# Dave & Buster's Entertainment, Inc. (PLAY) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Dave & Buster's Entertainment, Inc.'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1525769/000162828024014369/play-20240204.htm
Accession: 0001628280-24-014369
Filing date: 2024-04-02
Report date: 2024-02-04
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/PLAY/
All MD&A years: /company/PLAY/mda/
Previous year: /company/PLAY/mda/fy2023/ (FY 2023)
Next year: /company/PLAY/mda/fy2025/ (FY 2025)

ITEM 7.    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 our audited consolidated financial statements and related notes included herein. This discussion may contain forward-looking statements. See Cautionary Statement Regarding Forward-Looking Statements and Risk Factors for a discussion of the uncertainties and risks associated with these statements. 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 Consolidated Financial Statements. All dollar amounts are presented in millions, unless otherwise noted, except per share amounts.

Discussion regarding our financial condition and results of operations for fiscal 2022 compared with fiscal 2021 is included in Item 7 of our fiscal 2022 Annual Report on Form 10-K filed March 28, 2023.

Financial Highlights

•Revenue of $2,205.3 million increased 12.3% compared with $1,964.4 million in fiscal 2022.

•Net income totaled $126.9 million, or $2.88 per diluted share, compared with net income of $137.1 million, or $2.79 per diluted share in fiscal 2022.

•Adjusted EBITDA increased $75.2 million to $555.6 million, or 25.2% of revenues, compared with Adjusted EBITDA of $480.4, or 24.5% of revenues, in fiscal 2022. See further discussion of Adjusted EBITDA, a non-GAAP measure, at Non-GAAP Financial Measures below as well as a reconciliation to net income at Reconciliations of Non-GAAP Financial Measures below.

•The 53rd week of fiscal 2023 contributed $39.5 million in revenue.

General

We are a leading owner and operator of high-volume venues in North America that combine entertainment and dining for both adults and families under the “Dave & Buster’s” and “Main Event” brands. The core of our concept is to offer our customers various forms of entertainment along with quality dining all in one location. Our entertainment offerings provide an extensive assortment of attractions centered around playing games, bowling, and watching live sports and other televised events. Our brands appeal to a relatively balanced mix of male and female adults, as well as families and teenagers. We believe we appeal to a diverse customer base by providing a highly customizable experience in a dynamic and fun setting.

Our Dave & Buster’s stores average 40,000 square feet and range in size between 16,000 and 70,000 square feet. Our Main Event stores average 54,000 square feet and range in size between 37,500 and 78,000 square feet. Generally, our stores are open seven days a week, with normal hours of operation generally from between 10:00 to 11:30 a.m. until midnight, with stores typically open for extended hours on weekends.

Strategy

Our strategy is built on the following key initiatives:

•Offer the latest entertainment at competitive prices

•Offer novel food & drink to bring people together

•Drive customer engagement through strategic marketing and loyalty offerings

•Optimize our footprint through opening new stores and remodeling existing locations

•Drive incremental sales volume through advertising and hosting special events

•Drive an improved guest experience and optimize operations through targeted technology investments

For further information about our strategy, refer to “Item 1. Strategy”.

Key Measures of Our Performance

We monitor and analyze several key performance measures to manage our business and evaluate financial and operating performance, including:

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 owned and open for a full

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18 months before the beginning of the fiscal year and excluding stores permanently closed during the period. For fiscal 2023, our comparable store base consists of 141 Dave & Buster's branded stores. Our Main Event branded stores are not included in comparable store sales for fiscal 2023.

New store openings. Our ability to reach new customers is influenced by the opening of additional stores in 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. During fiscal 2023, we opened eleven new Dave & Buster's stores and five Main Event stores. We currently plan to open 15 stores in fiscal 2024.

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, Credit Adjusted EBITDA, 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 titled 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 certain 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 do not directly relate to the ongoing operations of the currently underlying business of our stores and therefore complicate comparison of the underlying business between periods. Nevertheless, because of the limitations described above, management does not view Adjusted EBITDA, Adjusted EBITDA Margin, Credit Adjusted EBITDA, Store Operating Income Before Depreciation and Amortization or Store Operating Income Before Depreciation and Amortization Margin in isolation and also uses other measures, such as revenues, gross margin, operating income and net income to measure operating performance.

Adjusted EBITDA and Adjusted EBITDA Margin.

We define “Adjusted EBITDA” as net income (loss), plus interest expense, net, loss on debt refinancing, provision for (benefit from) income taxes, depreciation and amortization expense, (gain) loss on property and equipment transactions, impairment of long-lived assets, share-based compensation, currency transaction (gains) losses and other costs. “Adjusted EBITDA Margin” is defined as Adjusted EBITDA divided by total revenues.

Adjusted EBITDA and Adjusted EBITDA Margin are presented because we believe they provide 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.

Credit Adjusted EBITDA

We define “Credit Adjusted EBITDA” as Adjusted EBITDA plus certain other items as defined in our Credit Facility (see Liquidity and Capital Resources below). Other adjustments include (i) entertainment revenue deferrals, (ii) the cost of new projects, including store pre-opening costs, and (iii) other costs and adjustments as permitted by the debt agreements. We believe the presentation of Credit Adjusted EBITDA is appropriate as it provides additional information to investors about the calculation of, and compliance with, certain financial covenants in the Credit Facility.

Store Operating Income Before Depreciation and Amortization and Store Operating Income Before Depreciation and Amortization Margin.

We define “Store Operating Income Before Depreciation and Amortization” as operating income (loss), plus depreciation and amortization expense, general and administrative expenses and pre-opening costs. “Store Operating Income Before Depreciation and Amortization Margin” is defined as Store Operating Income Before Depreciation and Amortization divided by total revenues. Store Operating Income Before Depreciation and Amortization Margin allows us to evaluate operating performance of each store across stores of varying size and volume.

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We believe 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 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, loss on debt refinancing 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

The Company’s fiscal year consists of 52 or 53 weeks ending on the Sunday after the Saturday closest to January 31. Fiscal year 2023, which ended on February 4, 2024, contained 53 weeks. Fiscal years 2022 and 2021, which ended on January 29, 2023 and January 30, 2022, respectively, each contained 52 weeks. Each quarterly period has 13 weeks, except in a 53-week year when the fourth quarter has 14 weeks. All dollar amounts are presented in millions, unless otherwise noted, except share and per share amounts.

Store-Level Variability, Quarterly Fluctuations, Seasonality and Inflation

We operate stores varying in size and have experienced significant variability among stores in volumes, operating results and net investment costs.

Our new stores typically 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 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 will result in significant fluctuations in quarterly results.

New store operating margins (excluding pre-opening expenses) during the first year of operation historically 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.

Our operating results have historically fluctuated due to seasonal factors. Typically, we have higher revenues associated with the spring and year-end holidays, and sales and customer traffic during these periods are susceptible to the impact of severe, unfavorable or unseasonably mild weather. Our third quarter, which encompasses the back-to-school fall season, has historically had lower revenues as compared to other quarters.

We expect 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. There is no assurance that our cost of products will remain stable or that federal, state, or local minimum wage rates will not increase beyond amounts currently legislated, however, the effects of any supplier price increase or wage rate increases might be partially offset by selective price increases if competitively appropriate.

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Fiscal 2023 Compared to Fiscal 2022

Results of operations. The following table sets forth selected data, in millions of dollars and as a percentage of total revenues (unless otherwise noted) for the periods indicated. All information is derived from the accompanying Consolidated Statements of Comprehensive Income.

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended"],["","February 4, 2024","","January 29, 2023"],["Entertainment revenues","$","1,434.8","","","65.1","%","","$","1,286.1","","","65.5","%"],["Food and beverage revenues","770.5","","","34.9","%","","678.3","","","34.5","%"],["Total revenues","2,205.3","","","100.0","%","","1,964.4","","","100.0","%"],["Cost of entertainment (1)","134.1","","","9.3","%","","115.1","","","8.9","%"],["Cost of food and beverage (1)","202.9","","","26.3","%","","193.8","","","28.6","%"],["Total cost of products","337.0","","","15.3","%","","308.9","","","15.7","%"],["Operating payroll and benefits","526.0","","","23.9","%","","470.7","","","24.0","%"],["Other store operating expenses","686.2","","","31.1","%","","600.6","","","30.6","%"],["General and administrative expenses","122.6","","","5.6","%","","137.8","","","7.0","%"],["Depreciation and amortization expense","208.5","","","9.5","%","","169.3","","","8.6","%"],["Pre-opening costs","18.4","","","0.8","%","","14.6","","","0.7","%"],["Total operating costs","1,898.7","","","86.1","%","","1,701.9","","","86.6","%"],["Operating income","306.6","","","13.9","%","","262.5","","","13.4","%"],["Interest expense, net","127.4","","","5.8","%","","87.4","","","4.5","%"],["Loss on debt refinancing","16.1","","","0.7","%","","1.5","","","0.1","%"],["Income before provision for income taxes","163.1","","","7.4","%","","173.6","","","8.8","%"],["Provision for income taxes","36.2","","","1.6","%","","36.5","","","1.9","%"],["Net income","$","126.9","","","5.8","%","","$","137.1","","","7.0","%"],["Company-owned stores at end of period","220","","","","","204"],["Comparable stores at end of period","141","","","","","113"]]
[[/GREPCENT_TABLE]]

(1)All revenues and costs are expressed as a percentage of total revenues for the respective period presented, except cost of entertainment, which is expressed as a percentage of entertainment revenues, and cost of food and beverage, which is expressed as a percentage of food and beverage revenues.

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Reconciliations of Non-GAAP Financial Measures

Adjusted EBITDA

The following table reconciles Net income to EBITDA and Adjusted EBITDA (in millions of dollars and as a percent of total revenues) for the periods indicated:

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended"],["","February 4, 2024","","January 29, 2023"],["Net income","$","126.9","","","5.8","%","","$","137.1","","","7.0","%"],["Add back:"],["Interest expense, net","127.4","","","","","87.4"],["Loss on debt refinancing","16.1","","","","","1.5"],["Provision for income tax","36.2","","","","","36.5"],["Depreciation and amortization expense","208.5","","","","","169.3"],["EBITDA","515.1","","","23.4","%","","431.8","","","22.0","%"],["Add back:"],["Share-based compensation (1)","16.0","","","","","20.0"],["Transaction and integration costs (2)","11.1","","","","","25.3"],["System implementation costs (3)","9.4","","","","","\u2014"],["Other costs, net (4)","4.0","","","","","3.3"],["Adjusted EBITDA, a non-GAAP measure","$","555.6","","","25.2","%","","$","480.4","","","24.5","%"]]
[[/GREPCENT_TABLE]]

(1)Non-cash share-based compensation expense, net of forfeitures, recorded in general and administrative expenses on the consolidated comprehensive income statement.

(2)Transaction and integration costs related to the acquisition and integration of Main Event recorded in general and administrative expenses on the consolidated comprehensive income statement.

(3)System implementation costs represent expenses incurred related to the development and launch of new enterprise resource planning, human capital management and inventory software for our stores and store support teams and staff augmentation for the implementation team at the store support center. These charges are primarily recorded in general and administrative expenses on the consolidated comprehensive income statement.

(4)Includes one-time, third-party consulting fees that are not part of our ongoing operations, impairment expenses and (gain) loss on property and equipment transactions.

Store Operating Income Before Depreciation and Amortization

The following table reconciles Operating income to Store Operating Income Before Depreciation and Amortization (in millions of dollars and as a percent of total revenues) for the periods indicated:

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended"],["","February 4, 2024","","January 29, 2023"],["Operating income","$","306.6","","","13.9","%","","$","262.5","","","13.4","%"],["Add back:"],["General and administrative expenses","122.6","","","","","137.8"],["Depreciation and amortization expense","208.5","","","","","169.3"],["Pre-opening costs","18.4","","","","","14.6"],["Store Operating Income Before Depreciation and Amortization, a non-GAAP measure","656.1","","","29.8","%","","584.2","","","29.7","%"]]
[[/GREPCENT_TABLE]]

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Capital Additions

The following table reflects accrual-based capital additions. Capital additions do not include any reductions for accrual-based leasehold improvement incentives (“Payments from landlords”).

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended"],["","February 4, 2024","","January 29, 2023"],["New store and operating initiatives","$","271.5","","","$","165.5"],["Games","20.8","","28.7"],["Maintenance capital","73.1","","40.9"],["Total capital additions","$","365.4","","","$","235.1"],["Payments from landlords","$","20.2","","","$","11.6"]]
[[/GREPCENT_TABLE]]

Results of Operations

Revenues - Selected revenue data (in millions except for store operating weeks) and store data for the periods indicated are as follows:

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended"],["","February 4, 2024","","January 29, 2023","","Change"],["Total revenues","$","2,205.3","","","$","1,964.4","","","$","240.9"],["Total store operating weeks (1)","11,241","","","9,304","","","1,937"],["Comparable store revenues","$","1,524.8","","","$","1,599.5","","","$","(74.7)"],["Comparable store operating weeks (1)","7,473","","","7,332","","","141"],["Noncomparable store revenues (2)","$","683.7","","","$","376.2","","","$","307.5"],["Noncomparable store operating weeks (1)(2)","3,768","","","1,972","","","1,796"],["Other revenues and deferrals","$","(3.2)","","","$","(11.3)","","","$","8.1"]]
[[/GREPCENT_TABLE]]

(1)Total store operating weeks, comparable store operating weeks and noncomparable store operating weeks included an additional 220, 141 and 79 operating weeks, respectively, due to the 53rd week included in fiscal 2023.

(2)Noncomparable store revenues and operating weeks includes all of the acquired Main Event stores as they were owned less than 18 months at the beginning of fiscal 2023. See further discussion of the definition of comparable and noncomparable stores at Key Measures of Our Performance above.

The table below represents our revenue mix for the fiscal periods indicated.

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended"],["","February 4, 2024","","January 29, 2023"],["Entertainment revenues","$","1,434.8","","","65.1","%","","$","1,286.1","","","65.5","%"],["Food revenues","517.1","","","23.4","%","","459.9","","","23.4","%"],["Beverage revenues","253.4","","","11.5","%","","218.4","","","11.1","%"],["Total revenues","$","2,205.3","","","100.0","%","","$","1,964.4","","","100.0","%"]]
[[/GREPCENT_TABLE]]

Total revenues increased $240.9 million, or 12.3%, to $2,205.3 million in fiscal 2023 compared to $1,964.4 million in fiscal 2022. The increase in revenue is primarily attributable to increased revenue from our Main Event stores, which were acquired on June 29, 2022, incremental revenue from new, noncomparable, Dave & Buster's stores, and incremental revenues as a result of the 53rd week in fiscal 2023, partially offset by a decrease in comparable store sales. The decrease in comparable store revenue is due primarily to a reduction in walk-in transaction counts relative to the robust consumer environment of the prior year period, partially offset by increases in food and beverage prices and increases in special event bookings.

Comparable entertainment revenues in fiscal 2023 decreased by $67.8 million, or 6.5%, to $973.8 million from $1,041.6 million in fiscal 2022. Food sales at comparable stores decreased by $11.9 million, or 3.1%, to $366.8 million in fiscal 2023 from $378.7 million in fiscal 2022. Beverage sales at comparable stores increased by $5.0 million, or 2.8%, to $184.2 million in fiscal 2023 from $179.2 million in fiscal 2022.

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Cost of products - The total cost of products was $337.0 million for fiscal 2023 and $308.9 million for fiscal 2022. The total cost of products as a percentage of total revenues decreased to 15.3% for fiscal 2023 compared to 15.7% for fiscal 2022.

Cost of entertainment increased to $134.1 million in fiscal 2023 compared to $115.1 million in fiscal 2022. The cost of entertainment, as a percentage of entertainment revenues, increased to 9.3% for fiscal 2023 from 8.9% in the fiscal 2022. The increase was primarily due to a shift in mix toward more redemption games.

Cost of food and beverage products increased to $202.9 million for fiscal 2023 compared to $193.8 million for fiscal 2022. Cost of food and beverage products, as a percentage of food and beverage revenues, decreased to 26.3% for fiscal 2023 from 28.6% for fiscal 2022. The decrease was primarily attributable to food and beverage menu price increases, continued supply chain and ingredient optimization, and the mix of products sold with our new menu.

Operating payroll and benefits - Total operating payroll and benefits increased to $526.0 million in fiscal 2023 compared to $470.7 million in fiscal 2022. The total cost of operating payroll and benefits as a percentage of total revenues was 23.9% in fiscal 2023 compared to 24.0% in fiscal 2022.

Other store operating expenses - Other store operating expenses increased to $686.2 million in fiscal 2023 compared to $600.6 million in fiscal 2022. The increase is primarily due to the additional store operating hours related to our Main Event stores, the impact of the 53rd week in fiscal 2023, the impact of newly opened stores, and higher occupancy and marketing costs. Other store operating expense as a percentage of total revenues increased to 31.1% in fiscal 2023 compared to 30.6% in fiscal 2022. This increase in expense as a percentage of total revenues was primarily due to increased occupancy and marketing costs.

General and administrative expenses - General and administrative expenses decreased to $122.6 million in fiscal 2023 compared to $137.8 million in fiscal 2022. The decrease in general and administrative expenses was driven primarily by lower transaction and integration costs, lower incentive compensation in the current year, and lower stock based compensation expense, partially offset by system implementation and consulting costs. General and administrative expenses as a percentage of total revenues decreased to 5.6% in fiscal 2023 compared to 7.0% in fiscal 2022 due primarily to the reasons noted above.

Depreciation and amortization expense - Depreciation and amortization expense increased to $208.5 million in fiscal 2023 compared to $169.3 million in fiscal 2022, primarily due to the acquired Main Event stores and the impact of the 53rd week in fiscal 2023.

Pre-opening costs - Pre-opening costs increased to $18.4 million in fiscal 2023 compared to $14.6 million in fiscal 2022 primarily related to sixteen new store openings in fiscal 2023 compared to eight new store openings in fiscal 2022.

Interest expense, net - Interest expense, net increased to $127.4 million in fiscal 2023 compared to $87.4 million in fiscal 2022 due primarily to an increase in average outstanding debt and interest expense recorded as a result of a sale-leaseback transaction, partially offset by lower interest rates on the outstanding credit facility balances and an increase in interest income. See further discussion of the Company's debt activity at Note 7 to the consolidated financial statements. See further discussion of the sale-leaseback transaction at Note 9 to the consolidated financial statements.

Loss on debt refinancing - Loss on debt refinancing was $16.1 million in fiscal 2023 and $1.5 million in fiscal 2022. The amount for fiscal 2023 is related to the debt refinancings in January 2024 and June 2023. The amount for fiscal 2022 is related to the debt refinancing in June 2022. See further discussion of the Company's debt refinancing activity at Note 7 to the consolidated financial statements.

Provision for income taxes - The effective tax rate for fiscal 2023 was 22.2%, compared to 21.0% for fiscal 2022. The previous year tax provision includes higher excess tax benefits associated with share-based compensation.

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Liquidity and Capital Resources

Debt

Senior Secured Credit Agreement

In connection with the closing of the Main Event Acquisition on June 29, 2022, the Company entered into a senior secured credit agreement, which refinanced the $500.0 million existing revolving facility, extended the maturity date to June 29, 2027, and added a new term loan facility in the aggregate principal amount of $850.0 million, with a maturity date of June 29, 2029 (“Credit Facility”). The proceeds of the term loan, net of an original issue discount of $42.5 million, were used to pay the consideration for the Main Event Acquisition. The revolving credit facility can expire before the stated maturity date if the aggregate outstanding principal amount of the Notes, as defined below, exceeds $100.0 million ninety-one days prior to November 1, 2025. A portion of the revolving facility not to exceed $35.0 million is available for the issuance of letters of credit. The Credit Facility is unconditionally guaranteed by Dave & Buster’s Holdings, Inc. (“D&B Holdings”), and certain of Dave & Buster’s, Inc.’s (“D&B Inc.”) existing and future wholly owned material domestic subsidiaries serve as guarantors and/or co-borrowers.

As of February 4, 2024, we had letters of credit outstanding of $9.7 million and an unused commitment balance of $490.3 million under the revolving facility. The Credit Facility may be increased through incremental facilities, by an amount equal to the greater of (i) $400.0 million and (ii) 0.75 times trailing twelve-month Adjusted EBITDA, as defined in the Credit Facility, plus additional amounts subject to compliance with applicable leverage ratio and/or interest coverage ratio requirements.

The original interest rates per annum applicable to SOFR term loans were based on a defined SOFR rate (with a floor of 0.50%) plus an additional credit spread adjustment of 0.10%, plus a margin of 5.00%. The original interest rates per annum applicable to SOFR revolving loans (the “Revolving Loans”) were based on a defined SOFR rate (with a floor of 0.50%) plus an additional credit spread adjustment of 0.10%, plus an initial margin of 4.75%. Unused commitments under the revolving facility incur initial commitment fees of 0.50%. After the Company’s third quarter of fiscal 2022, the margin for the Revolving Loans became subject to a pricing grid based on net total leverage, ranging from 4.25% to 4.75%, and commitment fees became subject to a pricing grid based on net total leverage, ranging from 0.30% to 0.50%.

First Amendment to the Credit Facility (the "First Amendment")

On June 30, 2023, D&B Inc entered into the First Amendment with its banking syndicate, which amended the Credit Facility. The First Amendment provided for a new tranche of term loans in an aggregate principal amount of $900.0 million (the “2023 Term B Loans”) which consisted of $843.6 million of 2023 refinancing Term B Loans which refinanced in full the term loans outstanding immediately prior to the First Amendment effective date and $56.4 million of 2023 additional Term B Loans, which were used for general corporate and working capital purposes. The 2023 Term B Loans, which were issued with an original issue discount of 1%, reduced the interest rate margin applicable to term loans and Revolving Loans outstanding under the Credit Facility by 1.25% and otherwise have terms substantially the same as the terms of the existing Term B Loans under the June 29, 2022 Credit Facility. The 2023 Term B Loans could be prepaid at any time, without premium or penalty, but were subject to a prepayment premium of 1.00% (subject to certain exceptions) if certain refinancing of, or amendment to, reduce the all-in-yield of the 2023 Term B Loans was made at any time during the first six months after the First Amendment effective date.

Under the First Amendment, the 2023 Term B Loans bore interest at Term SOFR (plus an additional credit spread adjustment of 0.10%) or ABR (each, as defined in the amended Credit Facility) plus (i) in the case of Term SOFR loans, 3.75% per annum and (ii) in the case of ABR loans, 2.75% per annum. The Revolving Loans bore interest subject to a pricing grid based on net total leverage, at Term SOFR (plus an additional credit spread adjustment of 0.10%) plus a spread ranging from 3.00% to 3.50% per annum or ABR plus a spread ranging from 2.00% to 2.50% per annum. Unused commitments under the revolving facility incur initial commitment fees of 0.30% to 0.50%.

Second Amendment to the Credit Facility (the "Second Amendment")

On January 19, 2024, D&B Inc entered into the Second Facility with its banking syndicate, which amended the Credit Facility. The Second Amendment provides for a new tranche of term loans in an aggregate principal amount of $897.8 million (the “2024 Term B Loans”) which consist of $897.8 million of 2024 refinancing Term B Loans which refinanced in full the 2023 Term B Loans outstanding immediately prior to the Second Amendment effective date. The 2024 Term B Loans reduced the interest rate margin applicable to term loans and Revolving Loans outstanding under the Credit Facility by 0.50%, removed the previously existing 0.10% credit spread adjustment, provided for an additional 0.25% step-down if a rating of B1/B+ or higher from Moody’s and S&P is achieved (which will step back up if such rating

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is subsequently not maintained), and otherwise have terms substantially the same as the terms of the existing 2023 Term B Loans under the First Amendment. The 2024 Term B Loans could be prepaid at any time, without premium or penalty, but were subject to a prepayment premium of 1.00% (subject to certain exceptions) if certain refinancing of, or amendment to, reduce the all-in-yield of the 2024 Term B Loans is made at any time during the first six months after the Second Amendment effective date.

The 2024 Term B Loans bear interest at Term SOFR or ABR (each, as defined in the amended Credit Facility) plus (i) in the case of Term SOFR loans, 3.25% per annum and (ii) in the case of ABR loans, 2.25% per annum. The Revolving Loans bear interest subject to a pricing grid based on net total leverage, at Term SOFR plus a spread ranging from 2.50% to 3.00% per annum or ABR plus a spread ranging from 1.50% to 2.00% per annum. Unused commitments under the revolving facility incur initial commitment fees of 0.30% to 0.50%.

7.625% Senior Secured Notes

During fiscal 2020, the Company issued $550.0 million aggregate principal amount of 7.625% senior secured notes (the “Notes”). Interest on the Notes is payable in arrears on November 1 and May 1 of each year. The Notes mature on November 1, 2025, unless earlier redeemed, and are subject to the terms and conditions set forth in the related indenture. 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. During fiscal 2021, the Company redeemed a total of $110.0 million outstanding principal amount of the Notes. The Company may elect to further redeem the Notes, in whole or in part, at certain specified redemption prices, plus accrued and unpaid interest, at the redemption date.

Interest expense

The following table sets forth our recorded interest expense, net for the periods presented:

[[GREPCENT_TABLE]]
[["","February 4, 2024","","January 29, 2023","","January 30, 2022"],["Interest expense on debt","$","121.8","","","$","77.7","","","$","43.5"],["Interest associated with swap agreements","\u2014","","","4.1","","","7.5"],["Amortization of issue discount and issuance cost","11.8","","","8.5","","","4.2"],["Interest expense on sale-leaseback (1)","1.4","","","\u2014","","","\u2014"],["Interest income","(4.7)","","","(0.6)","","","\u2014"],["Capitalized interest","(2.9)","","","(2.3)","","","(1.3)"],["Total interest expense, net","$","127.4","","","$","87.4","","","$","53.9"]]
[[/GREPCENT_TABLE]]

(1)    See discussion of sale-leaseback transaction at Note 9 to the consolidated financial statements.

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Credit Adjusted EBITDA and Net Total Leverage Ratio

Credit Adjusted EBITDA, a non-GAAP measure, represents Adjusted EBITDA plus certain other items as defined in our Credit Facility. Other adjustments include (i) entertainment revenue deferrals, (ii) the cost of new projects, including store pre-opening costs, (iii) business optimization expenses and other restructuring costs, and (iv) other costs and adjustments as permitted by the debt agreements. We believe the presentation of Credit Adjusted EBITDA is appropriate as it provides additional information to investors about the calculation of, and compliance with, certain financial covenants in the Credit Facility. The following table sets forth a reconciliation of Net income to Credit Adjusted EBITDA for the periods shown:

[[GREPCENT_TABLE]]
[["","Trailing Four Quarters Ended February 4, 2024"],["Net income","$","126.9"],["Add back:"],["Interest expense, net","127.4"],["Loss on debt refinancing","16.1"],["Provision for income taxes","36.2"],["Depreciation and amortization expense","208.5"],["EBITDA","515.1"],["Add back:"],["Share-based compensation (1)","16.0"],["Transaction and integration costs (2)","11.1"],["System implementation costs (3)","9.4"],["Pre-opening costs (4)","18.4"],["Entertainment revenue deferrals (5)","3.1"],["Other items, net (6)","4.0"],["Credit Adjusted EBITDA, a non-GAAP measure","$","577.1"]]
[[/GREPCENT_TABLE]]

(1)Non-cash share-based compensation expense, net of forfeitures, recorded in general and administrative expenses on the consolidated comprehensive income statement.

(2)Transaction and integration costs related to the acquisition and integration of Main Event recorded in general and administrative expenses on the consolidated comprehensive income statement.

(3)System implementation costs represent expenses incurred related to the development and launch of new enterprise resource planning, human capital management and inventory software for our stores and store support teams. These charges are primarily recorded in general and administrative expenses on the consolidated comprehensive income statement.

(4)Represents costs incurred, primarily consisting of occupancy and payroll related expenses, associated with the opening of new stores. These costs are considered a "cost of new projects" as defined in our Credit Facility.

(5)Represents non-cash adjustments to our deferred entertainment revenue liabilities. These costs are considered an "other non-cash charge" as defined in our Credit Facility.

(6)Includes one-time, third-party consulting fees that are not part of our ongoing operations, impairment expenses, and (gain) loss on property and equipment transactions.

The following table provides a calculation of Net Total Leverage Ratio, as defined in our Credit Facility, for the period shown:

[[GREPCENT_TABLE]]
[["","As of and for the Trailing Four Quarters Ended February 4, 2024"],["Credit Adjusted EBITDA (a)","$","577.1"],["Total debt (1)","$","1,293.0"],["Less: Cash and cash equivalents","(37.3)"],["Add: Outstanding letters of credit","9.7"],["Net debt (b)","$","1,265.4"],["Net Total Leverage Ratio (b / a)","2.2","x"]]
[[/GREPCENT_TABLE]]

(1) Amount represents the face amount of debt outstanding, net of unamortized debt issuance costs and debt discount.

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Dividends and Share Repurchases

There were no dividends declared in fiscal 2023 or fiscal 2022.

On March 27, 2023, our Board approved a share repurchase program with an authorization limit of $100.0 million. On April 19, 2023, our Board approved an increase to the authorization limit of $200.0 million for a total of $300.0 million authorized under the program. On September 4, 2023 our Board approved an increase to the authorization limit of $100.0 million for a total of $400.0 million authorized under the program. During fiscal 2023, the Company repurchased 8.49 million shares at an average of $35.35 per share. The remaining dollar value of shares that may be repurchased under the program is $100.0 million as of February 4, 2024.

Future decisions to pay cash dividends or repurchase shares continue to be at the discretion of the Board and will be dependent on our operating performance, financial condition, capital expenditure requirements and other factors that the Board considers relevant.

Cash Flow Summary

The Company ended the year with $527.6 million of liquidity, which included $37.3 million in cash and cash equivalents and $490.3 million available under its $500.0 million revolving credit facility.

The Company can operate with a working capital deficit because cash from sales is usually received before related liabilities for product supplies, labor and services become due. Our operations do not require significant inventory or receivables and we continually invest in our business through the growth of stores and operating improvement additions, which are reflected as non-current assets and not a part of working capital. Based on our current business plan, we believe our cash and cash equivalents combined with expected cash flows from operations, available borrowings under our revolving credit facility and expected payments from landlords should be sufficient not only for our operating requirements but also to enable us, in the aggregate, to finance our capital allocation strategy, including capital expenditures, through at least the next twelve months.

Operating Activities — Cash flow from operations typically provides us with a significant source of liquidity. Our operating cash flows result primarily from cash received from our customers, offset by cash payments we make for products and services, team member compensation, operations, occupancy, and other operating costs. Cash from operating activities is also subject to changes in working capital. Working capital at any specific point in time is subject to many variables, including seasonality, the timing of cash receipts and payments, and vendor payment terms.

Cash flow from operating activities decreased to $364.2 million in fiscal 2023 compared to $444.4 million in fiscal 2022 primarily due to cash income tax refunds received in fiscal 2022 and changes in working capital due to timing of accruals and payments of expenses.

Investing Activities — Cash flow from investing activities primarily reflects capital expenditures. The Company spent $330.2 million in fiscal 2023 compared to $234.2 million in fiscal 2022 for new store construction and operating improvement initiatives, game refreshment and maintenance capital. In addition to these capital expenditures, the Company completed the Main Event Acquisition in fiscal 2022 for $818.7 million. See further discussion of the Main Event Acquisition at Note 2 to the Consolidated Financial Statements.

Financing Activities — Cash flow used in financing activities in fiscal 2023 was $179.4 million primarily attributable to share repurchases of $300.0 million and debt issuance and discount costs incurred, partially offset by proceeds from debt refinancing and borrowings, net of debt repayments, and proceeds from a sale-leaseback transaction. Cash flow from financing activities in fiscal 2022 was $762.9 million primarily attributable to proceeds from debt refinancing and borrowings, net of debt repayments, partially offset by share repurchases, and debt issuance costs incurred.

Contractual and Other Commitments

The Company had the following obligations as of February 4, 2024:

•Long-term debt obligations, including scheduled interest payments (Refer to Note 7 of the Notes to the Consolidated Financial Statements)

•Future minimum lease obligations under non-cancelable leases (Refer to Note 9 of the Notes to the Consolidated Financial Statements)

•Software as a service subscription commitments of approximately $8.0 million to be paid in annual installments of approximately $2.0 million through fiscal 2028.

•Approximately $9.0 million of minimum food purchase commitments through the end of fiscal 2024.

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Critical accounting policies and estimates

The above discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements. The preparation of financial statements in conformity with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosures of contingent assets and liabilities.

Our significant accounting policies are described in Note 1 of Notes to Consolidated Financial Statements. Critical accounting policies are those that we believe are most important to portraying our financial condition and results of operations and require the greatest amount of judgment by management. Judgment or uncertainties regarding the application of these policies may result in materially different amounts being reported under different conditions or using different assumptions. We consider the following policies to be the most critical in understanding the judgment that is involved in preparing the consolidated financial statements.

Accounting for entertainment operations. Entertainment revenues are primarily recognized upon utilization of game play credits on gaming 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. We have deferred a portion of entertainment 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. We estimate the amount of deferred revenue based upon credits and tickets remaining on gaming cards, historic game play credit and ticket utilization patterns and estimates of the standalone selling prices of game play credits and the customer material right. The standalone selling price of the customer material right is estimated using an equivalent chip cost plus margin approach. For purposes of recognizing revenue, the total amount collected from each customer is then allocated between the two performance obligations based on the relative standalone selling price of each obligation.

Accounting for acquisitions. The Company accounts for acquisitions under the acquisition method of accounting, which requires that the acquired assets and liabilities, including contingencies, be recorded at fair value determined on the acquisition date and changes thereafter reflected in income. For significant acquisitions, the Company obtains independent third-party valuation studies for certain of the assets acquired and liabilities assumed to assist the Company in determining fair value. The estimation of the fair values of the assets acquired and liabilities assumed involves a number of estimates and assumptions that could differ materially from the actual amounts realized. The Company provides assumptions, including both quantitative and qualitative information, about the specified asset or liability to the third-party valuation firms so they can assist in determining the fair value of assets and liabilities acquired. The Company then records acquired assets and liabilities at their estimated fair value based on the information provided. The third-party valuation firms are supervised by Company personnel who are knowledgeable about valuations and fair value. The Company evaluates the appropriateness of the assumptions and valuation methodologies utilized by the third-party valuation firms.

Accounting for impairment of goodwill and tradenames. We assess the recoverability of goodwill and indefinite-lived tradename assets related to our reporting units on an annual basis or more often if circumstances or events indicate impairment may exist. We may elect to perform a qualitative assessment to determine whether it is more likely than not that a reporting unit is impaired. In considering the qualitative approach, we evaluate factors including, but not limited to, macro-economic conditions, market and industry conditions, commodity cost fluctuations, competitive environment, share price performance, results of prior impairment tests, operational stability and the overall financial performance of the reporting units.

If the qualitative assessment is not performed or if we determine that it is not more likely than not that the fair value of the reporting unit exceeds the carrying value, the fair value of the reporting unit is calculated. We determine fair value based on a combination of market-based values and discounted projected future operating cash flows of the reporting units using a risk adjusted discount rate that is commensurate with the risk inherent in our current business model. We make assumptions regarding future revenues and cash flows, expected growth rates, terminal values and other factors which could significantly impact the fair value calculations. The carrying value of the reporting unit is compared to its estimated fair value, with any excess of carrying value over fair value deemed to be an indicator of impairment. In the event that these assumptions change in the future, we may be required to record impairment charges related to goodwill.

We consider our Dave & Buster's and Main Event brands to be both our operating segments and reporting units. The carrying value of goodwill as of February 4, 2024 was $742.5 million, of which $272.6 million related to the Dave & Buster's operating segment and $469.9 million related to the goodwill added as a result of the Main Event Acquisition. Additionally, the carrying value of tradenames as of February 4, 2024 was $178.2 million, of which $79.0 million related to the Dave & Buster's operating segment and $99.2 million related to the tradename acquired as a result of the Main Event Acquisition. We performed our annual impairment test in the fourth quarter of fiscal 2023 by utilizing the qualitative approach and determined that there were no events or circumstances to indicate that it was more likely than not that the fair value of our reporting units, or the Dave & Buster's and Main Event tradenames, was less than their carrying values.

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Accounting for impairment of long-lived assets. We assess the potential impairment of our long-lived assets related to each store, including property and equipment and right-of-use assets, on an annual basis or whenever events or changes in circumstances indicate that the carrying values of these assets may not be recoverable. In determining the recoverability of the asset value, an analysis is performed at the individual store level, since this is the lowest level of identifiable cash flows and primarily includes an assessment of historical cash flows and other relevant factors and circumstances, including the maturity of the store, changes in the economic environment, unfavorable changes in legal factors or business climate and future operating plans. The more significant inputs used in determining our estimate of the projected undiscounted cash flows include future revenue growth and projected margins as well as the estimate of the remaining useful life of the assets. If the carrying amount is not recoverable, we record an impairment charge, if any, for the excess of the carrying amount over the fair value, which is estimated based on discounted projected future operating cash flows of the store over the remaining service life using a risk adjusted discount rate that is commensurate with the inherent risk.

Recent accounting pronouncements

Refer to Note 1 to the Consolidated Financial Statements for discussion of new accounting pronouncements.