DAVE & BUSTER'S ENTERTAINMENT, INC. 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 ofOctober 30, 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 17 states. Refer to Note 2, Business Combinations, to the Unaudited Consolidated Financial Statements for further details.
Quarterly Financial Highlights
• Third quarter revenue of
of 2021 and increased 60.7% from the third quarter of 2019. Main Event
branded stores contributed $106,803 of revenue during the quarter.
• Comparable sales at Dave & Buster's branded stores increased 13.8%
compared with the same period in 2021 and 13.6% compared with the same
period in 2019.
• Net income totaled
net income of
of 2021 and net income of
quarter of 2019. Net income in the third quarter of fiscal 2022 was
impacted by $4,029 of incremental acquisition and integration costs
related to the Main Event Acquisition.
• Adjusted EBITDA of
and increased 94.4% from the third quarter of 2019.
• Ended the quarter with
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 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. 19
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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 through third 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 thirty-nine weeks endedOctober 30, 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. For the thirty-nine weeks endedOctober 30, 2022 , we opened seven 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 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.
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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 third quarter of 2022 relate to the 13-week period endedOctober 30, 2022 . All references to the third quarter of 2021 relate to the 13-week period endedOctober 31, 2021 . All references to the third quarter of 2019 relate to the 13-week period endedNovember 3, 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.
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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
October 30, 2022 October 31, 2021
Food and beverage revenues $ 165,855 34.5 % $ 107,747 33.9 %
Amusement and other revenues 315,351 65.5 210,229 66.1
Total revenues 481,206 100.0 317,976 100.0 Cost of food and beverage (as a percentage of food and beverage revenues) 48,939 29.5 30,082 27.9 Cost of amusement and other (as a percentage of amusement and other revenues) 27,316 8.7
22,531 10.7
Total cost of products 76,255 15.8 52,613 16.5 Operating payroll and benefits 125,919 26.2 78,995 24.8 Other store operating expenses 163,846 34.0 103,322 32.5 General and administrative expenses 32,777 6.8 22,104 7.0 Depreciation and amortization expense 48,427 10.1 34,381 10.8 Pre-opening costs 3,874 0.8 2,092 0.7 Total operating costs 451,098 93.7 293,507 92.3 Operating income 30,108 6.3 24,469 7.7 Interest expense, net 28,374 5.9 13,423 4.2 Loss on debt extinguishment / refinancing - -
2,829 0.9
Income before provision for income taxes 1,734 0.4 8,217 2.6 Benefit for income taxes (184 ) - (2,368 ) (0.7 ) Net income$ 1,918 0.4 %$ 10,585 3.3 % Change in comparable store sales (1) 13.8 % 189.3 % Comparable stores at end of period (1) 113 114 Company-owned stores at end of period (1) 203 143
(1) Our comparable store count as of the end of the third quarter of fiscal 2022
excludes a store in
during the fourth quarter of fiscal 2021. Company-owned stores as of
October 30, 2022 , include 52 Main Event stores, which were acquired on
June 29, 2022 . These stores are not considered comparable stores.
22
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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
October 30, 2022 October 31, 2021
Net income $ 1,918 0.4 % $ 10,585 3.3 %
Interest expense, net 28,374 13,423
Loss on debt extinguishment / refinancing - 2,829
Benefit for income taxes (184 ) (2,368 ) Depreciation and amortization expense 48,427 34,381 EBITDA 78,535 16.3 % 58,850 18.5 % Loss on asset disposal 242 377 Impairment of long-lived assets - - Share-based compensation 3,228 3,778 Pre-opening costs 3,874 2,092 Other costs (1) 4,094 3,112 Adjusted EBITDA$ 89,973 18.7 %$ 68,209 21.5 %
(1) Includes
Event for the thirteen weeks ended
of severance costs for the thirteen weeks ended October 31, 2021 . 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
October 30, 2022 October 31, 2021
Operating income $ 30,108 6.3 % $ 24,469 7.7 %
General and administrative expenses 32,777 22,104
Depreciation and amortization expense 48,427
34,381
Pre-opening costs 3,874
2,092
Store Operating Income Before Depreciation and Amortization$ 115,186 23.9 %$ 83,046 26.1 % 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 October 30, 2022 October 31, 2021 New store and operating initiatives $ 44,524 $ 20,616 Games 2,893 195 Maintenance capital 9,455 8,402 Total capital additions $ 56,872 $ 29,213 Payments from landlords $ 20,625 $ 5,717 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
October 30, 2022 October 31, 2021 Change
Total revenues $ 481,206 $ 317,976 $ 163,230
Total store operating weeks 2,616 1,854 762
Comparable store revenues $ 293,416 $ 257,732 $ 35,684
Comparable store operating weeks 1,469 1,469 -
Noncomparable store revenues-Dave &
Buster's $ 81,386 56,830 $ 24,556
Noncomparable store operating
weeks-Dave & Buster's 471 385 86
Noncomparable store revenues-Main
Event 106,803 - 106,803
Noncomparable store operating
weeks-Main Event 676 - 676
Other revenues and deferrals-Dave &
Buster's $ (399 ) $
3,414
Total revenues increased$163,230 , or 51.3%, to$481,206 in the third quarter of fiscal 2022 compared to total revenues of$317,976 in the third quarter of fiscal 2021. The increase in revenue is primarily attributable to$106,803 in revenue from our Main Event stores, and a 13.8% 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 is due, in part, to increased special events, and food price increases effective midway through the third quarter of fiscal 2021. Thirteen Weeks EndedOctober 30, 2022 October 31, 2021
Food sales 23.5 % 22.7 % Beverage sales 11.0 % 11.2 % Amusement sales 64.3 % 65.5 % Other 1.2 % 0.6 % Comparable store revenue increased$35,686 or 13.8%, in the third quarter of fiscal 2022 compared to the third quarter of fiscal 2021, due to the reasons noted above, including a 0.2% increase in comparable store operating weeks. Comparable store sales in the third quarter of fiscal 2022 increased 13.6% compared to the third quarter of fiscal 2019. Food sales at comparable stores increased by$11,998 , or 20.2%, to$71,518 in the third quarter of fiscal 2022 from$59,520 in the third quarter of fiscal 2021. Beverage sales at comparable stores increased by$4,093 , or 13.7%, to$33,930 in the third quarter of fiscal 2022 from$29,837 in the 2021 comparison period. Comparable store amusement and other revenues in the third quarter of fiscal 2022 increased by$19,595 , or 11.6%, to$187,968 from$168,373 in the comparable period of fiscal 2021.
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Cost of products
The total cost of products was$76,255 for the third quarter of fiscal 2022 and$52,613 for the third quarter of fiscal 2021. The total cost of products as a percentage of total revenues decreased to 15.8% for the third quarter of fiscal 2022 compared to 16.5% for the third quarter of fiscal 2021. Cost of food and beverage products increased to$48,939 compared to$30,082 for the third quarter of fiscal 2021. Cost of food and beverage products, as a percentage of food and beverage revenues, increased to 29.5% for the third quarter of fiscal 2022 from 27.9% for the third quarter of fiscal 2021. The unfavorable impacts of commodity cost increases primarily in grocery products during the third quarter of fiscal 2022 were partially offset by poultry cost decreases and food price increases. Cost of amusement and other increased to$27,316 in the third quarter of fiscal 2022 compared to$22,531 in the third quarter of fiscal 2021. The costs of amusement and other, as a percentage of amusement and other revenues, decreased to 8.7% for the third quarter of fiscal 2022 from 10.7% in the third quarter of fiscal 2021. This decrease was driven primarily by a change in prices at the game level implemented late in fiscal 2021 and lower amusement product costs.
Operating payroll and benefits
Total operating payroll and benefits increased by$46,924 to$125,919 in the third quarter of fiscal 2022 compared to$78,995 in the third quarter of fiscal 2021. Total operating payroll and benefits for the third quarter of fiscal 2022 included approximately$34,529 of payroll and benefits from our Main Event stores. The total cost of operating payroll and benefits as a percentage of total revenues was 26.2% in the third quarter of fiscal 2022 compared to 24.8% in the third quarter of fiscal 2021. This increase is primarily due to an hourly wage rate increase, partially offset by lower incentive compensation as the third quarter of fiscal 2021 included referral and retention incentives.
Other store operating expenses
Other store operating expenses increased by$60,524 , or 58.6%, to$163,846 in the third quarter of fiscal 2022 compared to$103,322 in the third quarter of fiscal 2021. The increase is primarily due to the addition of$35,149 of operating costs related to our Main Event stores, the impact of new Dave & Buster's store openings, utilities, maintenance, higher security cost, cleaning services and higher marketing spend. Other store operating expense as a percentage of total revenues increased to 34.0% in the third quarter of fiscal 2022 compared to 32.5% in the third 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$10,673 to$32,777 in the third quarter of fiscal 2022 compared to$22,104 in the third quarter of fiscal 2021. The increase in general and administrative expenses was driven primarily by$4,029 of transaction and integration costs related to the Main Event Acquisition, 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 decreased to 6.8% in the third quarter of fiscal 2022 compared to 7.0% in the third quarter of fiscal 2021 due primarily to sales leverage.
Depreciation and amortization expense
Depreciation and amortization expense increased to
Pre-opening costs
Pre-opening costs increased by$1,782 to$3,874 in the third quarter of fiscal 2022 compared to$2,092 in the third 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 due to$772 of pre-opening costs related to Main Event stores.
Interest expense, net
Interest expense, net increased by
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Provision for income taxes
The effective tax rate for the third quarter of fiscal 2022 was a benefit of 10.6%, compared to a benefit of 28.8% for the third 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.
Thirty-nine 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.
Thirty-Nine Weeks Thirty-Nine Weeks
Ended Ended
October 30, 2022 October 31, 2021
Food and beverage revenues $ 474,762 33.9 % $ 316,511 32.9 %
Amusement and other revenues 925,904 66.1 644,443 67.1
Total revenues 1,400,666 100.0 960,954 100.0 Cost of food and beverage (as a percentage of food and beverage revenues) 138,655 29.2 86,366 27.3 Cost of amusement and other (as a percentage of amusement and other revenues) 83,157 9.0
63,729 9.9
Total cost of products 221,812 15.8 150,095 15.6 Operating payroll and benefits 332,954 23.8 209,897 21.8 Other store operating expenses 430,711 30.7 292,883 30.5 General and administrative expenses 98,784 7.1 57,665 6.0 Depreciation and amortization expense 120,329 8.6 104,355 10.9 Pre-opening costs 10,784 0.8
5,427 0.6
Total operating costs 1,215,374 86.8
820,322 85.4
Operating income 185,292 13.2 140,632 14.6 Interest expense, net 56,883 4.0 41,971 4.3 Loss on debt extinguishment / refinancing 1,479 0.1
2,829 0.3
Income before provision for income taxes 126,930 9.1 95,832 10.0 Provision for income taxes 28,940 2.1 12,842 1.4 Net income$ 97,990 7.0 %$ 82,990 8.6 % Change in comparable store sales (1) 26.2 % 195.8 % Comparable stores at end of period (1) 113 114 Company-owned stores at end of period (1) 203 143
(1) Our comparable store count as of the end of the third quarter of fiscal 2022
excludes a store in
during the fourth quarter of fiscal 2021. Company-owned stores as of
October 30, 2022 , includes 52 Main Event stores, which were acquired on
June 29, 2022 . These stores are not considered comparable stores.
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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:
Thirty-Nine Weeks Thirty-Nine Weeks
Ended Ended
October 30, 2022 October 31, 2021
Net income $ 97,990 7.0 % $ 82,990 8.6 %
Interest expense, net 56,883 41,971
Loss on debt extinguishment / refinancing 1,479
2,829
Provision for income taxes 28,940
12,842
Depreciation and amortization expense 120,329 104,355 EBITDA 305,621 21.8 % 244,987 25.5 % Loss on asset disposal 612 634 Impairment of long-lived assets 1,841 - Share-based compensation 11,481 9,936 Pre-opening costs 10,784 5,427 Other costs (1) 22,431 3,082 Adjusted EBITDA$ 352,770 25.2
%$ 264,066 27.5 %
(1) Includes
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:
Thirty-Nine Weeks Thirty-Nine Weeks
Ended Ended
October 30, 2022 October 31, 2021
Operating income $ 185,292 13.2 % $ 140,632 14.6 %
General and administrative expenses 98,784 57,665
Depreciation and amortization expense 120,329
104,355
Pre-opening costs 10,784
5,427
Store Operating Income Before Depreciation and Amortization$ 415,189 29.6 %$ 308,079 32.1 % Capital Additions
The table below reflects accrual-based capital additions. Capital additions do not include any reductions for Payments from landlords.
Thirty-Nine Weeks Thirty-Nine Weeks
Ended Ended
October 30, 2022 October 31, 2021
New store and operating initiatives $ 116,671 $ 40,372
Games 22,231 12,809
Maintenance capital 23,028 16,692
Total capital additions $ 161,930 $ 69,873
Payments from landlords $ 28,553 $ 7,802
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Table of Contents Results of Operations Revenues
On
Selected revenue and store data for the periods indicated are as follows:
Thirty-Nine Weeks Ended
October 30, 2022 October 31, 2021 Change
Total revenues $ 1,400,666 $ 960,954 $ 439,712
Total store operating weeks 6,663 5,304 1,359
Comparable store revenues $ 995,860 $ 789,143 $ 206,717
Comparable store operating weeks 4,407 4,204 203
Noncomparable store revenues-Dave &
Buster's $ 255,259 184,492 $ 70,767
Noncomparable store operating
weeks-Dave & Buster's 1,320 1,100 220
Noncomparable store revenues-Main
Event $ 158,208 - $ 158,208
Noncomparable store operating
weeks-Main Event 936 - 936
Other revenues and deferrals-Dave &
Buster's $ (8,661 ) $
(12,682 )
Total revenues increased$439,712 to$1,400,666 in the thirty-nine weeks endedOctober 30, 2022 , compared to total revenues of$960,954 in the thirty-nine weeks endedOctober 31, 2021 . The increase in revenue is attributable to an additional 423 new Dave & Buster's store operating weeks, and a 26.2% increase in comparable store sales 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. The increase was also driven by$158,208 in revenue from our Main Event stores. The table below represents our revenue mix for the fiscal periods indicated. The shift in mix from amusement sales to food and beverage sales is due, in part, to increased special events, and food price increases effective midway through the third quarter of fiscal 2021. Thirty-Nine Weeks Ended October 30, 2022 October 31, 2021 Food sales 23.1 % 22.4 % Beverage sales 10.8 % 10.5 % Amusement sales 65.3 % 66.7 % Other 8.0 % 0.3 % Comparable store revenue increased$206,717 or 26.2%, in the thirty-nine weeks endedOctober 30, 2022 , compared to the comparable period of fiscal 2021, due to the reasons noted above, including a 4.8% increase in comparable store operating weeks. Comparable store sales in the thirty-nine weeks endedOctober 30, 2022 , increased 11.2% compared to the comparable period of fiscal 2019. Food sales at comparable stores increased by$57,676 to$233,378 in the thirty-nine weeks endedOctober 30, 2022 , from$175,702 in the comparable period of fiscal 2021. Beverage sales at comparable stores increased by$27,038 to$110,983 in the thirty-nine weeks endedOctober 30, 2022 , from$83,945 in the comparable period of 2021. Comparable store amusement and other revenues in the thirty-nine weeks endedOctober 30, 2022 , increased by$122,000 to$651,498 from$529,496 in the comparable period of fiscal 2021.
Non-comparable Dave & Buster's store revenue increased
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Cost of products
The total cost of products was$221,812 for the thirty-nine weeks endedOctober 30, 2022 , and$150,095 for the comparable period of fiscal 2021. The total cost of products as a percentage of total revenues increased to 15.8% for the thirty-nine weeks endedOctober 30, 2022 , compared to 15.6% for the comparable period of fiscal 2021. Cost of food and beverage products increased to$138,655 compared to$86,366 for the comparable period of fiscal 2021. Cost of food and beverage products, as a percentage of food and beverage revenues, increased to 29.2% for the thirty-nine weeks endedOctober 30, 2022 , from 27.3% for the comparable period of fiscal 2021. The increase was due to unfavorable impacts of commodity cost increases, primarily in meat and dairy products, during the first thirty-nine weeks of fiscal 2022, and were partially offset by food price increases. Cost of amusement and other increased to$83,157 in the thirty-nine weeks endedOctober 30, 2022 , compared to$63,729 in the comparable period of fiscal 2021. The costs of amusement and other, as a percentage of amusement and other revenues, decreased to 9.0% for the thirty-nine weeks endedOctober 30, 2022 , from 9.9% 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$123,057 to$332,954 in the thirty-nine weeks endedOctober 30, 2022 , compared to$209,897 in the comparable period of fiscal 2021. The total cost of operating payroll and benefits as a percentage of total revenues was 23.8% in the thirty-nine weeks endedOctober 30, 2022 , compared to 21.8% 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$137,828 to$430,711 in the thirty-nine weeks endedOctober 30, 2022 , compared to$292,883 in the comparable period of fiscal 2021. The increase is primarily due to higher utilities, supplies, maintenance, marketing, and other services as well as$47,920 of costs related to Main Event. Other store operating expense as a percentage of total revenues increased to 30.7% in the thirty-nine weeks endedOctober 30, 2022 , compared to 30.5% in the comparable period of fiscal 2021. This increase was due primarily to the reasons noted above.
General and administrative expenses
General and administrative expenses increased by$41,119 to$98,784 in the thirty-nine weeks endedOctober 30, 2022 , compared to$57,665 in the comparable period of fiscal 2021. The increase in general and administrative expenses was driven primarily by$22,299 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, and higher payroll and incentive compensation expense. General and administrative expenses, as a percentage of total revenues increased to 7.1% in the thirty-nine weeks endedOctober 30, 2022 compared to 6.0% in the comparable period of fiscal 2021 due to the reasons noted above.
Depreciation and amortization expense
Depreciation and amortization expense increased to$120,329 in the thirty-nine weeks endedOctober 30, 2022 , compared to$104,355 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$5,357 to$10,784 in the thirty-nine weeks endedOctober 30, 2022 , compared to$5,427 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. 29
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Interest expense, net and loss on debt refinancing
Interest expense, net increased by$14,912 to$56,883 in the thirty-nine weeks endedOctober 30, 2022 compared to$41,971 in the comparable period of fiscal 2021 as a result of the acquisition-related debt incurrence of$850,000 . 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.
Provision for income taxes
The effective tax rate for the thirty-nine weeks endedOctober 30, 2022 was 22.8%, compared to 13.4% 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 third quarter of fiscal 2022, we had letters of credit outstanding of$8,905 and an unused commitment balance of$491,095 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$2,882 and$5,477 for the thirteen and thirty-nine weeks endedOctober 30, 2022 , and$1,070 and$3,275 for the thirteen and thirty-nine weeks endedOctober 31, 2021 , respectively, and is included in "Interest expense, net" in the Consolidated Statements of Comprehensive Income. For the thirty-nine weeks endedOctober 30, 2022 , andOctober 31, 2021 , respectively, the Company's weighted average effective interest rate on our total debt facilities (before capitalized interest amounts) was 9.5% and 10.3%, 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. We were in compliance with the covenants and terms of our debt agreements as ofOctober 30, 2022 and expect to remain in compliance through the end of fiscal 2022. 30
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Dividends and Share Repurchases
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 third quarter of fiscal 2022, the Company did not make any share repurchases under this program. The approximate dollar value of shares that may be repurchased under the plan as ofOctober 30, 2022 , is$74,985 . There were no dividends declared during the thirty-nine weeks endedOctober 30, 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 ofOctober 30, 2022 , the Company had cash and cash equivalents of$108,211 . 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 three 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$97,000 in the thirty-nine weeks endedOctober 30, 2022 compared to the thirty-nine weeks endedOctober 31, 2021 driven primarily by 423 more store weeks forDave & Busters , 936 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 approximately$22,300 . Investing Activities - Cash flow from investing activities primarily reflects the Main Event Acquisition for cash consideration of approximately$819,000 , which is net of cash acquired of approximately$34,000 . During the thirty-nine weeks endedOctober 30, 2022 , the Company spent approximately$114,600 for new store construction and operating improvement initiatives ($86,000 net of payments from landlords),$22,200 for game refreshment and$27,200 for maintenance capital.
During the thirty-nine weeks ended
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.
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 other than as related to the acquisition of Main Event.
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. 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. 31
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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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