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 31, 2021 . 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 31, 2021 . In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Form 10-Q, those results or developments may not be indicative of results or developments in subsequent periods. Recent Developments OnMarch 11, 2020 , theWorld Health Organization declared the COVID-19 outbreak to be a global pandemic and onMarch 13, 2020 ,the United States declared a National Public Health Emergency. As a result, several state and local mandates were implemented that encouraged the practice of social distancing, placed restrictions from individuals gathering in groups and, in many areas, placed complete restrictions on non-essential movement outside of the home. 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 midway. ByMarch 20, 2020 , all our 137 operating stores were temporarily closed. OnApril 30, 2020 , our first store re-opened to the public, as state and local guidelines began to allow dining rooms and arcades to open at limited capacity and/or limited hours of operation. By the end of fiscal 2020, we had progressively re-opened an additional 101 stores with limited operations. The Company also opened five new stores in the second half of the fiscal year, all of which commenced construction prior to the outbreak of the COVID-19 pandemic. As of the end of fiscal 2020, 107 of our 140 stores were open and operating in limited capacity. By the end of the first quarter of fiscal 2021, only 3 stores remained closed, including one that temporarily re-closed due to a local increase in COVID-19 cases. By the end of the second quarter of fiscal 2021, all our 142 stores were open and operating, including two new stores that opened during fiscal 2021. The Company continues to be subject to risks and uncertainties as a result of the COVID-19 pandemic, particularly as a result of a new Delta variant of COVID-19, which appears to be causing an increase in COVID-19 cases. Public health officials and medical professionals have warned that a resurgence of COVID-19 cases may continue, particularly if vaccination rates do not quickly increase or if additional potent variants emerge. It is unclear how long a resurgence may last, how severe it may be, and what safety measures governments may impose in response to it. For instance, a few jurisdictions that our stores operate have recently imposed proof of vaccination requirements for our customers and team members, and many of our stores have face mask requirements. We cannot predict with certainty how quickly our customers will return to our stores once all restrictions have been lifted or the impact this will have on consumer spending habits. Additionally, in connection with the COVID-19 pandemic, there have been disruptions in various food and amusement supply chains, and we have incurred expenses to recall, hire and retain team members as our operating stores have re-opened and the majority of operating hour and capacity restrictions have been lifted. 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 name "Dave & Buster's". Founded in 1982, 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 18 -------------------------------------------------------------------------------- Table of Contents entertainment attractions centered around playing games and watching live sports and other televised events. Our brand appeals 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. Our stores, which average 40,000 square feet, range in size between 16,000 and 70,000 square feet. Our stores are generally open seven days a week, with normal hours of operation typically from11:30 a.m. to midnight on Sunday through Thursday and11:30 a.m. to 2:00 a.m. on Friday and Saturday .Key Measures of Our Performance 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 2021 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 as a result of local operating limitations. As ofAugust 1, 2021 , our comparable store base consisted of 114 stores. 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 3, 2020 andAugust 1, 2021 , we opened seven new stores (five in fiscal 2020 and two in fiscal 2021) and we permanently closed two stores at the end or near the end of their respective lease terms. 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 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. 19 -------------------------------------------------------------------------------- Table of Contents 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 2021 relate to the 13-week period endedAugust 1, 2021 . All references to the second quarter of 2020 relate to the 13-week period endedAugust 2, 2020 . Fiscal 2021 and fiscal 2020 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 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 increases 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. 20 -------------------------------------------------------------------------------- Table of Contents Thirteen Weeks EndedAugust 1, 2021 Compared to Thirteen Weeks EndedAugust 2, 2020 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 (loss). Thirteen Weeks Thirteen Weeks Ended Ended August 1, 2021 August 2, 2020 Food and beverage revenues$ 123,006 32.6 %$ 17,002 33.4 % Amusement and other revenues 254,632 67.4
33,831 66.6
Total revenues 377,638 100.0 50,833 100.0 Cost of food and beverage (as a percentage of food and beverage revenues) 33,127 26.9 4,659 27.4 Cost of amusement and other (as a percentage of amusement and other revenues) 24,584 9.7
4,025 11.9
Total cost of products 57,711 15.3 8,684 17.1 Operating payroll and benefits 80,623 21.3 13,756 27.1 Other store operating expenses 105,116 27.9 62,682 123.2 General and administrative expenses 18,470 4.9 9,278 18.3 Depreciation and amortization expense 34,875 9.2 35,160 69.2 Pre-opening costs 1,676 0.4 2,388 4.7 Total operating costs 298,471 79.0 131,948 259.6 Operating income (loss) 79,167 21.0 (81,115 ) (159.6 ) Interest expense, net 13,728 3.7 8,163 16.0 Income (loss) before provision (benefit) for income taxes 65,439 17.3 (89,278 ) (175.6 ) Provision (benefit) for income taxes 12,669 3.3 (30,676 ) (60.3 ) Net income (loss)$ 52,770 14.0 %$ (58,602 ) (115.3 )% Change in comparable store sales (1) 690.8 % (87.0 )% Company-owned stores at end of period (1) 142 137 Comparable stores at end of period (1) 114 115
(1) As of the end of the second quarter of fiscal 2020, 84 of 137 total stores
and 68 of 115 comparable stores were open and operating in limited capacity.
Our comparable store count as of the end of the second quarter of fiscal 2020
includes a store in
which the Company decided not to
re-open.
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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 (loss) to Adjusted EBITDA for the periods indicated:
Thirteen Weeks Thirteen Weeks
Ended Ended
August 1, 2021 August 2, 2020
Net income (loss) $ 52,770 14.0 % $ (58,602 ) -115.3 %
Interest expense, net 13,728 8,163
Provision (benefit) for income taxes 12,669 (30,676 )
Depreciation and amortization expense 34,875 35,160
EBITDA 114,042 30.2 % (45,955 ) -90.4 %
Loss on asset disposal 112 264
Impairment of long-lived assets and lease
termination costs - 2,178
Share-based compensation 3,187 2,734
Pre-opening
costs 1,676 2,388
Other costs (1) 135 (88 )
Adjusted EBITDA $ 119,152 31.6 % $ (38,479 ) -75.7 %
(1) Primarily represents costs related to currency transaction (gains) or losses.
Store Operating Income Before Depreciation and Amortization The following table reconciles (in dollars and as a percent of total revenues) Operating income (loss) to Store Operating Income Before Depreciation and Amortization for the periods indicated:
Thirteen Weeks Thirteen Weeks
Ended Ended
August 1, 2021 August 2, 2020
Operating income (loss) $ 79,167 21.0 % $ (81,115 ) -159.6 %
General and administrative expenses 18,470 9,278
Depreciation and amortization expense 34,875 35,160 Pre-opening costs 1,676 2,388 Store Operating Income Before Depreciation and Amortization$ 134,188 35.5 %$ (34,289 ) -67.5 % 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 August 1, 2021 August 2, 2020 New store and operating initiatives$ 12,611 $ 1,921 Games 9,443 810 Maintenance capital 6,402 838 Total capital additions$ 28,456 $ 3,569 Payments from landlords $ 2,085 $ 4,014 22
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Table of Contents Results of Operations Revenues In response to the COVID-19 outbreak, which was declared a global pandemic onMarch 11, 2020 and a National Public Health Emergency inthe United States onMarch 13, 2020 , the Company temporarily closed all of our stores byMarch 20, 2020 . OnApril 30, 2020 , our first store re-opened to the public, as state and local guidelines began to allow dining rooms and arcades to open with capacity and other restrictions, with two additional stores offering limited food and beverage for off-premises dining by the end of our first quarter of fiscal 2020. By the end of the second quarter of fiscal 2020, 84 of our 137 stores were open and operating with a combination of limited menus, reduced dining room seating, reduced games in the midway, reduced operating hours and other restrictions referred to as "limited operations". Of these 84 open stores, 68 were comparable stores. BetweenAugust 3, 2020 andAugust 1, 2021 , we opened seven new stores (five in fiscal 2020 and two in fiscal 2021) and we permanently closed two stores at the end or near the end of their respective lease terms. As ofAugust 1, 2021 , all of the Company's 142 stores were open and operating, the majority of which having no operating restrictions. Selected revenue and store data for the periods indicated are as follows: Thirteen Weeks Ended August 1, 2021 August 2, 2020 Change Total revenues$ 377,638 $ 50,833$ 326,805 Total store operating weeks 1,817 628 1,189 Comparable store revenues$ 317,882 $ 40,199$ 277,683 Comparable store operating weeks 1,458 493 965 Noncomparable store revenues $ 67,288 10,437$ 56,851 Noncomparable store operating weeks 359 135 224 Other revenues and deferrals $ (7,532 ) $
197
Total revenues increased$326,805 , or 642.9%, to$377,638 in the second quarter of fiscal 2021 compared to total revenues of$50,833 in the second quarter of fiscal 2020. The increase in revenue is attributable primarily to more store operating weeks in the second quarter of fiscal 2021 compared to the prior year as a result of temporary store closures during the second quarter of fiscal 2020, as a result of the COVID-19 pandemic. For the thirteen weeks endedAugust 1, 2021 , we derived 22.4% of our total revenue from food sales, 10.2% from beverage sales, 67.2% from amusement sales and 0.2% from other sources. For the thirteen weeks endedAugust 2, 2020 , we derived 22.2% of our total revenue from food sales, 11.2% from beverage sales, 66.6% from amusement sales and less than 0.1% from other sources. The shift in mix from food and beverage sales to amusement sales of 59 basis points is due, in part, to reduced special events, less discounting of amusements, and greater capacity restrictions in our dining area due to the impacts of the COVID-19 pandemic. Comparable store revenue increased$277,683 or 690.8%, in the second quarter of fiscal 2021 compared to the second quarter of fiscal 2020, due primarily to an 195.7% increase in comparable store operating weeks. Comparable store sales and comparable store weeks in the second quarter of fiscal 2021 were approximately 103.6% and 98.4%, respectively, of the levels achieved pre-pandemic during the second quarter of fiscal 2019. Our individual comparable stores generally experienced gradual increases in weekly sales performance as operating weeks increased. Individual store performance after re-opening was also impacted by changes in local operating restrictions and consumer reactions to changes in local COVID-19 infection rates. Food sales at comparable stores increased by$60,957 , or 678.6%, to$69,940 in the second quarter of fiscal 2021 from$8,983 in the second quarter of fiscal 2020. Beverage sales at comparable stores increased by$28,006 , or 602.2%, to$32,657 in the second quarter of fiscal 2021 from$4,651 in the 2020 comparison period. Comparable store amusement and other revenues in the second quarter of fiscal 2021 increased by$188,720 , or 710.4%, to$215,285 from$26,565 in the comparable period of fiscal 2020. Non-comparable store revenue increased$56,851 in the second quarter of fiscal 2021 compared to the second quarter of fiscal 2020, for the same reasons noted above, including 224 more store operating weeks. 23 -------------------------------------------------------------------------------- Table of Contents Cost of products The total cost of products was$57,711 for the second quarter of fiscal 2021 and$8,684 for the second quarter of fiscal 2020. The total cost of products as a percentage of total revenues decreased 180 basis points to 15.3% for the second quarter of fiscal 2021 compared to 17.1% for the second quarter of fiscal 2020. Cost of food and beverage products increased to$33,127 compared to$4,659 for the second quarter of fiscal 2020. Cost of food and beverage products, as a percentage of food and beverage revenues, decreased 50 basis points to 26.9% for the second quarter of fiscal 2021 from 27.4% for the second quarter of fiscal 2020. The impact of year-over-year cost increases in food and beverage products and the absence of COVID-19 related vendor payment concessions in the same period of the prior year were partially offset by lower closure-related spoilage costs. Cost of amusement and other increased to$24,584 in the second quarter of fiscal 2021 compared to$4,025 in the second quarter of fiscal 2020. The costs of amusement and other, as a percentage of amusement and other revenues, decreased 220 basis points to 9.7% for the second quarter of fiscal 2021 from 11.9% in the second quarter of fiscal 2020. This decrease was driven primarily by lower ticket redemption activity as a percent of tickets issued in the second quarter of fiscal 2021. Operating payroll and benefits Total operating payroll and benefits increased by$66,867 , or 486.1%, to$80,623 in the second quarter of fiscal 2021 compared to$13,756 in the second quarter of fiscal 2020. Nearly all of our store workforce, with the exception of a small team of essential personnel, were furloughed inmid-March 2020 . Hourly team members began to return as stores re-opened at reduced staffing levels. The total cost of operating payroll and benefits as a percentage of total revenues was 21.3% in the second quarter of fiscal 2021 compared to 27.1% in the second quarter of fiscal 2020. This decrease is primarily due to favorable leveraging on management labor and benefits and lower labor hours as a result of labor efficiency initiatives and hourly labor staffing shortages, partially offset by increases in the hourly wage rates and higher incentive compensation, including referral and retention incentives implemented during the second quarter of fiscal 2021. Other store operating expenses Other store operating expenses increased by$42,434 , or 67.7%, to$105,116 in the second quarter of fiscal 2021 compared to$62,682 in the second quarter of fiscal 2020. The increase is primarily due to the impact of increased store weeks during the second quarter of fiscal 2021 on costs such as utilities, supplies, maintenance, and other services as well as a significant increase in marketing spend to align with the launch of its Summer of Games initiatives. Other store operating expense as a percentage of total revenues decreased to 27.9% in the second quarter of fiscal 2021 compared to 123.2% in the second quarter of fiscal 2020. This decrease was due primarily to favorable sales leveraging on occupancy costs and utilities and the absence of$1,178 in net charges for asset impairment and business interruption proceeds that were recorded in the second quarter of fiscal 2020. General and administrative expenses General and administrative expenses increased by$9,192 , or 99.1%, to$18,470 in the second quarter of fiscal 2021 compared to$9,278 in the second quarter of fiscal 2020. The increase in general and administrative expenses was driven primarily by higher incentive compensation, professional fees, salaries and benefits, board fees, and officer insurance. During the second quarter of fiscal 2020, most of our corporate team members remained furloughed, with reduced pay and benefits for the remaining team members through the first seven weeks of the quarter, and board fees were suspended. Depreciation and amortization expense Depreciation and amortization expense decreased by$285 or 0.8%, to$34,875 in the second quarter of fiscal 2021 compared to$35,160 in the second quarter of fiscal 2020. Increased depreciation due to our 2021 and 2020 capital expenditures for new stores, operating initiatives, games and maintenance capital, was offset by other assets reaching the end of their depreciable lives. Pre-opening costs Pre-opening costs decreased by$712 to$1,676 in the second quarter of fiscal 2021 compared to$2,388 in the second quarter of fiscal 2020 due to a decrease in the number of planned new store openings after construction was reduced as a result of impacts of the COVID-19 pandemic which began during the first quarter of fiscal 2020. 24 -------------------------------------------------------------------------------- Table of Contents Interest expense, net Interest expense, net increased by$5,565 to$13,728 in the second quarter of fiscal 2021 compared to$8,163 in the second quarter of fiscal 2020 due primarily to an increase in the weighted average effective interest rate, offset slightly by a decrease in average outstanding debt. Provision (benefit) for income taxes The effective tax rate for the second quarter of fiscal 2021 was 19.4%, compared to a benefit of 34.4% for the second quarter of fiscal 2020. The current quarter tax provision includes higher excess tax benefits associated with share-based compensation while the prior quarter tax provision was a tax benefit primarily due to the impact of the pre-tax loss and the impact of the tax provisions within the CARES Act. Twenty-Six Weeks EndedAugust 1, 2021 Compared to Twenty-Six Weeks EndedAugust 2, 2020 Results of operations. The following table sets forth selected data, in thousands of dollars and as a percentage of total revenues (unless otherwise noted) for the periods indicated. All information is derived from the accompanying unaudited consolidated statements of comprehensive income (loss). Twenty-Six Twenty-Six Weeks Weeks Ended Ended August 1, 2021 August 2, 2020 Food and beverage revenues$ 208,764 32.5 %$ 80,922 38.4 % Amusement and other revenues 434,214 67.5
129,717 61.6
Total revenues 642,978 100.0 210,639 100.0 Cost of food and beverage (as a percentage of food and beverage revenues) 56,284 27.0 22,003 27.2 Cost of amusement and other (as a percentage of amusement and other revenues) 41,198 9.5
14,753 11.4
Total cost of products 97,482 15.2 36,756 17.4 Operating payroll and benefits 130,902 20.4 57,493 27.3 Other store operating expenses 189,561 29.4 158,354 75.3 General and administrative expenses 35,561 5.5 23,841 11.3 Depreciation and amortization expense 69,974 10.9 70,512 33.5 Pre-opening costs 3,335 0.5 6,211 2.9 Total operating costs 526,815 81.9 353,167 167.7 Operating income (loss) 116,163 18.1 (142,528 ) (67.7 ) Interest expense, net 28,548 4.5 14,278 6.7 Income (loss) before provision (benefit) for income taxes 87,615 13.6 (156,806 ) (74.4 ) Provision (benefit) for income taxes 15,210 2.3 (54,660 ) (25.9 ) Net income (loss)$ 72,405 11.3 %$ (102,146 ) (48.5 )% Change in comparable store sales (1) 199.1 % (72.2 )% Company-owned stores at end of period (1) 142 137 Comparable stores at end of period (1) 114 115
(1) As of the end of the second quarter of fiscal 2020, 84 of 137 total stores
and 68 of 115 comparable stores were open and operating in limited capacity.
Our comparable store count as of the end of the second quarter of fiscal 2020
includes a store in
which the Company decided not to
re-open.
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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 (loss) to Adjusted EBITDA for the periods indicated:
Twenty-Six Twenty-Six
Weeks Weeks
Ended Ended
August 1, 2021 August 2, 2020
Net income (loss) $ 72,405 11.3 % $ (102,146 ) -48.5 %
Interest expense, net 28,548 14,278
Provision (benefit) for income taxes 15,210 (54,660 )
Depreciation and amortization expense 69,974 70,512
EBITDA 186,137 28.9 % (72,016 ) -34.2 %
Loss on asset disposal 257 417
Impairment of long-lived assets and lease
termination costs - 13,727
Share-based compensation 6,158 2,345
Pre-opening
costs 3,335 6,211
Other costs (1) (30 ) 59
Adjusted EBITDA $ 195,857 30.5 % $ (49,257 ) -23.4 %
(1) Primarily represents costs related to currency transaction (gains) or losses.
Store Operating Income Before Depreciation and Amortization The following table reconciles (in dollars and as a percent of total revenues) Operating income (loss) to Store Operating Income Before Depreciation and Amortization for the periods indicated:
Twenty-Six Twenty-Six
Weeks Weeks
Ended Ended
August 1, 2021 August 2, 2020
Operating income (loss) $ 116,163 18.1 % $ (142,528 ) -67.7 %
General and administrative expenses 35,561 23,841
Depreciation and amortization expense 69,974 70,512 Pre-opening costs 3,335 6,211 Store Operating Income Before Depreciation and Amortization$ 225,033 35.0 %$ (41,964) -19.9 % 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"). Twenty-Six Weeks Twenty-Six Weeks Ended Ended August 1, 2021 August 2, 2020 New store and operating initiatives $ 19,756 $ 40,522 Games 12,614 8,718 Maintenance capital 8,290 1,780 Total capital additions $ 40,660 $ 51,020 Payments from landlords $ 2,085 $ 4,014 26
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Table of Contents
Results of Operations
Revenues
Selected revenue and store data for the periods indicated are as follows:
Twenty-Six
Weeks Ended
August 1, August 2,
2021 2020 Change
Total revenues $ 642,978 $ 210,639 $ 432,339
Total store operating weeks 3,450 1,461 1,989
Comparable store revenues $ 534,827 $ 178,835 $ 355,992
Comparable store operating weeks 2,761 1,190 1,571
Noncomparable store revenues
271 418
Other revenues and deferrals
Total revenues increased$432,339 , or 205.3%, to$642,978 in the twenty-six weeks endedAugust 1, 2021 compared to total revenues of$210,639 in the comparable period of fiscal 2020. The increase in revenue is attributable primarily to more store operating weeks in the twenty-six weeks endedAugust 1, 2021 compared to the prior year which was impacted by more temporary store closures and store capacity limitations due to the COVID-19 pandemic. For the twenty-six weeks endedAugust 1, 2021 , we derived 22.3% of our total revenue from food sales, 10.2% from beverage sales, 67.3% from amusement sales and 0.2% from other sources. For the twenty-six weeks endedAugust 2, 2020 , we derived 25.3% of our total revenue from food sales, 13.1% from beverage sales, 61.1% from amusement sales and 0.5% from other sources. The shift in mix from food and beverage sales to amusement sales of 627 basis points is due, in part, to reduced special events, less discounting of amusements, and greater capacity restrictions in our dining area due to the impacts of the COVID-19 pandemic. Comparable store revenue increased$355,992 or 199.1%, in the twenty-six weeks endedAugust 1, 2021 compared to the comparable period of fiscal 2020, due primarily to a 132.0% increase in comparable store operating weeks. Comparable store sales and comparable store weeks in the twenty-six weeks endedAugust 1, 2021 were approximately 83.3% and 93.2%, respectively, of the levels achieved pre-pandemic during the twenty-six weeks endedAugust 4, 2019 . Our individual comparable stores generally experienced gradual increases in weekly sales performance as operating weeks increased. Individual store performance after re-opening was impacted by changes in local operating restrictions and consumer reactions to changes in local COVID-19 infection rates. Food sales at comparable stores increased by$72,061 , or 160.7%, to$116,896 in the twenty-six weeks endedAugust 1, 2021 from$44,835 in the comparable period of fiscal 2020. Beverage sales at comparable stores increased by$30,838 , or 130.9%, to$54,389 in the twenty-six weeks endedAugust 1, 2021 from$23,551 in the 2020 comparison period. Comparable store amusement and other revenues in the twenty-six weeks endedAugust 1, 2021 increased by$253,093 , or 229.1%, to$363,542 from$110,449 in the comparable twenty-six weeks of fiscal 2020. Non-comparable store revenue increased$89,576 in the twenty-six weeks endedAugust 1, 2021 compared to the comparable period of fiscal 2020, for the same reasons noted above, including 418 more store operating weeks. Cost of products The total cost of products was$97,482 for the twenty-six weeks endedAugust 1, 2021 and$36,756 for the comparable period of fiscal 2020. The total cost of products as a percentage of total revenues decreased 220 basis points to 15.2% for the twenty-six weeks endedAugust 1, 2021 compared to 17.4% for the comparable period of fiscal 2020. Cost of food and beverage products increased to$56,284 compared to$22,003 for the twenty-six weeks endedAugust 1, 2021 . Cost of food and beverage products, as a percentage of food and beverage revenues, decreased 20 basis points to 27.0% for the twenty-six weeks endedAugust 1, 2021 from 27.2% for the comparable period of fiscal 2020. The impact of year-over-year cost increases in food and beverage products and the absence of COVID-19 related vendor payment concessions in the same period of the prior year were partially offset by lower closure-related spoilage costs. 27 -------------------------------------------------------------------------------- Table of Contents Cost of amusement and other increased to$41,198 in the twenty-six weeks endedAugust 1, 2021 compared to$14,753 in the comparable period of fiscal 2020. The costs of amusement and other, as a percentage of amusement and other revenues, decreased 190 basis points to 9.5% for the twenty-six weeks endedAugust 1, 2021 from 11.4% in the comparable period of fiscal 2020. This decrease was driven primarily by lower ticket redemption activity as a percent of tickets issued in the twenty-six weeks endedAugust 1, 2021 . Operating payroll and benefits Total operating payroll and benefits increased by$73,409 , or 127.7%, to$130,902 in the twenty-six weeks endedAugust 1, 2021 compared to$57,493 in the twenty-six weeks endedAugust 2, 2020 . Nearly all our store workforce, with the exception of a small team of essential personnel, were furloughed inmid-March 2020 . Hourly team members began to return as stores re-opened at reduced staffing levels. The total cost of operating payroll and benefits as a percentage of total revenues was 20.4% in the twenty-six weeks endedAugust 1, 2021 compared to 27.3% in the twenty-six weeks endedAugust 2, 2020 . This decrease is primarily due to favorable leveraging on management labor and benefits and lower labor hours as a result of labor efficiency initiatives and hourly labor staffing shortages, partially offset by increases in the hourly wage rates and higher incentive compensation, including referral and retention incentives implemented during the second quarter of fiscal 2021. Other store operating expenses Other store operating expenses increased by$31,207 , or 19.7%, to$189,561 in the twenty-six weeks endedAugust 1, 2021 compared to$158,354 in the twenty-six weeks endedAugust 2, 2020 . The increase is primarily due to the impact of increased store weeks during the twenty-six weeks endedAugust 1, 2021 on costs such as utilities, supplies, maintenance, and other services as well as a significant increase in marketing spend to align with the launch of its Summer of Games initiatives. These increases were offset somewhat by a$13,727 charge for impairment of long-lived assets and lease termination costs incurred during the twenty-six weeks endedAugust 2, 2020 . Other store operating expense as a percentage of total revenues decreased to 29.4% in the twenty-six weeks endedAugust 1, 2021 compared to 75.3% in the twenty-six weeks endedAugust 2, 2020 . This decrease was due primarily to favorable sales leveraging on occupancy costs and utilities and the absence of any impairment charges in fiscal 2021. General and administrative expenses General and administrative expenses increased by$11,720 , or 49.2%, to$35,561 in the twenty-six weeks endedAugust 1, 2021 compared to$23,841 in the twenty-six weeks endedAugust 2, 2020 . The increase in general and administrative expenses was driven primarily by higher incentive compensation, salaries and benefits, share-based compensation, board fees and officer insurance, offset somewhat by lower professional fees. During the first twenty-six weeks of fiscal 2020, most of our corporate team members were furloughed, with reduced pay and benefits for the remaining team members for a twelve-week period, and board fees were suspended. Share-based compensation was also lower during that same time period due to changes in performance stock unit expense. Depreciation and amortization expense Depreciation and amortization expense decreased by$538 or 0.8%, to$69,974 in the twenty-six weeks endedAugust 1, 2021 compared to$70,512 in the twenty-six weeks endedAugust 2, 2020 . Increased depreciation due to our 2021 and 2020 capital expenditures for new stores, operating initiatives, games and maintenance capital, was offset by other assets reaching the end of their depreciable lives. Pre-opening costs Pre-opening costs decreased by$2,876 to$3,335 in the twenty-six weeks endedAugust 1, 2021 compared to$6,211 in the twenty-six weeks endedAugust 2, 2020 due to a decrease in the number of planned new store openings after construction was reduced as a result of impacts of the COVID-19 pandemic which began during the first quarter of fiscal 2020. Interest expense, net Interest expense, net increased by$14,270 to$28,548 in the twenty-six weeks endedAugust 1, 2021 compared to$14,278 in the twenty-six weeks endedAugust 2, 2020 due primarily to an increase in the weighted average effective interest rate, offset slightly by a decrease in average outstanding debt. 28 -------------------------------------------------------------------------------- Table of Contents Provision (benefit) for income taxes The effective tax rate for the twenty-six weeks endedAugust 1, 2021 , was 17.4%, compared to a benefit of 34.9% for the twenty-six weeks endedAugust 2, 2020 . The current year tax provision includes higher excess tax benefits associated with share-based compensation while the prior year was a tax benefit primarily due to the impact of the pre-tax loss and the impact of the tax provisions within the CARES Act. Liquidity and Capital Resources In response to the business disruption caused by the COVID-19 pandemic which began in the first quarter of fiscal 2020, the Company took the following actions to enable it to meet its obligations over the next twelve months: • reduced expenses broadly and canceled or delayed all non-essential planned capital spending and halted or delayed planned store openings, except stores that commenced construction prior to the COVID-19 pandemic;
• indefinitely suspended cash dividends and allowed our share repurchase
program to expire;
• sold shares of our common stock, generating gross proceeds of $185,600 ;
• negotiated two amendments with our lenders, resulting in an extension
of the maturity date of our revolving credit facility to August 17,
2024 and relief from testing compliance with certain financial
covenants until the last day of the fiscal quarter ending on May 1,
2022 ;
• issued
• negotiated with our landlords, vendors, and other business partners to
temporarily reduce our lease and contract payments and obtain other
concessions. During fiscal 2020, a total of 126 initial rent relief
agreements related to our operating locations and corporate
headquarters were initially executed, which generally provide for full
deferral for three months beginning April 2020 , with partial deferral
continuing for periods of up to six months, at approximately 50% of
those locations. As the
COVID-19
pandemic continued to impact our business into the fourthquarter, the
Company renewed negotiations with the majority of theselandlords in
order to provide additional rent relief, generally seeking to push out
or extend the terms of deferral pay back periods and/orprovide rent
relief beyond the periods in the initial agreements. As of the end of
the second quarter of fiscal 2021, the Company had executed 97 of
these additional rent relief agreements.
Although uncertainty persists surrounding
COVID-19,
particularly as a result of a new Delta variant of
COVID-19,
including the potential that a resurgence of
COVID-19
cases may continue, how long such a resurgence may last, how severe it may be,
and what safety measures governments may impose in response to it, as well as
how quickly customers will return to our stores, the Company has taken measures
to provide sufficient liquidity to meet estimated cash flow needs and covenant
compliance obligations for at least the next twelve months. All the Company's
stores were open and operating as of the end of the second quarter of fiscal
2021, and as of August 1, 2021 , the Company had cash and cash equivalents of
$107,801 . We expect to spend between $95,000 and $100,000 , net of payments from
landlords in capital additions during fiscal 2021. On an ongoing basis, we will
continue to pursue long-term operating efficiencies and other cost savings
initiatives.
The Company is also taking measures to strengthen its financial position.
Subsequent to the end of our second quarter, the Company notified the trustee of
the Notes that it intends to redeem $55,000 outstanding principal amount of the
Notes. The redemption is expected to take place prior to the end of the
Company's third quarter which ends on October 31, 2021 . In connection with the
early redemption of the Notes, the Company will pay a prepayment premium of
$1,650 , plus accrued and unpaid interest to the date of redemption, pursuant to
the terms of the indenture governing the Notes. The early redemption is expected
to save approximately $17,000 of net cash interest over the remaining life of
the Notes.
Debt and Derivatives
Effective April 14, 2020 , we amended our existing credit facility, to provide
relief from compliance with financial covenants through the third quarter of
fiscal 2020. The interest rate spread increased to 2.00% plus a LIBOR floor of
1.00%.
On October 27, 2020 , the Company issued $550,000 aggregate principal amount of
7.625% senior secured notes (the "Notes"). Interest on the Notes accrues from
October 27, 2020 and is payable in arrears on November 1 and May 1 of each year,
commencing on May 1, 2021 . The Notes mature on November 1, 2025 , unless earlier
redeemed, and are subject to the terms and conditions set forth in the related
indenture. Prior to November 1, 2022 , but not more than once during any
twelve-month period commencing with the issue date of the Notes, the Company may
redeem up to 10% of the original principal amount of the Notes at a redemption
price of 103% of the principal amount, plus accrued and unpaid interest, at the
redemption date. After November 1, 2022 , the Company may redeem the Notes, in
whole or in part, at certain specified redemption prices, plus accrued and
unpaid interest, at the redemption date. The Notes were issued by Dave &
Buster's, Inc. and are unconditionally guaranteed by Dave & Buster's Holdings,
Inc. and certain of Dave & Buster's , Inc. existing and future wholly owned
material domestic subsidiaries, which is substantially the same as the
guarantors of the Company's existing credit facility.
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Concurrent and subject to the issuance of the Notes, the Company entered into a
second amendment to its existing credit facility, which included relief from
testing compliance with certain financial covenants until the last day of the
fiscal quarter ending on May 1, 2022 . During the financial covenant suspension
period the Company is required to maintain a minimum liquidity (primarily
availability under the credit facility) of $150,000 . The second amendment
extended the maturity date of the $500,000 revolving portion of the facility
from August 17, 2022 to August 17, 2024 , increased the interest rate spread to
4.00% during the financial covenant suspension period, and instituted a 1.00%
utilization fee during that same time period. The utilization fee is due at
maturity. The financial covenant suspension period may end earlier, at the
Company's election, if certain predetermined financial covenant ratios are
achieved. After the financial covenant suspension period, the interest rate
spread ranges from 1.25% to 3.00%. The second amendment terminated the term loan
portion of the credit facility, which triggered payment of $1,900 of lender debt
costs associated with the first amendment.
The Company used the proceeds of the Notes offering, along with cash on hand, to
repay the $255,000 principal balance of the term loan facility, $463,000 of
borrowings under the revolving credit facility, and related accrued interest.
The Company incurred debt issuance costs of $18,300 , which are being amortized
over the terms of the respective Notes and revolving credit facility. The
Company also recorded a loss of $904 related to the unamortized debt costs
associated with the term portion of the credit facility.
For the
twenty-six
weeks ended August 1, 2021 and August 2, 2020 , the Company's weighted average
interest rate on outstanding borrowings was 10.17% and 3.98%, respectively. The
rate has increased due to the issuance of the Notes and the second amendment to
the credit facility. As of August 1, 2021 , we had letters of credit outstanding
of $10,486 and an unused commitment balance of $489,514 under the revolving
credit facility.
Our credit facility and Notes 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.
During fiscal 2019, we entered into interest rate swap agreements to manage our
exposure to fluctuations in interest rates on our variable rate credit facility.
Our swap agreements with our derivative counterparties contain a provision where
if the Company defaults on any of its indebtedness and repayment of the
indebtedness has been accelerated, the Company could also be declared in default
on its derivative obligations. Refer to Note 1 of the Consolidated Financial
Statements for further discussion of our swap agreements, which were
de-designated
as hedges effective April 14, 2020 , the date of the first amendment to our
credit facility.
Dividends and Share Repurchases
As a result of the impacts to our business arising from the
COVID-19
pandemic, dividend payments have been indefinitely suspended, and the previously
established share repurchase program was allowed to expire at the end of fiscal
2020.
Cash Flow Summary
As of August 1, 2021 , the Company had cash and cash equivalents of $107,801 .
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 $211,592 in the
twenty-six
weeks ended August 1, 2021 compared to the
twenty-six
weeks ended August 2, 2020 driven primarily by the impact of approximately 1,989
more store weeks.
Investing Activities
- Cash flow from investing activities primarily reflects capital expenditures.
During the
twenty-six
weeks ended August 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.
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During the
twenty-six
weeks ended August 2, 2020 , the Company spent approximately $48,800 for new
store construction and operating improvement initiatives ($44,800 net of
payments from landlords), $8,600 for game refreshment and $6,100 for maintenance
capital.
Financing Activities
- During the
twenty-six
weeks ended August 1, 2021 , the Company had net repayments of $60,000 of its
revolving credit facility. During the
twenty-six
weeks ended August 2, 2020 , the Company received $99,500 of net proceeds from
borrowings of debt and approximately $182,200 of net proceeds from the issuance
of shares of our common stock.
Contractual Obligations and Commitments
There have been no material changes outside the ordinary course of business to
our contractual obligations since January 31, 2021 , as reported on
Form10-K
filed with the SEC on March 31, 2021 .
Accounting policies and estimates
The preparation of financial statements in conformity with GAAP requires us to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenue and expenses, and disclosures of contingent assets and
liabilities. These estimates and assumptions affect amounts of assets,
liabilities, revenues and expenses and the disclosure of gain and loss
contingencies at the date of the consolidated financial statements. Our current
estimates are subject to change if different assumptions as to the outcome of
future events were made. We evaluate our estimates and judgments on an ongoing
basis, and we adjust our assumptions and judgments when facts and circumstances
dictate. Since future events and their effects cannot be determined with
absolute certainty, actual results may differ from the estimates we used in
preparing the accompanying consolidated financial statements. A complete
description of our critical accounting policies and estimates is included in our
annual consolidated financial statements and the related notes in our Annual
Report on Form
10-K
filed with the SEC on March 31, 2021 .
Recent accounting pronouncements
Refer to Note 1 to the Unaudited Consolidated Financial Statements for
information regarding new accounting pronouncements.
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