10-Q
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form
10-Q
 
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED October 31, 2021
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
                    
TO
                    
Commission File
No. 001-35664
 
 
Dave & Buster’s Entertainment, Inc.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
35-2382255
(State of Incorporation)
 
(I.R.S. Employer ID)
   
2481 Mañana Drive, Dallas, Texas, 75220
 
(214)
357-9588
(Address of principal executive offices) (Zip Code)
 
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading Symbol(s)
 
Name of each exchange
on which registered
Common Stock $0.01 par value
 
PLAY
 
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
 
 
Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
 
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    
Yes
  ☒    No  ☐
Indicate by checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
Large accelerated filer      Accelerated filer  
       
Non-accelerated
filer
     Smaller reporting company  
       
Emerging Growth Company           
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by checkmark whether the registrant is a shell company (as defined in
Rule 12b-2
of the Exchange Act).    Yes  ☐    No  
As of December 2, 2021, the registrant had 48,422,820 shares of common stock, $0.01 par value per share, outstanding.
 
 
 
 

DAVE & BUSTER’S ENTERTAINMENT, INC.
FORM
10-Q
FOR QUARTERLY PERIOD ENDED OCTOBER 31, 2021
TABLE OF CONTENTS
 
 
 
 
  
Page
 
PART I
 
  
 
3
 
Item 1.
 
  
 
3
 
Item 2.
 
  
 
18
 
Item 3.
 
  
 
31
 
Item 4.
 
  
 
32
 
PART II
 
  
 
32
 
Item 1.
 
  
 
32
 
Item 1A.
 
  
 
32
 
Item 2.
 
  
 
33
 
Item 6.
 
  
 
34
 
 
  
 
35
 
 
2

PART I – FINANCIAL INFORMATION
 
Item 1.
Financial Statements
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
 
 
  
October 31,
 
 
January 31,
 
  
2021
 
 
2021
 
 
  
(unaudited)
 
 
(audited)
 
ASSETS
  
 
Current assets:
                
Cash and cash equivalents
   $ 27,005     $ 11,891  
Inventories
     37,256       23,807  
Prepaid expenses
     12,376       11,878  
Income taxes receivable
     67,646       70,064  
Other current assets
     2,101       1,231  
    
 
 
   
 
 
 
Total current assets
     146,384       118,871  
Property and equipment (net of $891,352 and $798,804 accumulated depreciation as of October 31, 2021 and January 31, 2021, respectively)
     779,518       815,027  
Operating lease right of use assets
     1,038,269       1,037,569  
Deferred tax assets
     9,467       5,874  
Tradenames
     79,000       79,000  
Goodwill
     272,561       272,597  
Other assets and deferred charges
     25,517       23,886  
    
 
 
   
 
 
 
Total assets
   $ 2,350,716     $ 2,352,824  
    
 
 
   
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
Current liabilities:
                
Accounts payable
   $ 39,295     $ 36,400  
Accrued liabilities
     250,948       234,790  
Income taxes payable
    
435
      446  
    
 
 
   
 
 
 
Total current liabilities
     290,678       271,636  
Deferred income taxes
     12,606       13,658  
Operating lease liabilities
     1,270,929       1,267,791  
Other liabilities
     45,267       50,119  
Long-term debt, net
     484,677       596,388  
Commitments and contingencies
                
Stockholders’ equity:
                
Common stock, par value $0.01; authorized: 400,000,000 shares; issued: 61,364,015 shares at October 31, 2021 and 60,488,833 shares at January 31, 2021; outstanding: 48,342,301 shares at October 31, 2021 and 47,646,606 shares at January 31, 2021
     614       605  
Preferred stock,
 50,000,000 authorized; none issued
     —         —    
Paid-in
capital
     545,168       531,191  
Treasury stock, 13,021,714 and 12,842,227 shares as of October 31, 2021 and January 31, 2021, respectively
     (603,745     (595,970
Accumulated other comprehensive loss
     (4,959     (9,085
Retained earnings
     309,481       226,491  
    
 
 
   
 
 
 
Total stockholders’ equity
     246,559       153,232  
    
 
 
   
 
 
 
Total liabilities and stockholders’ equity
   $ 2,350,716     $ 2,352,824  
    
 
 
   
 
 
 
See accompanying notes to consolidated financial statements.
 
3

DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(in thousands, except share and per share amounts)
 
 
  
Thirteen Weeks
 
 
Thirteen Weeks
 
  
Ended
 
 
Ended
 
  
October 31, 2021
 
 
November 1, 2020
 
              
Food and beverage revenues
   $ 107,747     $ 38,346  
Amusement and other revenues
     210,229       70,706  
    
 
 
   
 
 
 
Total revenues
     317,976       109,052  
Cost of food and beverage
     30,082       10,664  
Cost of amusement and other
     22,531       7,244  
    
 
 
   
 
 
 
Total cost of products
     52,613       17,908  
Operating payroll and benefits
     78,995       27,704  
Other store operating expenses
     103,322       70,783  
General and administrative expenses
     22,104       11,746  
Depreciation and amortization expense
     34,381       34,384  
Pre-opening
costs
     2,092       2,570  
    
 
 
   
 
 
 
Total operating costs
     293,507       165,095  
    
 
 
   
 
 
 
Operating income (loss)
     24,469       (56,043
Interest expense, net
     13,423       8,213  
Loss on debt extinguishment / refinancing
     2,829       904  
    
 
 
   
 
 
 
Income (loss) before benefit for income taxes
     8,217       (65,160
Benefit for income taxes
     (2,368 )     (17,117
    
 
 
   
 
 
 
Net income (loss)
     10,585       (48,043
    
 
 
   
 
 
 
Unrealized foreign currency translation gain (loss)
     (34     34  
Unrealized gain on derivatives, net of tax
     1,371       1,370  
    
 
 
   
 
 
 
Total other comprehensive income
     1,337       1,404  
    
 
 
   
 
 
 
Total comprehensive income (loss)
   $ 11,922     $ (46,639
    
 
 
   
 
 
 
Net income (loss) per share:
                
Basic
   $ 0.22     $ (1.01
Diluted
   $ 0.21     $ (1.01
Weighted average shares used in per share calculations:
                
Basic
     48,277,358       47,613,741  
Diluted
     49,283,503       47,613,741  
See accompanying notes to consolidated financial statements.
 
4

Table of Contents
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(in thousands, except share and per share amounts)
 
 
  
Thirty-Nine Weeks
 
  
Thirty-Nine Weeks
 
  
Ended
 
  
Ended
 
  
October 31, 2021
 
  
November 1, 2020
 
               
Food and beverage revenues
   $ 316,511      $ 119,268  
Amusement and other revenues
     644,443        200,423  
    
 
 
    
 
 
 
Total revenues
     960,954        319,691  
Cost of food and beverage
     86,366        32,667  
Cost of amusement and other
     63,729        21,997  
    
 
 
    
 
 
 
Total cost of products
     150,095        54,664  
Operating payroll and benefits
     209,897        85,197  
Other store operating expenses
     292,883        229,137  
General and administrative expenses
     57,665        35,587  
Depreciation and amortization expense
     104,355        104,896  
Pre-opening
costs
     5,427        8,781  
    
 
 
    
 
 
 
Total operating costs
     820,322        518,262  
    
 
 
    
 
 
 
Operating income (loss)
     140,632        (198,571
Interest expense, net
     41,971        22,491  
Loss on debt extinguishment / refinancing
     2,829        904  
    
 
 
    
 
 
 
Income (loss) before provision (benefit) for income taxes
     95,832        (221,966
Provision (benefit) for income taxes
     12,842        (71,777
    
 
 
    
 
 
 
Net income (loss)
     82,990        (150,189
    
 
 
    
 
 
 
Unrealized foreign currency translation gain (loss)
     12        (97
Unrealized gain (loss) on derivatives, net of tax
     4,114        (2,207
    
 
 
    
 
 
 
Total other comprehensive income (loss)
     4,126        (2,304
    
 
 
    
 
 
 
Total comprehensive income (loss)
   $ 87,116      $ (152,493
    
 
 
    
 
 
 
Net income (loss) per share:
                 
Basic
   $ 1.73      $ (3.56
Diluted
   $ 1.68      $ (3.56
Weighted average shares used in per share calculations:
                 
Basic
     48,050,558        42,185,163  
Diluted
     49,257,269        42,185,163  
See accompanying notes to consolidated financial statements.
 
5

Table of Contents
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(in thousands, except share amounts)
 
 
  
Thirteen Weeks Ended October 31, 2021
 
 
  
Common Stock
 
  
Paid-In

Capital
 
  
Treasury Stock At Cost
 
 
Accumulated
Other
Comprehensive
Loss
 
 
Retained
Earnings
 
  
Total
 
 
  
Shares
 
  
Amt.
 
  
Shares
 
  
Amt.
 
Balance August 1, 2021
     61,276,473      $ 613      $ 540,348        13,020,098      $ (603,686   $ (6,296   $ 298,896      $ 229,875  
Net income
     —          —          —          —          —         —         10,585        10,585  
Unrealized foreign currency translation loss
     —          —          —          —          —         (34     —          (34
Unrealized gain on derivatives, net of tax
     —          —          —          —          —         1,371       —          1,371  
Share-based compensation
     —          —          3,778        —          —         —         —          3,778  
Issuance of common stock
     87,542        1        1,042        —          —         —         —          1,043  
Repurchase of common stock
     —          —          —          1,616        (59     —         —          (59
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
 
Balance October 31, 2021
     61,364,015      $ 614      $ 545,168        13,021,714      $ (603,745   $ (4,959   $ 309,481      $ 246,559  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
 
 
 
 
  
Thirteen Weeks Ended November 1, 2020
 
 
  
Common Stock
 
  
Paid-In

Capital
 
  
Treasury Stock At Cost
 
 
Accumulated
Other
Comprehensive
Loss
 
 
Retained
Earnings
 
 
Total
 
 
  
Shares
 
  
Amt.
 
  
Shares
 
  
Amt.
 
                                                      
Balance August 2, 2020
     60,422,212      $ 604      $ 526,253        12,827,300      $ (595,728   $ (12,077   $ 331,319     $ 250,371  
Net loss
     —          —          —          —          —         —         (48,043     (48,043
Unrealized foreign currency translation gain
     —          —          —          —          —         34       —         34  
Unrealized gain on derivatives, net of tax
     —          —          —          —          —         1,370       —         1,370  
Share-based compensation
     —          —          2,999        —          —         —         —         2,999  
Issuance of common stock
     61,518        1        271        —          —         —         —         272  
Repurchase of common stock
     —          —                   14,401        (229     —         —         (229
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Balance November 1, 2020
     60,483,730      $ 605      $ 529,523        12,841,701      $ (595,957   $ (10,673   $ 283,276     $ 206,774  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
See accompanying notes to consolidated financial statements.
 
6

DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(in thousands, except share amounts)
 
 
  
Thirty-Nine Weeks Ended October 31, 2021
 
 
  
Common Stock
 
  
Paid-In

Capital
 
  
Treasury Stock At Cost
 
 
Accumulated
Other
Comprehensive
Loss
 
 
Retained
Earnings
 
  
Total
 
 
  
Shares
 
  
Amt.
 
  
Shares
 
  
Amt.
 
Balance January 31, 2021
     60,488,833      $ 605      $ 531,191        12,842,227      $ (595,970   $ (9,085   $ 226,491      $ 153,232  
Net income
     —          —          —          —          —         —         82,990        82,990  
Unrealized foreign currency translation gain
     —          —          —          —          —         12       —          12  
Unrealized gain on derivatives, net of tax
     —          —          —          —          —         4,114       —          4,114  
Share-based compensation
     —          —          9,936        —          —         —         —          9,936  
Issuance of common stock
     875,182        9        4,041        —          —         —         —          4,050  
Repurchase of common stock
     —          —          —          179,487        (7,775     —         —          (7,775
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
 
Balance October 31, 2021
     61,364,015      $ 614      $ 545,168        13,021,714      $ (603,745   $ (4,959   $ 309,481      $ 246,559  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
 
 
 
  
Thirty-Nine Weeks Ended November 1, 2020
 
 
  
Common Stock
 
  
Paid-In

Capital
 
  
Treasury Stock At Cost
 
 
Accumulated
Other
Comprehensive
Loss
 
 
Retained
Earnings
 
 
Total
 
 
  
Shares
 
  
Amt.
 
  
Shares
 
  
Amt.
 
Balance February 2, 2020
     43,386,852      $ 434      $ 339,161        12,783,512      $ (595,041   $ (8,369   $ 433,465     $ 169,650  
Net loss
     —          —          —          —          —         —         (150,189     (150,189
Unrealized foreign currency translation loss
     —          —          —          —          —         (97     —         (97
Unrealized loss on derivatives, net of tax
     —          —          —          —          —         (2,207     —         (2,207
Share-based compensation
     —          —          5,344        —          —         —         —         5,344  
Issuance of common stock
     17,096,878        171        185,018        —          —         —         —         185,189  
Repurchase of common stock
     —          —                   58,189        (916     —         —         (916
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Balance November 1, 2020
     60,483,730      $ 605      $ 529,523        12,841,701      $ (595,957   $ (10,673   $ 283,276     $ 206,774  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
See accompanying notes to consolidated financial statements.
 
7

DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
 
    
Thirty-Nine Weeks

Ended

October 31, 2021
   
Thirty-Nine Weeks

Ended
November 1, 2020
 
              
Cash flows from operating activities:
                
Net income (loss)
   $ 82,990     $ (150,189
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
                
Depreciation and amortization expense
     104,355       104,896  
Non-cash
interest expense
     5,660       4,088  
Impairment of long-lived assets
     —         13,727  
Deferred taxes
     (6,191     (17,730
Loss on disposal of fixed assets
     634       541  
Loss on debt extinguishment or refinancing
     2,829       904  
Share-based compensation
     9,936       5,344  
Other, net
     3,250       1,292  
Changes in assets and liabilities:
                
Inventories
     (13,449     7,745  
Prepaid expenses
     (498     2,761  
Income tax receivable
     2,418       (42,243
Other current assets
     (870     2,580  
Other assets and deferred charges
     (1,859     (3
Accounts payable
     (3,419     (11,945
Accrued liabilities
     19,069       44,742  
Income taxes payable
     (11     (2,639
Other liabilities
     (6,346     4,375  
    
 
 
   
 
 
 
Net cash provided by (used in) operating activities
     198,498       (31,754
    
 
 
   
 
 
 
Cash flows from investing activities:
                
Capital expenditures
     (63,559     (72,604
Proceeds from sales of property and equipment
     550       234  
    
 
 
   
 
 
 
Net cash used in investing activities
     (63,009     (72,370
    
 
 
   
 
 
 
Cash flows from financing activities:
                
Proceeds from debt
     37,000       688,000  
Payments of debt
     (152,000     (760,250
Net proceeds from the issuance of common stock
     —         182,207  
Proceeds from the exercise of stock options
     4,050       465  
Dividends paid
     —         (4,891
Repurchases of common stock to satisfy employee withholding tax obligations
     (7,775     (16,805
Debt issuance costs and prepayment premiums
     (1,650 )     (916 )
    
 
 
   
 
 
 
Net cash provided by (used in) financing activities
     (120,375     87,810  
    
 
 
   
 
 
 
Increase (decrease) in cash and cash equivalents
     15,114       (16,314
Beginning cash and cash equivalents
     11,891       24,655  
    
 
 
   
 
 
 
Ending cash and cash equivalents
   $ 27,005     $ 8,341  
    
 
 
   
 
 
 
Supplemental disclosures of cash flow information:
                
Increase (decrease) in fixed asset accounts payable
   $ 6,314     $ (12,315 )
Cash paid (refund received) for income taxes, net
   $ 16,043     $ (9,281 )
Cash paid for interest, net
   $ 43,910     $ 17,306  
See accompanying notes to consolidated financial statements.
 
8

DAVE & BUSTER’S ENTERTAINMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
Note 1: Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements include the accounts of Dave & Buster’s Entertainment, Inc. (referred to herein as the “Company”, “we,” “us” and “our”), any predecessor companies and its wholly-owned subsidiaries, Dave & Buster’s Holdings, Inc. (“D&B Holdings”), which owns 100% of the outstanding common stock of Dave & Busters, Inc. (“D&B Inc”), the operating company. All intercompany balances and transactions have been eliminated in consolidation. The Company, headquartered in
 
Dallas, Texas, is a leading operator of high-volume entertainment and dining venues (“stores”) in North America for adults and families under the name “Dave & Buster’s”. The Company operates its business as one operating and one reportable segment. During the thirteen weeks ended October 31, 2021, we opened one new store located in Bellevue, Washington and during the thirty-nine weeks ended October 31, 2021, we opened three new stores. At October 31, 2021, we owned and operated 143 stores located in 40 states, Puerto Rico and one Canadian province.
The Company operates on a 52 or
53-week
fiscal year that ends on the Sunday after the Saturday closest to January 31. Each quarterly period reported has 13 weeks. Fiscal 2021 and 2020, which end on January 30, 2022 and January 31, 2021, respectively, contain 52 weeks
.
The Company’s financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States for interim financial information as prescribed by the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all the information and notes required by GAAP for complete financial statements. In the opinion of management, these financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position, results of operations and cash flows for the periods indicated. Our quarterly financial data should be read in conjunction with the audited financial statements and notes thereto for the year ended January 31, 2021, included in our Annual Report on Form
10-K
as filed with the SEC.
COVID-19
Considerations
— On March 11, 2020, the World Health Organization declared the
COVID-19
outbreak to be a global pandemic and on March 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. By March 20, 2020, all our 137 operating stores were temporarily closed. On April 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,
 
107 of our 140 stores were open and operating in limited capacity, including five new stores for which construction had commenced prior to the outbreak of the COVID-19 pandemic. The Company re-opened the remaining
 34 stores that had been temporarily
closed by August 1, 2021, the end of the second quarter of fiscal 2021.
As stores were
re-opened
during fiscal 2020, typically in limited capacity, the Company reduced labor and other operating costs. During fiscal 2020, the Company also negotiated with landlords and other vendors to negotiate relief from cash payments under existing lease and trade payable obligations, extending or reducing payment terms with several vendors. Regarding negotiations with landlords, a total of 126 initial rent relief agreements related to our operating locations and corporate headquarters were executed during fiscal 2020, which generally provided for rent deferrals on all or a portion of rent for up to six months. As the
COVID-19
pandemic continued to impact our business into the fourth quarter, the Company renewed negotiations with the majority of these landlords in order to provide additional rent relief, generally seeking to delay or extend the terms of deferral pay back periods and/or provide rent relief beyond the periods in the initial agreements. The second phase of negotiations resulted in 99 additional rent relief agreements, the last of which were executed in the third quarter of fiscal 2021.
In addition to reducing or deferring expenditures, including capital expenditures and discretionary spending, during the first half of fiscal 2020, the Company obtained additional liquidity through the sale of common stock, which resulted in net proceeds of $182,207. On October 27, 2020, D&B Inc completed the private sale of $550,000 in aggregate principal amount of 7.625% senior secured notes due 2025. At the same time, the revolving credit commitments under our existing credit facility were extended through August 17, 2024, and the suspension of our financial ratio covenants was extended until the last day of the first quarter of fiscal year 2022. On September 20, 2021, the Company redeemed $55,000 outstanding principal amount of the senior secured notes. See Note 3, Debt, for more information on these
transactions.
 
9

Table of Contents
The measures taken by the Company as well as the
re-opening
of the Company’s stores provide sufficient liquidity to meet estimated cash flow needs and covenant compliance obligations for at least the next twelve months from the issuance of the financial statements. We cannot predict whether, when or the manner in which the conditions surrounding
COVID-19,
particularly as a result of new variants of
COVID-19,
will change, including possible vaccination or mask mandates, capacity restrictions or
re-closures
of our currently open stores and customer engagement with our brand.
The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities at the date of the consolidated financial statements and for the period then ended. Actual results could differ from those estimates. Operating results for the thirty-nine weeks ended October 31, 2021 are not necessarily indicative of results that may be expected for any other interim period or for the fiscal year ending January 30, 2022.
Cash and cash equivalents
— We consider transaction settlements in process from credit card companies and all highly-liquid investments with original maturities of three months or less to be cash equivalents. Our cash management system provides for the daily funding of all major bank disbursement accounts as checks are presented for payment. Under this system, outstanding checks in excess of the cash balances at certain banks creates book overdrafts. A book overdraft of $8,168 is presented in “Accounts payable” in the Consolidated Balance Sheets as of January 31, 2021. There was no book overdraft as of October 31, 2021. Changes in the book overdraft position are presented within “Net cash provided by (used in)
operating
activities” within the Consolidated Statements of Cash Flows.
Fair value of financial instruments
— Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. In determining fair value, the accounting standards establish a three-level hierarchy for inputs used in measuring fair value as follows: Level One inputs are quoted prices available for identical assets or liabilities in active markets; Level Two inputs are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; and Level Three inputs are unobservable and reflect management’s own assumptions.
The carrying amounts of cash and cash equivalents, accounts and notes receivable, accounts payable, and other current liabilities approximate fair value because of their short-term nature. The fair value of the Company’s interest rate swap is determined based upon Level Two inputs which includes valuation models as reported by our counterparties and third-party valuation specialists. These valuation models are based on the present value of expected cash flows using forward rate curves. The fair value of borrowings under our revolving credit facility was $62,114 as of January 31, 2021, and the fair value of our senior secured notes was $527,776 and $576,033 as of October 31, 2021 and January 31, 2021, respectively. The fair value of the Company’s debt is determined based on a discounted cash flow method, using a sector-specific yield curve based on market-derived, trade price data as of the measurement date, and is classified as a Level Two input within the fair value hierarchy.
The Company also measures certain
non-financial
assets (primarily property and equipment,
right-of-use
(“ROU”) assets, goodwill, tradenames and other assets) at fair value on a
non-recurring
basis in connection with its periodic evaluations of such assets for potential impairment.
During the thirteen and thirty-nine weeks ended November 1, 2020, the Company recorded an impairment charge for its long-lived assets, including ROU assets, of $0 and $6,746, respectively, primarily driven by the expected impact of the
COVID-19
pandemic on future cash flows of specific stores. During the thirty-nine weeks ended October 31, 2021, the Company did not identify triggering events which would require a change in management’s estimate regarding the recoverability of store asset values, and no impairment related to our operating stores was recognized. The Company has determined no events and circumstances existed during the thirty-nine weeks ended October 31, 2021 that would indicate it is more likely than not that its goodwill or tradename are impaired. The ultimate severity and longevity of the
COVID-19
pandemic is unknown, and therefore, it is possible that impairments could be identified in future periods, and such amounts could be material.
During the thirteen and thirty-nine weeks ended November 1, 2020, the Company recorded an impairment loss and related contract termination costs of $0 and $6,981 related to projects in development and discussions to terminate several executed lease contracts that had not yet commenced, which is included in “Other store operating expenses” in the Consolidated Statements of Comprehensive Income (Loss). There were no impairment charges related to our potential future sites during the thirty-nine weeks
ended October 31, 2021.
Interest rate swaps
— Effective February
 28, 2019, the Company entered into three interest rate swap agreements to manage our exposure to interest rate movements on our variable rate credit facility. The agreements entitle the Company to receive at specified intervals, a variable rate of interest based on
one-month
LIBOR in exchange for the payment of a fixed rate of interest throughout the life of the agreements. The notional amount of
the
swap agreements, which mature August 17, 2022, totals $
350,000
and the fixed rate of interest for all agreements is
2.47
%.
10

Table of Contents
The Company initially designated its interest rate swap agreements as a cash flow hedge and accounted for the underlying activity in accordance with hedge accounting. Effective April 14, 2020, the Company amended its existing credit facility agreement to obtain relief from its financial covenants, and as a result, the variable interest rate terms were modified to create an interest rate floor of 1.00%. Accordingly, and as a result of the then current forward interest rate curve, the Company discontinued the hedging relationship as of April 14, 2020
(de-designation
date). Given the continued existence of the hedged interest payments, the Company is reclassifying its accumulated other comprehensive loss of $17,609 as of the
de-designation
date into “Interest expense, net” using a straight-line approach over the remaining life of the originally designated hedging relationship. The amount of
pre-tax
losses in accumulated other comprehensive loss reclassified into interest expense subsequent to the
de-designation
date was $5,660 and $4,088 for the thirty-nine weeks ended October 31, 2021 and November 1, 2020, respectively, and the Company expects to reclassify $5,975 within the next twelve months. Effective with the
de-designation,
any gain or loss on the derivatives are recognized in earnings in the period in which the change occurs. For the thirty-nine weeks ended October 31, 2021 and November 1, 2020, a gain of $92 and a
 
loss of $1,578, respectively, were recognized, which are included in “Other store operating expenses” in the Consolidated Statements of Comprehensive Income (Loss).
Prior to the
de-designation,
changes in the fair values of the interest rate swaps were recorded as a component of other comprehensive loss until the interest payments being hedged were recorded as interest expense, at which time the amounts in accumulated other comprehensive loss were reclassified as an adjustment to interest expense. Cash flows related to the interest rate swaps were included as a component of interest expense and in operating activities.
Credit risk related to the failure of our counterparties to perform under the terms of the swap agreements is minimized by entering transactions with carefully selected, credit-worthy parties and the fact that the swap contracts are distributed among several financial institutions to reduce the concentration of credit risk. 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.
The following derivative instruments were outstanding as of the end of the periods indicated:
 
           
Fair Value
 
    
Balance Sheet Location
    
October 31, 2021
    
January 31, 2021
 
                      
Interest rate swaps
     Accrued liabilities      $ (6,384    $ (8,350
Interest rate swaps
     Other liabilities        —          (4,416
             
 
 
    
 
 
 
Total derivatives
            $ (6,384    $ (12,766
             
 
 
    
 
 
 
The following table summarizes the activity in accumulated other comprehensive loss related to our derivative instruments:
 
    
Thirteen weeks ended
    
Thirty-nine weeks ended
 
    
October 31, 2021
    
November 1, 2020
    
October 31, 2021
    
November 1, 2020
 
                             
Loss recorded in accumulated other
comprehensive income
   $         $         $ —        $ 7,602  
Loss reclassified into income (1)
   $ (1,886    $ (1,886    $ (5,660    $ (4,566
Income tax expense (benefit) in
accumulated
 
other comprehensive
income
   $ 515      $ 516      $ 1,546      $ (829
 
(1)
Amounts reclassified into income are included in “Interest expense, net” in the Consolidated Statements
of
Comprehensive
Income
(Loss).
Revenue recognition
— Amusement revenues are primarily recognized upon utilization of game play credits on power cards purchased and
used
by customers to activate video and redemption games. Redemption games allow customers to earn tickets, which may be redeemed for prizes in our WIN! area. We have deferred a portion of amusement revenues for the estimated unfulfilled performance obligations based on an estimated rate of future use by customers of unused game play credits and the material right provided to customers to redeem tickets in the future for prizes. During the thirteen and thirty-nine weeks ended October 31, 2021, we recognized revenue of approximately $12,900 and $37,700, respectively, related to the amount in
deferred
amusement revenue as of the end of fiscal 2020.
11

Table of Contents
In jurisdictions where we do not have a legal obligation to remit unredeemed gift card balances to a legal authority, we recognize revenue on unredeemed gift cards in proportion to the pattern of redemption by the customers. During the thirteen and thirty-nine weeks ended October 31, 2021, we recognized revenue of approximately $1,200 and $3,000, respectively, related to the amount in deferred gift card revenue as of the end of fiscal 2020,
of
which approximately $690 and $930, respectively, was breakage
revenue
.
Stockholders’ equity
— In our consolidated financial statements, the Company treats shares withheld for tax purposes on behalf of our employees in connection with the vesting of time-based and performance restricted stock units as common stock repurchases because they reduce the number of shares that would have been issued upon vesting. During the thirty-nine weeks ended October 31, 2021 and November 1, 2020, we withheld 179,487 and 58,189 shares of common stock to satisfy $7,775 and $916 of employees’ tax obligations, respectively. The share activity in the thirty-nine weeks ended November 1, 2020 includes the settlements of $2,517 cash obligations through the issuance of 160,540 shares of common stock.
On April 14, 2020, pursuant to an open market sale agreement, the Company sold 6,149,936 shares of its common stock at a price of $12.20 per share, for proceeds of $75,000, prior to deducting offering expenses related to the offering. During May 2020, the Company entered into an underwriting agreement, pursuant to which it sold an additional 10,593,416 shares of its common stock (including shares under an over-allotment option) at a price of $10.44 per share, for proceeds of $110,600, prior to deducting offering costs.
Effective March 18, 2020, the Board of Directors of the Company adopted a
364-day
duration Shareholder Rights Plan (the “Rights Plan”) and declared a dividend of one preferred share purchase right for each outstanding share of common stock to shareholders of record on March 30, 2020 to purchase from the Company one
one-ten
thousandth of a share of Series A Junior Participating Preferred Stock, par value $0.01 per share, of the Company for an exercise price of $45.00, once the rights become exercisable, subject to adjustment as provided in the related rights agreement. The
Rights Plan expired on March 17, 2021.
Earnings per share
— Basic net income (loss) per share is computed by dividing net income (loss) available to common shareholders by the basic weighted average number of common shares outstanding for the reporting period. Diluted net income (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For the calculation of diluted net income (loss) per share, the basic weighted average shares outstanding is increased by the dilutive effect of stock options and restricted share awards. Stock options and restricted share awards with an anti-dilutive effect are not included in the diluted net income (loss) per share calculation. For the thirteen weeks ended October 31, 2021 and November 1, 2020, the Company excluded anti-dilutive awards from the calculation of approximately 236,279 and 1,652,925, respectively. For the thirty-nine weeks ended October 31, 2021 and November 1, 2020, the Company excluded anti-dilutive awards from the calculation of approximately 161,093 and 1,523,945, respectively. Basic weighted average shares outstanding are reconciled to diluted weighted average shares outstanding as follows:
 
    
Thirteen weeks ended
    
Thirty-nine weeks ended
 
    
October 31, 2021
    
November 1, 2020
    
October 31, 2021
    
November 1, 2020
 
Basic weighted average shares outstanding
     48,277,358        47,613,741        48,050,558        42,185,163  
Weighted average dilutive impact of awards (1)
     1,006,145                  1,206,711            
Diluted weighted average shares outstanding
     49,283,503        47,613,741        49,257,269        42,185,163  

(1)
Amounts exclude all potential common and common equivalent shares for periods when there is a net loss.
Recently adopted accounting guidance
— In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2019-12,
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
, which removes certain exceptions related to the approach for intraperiod tax allocations, the calculation of income taxes in interim periods, and the recognition of deferred taxes for taxable goodwill. The Company adopted this standard as of the beginning of fiscal year 2021, and the adoption did not have a material impact on our consolidated
financial
statements.
Recent accounting pronouncements
— In March 2020, the FASB issued ASU
2020-04,
Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Reform on Financial Reporting
, which provides temporary optional expedients and exceptions to the current guidance for contract modifications and hedging relationships through December 31, 2022, that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. A contract modification resulting from reference rate reform may be accounted for as a continuation of the existing contract rather than the creation of a new contract. Additionally, changes in the critical terms of hedging relationships, caused by reference rate reform, should not result in the
de-designation
of the instrument, provided certain criteria are met. Although the Company has swap agreements based on LIBOR rates, the guidance is not expected to have an impact on our consolidated financial statements due to the
de-designation
of our hedging relationships in fiscal 2020.
 
12

Note 2: Accrued Liabilities
Accrued liabilities consist of the following as of the end of each period:     
 
    
October 31, 2021
    
January 31, 2021
 
               
Deferred amusement revenue
   $ 92,909      $ 78,852  
Current portion of operating lease liabilities, net (1)
     51,735        46,471  
Compensation and benefits
     24,702        13,846  
Current portion of deferred occupancy costs
     22,564        36,121  
Property taxes
     10,449        8,149  
Deferred gift card revenue
     9,564        10,918  
Current portion of derivatives
     6,384        8,350  
Utilities
     5,453        4,151  
Current portion of long-term insurance
     5,100        5,100  
Sales and use taxes
     4,177        1,385  
Customer deposits
     4,130        1,373  
Accrued interest
     256        11,321  
Other
     13,525        8,753  
    
 
 
    
 
 
 
Total accrued liabilities
   $ 250,948      $ 234,790  
    
 
 
    
 
 
 

(1)
The balance of leasehold incentive receivables of $3,823 and $8,763 as of October 31, 2021 and January 31, 2021, respectively, is reflected as a reduction of the current portion of operating lease liabilities
.
Note 3: Debt
Long-term debt consi
s
ts of the
 
following:
 
 
  
October 31, 2021
 
  
January 31, 2021
 
               
Senior secured notes
   $ 495,000      $ 550,000  
Credit facility - revolver
               60,000  
    
 
 
    
 
 
 
Total debt outstanding
     495,000        610,000  
Less debt issuance costs
     (10,323      (13,612
    
 
 
    
 
 
 
Long-term debt, net
   $ 484,677      $ 596,388  
    
 
 
    
 
 
 
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 D&B Inc and are unconditionally guaranteed by D&B Holdings and certain of D&B Inc’s existing and future wholly owned material domestic subsidiaries, which is substantially the same as the guarantors of the Company’s existing credit facility.
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 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.
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 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
 
13

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. 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 first amendment, effective April 14, 2020, provided initial relief from compliance with financial covenants after the
COVID-19
pandemic and increased the interest rate spread on variable rate debt to 2.00% plus a LIBOR floor of 1.00%. 
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.
On September 20, 2021, the Company redeemed $55,000 outstanding principal amount of the Notes. In connection with the early redemption of the Notes, the Company paid 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. Additionally, the early redemption of the Notes resulted in a
 
loss on extinguishment of $1,179 related to a proportionate amount of unamortized issuance
costs. Refer to Note 8 regarding additional early redemption in fiscal 2021.
For the thirty-nine weeks ended October 31, 2021 and November 1, 2020, respectively, the Company’s weighted average interest rate on outstanding borrowings was 10.26% and 4.17%, respectively. At October 31, 2021, we had letters of credit outstanding of $10,486 and an unused commitment balance of $489,514 under the revolving credit facility.
Interest expense, net
— The following table sets forth our recorded interest expense, net:
 
    
Thirteen Weeks Ended
    
Thirty-Nine Weeks Ended
 
  
October 31, 2021
    
November 1, 2020
    
October 31, 2021
    
November 1, 2020
 
                             
Interest expense on debt
   $ 10,782      $ 6,092      $ 33,921      $ 17,255  
Interest associated with swap agreements
     1,886        1,886        5,660        4,566  
Amortization of issuance cost
     1,070        427        3,275        1,081  
Interest income
     —          —          —          (22
Capitalized interest
     (315      (192      (885      (389
    
 
 
    
 
 
    
 
 
    
 
 
 
Total interest expense, net
   $ 13,423      $ 8,213      $ 41,971      $ 22,491  
    
 
 
    
 
 
    
 
 
    
 
 
 
                                  
Note 4: Leases
We currently lease most of the buildings or sites for our stores, corporate office, and warehouse space under facility operating leases. These leases typically have initial terms ranging from ten to twenty years and include one or more options to renew. When determining the lease term, we include option periods for which renewal is reasonably certain. Most of the leases require us to pay property taxes, insurance and maintenance of the leased assets. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Operating leases also includes certain equipment leases that have a term in excess of one year. Certain facility leases also have provisions for additional contingent rentals based on revenues.
Operating lease cost, variable lease cost and short-term lease cost related primarily to our facilities is included in “Other store operating expenses” for our operating stores,
“Pre-opening
costs” for our stores not yet operating, or “General and administrative expenses” for our corporate office and warehouse, in the Consolidated Statements of Comprehensive Income (Loss).
The components of lease expense, including variable lease costs primarily consisting of common area maintenance charges and property taxes, are as follows for the fiscal year ended:
 
    
Thirteen Weeks Ended
    
Thirty-Nine Weeks Ended
 
  
October 31, 2021
    
November 1, 2020
    
October 31, 2021
    
November 1, 2020
 
                             
Operating lease cost
   $
33,915
       33,278      $
100,506
       100,162  
Variable lease cost
    
7,862
       5,351       
22,492
       18,405  
Short-term lease cost
    
121
       102       
431
       329  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
   $ 41,898       $ 38,731      $ 123,429       $ 118,896  
    
 
 
    
 
 
    
 
 
    
 
 
 
 
14

During fiscal 2020, the Company entered into 126 initial rent relief agreements with our
 
respective landlords on operating locations and our corporate headquarters. Under these agreements, certain rent payments will be abated, deferred or modified without penalty for various periods, generally providing for full deferral for three months beginning April 2020, with partial deferrals 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 fourth quarter of fiscal 2020, the Company renewed negotiations with the majority of these landlords in order to provide additional rent relief, generally seeking to delay or extend the terms of deferral pay back periods and/or provide rent relief beyond the periods in the initial agreements. The second phase of negotiations resulted in 99 additional rent relief agreements, the last of which were executed in the third quarter of fiscal 2021. The Company has elected to apply the practical expedient to account for lease concessions and deferrals resulting directly from COVID-19 as though the enforceable rights and obligations to the deferrals existed in the respective contracts at lease inception and will not account for the concessions as lease modifications unless the concession results in a substantial increase in the Company’s obligations. A total of 208 of our 225 rent relief agreements qualified for this accounting election, and the remaining agreements were treated as lease modifications, primarily due to a significant extension of the lease term. The Company has bifurcated our current operating lease liabilities into the portion that remains subject to accretion and the portion that is accounted for as a deferral of payments or as short payments. The current portion of deferred occupancy costs or short pays is included in “Accrued liabilities” and the balance, or 
$12,175 and $16,243 as of October 31, 2021 and January 31, 2021, respectively, is included in “Other liabilities” in the Consolidated Balance Sheets.
Note 5: Commitments and Contingencies
We are subject to certain legal proceedings and claims that arise in the ordinary course of our business, including claims alleging violations of federal and state law regarding workplace and employment matters, discrimination,
slip-and-fall
and other customer-related incidents and similar matters. In the opinion of management, based upon consultation with legal counsel, the amount of ultimate liability, with respect to such legal proceedings and claims will not materially affect the consolidated results of our operations or our financial condition. Legal costs related to such claims are expensed as incurred.
The Company is a defendant in several lawsuits filed in courts in California alleging violations of California Business and Professions Code, industry wage orders,
wage-and-hour
laws and rules and regulations pertaining primarily to the failure to pay proper regular and overtime wages, failure to pay for missed meals and rest periods, pay stub violations, failure to pay all wages due at the time of termination and other employment related claims (the “California Cases”). Some of the California Cases purport or may be determined to be class actions or Private Attorneys General Act representative actions and seek substantial damages and penalties. During fiscal 2020, the Company settled a portion of the cases at the approximate amount estimated and accrued. For the remaining cases, the Company’s assessments are based on assumptions that have been deemed reasonable by management, but that may prove to be incomplete or inaccurate, and unanticipated events and circumstances may occur that might cause the Company to change those estimates and assumptions. Management’s assessment of these California Cases, as well as other lawsuits, could change because of future determinations or the discovery of facts that are not presently known. Accordingly, the ultimate costs of resolving these cases may be substantially higher or lower than estimated. The Company continues to aggressively defend the remaining
cases.
 
15

Note 6: Share-Based Compensation
Compensation expense related to stock options and restricted stock units is included in “General and administrative expenses” in the Consolidated Statements of Comprehensive Income (Loss) and is as follows:     
 
    
Thirteen Weeks Ended
    
Thirty-Nine Weeks Ended
 
  
October 31, 2021
    
November 1, 2020
    
October 31, 2021
    
November 1, 2020
 
                             
Stock options
   $ 88        269      $ 446        1,099  
Restricted stock units
     3,690        2,730        9,490        4,245  
    
 
 
    
 
 
    
 
 
    
 
 
 
Share-based compensation expense
   $ 3,778      $ 2,999      $ 9,936      $ 5,344  
    
 
 
    
 
 
    
 
 
    
 
 
 
Transactions related to stock option awards during the thirty-nine weeks ended October 31, 2021 were as follows:
 
 
  
2014 Stock Incentive Plan
 
  
2010 Stock Incentive Plan
 
 
  
Number
 
  
Wtd. Avg.
 
  
Number
 
  
Wtd. Avg.
 
  
of Options
 
  
Exercise Price
 
  
of Options
 
  
Exercise Price
 
                             
Outstanding at January 31, 2021
     1,231,601      $ 36.77        173,563      $ 7.51  
Granted
     —          —          —          —    
Exercised
     (203,861      16.48        (100,009      6.90  
Forfeited
     (13,167      45.75                
    
 
 
    
 
 
    
 
 
    
 
 
 
Outstanding at October 31, 2021
     1,014,573      $ 40.73        73,554      $ 8.33  
    
 
 
    
 
 
    
 
 
    
 
 
 
Exercisable at October 31, 2021
     950,187      $ 39.97        73,554      $ 8.33  
    
 
 
    
 
 
    
 
 
    
 
 
 
 
                                 
The total intrinsic value of options exercised during the thirty-nine weeks ended October 31, 2021 was $8,756. The unrecognized expense related to our stock option plan totaled approximately $125 as of October 31, 2021 and will be expensed over a weighted average period of 0.4 years.
Transactions related to restricted stock units during the thirty-nine weeks ended October 31, 2021, were as follows:
 
 
  
 
 
  
Wtd. Avg.
 
 
  
Shares
 
  
Fair Value
 
Outstanding at January 31, 2021
     1,116,341      $ 17.32  
Granted
     301,847        47.82  
Performance adjusted units
     362,491        15.30  
Vested
     (571,312      15.39  
Forfeited
     (51,686      38.01  
    
 
 
    
 
 
 
Outstanding at October 31, 2021
     1,157,681      $ 24.67  
    
 
 
    
 
 
 
 
    
 
           
Fair value of our time-based and performance-based restricted stock units is based on our closing stock price on the date of grant. The grant date fair value of market stock units was determined using a Monte-Carlo simulation model. The unrecognized expense related to restricted stock units was $13,692 as of October 31, 2021 and will be expensed over a weighted average period of 1.8 years.
During the thirty-nine weeks ended October 31, 2021 and November 1, 2020, excess tax expense (benefit) of $(6,034) and $431, respectively, were recognized in the “Provision (benefit) for income taxes” in the Consolidated Statement of Comprehensive Income (Loss) and classified as a source in operating activities in the Consolidated Statement of Cash Flows.
Note 7: Income Taxes
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law. Intended to provide economic relief to those impacted by the
COVID-19
pandemic, the CARES Act includes provisions, among others, allowing for the carryback of net operating losses generated in fiscal 2018, 2019 and 2020 and technical amendments regarding the expensing of qualified improvement property. The application of the technical amendments made by the CARES Act to qualified improvement property resulted in additional tax net operating losses which were carried back from fiscal 2020 and fiscal 2019 to years with a higher federal corporate income tax rate. During the second quarter of fiscal 2021, the Company filed the fiscal 2020 carryback claims for federal tax refunds of approximately $57,400. Due to government delays in processing these claims, we do not expect to receive
a
 majority of these funds until fiscal 2022.
 
16

The effective tax rate for the thirty-nine weeks ended October 31, 2021, was
 13.4%, compared to a benefit of 32.3% for the thirty-nine weeks ended November 1, 2020. The current year tax provision includes higher excess tax benefits associated with share-based compensation while the prior year 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.
Note 8: Subsequent Event
On November 11, 2021, the Company redeemed an additional
$55,000
outstanding principal amount of the Notes using available cash and funds from its revolving credit facility. In connection with the early redemption of the Notes, the Company paid 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 of the Notes resulted in a loss on extinguishment of approximately
 $1,100
related to a proportionate amount of unamortized issuance costs. At November 28, 2021, the Company’s total debt outstanding was $
463,000
, consisting of $
440,000
of Notes and $
23,000
in borrowing under the revolving
credit facility.
On December 7, 2021, the Company filed notice with the credit facility administrative agent to immediately terminate the covenant suspension period.
 
17

Table of Contents
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 the Securities and Exchange Commission (“SEC”) on March 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 the SEC on March 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
On March 11, 2020, the World Health Organization declared the
COVID-19
outbreak to be a global pandemic and on March 13, 2020, the United States declared a National Public Health Emergency. Shortly after the national emergency declaration, state and local officials began placing restrictions on businesses, some of which allowed
To-Go
or curbside service only while others limited capacity in the dining room or midway. By March 20, 2020, all our 137 operating stores were temporarily closed. On April 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, 107 of our 140 stores were open and operating in limited capacity, including five new stores for which construction had commenced prior to the outbreak of the
COVID-19
pandemic. The Company
re-opened
the remaining 34 stores that had been temporarily closed by August 1, 2021, the end of the second quarter of 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 new variants 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.
Key Third Quarter 2021 Highlights
 
   
Revenues totaled $317,976 compared with $299,352 in the third quarter of 2019. Revenues totaled $109,052 in the third quarter of 2020, which ended with 104 of our 137 stores open and operating in limited capacity.
 
   
Overall comparable store sales were relatively flat, decreasing 0.4% compared with the same period in 2019 and increased 189.3% compared with the same period in 2020, which ended with 84 of our 114 comparable stores open and operating in limited capacity.
 
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Table of Contents
   
Net income totaled $10,585, or $0.21 per diluted share, compared with net income of $482, or $0.02 per diluted share in the same period of 2019. In the same period of 2020, we recorded a net loss of $48,043.
 
   
EBITDA totaled $58,850, or 18.5% of revenues, compared with EBITDA of $39,839 or 13.3% of revenues in the third quarter of 2019. The increase in EBITDA over fiscal 2019 is largely driven by the higher mix of amusements, reductions in hourly labor costs, and reduced discretionary marketing spend. We recorded an EBITDA loss of $21,659 in the third quarter of 2020.
 
   
Ended the quarter with $27,005 in cash and approximately $340,000 of liquidity available under the Company’s revolving credit facility, net of a $150,000 minimum liquidity covenant and $10,486 in letters of credit.
General
We are a leading owner and operator of high-volume venues in North 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 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 from 11:30 a.m. to midnight.
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 in March 2020 due to local operating limitations. At October 31, 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. Between November 2, 2020 and October 31, 2021, we opened six new stores (three in fiscal 2020 and three in fiscal 2021).
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.
 
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Adjusted EBITDA and Adjusted EBITDA Margin
. We define “Adjusted EBITDA” as net income (loss) plus interest expense, net, loss on debt extinguishment or refinancing, provision (benefit) for income taxes, depreciation and amortization expense, loss on asset disposal, impairment of long-lived assets, share-based compensation,
pre-opening
costs, currency transaction (gains) losses and other costs. “Adjusted EBITDA Margin” is defined as Adjusted EBITDA divided by total revenues.
Adjusted EBITDA is presented because we believe that it provides useful information to investors and analysts regarding our operating performance. By reporting Adjusted EBITDA, we provide a basis for comparison of our business operations between current, past and future periods by excluding items that we do not believe are indicative of our core operating performance.
Store Operating Income Before Depreciation and Amortization and Store Operating Income Before Depreciation and Amortization Margin.
We define “Store Operating Income Before Depreciation and Amortization” as operating income (loss) plus depreciation and amortization expense, general and administrative expenses and
pre-opening
costs. “Store Operating Income Before Depreciation and Amortization Margin” is defined as Store Operating Income Before Depreciation and Amortization divided by total revenues. Store Operating Income Before Depreciation and Amortization Margin allows us to evaluate operating performance of each store across stores of varying size and volume.
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 to January 31. Each quarterly period has 13 weeks, except in a
53-week
year when the fourth quarter has 14 weeks. All references to the third quarter of 2021 relate to the
13-week
period ended October 31, 2021. All references to the third quarter of 2020 relate to the
13-week
period ended November 1, 2020. All references to the third quarter of 2019 relate to the
13-week
period ended November 3, 2019. Fiscal 2021, fiscal 2020 and fiscal 2019 consist of 52 weeks. All dollar amounts are presented in thousands, unless otherwise noted, except share and per share amounts.
Store-Level Variability, Quarterly Fluctuations, Seasonality and Inflation
We have historically operated stores varying in size and have experienced significant variability among stores in volumes, operating results and net investment costs.
Our new stores historically open with sales volumes in excess of their expected long-term
run-rate
levels, which we refer to as a “honeymoon” effect. We traditionally expect our new store sales volumes in year two to be 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
 
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Table of Contents
cost of products will remain stable or that federal, state or local minimum wage rates will not increase beyond amounts currently legislated, the effects of any supplier price increase or wage rate increases might be partially offset by selected menu price increases if competitively appropriate. In addition, how quickly, and to what extent, normal economic and operating conditions can resume cannot be predicted, and the resumption of normal business operations may be delayed or constrained by lingering effects of the
COVID-19
pandemic on us or our suppliers, third-party service providers, and/or customers.
Thirteen Weeks Ended October 31, 2021 Compared to Thirteen Weeks Ended November 1, 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
 
  
October 31, 2021
   
November 1, 2020
 
Food and beverage revenues
   $ 107,747        33.9   $ 38,346        35.2
Amusement and other revenues
     210,229        66.1       70,706        64.8  
  
 
 
    
 
 
   
 
 
    
 
 
 
Total revenues
     317,976        100.0       109,052        100.0  
Cost of food and beverage (as a percentage of food and beverage revenues)
     30,082        27.9       10,664        27.8  
Cost of amusement and other (as a percentage of amusement and other revenues)
     22,531        10.7       7,244        10.2  
  
 
 
    
 
 
   
 
 
    
 
 
 
Total cost of products
     52,613        16.5       17,908        16.4  
Operating payroll and benefits
     78,995        24.8       27,704        25.4  
Other store operating expenses
     103,322        32.5       70,783        64.9  
General and administrative expenses
     22,104        7.0       11,746        10.8  
Depreciation and amortization expense
     34,381        10.8       34,384        31.5  
Pre-opening
costs
     2,092        0.7       2,570        2.4  
  
 
 
    
 
 
   
 
 
    
 
 
 
Total operating costs
     293,507        92.3       165,095        151.4  
  
 
 
    
 
 
   
 
 
    
 
 
 
Operating income (loss)
     24,469        7.7       (56,043      (51.4
Interest expense, net
     13,423        4.2       8,213        7.6  
Loss on debt extinguishment / refinancing
     2,829        0.9       904        0.8  
  
 
 
    
 
 
   
 
 
    
 
 
 
Income (loss) before benefit for income taxes
     8,217        2.6       (65,160      (59.8
Benefit for income taxes
     (2,368      (0.7     (17,117      (15.7
  
 
 
    
 
 
   
 
 
    
 
 
 
Net income (loss)
   $ 10,585        3.3   $ (48,043      (44.1 )% 
  
 
 
    
 
 
   
 
 
    
 
 
 
Change in comparable store sales (1)
        189.3        (65.6 )% 
Company-owned stores at end of period (1)
        143          137  
Comparable stores at end of period (1)
        114          114  
 
(1)
 
As of the end of the third quarter of fiscal 2020, 104 of our 137 total stores and 84 of our 114 comparable stores were open and operating in limited capacity. Our comparable store count as of the end of the third quarter of fiscal 2020 excludes a store in Chicago, Illinois and a store in Houston, Texas, which were at or near the end of their respective lease terms, when the Company decided not to
re-open.
 
21

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
 
    
October 31, 2021
   
November 1, 2020
 
Net income (loss)
   $ 10,585        3.3   $ (48,043      -44.1
Interest expense, net
     13,423          8,213     
Loss on debt extinguishment / refinancing
     2,829          904     
Benefit for income taxes
     (2,368        (17,117   
Depreciation and amortization expense
     34,381          34,384     
  
 
 
      
 
 
    
EBITDA
     58,850        18.5     (21,659      -19.9
Loss on asset disposal
     377          124     
Share-based compensation
     3,778          2,999     
Pre-opening
costs
     2,092          2,570     
Other costs (1)
     3,112          (5   
  
 
 
      
 
 
    
Adjusted EBITDA
   $ 68,209        21.5   $ (15,971      -14.6
  
 
 
      
 
 
    
 
(1)
 
Primarily represents costs related to currency transaction (gains) or losses. The third quarter of fiscal 2021 includes a $3,230 severance obligation to the Company’s former Chief Executive Officer, who terminated his service in this position effective September 30, 2021.
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
 
    
October 31, 2021
   
November 1, 2020
 
Operating income (loss)
   $ 24,469        7.7   $ (56,043      -51.4
General and administrative expenses
     22,104          11,746     
Depreciation and amortization expense
     34,381          34,384     
Pre-opening
costs
     2,092          2,570     
  
 
 
      
 
 
    
Store Operating Income Before Depreciation and Amortization
   $ 83,046        26.1   $ (7,343      -6.7
  
 
 
      
 
 
    
Capital Additions
The table below reflects accrual-based capital additions. Capital additions do not include any reductions for accrual-based leasehold improvement incentives or proceeds from sale-leaseback transactions (collectively, “Payments from landlords”).
 
    
Thirteen Weeks
    
Thirteen Weeks
 
    
Ended
    
Ended
 
    
October 31, 2021
    
November 1, 2020
 
New store and operating initiatives
   $ 20,616      $ 7,700  
Games
     195        361  
Maintenance capital
     8,402        1,208  
  
 
 
    
 
 
 
Total capital additions
   $ 29,213      $ 9,269  
  
 
 
    
 
 
 
Payments from landlords
   $ 5,717      $ 4,709  
 
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Results of Operations
Revenues
In response to the
COVID-19
outbreak, which was declared a global pandemic on March 11, 2020 and a National Public Health Emergency in the United States on March 13, 2020, the Company temporarily closed all of our stores by March 20, 2020. On April 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 third quarter of fiscal 2020, 104 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 104 open stores, 84 were comparable stores. By the end of our second quarter of the current fiscal year, all of the Company’s 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
 
    
October 31, 2021
    
November 1, 2020
    
Change
 
Total revenues
   $ 317,976      $ 109,052      $ 208,924  
Total store operating weeks
     1,854        1,221        633  
Comparable store revenues
   $ 259,206      $ 89,592      $ 169,614  
Comparable store operating weeks
     1,482