Lucky Strike Entertainment Corp

Previous wording

This discussion should be read in conjunction with Bowlero Corp.’s unaudited condensed 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 for the fiscal year ended June 30, 2024 as filed with the Securities and Exchange Commission (“SEC”) on September 5, 2024. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024. Actual results may differ materially from those contained in any forward-looking statements. All period references are to our fiscal periods unless otherwise indicated. Unless the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “we,” “us,” “our,” the “Company,” and “Bowlero” are intended to mean the business and operations of Bowlero Corp. and its consolidated subsidiaries. All financial information in this section is presented in thousands, unless otherwise noted, except share and per share amounts.

Current wording

This discussion should be read in conjunction with Lucky Strikes Entertainment’s unaudited condensed 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 for the fiscal year ended June 30, 2024 as filed with the Securities and Exchange Commission (“SEC”) on September 5, 2024. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024. Actual results may differ materially from those contained in any forward-looking statements. All period references are to our fiscal periods unless otherwise indicated. Unless the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “we,” “us,” “our,” the “Company,” and “Lucky Strike” are intended to mean the business and operations of Lucky Strike Entertainment and its consolidated subsidiaries. All financial information in this section is presented in thousands, unless otherwise noted, except share and per share amounts.

Previous wording

This Quarterly Report on Form 10-Q contains forward-looking statements regarding, among other things, the plans, strategies and prospects, both business and financial of Bowlero. These statements are based on the beliefs and assumptions of our management. Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you that it will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Generally, statements that are not historical facts, including statements concerning possible or assumed future actions, business strategies, events or results of operations, are forward-looking statements. The words “anticipates,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predicts,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, statements about our business strategy, financial projections, anticipated growth and market opportunities.

Current wording

This Quarterly Report on Form 10-Q contains forward-looking statements regarding, among other things, the plans, strategies and prospects, both business and financial of Lucky Strike. These statements are based on the beliefs and assumptions of our management. Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you that it will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Generally, statements that are not historical facts, including statements concerning possible or assumed future actions, business strategies, events or results of operations, are forward-looking statements. The words “anticipates,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predicts,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, statements about our business strategy, financial projections, anticipated growth and market opportunities.

Previous 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. The Company also operates other forms of location-based entertainment, such as Octane Raceway and Raging Waves water park.

Current wording

Lucky Strike Entertainment 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. The Company also operates other forms of location-based entertainment, such as Octane Raceway, Raging Waves water park, and Boomers Parks (inclusive of Big Kahuna’s water park).

Previous wording

Bowlero’s results for the three months ended September 29, 2024 exhibited the expected total revenue growth and shift of focus to internal initiatives while also increasing liquidity in anticipation of what we believe will be an increased acquisition environment during the 2025 fiscal year to further diversify our location based entertainment offerings. To highlight the Company’s recent activity during the three months ended September 29, 2024:

Current wording

Lucky Strike’s results for the six months ended December 29, 2024 exhibited the expected total revenue growth and shift of focus to internal initiatives while also increasing liquidity in anticipation of what we believe will be an increased acquisition environment during the 2025 fiscal year to further diversify our location based entertainment offerings. To highlight the Company’s recent activity during the six months ended December 29, 2024:

Previous wording

•We reported total revenue growth of 14%, which was propelled by our successful Summer Pass promotion.

Current wording

•We reported total revenue growth of 5% despite an unfavorable calendar shift.

Previous wording

Our operating results fluctuate seasonally. We typically generate our highest sales volumes during the third quarter of each fiscal year due to the timing of leagues, holidays and changing weather conditions. School operating schedules, holidays and weather conditions may also affect our sales volumes in some operating regions differently than others. Because of the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be achieved for our full fiscal year.

Current wording

Our operating results fluctuate seasonally and may also be affected by calendar shifts of holiday or seasonal periods. We typically generate our highest sales volumes during the third quarter of each fiscal year due to the timing of leagues, holidays and changing weather conditions. School operating schedules, holidays and weather conditions may also affect our sales volumes in some operating regions differently than others. Because of the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be achieved for our full fiscal year.

Previous wording

Analysis of Consolidated Statement of Operations. The following table displays certain items from our condensed consolidated statements of operations for the quarters presented below:

Current wording

Analysis of Consolidated Statement of Operations. The following table displays certain items from our condensed consolidated statements of operations for the periods presented below:

Previous wording

Revenues: For the quarter ended September 29, 2024, revenues totaled $260,195 and represented an increase of $32,790, or 14%, over the same period of last fiscal year. The increase in revenues is primarily attributable to revenue from newly acquired or leased locations and a slight increase in revenues on a same-store basis, which was slightly offset by a decrease in service fee revenue.

Current wording

Revenues: For the quarter ended December 29, 2024, revenues totaled $300,074 and represented a slight decrease of $5,597, or 2%, over the same period of last fiscal year. The slight decrease in revenues is primarily attributable to a decline in revenues on a same-store basis, which was partially offset by an increase in revenue from newly acquired or leased locations.

Previous 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 slight increase in same-store revenues during the quarter ended September 29, 2024 was primarily attributable to the strong consumer response to our Summer Pass offering, which also contributed to increased Food & beverage and Amusement & other revenue.

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 December 29, 2024 was primarily attributable to a reduction in group events business relative to the consumer environment during the same period of last fiscal year. In addition, revenues on a same-store basis were impacted by an unfavorable calendar shift.

Previous wording

Location food & beverage costs: Location food & beverage costs increased $3,845, or 23%. The increase in location food & beverage costs is mainly attributable to increased sales volume. Location food & beverage costs as a percent of revenues increased from 7% during the first quarter of fiscal 2024 to 8% during the first quarter of fiscal 2025, due to the rollout of our new premium food and beverage options at our locations and an overall increase in food prices due to inflation.

Current wording

Location food & beverage costs: Location food & beverage costs decreased $695, or 3%. The decrease in location food & beverage costs is mainly attributable to decreased food & beverage revenue as compared to the second quarter of fiscal 2024.

Previous wording

Selling, general and administrative expenses (“SG&A”): SG&A expenses decreased $3,313 or 9%. The decrease is mainly attributable to a decrease in professional fees, which was partially offset by an increase in share-based compensation expense. The decrease in professional fees is mainly attributable to less acquisition activity as compared to the first quarter of fiscal 2024. The increase in share-based compensation expense is mainly attributable to less forfeiture activity as compared to the first quarter of fiscal 2024 coupled with other stock-based awards granted during the first quarter of fiscal 2025.

Current wording

Selling, general and administrative expenses (“SG&A”): SG&A expenses decreased $1,451 or 4%. The decrease is mainly attributable to a decrease in professional fees, which was partially offset by an increase in share-based compensation expense. The decrease in professional fees is mainly attributable to less acquisition activity as compared to the second quarter of fiscal 2024 and cost management initiatives at corporate. The cost management initiatives at corporate have also resulted in decreased payroll expense as compared to the same period of the prior fiscal year. The increase in share-based compensation expense is mainly attributable to less forfeiture activity as compared to the second quarter of fiscal 2024 coupled with an increase in share-based awards granted during the second quarter of fiscal 2025.

Previous wording

Depreciation and amortization: Depreciation and amortization increased $5,631 or 18%. The increase in depreciation and amortization reflects the added depreciable assets, finite-lived intangible assets, and finance leases through acquisitions and capital expenditures since the first quarter of fiscal 2024.

Current wording

Depreciation and amortization: Depreciation and amortization increased $2,047 or 6%. The increase in depreciation and amortization reflects the added depreciable assets, finite-lived intangible assets, and finance leases through acquisitions and capital expenditures.

Previous wording

Interest expense, net: Interest expense primarily relates to interest on debt, finance leases, and financing obligations. Interest expense increased $11,221, or 30%, to $48,670. The higher interest expense is primarily the result of an added financing obligation since the first quarter of fiscal 2024.

Current wording

Interest expense, net: Interest expense primarily relates to interest on debt, finance leases, and financing obligations. Interest expense increased $2,559, or 6%. The higher interest expense is primarily the result of an added financing obligation within the second quarter of fiscal 2024 coupled with lower interest income as compared to the second quarter of fiscal 2024.

Previous wording

(1) Revenues from 327 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 October 1, 2023, revenues from 312 locations were included in the same-store revenue.

Current wording

(1) Revenues from 327 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 six months ended December 31, 2023, revenues from 312 locations were included in the same-store revenue.

Previous wording

Location operating costs increased $12,855, or 18%. Increases in costs were in most areas and include supplies, repairs & maintenance, rent, property taxes, and utilities. The increase in costs was mainly attributable to location count growth from acquisitions and lease agreements since late first quarter of fiscal 2024. For instance, the increase in rent primarily reflects the added operating leases from the Lucky Strike acquisition, which was a late first quarter of fiscal 2024 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. Location operating costs as a percent of revenues increased from 32% during the first quarter of fiscal 2024 to 33% during the first quarter of fiscal 2025, mainly due to the aforementioned costs increasing at a faster rate than revenues.

Current wording

Location operating costs: Location operating costs increased $16,712, or 11%. Increases in costs were in most areas and include amusement costs, advertising, rent, property taxes, and utilities. The increase in costs was mainly attributable to location count growth from acquisitions and lease agreements. For instance, Raging Waves water park and Boomers Parks location operating costs contributed $6,300 to the increase. The increase in costs were partially offset by cost management initiatives with reductions noted in supplies and repairs and maintenance. Location operating costs as a percent of revenues increased from 29% during the second quarter of fiscal 2024 to 30% during the second quarter of fiscal 2025, mainly due to the aforementioned location count growth and fixed costs.

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 75% for the quarter ended September 29, 2024 was primarily attributed to the change in fair value of the earnout liability, permanent differences, and other 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 (70)% for six months ended December 29, 2024 was primarily attributed to the change in fair value of the earnout liability, permanent differences, and other discrete tax items.

Previous wording

At September 29, 2024, we had approximately $38,448 of available cash and cash equivalents.

Current wording

At December 29, 2024, we had approximately $80,755 of available cash and cash equivalents.

Previous wording

During three months ended September 29, 2024, net cash provided from operations totaled $29,413, as compared to $16,083 during the same period of the prior fiscal year. The increase in cash provided by operating activities primarily reflects higher revenues coupled with the timing of cash rent payments and lease incentive receipts partially offset by an increase in interest expense.

Current wording

Operating activities provided $68,147 as compared to $71,199 during the same period of the prior fiscal year. The decrease in cash provided by operating activities primarily reflects an increase in interest expense partially offset by higher revenues and lease incentive receipts.