Bowlero Corp

Previous wording

Bowlero Corp. is the world’s largest operator of bowling entertainment centers. The Company operates traditional bowling centers and more upscale entertainment concepts with lounge seating, arcades, enhanced food and beverage offerings, and more robust customer service for individuals and group events, as well as hosting and overseeing professional and non-professional bowling tournaments and related broadcasting.

Current wording

Bowlero Corp. is one of the world’s premier operators of location-based entertainment. The Company operates traditional bowling locations and more upscale entertainment concepts with lounge seating, arcades, enhanced food and beverage offerings, and more robust customer service for individuals and group events, as well as hosting and overseeing professional and non-professional bowling tournaments and related broadcasting.

Previous wording

The Company remains focused on creating long-term shareholder value through continued organic growth, the conversion and upgrading of centers to more upscale entertainment concepts offering a broader range of offerings, the opening of new centers and acquisitions.

Current wording

The Company remains focused on creating long-term shareholder value through continued organic growth, the conversion and upgrading of locations to more upscale entertainment concepts offering a broader range of offerings, the opening of new locations and acquisitions.

Previous wording

Bowlero’s results for the six months ended December 31, 2023 exhibited the planned fiscal year 2024 reinvestment in the business through acquisitions, new builds, and conversions. To highlight the Company’s recent activity during the six months ended December 31, 2023:

Current wording

Bowlero’s results for the nine months ended March 31, 2024 exhibited the planned fiscal year 2024 reinvestment in the business through acquisitions, new builds, and conversions. To highlight the Company’s recent activity during the nine months ended March 31, 2024:

Previous wording

•We completed and opened two new build-outs during the six months ended December 31, 2023 and have a total of seven signed agreements for build-outs in prime markets.

Current wording

•We completed and opened three new build-outs during the nine months ended March 31, 2024 and have a total of six signed agreements for build-outs in prime markets.

Previous wording

•We entered into a transaction with VICI Properties Inc. (“VICI”) relating to the transfer of land and real estate assets of 38 bowling entertainment centers for an aggregate value of $432,900 providing a source of cash liquidity to accelerate new builds, deploy capital into acquisitions and conversions, return value to shareholders, pay down debt, and for general corporate purposes.

Current wording

•We entered into a transaction with VICI Properties Inc. (“VICI”) relating to the transfer of land and real estate assets of 38 locations for an aggregate value of $432,900 providing a source of liquidity to accelerate new builds, deploy capital into acquisitions and conversions, return value to shareholders, pay down debt, and for general corporate purposes.

Previous wording

There are a number of factors that could to materially affect our future profitability, including changing economic conditions with the resulting impact on our sales, profitability, and capital spending, changes in our debt levels and applicable interest rates, and increasing prices of labor and inventory, which includes food and beverage costs. Additionally, sales and results of operations could be impacted by acquisitions and restructuring projects. Restructuring can include various projects, including closure of centers not performing well, cost reductions through staffing reductions, and optimizing and allocating resources to improve profitability.

Current wording

There are a number of factors that could materially affect our future profitability, including changing economic conditions with the resulting impact on our sales, profitability, and capital spending, changes in our debt levels and applicable interest rates, and increasing prices of labor and inventory, which includes food and beverage costs. Additionally, sales and results of operations could be impacted by acquisitions and restructuring projects. Restructuring can include various projects, including closure of locations not performing well, cost reductions through staffing reductions, and optimizing and allocating resources to improve profitability.

Previous wording

Revenues: For the quarter ended December 31, 2023, revenues totaled $305,671 and represented an increase of $32,286, or 12%, over the same period of last fiscal year. The increase in revenues is primarily attributable to revenue from newly acquired or leased centers and group event business, which was partially offset by a decrease in service fee revenue. The following table summarizes our revenues on a same-store-basis for the quarter ended December 31, 2023 as compared to the corresponding period last fiscal year:

Current wording

Revenues: For the quarter ended March 31, 2024, revenues totaled $337,670 and represented an increase of $21,945, or 7%, over the same period of last fiscal year. The increase in revenues is primarily attributable to revenue from newly acquired or leased locations and group event business, which was partially offset by a decrease in service fee revenue and a slight decrease in revenues on a same-store basis.

Previous wording

(1) Revenues from 315 centers are included in the same-store comparable center base for the comparison in the above table. In our previously filed 10-Q for the three months ended January 1, 2023, revenues from 306 centers were included in the same-store

Current wording

(1) Revenues from 322 locations are included in the same-store comparable location base for the comparison in the above table. In our previously filed 10-Q for the three months ended April 2, 2023, revenues from 310 locations were included in the same-store revenue.

Previous wording

(2) Service fee revenue is a mandatory gratuity passed through to the employee, which is a non-contributor to earnings and is being phased out across our centers.

Current wording

(2) Service fee revenue is a mandatory gratuity passed through to the employee, which is a non-contributor to earnings and is being phased out across our locations.

Previous wording

Same-store revenues includes revenue from centers that are open in periods presented (open in both the current period and the prior period being reported) and excludes revenues from centers that are not open in periods presented such as acquired new centers or centers closed for upgrades, renovations or other such reasons, as well as media revenues and service fee revenues. The increase in same-store revenues during the quarter ended December 31, 2023 reflects an increase in league and group event business, which was partially offset by a reduction in walk-in or retail business relative to the consumer environment during the same period of last fiscal year.

Current wording

Same-store revenues includes revenue from locations that are open in periods presented (open in both the current period and the prior period being reported) and excludes revenues from locations that are not open in periods presented such as acquired new locations or locations closed for upgrades, renovations or other such reasons, as well as media revenues and service fee revenues. The decrease in same-store revenues during the quarter ended March 31, 2024 reflects, among other factors, adverse weather conditions in January that led to a reduction in foot traffic, a decrease in amusement revenues, and an overall reduction in walk-in or retail business relative to the consumer environment during the same period of last fiscal year, which was partially offset by increased league and group event business.

Previous wording

Cost of Revenues: Cost of revenues increased $35,384, or 20%. Increases in costs were in most areas and include labor, supplies, repairs & maintenance, depreciation, rent, property taxes, and utilities. The increase in costs was mainly attributable to bowling center count growth from acquisitions and lease agreements since the second quarter of fiscal 2023, which contributed approximately $37,000 to cost of revenues. This was coupled with the increased sales volume and higher costs due to inflation. For instance, the increase in labor costs reflects the additional staffing and higher pay rates to support the growing business and position us for continued success in the key third quarter of the fiscal year. Furthermore, the increase in depreciation reflects the added depreciable assets through acquisitions and capital expenditures and the increase in rent primarily reflects the added operating leases from the Lucky Strike acquisition. Cost of revenues as a percent of revenues increased from 66% during the second quarter of fiscal 2023 to 70% during the second quarter of fiscal 2024, mainly due to the aforementioned costs increasing at a faster rate than revenues.

Current wording

Cost of Revenues: Cost of revenues increased $36,590, or 19%. Increases in costs were in most areas and include labor, supplies, repairs & maintenance, depreciation, rent, property taxes, and utilities. The increase in costs was mainly attributable to location count growth from acquisitions and lease agreements since the third quarter of fiscal 2023, which contributed approximately $31,000 to cost of revenues. This was coupled with the increased sales volume and higher costs due to inflation. For instance, the increase in labor costs reflects the additional staffing and higher pay rates to support the growing business. Furthermore, the increase in depreciation reflects the added depreciable assets through acquisitions and capital expenditures and the increase in rent primarily reflects the added operating leases from the Lucky Strike acquisition. Additionally, amusement costs increased as a result of a higher volume of redemption merchandise payouts as part of our effort to improve customer satisfaction. Cost of revenues as a percent of revenues increased from 60% during the third quarter of fiscal 2023 to 67% during the third quarter of fiscal 2024, mainly due to the aforementioned costs increasing at a faster rate than revenues.

Previous wording

Interest expense, net: Interest expense primarily relates to interest on debt, finance leases, and financing obligations. Interest expense increased $18,857, or 69%, to $46,236. The higher interest expense is primarily the result of higher interest rates and our increased debt, financing obligations, and finance leases as compared to the same period last fiscal year.

Current wording

Interest expense, net: Interest expense primarily relates to interest on debt, finance leases, and financing obligations. Interest expense increased $17,773, or 61%, to $46,890. The higher interest expense is primarily the result of higher interest rates and our increased debt, financing obligations, and finance leases as compared to the same period last fiscal year.

Previous wording

Change in fair value of earnouts: The unfavorable impact on the statement of operations during the quarter ended December 31, 2023 is mainly due to the increase in the fair value of the earnouts, which mainly reflects the increase in the Company’s stock price in the current quarter.

Current wording

Change in fair value of earnouts: The impact on the statement of operations during the quarter ended March 31, 2024 is due to the decrease in the fair value of the earnouts, which mainly reflects the decrease in the Company’s stock price in the current quarter.

Previous wording

Income Taxes: Income tax expense and deferred tax assets and liabilities reflect management’s assessment of the Company’s tax position. The effective tax rate of (4.3)% for the quarter ended December 31, 2023 was primarily attributed to the change in fair value of the earnout liability, permanent differences, and items associated with the VICI Transaction, which are treated as discrete tax items.

Current wording

Income Taxes: Income tax expense and deferred tax assets and liabilities reflect management’s assessment of the Company’s tax position. The effective tax rate of 27.7% for the quarter ended March 31, 2024 was primarily attributed to the change in fair value of the earnout liability, permanent differences, and items associated with the VICI Transaction, which are treated as discrete tax items.

Previous wording

Revenues: For the six months ended December 31, 2023, revenues totaled $533,076 and represented an increase of $29,431, or 6%, over the same period of last fiscal year. The increase in revenues is primarily attributable to revenue from newly acquired or leased centers and group event business, which was partially offset by a decrease in service fee revenue and a slight decrease in revenues on a same-store basis. The following table summarizes our revenues on a same-store-basis for the six months ended December 31, 2023 as compared to the corresponding period last fiscal year:

Current wording

Revenues: For the nine months ended March 31, 2024, revenues totaled $870,746 and represented an increase of $51,376, or 6%, over the same period of last fiscal year. The increase in revenues is primarily attributable to revenue from newly acquired or leased locations and group event business, which was partially offset by a decrease in service fee revenue and a slight decrease in revenues on a same-store basis.

Previous wording

(1) Revenues from 312 centers are included in the same-store comparable center base for the comparison in the above table. In our previously filed 10-Q for the six months ended January 1, 2023, revenues from 288 centers were included in the same-store

Current wording

(1) Revenues from 311 locations are included in the same-store comparable location base for the comparison in the above table. In our previously filed 10-Q for the nine months ended April 2, 2023, revenues from 288 locations were included in the same-store revenue.

Previous wording

(2) Service fee revenue is a mandatory gratuity passed through to the employee, which is a non-contributor to earnings and is being phased out across our centers.

Current wording

(2) Service fee revenue is a mandatory gratuity passed through to the employee, which is a non-contributor to earnings and is being phased out across our locations.

Previous wording

Same-store revenues includes revenue from centers that are open in periods presented (open in both the current period and the prior period being reported) and excludes revenues from centers that are not open in periods presented such as acquired new centers or centers closed for upgrades, renovations or other such reasons, as well as media revenues and service fee revenues. The decrease in same-store revenues during the six months ended December 31, 2023 reflects, among other factors, a reduction in walk-in or retail business relative to the consumer environment during the same period of last fiscal year, which was partially offset by increased league and group event business.

Current wording

Same-store revenues includes revenue from locations that are open in periods presented (open in both the current period and the prior period being reported) and excludes revenues from locations that are not open in periods presented such as acquired new locations or locations closed for upgrades, renovations or other such reasons, as well as media revenues and service fee revenues. The decrease in same-store revenues during the nine months ended March 31, 2024 reflects, among other factors, adverse weather conditions in January that led to a reduction in foot traffic, a decrease in amusement revenues, and an overall reduction in walk-in or retail business relative to the consumer environment during the same period of last fiscal year, which was partially offset by increased league and group event business.

Previous wording

Cost of Revenues: Cost of revenues increased $53,103, or 15%. Increases in costs were in most areas and include labor, supplies, repairs & maintenance, depreciation, rent, property taxes, and utilities. The increase in costs was mainly attributable to bowling center count growth from acquisitions and lease agreements since the second quarter of fiscal 2023, which contributed approximately $49,000 to cost of revenues. This was coupled with the increased sales volume and higher costs due to inflation. For instance, the increase in labor costs reflects the additional staffing and higher pay rates to support the growing business and position us for continued success in the key third quarter of the fiscal year. Furthermore, the increase in depreciation reflects the added depreciable assets through acquisitions and capital expenditures and the increase in rent primarily reflects the added operating leases from the Lucky Strike acquisition. Cost of revenues as a percent of revenues increased from 68% during the second quarter of fiscal 2023 to 75% during the second quarter of fiscal 2024, mainly due to the aforementioned costs increasing at a faster rate than revenues.

Current wording

Cost of Revenues: Cost of revenues increased $89,693, or 17%. Increases in costs were in most areas and include labor, supplies, repairs & maintenance, depreciation, rent, property taxes, and utilities. The increase in costs was mainly attributable to location count growth from acquisitions and lease agreements since the third quarter of fiscal 2023, which contributed approximately $88,000 to cost of revenues. This was coupled with the increased sales volume and higher costs due to inflation. For instance, the increase in labor costs reflects the additional staffing and higher pay rates to support the growing business. Furthermore, the increase in depreciation reflects the added depreciable assets through acquisitions and capital expenditures and the increase in rent primarily reflects the added operating leases from the Lucky Strike acquisition. Additionally, amusement costs increased as a result of a higher volume of redemption merchandise payouts as part of our effort to improve customer satisfaction. Cost of revenues as a percent of revenues increased from 65% during the third quarter of fiscal 2023 to 72% during the third quarter of fiscal 2024, mainly due to the aforementioned costs increasing at a faster rate than revenues.

Previous wording

Selling, general and administrative expenses (“SG&A”): SG&A expenses increased $8,331 or 12% mainly due to an increase in compensation and professional fees. The increase in compensation reflects the increases in pay rates and higher staffing. For instance, we have increased our event sales and operations management teams to support the growing business. The increase in professional fees is attributable to the heightened acquisition activity and scale of acquisitions as compared to the same period of last fiscal year. In addition to acquisition activity, the increase in professional fees is driven by legal costs related to advisory items. The aforementioned increases were partially offset by lower share-based compensation expense due to forfeitures.

Current wording

Selling, general and administrative expenses (“SG&A”): SG&A expenses increased $11,928 or 12%. The increase is mainly attributable to our investment in the field management and event sales teams to support the growing business, which was partially offset by reductions in corporate staff and lower share-based compensation expense due to forfeitures. There have also been increases in professional fees attributable to the heightened acquisition activity and scale of acquisitions as compared to the same period of last fiscal year. In addition to acquisition activity, the increase in professional fees is driven by legal costs related to advisory items. The increase is also attributable to the increase in revenues as compared to the same period last fiscal year. This is illustrated by the consistent percent of revenues of 13% as compared to the same period last fiscal year.

Previous wording

Other operating expense: Other operating expense increased $2,928 mainly due to the approximately $2,600 in costs associated with obtaining an equity method investment in a subsidiary of VICI.

Current wording

Other operating expense: Other operating expense increased $2,546 mainly due to the approximately $2,600 in costs associated with obtaining an equity method investment in a subsidiary of VICI.

Previous wording

Interest expense, net: Interest expense primarily relates to interest on debt, finance leases, and financing obligations. Interest expense increased $32,736, or 64%, to $83,685. The higher interest expense is primarily the result of higher interest rates and our increased debt, financing obligations, and finance leases as compared to the same period last fiscal year.

Current wording

Interest expense, net: Interest expense primarily relates to interest on debt, finance leases, and financing obligations. Interest expense increased $50,509, or 63%, to $130,575. The higher interest expense is primarily the result of higher interest rates and our increased debt, financing obligations, and finance leases as compared to the same period last fiscal year.

Previous wording

Change in fair value of earnouts: The unfavorable impact on the statement of operations during the quarter ended December 31, 2023 is mainly due to the increase in the fair value of the earnouts, which mainly reflects the increase in the Company’s stock price in the current quarter.

Current wording

Change in fair value of earnouts: The impact on the statement of operations during nine months ended March 31, 2024, is due to the increase in the fair value of the earnouts, which mainly reflects the increase in the Company’s stock price during the period.

Previous wording

Income Taxes: Income tax benefit and deferred tax assets and liabilities reflect management’s assessment of the Company’s tax position. The effective tax rate of 13.5% for the six months ended December 31, 2023 was primarily attributed to the change in fair value of the earnout liability, permanent differences, and items associated with the VICI Transaction, which are treated as discrete tax items.

Current wording

Income Taxes: Income tax benefit and deferred tax assets and liabilities reflect management’s assessment of the Company’s tax position. The effective tax rate of (10.7)% for the nine months ended March 31, 2024 was primarily attributed to the change in fair value of the earnout liability, and permanent differences, and items associated with the VICI Transaction, which are treated as discrete tax items.

Previous wording

Adjusted EBITDA is a non-GAAP financial measure that is not in accordance with, or an alternative to, measures prepared in accordance with GAAP. The Company believes certain financial measures which meet the definition of non-GAAP financial measures provide important supplemental information. The Company considers Adjusted EBITDA as an important financial measure because it provides a financial measure of the quality of the Company’s earnings. Other companies may calculate Adjusted EBITDA differently than we do, which might limit its usefulness as a comparative measure. Adjusted EBITDA is used by management in addition to and in conjunction with the results presented in accordance with GAAP. We have presented Adjusted EBITDA solely as a supplemental disclosure because we believe it allows for a more complete analysis of results of operations and assists investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance, such as Interest Expense, Income Taxes, Depreciation and Amortization, Impairment Charges, Share-based Compensation, EBITDA from Closed Centers, Foreign Currency Exchange Loss (Gain), Asset Disposition Loss (Gain), Transactional and other advisory costs, Changes in the value of earnouts, and Other. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP.

Current wording

Adjusted EBITDA is a non-GAAP financial measure that is not in accordance with, or an alternative to, measures prepared in accordance with GAAP. The Company believes certain financial measures which meet the definition of non-GAAP financial measures provide important supplemental information. The Company considers Adjusted EBITDA as an important financial measure because it provides a financial measure of the quality of the Company’s earnings. Other companies may calculate Adjusted EBITDA differently than we do, which might limit its usefulness as a comparative measure. Adjusted EBITDA is used by management in addition to and in conjunction with the results presented in accordance with GAAP. We have presented Adjusted EBITDA solely as a supplemental disclosure because we believe it allows for a more complete analysis of results of operations and assists investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance, such as Interest Expense, Income Taxes, Depreciation and Amortization, Impairment Charges, Share-based Compensation, EBITDA from Closed Locations, Foreign Currency Exchange Loss (Gain), Asset Disposition Loss (Gain), Transactional and other advisory costs, Changes in the value of earnouts, and Other. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP.

Previous wording

The following table provides a reconciliation from net (loss) income to Adjusted EBITDA for each reporting period:

Current wording

The following table provides a reconciliation from net income (loss) to Adjusted EBITDA for each reporting period:

Previous wording

(1)The closed center adjustment is to remove EBITDA for closed centers. Closed centers are those centers that are closed for a variety of reasons, including permanent closure, newly acquired or built centers prior to opening, centers closed for renovation or rebranding and conversion. If a center is not open on the last day of the reporting period, it will be considered closed for that reporting period. If the center is closed on the first day of the reporting period for permanent closure, the center will be considered closed for that reporting period.

Current wording

(1)The closed location adjustment is to remove EBITDA for closed locations. Closed locations are those locations that are closed for a variety of reasons, including permanent closure, newly acquired or built locations prior to opening, locations closed for renovation or rebranding and conversion. If a location is not open on the last day of the reporting period, it will be considered closed for that reporting period. If the location is closed on the first day of the reporting period for permanent closure, the location will be considered closed for that reporting period.

Previous wording

A core tenet of our long-term strategy is to grow the size and scale of the Company in order to improve our operating profit margins through leveraging our fixed costs. As such, one of the Company’s known cash requirements is for capital expenditures related to the construction of new centers and upgrading and converting existing centers. We believe our financial position, generation of cash, available cash-on-hand, existing credit facility, and access to potentially obtain additional financing from sale-lease-back transactions or other sources will provide sufficient capital resources to fund our operational requirements, capital expenditures, and material short and long-term commitments for the foreseeable future. We also plan to use available cash-on-hand to fund our share repurchase program, which was implemented as a method to return value to our shareholders. However, there are a number of factors that may hinder our ability to access these capital resources, including but not limited to our degree of leverage, and potential borrowing restrictions imposed by our lenders. See “Risk Factors” included in our previously filed Annual Report on Form 10-K for the fiscal year ended July 2, 2023 for further information.

Current wording

A core tenet of our long-term strategy is to grow the size and scale of the Company in order to improve our operating profit margins through leveraging our fixed costs. As such, one of the Company’s known cash requirements is for capital expenditures related to the construction of new locations and upgrading and converting existing locations. We believe our financial position, generation of cash, available cash-on-hand, existing credit facility, and access to potentially obtain additional financing from sale-lease-back transactions or other sources will provide sufficient capital resources to fund our operational requirements, capital expenditures, and material short and long-term commitments for the foreseeable future. We also plan to use available cash-on-hand to fund our share repurchase program, which was implemented as a method to return value to our shareholders. However, there are a number of factors that may hinder our ability to access these capital resources, including but not limited to our degree of leverage, and potential borrowing restrictions imposed by our lenders. See “Risk Factors” included in our previously filed Annual Report on Form 10-K for the fiscal year ended July 2, 2023 for further information.

Previous wording

At December 31, 2023, we had approximately $189,955 of available cash and cash equivalents.

Current wording

At March 31, 2024, we had approximately $212,429 of available cash and cash equivalents.

Previous wording

During six months ended December 31, 2023, net cash provided from operations totaled $71,199, as compared to $115,879 during the same period of the prior fiscal year. The decrease in cash provided by operating activities primarily reflects higher cost of revenues and an increase in interest expense.

Current wording

During nine months ended March 31, 2024, net cash provided from operations totaled $148,098, as compared to $208,802 during the same period of the prior fiscal year. The decrease in cash provided by operating activities primarily reflects higher cost of revenues and an increase in interest expense.

Previous wording

Investing activities utilized $246,666, reflecting our acquisitions and capital expenditures, as well as center conversions and related capital expenditures. The higher level of cash used in investing activities during the period mainly reflects the acquisition of Lucky Strike, which had a larger purchase price as compared to the bowling centers acquired during the same period of the prior fiscal year. We expect to continue to invest in accretive acquisitions in future periods as well as center upgrades and conversions.

Current wording

Investing activities utilized $285,960, reflecting our acquisitions and capital expenditures, as well as location conversions and related capital expenditures. The higher level of cash used in investing activities during the period mainly reflects the acquisition of Lucky Strike, which had a larger purchase price as compared to the locations acquired during the same period of the prior fiscal year. We expect to continue to invest in accretive acquisitions in future periods as well as location upgrades and conversions.

Previous wording

Financing activities generated $169,738, reflecting proceeds from our transaction with VICI of $408,510, partially offset by $218,669 for the repurchase of treasury stock through our share repurchase program.

Current wording

Financing activities generated $154,287, reflecting proceeds from our transaction with VICI of $408,510, partially offset by $219,412 for the repurchase of treasury stock through our share repurchase program.

Previous wording

Our contractual obligations primarily include, but are not limited to, debt service, self-insurance liabilities, and leasing arrangements. We believe our sources of liquidity, namely available cash on hand, positive operating cash flows, and access to capital markets will continue to be adequate to meet our contractual obligations, as well as fund working capital, planned capital expenditures, center acquisitions, and execute purchases under our share repurchase program.

Current wording

Our contractual obligations primarily include, but are not limited to, debt service, self-insurance liabilities, and leasing arrangements. We believe our sources of liquidity, namely available cash on hand, positive operating cash flows, and access to capital markets will continue to be adequate to meet our contractual obligations, as well as fund working capital, planned capital expenditures, location acquisitions, and execute purchases under our share repurchase program.