows (Topic 230), which addresses eight specific cash flow issuesperiods and is intended to reduce diversity in practice in how certain cash receipts and cash paymentsdetermined that they are presented and classified in the statement of cash flows. The guidance is effective for interim and annual periods beginning after December 15, 2017, and early adoption is permitted. The adoption of this guidance is not expected to have a material impact on ourthe consolidated financial statements.
In March 2016,
Note 2: Business Combinations
On June 29, 2022, the FASB issued ASU2016-09, ImprovementsCompany acquired Main Event for net cash and contingent consideration. Main Event is also focused on food, drinks, and entertainment, largely for the demographic target of families with young children. The acquisition is expected to Employee Share-Based Payment Accounting (Topic 718), which simplifies several aspects ofput the accountingCompany in a strategic position for employee share-based payment transactions, including the accounting for income taxes, forfeitures,accelerated, profitable growth in both brands as well as classificationcreate cost synergies with our Dave & Buster’s brand. We finalized our accounting for the Main Event Acquisition during the twenty-six weeks ended July 30, 2023.
DAVE & BUSTER’S ENTERTAINMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share amounts)
The components of the purchase price and net assets acquired in the statement of cash flows. Main Event Acquisition are as follows:
| | | | | |
| Amount |
Gross cash consideration | $ | 853.2 | |
Contingent consideration (1) | 13.8 | |
Less: cash acquired | (34.5) | |
Total consideration paid | $ | 832.5 | |
Assets: | |
Current assets | 16.9 | |
Property and equipment | 338.3 | |
Operating lease right of use assets | 297.2 | |
Tradename | 99.2 | |
Other assets and deferred charges | 5.8 | |
Liabilities: | |
Accounts payable | 20.1 | |
Current portion of operating lease liabilities | 11.6 | |
Accrued liabilities | 41.6 | |
Operating lease liabilities | 279.2 | |
Deferred tax liabilities | 35.8 | |
Other liabilities | 6.5 | |
Net assets acquired, excluding goodwill | $ | 362.6 | |
Goodwill | $ | 469.9 | |
(1)The Company adopted the new guidancehas an obligation to pay, in the first quarter of fiscal 2017. The ASU’s income tax aspects also impact the calculation of diluted earnings per share by excluding excess tax benefits from the calculation of assumed proceeds availablecash, an aggregate amount equal to repurchase shares under the treasury-stock method. The impactany “Transaction Tax Benefits,” with respect to any taxable year of the new guidance was as follows:As a result ofCompany after the adoption inClosing Date ending on or before December 31, 2028, including the first quarter of fiscal 2017, we recorded an adjustment to retained earnings of $782 to recognize deferred tax assets related to certain state net operating loss carryforwards attributable to excess tax benefits in stock compensation that had not been previously recognized in additional paid in capital.
During the thirteen and thirty-nine weeks ended October 29, 2017, excess tax benefits of $1,285 and $11,419, respectively, were recognized as a benefit in the “Provision for Income Taxes” in the Consolidated Statement of Comprehensive Income and classified as a source in operating activities in the Consolidated Statement of Cash Flows.
The Company elected to prospectively adopt the effectcurrent taxable year. This amount is based on the statement of cash flows and accordingly, did not restate the Consolidated Statement of Cash Flows for the thirty-nine weeks ended October 30, 2016.
In July 2015, the FASB issued ASU2015-11, Simplifying the Measurement of Inventory (Topic 330), which changes the subsequent measurement of inventory from lower of cost or market to lower of cost and net realizable value. The Company adopted this standard prospectively, beginning January 30, 2017. The adoption did not have a material impact on the Company’s consolidated results of operations and financial condition.
In May 2014, the FASB issued guidance in ASU2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes most current revenue recognition guidance and outlines a single comprehensive model for entities to use in accounting for revenue. In August 2015, the FASB issued ASU2015-14 delaying the effective date for adoption. The update is now effective for interim and annual periods beginning after December 15, 2017. The guidance provides a five step framework to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration it expects to be entitled to receive in exchange for those goods or services. We intend to apply the guidance retrospectively with the cumulative effect recognized as of the date of adoption. We do not believe that the new revenue recognition standard will have a material impact on our recognition of revenues.
In February 2016, the FASB issued ASU2016-02, Leases (Topic 842). The new guidance requires the present value of committed operating lease paymentsthe maximum amount provided in the Merger Agreement.
Unaudited Pro Forma Information
To reflect the Acquisition as if it had occurred on January 31, 2022, the unaudited pro forma results include adjustments to reflect, among other things, the interest expense from debt financings obtained to partially fund the cash consideration transferred. Pro forma adjustments were tax effected at the Company’s historical statutory rates in effect for the respective periods. The unaudited pro forma amounts are not necessarily indicative of the combined results of operations that would have been realized had the acquisitions and related financings occurred on the aforementioned dates, nor are they meant to be recorded asright-of-use lease assets and lease liabilities on the balance sheet. Asindicative of October 29, 2017,any anticipated combined results of operations that the Company will experience after the transaction. In addition, the amounts do not include any adjustments for actions that may be taken following the completion of the transaction, such as expected cost savings, operating synergies, or revenue enhancements that may be realized subsequent to the transaction.
The following unaudited pro forma information provides the effect of the Main Event Acquisition as if the acquisition had an estimated $1,400,000occurred on January 31, 2022:
| | | | | | | | | | | |
| Thirteen Weeks Ended | | Twenty-Six Weeks Ended |
| July 31, 2022 | | July 31, 2022 |
Revenues | $ | 544.6 | | | $ | 1,120.1 | |
Net income | $ | 20.4 | | | $ | 92.7 | |
The historical consolidated financial information of the Company and Main Event, as presented in undiscounted future minimum lease commitments. Enhanced disclosures will also be requiredthe table above, has been adjusted to give financial statement userseffect to pro forma events that are directly attributable to the ability to assessacquisition and related financing arrangements and are factually supportable.
DAVE & BUSTER’S ENTERTAINMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share amounts)
Note 3: Goodwill and Tradename Assets
The changes in the carrying amount timingof goodwill and uncertainty of cash flows arising from leases. The guidance is effectivetradename assets during fiscal 2023 and fiscal 2022 are as follows:
| | | | | | | | | | | |
| Goodwill | | Tradename |
Balance at January 30, 2022 | $ | 272.6 | | | $ | 79.0 | |
Acquisition of Main Event (1) | 471.9 | | | 99.2 | |
Balance at January 29, 2023 | $ | 744.5 | | | $ | 178.2 | |
Adjustments to Main Event goodwill (1)(2) | (2.0) | | | — | |
| | | |
Balance at July 30, 2023 | $ | 742.5 | | | $ | 178.2 | |
(1) See Note 2 for interim and annual periods beginning after December 15, 2018, using a modified retrospective adoption method and early adoption is permitted. We are currently evaluating the impactdiscussion of the updated guidance on our consolidated financial statements. We expectMain Event acquisition.
(2) Adjustments to preliminary purchase price recorded during the adoption of this guidance will result in a material increasetwenty-six weeks ended July 30, 2023. The Company finalized its purchase accounting related to the Main Event acquisition in the assets and liabilities on our Consolidated Balance Sheets and will likely have an insignificant impact on our Consolidated Statementssecond quarter of Comprehensive Income.fiscal 2023.
Note
2:4: Accrued Liabilities
Accrued liabilities consist of the following as
of: | | | | | | | | |
| | October 29, 2017 | | | January 29, 2017 | |
Deferred amusement revenue | | $ | 30,708 | | | $ | 28,305 | |
Compensation and benefits | | | 19,840 | | | | 20,886 | |
Amusement redemption liability | | | 17,599 | | | | 15,431 | |
Rent | | | 16,233 | | | | 14,260 | |
Property taxes | | | 7,650 | | | | 4,650 | |
Customer deposits | | | 5,804 | | | | 3,003 | |
Deferred gift card revenue | | | 5,173 | | | | 6,957 | |
Current portion of long-term insurance | | | 4,070 | | | | 4,460 | |
Sales and use taxes | | | 3,376 | | | | 3,872 | |
Utilities | | | 3,332 | | | | 2,969 | |
Inventory liabilities | | | 4,070 | | | | 2,659 | |
Other (refer to Note 4) | | | 11,432 | | | | 4,875 | |
| | | | | | | | |
Total accrued liabilities | | $ | 129,287 | | | $ | 112,327 | |
| | | | | | | | |
of the end of each period:
| | | | | | | | | | | |
| July 30, 2023 | | January 29, 2023 |
Deferred entertainment revenue | $ | 119.5 | | | $ | 114.4 | |
Current portion of operating lease liabilities, net (1) | 69.1 | | | 64.1 | |
Compensation and benefits | 37.9 | | | 60.6 | |
Accrued interest | 15.7 | | | 15.8 | |
Deferred gift card revenue | 13.4 | | | 16.4 | |
Customer deposits | 9.8 | | | 8.7 | |
Property taxes | 13.2 | | | 13.1 | |
Sales and use and other taxes | 9.3 | | | 10.6 | |
Occupancy and variable rent costs | 6.1 | | | 9.4 | |
Utilities | 7.9 | | | 7.2 | |
Current portion of long-term insurance | 5.7 | | | 6.7 | |
Other | 33.2 | | | 15.9 | |
Total accrued liabilities | $ | 340.8 | | | $ | 342.9 | |
(1)The balance of leasehold incentive receivables of $5.4 and $6.0 as of July 30, 2023 and January 29, 2023, respectively, is reflected as a reduction of the current portion of operating lease liabilities.
Note 3:5: Leases
We currently lease most of the buildings or sites for our stores, store support center, and warehouse space under facility operating leases. These leases typically have initial terms ranging from ten to twenty years and include one or more options to renew. When determining the lease term, we include option periods for which renewal is reasonably certain. Most of the leases require us to pay property taxes, insurance, and maintenance of the leased assets. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Operating leases also include certain equipment leases that have a term in excess of one year. Certain facility leases also have provisions for additional contingent rentals based on revenues.
Operating lease cost, variable lease cost and short-term lease cost related primarily to our facilities is included in “Other store operating expenses” for our operating stores, “Pre-opening costs” for our stores not yet operating, or “General and administrative expenses” for our store support center and warehouse, in the Consolidated Statements of Comprehensive Income.
DAVE & BUSTER’S ENTERTAINMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share amounts)
The components of lease expense, including variable lease costs primarily consisting of common area maintenance charges and property taxes, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | Twenty-Six Weeks Ended |
| July 30, 2023 | | July 31, 2022 | | July 30, 2023 | | July 31, 2022 |
Operating lease cost | $ | 49.2 | | | $ | 38.8 | | | $ | 97.2 | | | $ | 73.6 | |
Variable lease cost | 8.9 | | | 9.1 | | | 19.6 | | | 18.9 | |
Short-term lease cost | 0.9 | | | 0.3 | | | 1.6 | | | 0.4 | |
Total | $ | 59.0 | | | $ | 48.2 | | | $ | 118.4 | | | $ | 92.9 | |
Operating lease payments in the table above includes minimum lease payments for future sites for which the leases have commenced. As of July 30, 2023, the Company had signed lease agreements with total lease payments of approximately $183.6 related to ten facility leases which had not yet commenced. Fixed minimum lease payments related to these facilities are not included in the right-of-use assets and lease liabilities on the consolidated balance sheet as of July 30, 2023.
Long-term debt consists of the
following as of: | | | | | | | | |
| | October 29, 2017 | | | January 29, 2017 | |
Credit facility - term | | $ | 300,000 | | | $ | 138,750 | |
Credit facility - revolver | | | 16,000 | | | | 126,000 | |
| | | | | | | | |
Total debt outstanding | | | 316,000 | | | | 264,750 | |
Less: | | | | | | | | |
Current installments - term | | | (15,000 | ) | | | (7,500 | ) |
Debt issuance costs - term | | | (1,060 | ) | | | (622 | ) |
| | | | | | | | |
Long-term debt, net | | $ | 299,940 | | | $ | 256,628 | |
| | | | | | | | |
On August 17, 2017, wefollowing:
| | | | | | | | | | | |
| July 30, 2023 | | January 29, 2023 |
Credit facility—revolver | $ | — | | | $ | — | |
Credit facility—term loan | 900.0 | | | 847.9 | |
Senior secured notes | 440.0 | | | 440.0 | |
Total debt outstanding | 1,340.0 | | | 1,287.9 | |
Less current installments of long-term debt | (9.0) | | | (8.5) | |
Less issue discounts and debt issuance costs | (52.3) | | | (56.7) | |
| | | |
Long-term debt, net | $ | 1,278.7 | | | $ | 1,222.7 | |
June 29, 2022 Credit Facility
In connection with the closing of the Main Event Acquisition on June 29, 2022, D&B Inc entered into a senior secured credit agreement, which refinanced the $500.0 existing revolving facility, that providesextended the maturity date to June 29, 2027, and added a $300,000new term loan facility and a $500,000 revolving credit facilityin the aggregate principal amount of $850.0, with a maturity date of August 17, 2022.June 29, 2029 (“Credit Facility”). The $500,000 revolving credit facility includes a $35,000 letterproceeds of creditsub-facility and a $15,000 swingthe term loan,sub-facility. net of an original issue discount of $42.5, were used to pay the consideration for the Acquisition. The revolving credit facility can expire before the stated maturity date if the aggregate outstanding principal amount of the 7.625% senior notes (described below) exceeds $100.0 91 days prior to November 1, 2025. A portion of the revolving facility not to exceed $35.0 is available for the issuance of letters of credit.
As of July 30, 2023, we had letters of credit outstanding of $9.8 and an unused commitment balance of $490.2 under the revolving facility. The Credit Facility may be increased through incremental facilities, by an amount equal to provide financing for general purposes. Principal payments on the term loan facilitygreater of $3,750 per quarter are required beginning December 31, 2017 through maturity, when the remaining balance is due. Our current credit facility is secured by the assets of D&B Inc(i) $400.0 and (ii) 0.75 times trailing twelve-month Adjusted EBITDA, as defined, plus additional amounts subject to compliance with applicable leverage ratio and/or interest coverage ratio requirements. The Credit Facility is unconditionally guaranteed by D&B Holdings and certain of D&B Inc’s existing and future wholly owned material domestic subsidiaries.
During fiscal 2020, the Company issued $550.0 aggregate principal amount of 7.625% senior secured notes (the “Notes”). Interest on the Notes is payable in arrears on November 1 and May 1 of each
year. The Notes mature on November 1, 2025, unless earlier redeemed, and are subject to the terms and conditions set forth in the related indenture. The Notes were issued by D&B Inc and are unconditionally guaranteed by D&B Holdings and certain of
its directD&B Inc’s existing and
indirectfuture wholly owned material domestic
wholly-owned subsidiaries.
AsDuring fiscal 2022, the Company redeemed a total of
October 29, 2017, we had letters of credit$110.0 outstanding
of $4,971 and $479,029 of borrowing available under our credit facility.The majorityprincipal amount of the proceedsNotes. The Company may elect to further redeem the Notes, in whole or in part, at certain specified redemption prices, plus accrued and unpaid interest, at the redemption date.
DAVE & BUSTER’S ENTERTAINMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share amounts)
First Amendment to refinancethe Credit Facility (the "Amendment")
On June 30, 2023, D&B Inc entered into the Amendment with its banking syndicate, which amended the Credit Facility. The Amendment provides for a new tranche of term loans in an aggregate principal amount of $900.0 (the “2023 Term B Loans”) which consist of $843.6 of 2023 refinancing Term B Loans which refinanced in full the
May 15, 2015 credit facility (ofterm loans outstanding immediately prior to the Amendment effective date and $56.4 of 2023 additional Term B Loans, which
$291,000 was outstanding)will be used for general corporate and
working capital purposes. The 2023 Term B Loans were issued with an original issue discount of 1%, reduced the interest rate margin applicable to
pay related interestterm loans and
expenses. In connection withrevolving loans outstanding under the
new credit facility we incurred debt costsCredit Agreement by 1.25% and otherwise have terms substantially the same as the terms of
$2,910,the existing Term B Loans under the June 29, 2022 Credit Facility. The 2023 Term B Loans may be prepaid at any time, without premium or penalty, but are subject to a prepayment premium of
which $397 was expensed as a loss on debt refinancing. The remaining debt costs incurred1.00% (subject to certain exceptions) if certain refinancing of,
$1,826 and $687 are included in Other assets and deferred charges and Long-term debt, net, respectively, inor amendment to, reduce the
Consolidated Balance Sheets. Total loss on debt refinancing, includingall-in-yield of the
write off of a portion of unamortized debt costs, totaled $7182023 Term B Loans is made at any time during the
thirteen weeks ended October 29, 2017.first six months after the Amendment effective date.
The interest rates per annum applicable to loans, other than swing loans, under our existing credit facility are currently set based on a defined LIBOR rate plus an applicable margin. Swing loans2023 Term B Loans will bear interest at a base rateTerm SOFR (plus an additional credit spread adjustment of 0.10%) or ABR (each, as defined in the amended Credit Agreement) plus an applicable margin.(i) in the case of Term SOFR loans, 3.75% per annum and (ii) in the case of ABR loans, 2.75% per annum. The loansRevolving Loans will continue to bear interest subject to a pricing grid based on athe Borrower’s net total leverage, ratio, at LIBORTerm SOFR (plus an additional credit spread adjustment of 0.10%) plus a spread ranging from 1.25%3.00% to 3.50% per annum or ABR plus a spread ranging from 2.00% to 2.50% per annum. Unused commitments under the revolving facility incur initial commitment fees of 0.30% to 0.50%.
Loss on debt refinancing and amortization of issuance costs
Immediately prior to the Amendment, the Company had $46.9 of unamortized issuance discounts and costs. As certain lenders exited the syndicate and were replaced by new syndicate members and the term loan facility was increased in size, a portion of the term loan facility was deemed extinguished and a portion was determined to be modified. As a result, $8.5 of unamortized costs were written off and $2.7 of new fees were expensed on the modified portion resulting in a total charge of $11.2 included in loss on debt refinancing on the consolidated statement of income for the term loansthirteen and twenty-six weeks ended July 31, 2022. The remaining $38.4 of the revolving loans.unamortized issuance discounts and $9.4 of new issuance discount and costs were deferred and will be amortized into interest expense, net.
Amortization of debt issuance costs and original issue discount was $3.0 and $2.6 for the twenty-six weeks ended July 30, 2023 and July 31, 2022, respectively. The stated weighted average interest rate at October 29, 2017 was 2.49%. Theyear-to-dateCompany’s weighted average effective interest rate on our total debt facilities was 3.06%. The weighted average effective rate includes amortization of10.3% and 10.1% for the twenty-six weeks ended July 30, 2023 and July 31, 2022, respectively.
Restrictive covenants and debt
issuance costs, commitment and other fees.compliance
Our
credit facility containsdebt agreements contain restrictive covenants that, among other things, place certain limitations on our ability
to:to incur additional indebtedness, make loans or advances to subsidiaries and other entities, pay dividends, acquire other businesses or sell assets.
In addition, our credit facilityThe Credit Facility also requires
usthe Company to maintain
certain financiala maximum net total leverage ratio,
covenants. Asas defined, as of
October 29, 2017, wethe end of each fiscal quarter. We were in compliance with our
restrictive covenants.Futurecovenants and the terms of our debt obligations— The following table sets forth our future debt principal payment obligationsagreements as of October 29, 2017 by fiscal year:
| | | | |
2017 | | $ | 3,750 | |
2018 | | | 15,000 | |
2019 | | | 15,000 | |
2020 | | | 15,000 | |
2021 | | | 15,000 | |
2022 | | | 252,250 | |
| | | | |
Total future payments | | $ | 316,000 | |
| | | | |
Interest expense, net— The following tables set forth our recorded interest expense, net for the periods indicated:
| | | | | | | | |
| | Thirteen Weeks | | | Thirteen Weeks | |
| | Ended | | | Ended | |
| | October 29, 2017 | | | October 30, 2016 | |
Interest expense on credit facilities | | $ | 2,252 | | | $ | 1,582 | |
Amortization of issuance cost | | | 195 | | | | 168 | |
Interest income | | | (31 | ) | | | (58 | ) |
Less: capitalized interest | | | (250 | ) | | | (112 | ) |
Change in fair value of interest rate cap | | | (10 | ) | | | (2 | ) |
| | | | | | | | |
Total interest expense, net | | $ | 2,156 | | | $ | 1,578 | |
| | | | | | | | |
| | |
| | Thirty-nine Weeks | | | Thirty-nine Weeks | |
| | Ended | | | Ended | |
| | October 29, 2017 | | | October 30, 2016 | |
Interest expense on credit facilities | | $ | 5,959 | | | $ | 5,216 | |
Amortization of issuance cost | | | 528 | | | | 506 | |
Interest income | | | (166 | ) | | | (184 | ) |
Less: capitalized interest | | | (507 | ) | | | (322 | ) |
Change in fair value of interest rate cap | | | 259 | | | | 357 | |
| | | | | | | | |
Total interest expense, net | | $ | 6,073 | | | $ | 5,573 | |
| | | | | | | | |
We are exposed to interest rate risk arising from changes in interest rates due to the variable rate indebtedness under our Credit Facility. In October 2015, the Company purchased an interest rate cap agreement for $920 with a notional amount of $200,000 to manage our exposure to interest rate movements on our variable rate credit facility whenone-month LIBOR exceeds 3.0%. The interest rate cap agreement matures on October 7, 2019. The derivative is not designated as a hedge and does not qualify for hedge accounting. Accordingly, changes in the fair value of the interest rate cap are recognized as interest expense. The Company’s investment in the interest rate cap, with a fair value of $38 at October 29, 2017, is included in “Other assets and deferred charges” in the Consolidated Balance Sheets and was valued using an analysis based on market observable inputs representing Level Two assets as defined by GAAP. For the thirteen and thirty-nine weeks ending October 29, 2017, interest expense (income) includes $(10) and $259 related to the change in the fair value of the interest rate cap.
July 30, 2023.Note
4:7: Commitments and Contingencies
We are subject to certain legal proceedings and claims that arise in the ordinary course of our business, including claims alleging violations of federal and state law regarding workplace and employment matters, discrimination,
slip-and-fall and other customer-related incidents and similar matters. In the opinion of management, based upon consultation with legal counsel, the amount of ultimate liability, with respect to such legal proceedings and claims will not materially affect the consolidated results of our operations or our financial condition.
On June 30, 2017, we agreed to settle litigation Legal costs related to alleged violationssuch claims are expensed as incurred.
DAVE & BUSTER’S ENTERTAINMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share amounts)
Note 8: Stockholders' Equity and Share-Based Compensation
Share issuances and repurchases
The Company treats shares withheld for tax purposes on behalf of our employees in connection with the Employee Retirement Income Security Act. Oncevesting of time-based and performance restricted stock units as common stock repurchases because they reduce the settlement agreement is finalized, it will be subject to court approval. To covernumber of shares that would have been issued upon vesting. These were immaterial for all periods presented.
On March 27, 2023, our Board of Directors approved a share repurchase program with an authorization limit of $100.0. During the
estimated net costs of settlement, including estimated payment to anyopt-in members and class attorneys, as well as related settlement administration costs, we recorded a net charge of $2,550 (representing $7,500 of gross settlement costs less $4,950 of insurance recoveries) during the thirteen-week periodtwenty-six weeks ended July 30,
2017.2023, the Company repurchased the full $100.0 authorized amount. On April 19, 2023, our Board of Directors approved an increase to the authorization limit of $200.0 for a total of $300.0 authorized under the program. During the twenty-six weeks ended July 30, 2023, the Company repurchased 5.70 million shares at an average of $35.12 per share. The
charge was recorded in general and administrative expenses in our Consolidated Statementsremaining dollar value of
Comprehensive Income. No additional settlement liabilities or recoveries related to this litigation were recorded inshares that may be repurchased under the
thirteen week period ended October 29, 2017. The actual amount of any settlement payment could vary from our estimate and will be subject to many factors including approval by the court, the claims process and other matters typically associated with the settlement of litigation.We lease certain property and equipment under variousnon-cancelable operating leases. Some of the leases include options for renewal or extension on various terms. Most of the leases require us to pay property taxes, insurance and maintenance of the leased assets. Certain leases also have provisions for additional contingent rentals based on revenues.
The following table sets forth our lease commitmentsprogram is $100.0 as of October 29, 2017:
| | | | |
1 year or less | | $ | 100,701 | |
2 years | | | 99,749 | |
3 years | | | 93,456 | |
4 years | | | 88,142 | |
5 years | | | 79,860 | |
Thereafter | | | 941,902 | |
| | | | |
Total future payments | | $ | 1,403,810 | |
| | | | |
As of October 29, 2017, we have signed operating lease agreements for ten future sites which are expected to open in the last quarter of fiscal 2017 and early fiscal 2018.July 30, 2023. The landlord has fulfilled the obligations to commit us to the lease terms under these agreements and therefore, the future obligations related to these locations are included in the table above.
As of October 29, 2017, we have signed nineteen additional operating lease agreements for future sites. Our commitments under these agreements are contingent, upon among other things, the landlord’s delivery of access to the premises for construction. Future obligations related to these agreements are not included in the table above.
Note 5: Earnings per share
Potential dilutive shares consist of the incremental common shares issuable upon the exercise of outstanding stock options (both vested and unvested), unvested time-based restricted stock units (RSU’s) and unvested performance RSU’s to the extent performance measures were attained as ofrepurchase program expires at the end of the reporting period, calculated using the treasury-stock method. Potential dilutive shares are excluded from the computation of earnings per share (“EPS”) if their effect is anti-dilutive. Stock options for which the exercise price exceeds the average market price over the period are anti-dilutive and, accordingly, are excluded from the calculation. We excluded 188,229 anti-dilutive options from the calculation of common equivalent shares as of the thirteen and thirty-nine weeks ended October 29, 2017.
The following table sets forth the computation of EPS, basic and diluted for the periods indicated:
| | | | | | | | |
(in thousands, except share and per share data) | | Thirteen Weeks Ended October 29, 2017 | | | Thirteen Weeks Ended October 30, 2016 | |
Numerator: | | | | | | | | |
Net income | | $ | 12,157 | | | $ | 10,755 | |
Denominator: | | | | | | | | |
Weighted average number of common shares outstanding (basic) | | | 41,077,206 | | | | 42,061,235 | |
Weighted average dilutive impact of equity-based awards | | | 1,173,405 | | | | 1,266,577 | |
Weighted average number of common and common equivalent shares outstanding (diluted) | | | 42,250,611 | | | | 43,327,812 | |
Net income per share: | | | | | | | | |
Basic | | $ | 0.30 | | | $ | 0.26 | |
Diluted | | $ | 0.29 | | | $ | 0.25 | |
| | |
(in thousands, except share and per share data) | | Thirty-nine Weeks Ended October 29, 2017 | | | Thirty-nine Weeks Ended October 30, 2016 | |
Numerator: | | | | | | | | |
Net income | | $ | 85,309 | | | $ | 63,428 | |
Denominator: | | | | | | | | |
Weighted average number of common shares outstanding (basic) | | | 41,521,802 | | | | 41,863,932 | |
Weighted average dilutive impact of equity-based awards | | | 1,366,857 | | | | 1,370,835 | |
Weighted average number of common and common equivalent shares outstanding (diluted) | | | 42,888,659 | | | | 43,234,767 | |
Net income per share: | | | | | | | | |
Basic | | $ | 2.05 | | | $ | 1.52 | |
Diluted | | $ | 1.99 | | | $ | 1.47 | |
Note 6: Share-Based Compensation
Compensation expenses related to stock options, time-based and performance-based RSU’s and restricted stock are included in general and administrative expenses and were as follows:
| | | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended | | | Thirty-nine Weeks Ended | |
| October 29, 2017 | | | October 30, 2016 | | | October 29, 2017 | | | October 30, 2016 | |
Stock options | | $ | 1,584 | | | $ | 1,088 | | | $ | 4,240 | | | $ | 3,138 | |
RSU’s and restricted stock | | | 973 | | | | 580 | | | | 2,766 | | | | 1,527 | |
| | | | | | | | | | | | | | | | |
Total share-based compensation expense | | $ | 2,557 | | | $ | 1,668 | | | $ | 7,006 | | | $ | 4,665 | |
| | | | | | | | | | | | | | | | |
Transactions related to stock option awards during the thirty-nine weeks ended October 29, 2017 were as follows:
| | | | | | | | | | | | | | | | |
| | 2014 Stock Incentive Plan | | | 2010 Stock Incentive Plan | |
| | | | | Weighted | | | | | | Weighted | |
| | | | | Average | | | | | | Average | |
| | Number | | | Exercise | | | Number | | | Exercise | |
| | of Options | | | Price | | | of Options | | | Price | |
Outstanding at January 29, 2017 | | | 833,499 | | | $ | 26.93 | | | | 1,225,053 | | | $ | 5.35 | |
Granted | | | 190,379 | | | | 57.74 | | | | — | | | | — | |
Exercised | | | (16,522 | ) | | | 34.81 | | | | (483,008 | ) | | | 4.58 | |
Forfeited | | | (4,631 | ) | | | 47.33 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Outstanding at October 29, 2017 | | | 1,002,725 | | | $ | 32.56 | | | | 742,045 | | | $ | 5.86 | |
| | | | | | | | | | | | | | | | |
Exercisable at October 29, 2017 | | | 421,687 | | | $ | 26.48 | | | | 688,249 | | | $ | 5.66 | |
| | | | | | | | | | | | | | | | |
The total intrinsic value of options exercised during the thirty-nine weeks ended October 29, 2017 and October 30, 2016 was $29,235 and $23,186, respectively. The unrecognizedfiscal 2023.
Share-based compensation
Our compensation expense related to
our stock option plan totaled approximately $2,375share-based compensation was as
of October 29, 2017 and will be expensed over a weighted average period of 1.7 years.Transactions related to time-based and performance-based RSU’s and restricted stockfollows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | Twenty-Six Weeks Ended | | |
| July 30, 2023 | | July 31, 2022 | | July 30, 2023 | | July 31, 2022 | | | | |
General and administrative expenses | $ | 5.2 | | | $ | 4.7 | | | $ | 11.9 | | | $ | 8.3 | | | | | |
Our share-based compensation award activity during the
thirty-ninetwenty-six weeks ended
October 29, 2017 wereJuly 30, 2023 was as follows:
| | | | | | | | |
| | | | | Weighted | |
| | | | | Average | |
| | Shares | | | Fair Value | |
Outstanding at January 29, 2017 | | | 128,088 | | | $ | 37.19 | |
Granted | | | 70,357 | | | | 58.78 | |
Vested | | | (10,485 | ) | | | 40.68 | |
Forfeited | | | (3,395 | ) | | | 51.65 | |
| | | | | | | | |
Outstanding at October 29, 2017 | | | 184,565 | | | $ | 44.96 | |
| | | | | | | | |
Fair
| | | | | | | | | | | | | | | | | |
| Options | | Restricted Stock Units | | Total |
Outstanding at January 29, 2023 | 0.98 | | 1.89 | | 2.87 |
Granted | 0.08 | | 0.26 | | 0.34 |
Exercised | (0.03) | | — | | (0.03) |
| | | | | |
RSU vestings | n/a | | (0.23) | | (0.23) |
Forfeited | (0.05) | | (0.13) | | (0.18) |
Outstanding at July 30, 2023 | 0.98 | | 1.79 | | 2.77 |
Remaining unrecognized compensation expense | $ | 4.6 | | | $ | 39.1 | | | $ | 43.7 | |
The fair value of our time-based and performance-based RSU’s and restricted stock units is based on our closing stock price on the date of grant. The grant date fair value of stock options was determined using the Black-Scholes option valuation model. The grant date fair value of performance-based awards with market conditions was determined using the Monte Carlo valuation model. The unrecognized expense related to ourwill all be substantially recognized by the end of fiscal 2025.
During the twenty-six weeks ended July 30, 2023, the Company granted certain options, time-based, performance-based, and performance-based RSU’s and unvestedmarket-based restricted stock units to employees and directors of the Company. These grants vest over a range of one year to 5 years. Certain of the market-based restricted stock units can vest earlier if the targets are achieved prior to that time. As a result, the requisite service period for such grants was $5,338determined to be less than the explicit service period.
Note 9: Income Taxes
The effective tax rate for the twenty-six weeks ended July 30, 2023, was 22.4%, compared to 23.3% for the twenty-six weeks ended July 31, 2022. The current year tax provision includes a favorable state apportionment impact resulting from the acquisition of Main Event and legal entity restructuring as well as lower permanent differences, primarily non-deductible transaction costs as compared to the prior year.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law. Intended to provide economic relief to those impacted by the COVID-19 pandemic, the CARES Act includes provisions,
DAVE & BUSTER’S ENTERTAINMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share amounts)
among others, allowing for the carryback of net operating losses generated in fiscal 2018, 2019 and 2020. The Company has $24.2 of federal tax refunds remaining from the fiscal 2020 carryback claim filed during fiscal 2021.
Note 10: Subsequent Event
On September 4, 2023, our Board of Directors authorized an additional $100.0 under an existing share repurchase program (see Note 8), under which the Company may repurchase shares on the open market, through privately negotiated transactions and through trading plans. The share repurchase program may be modified, suspended, or discontinued at any time. After the additional authorized amount, the remaining dollar value of shares that may be repurchased under the program is $200.0. Future decisions to repurchase shares continue to be at the discretion of the Board of Directors and will be
expensed over a weighted average perioddependent on our operating performance, financial condition, capital expenditure requirements and other factors that the Board of
2.2 years.Directors considers relevant.
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read together with the accompanying unaudited consolidated financial statements and the related notes in Item 1 and with the audited consolidated financial statements and the related notes included in our Annual Report on Form10-K as filed with the Securities and Exchange Commission (“SEC”) on March 28, 2017. 2023. Amounts included in the following discussion, except for operating weeks and per share amounts, are rounded in millions.
Unless otherwise specified, the meanings of all defined terms in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are consistent with the meanings of such terms as defined in the Notes to
Unaudited Consolidated Financial Statements. This discussion contains statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements can be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “intends,” “may,” “will” or “should” or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not
guaranteesa guarantee of future performance and our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this
annualquarterly report as a result of various factors, including those set forth in the section entitled “Risk Factors” in our Annual Report on Form
10-K filed with the SEC on March 28,
2017.2023. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Form
10-Q, those such results or developments may not be indicative of results or developments in subsequent periods.
Quarterly Financial Highlights
•Record second quarter revenue of $542.1 million increased 15.7% from the second quarter of 2022.
•Pro forma combined comparable store sales (including Main Event branded stores) decreased 6.3% compared with the same period in 2022 and increased 5.8% compared with the same period in 2019.
•Net income totaled $25.9 million, or $0.60 per diluted share, compared with net income of $29.1 million, or $0.59 per diluted share in the second quarter of 2022.
•Record Adjusted EBITDA of $140.3 million in the quarter increased 21.3% from the second quarter of 2022.
•Ended the second quarter with $568.8 million of liquidity, which included $82.6 million in cash and $490.2 million available under its $500 million revolving credit facility.
•The Company purchased 2.1 million shares at a total cost of $74.5 million in the second quarter. Total share repurchases to date in fiscal 2023 are 5.7 million shares totaling $200.0 million and representing 11.8% of the Company's outstanding shares as of the end of fiscal 2022.
•The Company opportunistically amended its credit agreement, reducing the interest rate margin applicable to term loans and revolving loans outstanding under the credit agreement by 1.25%.
•The Company opened two new Dave & Buster's stores in Lubbock, TX and Queen Creek, AZ and one new Main Event store in Greenville, SC in the second quarter. Subsequent to the end of the quarter, the Company opened one new Dave & Buster's store in Des Moines, IA and one new Main Event store in Fayetteville, NC.
We are a leading owner and operator of high-volume venues in North America that combine dining and entertainment for both adults and families under the name “Dave & Buster’s”. Founded in 1982, the and “Main Event” brands. The core of our concept is to offer our customers the opportunity to “Eat, Drink, Playquality dining and Watch”various forms of entertainment all in one location. Eat and Drink are offered through a full menu of “Fun American New Gourmet” entrées and appetizers and a full selection ofnon-alcoholic and alcoholic beverages. Our Play and Watchentertainment offerings provide an extensive assortment of entertainment attractions centered around playing games, bowling, and watching live sports and other televised events. Our customerbrands appeal to a relatively balanced mix skews moderately to males, primarily between the ages of 21male and 39,female adults, as well as families and we believe we also serve as an attractive venue for families with children and
teenagers. We believe we appeal to a diverse customer base by providing a highly customizable experience in a dynamic and fun setting.
Our
Dave & Buster’s stores average
42,00040,000 square feet
and range in size between 16,000 and
66,00070,000 square feet. Our Main Event stores average 54,000 square feet and
range in size between 37,500 and 78,000 square feet. Generally, our stores are open seven days a week, with
normal hours of operation
typicallygenerally from
between 10:00 to 11:30 a.m.
tountil midnight,
with stores typically open for extended hours on
Sunday through Thursday and 11:30 a.m. to 2:00 a.m. on Friday and Saturday.Our Growth Strategies and Outlook
Our growth is based primarily on the following strategies:
weekends.Pursue disciplined new store growth;
Grow our comparable stores sales; and
Expand the Dave & Buster’s brand internationally.
We intend for new store expansion to be a key growth driver. Our long-term plan is to open new stores at an annual rate of at least 10% of our existing stores. During the first thirty-nine weeks of fiscal 2017, the Company opened nine new stores, compared to seven new store openings in the comparable 2016 period. As of October 29, 2017, there were 101 stores in the United States and Canada. To increase comparable store sales we plan to provide our customers with the latest exciting games, leverage the D&B Sports concept by building awareness through national cable advertising and drive customer frequency by enhancing customer experience through providing new product offerings in each of the “Eat, Drink, Play and Watch” components of our business. We currently anticipate opening fourteen new stores in fiscal 2017.
We believe that in addition to the growth potential that exists in North America, the Dave & Buster’s brand can also have significant appeal in certain international markets. We have signed a seven store agreement for licensed development in six countries in the Middle East, and we are targeting our first international opening outside of Canada in 2018.
We believe that we are well positioned for growth with a corporate infrastructure and national marketing platform that can support a larger store base than we currently have, and that we will benefit from economies of scale as we expand.
For further information about our growth strategies and outlook, see the section entitled “Business – Our Growth Strategies” in our Annual Report on Form10-K filed with the SEC.
Key Measures of Our Performance
We monitor and analyze
a number ofseveral key performance measures to manage our business and evaluate financial and operating
performance. These measures include:performance, including:
Comparable store sales. Comparable store sales are a year-over-year comparison of sales atto the same period of prior years for the comparable store base. We historically define the comparable store base to include those stores open at the end of the period which have been open for at leasta full 18 months as ofbefore the beginning of each of the fiscal years. It is a key performance indicator used withinyear and excluding stores permanently closed during the industry and is indicative of acceptance ofperiod. For fiscal 2023, our initiatives as well as local economic and consumer trends. Our comparable store base consistedconsists of 76141 Dave & Buster's branded stores. Our Main Event branded stores as of October 29, 2017.are not included in comparable store sales for the thirteen and twenty-six weeks ended July 30, 2023.
New store openings.Our ability to expand our business and reach new customers is influenced by the opening of additional stores in both new and existing markets. The success of our new stores is indicative of our brand appeal and the efficacy of our site selection and operating models. Between October 31, 2016 and October 29, 2017,For the twenty-six weeks ended July 30, 2023, we opened thirteenseven new stores.stores (three Dave & Buster's branded stores and four Main Event branded stores).
Non-GAAP Financial Measures
In addition to the results provided in accordance with generally accepted accounting principles (“GAAP”), we providenon-GAAP measures which present operating results on an adjusted basis. These are supplemental measures of performance that are not required by or presented in accordance with GAAP and include Adjusted EBITDA, Adjusted EBITDA Margin, Credit Adjusted EBITDA, Store Operating Income Before Depreciation and Amortization and Store Operating Income Before Depreciation and Amortization Margin (defined below). Thesenon-GAAP measures do not represent and should not be considered as an alternative to net income or cash flows from operations, as determined in accordance with GAAP, and our calculations thereof may not be comparable to similarly entitledtitled measures reported by other companies and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.
Although we use these
non-GAAP measures to assess the operating performance of our business, they have significant limitations as an analytical tool because they exclude certain material costs. For example, Adjusted EBITDA does not take into account a number of significant items, including our interest expense and depreciation and amortization expense. In addition, Adjusted EBITDA excludes
pre-opening and certain other costs which may be important in analyzing our GAAP results. Because Adjusted EBITDA does not account for these expenses, its utility as a measure of our operating performance has material limitations. Our calculations of Adjusted EBITDA adjust for these amounts because they
vary from period to period and do not directly relate to the ongoing operations of the currently underlying business of our stores and therefore complicate comparison of
the underlying business between periods. Nevertheless, because of the limitations described above, management does not view Adjusted EBITDA,
Adjusted EBITDA Margin, Credit Adjusted EBITDA, Store Operating Income Before Depreciation and Amortization or Store Operating Income Before Depreciation and Amortization
Margin in isolation and also uses other measures, such as revenues, gross margin, operating income and net income
(loss), to measure operating performance.
Adjusted EBITDA and Adjusted EBITDA Margin. We define “Adjusted EBITDA” as net income (loss), plus interest expense, net, loss on debt refinancing, provision (benefit) for income taxes, depreciation and amortization expense, loss on asset disposal, impairment of long-lived assets, share-based compensation,pre-opening costs, currency transaction (gains) losses and other costs. “Adjusted EBITDA Margin” is defined as Adjusted EBITDA divided by total revenues. Adjusted EBITDA is presented because we believe that it provides useful information to investors and analysts regarding our operating performance. By reporting Adjusted EBITDA, we provide a basis for comparison of our business operations between current, past and future periods by excluding items that we do not believe are indicative of our core operating performance.
Credit Adjusted EBITDA
We define “Credit Adjusted EBITDA” as Adjusted EBITDA plus certain other items as defined in our Credit Facility (see Liquidity and Capital Resources below). Other adjustments include (i) entertainment revenue deferrals, (ii) the cost of new projects, including store pre-opening costs, (iii) business optimization expenses and other restructuring costs, and (iv) other costs and adjustments as permitted by the debt agreements. We believe the presentation of Credit Adjusted EBITDA is appropriate as it provides additional information to investors about the calculation of, and compliance with, certain financial covenants in the Credit Facility.
Store Operating Income Before Depreciation and Amortization and Store Operating Income Before Depreciation and Amortization Margin.
We define “Store Operating Income Before Depreciation and Amortization” as operating income (loss), plus depreciation and amortization expense, general and administrative expenses and
pre-opening costs. “Store Operating Income Before Depreciation and Amortization Margin” is defined as Store Operating Income Before Depreciation and Amortization divided by total revenues. Store Operating Income Before Depreciation and Amortization Margin allows us to evaluate operating performance of each store across stores of varying size and volume.
We believe that Store Operating Income Before Depreciation and Amortization is another useful measure in evaluating our operating performance because it removes the impact of general and administrative expenses, which are not incurred at the
store-level,store level, and the costs of opening new stores, which are
non-recurring at the
store-level,store level, and thereby enables the comparability of the operating performance of our stores for the periods presented. We also believe that Store Operating Income Before Depreciation and Amortization is a useful measure in evaluating our operating performance within the entertainment and dining industry because it permits the evaluation of store-level productivity, efficiency, and performance, and we use Store Operating Income Before Depreciation and Amortization as a means of evaluating store financial performance compared with our competitors. However, because this measure excludes significant items such as general and administrative expenses and
pre-opening costs, as well as our interest expense, net,
loss on debt refinancing and depreciation and amortization expense, which are important in evaluating our consolidated financial performance from period to period, the value of this measure is limited as a measure of our consolidated financial performance.
Presentation of Operating Results
We operate on a
5252-week or
53 week53-week fiscal year that ends on the Sunday after the Saturday closest to January 31. Each quarterly period has 13 weeks, except in a
53 week53-week year when the fourth quarter has 14 weeks. All references to the
thirdsecond quarter of
20172023 relate to the
13 week13-week period ended
October 29, 2017.July 30, 2023. All references to the
thirdsecond quarter of
20162022 relate to the
13 week13-week period ended
October 30, 2016.July 31, 2022. Fiscal
20172023 consists of 53 weeks and fiscal
2016 consist2022 consists of
53 and 52
weeks, respectively.weeks. All dollar amounts are presented in
thousands,millions, unless otherwise noted, except
share and per share amounts.
Liquidity and Cash Flows
The primary source of cash flow is from our operating activities and availability under the revolving credit facility.
Store-Level Variability, Quarterly Fluctuations, Seasonality and Inflation
We
have historically operatedoperate stores varying in size and have experienced significant variability among stores in volumes, operating results and net investment costs.
Our new
locationsstores typically open with sales volumes in excess of their expected
long termlong-term run-rate levels, which we refer to as a “honeymoon” effect. We
traditionally expect our new store sales volumes in year two to be 10% to 20% lower than our year one targets, and to grow in line with the rest of our comparable store base thereafter. As a result of the substantial revenues associated with each new store, the number and timing of new store openings will result in significant fluctuations in quarterly results.
In
New store operating margins (excluding pre-opening expenses) during the first year of operation new store operating margins (excludingpre-opening expenses) typicallyhistorically benefit from honeymoon sales leverage on occupancy, management labor and other fixed costs. This benefit is partially offset by normal inefficiencies in hourly labor and other costs associated with establishing a new location.store. In year two, operating margins may decline due to the loss of honeymoon sales leverage on fixed costs which is partially offset by improvements in store operating efficiency. Furthermore, rents in our new stores are typically
Our operating results historically have fluctuated due to seasonal factors. Typically, we have higher
than our comparable store base.We also expect seasonality to be a factor in the operation or results of the business in the future with higher first and fourth quarter revenues associated with the spring andyear-end holidays. Customer traffic and sales during these quarters may holidays, which will continue to be susceptible to the unfavorable impact of severe or unseasonably mild weather or to the generally favorable impact of cold weather.on customer traffic and sales during that period. Our third quarter, which encompasses theback-to-school fall season, has historically had lower revenues as compared to the other quarters.
We expect that economic and environmental conditions and changes in tax and other regulatory legislation will continue to exert pressure on both supplier pricing and consumer spending related to entertainment and dining alternatives. Although thereThere is no assurance that our cost of products will remain stable or that federal, state, or local minimum wage rates will not increase
beyond amounts currently legislated,
however, the effects of any supplier price
increasesincrease or wage rate increases
are expected tomight be partially offset by
selected menuselective price increases
whereif competitively appropriate.
Thirteen Weeks Ended
October 29, 2017July 30, 2023 Compared to Thirteen Weeks Ended
October 30, 2016July 31, 2022
Results of operations.The following table sets forth selected data, in thousandsmillions of dollars and as a percentage of total revenues (unless otherwise noted) for the periods indicated. All information is derived from the accompanying unaudited consolidated statements of comprehensive income. | | | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended | | | Thirteen Weeks Ended | |
| October 29, 2017 | | | October 30, 2016 | |
Food and beverage revenues | | $ | 107,690 | | | | 43.1 | % | | $ | 101,343 | | | | 44.3 | % |
Amusement and other revenues | | | 142,289 | | | | 56.9 | | | | 127,316 | | | | 55.7 | |
| | | | | | | | | | | | | | | | |
Total revenues | | | 249,979 | | | | 100.0 | | | | 228,659 | | | | 100.0 | |
Cost of food and beverage (as a percentage of food and beverage revenues) | | | 28,387 | | | | 26.4 | | | | 26,560 | | | | 26.2 | |
Cost of amusement and other (as a percentage of amusement and other revenues) | | | 16,220 | | | | 11.4 | | | | 15,581 | | | | 12.2 | |
| | | | | | | | | | | | | | | | |
Total cost of products | | | 44,607 | | | | 17.8 | | | | 42,141 | | | | 18.4 | |
Operating payroll and benefits | | | 57,967 | | | | 23.2 | | | | 55,034 | | | | 24.1 | |
Other store operating expenses | | | 82,766 | | | | 33.1 | | | | 71,888 | | | | 31.4 | |
General and administrative expenses | | | 13,432 | | | | 5.4 | | | | 13,506 | | | | 5.9 | |
Depreciation and amortization expense | | | 25,672 | | | | 10.3 | | | | 22,864 | | | | 10.0 | |
Pre-opening costs | | | 5,609 | | | | 2.2 | | | | 4,553 | | | | 2.0 | |
| | | | | | | | | | | | | | | | |
Total operating costs | | | 230,053 | | | | 92.0 | | | | 209,986 | | | | 91.8 | |
| | | | | | | | | | | | | | | | |
Operating income | | | 19,926 | | | | 8.0 | | | | 18,673 | | | | 8.2 | |
Interest expense, net | | | 2,156 | | | | 0.9 | | | | 1,578 | | | | 0.7 | |
Loss on debt refinancing | | | 718 | | | | 0.3 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Income before provision for income taxes | | | 17,052 | | | | 6.8 | | | | 17,095 | | | | 7.5 | |
Provision for income taxes | | | 4,895 | | | | 1.9 | | | | 6,340 | | | | 2.8 | |
| | | | | | | | | | | | | | | | |
Net income | | $ | 12,157 | | | | 4.9 | % | | $ | 10,755 | | | | 4.7 | % |
| | | | | | | | | | | | | | | | |
Change in comparable store sales | | | | | | | (1.3 | )% | | | | | | | 5.9 | % |
Company-owned stores open at end of period | | | | | | | 101 | | | | | | | | 88 | |
Comparable stores open at end of period | | | | | | | 76 | | | | | | | | 66 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Thirteen Weeks Ended July 30, 2023 | | Thirteen Weeks Ended July 31, 2022 |
Entertainment revenues | $ | 360.8 | | | 66.6 | % | | $ | 311.4 | | | 66.5 | % |
Food and beverage revenues | 181.3 | | | 33.4 | % | | 157.0 | | | 33.5 | % |
Total revenues | 542.1 | | | 100.0 | % | | 468.4 | | | 100.0 | % |
Cost of entertainment (% of entertainment revenues) | 34.4 | | | 9.5 | % | | 29.1 | | | 9.3 | % |
Cost of food and beverage (% of food and beverage revenues) | 49.2 | | | 27.1 | % | | 46.5 | | | 29.6 | % |
Total cost of products | 83.6 | | | 15.4 | % | | 75.6 | | | 16.1 | % |
Operating payroll and benefits | 127.0 | | | 23.4 | % | | 113.6 | | | 24.3 | % |
Other store operating expenses | 169.1 | | | 31.2 | % | | 142.5 | | | 30.4 | % |
General and administrative expenses | 32.2 | | | 5.9 | % | | 37.7 | | | 8.0 | % |
Depreciation and amortization expenses | 49.1 | | | 9.1 | % | | 38.6 | | | 8.2 | % |
Pre-opening costs | 4.0 | | | 0.7 | % | | 3.9 | | | 0.8 | % |
Total operating costs | 465.0 | | | 85.8 | % | | 411.9 | | | 87.9 | % |
Operating income | 77.1 | | | 14.2 | % | | 56.5 | | | 12.1 | % |
Interest expense, net | 32.9 | | | 6.1 | % | | 17.1 | | | 3.7 | % |
Loss on debt refinancing | 11.2 | | | 2.1 | % | | 1.5 | | | 0.3 | % |
Income before provision for income taxes | 33.0 | | | 6.1 | % | | 37.9 | | | 8.1 | % |
Provision for income taxes | 7.1 | | | 1.3 | % | | 8.8 | | | 1.9 | % |
Net income | $ | 25.9 | | | 4.8 | % | | $ | 29.1 | | | 6.2 | % |
Company-owned stores at end of period | | | 211 | | | | 200 |
Reconciliations of
Non-GAAP Financial Measures
The following table reconciles
(in millions of dollars and as a percent of total revenues) Net income to Adjusted EBITDA for the periods indicated:
| | | | | | | | |
| | Thirteen Weeks | | | Thirteen Weeks | |
| | Ended | | | Ended | |
| | October 29, 2017 | | | October 30, 2016 | |
Net income | | $ | 12,157 | | | $ | 10,755 | |
Interest expense, net | | | 2,156 | | | | 1,578 | |
Loss on debt refinancing | | | 718 | | | | — | |
Provision for income taxes | | | 4,895 | | | | 6,340 | |
Depreciation and amortization expense | | | 25,672 | | | | 22,864 | |
| | | | | | | | |
EBITDA | | | 45,598 | | | | 41,537 | |
Loss on asset disposal | | | 321 | | | | 514 | |
Share-based compensation | | | 2,557 | | | | 1,668 | |
Pre-opening costs | | | 5,609 | | | | 4,553 | |
Other costs(1) | | | 46 | | | | (5 | ) |
| | | | | | | | |
Adjusted EBITDA(2) | | $ | 54,131 | | | $ | 48,267 | |
| | | | | | | | |
Adjusted EBITDA Margin(2) | | | 21.7 | % | | | 21.1 | % |
(1) | Primarily represents costs related to currency transaction (gains) or losses. |
(2) | Beginning in the fourth quarter of 2016 we revised our calculation of Adjusted EBITDA to exclude adjustments for changes in deferred amusement revenue and ticket liabilities. This change has been applied retrospectively to all periods presented. |
| | | | | | | | | | | | | | | | | | | | | | | |
| Thirteen Weeks Ended July 30, 2023 | | Thirteen Weeks Ended July 31, 2022 |
Net income | $ | 25.9 | | | 4.8 | % | | $ | 29.1 | | | 6.2 | % |
Interest expense, net | 32.9 | | | | | 17.1 | | | |
Loss on debt refinancing | 11.2 | | | | | 1.5 | | | |
Provision for income taxes | 7.1 | | | | | 8.8 | | | |
Depreciation and amortization expense | 49.1 | | | | | 38.6 | | | |
EBITDA | 126.2 | | | 23.3 | % | | 95.1 | | | 20.3 | % |
Loss on asset disposal | — | | | | | 0.2 | | | |
Impairment of long-lived assets | 1.7 | | | | | 1.8 | | | |
Share-based compensation | 5.2 | | | | | 4.7 | | | |
Transaction and integration costs | 5.3 | | | | | 13.9 | | | |
System implementation costs | 1.7 | | | | | — | | | |
Other items, net | 0.2 | | | | | — | | | |
Adjusted EBITDA | $ | 140.3 | | | 25.9 | % | | $ | 115.7 | | | 24.7 | % |
Store Operating Income Before Depreciation and Amortization
The following table reconciles
(in millions of dollars and as a percent of total revenues) Operating income to Store Operating Income Before Depreciation and Amortization for the periods indicated:
| | | | | | | | |
| | Thirteen Weeks Ended | | | Thirteen Weeks Ended | |
| | October 29, 2017 | | | October 30, 2016 | |
Operating income | | $ | 19,926 | | | $ | 18,673 | |
General and administrative expenses | | | 13,432 | | | | 13,506 | |
Depreciation and amortization expense | | | 25,672 | | | | 22,864 | |
Pre-opening costs | | | 5,609 | | | | 4,553 | |
| | | | | | | | |
Store Operating Income Before Depreciation and Amortization | | $ | 64,639 | | | $ | 59,596 | |
| | | | | | | | |
Store Operating Income Before Depreciation and Amortization Margin | | | 25.9 | % | | | 26.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Thirteen Weeks Ended July 30, 2023 | | Thirteen Weeks Ended July 31, 2022 |
Operating income | $ | 77.1 | | | 14.2 | % | | $ | 56.5 | | | 12.1 | % |
General and administrative expenses | 32.2 | | | | | 37.7 | | | |
Depreciation and amortization expense | 49.1 | | | | | 38.6 | | | |
Pre-opening costs | 4.0 | | | | | 3.9 | | | |
Store Operating Income Before Depreciation and Amortization | $ | 162.4 | | | 30.0 | % | | $ | 136.7 | | | 29.2 | % |
The
following table
represents totalbelow reflects accrual-based
additions to property and equipment. Total capital
additions. Capital additions do not include any reductions for accrual-based
tenantleasehold improvement
allowances (“Paymentsincentives or proceeds from sale-leaseback transactions (collectively, “Payments from landlords”).
| | | | | | | | |
| | Thirteen Weeks | | | Thirteen Weeks | |
| | Ended | | | Ended | |
| | October 29, 2017 | | | October 30, 2016 | |
New store | | $ | 51,232 | | | $ | 49,115 | |
Operating initiatives, including remodels | | | 2,762 | | | | 3,258 | |
Games | | | 2,229 | | | | 348 | |
Maintenance Capital | | | 4,912 | | | | 4,667 | |
| | | | | | | | |
Total capital additions | | $ | 61,135 | | | $ | 57,388 | |
| | | | | | | | |
Payments from landlords | | $ | 2,618 | | | $ | 6,118 | |
| | | | | | | | | | | |
| Thirteen Weeks Ended July 30, 2023 | | Thirteen Weeks Ended July 31, 2022 |
New store and operating initiatives | $ | 48.0 | | | $ | 37.0 | |
Games | 7.9 | | | 17.8 | |
Maintenance capital | 31.7 | | | 7.3 | |
Total capital additions | $ | 87.6 | | | $ | 62.1 | |
Payments from landlords | $ | 4.9 | | | $ | 7.2 | |
Selected revenue and store data (in millions except for store operating weeks) for the periods indicated are as follows:
| | | | | | | | | | | | | | | | | |
| Thirteen Weeks Ended |
| July 30, 2023 | | July 31, 2022 | | Change |
Total revenues | $ | 542.1 | | | $ | 468.4 | | | $ | 73.7 | |
Total store operating weeks | 2,730 | | | 2,171 | | | 559 | |
Comparable store revenues | $ | 370.6 | | | $ | 399.0 | | | $ | (28.4) | |
Comparable store operating weeks | 1,833 | | | 1,833 | | | — | |
Noncomparable store revenues—Dave & Buster’s | $ | 36.3 | | | $ | 17.6 | | | $ | 18.7 | |
Noncomparable store operating weeks—Dave & Buster’s | 166 | | | 78 | | | 88 | |
Noncomparable store revenues—Main Event | $ | 133.7 | | | 51.4 | | | $ | 82.3 | |
Noncomparable store operating weeks—Main Event | 731 | | | 260 | | | 471 | |
Other revenues and deferrals | $ | 1.5 | | | $ | 0.4 | | | $ | 1.1 | |
Revenue mix by category, as a percentage of total revenues, for the periods indicated was as follows:
| | | | | | | | | | | |
| Thirteen Weeks Ended |
| July 30, 2023 | | July 31, 2022 |
Entertainment revenues | 66.6 | % | | 66.5 | % |
Food revenues | 23.1 | % | | 23.4 | % |
Beverage revenues | 10.3 | % | | 10.1 | % |
Total revenues increased
$21,320,$73.7 million, or
9.3%15.7%, to
$249,979$542.1 million in the
thirdsecond quarter of
fiscal 20172023 compared to
total revenues of $228,659$468.4 million in the
thirdsecond quarter of
fiscal 2016. For the thirteen weeks ended October 29, 2017, we derived 29.1%2022. The increase in revenue is primarily attributable to $82.3 million of
our totalincreased revenue from
food sales, 14.0% from beverage sales, 56.1% from amusement salesour Main Event stores, which were acquired on June 29, 2022, and
0.8% from other sources. For the thirteen weeks ended October 30, 2016, we derived 29.8% of our total$18.7 million in incremental revenue from
new, noncomparable, Dave & Buster's stores, partially offset by a 7.1% decrease in comparable store sales. The decrease in comparable store revenue is due primarily to a reduction in walk-in transaction counts relative to the robust consumer environment of the prior year period, partially offset by increases in food
sales, 14.5% fromand beverage
sales, 54.9% from amusement salesprices and
0.8% from other sources.The increasedincreases in special event bookings.
Comparable entertainment revenues in the
thirdsecond quarter of
fiscal 2017 were2023 decreased by $21.7 million, or 8.2%, to $241.5 million from
the following sources: | | | | |
Comparable stores | | $ | (2,496 | ) |
Non-comparable stores | | | 22,916 | |
Other | | | 900 | |
| | | | |
Total | | $ | 21,320 | |
| | | | |
Comparable store revenue decreased $2,496, or 1.3%,$263.2 million in the thirdsecond quarter of fiscal 2017 compared to the third quarter of fiscal 2016. Comparable store revenue compared to prior year was in part negatively impacted by catastrophic events occurring in the third quarter of fiscal 2017, including Hurricane Harvey and Hurricane Irma as well as wildfires in California. Comparablewalk-in revenues, which accounted for 90.7% of comparable store revenue for the third quarter of fiscal 2017, decreased $1,574, or 0.9% compared to the third quarter of fiscal 2016. Comparable store special events revenues, which accounted for 9.3% of comparable store revenue for the third quarter of fiscal 2017, decreased $922, or 4.8% compared to the third quarter of fiscal 2016.
2022. Food sales at comparable stores decreased by $2,489,$6.9 million, or 4.2%7.3%, to $56,838$87.7 million in the thirdsecond quarter of fiscal 20172023 from $59,327$94.6 million in the thirdsecond quarter of fiscal 2016.2022. Beverage sales at comparable stores decreasedincreased by $1,194,$0.2 million, or 4.1%0.5%, to $27,833$41.4 million in the thirdsecond quarter of fiscal 20172023 from $29,027$41.2 million in the thirdsecond quarter of fiscal 2016. The decrease in food and beverage unit sales at comparable stores was partially offset by an overall increase in menu prices. Comparable store amusement and other revenues in the third quarter of fiscal 2017 increased by $1,187, or 1.1%, to $111,702 from $110,515 in the third quarter of fiscal 2016, due to an increase in the revenue per Power Card sold. The growth over fiscal 2016 in amusement sales was driven in part by national advertising which highlighted our entertainment offerings, including a limited time offer which allowed customers to play certain new games for free.
Non-comparable store revenue increased $22,916, for the third quarter of fiscal 2017 compared to the third quarter of fiscal 2016. The increase innon-comparable store revenue was primarily driven by 170 additional operating store weeks contributed by our twenty-fivenon-comparable stores.
2022.
The total cost of products was
$44,607$83.6 million for the
thirdsecond quarter of
fiscal 2017 and $42,1412023 compared to $75.6 million for the
thirdsecond quarter of
fiscal 2016.2022. The total cost of products as a percentage of total revenues
was 17.8% and 18.4%decreased to 15.4% for the
thirdsecond quarter of
fiscal 2017 and2023 compared to 16.1% for the
thirdsecond quarter of
fiscal 2016, respectively.2022.
Cost of entertainment was $34.4 million in the second quarter of 2023 compared to $29.1 million in the second quarter of 2022. The cost of entertainment, as a percentage of entertainment revenues, increased to 9.5% for the second quarter of 2023 from 9.3% in the second quarter of 2022.
Cost of food and beverage products
increased to $28,387 inwas $49.2 million for the
thirdsecond quarter of
fiscal 20172023 compared to
$26,560$46.5 million for the
thirdsecond quarter of
fiscal 2016 due primarily to the increased sales volume related to new store openings.2022. Cost of food and beverage products, as a percentage of food and beverage revenues,
increased 20 basis pointsdecreased to
26.4%27.1% for the
thirdsecond quarter of
fiscal 20172023 from
26.2%29.6% for the
thirdsecond quarter of
fiscal 2016. Higher product costs were partially offset by increases in2022. The decrease was primarily attributable to food and beverage
prices.Cost of amusement and other increased to $16,220 in the third quarter of fiscal 2017 compared to $15,581 in the third quarter of fiscal 2016 as cost reductions at comparable stores were more than offset by costs related to ournon-comparable stores. The costs of amusement and other, as a percentage of amusement and other revenues, decreased 80 basis points to 11.4% for the third quarter of fiscal 2017 from 12.2% for the third quarter of fiscal 2016. The decrease in cost of amusement and other as a percentage of revenue is due tomenu price increases implemented earlier inand the year and a shift in game play from redemption tonon-redemption games.
mix of products sold.
Operating payroll and benefits
Total operating payroll and benefits
increased by $2,933, or 5.3%, to $57,967was $127.0 million in the
thirdsecond quarter of
fiscal 20172023 compared to
$55,034$113.6 million in the
thirdsecond quarter of
fiscal 2016. This increase was primarily due to labor associated with the additional operating store weeks of ournon-comparable stores.2022. The total cost of operating payroll and benefits as a percentage of total revenues
decreased 90 basis points to 23.2%was 23.4% in the
thirdsecond quarter of
fiscal 20172023 compared to
24.1% for24.3% in the
thirdsecond quarter of
fiscal 2016.2022. This decrease
wasis primarily due to
store-level incentive compensation and payroll related benefits which together decreased approximately 80 basis points. Additionally, increased focus on labor management
helped reduce the adverse impact ofefficiencies, partially offset by hourly wage rate
increases on operating margins.and manager salary increases.
Other store operating expenses
Other store operating expenses
increased by $10,878, or 15.1%, to $82,766was $169.1 million in the
thirdsecond quarter of
fiscal 20172023 compared to
$71,888$142.5 million in the
thirdsecond quarter of
fiscal 2016,2022. The increase is primarily due to
the additional store operating hours related to our Main Event stores, the impact of Dave & Buster’s new store
openings.openings, and higher occupancy costs, utilities, maintenance, security, cleaning services and marketing costs. Other store operating
expensesexpense as a percentage of total revenues increased
170to 29.8% in the second quarter of 2023 compared to 29.0% in the second quarter of 2022. This increase in basis points
to 33.1% in the third quarter of fiscal 2017 compared to 31.4% in the third quarter of fiscal 2016. This increase was due primarily to increased
margin pressure on occupancy costs,
associated with our recent store openings, highersecurity, cleaning services, and marketing
costs and incremental sports viewing costs.
General and administrative expenses
General and administrative expenses decreased
by $74, or 0.5%, to
$13,432$32.2 million in the
thirdsecond quarter of
fiscal 20172023 compared to
$13,506$37.7 million in the
thirdsecond quarter of
fiscal 2016, due2022. The decrease in general and administrative expenses was driven primarily by synergies subsequent to
lower incentive compensation expenses which werethe Main Event acquisition, partially offset by
increased labor costs at our corporate headquartershigher stock based compensation expense and
incremental compensation costs related to our share-based awards.system implementation costs. General and administrative expenses as a percentage of total revenues decreased
50 basis points to 5.4% in the third quarter of fiscal 2017 compared to 5.9% in the
thirdsecond quarter of
fiscal 20162023 compared to 8.0% in the second quarter of 2022 due
primarily to
favorable leverage on sales.sales leverage.
Depreciation and amortization expense
Depreciation and amortization expense increased by $2,808, or 12.3%, to $25,672$49.1 million in the thirdsecond quarter of fiscal 20172023 compared to $22,864$38.6 million in the thirdsecond quarter of fiscal 2016. Increased depreciation2022, primarily due to our 2016 and 2017 capital expenditures for newthe addition of Main Event.
Pre-opening costs
Pre-opening costs increased to $4.0 million in the second quarter of 2023 compared to $3.9 million in the second quarter of 2022 primarily due to pre-opening costs related to Main Event stores,
operating initiatives, including remodels, games and maintenance capital, was partially offset by
other assets reaching the end of their depreciable lives.Pre-openinga decrease in costs
Pre-opening costs increased by $1,056 to $5,609 in the third quarter of fiscal 2017 compared to $4,553 in the third quarter of fiscal 2016 due primarily related to the number and timing of newDave & Buster's store openings and stores in development.
2023.
Interest expense, net increased
by $578 to
$2,156$32.9 million in the
thirdsecond quarter of
fiscal 20172023 compared to
$1,578$17.1 million in the
thirdsecond quarter of
fiscal 20162022 due primarily to
higher variable interest rates and a slightan increase in average outstanding debt.
See further discussion of the Company's debt activity at Note 6 to the consolidated financial statements.
Loss on debt refinancing
In connection with the August 17, 2017
Loss on debt refinancing
(see Note 3,Debt, of Notesincreased to
Unaudited Consolidated Financial Statements for further discussion),$11.2 million in the
Company recorded a charge of $718 during the thirdsecond quarter of
fiscal 2017.2023 compared to $1.5 million in the second quarter of 2022 due primarily to debt refinancing in June of 2023 and June of 2022, respectively. See further discussion of the Company's debt activity at Note 6 to the consolidated financial statements.
Provision for income taxes
The effective income tax rate decreased to 28.7% for the thirteen weeks ended October 29, 2017 compared to 37.1% in the thirteen weeks ended October 30, 2016. The decrease in the effective tax rate primarily reflectsfor the second quarter of 2023 was 21.5%, compared to 23.2% for the second quarter of 2022. The second quarter of 2023 includes a favorable 7.5%state apportionment impact resulting from the recognitionacquisition of excess tax benefits on share-based payments through income tax expense. Refer to Note 1,Summary of Significant Accounting Policies, of Notes to Unaudited Consolidated Financial Statements, for information with respectMain Event and legal entity restructuring as well as lower permanent differences, primarily non-deductible transaction costs as compared to the tax impacts associated with share-based awards as a resultprior year.
Twenty-Six Weeks Ended
October 29, 2017July 30, 2023 Compared to
Thirty-nineTwenty-Six Weeks Ended
October 30, 2016July 31, 2022
Results of operations.The following table sets forth selected data, in thousandsmillions of dollars and as a percentage of total revenues (unless otherwise noted) for the periods indicated. All information is derived from the accompanying unaudited accompanying consolidated statements of comprehensive income. | | | | | | | | | | | | | | | | |
| | Thirty-nine Weeks | | | Thirty-nine Weeks | |
| | Ended | | | Ended | |
| | October 29, 2017 | | | October 30, 2016 | |
Food and beverage revenues | | $ | 356,190 | | | | 42.7 | % | | $ | 326,139 | | | | 44.4 | % |
Amusement and other revenues | | | 478,688 | | | | 57.3 | | | | 408,837 | | | | 55.6 | |
| | | | | | | | | | | | | | | | |
Total revenues | | | 834,878 | | | | 100.0 | | | | 734,976 | | | | 100.0 | |
Cost of food and beverage (as a percentage of food and beverage revenues) | | | 91,562 | | | | 25.7 | | | | 83,772 | | | | 25.7 | |
Cost of amusement and other (as a percentage of amusement and other revenues) | | | 50,481 | | | | 10.5 | | | | 48,628 | | | | 11.9 | |
| | | | | | | | | | | | | | | | |
Total cost of products | | | 142,043 | | | | 17.0 | | | | 132,400 | | | | 18.0 | |
Operating payroll and benefits | | | 187,610 | | | | 22.5 | | | | 166,614 | | | | 22.7 | |
Other store operating expenses | | | 247,663 | | | | 29.6 | | | | 214,487 | | | | 29.1 | |
General and administrative expenses | | | 45,172 | | | | 5.4 | | | | 40,131 | | | | 5.5 | |
Depreciation and amortization expense | | | 74,447 | | | | 8.9 | | | | 65,108 | | | | 8.9 | |
Pre-opening costs | | | 14,626 | | | | 1.8 | | | | 10,390 | | | | 1.4 | |
| | | | | | | | | | | | | | | | |
Total operating costs | | | 711,561 | | | | 85.2 | | | | 629,130 | | | | 85.6 | |
| | | | | | | | | | | | | | | | |
Operating income | | | 123,317 | | | | 14.8 | | | | 105,846 | | | | 14.4 | |
Interest expense, net | | | 6,073 | | | | 0.7 | | | | 5,573 | | | | 0.8 | |
Loss on debt refinancing | | | 718 | | | | 0.1 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Income before provision for income taxes | | | 116,526 | | | | 14.0 | | | | 100,273 | | | | 13.6 | |
Provision for income taxes | | | 31,217 | | | | 3.8 | | | | 36,845 | | | | 5.0 | |
| | | | | | | | | | | | | | | | |
Net income | | $ | 85,309 | | | | 10.2 | % | | $ | 63,428 | | | | 8.6 | % |
| | | | | | | | | | | | | | | | |
Change in comparable store sales | | | | | | | 0.8 | % | | | | | | | 3.4 | % |
Company owned stores open at end of period | | | | | | | 101 | | | | | | | | 88 | |
Comparable stores open at end of period | | | | | | | 76 | | | | | | | | 66 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Twenty-Six Weeks Ended July 30, 2023 | | Twenty-Six Weeks Ended July 31, 2022 |
Entertainment revenues | $ | 753.9 | | | 66.2 | % | | $ | 610.6 | | | 66.4 | % |
Food and beverage revenues | 385.5 | | | 33.8 | % | | 308.9 | | | 33.6 | % |
Total revenues | 1,139.4 | | | 100.0 | % | | 919.5 | | | 100.0 | % |
Cost of entertainment (% of entertainment revenues) | 68.7 | | | 9.1 | % | | 55.9 | | | 9.2 | % |
Cost of food and beverage (% of food and beverage revenues) | 105.2 | | | 27.3 | % | | 89.7 | | | 29.0 | % |
Total cost of products | 173.9 | | | 15.3 | % | | 145.6 | | | 15.8 | % |
Operating payroll and benefits | 257.6 | | | 22.6 | % | | 207.0 | | | 22.5 | % |
Other store operating expenses | 339.1 | | | 29.8 | % | | 266.9 | | | 29.0 | % |
General and administrative expenses | 63.6 | | | 5.6 | % | | 66.0 | | | 7.2 | % |
Depreciation and amortization expenses | 98.0 | | | 8.6 | % | | 71.9 | | | 7.8 | % |
Pre-opening costs | 8.7 | | | 0.8 | % | | 6.9 | | | 0.8 | % |
Total operating costs | 940.9 | | | 82.6 | % | | 764.3 | | | 83.1 | % |
Operating income | 198.5 | | | 17.4 | % | | 155.2 | | | 16.9 | % |
Interest expense, net | 63.6 | | | 5.6 | % | | 28.5 | | | 3.1 | % |
Loss on debt refinancing | 11.2 | | | 1.0 | % | | 1.5 | | | 0.2 | % |
Income before provision for income taxes | 123.7 | | | 10.9 | % | | 125.2 | | | 13.6 | % |
Provision for income taxes | 27.7 | | | 2.4 | % | | 29.1 | | | 3.2 | % |
Net income | $ | 96.0 | | | 8.4 | % | | $ | 96.1 | | | 10.5 | % |
Company-owned stores at end of period | | | 211 | | | | 200 |
Reconciliations of
Non-GAAP Financial Measures
The following table reconciles
(in millions of dollars and as a percent of total revenues) Net income to Adjusted EBITDA for the periods indicated:
| | | | | | | | |
| | Thirty-nine Weeks | | | Thirty-nine Weeks | |
| | Ended | | | Ended | |
| | October 29, 2017 | | | October 30, 2016 | |
Net income | | $ | 85,309 | | | $ | 63,428 | |
Interest expense, net | | | 6,073 | | | | 5,573 | |
Loss on debt refinancing | | | 718 | | | | — | |
Provision for income taxes | | | 31,217 | | | | 36,845 | |
Depreciation and amortization expense | | | 74,447 | | | | 65,108 | |
| | | | | | | | |
EBITDA | | | 197,764 | | | | 170,954 | |
Loss on asset disposal | | | 1,205 | | | | 987 | |
Share-based compensation | | | 7,006 | | | | 4,665 | |
Pre-opening costs | | | 14,626 | | | | 10,390 | |
Other costs(1) | | | (329 | ) | | | 68 | |
| | | | | | | | |
Adjusted EBITDA(2) | | $ | 220,272 | | | $ | 187,064 | |
| | | | | | | | |
Adjusted EBITDA Margin(2) | | | 26.4 | % | | | 25.5 | % |
(1) | Primarily represents costs related to currency transaction (gains) or losses. |
(2) | Beginning in the fourth quarter of 2016 we revised our calculation of Adjusted EBITDA to exclude adjustments for changes in deferred amusement revenue and ticket liabilities. This change has been applied retrospectively to all periods presented. |
| | | | | | | | | | | | | | | | | | | | | | | |
| Twenty-Six Weeks Ended July 30, 2023 | | Twenty-Six Weeks Ended July 31, 2022 |
Net income | $ | 96.0 | | | 8.4 | % | | $ | 96.1 | | | 10.5 | % |
Interest expense, net | 63.6 | | | | | 28.5 | | | |
Loss on debt refinancing | 11.2 | | | | | 1.5 | | | |
Provision for income taxes | 27.7 | | | | | 29.1 | | | |
Depreciation and amortization expense | 98.0 | | | | | 71.9 | | | |
EBITDA | 296.5 | | | 26.0 | % | | 227.1 | | | 24.7 | % |
Loss on asset disposal | 0.7 | | | | | 0.4 | | | |
Impairment of long-lived assets | 1.7 | | | | | 1.8 | | | |
Share-based compensation | 11.9 | | | | | 8.3 | | | |
Transaction and integration costs | 8.0 | | | | | 18.3 | | | |
System implementation costs | 3.2 | | | | | — | | | |
Other items, net | 0.3 | | | | | — | | | |
Adjusted EBITDA | $ | 322.3 | | | 28.3 | % | | $ | 255.9 | | | 27.8 | % |
Store Operating Income Before Depreciation and Amortization
The following table reconciles
(in millions of dollars and as a percent of total revenues) Operating income to Store Operating Income Before Depreciation and Amortization for the periods indicated:
| | | | | | | | |
| | Thirty-nine Weeks | | | Thirty-nine Weeks | |
| | Ended | | | Ended | |
| | October 29, 2017 | | | October 30, 2016 | |
Operating income | | $ | 123,317 | | | $ | 105,846 | |
General and administrative expenses | | | 45,172 | | | | 40,131 | |
Depreciaton and amortization expense | | | 74,447 | | | | 65,108 | |
Pre-opening costs | | | 14,626 | | | | 10,390 | |
| | | | | | | | |
Store Operating Income Before Depreciation and Amortization | | $ | 257,562 | | | $ | 221,475 | |
| | | | | | | | |
Store Operating Income Before Depreciation and Amortization Margin | | | 30.9 | % | | | 30.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Twenty-Six Weeks Ended July 30, 2023 | | Twenty-Six Weeks Ended July 31, 2022 |
Operating income | $ | 198.5 | | | 17.4 | % | | $ | 155.2 | | | 16.9 | % |
General and administrative expenses | 63.6 | | | | | 66.0 | | | |
Depreciation and amortization expense | 98.0 | | | | | 71.9 | | | |
Pre-opening costs | 8.7 | | | | | 6.9 | | | |
Store Operating Income Before Depreciation and Amortization | $ | 368.8 | | | 32.4 | % | | $ | 300.0 | | | 32.6 | % |
The
following table
represents totalbelow reflects accrual-based
additions to property and equipment. Total capital
additions. Capital additions do not include any reductions for
Paymentsaccrual-based leasehold improvement incentives or proceeds from
landlords. | | | | | | | | |
| | Thirty-nine Weeks | | | Thirty-nine Weeks | |
| | Ended | | | Ended | |
| | October 29, 2017 | | | October 30, 2016 | |
New store | | $ | 119,638 | | | $ | 106,134 | |
Operating initiatives, including remodels | | | 14,830 | | | | 17,890 | |
Games | | | 10,521 | | | | 15,180 | |
Maintenance capital | | | 10,448 | | | | 11,058 | |
| | | | | | | | |
Total capital additions | | $ | 155,437 | | | $ | 150,262 | |
| | | | | | | | |
Payments from landlords | | $ | 24,292 | | | $ | 16,779 | |
sale-leaseback transactions (collectively, “Payments from landlords”).
| | | | | | | | | | | |
| Twenty-Six Weeks Ended July 30, 2023 | | Twenty-Six Weeks Ended July 31, 2022 |
New store and operating initiatives | $ | 87.0 | | | $ | 72.1 | |
Games | 8.1 | | | 19.3 | |
Maintenance capital | 47.1 | | | 13.6 | |
Total capital additions | $ | 142.2 | | | $ | 105.0 | |
Payments from landlords | $ | 7.2 | | | $ | 7.9 | |
Selected revenue and store data (in millions except for store operating weeks) for the periods indicated are as follows:
| | | | | | | | | | | | | | | | | |
| Twenty-Six Weeks Ended |
| July 30, 2023 | | July 31, 2022 | | Change |
Total revenues | $ | 1,139.4 | | | $ | 919.5 | | | $ | 219.9 | |
Total store operating weeks | 5,374 | | | 4,047 | | | 1,327 | |
Comparable store revenues | $ | 797.9 | | | $ | 844.6 | | | $ | (46.7) | |
Comparable store operating weeks | 3,666 | | | 3,666 | | | — | |
Noncomparable store revenues—Dave & Buster’s | $ | 67.3 | | | $ | 22.7 | | | $ | 44.6 | |
Noncomparable store operating weeks—Dave & Buster’s | 309 | | | 121 | | | 188 | |
Noncomparable store revenues—Main Event | 272.0 | | | 51.4 | | | 220.6 | |
Noncomparable store operating weeks—Main Event | 1,399 | | | 260 | | | 1,139 | |
Other revenues and deferrals | $ | 2.2 | | | $ | 0.8 | | | $ | 1.4 | |
Revenue mix by category, as a percentage of total revenues, for the periods indicated was as follows:
| | | | | | | | | | | |
| Twenty-Six Weeks Ended |
| July 30, 2023 | | July 31, 2022 |
Entertainment revenues | 66.2 | % | | 66.4 | % |
Food revenues | 22.9 | % | | 22.9 | % |
Beverage revenues | 10.9 | % | | 10.7 | % |
Total revenues increased
$99,902,$219.9 million, or
13.6%23.9%, to
$834,878$1,139.4 in the
thirty-ninetwenty-six weeks ended
October 29, 2017July 30, 2023 compared to
total revenues of $734,976$919.5 million in the
thirty-ninetwenty-six weeks ended
October 30, 2016. For the thirty-nine weeks ended October 29, 2017, we derived 29.1%July 31, 2022. The increase in revenue is primarily attributable to $220.6 million of
our totalincreased revenue from
food sales, 13.6% from beverage sales, 56.6% from amusement salesour Main Event stores, which were acquired on June 29, 2022, and
0.7% from other sources. For the thirty-nine weeks ended October 30, 2016, we derived 30.2% of our total$44.6 million in revenue from
food sales, 14.2% from beverage sales, 54.8% from amusement sales and 0.8% from other sources.new, noncomparable, Dave & Buster's stores, partially offset by a 5.5% decrease in comparable store sales. The increased revenues were derived from the following sources:
| | | | |
Comparable stores | | $ | 5,453 | |
Non-comparable stores | | | 93,550 | |
Other | | | 899 | |
| | | | |
Total | | $ | 99,902 | |
| | | | |
Comparable store revenue increased $5,453, or 0.8%,decrease in the thirty-nine weeks ended October 29, 2017 compared to the thirty-nine weeks ended October 30, 2016. Comparable storewalk-in revenues, which accounted for 90.9% of consolidated comparable store revenue is due primarily to a reduction in walk-in transaction counts relative to the robust consumer environment of the prior year period, partially offset by increases in food and beverage prices and increases in special event bookings.
Comparable entertainment revenues in the
thirty-ninetwenty-six weeks ended
October 29, 2017, increased $5,836,July 30, 2023 decreased by $42.4 million, or
1.0% compared7.6%, to
$518.5 million from $560.9 million in the
thirty-ninetwenty-six weeks ended
October 30, 2016. Comparable store special events revenues, which accounted for 9.1% of consolidated comparable store revenue in the thirty-nine weeks ended October 29, 2017, decreased $383, or 0.6% compared to the thirty-nine weeks ended October 30, 2016.July 31, 2022. Food sales at comparable stores decreased by $6,378,$5.9 million, or 3.2%3.1%, to $192,070$187.3 million in the thirty-ninetwenty-six weeks ended October 29, 2017July 30, 2023 from $198,448$193.2 million in the thirty-ninetwenty-six weeks ended October 30, 2016.July 31, 2022. Beverage sales at comparable stores decreasedincreased by $3,680,$1.6 million, or 3.9%1.8%, to $90,574$92.1 million in the thirty-ninetwenty-six weeks ended October 29, 2017July 30, 2023 from $94,254$90.5 million in the thirty-ninetwenty-six weeks ended October 30, 2016. The decrease in food and beverage unit sales at comparable stores was partially offset by price increases. Comparable store amusement and other revenues in the thirty-nine weeks ended October 29, 2017 increased by $15,511, or 4.2%, to $382,578 from $367,067 in the thirty-nine weeks ended October 30, 2016 due to an increase in the revenue per Power Card sold. The growth over fiscal 2016 in amusement sales was driven by national advertising, which highlighted our new games offerings (including games available only at Dave & Buster’s stores) and included the introduction of several games with highly recognizable and marketable content. Our new amusement offerings included limited time offers which allowed customers to play certain new games for free.
Non-comparable store revenue increased $93,550, for the thirty-nine weeks ended October 29, 2017 compared to the same period of fiscal 2016. The increase innon-comparable store revenue was primarily driven by 515 additional operating store weeks contributed by our twenty-fivenon-comparable stores.
July 31, 2022.
The total cost of products was $142,043$173.9 million for the thirty-nine week periodtwenty-six weeks ended October 29, 2017July 30, 2023 and $132,400$145.6 million for the thirty-nine week periodtwenty-six weeks ended October 30, 2016.July 31, 2022. The total cost of products as a percentage of total revenues was 17.0% and 18.0%decreased to 15.3% for the thirty-ninetwenty-six weeks ended October 29, 2017 andJuly 30, 2023 compared to 15.8% for the thirty-nine week periodtwenty-six weeks ended OctoberJuly 31, 2022.
Cost of entertainment increased to $68.7 million in the twenty-six weeks ended July 30,
2016, respectively.2023 compared to $55.9 million in the twenty-six weeks ended July 31, 2022. The cost of entertainment, as a percentage of entertainment revenues, decreased to 9.1% for the twenty-six weeks ended July 30, 2023 from 9.2% in the twenty-six weeks ended July 31, 2022.
Cost of food and beverage products increased to
$91,562 in$105.2 million for the
thirty-nine week periodtwenty-six weeks ended
October 29, 2017July 30, 2023 compared to
$83,772 in$89.7 million for the
thirty-nine week periodtwenty-six weeks ended
October 30, 2016 due primarily to the increased sales volume at ournon-comparable stores.July 31, 2022. Cost of food and beverage products, as a percentage of food and beverage revenues,
was 25.7% for both the thirty-nine week period ended October 29, 2017 and the thirty-nine week period ended October 30, 2016, duedecreased to
savings in our meat and seafood categories offset by higher poultry costs and the impact of our largernon-comparable store group.Cost of amusement and other increased to $50,481 in the thirty-nine week period ended October 29, 2017 compared to $48,628 in the thirty-nine week period ended October 30, 2016. The costs of amusement and other, as a percentage of amusement and other revenues decreased 140 basis points to 10.5%27.3% for the thirty-ninetwenty-six weeks ended October 29, 2017July 30, 2023 from 11.9% 29.0%
for the
thirty-ninetwenty-six weeks ended
October 30, 2016. ThisJuly 31, 2022. The decrease was
due primarily
to a $2,531, or 70 basis point, amusement cost reduction in the first quarter of fiscal 2017 due to the favorable settlement of a multi-year use tax audit by the state of Texas. This cost reduction represents the excess use tax on redemption items during the period from July 2011 through January 2017. Additionally, the decrease in cost of amusementattributable food and
other as a percentage of revenue was positively impacted by a shift in game play from redemption tonon-redemption games andbeverage menu price increases
implemented earlier in the year.and product mix.
Operating payroll and benefits
Total operating payroll and benefits increased
by $20,996, or 12.6%, to
$187,610$257.6 million in the
thirty-nine week periodtwenty-six weeks ended
October 29, 2017July 30, 2023 compared to
$166,614$207.0 million in the
thirty-nine week periodtwenty-six weeks ended
October 30, 2016, primarily due to labor associated with additional operating store weeks of ournon-comparable stores.July 31, 2022. The total cost of operating payroll and benefits as a
percentpercentage of total revenues
decreased 20 basis pointswas 22.6% in the twenty-six weeks ended July 30, 2023 compared to 22.5%
forin the
thirty-ninetwenty-six weeks ended
October 29, 2017 from 22.7% in the thirty-nine weeks ended October 30, 2016.July 31, 2022. This
decrease wasincrease is primarily due to
store-level incentive compensationhourly wage rate and
payroll related benefits which decreased approximately 30 basis points,manager salary increases, partially offset by
an hourly wage rate increase of approximately 4.8% and normal labor
inefficiencies associated with ournon-comparable store base.management efficiencies.
Other store operating expenses
Other store operating expenses increased
by $33,176, or 15.5%, to
$247,663,$339.1 million in the
thirty-nine week periodtwenty-six weeks ended
October 29, 2017July 30, 2023 compared to
$214,487$266.9 million in the
thirty-nine week periodtwenty-six weeks ended
October 30, 2016,July 31, 2022. The increase is primarily due to
the additional store operating hours related to our Main Event stores, the impact of Dave & Buster’s new store
openings.openings, and higher occupancy costs, utilities, maintenance, security, cleaning services and marketing costs. Other store operating
expenses during the thirty-nine week period ended October 29, 2017,expense as a percentage of total revenues increased
50to 29.8% in the twenty-six weeks ended July 30, 2023 compared to 29.0% in the twenty-six weeks ended July 31, 2022. This increase in basis points
to 29.6% from 29.1% in the thirty-nine weeks ended October 30, 2016. This increase was due primarily to increased
margin pressure on occupancy costs associated with our recent store openings partially offset by favorable leverage ofsecurity, cleaning services, and marketing
expenses on increased revenue.costs.
General and administrative expenses
General and administrative expenses
increased by $5,041, or 12.6%,decreased to
$45,172$63.6 million in the
thirty-nine week periodtwenty-six weeks ended
October 29, 2017July 30, 2023 compared to
$40,131$66.0 million in the
thirty-nine week periodtwenty-six weeks ended
October 30, 2016.July 31, 2022. The
increasedecrease in general and administrative expenses was
driven primarily
driven by
a second quarter $2,550 charge for net litigation settlement$18.3 million of transaction and integration costs
increased labor costs at our corporate headquarters and incremental compensation costs related to our share-based awardsduring the prior year period, partially offset by
lower incentivehigher stock based compensation
expenses.expense and system implementation costs. General and administrative expenses as a percentage of total revenues decreased
10 basis points to
5.4%5.6% in the
thirty-ninetwenty-six weeks ended
October 29, 2017July 30, 2023 compared to
5.5%7.2% in the
same period of fiscal 2016twenty-six weeks ended July 31, 2022 due
primarily to
favorable leverage on sales.the reasons noted above.
Depreciation and amortization expense
Depreciation and amortization expense increased
by $9,339, or 14.3%, to
$74,447$98.0 million in the
thirty-nine week periodtwenty-six weeks ended
October 29, 2017July 30, 2023 compared to
$65,108$71.9 million in the
thirty-nine week periodtwenty-six weeks ended
October 30, 2016. Increased depreciation due to our 2016 and 2017 capital expenditures for new stores, operating initiatives, including remodels, games and maintenance capital, was partially offset by other assets reaching the end of their depreciable lives.Pre-opening costs
Pre-opening costs increased by $4,236 to $14,626 in the thirty-nine week period ended October 29, 2017 compared to $10,390 in the thirty-nine week period ended October 30, 2016July 31, 2022, primarily due to the number and timingacquired Main Event stores.
Pre-opening costs
Pre-opening costs increased to $8.7 million in the twenty-six weeks ended July 30, 2023 compared to $6.9 million in the twenty-six weeks ended July 31, 2022 primarily related to growth in the pipeline of new store openings
and stores in
development.the twenty-six weeks ended July 30, 2023 compared to the twenty-six weeks ended July 31, 2022.
Interest expense, net increased
by $500 to
$6,073$63.6 million in the
thirty-nine week periodtwenty-six weeks ended
October 29, 2017July 30, 2023 compared to
$5,573$28.5 million in the
thirty-nine week periodtwenty-six weeks ended
October 30, 2016July 31, 2022 due primarily to
higher variable interest rates offset by a slight reductionan increase in average outstanding debt.
See further discussion of the Company's debt activity at Note 6 to the consolidated financial statements.
Loss on debt refinancing increased to $11.2 million in the twenty-six weeks ended July 30, 2023 compared to $1.5 million in the twenty-six weeks ended July 31, 2022 due to the debt refinancing in June of 2023 and June of 2022, respectively. See further discussion of the Company's debt activity at Note 6 to the consolidated financial statements.
Provision for income taxes
The effective tax rate for the twenty-six weeks ended July 30, 2023 was 22.4%, compared to 23.3% for the twenty-six weeks ended July 31, 2022. The current year tax provision includes a favorable state apportionment impact resulting from the acquisition of Main Event and legal entity restructuring as well as lower permanent differences, primarily non-deductible transaction costs as compared to the prior year.
Liquidity and Capital Resources
Debt
In connection with the August 17, 2017 debtclosing of the Main Event Acquisition on June 29, 2022, D&B Inc entered into a senior secured credit agreement, which refinanced the $500.0 million existing revolving facility, extended the maturity date to June 29, 2027, and added a new term loan facility in the aggregate principal amount of $850.0 million, with a maturity date of June 29, 2029 (“Credit Facility”). The proceeds of the term loan, net of an original issue discount of $42.5 million, were used to pay the consideration for the Acquisition. The revolving credit facility can expire before the stated maturity date if the aggregate outstanding principal amount of the 7.625% senior secured notes (described below) exceeds $100.0 million 91 days prior to November 1, 2025. A portion of the revolving facility not to exceed $35.0 million is available for the issuance of letters of credit.
On June 30, 2023, D&B Inc entered into the Amendment with its banking syndicate, which amended the Credit Facility. The Amendment provides for a new tranche of term loans in an aggregate principal amount of $900.0 (the “2023 Term B Loans”) which consist of $843.6 of 2023 refinancing (see Note 3,DebtTerm B Loans which refinanced in full the term loans outstanding immediately prior to the Amendment effective date and $56.4 of 2023 additional Term B Loans, which will be used for general corporate and working capital purposes. The 2023 Term B Loans were issued with an original issue discount of 1%, reduced the interest rate margin applicable to term loans and revolving loans outstanding under the Credit Agreement by 1.25% and otherwise have terms substantially the same as the terms of Notesthe existing Term B Loans under the June 29, 2022 Credit Facility. The 2023 Term B Loans may be prepaid at any time, without premium or penalty, but are subject to Unaudited Consolidated Financial Statements for further discussion),a prepayment premium of 1.00% (subject to certain exceptions) if certain refinancing of, or amendment to, reduce the all-in-yield of the 2023 Term B Loans is made at any time during the first six months after the Amendment effective date.
The 2023 Term B Loans will bear interest at Term SOFR (plus an additional credit spread adjustment of 0.10%) or ABR (each, as defined in the amended Credit Agreement) plus (i) in the case of Term SOFR loans, 3.75% per annum and (ii) in the case of ABR loans, 2.75% per annum. The Revolving Loans will continue to bear interest subject to a pricing grid based on the Borrower’s net total leverage, at Term SOFR (plus an additional credit spread adjustment of 0.10%) plus a spread ranging from 3.00% to 3.50% per annum or ABR plus a spread ranging from 2.00% to 2.50% per annum. Unused commitments under the revolving facility incur initial commitment fees of 0.30% to 0.50%.
As of July 30, 2023, we had letters of credit outstanding of $9.8 million and an unused commitment balance of $490.2 under the revolving facility. The Credit Facility may be increased through incremental facilities, by an amount equal to the greater of (i) $400.0 million and (ii) 0.75 times trailing twelve-month Adjusted EBITDA, as defined, plus additional amounts subject to compliance with applicable leverage ratio and/or interest coverage ratio requirements. The Credit Facility is unconditionally guaranteed by D&B Holdings and certain of D&B Inc’s existing and future wholly owned material domestic subsidiaries.
During fiscal 2020, the Company recordedissued $550.0 million aggregate principal amount of 7.625% senior secured notes (the “Notes”). Interest on the Notes is payable in arrears on November 1 and May 1 of each year. The Notes mature on November 1, 2025, unless earlier redeemed, and are subject to the terms and conditions set forth in the related indenture. The Notes were issued by D&B Inc and are unconditionally guaranteed by D&B Holdings and certain of D&B Inc’s existing and future wholly owned material domestic subsidiaries. During fiscal 2022, the Company redeemed a chargetotal of $718$110.0 million outstanding principal amount of the Notes. Beginning October 27, 2022, the Company may elect to further redeem the Notes, in whole or in part, at certain specified redemption prices, plus accrued and unpaid interest, at the redemption date.
The Company’s weighted average effective interest rate on our total debt facilities was 10.3% and 10.1% for the twenty-six weeks ended July 30, 2023 and July 31, 2022, respectively.
Our debt agreements contain restrictive covenants that, among other things, place certain limitations on our ability to incur additional indebtedness, make loans or advances to subsidiaries and other entities, pay dividends, acquire other businesses or sell assets. The Credit Facility also requires the Company to maintain a maximum net total leverage ratio, as defined, as of the end of each fiscal quarter, beginning with the Company’s first full fiscal quarter after the Closing Date. We were in compliance with our covenants and the terms of our debt agreements as of July 30, 2023.
Credit Adjusted EBITDA and Net Total Leverage Ratio.
The following table reconciles Net income to Credit Adjusted EBITDA, as defined in our Credit Facility for the periods indicated:
| | | | | |
| Trailing Four Quarters Ended July 30, 2023 |
Net income | $137.0 |
Add back: | |
Interest expense, net | 122.5 |
Loss on debt refinancing | 11.2 |
Provision for income taxes | 35.1 |
Depreciation and amortization expense | 195.4 |
EBITDA | 501.2 |
Add back: | |
Loss on asset disposal | 1.1 |
Impairment of long-lived assets | 1.7 |
Share-based compensation | 23.6 |
Transaction and integration costs | 14.9 |
System implementation costs | 3.8 |
Pre-opening costs | 16.4 |
Entertainment revenue deferrals | 12.3 |
Other items, net | 0.4 |
Credit Adjusted EBITDA, a non-GAAP measure | $575.4 |
The following table calculates Net Total Leverage Ratio, as defined in our Credit Facility, as of and for the period indicated:
| | | | | |
| As Of And For The Trailing Four Quarters Ended July 30, 2023 |
Credit Adjusted EBITDA (a) | $575.4 |
Total debt (1) | $1,287.7 |
Less: Cash and cash equivalents | $(82.6) |
Add: Outstanding letters of credit | $9.8 |
Net debt (b) | $1,214.9 |
Net Total Leverage Ratio (b / a) | 2.1 | x |
(1) Amount equals the face amount of debt outstanding less unamortized debt issuance costs and debt discount.
Dividends and Share Repurchases
On March 27, 2023, our Board of Directors approved a share repurchase program with an authorization limit of $100.0. During the twenty-six weeks ended July 30, 2023, the Company repurchased the full $100.0 authorized amount. On April 19, 2023, our Board of Directors approved an increase to the authorization limit of $200.0 for a total of $300.0 authorized under the program. During the twenty-six weeks ended July 30, 2023, the Company repurchased 5.70 million shares at an average of $35.12 per share. The remaining dollar value of shares that may be repurchased under the program is $100.0 as of July 30, 2023. The repurchase program expires at the end of fiscal 2023.
There were no dividends declared or paid during the
third quarter of fiscal 2017.Provision for income taxes
The effective income tax rate decreased to 26.8% for the thirty-ninethirteen and twenty-six weeks ended October 29, 2017 comparedJuly 30, 2023. Future decisions to 36.7% inpay cash dividends or repurchase shares continue to be at the thirty-nine weeks ended October 30, 2016. The decrease indiscretion of the effective tax rate primarily reflects a favorable 9.8% impact fromBoard of Directors and will be dependent on our operating performance, financial condition, capital expenditure requirements, compliance with debt agreements and other factors that the recognitionBoard of excess tax benefits on share-based payments through income tax expense. Refer to Note 1,SummaryDirectors considers relevant.
Cash and
Capital ResourcesOverview
We finance our activities through cash flow from operations and availability under our existing credit facility. Cash Equivalents
As of
October 29, 2017, weJuly 30, 2023, the Company had cash and cash equivalents of
$15,258, net working capital deficit of $128,014 and outstanding debt obligations of $316,000. We also had $479,029 in borrowing availability under our existing credit facility.We currently have, and anticipate that in the future we may continue to have, negative working capital balances. We are able to$82.6 million. The Company can operate with a working capital deficit because cash from sales is usually received before related liabilities for product supplies, labor and services become due. Funds available from salesOur operations do not needed immediately to pay forrequire significant inventory or receivables and we continually invest in our business through the growth of stores and operating expenses have typically been used for capital expendituresimprovement additions, which are reflected as non-current assets and paymentnot a part of long-term debt obligations.
Short-term liquidity requirements. We generally consider our short-term liquidity requirements to consist of those items that are expected to be incurred within the next twelve months and believe those requirements to consist primarily of funds necessary to pay operating expenses, interest and principal payments on our debt, capital expenditures related to the new store construction and other expenditures associated with acquiring new games, remodeling facilities and recurring replacement of equipment and improvements.
As of October 29, 2017, we expect our short-term liquidity requirements to include approximately (a) $190,000 to $200,000 of capital additions (net of tenant improvement allowances and other payments from landlords), (b) lease obligation payments of $101,000, (c) estimated cash income tax payments of $61,000, (d) scheduled debt service payments (see “Contractual Obligations and Commercial Commitments”) and (e) the repurchase of our common stock.
Long-term liquidity requirements. We generally consider our long-term liquidity requirements to consist of those items that are expected to be incurred beyond the next twelve months and believe these requirements consist primarily of funds necessary for new store development and construction, replacement of games and equipment, performance-necessary renovations and othernon-recurring capital expenditures that need to be made periodically to our stores, principal and interest payments on our outstanding term loan and scheduled lease obligation payments. We intend to satisfy our long-term liquidity requirements through various sources of capital, including our existing cash on hand, cash provided by operations, and borrowings under the revolving portion of our credit facility.
Our Board of Directors approved a share repurchase program, under which the Company may repurchase shares on the open market, through privately negotiated transactions, and through trading plans designed to comply with Rule10b5-1 of the Securities Exchange Act of 1934, as amended. The share repurchase program may be modified, suspended or discontinued at any time. Effective September 7, 2017, an additional $100,000 in common shares authorization was approved by our Board of Directors. As of October 29, 2017. the Company has a total share repurchase authorization of $300,000 which expires at the end of fiscal 2018. During the thirteen and thirty-nine weeks ended October 29, 2017, the Company purchased 240,342 and 1,778,484 shares of common stock at an average cost of $48.69 and $61.84 per share, respectively. As of October 29, 2017, we have approximately $161,188 of share repurchase authorization remaining under the current plan.
working capital. Based on our current business plan, we believe theour cash and cash equivalents combined with expected cash flows from operations, together with our existing cash balances and availability ofavailable borrowings under the revolving portion of our credit facility will be sufficient to meet our anticipated cash needs for working capital, capital expenditures, debt service needs, and share repurchases in the foreseeable future. Our ability to make scheduled principal and interest payments, or to refinance our indebtedness, or to fund planned capital expenditures and share repurchases, will depend on future performance, which is subject to general economic conditions, competitive environment and other factors.
Borrowing Capacity
Our existing credit facility provides a $300,000 term loan facility and a $500,000 revolving credit facility and hasexpected payments from landlords should be sufficient not only for our operating requirements but also to enable us, in the aggregate, to finance our capital allocation strategy, including capital expenditures, through at least the next twelve months.
Cash Flow Activity
Operating Activities — Cash flow from operations typically provides us with a maturity datesignificant source of August 17,liquidity. Our operating cash flows result primarily from cash received from our customers, offset by cash payments we make for products and services, team member compensation, operations, occupancy, and other operating costs. Cash from operating activities is also subject to changes in working capital. Working capital at any specific point in time is subject to many variables, including seasonality, the timing of cash receipts and payments, and vendor payment terms.
Cash flow from operating activities decreased to $196.2 million for the twenty-six weeks ended July 30, 2023 compared to $233.1 million for the twenty-six weeks ended July 31, 2022 driven primarily by the receipt of a federal tax refund in the amount of approximately $33.2 million during the twenty-six weeks ended July 31, 2022 and the timing of changes in working capital.
Investing Activities — Cash flow used in investing decreased to $133.4 million for the twenty-six weeks ended July 30, 2023 from $922.2 million for the twenty-six weeks ended July 31, 2022 primarily due to the $822.7 net cash paid for the acquisition of Main Event in the twenty-six weeks ended July 31, 2022, partially offset by an increase in capital expenditures.
Financing Activities — Cash flow used in financing was $161.8 million in the twenty-six weeks ended July 30, 2023 compared to cash flow provided by financing activities of $763.6 million in the twenty-six weeks ended July 31, 2022.
The $500,000 revolving credit facility includes a $35,000 letternet cash outflow for the twenty-six weeks ended July 30, 2023 primarily consisted of:
•$200.0 million of creditsub-facilityshare repurchases and a $15,000 swing loansub-facility. The revolving facility was established to provide financing for general purposes. Principalassociated commissions,
•$44.3 million of payments on the term loan facility of $3,750 per quarter are required beginning December 31, 2017 through maturity, when the remaining balance is due. Our credit facility is secured by the assets of Dave & Buster’s, Inc.outstanding debt and is unconditionally guaranteed by Dave & Buster’s Holdings, Inc.revolver balances and each of its direct and indirect domestic wholly-owned subsidiaries.As of October 29, 2017, we had letters of credit outstanding of $4,971 and $479,029 of borrowing available under our credit facility. The interest rates per annum applicable to loans, other than swing loans, under our credit facility are currently set based on a defined LIBOR rate plus an applicable margin. Swing loans bear interest at a base rate plus an applicable margin. The loans bear
interest subject to a pricing grid based on a total leveraged ratio, at LIBOR plus a spread ranging from 1.25% to 2.00% for the term loans and the revolving loans. The stated weighted average interest rate on our credit facility at October 29, 2017 was 2.49%. Theyear-to-date weighted average effective interest rate incurred on our borrowings under our credit facility was 3.06%. The weighted average effective rate includes amortization
•$3.1 million of debt issuance costs commitment and other fees.Cash Flows
The following table presents a summaryincurred,
•partially offset by $87.4 million of ournet debt proceeds.
The net cash
provided by (used in) operating, investing and financing activities: | | | | | | | | |
| | Thirty-nine Weeks | | | Thirty-nine Weeks | |
| | Ended October 29, 2017 | | | Ended October 30, 2016 | |
Net cash provided by (used in): | | | | | | | | |
Operating activities | | $ | 201,063 | | | $ | 174,550 | |
Investing activities | | | (147,026 | ) | | | (130,453 | ) |
Financing activities | | | (58,862 | ) | | | (54,868 | ) |
Net cash provided by operating activities was $201,063inflow for the thirty-ninetwenty-six weeks ended October 29, 2017 compared to $174,550 for the thirty-nine weeks ended October 30, 2016. Increased cash flows from operations were drivenJuly 31, 2022 primarily by increased cash flows from additionalnon-comparable store sales and slightly increased comparable store sales and improved operating margins.
Net cash used in investing activities was $147,026 for the thirty-nine weeks ended October 29, 2017 compared to $130,453 for the same periodconsisted of:
•$821.5 million of fiscal 2016. Capital expenditures increased $18,994 to $150,278 (excluding the increase in fixed asset accounts payablenet debt proceeds,
•$5.6 million of $5,159) in the thirty-nine weeks of fiscal 2017 from $131,284 in the thirty-nine weeks of fiscal 2016. During the thirty-nine weeks of fiscal 2017, the Company spent $114,663 ($90,371 net of tenant improvement allowances and other payments from landlords) for new store construction, $14,825proceeds related to major remodel projects on four existing stores, several smaller scale remodel projects and operating improvement initiatives, $11,024 for game refreshment and $9,766 for maintenance capital. During the thirty-nine weeks ended October 30, 2016, we spent $88,039 ($71,260 netexercises of tenant improvement allowances from landlords) for new store construction, $17,131 related to major remodel projects on six existing stores, several smaller scale remodel projects and operating improvement initiatives, $15,048 for game refreshment and $11,066 for maintenance capital.Net cash used in financing activities increased by $3,994 to $58,862 in the thirty-nine weeks ended October 29, 2017 compared to $54,868 in the same period of fiscal 2016. The increase in cash used in financing activities was primarily due to increased repurchases of common stock of $102,624options,
•partially offset by net borrowings$25.0 million of share repurchases,
•$14.0 million payments on revolver balances and $17.7 million of debt of $51,250 in the thirty-nine weeks ended October 29, 2017 compared to net repayments of $59,625 in the thirty-nine weeks ended October 30, 2016.We plan on financing future growth through existing cash on hand, future operating cash flows, debt facilities and tenant improvement allowances from landlords. We expect to spend between $231,000 and $236,000 ($195,000 to $200,000 net of tenant improvement allowances) in capital additions during fiscal 2017. The fiscal 2017 additions are expected to include approximately $195,000 to $200,000 ($159,000 to $164,000 net of tenant improvement allowances) for new store construction and operating improvement initiatives, including four store remodels, $16,000 for game refreshment and $20,000 in maintenance capital. A portion of the 2017 new store spend is related to stores that will be under construction in 2017 but will not be open until 2018.
issuance costs incurred.
Contractual Obligations and Commercial CommitmentsThe following table sets forth
Other than the activity discussed at Debt above, there have been no material changes outside the ordinary course of business to our expected future annual contractual obligations and commercial commitmentssince January 29, 2023, as of October 29, 2017: | | | | | | | | | | | | | | | | | | | | |
| | Total | | | 1 Year | | | 2-3 Years | | | 4-5 Years | | | After 5 Years | |
Credit Facility(1) | | $ | 316,000 | | | $ | 15,000 | | | $ | 30,000 | | | $ | 271,000 | | | $ | — | |
Interest requirements(2) | | | 33,969 | | | | 7,920 | | | | 14,406 | | | | 11,643 | | | | — | |
Operating leases(3) | | | 1,403,810 | | | | 100,701 | | | | 193,205 | | | | 168,002 | | | | 941,902 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 1,753,779 | | | $ | 123,621 | | | $ | 237,611 | | | $ | 450,645 | | | $ | 941,902 | |
| | | | | | | | | | | | | | | | | | | | |
(1) | The Credit Facility includes a $300,000 term loan facility and $500,000 revolving credit facility. As of October 29, 2017, we had borrowings of $300,000 under the term loan facility and borrowings of $16,000 under the revolving credit facility. |
(2) | The cash obligations for interest requirements consist of variable rate debt obligations at rates in effect on October 29, 2017 of 2.49%. |
(3) | Our operating leases generally provide for one or more renewal options. These renewal options allow us to extend the term of the lease for a specified time at an established annual lease payment. Future obligations related to lease renewal options that have been exercised or were reasonably assured to be exercised as of the lease origination date, have been included in the table above. |
reported on Form 10-K filed with the SEC on March 28, 2023.
Accounting policies and estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosures of contingent assets and liabilities. These estimates and assumptions affect amounts of assets, liabilities, revenues and expenses and the disclosure of gain and loss contingencies at the date of the consolidated financial statements. Our current estimates are subject to change if different assumptions as to the outcome of future events were made. We evaluate our estimates and judgments on an
ongoing basis, and we adjust our assumptions and judgments when facts and circumstances dictate. Since future events and their effects cannot be determined with absolute certainty, actual results may differ from the estimates we used in preparing the accompanying consolidated financial statements. A complete description of our critical accounting policies and estimates is included in our annual consolidated financial statements and the related notes in our Annual Report on
Form10-K filed with Form 10-K for the
SEC on March 28, 2017.fiscal year ended January 29, 2023.
Recent accounting
pronouncements.pronouncements
Refer to Note 1
Summary of Significant Accounting Policies, of Notes to
the Unaudited Consolidated Financial Statements for information regarding new accounting pronouncements.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market price fluctuation in food,
beverage, supplies and
beverage product prices.other costs such as energy. Given the historical volatility of certain of our food product prices, including proteins, seafood, produce, dairy products, and cooking oil, these fluctuations can materially impact our food costs. While our purchasing commitments partially mitigate the risk of such fluctuations, there is no assurance that supply and demand factors such as disease or inclement weather will not cause the prices of the commodities used in our restaurant operations to fluctuate.
In a rapidly-fluctuating commodities market, itAdditionally, the cost of purchased materials may
prove difficult for us to adjustbe influenced by tariffs and other trade regulations which are outside of our
menu prices to respond to any price fluctuations. Therefore, tocontrol. To the extent that we do not pass along cost increases to our customers, our results of operations may be adversely affected.
At this time, we do not use financial instruments to hedge our commodity risk.Interest Rate Risk
We are exposed to
In the second quarter of fiscal 2022, the Company elected SOFR as the alternative base rate for outstanding borrowings on the Credit Facility, which is based on variable rates. As of July 30, 2023, the Company had no balance outstanding on our revolving facility and an outstanding balance of $900.0 million on the term loan facility. The impact on our annual results of operations of a hypothetical one percentage point interest rate risk arising from changes in interest rates due tochange on the variable rate indebtedness under our credit facility. Borrowings pursuant to our credit facility bear interest at a floating rate based on LIBOR, plus an applicable margin. Accordingly, fluctuations in market interest rates may increase or decrease our interest expense which will, in turn, increase or decrease our net income and cash flow. In October 2015, the Company purchased an interest rate cap agreement for $920 with a notional amount of $200,000 to manage our exposure to interest rate movements on our variable rate credit facility whenone-month LIBOR exceeds 3.0%. The interest rate cap agreement matures on October 7, 2019. As of October 29, 2017,one-month LIBOR was 1.24%. We estimate that a hypothetical 25 basis point increase inone-month LIBOR would increase our annualized interest expense in the next year by approximately $800, assuming no change in theoutstanding balance of the revolving portioncredit facility as of July 30, 2023 would be approximately $9.0 million.
Inflation
Severe increases in inflation could affect the United States or global economies and have an adverse impact on our business, financial condition and results of operation. If several of the
credit facility.Inflation
The primary inflationary factors affectingvarious costs in our operations are food,business experience inflation at the same time, such as commodity price increases beyond our ability to control and increased labor costs, and energy costs. Many of our leases require us to pay taxes, maintenance, repairs, insurance and utilities, all of which are generally subject to inflationary increases. Finally, the cost of constructing our stores is subject to inflationary increases in the costs of labor and material.
We have a substantial number of hourly employees who are paid wage rates at or based on the applicable federal, state or city minimum wage and increases in the minimum wage will increase our labor costs. Key states in which we operate, including California and New York, have recently enacted legislation to increase the minimum wage and/or minimum tipped wage rates by varying amounts. Several other states and local jurisdictions in which we operate have also enacted legislation to increase the minimum wage and/or minimum tipped wage with more increases planned in the future.
In general, we have been able to partially offset cost increases resulting from inflation by increasing menu prices, improving productivity, or other operating changes. We may or may not be able to adjust prices to sufficiently offset the effect of the various cost increases in the future.
without negatively impacting consumer demand.
ITEM 4. | CONTROLS AND PROCEDURES |
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Rules
13a-15 and
15d-15 promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.
Changes in Internal Control Over Financial Reporting
There were no
significant changes
into our internal control over financial reporting
(as defined in the Exchange ActRules 13a-15(f) and15d-15(f))practices or processes that
occurred during our thirteen weeks ended October 29, 2017, that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting during our second quarter ended July 30, 2023. The Main Event Acquisition had a material impact on internal control over financial reporting.
The Company will include Main Event in our evaluation of internal control over financial reporting for the fiscal year ending February 4, 2024.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
Information regarding legal proceedings is incorporated by reference from Note
47 to our Unaudited Consolidated Financial Statements set forth in Part I of this report.
There have been no material changes
Item 1A. Risk Factors
See discussion in
“Risk Factors” in Item 1A of the
risk factors previously disclosed in ourCompany's Annual Report
as filed on Form
10-K on March 28, 2017.ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
for the year ended January 29, 2023.
Item 2. Unregistered Sales of Equity Securities
Information regarding repurchase of our common stock, in
thousands,millions, except
share and per share amounts, during the
thirteentwenty-six weeks ended
October 29, 2017: | | | | | | | | | | | | | | | | |
Period (1) | | Total Number of Shares Repurchased | | | Average Price Paid per Share | | | Total Number of Shares Repurchased as Part of Publicly Announced Plan (2) | | | Approximate Dollar Value of Shares That May Yet Be Repurchased Under the Plan (2) | |
July 31, 2017 – August 27, 2017 | | | — | | | $ | — | | | | — | | | $ | 72,889 | |
August 28, 2017 - October 1, 2017 | | | 75,000 | | | $ | 50.31 | | | | 75,000 | | | $ | 169,116 | |
October 2, 2017 - October 29, 2017 | | | 165,342 | | | $ | 47.95 | | | | 165,342 | | | $ | 161,188 | |
(1) | Monthly information is presented by reference to our fiscal periods during the thirteen weeks ended October 29, 2017. |
(2) | Our Board of Directors approved a share repurchase program, under which the Company may repurchase shares on the open market, through privately negotiated transactions, and through trading plans designed to comply with Rule10b5-1 of the Securities Exchange Act of 1934, as amended. The share repurchase program may be modified, suspended or discontinued at any time. Effective September 7, 2017, an additional $100,000 in common shares authorization was approved by our Board of Directors. As of October 29, 2017, the Company has a total share repurchase authorization of $300,000 which expires at the end of fiscal 2018. |
July 30, 2023:
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Period (1) | | Total Number of Shares Repurchased (in millions) (2) | | Average Price Paid per Share (2) | | Total Number of Shares Repurchased as Part of Publicly Announced Plans (2) (3) (in millions) | | Approximate Dollar Value of Shares That May Yet Be Repurchased Under the Plans (4) (in millions) |
January 30 to February 26, 2023 | | — | | $ | — | | | — | | $ | — | |
February 27 to April 2, 2023 | | — | | $ | — | | | — | | $ | 100.0 | |
April 3 to April 30, 2023 | | 3.61 | | $ | 34.82 | | | 3.61 | | $ | 174.5 | |
May 1 to May 28, 2023 | | 2.09 | | $ | 35.63 | | | 5.70 | | $ | 100.0 | |
May 29 to July 2, 2023 | | — | | $ | — | | | — | | $ | 100.0 | |
July 3 to July 30, 2023 | | — | | $ | — | | | — | | $ | 100.0 | |
(1)The Company uses a "4-5-4" calendar to determine the months in each quarter. The periods presented represent the 4 week and 5 week periods making up the twenty-six weeks ended July 30, 2023.
(2)Represents shares repurchased under repurchase program(s) and excludes shares withheld for tax purposes on behalf of our employees in connection with the vesting of time-based and performance restricted stock units totaling 0.01 for the twenty-six weeks ended July 30, 2023.
(3)Our Board of Directors approved share repurchase programs in March and April of 2023 (see further discussion at Note 8), under which the Company may repurchase shares on the open market, through privately negotiated transactions, and through trading plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The share repurchase program(s) may be modified, suspended or discontinued at any time.
(4)Based on total share repurchase authorizations in effect at the end of each period presented.
Item 6. Exhibits
Exhibit Number | | Description |
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Exhibit
Number 31.1* | | Description |
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31.1* | | |
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31.2* | | |
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32.1* | | |
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32.2* | | |
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101101.INS | | Inline XBRL Inline Instance Document—the instance document does not appear in the Interactive Data filesFile because its XBRL tags are embedded within the Inline XBRL document |
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101.SCH | | Inline XBRL Inline Taxonomy Extension Schema Document |
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101.CAL | | Inline XBRL Inline Taxonomy Extension Calculation Linkbase Document |
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101.DEF | | Inline XBRL Inline Taxonomy Extension Definition Linkbase Document |
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101.LAB | | Inline XBRL Inline Taxonomy Extension Label Linkbase Document |
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101.PRE | | Inline XBRL Inline Taxonomy Extension Presentation Linkbase Document |
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104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
__________________
*Filed herein
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | |
| | | | DAVE & BUSTER’S ENTERTAINMENT, INC., a Delaware corporation
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Date: December 5, 2017September 6, 2023 | By: | | | By: | | /s/ Stephen M. King Christopher Morris |
| | | | | | Stephen M. KingChristopher Morris |
| | | | | | Chief Executive Officer |
| | | |
Date: December 5, 2017September 6, 2023 | By: | | | By: | | /s/ BrianMichael A. Jenkins Quartieri |
| | | | | | BrianMichael A. JenkinsQuartieri |
| | | | | | Senior Vice President and Chief Financial Officer |