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 Form 10 - K as filed with theSecurities and Exchange Commission ("SEC") onMarch 29, 2022 . 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 a 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 quarterly 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 theSEC onMarch 29, 2022 . 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, such results or developments may not be indicative of results or developments in subsequent periods. Recent Events OnJune 29, 2022 , the Company completed its previously announced Main Event Acquisition. As ofJuly 31, 2022 , there were 49 family entertainment centers under the name Main Event and 3 family entertainment centers under the name The Summit (collectively referred to as "Main Event"), operating in seventeen states. Refer to Note 2, Business Combinations , to the Unaudited Consolidated Financial Statements for further details.
Quarterly Financial Highlights
• Revenues totaled
$344,599 in the second quarter of 2019. A total of 148 and 130Dave & Buster's stores were open and operating without restrictions at the end of the second quarter of 2022 and 2019, respectively. The newly acquired Main Event stores contributed revenues of$51,405 from the acquisition onJune 29, 2022 , through the end of the second quarter. Revenues totaled$377,638 in the second quarter of 2021, which ended with 142Dave & Buster's stores open and operating in limited capacity.
• Overall Dave & Buster's comparable store sales increased 9.6% compared
with the same period in 2019 and increased 5.7% compared with
the same
period in 2021, which ended with 113 comparable Dave &
Buster's stores
open and operating in limited capacity.
• Net income totaled
net income of$32,356 , or$0.90 per diluted share in the same period of 2019. Net income in the second quarter of fiscal 2022 was impacted by incremental acquisition and integration costs related to the Main Event Acquisition. In the same period of 2021, we recorded net income of$52,770 .
• Adjusted EBITDA totaled
Adjusted EBITDA of$85,982 or 25.0% of revenues in the second quarter of 2019. Adjusted EBITDA was$119,152 or 31.6% of revenues in the second quarter of 2021. • Ended the quarter with$100,386 in cash and$491,395 of liquidity available under the Company's revolving credit facility. General We are a leading owner and operator of high-volume venues inNorth America that combine dining and entertainment for both adults and families under the names "Dave & Buster's" and "Main Event". The core of our concept is to offer our customers the opportunity to "Eat Drink Play and Watch" all in one location. Eat and Drink are offered through a full menu of entrées and appetizers and a full selection of non-alcoholic and alcoholic beverages. Our Play and Watch offerings provide an extensive assortment of 19
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entertainment attractions centered around playing games, bowling, and watching live sports and other televised events. Our brands appeal to a relatively balanced mix of male and female adults, as well as families and teenagers. We believe we appeal to a diverse customer base by providing a highly customizable experience in a dynamic and fun setting. OurDave & Buster's stores, which average 40,000 square feet, range in size between 16,000 and 70,000 square feet. Our Main Event stores, which average 54,000 square feet, range in size between 46,000 and 74,000 square feet. Generally, our stores are open seven days a week, with normal hours of operation generally from between 10:00 to11:30 a.m. until midnight , with stores typically open for extended hours on weekends.
We monitor and analyze several key performance measures to manage our business and evaluate financial and operating performance. These measures include:
Comparable store sales. Comparable store sales are a comparison of sales to the same period of prior years for the comparable store base. We historically define the comparable store base to include those stores open for a full 18 months before the beginning of the fiscal year and excluding stores permanently closed during the period. Due to the limitations of store operations during the COVID-19 pandemic, the comparable store base for fiscal 2022 is defined as stores open for a full 18 months before the beginning of fiscal 2020 and excludes two stores that the Company elected not to reopen after they were closed inMarch 2020 due to local operating limitations and one store inCary, North Carolina that was closed and relocated during the fourth quarter of fiscal 2021. For the first and second quarter of fiscal 2022, our comparable store base consisted of 113 stores. Our Main Event stores were not included in comparable store sales for the thirteen and twenty-six weeks endedJuly 31, 2022 . 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. BetweenAugust 1, 2021 andJuly 31, 2022 , we closed and relocated one Dave & Buster's store and opened an additional six newDave & Buster's stores. Non-GAAP Financial Measures In addition to the results provided in accordance with generally accepted accounting principles ("GAAP"), we provide non-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, Store Operating Income Before Depreciation and Amortization and Store Operating Income Before Depreciation and Amortization Margin (defined below). These non-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 entitled 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 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 underlying business between periods. Nevertheless, because of the limitations described above, management does not view Adjusted EBITDA or Store Operating Income Before Depreciation and Amortization in isolation and also uses other measures, such as revenues, gross margin, operating income and net income, 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 extinguishment or 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. 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 20
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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, and the costs of opening new stores, which are non-recurring at the 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 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 52 or 53-week fiscal year that ends on the Sunday after the Saturday closest toJanuary 31 . Each quarterly period has 13 weeks, except in a 53-week year when the fourth quarter has 14 weeks. All references to the second quarter of 2022 relate to the 13-week period endedJuly 31, 2022 . All references to the second quarter of 2021 relate to the 13-week period endedAugust 1, 2021 . All references to the second quarter of 2019 relate to the 13-week period endedAugust 4, 2019 . Fiscal 2022, fiscal 2021 and fiscal 2019 consist of 52 weeks. All dollar amounts are presented in thousands, unless otherwise noted, except share and per share amounts.
Store-Level Variability, Quarterly Fluctuations, Seasonality and Inflation
We have historically operated stores varying in size and have experienced significant variability among stores in volumes, operating results and net investment costs.
Our new stores historically open with sales volumes in excess of their expected long-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 approximately 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 may result in significant fluctuations in quarterly results. In the first year of operation new store operating margins (excluding pre-opening expenses) typically 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 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 higher than our comparable store base. Our operating results fluctuate significantly due to seasonal factors. Typically, we have higher revenues associated with spring and year-end holidays which will continue to be susceptible to the impact of severe or unseasonably mild weather on customer traffic and sales during that period. Our third quarter, which encompasses the back-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 regulatory legislation will continue to exert pressure on both supplier pricing and consumer spending related to entertainment and dining alternatives. Although there 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, the effects of any supplier price increase or wage rate increases might be partially offset by selected menu price increases if competitively appropriate. In addition, how quickly, and to what extent, normal economic and operating conditions can resume cannot be predicted, and the resumption of normal business operations may be delayed or constrained by lingering effects of the COVID-19 pandemic on us or our suppliers, third-party service providers, and/or customers. 21
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Thirteen Weeks Ended
Results of operations. The following table sets forth selected data, in thousands 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 Thirteen Weeks Ended Ended July 31, 2022 August 1, 2021 Food and beverage revenues$ 156,995 33.5 %$ 123,006 32.6 % Amusement and other revenues 311,364 66.5
254,632 67.4
Total revenues 468,359 100.0 377,638 100.0 Cost of food and beverage (as a percentage of food and beverage revenues) 46,461 29.6 33,127 26.9 Cost of amusement and other (as a percentage of amusement and other revenues) 29,075 9.3
24,584 9.7
Total cost of products 75,536 16.1 57,711 15.3 Operating payroll and benefits 113,674 24.3 80,623 21.3 Other store operating expenses 142,440 30.4 105,116 27.9 General and administrative expenses 37,710 8.1 18,470 4.9 Depreciation and amortization expense 38,614 8.2 34,875 9.2 Pre-opening costs 3,913 0.8 1,676 0.4 Total operating costs 411,887 87.9 298,471 79.0 Operating income 56,472 12.1 79,167 21.0 Interest expense, net 17,118 3.7 13,728 3.7 Loss on debt refinancing 1,479 0.3 0 0 Income before provision for income taxes 37,875 8.1 65,439 17.3 Provision for income taxes 8,787 1.9 12,669 3.3 Net income$ 29,088 6.2 %$ 52,770 14.0 % Change in comparable store sales (1) 5.7 % 690.8 % Comparable stores at end of period (1) 113 114 Company-owned stores at end of period (1) 200 142
(1) Our comparable store count as of the end of the second quarter of fiscal 2022
excludes a store in
during the fourth quarter of fiscal 2021. Company-owned stores as of
2022, include 52 Main Event stores, which were acquired on
These stores are not considered comparable stores. 22
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Table of Contents Reconciliations of Non-GAAP Financial Measures Adjusted EBITDA
The following table reconciles (in dollars and as a percent of total revenues) Net income to Adjusted EBITDA for the periods indicated:
Thirteen Weeks Thirteen Weeks Ended Ended July 31, 2022 August 1, 2021 Net income$ 29,088 6.2 %$ 52,770 14.0 % Interest expense, net 17,118 13,728 Loss on debt refinancing 1,479 - Provision for income taxes 8,787 12,669 Depreciation and amortization expense 38,614 34,875 EBITDA 95,086 20.3 % 114,042 30.2 % Loss on asset disposal 154 112 Impairment of long-lived assets 1,841 - Share-based compensation 4,698 3,187 Pre-opening costs 3,913 1,676 Other costs (1) 13,858 135 Adjusted EBITDA$ 119,550 25.5 %$ 119,152 31.6 %
(1) Primarily represents
Event. Refer to Note 2 of the Unaudited Consolidated Financial Statements for
more information.
Store Operating Income Before Depreciation and Amortization
The following table reconciles (in dollars and as a percent of total revenues) Operating income to Store Operating Income Before Depreciation and Amortization for the periods indicated: Thirteen Weeks Thirteen Weeks Ended Ended July 31, 2022 August 1, 2021 Operating income$ 56,472 12.1 %$ 79,167 21.0 % General and administrative expenses 37,710
18,470
Depreciation and amortization expense 38,614 34,875 Pre-opening costs 3,913 1,676 Store Operating Income Before Depreciation and Amortization$ 136,709 29.2 %$ 134,188 35.5 % Capital Additions The table below reflects accrual-based capital additions. Capital additions do not include any reductions for accrual-based leasehold improvement incentives or proceeds from sale-leaseback transactions (collectively, "Payments from landlords"). Thirteen Weeks Thirteen Weeks Ended Ended July 31, 2022 August 1, 2021 New store and operating initiatives$ 37,016 $ 12,611 Games 17,826 9,443 Maintenance capital 7,262 6,402 Total capital additions$ 62,104 $ 28,456 Payments from landlords $ 7,215 $ 2,085 23
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Table of Contents Results of Operations Revenues InMarch 2020 , a novel strain of coronavirus ("COVID-19") outbreak was declared a global pandemic and a National Public Health Emergency. Shortly after the national emergency declaration, state and local officials began placing restrictions on businesses, some of which allowed To-Go or curbside service only while others limited capacity in the dining room or arcade "(Midway"). ByMarch 20, 2020 , all our 137 operating stores were temporarily closed. OnApril 30, 2020 , our first store re-opened to the public, and by the end of fiscal 2020, 107 of our 140 stores were open and operating. These stores were operating with a combination of limited menus, reduced dining room seating, reduced game availability in the Midway, reduced operating hours and other restrictions referred to as "limited operations" or "operating in limited capacity." As of the end of the first quarter of fiscal 2021, 138 of our 141 stores were operating in some limited capacity. The Company re-opened the remaining stores that had been temporarily closed by the end of the second quarter of fiscal 2021. During the first quarter of fiscal 2022 any remaining local COVID-19 related operating restrictions on re-opened stores were removed.
On
Selected revenue and store data for the periods indicated are as follows:
Thirteen Weeks Ended July 31, 2022 August 1, 2021 Change Total revenues$ 468,359 $ 377,638 $ 90,721 Total store operating weeks 2,171 1,817 354 Comparable store revenues$ 333,967 $ 316,006 $ 17,961 Comparable store operating weeks 1,469 1,445 24 Noncomparable store revenues-Dave & Buster's$ 84,723 69,164$ 15,559 Noncomparable store operating weeks-Dave & Buster's 442 372 70 Noncomparable store revenues-Main Event 51,405 - 51,405 Noncomparable store operating weeks-Main Event 260 - 260 Other revenues and deferrals-Dave & Buster's$ (1,736 ) $
(7,532 )
Total revenues increased$90,721 , or 24.0%, to$468,359 in the second quarter of fiscal 2022 compared to total revenues of$377,638 in the second quarter of fiscal 2021. The increase in revenue is attributable to$51,405 in revenue from our Main Event stores, an additional 70 new Dave & Buster's store operating weeks, and a 5.7% increase in comparable store sales. The table below represents our revenue mix for the fiscal periods indicated. The shift in mix from amusement sales to food and beverage sales of 90 basis points is due, in part, to increased special events, beverage price increases during the second quarter of fiscal 2022, and food price increases effective midway through the third quarter of fiscal 2021. Thirteen Weeks Ended July 31, 2022 August 1, 2021 Food sales 23.4 % 22.4 % Beverage sales 10.1 % 10.2 % Amusement sales 65.8 % 67.2 % Other 0.7 % 0.2 % Comparable store revenue increased$17,961 or 5.7%, in the second quarter of fiscal 2022 compared to the second quarter of fiscal 2021, due to the reasons noted above, including a 1.7% increase in comparable store operating weeks. Comparable store sales in the second quarter of fiscal 2022 increased 9.6% compared to the second quarter of fiscal 2019. Food sales at comparable stores increased by$10,176 , or 14.6%, to$79,722 in the second quarter of fiscal 2022 from$69,546 in the second quarter of fiscal 2021. Beverage sales at comparable stores increased by$2,809 , or 8.6%, to$35,319 in the second quarter of fiscal 2022 from$32,510 in the 2021 comparison period. Comparable store amusement and other revenues in the second quarter of fiscal 2022 increased by$4,976 , or 2.3%, to$218,926 from$213,950 in the comparable period of fiscal 2021.Dave & Buster's non-comparable store revenue increased$15,559 in the second quarter of fiscal 2022 compared to the second quarter of fiscal 2021, for the same reasons noted above, including 70 more store operating weeks. 24
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Cost of products
The total cost of products was$75,536 for the second quarter of fiscal 2022 and$57,711 for the second quarter of fiscal 2021. The total cost of products as a percentage of total revenues increased 80 basis points to 16.1% for the second quarter of fiscal 2022 compared to 15.3% for the second quarter of fiscal 2021. Cost of food and beverage products increased to$46,461 compared to$33,127 for the second quarter of fiscal 2021. Cost of food and beverage products, as a percentage of food and beverage revenues, increased 270 basis points to 29.6% for the second quarter of fiscal 2022 from 26.9% for the second quarter of fiscal 2021. The unfavorable impacts of commodity cost increases primarily in meat and dairy products during the second quarter of fiscal 2022 were partially offset by food and beverage price increases. Cost of amusement and other increased to$29,075 in the second quarter of fiscal 2022 compared to$24,584 in the second quarter of fiscal 2021. The costs of amusement and other, as a percentage of amusement and other revenues, decreased 40 basis points to 9.3% for the second quarter of fiscal 2022 from 9.7% in the second quarter of fiscal 2021. This decrease was driven primarily by a change in prices at the game level implemented late in fiscal 2021.
Operating payroll and benefits
Total operating payroll and benefits increased by$33,051 , or 41.0%, to$113,674 in the second quarter of fiscal 2022 compared to$80,623 in the second quarter of fiscal 2021. Total operating payroll and benefits for the second quarter of fiscal 2022 included approximately$14,000 of payroll and benefits from our Main Event stores. The total cost of operating payroll and benefits as a percentage of total revenues was 24.3% in the second quarter of fiscal 2022 compared to 21.3% in the second quarter of fiscal 2021. This increase is primarily due to an hourly wage rate increase, offset slightly by lower incentive compensation as the second quarter of fiscal 2021 included referral and retention incentives.
Other store operating expenses
Other store operating expenses increased by$37,324 , or 35.5%, to$142,440 in the second quarter of fiscal 2022 compared to$105,116 in the second quarter of fiscal 2021. The increase is primarily due to the addition of operating costs related to our Main Event stores, the impact of new Dave & Buster's store openings, higher security cost, cleaning services and higher marketing spend associated with the " Summer in the Great Indoors " campaign. Other store operating expense as a percentage of total revenues increased to 30.4% in the second quarter of fiscal 2022 compared to 27.9% in the second quarter of fiscal 2021. This increase in basis points was due primarily to increased security costs, cleaning services, and higher marketing spend.
General and administrative expenses
General and administrative expenses increased by$19,240 , or 104.2%, to$37,710 in the second quarter of fiscal 2022 compared to$18,470 in the second quarter of fiscal 2021. The increase in general and administrative expenses was driven primarily by$13,858 of transaction and integration costs related to the Main Event Acquisition,$1,841 impairment of the existing Main Event corporate office right-of-use asset, an increase in share-based compensation expense, and higher payroll and incentive compensation, including the addition of Main Event store support center personnel. General and administrative expenses, as a percentage of total revenues increased to 8.1% in the second quarter of fiscal 2022 compared to 4.9% in the second quarter of fiscal 2021 due to the reasons noted above.
Depreciation and amortization expense
Depreciation and amortization expense increased to$38,614 in the second quarter of fiscal 2022 compared to$34,875 in the second quarter of fiscal 2021, primarily due to the addition of Main Event. Incremental depreciation for Main Event was partially offset by a net decrease in depreciation expense atDave & Buster's stores as the impact of assets reaching the end of their depreciable lives exceeded expense increases due to recent capital expenditures for new stores, operating initiatives, games, and maintenance capital.
Pre-opening
costs
Pre-opening
costs increased by$2,237 to$3,913 in the second quarter of fiscal 2022 compared to$1,676 in the second quarter of fiscal 2021 due largely to an increase in the number of new Dave & Buster's store openings compared to the same time period of the previous year and to a lesser extent, due to the addition of pre-opening costs related to Main Event stores. 25
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Interest expense, net and loss on debt refinancing
Interest expense, net increased by$3,390 to$17,118 in the second quarter of fiscal 2022 compared to$13,728 in the second quarter of fiscal 2021 due primarily to an increase in average outstanding debt. The Company recorded a loss of$1,479 related to theJune 29, 2022 debt refinancing, which is explained in Note 6 to the Consolidated Financial Statements.
Provision for income taxes
The effective tax rate for the second quarter of fiscal 2022 was 23.2%, compared to 19.4% for the second quarter of fiscal 2021. The previous quarter tax provision includes higher excess tax benefits associated with share-based compensation and credits associated with the reversal of certain tax valuation allowances.
Twenty-six
Weeks EndedJuly 31, 2022 Compared to Twenty-six Weeks EndedAugust 1, 2021 Results of operations. The following table sets forth selected data, in thousands of dollars and as a percentage of total revenues (unless otherwise noted) for the periods indicated. All information is derived from the accompanying unaudited consolidated statements of comprehensive income. Twenty-Six Twenty-Six Weeks Weeks Ended Ended July 31, 2022 August 1, 2021 Food and beverage revenues$ 308,907 33.6 %$ 208,764 32.5 % Amusement and other revenues 610,553 66.4
434,214 67.5
Total revenues 919,460 100.0 642,978 100.0 Cost of food and beverage (as a percentage of food and beverage revenues) 89,716 29.0 56,284 27.0 Cost of amusement and other (as a percentage of amusement and other revenues) 55,841 9.1
41,198 9.5
Total cost of products 145,557 15.8 97,482 15.2 Operating payroll and benefits 207,035 22.5 130,902 20.4 Other store operating expenses 266,865 29.0 189,561 29.4 General and administrative expenses 66,007 7.2 35,561 5.5 Depreciation and amortization expense 71,902 7.8 69,974 10.9 Pre-opening costs 6,910 0.8 3,335 0.5 Total operating costs 764,276 83.1 526,815 81.9 Operating income 155,184 16.9 116,163 18.1 Interest expense, net 28,509 3.1 28,548 4.5 Loss on debt refinancing 1,479 0.2 - - Income before provision for income taxes 125,196 13.6 87,615 13.6 Provision for income taxes 29,124 3.2 15,210 2.3 Net income$ 96,072 10.4 %$ 72,405 11.3 % Change in comparable store sales (1) 32.2 % 199.1 % Comparable stores at end of period (1) 113 114 Company-owned stores at end of period (1) 200 142
(1) Our comparable store count as of the end of the second quarter of fiscal 2022
excludes a store in
during the fourth quarter of fiscal 2021. Company-owned stores as of
2022, includes 52 Main Event stores, which were acquired on
These stores are not considered comparable stores. 26
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Table of Contents Reconciliations of Non-GAAP Financial Measures Adjusted EBITDA
The following table reconciles (in dollars and as a percent of total revenues) Net income to Adjusted EBITDA for the periods indicated:
Twenty-Six Twenty-Six Weeks Weeks Ended Ended July 31, 2022 August 1, 2021 Net income$ 96,072 10.4 %$ 72,405 11.3 % Interest expense, net 28,509 28,548 Loss on debt refinancing 1,479 Provision for income taxes 29,124 15,210 Depreciation and amortization expense 71,902 69,974 EBITDA 227,086 24.7 % 186,137 28.9 % Loss on asset disposal 370 257 Impairment of long-lived assets 1,841 - Share-based compensation 8,253 6,158 Pre-opening costs 6,910 3,335 Other costs (1) 18,337 (30 ) Adjusted EBITDA$ 262,797 28.6 %$ 195,857 30.5 %
(1) Primarily represents
Event. Refer to Note 2 of the Unaudited Consolidated Financial Statements for
more information.
Store Operating Income Before Depreciation and Amortization
The following table reconciles (in dollars and as a percent of total revenues) Operating income to Store Operating Income Before Depreciation and Amortization for the periods indicated: Twenty-Six Twenty-Six Weeks Weeks Ended Ended July 31, 2022 August 1, 2021 Operating income$ 155,184 16.9 %$ 116,163 18.1 % General and administrative expenses 66,007
35,561
Depreciation and amortization expense 71,902 69,974 Pre-opening costs 6,910 3,335 Store Operating Income Before Depreciation and Amortization$ 300,003 32.6 %$ 225,033 35.0 % Capital Additions
The table below reflects accrual-based capital additions. Capital additions do not include any reductions for Payments from landlords.
Twenty-Six Weeks Twenty-Six Weeks Ended Ended July 31, 2022 August 1, 2021 New store and operating initiatives $ 72,147 $ 19,756 Games 19,338 12,614 Maintenance capital 13,573 8,290 Total capital additions $ 105,058 $ 40,660 Payments from landlords $ 7,928 $ 2,085 27
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Table of Contents Results of Operations Revenues
On
Selected revenue and store data for the periods indicated are as follows:
Twenty-Six Weeks Ended July 31, 2022 August 1, 2021 Change Total revenues$ 919,460 $ 642,978 $ 276,482 Total store operating weeks 4,047 3,450 597 Comparable store revenues$ 702,444 $ 531,412 $ 171,032 Comparable store operating weeks 2,938 2,735 203 Noncomparable store revenues-Dave & Buster's$ 173,873 127,662$ 46,211 Noncomparable store operating weeks-Dave & Buster's 849 715 134 Noncomparable store revenues-Main Event$ 51,405 -$ 51,405 Noncomparable store operating weeks-Main Event 260 - 260 Other revenues and deferrals-Dave & Buster's$ (8,262 ) $
(16,096 )
Total revenues increased$276,482 , or 43.0%, to$919,460 in the twenty-six weeks endedJuly 31, 2022 , compared to total revenues of$642,978 in the twenty-six weeks endedAugust 1, 2021 . The increase in revenue is attributable to$51,405 in revenue from our Main Event stores, an additional 134 new Dave & Buster's store operating weeks, and a 32.2% increase in comparable store sales, due in part to a 7.4% increase in store operating weeks compared to the same period of the previous year, when some of our stores remained temporarily closed as a result of the COVID-19 pandemic, and the removal of local COVID-19 related operating restrictions on re-opened stores. Revenues during the twenty-six weeks endedJuly 31, 2022 , were also favorably impacted by an increase in our special events business, which experienced delayed recovery from the impacts of the COVID-19 pandemic. The table below represents our revenue mix for the fiscal periods indicated. The shift in mix from amusement sales to food and beverage sales of 110 basis points is due, in part, to increased special events, beverage price increases during the second quarter of fiscal 2022, and food price increases effective midway through the third quarter of fiscal 2021. Twenty-Six Weeks Ended July 31, 2022 August 1, 2021 Food sales 22.9 % 22.3 % Beverage sales 10.7 % 10.2 % Amusement sales 65.8 % 67.3 % Other 0.6 % 0.2 % Comparable store revenue increased$171,032 or 32.2%, in the twenty-six weeks endedJuly 31, 2022 , compared to the comparable period of fiscal 2021, due to the reasons noted above, including a 7.4% increase in comparable store operating weeks. Comparable store sales in the twenty-six weeks endedJuly 31, 2022 , increased 10.2% compared to the comparable period of fiscal 2019. Food sales at comparable stores increased by$45,678 , or 39.3%, to$161,860 in the twenty-six weeks endedJuly 31, 2022 , from$116,182 in the comparable period of fiscal 2021. Beverage sales at comparable stores increased by$22,946 , or 42.4%, to$77,053 in the twenty-six weeks endedJuly 31, 2022 , from$54,107 in the 2021 comparison period. Comparable store amusement and other revenues in the twenty-six weeks endedJuly 31, 2022 , increased by$102,408 , or 28.4%, to$463,531 from$361,123 in the comparable period of fiscal 2021.
Non-comparable
store revenue increased$46,211 in the twenty-six weeks endedJuly 31, 2022 , compared to the comparable period of fiscal 2021, for the same reasons noted above, including 134 more store operating weeks.
Cost of products
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The total cost of products was$145,557 for the twenty-six weeks endedJuly 31, 2022 , and$97,482 for the comparable period of fiscal 2021. The total cost of products as a percentage of total revenues increased 60 basis points to 15.8% for the twenty-six weeks endedJuly 31, 2022 , compared to 15.2% for the comparable period of fiscal 2021. Cost of food and beverage products increased to$89,716 compared to$56,284 for the comparable period of fiscal 2021. Cost of food and beverage products, as a percentage of food and beverage revenues, increased 200 basis points to 29.0% for the twenty-six weeks endedJuly 31, 2022 , from 27.0% for the comparable period of fiscal 2021. The unfavorable impacts of commodity cost increases, primarily in meat and dairy products, during the first twenty-six weeks of fiscal 2022 were partially offset by food and beverage price increases. Cost of amusement and other increased to$55,841 in the twenty-six weeks endedJuly 31, 2022 , compared to$41,198 in the comparable period of fiscal 2021. The costs of amusement and other, as a percentage of amusement and other revenues, decreased 40 basis points to 9.1% for the twenty-six weeks endedJuly 31, 2022 , from 9.5% in the comparable period of fiscal 2021. This decrease was driven primarily by a change in prices at the game level implemented late in fiscal 2021.
Operating payroll and benefits
Total operating payroll and benefits increased by$76,133 , or 58.2%, to$207,035 in the twenty-six weeks endedJuly 31, 2022 , compared to$130,902 in the comparable period of fiscal 2021. The total cost of operating payroll and benefits as a percentage of total revenues was 22.5% in the twenty-six weeks endedJuly 31, 2022 , compared to 20.4% in the comparable period of fiscal 2021. This increase is primarily due to an hourly wage rate increase and an increase in labor hours worked as open positions were filled, partially offset by lower incentive compensation costs as fiscal 2021 included referral and retention incentives.
Other store operating expenses
Other store operating expenses increased by$77,304 , or 40.8%, to$266,865 in the twenty-six weeks endedJuly 31, 2022 , compared to$189,561 in the comparable period of fiscal 2021. The increase is primarily due to the impact of increased store weeks during the first half of fiscal 2022 on costs such as utilities, supplies, maintenance, and other services as well as higher marketing spend associated with the " Summer in the Great Indoors " campaign. Other store operating expense as a percentage of total revenues decreased to 29.0% in the twenty-six weeks endedJuly 31, 2022 , compared to 29.4% in the comparable period of fiscal 2021. This decrease was due primarily to favorable sales leverage, partially offset by higher marketing spend.
General and administrative expenses
General and administrative expenses increased by$30,446 , or 85.6%, to$66,007 in the twenty-six weeks endedJuly 31, 2022 , compared to$35,561 in the comparable period of fiscal 2021. The increase in general and administrative expenses was driven primarily by$18,270 of transaction and integration costs related to the Main Event Acquisition,$1,841 impairment of the existing Main Event corporate office right-of-use operating lease asset, an increase in share-based compensation expense, and higher payroll and incentive compensation expense. General and administrative expenses, as a percentage of total revenues increased to 7.2% in the twenty-six weeks endedJuly 31, 2022 compared to 5.5% in the comparable period of fiscal 2021 due to the reasons noted above.
Depreciation and amortization expense
Depreciation and amortization expense was increased slightly to$71,902 in the twenty-six weeks endedJuly 31, 2022 , compared to$69,974 in the comparable period of fiscal 2021, primarily due to the addition of the Main Event. Incremental depreciation for Main Event was partially offset by a net decrease in depreciation expense atDave & Buster's stores as the impact of assets reaching the end of their depreciable lives exceeded expense increases due to recent capital expenditures for new stores, operating initiatives, games, and maintenance capital. Pre-opening costs Pre-opening costs increased by$3,575 to$6,910 in the twenty-six weeks endedJuly 31, 2022 , compared to$3,335 in the comparable period of fiscal 2021 due primarily to an increase in the number of new Dave & Buster's store openings compared to the same time period of the previous year.
Interest expense, net and loss on debt refinancing
Interest expense, net decreased by$39 to$28,509 in the twenty-six weeks endedJuly 31, 2022 compared to$28,548 in the comparable period of fiscal 2021. In connection with theJune 29, 2022 debt refinancing, the Company recorded a loss of$1,479 , which is explained in Note 6 to the Consolidated Financial Statements. 29
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Provision for income taxes
The effective tax rate for the twenty-six weeks endedJuly 31, 2022 was 23.3%, compared to 17.4% for the comparable period of fiscal 2021. The previous year tax provision includes higher excess tax benefits associated with share-based compensation and credits associated with the reversal of certain tax valuation allowances.
Liquidity and Capital Resources
Debt
In connection with the closing of the Main Event Acquisition onJune 29, 2022 ,D&B Inc entered into a senior secured credit agreement, which refinanced the$500,000 existing revolving facility, extended the maturity date toJune 29, 2027 , and added a new term loan facility in the aggregate principal amount of$850,000 , with a maturity date ofJune 29, 2029 ("Credit Facility"). The proceeds of the term loan, net of an original issue discount of$42,500 , 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 Notes exceeds$100,000 ninety-one days prior toNovember 1, 2025 . A portion of the revolving facility not to exceed$35,000 is available for the issuance of letters of credit. At the end of the second quarter of fiscal 2022, we had letters of credit outstanding of$8,605 and an unused commitment balance of$491,395 under the revolving facility. The Credit Facility may be increased through incremental facilities, by an amount equal to the greater of (i)$400,000 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 byD&B Holdings and certain ofD&B Inc's existing and future wholly owned material domestic subsidiaries. The interest rates per annum applicable to SOFR term loans are based on a defined SOFR rate (with a floor of 0.50%) plus an additional credit spread adjustment of 0.10%, plus a margin of 5.00%. The interest rates per annum applicable to SOFR revolving loans are based on the term loan SOFR rate, plus an additional credit spread adjustment of 0.10%, plus an initial margin of 4.75%. Unused commitments under the revolving facility incur initial commitment fees of 0.50%. After the Company's third quarter of fiscal 2022, the margin for SOFR revolving loans are subject to a pricing grid based on net total leverage, ranging from 4.25% to 4.75%, and commitment fees are subject to a pricing grid based on net total leverage, ranging from 0.30% to 0.50%. During fiscal 2020, the Company issued$550,000 aggregate principal amount of 7.625% senior secured notes (the "Notes"). Interest on the Notes is payable in arrears onNovember 1 andMay 1 of each year. The Notes mature onNovember 1, 2025 , unless earlier redeemed, and are subject to the terms and conditions set forth in the related indenture. The Notes were issued byD&B Inc and are unconditionally guaranteed byD&B Holdings and certain ofD&B Inc's existing and future wholly owned material domestic subsidiaries. During fiscal 2021, the Company redeemed a total of$110,000 outstanding principal amount of the Notes, and paid prepayment premiums of$3,300 , plus accrued and unpaid interest to the date of redemptions. The early redemptions of the Notes resulted in a loss on extinguishment of approximately$2,300 related to a proportional amount of unamortized issuance costs. BeginningOctober 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. Amortization of debt issuance costs and original issue discount was$1,636 and$2,595 for the thirteen and twenty-six weeks endedJuly 31, 2022 , and$1,103 and$2,205 for the thirteen and twenty-six weeks endedAugust 1, 2021 , respectively, and is included in "Interest expense, net" in the Consolidated Statements of Comprehensive Income. For the twenty-six weeks endedJuly 31, 2022 , andAugust 1, 2021 , respectively, the Company's weighted average effective interest rate on our total debt facilities (before capitalized interest amounts) was 10.08% and 10.17%, respectively. During the second quarter of fiscal 2022, the Company recognized a loss of$1,479 , related to the write off of unamortized debt issuance costs associated with exiting creditors of the refinanced revolving facility. 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 first full fiscal quarter after the Closing Date.
Dividends and Share Repurchases
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OnDecember 6, 2021 , our Board of Directors approved a share repurchase program with an authorization limit of$100,000 , expiring at the end of fiscal 2022. During the second quarter of fiscal 2022, the Company repurchased 764,988 shares at an average cost of$32.70 per share. The approximate dollar value of shares that may be repurchased under the plan as ofJuly 31, 2022 , is$74,985 . There were no dividends declared during the first or second quarter of 2022. Future decisions to pay cash dividends or repurchase shares continue to be at the discretion of the Board of Directors and will be dependent on our operating performance, financial condition, capital expenditure requirements and other factors that the Board of Directors considers relevant.
Cash and Cash Equivalents
As ofJuly 31, 2022 , the Company had cash and cash equivalents of$100,386 . 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. Our operations do not require significant inventory or receivables and we continually invest in our business through the growth of stores and operating improvement additions, which are reflected as noncurrent assets and not a part of working capital. Based on our current business plan, we believe our cash and cash equivalents combined with expected cash flows from operations, available borrowings under our revolving credit facility and expected 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.
A comparison of our cash flow activity for the first and second quarters of fiscal 2022 to the same period of fiscal 2021 follows.
Operating Activities - Cash flow from operations typically provides us with a significant source of liquidity. Our operating cash flows result primarily from cash received from our customers, offset by cash payments we make for products and services, employee compensation, operations, and occupancy 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 increased approximately$35,000 in the twenty-six weeks endedJuly 31, 2022 compared to the twenty-six weeks endedAugust 1, 2021 driven primarily by approximately 337 more store weeks forDave & Busters , 260 store weeks for Main Event, and the receipt of a federal tax refund in the amount of approximately$33,200 . These increases in cash flow from operating activities were offset by the payment of acquisition and integration costs of$18,270 . Investing Activities - Cash flow from investing activities primarily reflects the Main Event Acquisition for cash consideration of approximately$823,000 , which is net of cash acquired of approximately$34,000 . Below is a summary of capital expenditures for the comparable twenty-six week period in fiscal 2022 and fiscal 2021. During the twenty-six weeks endedJuly 31, 2022 , the Company spent approximately$65,900 for new store construction and operating improvement initiatives ($58,000 net of payments from landlords),$17,000 for game refreshment and$17,000 for maintenance capital. During the twenty-six weeks endedAugust 1, 2021 , the Company spent approximately$18,900 for new store construction and operating improvement initiatives ($16,800 net of payments from landlords),$11,000 for game refreshment and$8,000 for maintenance capital. Financing Activities - During the second quarter of fiscal 2022, the Company entered into a new credit facility agreement, with term loan net proceeds of$807,500 . The proceeds were used to pay for the Acquisition, including$17,748 of debt issuance costs associated with the refinancing. The Company also repurchased shares at a cost of$25,015 during the second quarter. During the first quarter of fiscal 2021, the Company had net repayments of$60,000 of its revolving credit facility.
Contractual Obligations and Commitments
There have been no material changes outside the ordinary course of business to our contractual obligations sinceJanuary 30, 2022 , as reported on Form 10-K filed with theSEC onMarch 29, 2022 .
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 31
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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. In addition to the critical accounting policies and estimates previously disclosed in the Company's Annual Report on Form 10-K for the fiscal year endedJanuary 30, 2022 , due to recent transactions and events, we also consider the following to be part of our critical accounting policies and estimates due to the high degree of judgment and complexity in its application. Business combinations- The Main Event Acquisition was accounted for using the acquisition method of accounting, or acquisition accounting, in accordance with ASC Topic 805, Business Combinations. The acquisition method of accounting involved the allocation of the purchase price to the assets acquired and liabilities assumed based on preliminary estimated fair values as of the date of the acquisition. The determination of the fair value of tangible and intangible assets, which represent a significant portion of the purchase price, requires the use of significant judgment with regard to (i) the fair value and (ii) whether such acquired intangibles are amortizable or non-amortizable and, if the former, the period and the method by which the intangible asset will be amortized. The Company estimates the fair value of acquisition-related tangible and intangible assets principally based on Replacement Cost New and the Relief from Royalty methods, which include estimates of projected future EBITDA, long-term growth rate, discount rate and royalty rate. The projected cash flows are discounted to determine the present value of the assets at the dates of acquisition. Refer to Note 2 to the Unaudited Consolidated Financial Statements for additional information about our recent business combination.
Recent accounting pronouncements
Refer to Note 1 to the Unaudited Consolidated Financial Statements for information regarding new accounting pronouncements.
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